H/T DUBIN LAW OFFICES

THE BANK OF NEW YORK MELLON, etc., Petitioner,
v.
DIANNE D. GLENVILLE a/k/a DIANE D. GLENVILLE a/k/a DIANE GLENVILLE, et al., Respondents.

Anthony R. Smith, Kathryn I. Kasper, and Kendra J. Taylor of Sirote & Permutt, P.C., Winter Park, Florida, for Petitioner.

Sheryl A. Edwards of The Edwards Law Firm, PL, Sarasota, Florida, for Respondents.

CANADY, C.J.

This case involves a dispute between the former record owners of certain real property and a subordinate lienholder over surplus funds resulting from a judicial foreclosure sale of the property. The crux of the dispute is whether the subordinate lienholder timely filed its claim to the surplus amount under the provisions of chapter 45, Florida Statutes (2015), governing judicial sales. The statute requires that a claim to surplus funds be filed within “60 days after the sale.” The specific issue presented is whether the sixty-day period begins upon the public auction of the property, the clerk’s issuance of the certificate of title, or some other event.

This Court has for review Bank of New York Mellon v. Glenville, 215 So. 3d 1284, 1285 (Fla. 2d DCA 2017), in which the Second District Court of Appeal concluded that, under section 45.031, the subordinate lienholder’s claim was untimely because it was not filed within sixty days of the public auction. In so holding, the Second District certified conflict with Straub v. Wells Fargo Bank, N.A., 182 So. 3d 878, 881 (Fla. 4th DCA 2016), in which the Fourth District Court of Appeal concluded that the sixty-day period does not begin until the clerk issues and files the certificate of title. This Court granted discretionary review based on the certified conflict. This Court has jurisdiction. See art. V, § 3(b)(4), Fla. Const.

We conclude that the sixty-day period begins upon the clerk’s issuance of the certificate of disbursements—something the clerk is tasked with doing “[o]n filing a certificate of title.” § 45.031(7)(a), Fla. Stat. Section 45.032(3), Florida Statutes (2015)—which neither Glenville nor Straub considered—makes clear beyond any doubt that the sixty-day period begins upon issuance of the certificate of disbursements. Accordingly, we quash Glenville. We also disapprove the certified conflict case of Straub to the extent the Fourth District held that the sixty-day period begins upon the issuance of the certificate of title as opposed to the certificate of disbursements.^[1]

I. BACKGROUND

Before presenting the facts and procedural history of Glenville and then discussing Straub, we provide an overview of the general procedures for judicial foreclosure sales.

Judicial Foreclosure Procedures—Generally

Section 45.031, Florida Statutes (2015)—titled “Judicial sales procedure”— as well as certain other sections of the Florida Statutes, address judicial foreclosure sales and set forth the procedures that “may be followed as an alternative to any other sale procedure if so ordered by the court.” § 45.031, Fla. Stat. Under section 45.031, the trial court, “[i]n the order or final judgment,” “shall direct the clerk to sell the property at public sale on a specified day.” § 45.031(1)(a), Fla. Stat. A notice of sale shall then be published at certain times and shall contain certain information, including “[t]he time and place of sale.” § 45.031(2), Fla. Stat. The winning bidder is required to post a deposit “[a]t the time of the sale” and must pay the remaining balance within a prescribed period. § 45.031(3), Fla. Stat. “After a sale of the property,” the clerk is required to “promptly file a certificate of sale.” § 45.031(4), Fla. Stat. “If no objections to the sale are filed within 10 days after filing the certificate of sale,” the clerk is then required to file a “certificate of title.” § 45.031(5), Fla. Stat. Upon the filing of the certificate of title, “the sale shall stand confirmed.” § 45.031(6), Fla. Stat. “On filing a certificate of title,” the clerk is then required to disburse the proceeds “in accordance with the order or final judgment” and file a “certificate of disbursements.” § 45.031(7)(a)-(b), Fla. Stat. “If there are funds remaining after payment of all disbursements required by the final judgment of foreclosure and shown on the certificate of disbursements, the surplus shall be distributed as provided in this section [45.031] and ss. 45.0315-45.035.” § 45.031(7)(d), Fla. Stat.

Section 45.031 was amended in 2006 to require that the final judgment of foreclosure, the notice of sale, and the certificate of disbursements include certain language informing subordinate lienholders and other persons claiming a right to any surplus funds that they must file a claim with the clerk of court within “60 days after the sale.” See ch. 2006-175, § 1, at 2, 3, 5, Laws of Fla. (amending § 45.031(1)(a), (2)(f), (7)(b), Fla. Stat., respectively). Section 45.031 does not define “sale” or “60 days after the sale.” But as the cross-references in section 45.031(7)(d) indicate, other sections of chapter 45 also govern surplus funds. Those other sections include section 45.032, which sets forth detailed requirements and procedures relating to the disbursement of surplus funds. As addressed more fully below, section 45.032 itself prescribes a sixty-day period in the specific context of the filing of claims for surplus funds—a sixty-day period beginning upon the issuance of the certificate of disbursements. See § 45.032(3), Fla. Stat.

Glenville —the Case on Review

Respondents, Diane and Mark Glenville, were the defendant property owners in a foreclosure action. Glenville, 215 So. 3d at 1285 n.1. Petitioner, The Bank of New York Mellon, f/k/a The Bank of New York, as Successor Trustee to JPMorgan Chase Bank, N.A., as Trustee on behalf of the Certificateholders of the CWHEQ, Inc., CWHEQ Revolving Home Equity Loan Trust, Series 2006-D (Mellon), was the holder of a second mortgage on the property. A first mortgage on the property was held by JP Morgan Chase, and a third mortgage on the property was held by Florida Housing Finance Corporation (Florida Housing).

In May 2014, JP Morgan Chase brought a foreclosure action against the Glenvilles, seeking to foreclose its interest under the first mortgage. A Final Judgment of Foreclosure was entered against the Glenvilles on May 28, 2015. The final judgment set a public auction date of July 2, 2015, and—in accordance with section 45.031(1)(a), Florida Statutes—included the requisite statement regarding a potential surplus. The public auction was held on July 2, 2015. The clerk issued the certificate of sale on July 6, 2015, after the holiday weekend. On July 14, 2015, the clerk issued the certificate of title. And on July 29, 2015, the clerk issued the certificate of disbursements, which, in accordance with section 45.031(7)(b), Florida Statutes, included the requisite language regarding surplus funds. The certificate of disbursements reflected a surplus of $86,093.27.

On August 4, 2015, Florida Housing filed a claim asserting its right to $20,573.64 of the surplus amount. On September 1, 2015—sixty-one days after the public auction—the Glenvilles filed a Verified Claim for Mortgage Foreclosure Surplus. In their motion, the Glenvilles admitted that Florida Housing’s claim was timely and requested that the trial court issue an order disbursing $20,573.64 of the surplus to Florida Housing and the remainder to the Glenvilles. The next day, on September 2, 2015, Mellon filed a claim asserting its right to the entire surplus amount. Mellon’s claim was filed more than sixty days after the public auction but within sixty days of the clerk’s filing of each of the following: the certificate of sale, the certificate of title, and the certificate of disbursements. No other relevant claims to the surplus were filed.

On November 2, 2015, the trial court held a hearing on the parties’ competing claims for the surplus. On November 5, 2015, the trial court issued an Order to Disburse Surplus Funds, directing the clerk to disburse $20,573.64 of the surplus to Florida Housing, and the balance to the Glenvilles.^[2] The trial court rejected Mellon’s claim as untimely under section 45.031 because it “was not submitted within 60 days of the foreclosure sale held on July 2, 2015.” Mellon appealed to the Second District, arguing “that a foreclosure sale is not complete until the clerk issues the certificate of sale.” Glenville, 215 So. 3d at 1285. Mellon thus contended that its claim was timely because it was filed within sixty days of issuance of the certificate of sale.

The Second District rejected Mellon’s argument and affirmed the trial court’s order denying Mellon’s claim for surplus funds. Id. The Second District primarily focused on section 45.031(7)(b) and concluded that the statutory provision unambiguously provided that the cutoff for submitting claims for surplus funds is sixty days from the date of the public auction. Id. at 1285-86. The Second District observed that section 45.031(7)(b) “only refers to the `sale,’ not the `certificate of sale,'” and then noted that “section 45.031 assigns particular and distinct meanings to the terms `sale’ and `certificate of sale’ and does not use them interchangeably.” Id. at 1286. For example, the Second District noted that section 45.031(4) uses the two terms separately and distinctly in the same sentence. Id. Thus, according to the Second District, adopting Mellon’s argument would not only render section 45.031(4) meaningless but “confuse the meaning of other subsections of the statute.” Id. The Second District then supported its conclusion by noting that two of its previous decisions used the public auction “as the start date for the sixty-day period.” Id.(citing Mathews v. Branch Banking & Tr. Co., 139 So. 3d 498, 499-500 (Fla. 2d DCA 2014); Dever v. Wells Fargo Bank Nat’l Ass’n, 147 So. 3d 1045, 1047 (Fla. 2d DCA 2014)).

The Second District also rejected a separate argument from Mellon that the sixty-day period should begin from the day the clerk issues the certificate of title. The Second District concluded that Mellon waived that argument by not raising it prior to rehearing. Id.^[3] Nevertheless, the Second District noted that Mellon’s purportedly waived argument was consistent with the Fourth District’s recent decision in Straub, which held that the sixty-day cutoff period begins when the clerk issues and files the certificate of title. Id. at 1287. The Second District then certified conflict with Straub, while opining that Straub‘s construction of the term “sale” “confuses the meaning of several subsections of section 45.031.” Id. (citing § 45.031(1)(a), (2), (3), (5), and (6), Fla. Stat.).

Straub —the Certified Conflict Case

In Straub, the subordinate lienholders filed their claims to the surplus more than sixty days after the public auction and the filing of the certificate of sale, but not more than sixty days after the clerk’s filing of the certificate of title. Straub, 182 So. 3d at 880. The trial court determined that the subordinate lienholders’ claims were timely. Id. at 879. On appeal to the Fourth District, the homeowner argued that the claims were untimely because the sixty-day period in section 45.031 “begins to run when the property is purchased at the auction and the certificate of sale is filed.” Id. at 880. The Fourth District in Straub rejected the homeowner’s argument and concluded—without mentioning the certificate of disbursements—that the sixty-day period begins to run upon the issuance and filing of the certificate of title. Id. at 881. Straub began by noting that the case presented “an issue of first impression under today’s version of section 45.031.” Id. at 880. Straub then looked to Allstate Mortgage Corp. of Florida v. Strasser, 286 So. 2d 201 (Fla. 1973), in which this Court interpreted a previous version of section 45.031. Straub, 182 So. 3d at 880-81.

In Strasser, this Court interpreted the meaning of the term “sale” in section 45.031(1), Florida Statutes (1971), but in the context of the right of redemption. Strasser, 286 So. 2d at 201. The statutory language at issue was added in 1971 and provided as follows: “In cases when a person has an equity of redemption, the court shall not specify a time for the redemption, but the person may redeem the property at any time before the sale.” Id. at 202 (quoting § 45.031(1), Fla. Stat. (1971)). After a default judgment was entered against the property owner in an action to foreclose a mechanic’s lien, the property was sold at public auction. Id. at 201-02. The clerk issued a certificate of sale the day after the auction. Id. at 202. Several days later, before the certificate of title was issued, the circuit court ordered the clerk to accept the property owner’s payment in redemption. Id. at 202, 203. The corporation that purchased the property at public auction appealed the trial court’s order. Id. at 202. On appeal, the Third District Court of Appeal affirmed the trial court, concluding that the Legislature intended the term “sale” to refer to the actual transfer of ownership that takes place upon the issuance of the certificate of title. Id. at 202-03. The Third District first noted that the 1971 statutory amendment was in derogation of the common law right to redeem property up until the entry of an order confirming the sale and thus must be strictly construed. Id. at 202. The Third District then noted that the Legislature neither defined the term “sale” nor indicated its intended meaning, so the Third District looked to various definitions before concluding that the Legislature intended the term “sale” to refer to the actual transfer of ownership. Id. at 202-03. And the Third District observed that, under section 45.031(3), Florida Statutes (1971), the transfer of ownership takes place upon the issuance of the certificate of title. Id. at 203. On review, this Court affirmed the decision of the Third District by quoting the Third District’s analysis and then concluding that the district court “correctly interpreted” section 45.031(1), Florida Statutes (1971). Id.

After reviewing Strasser, the Fourth District in Straub concluded that Strasser‘s reasoning should control the interpretation of the term “sale” in “today’s version of [section 45.031]”—that is, the transfer of ownership completed upon filing of the certificate of title. Straub, 182 So. 3d at 881. Straub recognized that the Legislature had partially superseded Strasser in 1993 by enacting section 45.0315, which codified the right of redemption and provided that the property could be redeemed at “any time before the later of the filing of a certificate of sale by the clerk of the court or the time specified in the judgment, order, or decree of foreclosure.” Id.(quoting § 45.0315, Fla. Stat. (2014)). But Straub concluded that the Legislature merely “created a specific window for exercising the right of redemption” and that nothing in the enactment of section 45.0315 suggested that the Legislature “intended to change the plain meaning of the word `sale’ used elsewhere in the statute.” Id.

II. ANALYSIS

The certified conflict issue presented in this case requires us to construe the term “60 days after the sale,” as used in section 45.031, Florida Statutes (2015). This issue is one of statutory interpretation, which is a pure question of law that this Court reviews de novo. See Borden v. E.-European Ins. Co., 921 So. 2d 587, 591 (Fla. 2006).

In 2006, in an apparent response to the growing number of foreclosure sales that were resulting in surplus amounts, the Legislature amended chapter 45, Florida Statutes, by enacting “[a]n act relating to foreclosure proceedings.” Ch. 2006-175, Laws of Fla. (title). As indicated above, the 2006 act amended section 45.031 to require that certain statements regarding potential surplus amounts be included in the final judgment of foreclosure, the notice of sale, and the certificate of disbursements. See ch. 2006-175, § 1, at 1-6, Laws of Fla. The 2006 act also created several new statutory sections within chapter 45 to specifically address foreclosure surplus funds. And the 2006 act amended existing section 45.031(7) to add paragraph (d) to directly cross-reference those new statutory sections. See ch. 2006-175, § 1, at 6, Laws of Fla. Namely, section 45.031(7)(d), Florida Statutes (2015), provides that “[i]f there are funds remaining after payment of all disbursements required by the final judgment of foreclosure and shown on the certificate of disbursements, the surplus shall be distributed as provided in this section [45.031] and ss. 45.0315-45.035.”^[4] The newly created statutory sections include section 45.032, titled “Disbursement of surplus funds after judicial sale.”

Because we find section 45.032—and in particular subsection 45.032(3)—to be dispositive of the conflict issue, we begin by examining the relevant provisions of section 45.032. We then explain why section 45.032(3) requires the conclusion that the sixty-day period in section 45.031(7)(b)—and elsewhere in section 45.031—begins to run upon the issuance of the certificate of disbursements.

Section 45.032

As an initial matter, section 45.032(1) defines certain terms that apply not just for purposes of section 45.032 but “[f]or purposes of ss. 45.031-45.035.” Section 45.032(1)(c) specifically defines the term “surplus” to mean “the funds remaining after payment of all disbursements required by the final judgment of foreclosure and shown on the certificate of disbursements.” (Emphasis added.)

Among other things, section 45.032(2) then “establishe[s] a rebuttable legal presumption that the owner of record on the date of the filing of a lis pendens is the person entitled to surplus funds after payment of subordinate lienholders who have timely filed a claim.” (Emphasis added.)

Section 45.032(3) then references a very specific sixty-day period: “During the 60 days after the clerk issues a certificate of disbursements, the clerk shall hold the surplus pending a court order.” (Emphasis added.) Each of the three paragraphs in subsection (3) go on to reference this sixty-day period in the specific context of the filing of claims for surplus funds. Paragraph (a) provides, in part, as follows: “If the owner of record claims the surplus during the 60-day period and there is no subordinate lienholder, the court shall order the clerk to deduct any applicable service charges from the surplus and pay the remainder to the owner of record.” § 45.032(3)(a), Fla. Stat. (emphasis added). Paragraph (b) then provides, in part, as follows:

If any person other than the owner of record claims an interest in the proceeds during the 60-day period or if the owner of record files a claim for the surplus but acknowledges that one or more other persons may be entitled to part or all of the surplus, the court shall set an evidentiary hearing to determine entitlement to the surplus.

§ 45.032(3)(b), Fla. Stat. (emphasis added). Finally, paragraph (c) provides, in part, that “[i]f no claim is filed during the 60-day period, the clerk shall appoint a surplus trustee from a list of qualified surplus trustees as authorized in s. 45.034.” § 45.032(3)(c), Fla. Stat. (emphasis added).^[5]

Lastly, the Legislature made clear that disputes over surplus funds have no bearing on the validity of the foreclosure sale itself and “do not in any manner affect or cloud the title of the purchaser at the foreclosure sale of the property.” § 45.032(5), Fla. Stat.

Statutory Interpretation

In concluding that the sixty-day period referenced in section 45.031 is triggered by the public auction, the Second District in Glenville did not take into account the specific sixty-day period identified in section 45.032(3). Instead, the Second District focused largely on what it considered to be a clear meaning of section 45.031(7)(b) that avoided confusing the meaning of other subsections of section 45.031. Glenville, 215 So. 3d at 1286-87. Similarly, the Glenvilles point to numerous instances in section 45.031 in which the term “sale” refers to the public auction, and they appear to urge this Court to follow the principle that presumes “that when the legislature uses the same term multiple times in the same statute, that term carries the same meaning each time it is used.” Nat’l Auto Serv. Centers, Inc. v. F/R 550, LLC, 192 So. 3d 498, 507 (Fla. 2d DCA 2016) (citing Rollins v. Pizzarelli, 761 So. 2d 294, 298 (Fla. 2000)). On the other hand, Mellon’s various arguments can be summed up as follows: in no event should the sixty-day period begin before the issuance of the certificate of sale.

We agree with Mellon that the sixty-day period is not triggered by the public auction. In doing so, we conclude that the sixty-day period in section 45.031(7)(b) must be understood in a way that is consistent with the sixty-day period in section 45.032(3). Ultimately, there cannot be two different sixty-day cutoff periods for filing claims for surplus funds.

As with any matter involving an issue of statutory interpretation, courts must first look to the actual language of the statute and “examine the statute’s plain meaning.” Lopez v. Hall, 233 So. 3d 451, 453 (Fla. 2018). “When the language of the statute is clear and unambiguous and conveys a clear and definite meaning, there is no occasion for resorting to the rules of statutory interpretation and construction; the statute must be given its plain and obvious meaning.” A.R. Douglass, Inc., v. McRainey, 137 So. 157, 159 (Fla. 1931). Here, the Second District concluded that the meaning of the term “sale” as used in section 45.031(7)(b) clearly and unambiguously referred to the public auction, given the Legislature’s use of the same term in “other subsections of the statute.” Glenville,215 So. 3d at 1286 (emphasis added). But the Second District stopped short in its consideration of relevant provisions of the statutory scheme for judicial sales. This Court has long recognized that the “plain language” approach

is subject to the qualification that if a part of a statute appears to have a clear meaning if considered alone but when given that meaning is inconsistent with other parts of the same statute or others in pari materia, the Court will examine the entire act and those in pari materia in order to ascertain the overall legislative intent.

When construing a particular part of a statute it is only when the language being construed in and of itself is of doubtful meaning or doubt as to its meaning is engendered by apparent inconsistency with other parts of the same or a closely related statute that any matter extrinsic the statute may be considered by the Court in arriving at the meaning of the language employed by the Legislature.

Fla. State Racing Comm’n v. McLaughlin, 102 So. 2d 574, 575-76 (Fla. 1958)(emphasis omitted) (quoting lower court’s order).

Section 45.032 is “closely related” to section 45.031. Id. at 576. The two sections are manifestly designed to work in tandem. Not only was section 45.032 created in the same legislation in 2006 that added the statutory language at issue to section 45.031, but that legislation also amended section 45.031 to create two separate cross-references to section 45.032 and other related sections of chapter 45, including a cross-reference in the specific context of foreclosure surpluses. See § 45.031(7)(d), Fla. Stat. The two statutory provisions are without doubt part of the same statutory scheme—that is, they are in pari materia, “in the same matter.”

So looking to section 45.032 to understand the meaning of section 45.031 is proper because section 45.031, section 45.032, and several other sections of chapter 45 together comprise a statutory scheme relating to judicial foreclosure sale procedures. See Sch. Bd. of Palm Beach Cty. v. Survivors Charter Sch., Inc.,3 So. 3d 1220, 1234 (Fla. 2009) (“[B]ecause we are dealing with an entire statutory scheme for granting and terminating charters, we do not look at only one portion of the statute in isolation but we review the entire statute to determine intent.”). In the end, looking to section 45.032 “is in accord with the principle that we `give full effect to all statutory provisions and construe related statutory provisions in harmony with one another.'” Id. (quoting Heart of Adoptions, Inc. v. J.A., 963 So. 2d 189, 199 (Fla. 2007)). A harmonization of section 45.031 and section 45.032 leads to the conclusion that the sixty-day period for the filing of claims to surplus funds begins upon the issuance of the certificate of disbursements—that is, after the sale has been confirmed through the issuance of the certificate of title, and after the actual surplus amount has been determined. See §§ 45.031(6), 45.032(1)(c), Fla. Stat. We thus disagree with Glenville‘s conclusion that the only reasonable interpretation of “60 days after the sale” as used in section 45.031 is that it means sixty days from the public auction.

Our case law has already recognized that the term “sale” in chapter 45 must be understood in light of the specific context in which it is used. In Strasser we examined a previous version of section 45.031 and concluded that the undefined term “sale” in the specific context there referred to the transfer of ownership occurring upon the filing of the certificate of title. See Strasser, 286 So. 2d at 202-03. The point established in Strasser is underlined by the fact that the term “sale” is undefined not just in section 45.031 but in all of chapter 45, and there are other related instances in chapter 45 in which the term cannot be understood to mean the public auction itself. For example, section 45.0315, which addresses the right of redemption, provides that certain persons “may cure the mortgagor’s indebtedness and prevent a foreclosure sale” “[a]t any time before the later of the filing of a certificate of sale by the clerk of the court or the time specified in the judgment, order, or decree of foreclosure.” (Emphasis added.) In other words, a “sale” can still be “prevent[ed]” even after the public auction.

Interpretation of the sixty-day provision of section 45.031(7)(b) in light of the sixty-day provision of section 45.032(3) is also supported by the rule that “a specific statute covering a particular subject area always controls over a statute covering the same and other subjects in more general terms.” McKendry v. State, 641 So. 2d 45, 46 (Fla. 1994). Section 45.031 is clearly the more general statute. Section 45.031 is generally titled “Judicial sales procedure” and covers far more than foreclosure surpluses. Section 45.032, on the other hand, is specifically titled “Disbursement of surplus funds after judicial sale” and solely addresses foreclosure surpluses. Indeed, the very definition of the term “surplus” is found in section 45.032. Under this Court’s longstanding approach to statutory interpretation, section 45.032(3) controls the relevant sixty-day period.

Our reasoning regarding the conflict issue also requires that we disapprove the reasoning of Straub. Straub correctly determined that the sixty-day cutoff period does not begin until after the actual transfer of ownership of the property, but Straub erroneously concluded that the sixty-day period begins upon the issuance of the certificate of title. Although the Legislature may have contemplated that the certificate of disbursements would be issued on the same day as the certificate of title, see § 45.031(7)(a), Fla. Stat. (requiring the clerk to file the certificate of disbursements “[o]n filing a certificate of title”), that will not always be the case, as Glenville demonstrates. And section 45.032(3) provides that the actual triggering event is the issuance of the certificate of disbursements.

III. CONCLUSION

We conclude that “60 days after the sale,” as used in chapter 45 in the context of claims to surplus funds, means sixty days after the clerk issues the certificate of disbursements. Mellon’s claim to the surplus was timely filed before the expiration of that sixty-day period. Accordingly, we quash the Second District’s decision in Glenville. And we disapprove the reasoning of Straub, which is inconsistent with our reasoning here.

It is so ordered.

PARIENTE, QUINCE, POLSTON, LABARGA, and LAWSON, JJ., concur. LEWIS, J., concurs in result.

NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION AND, IF FILED, DETERMINED.

[1] We note that during the most recent legislative session, the Legislature passed Committee Substitute for Committee Substitute for House Bill 1361. Among other things, the bill amends sections 45.031 and 45.032, as well as certain related sections of the Florida Statutes, to revise (lengthen) the time period within which subordinate lienholders and other persons must file a claim to the surplus amount. The bill, which provides for an effective date of July 1, 2019, was signed by Governor Scott on March 21, 2018. See ch. 2018-71, Laws of Fla. We do not address this legislation.

[2] The trial court’s order reflects a surplus of $90,564.93, as opposed to the $86,093.27 surplus amount reflected in the certificate of disbursements. The actual amount of the surplus is not relevant to the legal issue presented in this case.

[3] The Second District also rejected Mellon’s reliance on certain cases that involved “a mortgagor’s right of redemption, which is governed by section 45.0315, not section 45.031.” Glenville, 215 So. 3d at 1287.

[4] Section 45.0315, which addresses the right of redemption, is the only cross-referenced section that was in existence before the effective date of the 2006 act.

[5] “Surplus trustees” are third-party trustees who must be approved by the Department of Financial Services and whose primary duty “is to locate the owner of record within 1 year after appointment.” See§ 45.034(1), (6), Fla. Stat.

Palm Beach Post-

David Silva didn’t believe he deserved the $25 late fee when his condo switched property managers and his $282 maintenance check for June 2015 wasn’t deposited. He still doesn’t.

He paid the maintenance bill when he found out that August it was overdue. But by this year, the late fee and the ones that came after it, which he wouldn’t pay, had metastasized into $50,000 of additional late fees, interest and attorney charges for a two-day trial. A county judge’s Feb. 5 ruling puts the retired New York state trooper in jeopardy of losing his $340,000 townhome to the Ventura Greens at Emerald Dunes Condominium Association through foreclosure, if he doesn’t pay in full.

H/T Dubin Law Offices

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(Nevada)
—-

ANTOINETTE ROSSETTA,
Plaintiff and Appellant,
v.
CITIMORTGAGE, INC. et al.,
Defendants and Respondents.

Date: 12-18-2017

Case Style: Antoinette Rossetta v. Citimortgage, Inc.

Case Number: C078916

Judge: Renner

Court: California Court of Appeals Third Appellate District on appeal from the Superior Court, Nevada County

Plaintiff’s Attorney: Danny A. Barak and Jonathan A. Sanders

Defendant’s Attorney: Aldridge Pite, Duncun Peterson, Christopher L. Peterson, Danielle M. Graham and
Cuong M. Nguyen

Description: Plaintiff Antoinette Rossetta appeals from a judgment dismissing her second
amended complaint1 after the trial court sustained a demurrer by defendants
CitiMortgage, Inc. (CitiMortgage) and U.S. Bank National Association as Trustee for
Citicorp Residential Trust Series 2006-1 (2006-1 Trust). The complaint asserts causes of
action for intentional misrepresentation, negligent misrepresentation, breach of contract,
promissory estoppel, negligence, intentional infliction of emotional distress, and unlawful
business practices in violation of the Unfair Competition Law arising from loan
modification negotiations spanning more than two years. Rossetta also appeals from the
trial court’s dismissal of a cause of action for conversion that appeared in an earlier
iteration of the complaint to which CitiMortgage and the 2006-1 Trust (collectively,
CitiMortgage, unless otherwise indicated) also successfully demurred.
We conclude (1) the trial court erred in sustaining the demurrer to the causes of
action for negligence and violations of the Unfair Competition Law, (2) the trial court
properly sustained the demurrer to the causes of action for intentional misrepresentation
and promissory estoppel, but should have granted leave to amend to give Rossetta an
opportunity to state a viable cause of action based on an alleged oral promise to provide
her with a Trial Period Plan (TPP) under the Home Affordable Mortgage Program
(HAMP) in April 2012, and (3) the trial court properly sustained the demurrer to the
causes of action for negligent misrepresentation, breach of contract, intentional infliction
of emotional distress and conversion without leave to amend. Accordingly, we affirm in
part and reverse in part.
1 Unless otherwise indicated, all subsequent references to the “complaint,” are to the
second amended complaint filed on August 11, 2014.
2

I. BACKGROUND
A. The Loan and Deed of Trust
Rossetta purchased a home in Grass Valley in 2001. She refinanced the purchase
through American Brokers Conduit (ABC) in 2005.
2 The new loan was secured by a
deed of trust designating Mortgage Electronic Registration Systems, Inc. (MERS) as the
beneficiary acting as the nominee for ABC and ABC’s successors and assigns.3 The loan
was subsequently sold to CitiMortgage.4
Although CitiMortgage started accepting Rossetta’s mortgage payments in March
2006, MERS did not record an assignment of deed of trust until October 12, 2012. As we
shall discuss, Rossetta challenges the assignment of the deed of trust.
B. Rossetta Defaults
Rossetta was laid off from her job on or about March 1, 2010. Approximately two
weeks later, she learned she had a recurrence of breast cancer. Rossetta made complete
payments on her mortgage during this difficult period using severance pay from her
former job. In May 2010, Rossetta contacted CitiMortgage to discuss other options.
According to the complaint, Rossetta “was told that [CitiMortgage] would be unable to
2 ABC is not a party to this appeal.
3 “ ‘MERS is a private corporation that administers a national registry of real estate debt
interest transactions. Members of the MERS System assign limited interests in the real
property to MERS, which is listed as a grantee in the official records of local
governments, but the members retain the promissory notes and mortgage servicing rights.
The notes may thereafter be transferred among members without requiring recordation in
the public records. [Citation.] [¶] Ordinarily, the owner of a promissory note secured by
a deed of trust is designated as the beneficiary of the deed of trust. [Citation.] Under the
MERS System, however, MERS is designated as the beneficiary in deeds of trust, acting
as “nominee” for the lender, and granted the authority to exercise legal rights of the
lender.’ ” (Saterbak v. JPMorgan Chase, N.A. (2016) 245 Cal.App.4th 808, 816, fn. 6.)
4 The operative complaint alleges that CitiMortgage was “the servicer of the Subject
Loan.”
3

assist her unless she was at least three months delinquent in her monthly mortgage
payments, and thus in default.”
Rossetta went into default in June 2010. Around the same time, she executed a
power of attorney authorizing her fiancé, Brian Roat, to act on her behalf.
C. Rossetta Attempts to Secure a Loan Modification
Rossetta or Roat telephoned CitiMortgage in July 2010. Either Rosetta or Roat
spoke with a CitiMortgage representative named Brian (last name unknown) or Charlie
Welch. The representative told Rossetta or Roat that “nothing could be done to assist
[Rossetta] with a HAMP loan modification until she was three months delinquent and
therefore in [d]efault.”5 On July 23, 2010, Rossetta received a letter from CitiMortgage
stating she was not eligible for a HAMP modification because “ ‘default is not
imminent.’ ” By then, however, Rossetta was already in default, and had even received
correspondence to this effect from CitiMortgage.
Roat telephoned CitiMortgage again on August 1, 2010. A customer service
representative collected basic information from Roat and informed him that Rossetta may
now qualify for a HAMP modification. The following day, Rossetta received an
electronic communication from CitiMortgage regarding a permanent loan modification.
The complaint describes the communication as an email, and attaches a copy as Exhibit
B.
The complaint alleges: “[Rossetta] has attached as Exhibit ‘B’ an email from
[CitiMortgage] stating the specific terms of the permanent loan modification agreement.”
Elsewhere, the complaint alleges: “[O]n August 2, 2014[,] [CitiMortgage] emailed
[Rossetta that] the terms of the permanent loan modification were as follows: (1) 480
month term; (2) .02% interest rate; (3) a principal reduction in the amount of $95,477.81.
5 We describe the relevant features of HAMP below.
4

(See Exhibit ‘B’). The email also stated that the loan modification documents were being
sent to [Rossetta].” As we shall discuss, Exhibit B does not support Rossetta’s
characterization.
On August 3, 2010, Rossetta spoke with Helen, a CitiMortgage representative who
declined to give her last name. The complaint is ambiguous as to what, precisely, Helen
said. At one point, the complaint suggests that Helen told Rossetta “she was approved
for a trial plan modification and a permanent loan modification upon successful
completion of the trial plan payments.” Later, the complaint suggests that Helen told
Rossetta she “would be approved for a permanent loan medication [sic] upon completion
of the trial modification plan payments/repayment plan payments.” Later still, the
complaint suggests that Helen told Rossetta “she was approved for a HAMP loan
modification.”
On August 9, 2010, CitiMortgage sent Rossetta a letter stating, in part: “Your
request for a repayment plan has been approved.” The letter attaches an agreement
contemplating three monthly payments of $1,209 for September, October and November
2010. Rossetta agreed to the terms of the repayment plan on August 15, 2010. Neither
the letter nor accompanying agreement makes any mention of HAMP or any other loan
modification program. Nevertheless, the complaint alleges that Rossetta believed she
would receive a permanent loan modification upon completion of the repayment plan.
Rossetta made the three monthly payments contemplated by the repayment plan.
She did not receive a permanent loan modification. When Rossetta approached
CitiMortgage, she was told to continue making monthly payments of $1,209.
On January 3, 2011, Rossetta received a letter from CitiMortgage stating that her
application for a HAMP modification had been denied for failure to provide necessary
documentation. Rossetta alleges she provided all requested documents. She also alleges
that CitiMortgage lost or mishandled her loan modification application, causing
significant delays and increasing fees and penalties.
5
Around this time, Roat spoke with an unidentified CitiMortgage representative
and learned that Rossetta’s application was denied because she failed to produce a
statement from the State of California declaring her permanently disabled. Rossetta
contends the State of California does not issue such a statement, adding that
“[CitiMortgage] requested a nonexistent document to further delay the process and
frustrate [Rossetta].”
Rossetta entered into forbearance agreements with CitiMortgage in January and
February 2011. She applied for another HAMP modification in July 2011. Rossetta
alleges that CitiMortgage requested the same documents over and over again, confirming
her suspicion that application materials had been misplaced or mishandled. Among other
things, Rossetta notes that CitiMortgage demanded she produce her entire loan
application on two separate occasions, requesting duplicates of other previously
submitted documents by fax. Rossetta alleges she promptly responded to all such
requests. She further alleges that CitiMortgage lost or mishandled her documents,
delaying the loan modification process and causing her harm.
Rossetta’s personal circumstances changed during the pendency of the application.
Specifically, she stopped receiving disability insurance and began receiving
unemployment insurance. As a result, CitiMortgage demanded that Rossetta submit a
new application and supporting documents. Rossetta complied and submitted the
requested documents on October 12, 2011.
On November 1, 2011, Rossetta returned to work at a reduced salary. Once again,
the change in circumstances prompted a demand for additional documents. Once again,
Rossetta complied.
On January 18, 2012, Rossetta received a letter stating that her application for a
HAMP modification had been denied. This time, Rossetta was told that she had an
excessive forbearance amount ($33,000) on her account. Rossetta alleges the forbearance
6
amount would have been significantly less had she been given a permanent loan
modification “over a year earlier as had been represented.”
Rossetta continued to seek mortgage relief. On April 6, 2012, Roat spoke with
CitiMortgage representative Konnor Sincox. According to the complaint, Sincox told
Roat that Rossetta “was approved for another trial loan modification and that upon
completion, [she] would receive a permanent loan modification with a 2% fixed interest
rate for five years and a principal reduction.” Elsewhere, the complaint alleges that
Sincox represented that Rossetta “had been approved for another trial loan modification
and that she would receive it as soon as the loan modification application and required
documents were received from [her].” Although Sincox did not specifically say so,
Rossetta believed she would be receiving a trial period plan under HAMP (HAMP TPP),
as she had previously been under consideration for a HAMP modification. According to
the complaint, “Sincox indicated that the loan modification documentation would not be
provided in advance, but rather, would come after the trial payment period.”
Following Roat’s conversation with Sincox, Rossetta once again sent the
requested documents. Despite Roat’s conversation with Sincox, CitiMortgage never sent
Rossetta a HAMP TPP or permanent loan modification agreement. According to the
complaint, Rossetta and Roat continued their effort to obtain a permanent loan
modification for the rest of the year, without success. Rossetta filed for bankruptcy
protection in December 2012.
D. Assignment of Deed of Trust
On October 12, 2012, MERS assigned its interest in the deed of trust to
CitiMortgage. Approximately one year later, Rossetta commissioned a “forensic audit”
of the loan. According to the complaint, “[t]he audit revealed that the Assignment of
Deed of Trust to [d]efendant [CitiMortgage] was invalid as void because the [2006-1
Trust] had a closing date of August 30, 2006.” Although the first amended complaint and
second amended complaint identify the 2006-1 Trust as a “purported beneficiary of the
7
[s]ubject [l]oan,” neither pleading alleges that CitiMortgage or any other entity ever
attempted to assign the loan to the 2006-1 Trust.
CitiMortgage assigned the deed of trust to U.S Bank National Association, as
Trustee for Prof-2013-M4 REMIC Trust I (M4 REMIC Trust 1) on April 1, 2012.
Rossetta challenges the assignment from CitiMortgage to the M4 REMIC Trust 1 on the
sole ground that the earlier assignment from MERS to CitiMortgage was void.
E. The Instant Action
Rossetta commenced this action against CitiMortgage and its successor in interest,
Fay Servicing, LLC (Fay) on January 27, 2014.6 Rossetta filed a first amended
complaint on April 24, 2014. The first amended complaint asserted causes of action for
intentional misrepresentation, negligent misrepresentation, breach of contract, promissory
estoppel, negligence, intentional infliction of emotional distress, conversion, violations of
the Unfair Competition Law and conspiracy. The first amended complaint also sought
declaratory relief.7 CitiMortgage demurred.
The trial court sustained the demurrer without leave to amend as to the cause of
action for conversion and request for declaratory relief, both of which were based on the
allegation that the assignment of the deed of trust to CitiMortgage was void. The trial
court sustained the demurrer to Rossetta’s remaining causes of action with leave to
amend, observing:
6 During the pendency of this appeal, the parties filed a stipulation and request for
dismissal as to Fay and M4 REMIC Trust 1, which we have granted.
7 “Conspiracy is not a cause of action, but a legal doctrine that imposes liability on
persons who, although not actually committing a tort themselves, share with the
immediate tortfeasors a common plan or design in its perpetration.” (Applied Equipment
Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 510-511.)
8

“[T]he tenor of the demurrer is not so much what the pleading says, as what it
does not. Plaintiff’s counsel, who successfully prevailed in Bushell v. JPMorgan Chase
Bank, N.A. (2013) 220 Cal.App.4th 915 [(Bushell)], cited by them in their opposition, is
certainly conversant about the requirements of pleading a similar case such as this one.
Notwithstanding, the allegations here fail to properly differentiate between and/or
connect the trial payment plans and forbearance agreements alleged with HAMP
modification, rendering analysis incomplete because the parties and court cannot
determine if, for example, the Bushell / West [v. JPMorgan Chase Bank, N.A. (2013) 214
Cal.App.4th 780 (West)] line of cases applies (HAMP cases) or whether the analysis must
be done without reference to HAMP under traditional common law principles. As argued
by the defendants, forbearance plans do not create a binding contract for modification.
Of course, this Court cannot determine whether such obscurity is intentional or
inadvertent. However, in permitting amendment, the Court can state its expectation that
plaintiff clearly set forth the context of each representation and agreement in any further
pleading, or risk suffering the conclusion that further amendment would be pointless.”
(Italics added.)
Rossetta filed the operative complaint on August 11, 2014. As noted, the
complaint asserts causes of action for intentional misrepresentation, negligent
misrepresentation, breach of contract, promissory estoppel, negligence, intentional
infliction of emotional distress, violations of the Unfair Competition Law, and
conspiracy. CitiMortgage demurred to the complaint on September 15, 2014. The trial
court sustained the demurrer without leave to amend. This appeal followed.
II. DISCUSSION
A. Home Affordable Mortgage Program
We begin with an overview of HAMP, which informs our analysis of the
complaint. “As authorized by Congress, the United States Department of the Treasury
implemented [HAMP] to help homeowners avoid foreclosure during the housing market
9
crisis of 2008. ‘The goal of HAMP is to provide relief to borrowers who have defaulted
on their mortgage payments or who are likely to default by reducing mortgage payments
to sustainable levels, without discharging any of the underlying debt.’ ” (West, supra,
214 Cal.App.4th at p. 785.) Under HAMP, qualifying homeowners may obtain
permanent loan modifications that reduce their mortgage payments. (Bushell, supra, 220
Cal.App.4th at p. 923.) Lenders receive incentives from the government for each HAMP
modification. (Id. at p. 923.)
HAMP Supplemental Directive No. 09-01, issued by the Department of the
Treasury, sets forth eligibility requirements and modification procedures under HAMP.
(U.S. Depart. Treasury, HAMP Supplemental Directive No. 09-01 (Apr. 6, 2009) pp. 2-
18 (Supplemental Directive 09-01).) Lenders must perform HAMP loan modifications in
accordance with Treasury Department regulations. (West, supra, 214 Cal.App.4th at p.
787; see also Wigod v. Wells Fargo Bank, N.A. (7th Cir. 2012) 673 F.3d 547, 556
(Wigod).)
Under Supplemental Directive 09-01, the lender initially determines whether a
borrower satisfies certain threshold requirements regarding the amount of the loan
balance, monthly payment, and owner occupancy. (West, supra, 214 Cal.App.4th at pp.
787-788; Wigod, supra, 673 F.3d at pp. 556-557, 565; Supplemental Directive 09-01,
supra, pp. 2-5, 8-10, 14-18.) Once the lender determines that the borrower qualifies for
HAMP (assuming the borrower’s representations remain accurate), the lender implements
a two stage process. (Rufini v. CitiMortgage, Inc. (2014) 227 Cal.App.4th 299, 306
(Rufini); Bushell, supra, 220 Cal.App.4th at p. 923.) In the first stage, the lender (1)
provides the borrower with a HAMP TPP setting forth trial payment terms, (2) instructs
the borrower to sign and return the HAMP TPP and other documents, and (3) requests the
first trial payment. (Bushell, supra, at p. 924.) In the second stage, if the borrower has
made all required trial payments and complied with all of the HAMP TPP’s other terms,
and if the borrower’s representations remain correct, the lender must offer the borrower a
10
permanent loan modification. (Id. at pp. 924-925; West, supra, at pp. 786, 788; Wigod,
supra, at p. 557.) If the lender does not do so, the borrower may sue the lender for breach
of contract and related causes of action. (Bushell, supra, at pp. 928-931.)
B. Standard of Review
“A general demurrer searches the complaint for all defects going to the existence
of a cause of action and places at issue the legal merits of the action on assumed facts.”
(Carman v. Alvord (1982) 31 Cal.3d 318, 324.) On appeal from the sustaining of a
demurrer without leave to amend, we must consider two issues: the sufficiency of the
operative pleading and the plaintiff’s ability to amend.
1. Sufficiency of the Pleading
To assess the pleading’s sufficiency, “we independently review the complaint to
determine whether the facts alleged state a cause of action under any possible legal
theory.” (Berger v. California Ins. Guarantee Assn. (2005) 128 Cal.App.4th 989, 998;
see Buller v. Sutter Health (2008) 160 Cal.App.4th 981, 986.) We will affirm “if proper
on any grounds stated in the demurrer, whether or not the court acted on that ground.”
(Carman v. Alvord, supra, 31 Cal.3d at p. 324.) On appeal, “the plaintiff bears the
burden of demonstrating that the trial court erred” in sustaining the demurrer. (Cantu v.
Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 879.)
“In reviewing the sufficiency of a complaint against a general demurrer, we are
guided by long-settled rules. ‘We treat the demurrer as admitting all material facts
properly pleaded, but not contentions, deductions or conclusions of fact or law.’ ” (Blank
v. Kirwan (1985) 39 Cal.3d 311, 318; accord, Schifando v. City of Los Angeles (2003) 31
Cal.4th 1074, 1081.) In addition to the complaint’s allegations, we consider matters
subject to judicial notice. (Blank v. Kirwan, supra, at p. 318; Schifando v. City of Los
Angeles, supra, at p. 1081; Code Civ. Proc., § 430.30.) We also consider exhibits
incorporated into a complaint. (Dodd v. Citizens Bank of Costa Mesa (1990) 222
Cal.App.3d 1624, 1627; 108 Holdings, Ltd. v. City of Rohnert Park (2006) 136
11
Cal.App.4th 186, 193.) “If facts appearing in the exhibits contradict those alleged [in the
complaint], the facts in the exhibit take precedence.” (Holland v. Morse Diesel Internat.,
Inc. (2001) 86 Cal.App.4th 1443, 1447, superseded by statute on other grounds as stated
in White v. Cridlebaugh (2009) 178 Cal.App.4th 506, 521; see also Dodd v. Citizens
Bank of Costa Mesa, supra, 222 Cal.App.3d at p. 1627 [“[F]acts appearing in exhibits
attached to the complaint will also be accepted as true and, if contrary to the allegations
in the pleading, will be given precedence”].)
In undertaking our independent review, “we give the complaint a reasonable
interpretation, reading it as a whole and its parts in their context.” (Blank v. Kirwan,
supra, 39 Cal.3d at p. 318; see Schifando v. City of Los Angeles, supra, 31 Cal.4th at
p. 1081.) “If the complaint states a cause of action under any theory, regardless of the
title under which the factual basis for relief is stated, that aspect of the complaint is good
against a demurrer.” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26,
38.)
2. Leave to Amend
“If the court sustained the demurrer without leave to amend, as here, we must
decide whether there is a reasonable possibility the plaintiff could cure the defect with an
amendment.” (Schifando v. City of Los Angeles, supra, 31 Cal.4th at p. 1081.) “The
burden of proving such reasonable possibility is squarely on the plaintiff.” (Blank v.
Kirwan, supra, 39 Cal.3d at p. 318.)
“As a general rule, if there is a reasonable possibility the defect in the complaint
could be cured by amendment, it is an abuse of discretion to sustain a demurrer without
leave to amend.” (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc.
(1998) 68 Cal.App.4th 446, 459.) “Nevertheless, where the nature of the plaintiff’s claim
is clear, and under substantive law no liability exists, a court should deny leave to amend
because no amendment could change the result.” (Ibid.)
12
C. Intentional and Negligent Misrepresentation
“The elements of fraud are (1) misrepresentation, (2) knowledge of falsity, (3)
intent to induce reliance on the misrepresentation, (4) justifiable reliance on the
misrepresentation, and (5) resulting damages. [Citation.] Fraud allegations ‘ “involve a
serious attack on character” ’ and therefore are pleaded with specificity. [Citation.]
General and conclusory allegations are insufficient. [Citation.] The particularity
requirement demands that a plaintiff plead facts which ‘ “ ‘show how, when, where, to
whom, and by what means the representations were tendered.’ ” ’ ” (Cansino v. Bank of
America (2014) 224 Cal.App.4th 1462, 1469; see Conroy v. Regents of University of
California (2009) 45 Cal.4th 1244, 1255; Graham v. Bank of America, N.A. (2014) 226
Cal.App.4th 594, 605-606.) “A plaintiff’s burden in asserting a fraud claim against a
corporate employer is even greater. In such a case, the plaintiff must ‘allege the names of
the persons who made the allegedly fraudulent representations, their authority to speak, to
whom they spoke, what they said or wrote, and when it was said or written.’ ” (Lazar v.
Superior Court (1996) 12 Cal.4th 631, 645 (Lazar).)
“[A] claim for negligent misrepresentation requires the plaintiff to prove each of
the following: ‘(1) the misrepresentation of a past or existing material fact, (2) without
reasonable ground for believing it to be true, (3) with intent to induce another’s reliance
on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5)
resulting damage.’ ” (Public Employees’ Retirement System v. Moody’s Investors
Service, Inc. (2014) 226 Cal.App.4th 643, 661.) “ ‘The tort of negligent
misrepresentation, a species of the tort of deceit [citation], does not require intent to
defraud but only the assertion, as a fact, of that which is not true, by one who has no
reasonable ground for believing it to be true.’ ” (Jolley v. Chase Home Finance, LLC
(2013) 213 Cal.App.4th 872, 892 (Jolley).) Like fraud, negligent misrepresentation must
be pleaded with particularity. (Charnay v. Cobert (2006) 145 Cal.App.4th 179, 185, fn.
14.)
13
The complaint asserts causes of action for intentional misrepresentation and
negligent misrepresentation based on four alleged misrepresentations. On appeal,
Rossetta contends the trial court erred in considering each alleged misrepresentation
individually. She correctly observes that a general demurrer may not be sustained as to a
portion of a cause of action. (Kong v. City of Hawaiian Gardens Redevelopment Agency
(2002) 108 Cal.App.4th 1028, 1047 [“a demurrer cannot rightfully be sustained to part of
a cause of action”]; PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682
[“demurrer does not lie to a portion of a cause of action”].) She also observes that the
appropriate procedural device for challenging a portion of a cause of action is a motion to
strike (Code Civ. Proc., § 435), which CitiMortgage failed to file.
Applying the foregoing rule, we must determine whether the complaint states a
cause of action for intentional or negligent misrepresentation based on any of the alleged
misrepresentations. (See Daniels v. Select Portfolio Servicing, Inc. (2016) 246
Cal.App.4th 1150, 1167 (Daniels) [“the question for this court is whether appellants
stated a claim for intentional or negligent misrepresentation based on any of the alleged
misrepresentations”].) If any of the alleged misrepresentations supports a cause of action,
we must reverse. In making this determination, however, we necessarily consider each
alleged misrepresentation separately. We do not follow a gestalt approach to fraud-based
causes of action, clumping all alleged misrepresentations into a single undifferentiated
mass.8 Rather, we examine each alleged misrepresentation in turn, reviewing the
8 Arguing by analogy to Fleet v. Bank of America N.A. (2014) 229 Cal.App.4th 1403
(Fleet) and Chavez v. Indymac Mortgage (2013) 219 Cal.App.4th 1052 (Chavez),
Rossetta insists the complaint describes a scheme to defraud borrowers by unnecessarily
prolonging the loan modification process, allowing lenders to charge increased fees and
penalties, and plunging borrowers deeper and deeper into default. Although Fleet and
Chavez describe similar schemes, neither relieves Rossetta of the obligation to plead
every element of a cause of action for intentional or negligent misrepresentation—
including the alleged misrepresentation—factually and specifically. (Cadlo v. Owens-
14

allegations as a whole to determine whether the complaint states facts sufficient to
constitute a cause of action. (State ex rel. Metz v. CCC Information Services, Inc. (2007)
149 Cal.App.4th 402, 412.) With this framework in mind, we now consider the alleged
misrepresentations.
1. July 2010 Representations
Rossetta alleges CitiMortgage misrepresented its ability to consider her for a loan
modification on two occasions. First, she alleges a CitiMortgage representative named
either Brian or Charlie Welch told either Rossetta or Roat in a July 2010 telephone
conversation that “nothing could be done to assist [Rossetta] with a HAMP loan
modification until she was three months delinquent and therefore in [d]efault.” Second,
Rossetta alleges CitiMortgage misrepresented in a July 2010 letter that she “could not
qualify for a HAMP loan modification or other modification program because [her]
default was not imminent.” These representations were false, Rossetta says, because
HAMP and other loan modification programs do not require a borrower to default to
qualify for a loan modification.
The complaint alleges Rossetta relied on CitiMortgage’s alleged
misrepresentations in deciding to go into default on her mortgage. However, the
complaint also alleges that Rossetta was already in default at the time the alleged
misrepresentations were made. Specifically, the complaint alleges that Rossetta defaulted
in June 2010, before the telephone conversation with Brian or Charlie Welch or
CitiMortgage’s letter. Reading the complaint as a whole, we conclude that Rossetta fails
to allege reliance on the July 2010 misrepresentations or resulting damages.
Illinois, Inc. (2004) 125 Cal.App.4th 513, 519.) Rossetta’s reliance on Fleet and Chavez
is unavailing.
15

Rossetta struggles to avoid this conclusion by arguing the trial court ignored the
purportedly “crucial” allegation that an unidentified person, presumably connected with
CitiMortgage, made a similar misrepresentation some two months earlier. As noted, the
complaint alleges Rossetta contacted CitiMortgage in May 2010 and “was told that
[CitiMortgage] would be unable to assist her unless she was at least three months
delinquent in her monthly mortgage payments, and thus in [d]efault.” Although the
complaint alleges the May 2010 statement was false, the complaint does not offer the
statement as a basis for her intentional and negligent misrepresentation causes of action.9
Rossetta does not explain, and we cannot conceive, how the alleged
misrepresentation in May 2010 establishes her reliance on the alleged misrepresentations
in July 2010. Although not alleged in the complaint, we assume for the sake of argument
that Rossetta relied on the May 2010 statement in deciding to default. Even so assuming,
we perceive no way Rossetta could have relied on the July 2010 statements in deciding to
default, since she was already in default at the time the July 2010 statements were
made.10 We therefore conclude, as the trial court did, that the complaint fails to allege
reliance on the July 2010 statements or resulting damage. Having so concluded, we
decline to reach the trial court’s alternative ruling that Rossetta’s causes of action for
intentional and negligent misrepresentation are partially time-barred to the extent they are
based on the July 2010 statements.
2. August 2010 Representations
Next, the complaint alleges that Rossetta was deceived by means of a series of
written and spoken misrepresentations in August 2010. First, the complaint alleges that
9 Rossetta does not seek leave to amend the complaint to state a cause of action for
intentional or negligent misrepresentation based on the May 2010 statement.
10 The complaint does not allege—and Rossetta does not contend—that the alleged
misrepresentations in July 2010 induced her to become more delinquent.
16

Rossetta received an “email” from CitiMortgage, “stating the specific terms of the
permanent loan modification agreement” and indicating that “the loan modification
documents were being sent.” Second, the complaint alleges that Helen (last name
unknown) misrepresented in a telephone conversation that Rossetta was approved for
either a HAMP modification or a “trial plan modification,” and “would be approved for a
permanent loan medication [sic] upon completion of the trial modification plan
payments/repayment plan payments.” Third, the complaint alleges that Rossetta received
a repayment plan, which she mistook for a HAMP TPP.11 These representations were
false, the complaint alleges, because CitiMortgage failed to grant Rossetta a permanent
loan modification. Thus, Rossetta’s fraud cause of action appears to be based on a theory
of promissory fraud, “a subspecies of the action for fraud and deceit.” (Lazar, supra, 12
Cal.4th at p. 638 [“A promise to do something necessarily implies the intention to
perform; hence, where a promise is made without such intention, there is an implied
misrepresentation of fact that may be actionable fraud”].)
We perceive three overarching problems with Rossetta’s allegations. First, they
cannot support a cause of action for negligent misrepresentation. A representation is
generally not actionable unless it concerns “past or existing facts.” (Neu-Visions Sports,
Inc. v. Soren/McAdam/Bartells (2000) 86 Cal.App.4th 303, 309, 310.) Although a false
promise to perform in the future can support a cause of action for intentional
misrepresentation, it does not support a cause of action for negligent misrepresentation.
(Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 158, 159
[“Simply put, making a promise with an honest but unreasonable intent to perform is
11 The complaint does not specifically identify the repayment plan as an alleged
misrepresentation. Nevertheless, Rossetta suggests she was deceived by the repayment
plan, which she received instead of a HAMP TPP. We consider the possibility that the
repayment plan constitutes an actionable misrepresentation as part of our obligation to
liberally construe the pleadings.
17

wholly different from making one with no intent to perform and, therefore, does not
constitute a false promise. . . . [W]e decline to establish a new type of actionable deceit:
the negligent false promise”].) An alleged promise to grant a loan modification does not
concern past or existing facts, and thus cannot be the basis for a negligent
misrepresentation cause of action.
Second, any fraud cause of action based on the August 2010 statements appears to
be time-barred. The statute of limitations for fraud is three years. (Code Civ. Proc.,
§ 338, subd. (d).) Rossetta tries to avoid the statute of limitations by invoking the
discovery rule. Specifically, she alleges she did not discover the alleged fraud until 2012,
“when she began to uncover media articles . . . about the HAMP programs revealing a
widespread practice among lending institutions and mortgage servicers of delaying the
loan modification process and of wrongfully denying loan modifications.” Although
Rossetta may not have known the full extent of the alleged fraud until 2012, she knew
that CitiMortgage did not intend to honor the alleged promise to grant her a permanent
loan modification by January 3, 2011, when her application for a HAMP modification
was denied. Thus, the complaint suggests that Rossetta was on notice of the facts
constituting the alleged promissory fraud by January 3, 2011, more than three years
before she filed suit. (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 807 [the
delayed discovery rule “only delays accrual until the plaintiff has, or should have, inquiry
notice of the cause of action”]; Mangini v. Aerojet-General Corp. (1991) 230 Cal.App.3d
1125, 1150 (Mangini) [“If a person becomes aware of facts which would make a
reasonably prudent person suspicious, he or she has a duty to investigate further and is
charged with knowledge of matters which would have been revealed by such an
investigation”], superseded by statute on other grounds as stated in Rufini, supra, 227
Cal.App.4th at p. 311.)
Third, even assuming the allegations are timely, Rossetta fails to adequately allege
a false promise. Rather than argue that any particular statement was false, Rossetta
18
appears to argue that all of the August 2010 statements, taken together, amount to a
representation that, “she was approved for a HAMP TPP, and that upon completion of the
TPP, she was also approved for a permanent loan modification.” We reject this
impressionistic approach to pleading fraud, and reiterate that every element of a cause of
action for fraud must be alleged factually and specifically, including the alleged
misrepresentations. (Cadlo v. Owens-Illinois, Inc., supra, 125 Cal.App.4th at p. 519.) As
we shall discuss, none of the alleged misrepresentations in August 2010 amount to a false
promise that Rossetta would receive a permanent loan modification.
a. Exhibit B
As noted, the complaint characterizes Exhibit B as “an email from [CitiMortgage]
stating the specific terms of the permanent loan modification agreement.” The complaint
alleges that Exhibit B reflects a false promise to grant Rossetta a permanent loan
modification. This theory runs aground on Exhibit B itself, which contains no such
promise.
As the trial court observed, Exhibit B is a printout of a webpage, not an email.
Exhibit B features a heading entitled, “Your Mortgage Modification.” Under the
heading, Exhibit B states, “View the terms of your modification which will make your
payments more affordable. Check your status often to ensure that your paperwork has
been accepted and find new requests for additional documentation.” Exhibit B then
displays a heading entitled, “Modification Status.” Under the heading, Exhibit B states:
“07/30/2010 Alert! Your mortgage modification document has been sent. Review, sign
and return as instructed.” Exhibit B then displays a heading entitled, “Modification
Details.” Under the heading, Exhibit B displays a chart setting forth current and
proposed loan terms, followed by the notation, “The sample chart above is based on an
interest rate reduction or a principal reduction. Total monthly payments are based on an
estimated mortgage balance including interest, taxes and insurance. The final
modification may vary depending on the review and verification of the financial
19
information you have provided and other restrictions. A mortgage modification may be
reported to credit reporting agencies.” Exhibit B then displays a final heading, entitled
“Document Summary.” Under the heading, Exhibit B displays a link, entitled “View the
status of pending documentation.” Contrary to the complaint, Exhibit B cannot
reasonably be characterized as a representation that Rossetta would be offered a HAMP
TPP, much less a permanent loan modification. Although Exhibit B refers to “proposed”
loan terms, the document does not say anything about a HAMP TPP (or any other trial
period plan), and does not represent that Rossetta will receive a permanent loan
modification with those or any other terms. If anything, by instructing the borrower to
“Check your status often” and warning that, the “final modification may vary,” Exhibit B
makes clear that the loan modification application process is not complete. No
reasonable borrower would interpret Exhibit B as a representation that she would receive
a HAMP TPP or other trial period plan, let alone a permanent loan modification.
In apparent recognition of the foregoing, Rossetta argues the alleged
misrepresentation was contained in another document, an actual email, which she failed
to attach to her pleading. She notes that she was not required to attach the purported
email to the complaint, adding, “The allegation of the existence of the email by itself
should have been enough, as this was not a summary judgment motion.”
Rossetta’s argument runs counter to what she told the trial court. During the trial
court proceedings, Rossetta consistently identified Exhibit B as “an email” reflecting an
alleged misrepresentation. What matters, for our purposes, is not the characterization of
Exhibit B as an email, but the designation of Exhibit B as an alleged misrepresentation.
The complaint clearly identifies Exhibit B as an alleged misrepresentation.
Consequently, we focus on whether Exhibit B contains an actionable misstatement. As
we have already established, it does not.
20
b. Helen’s Remarks
Next, the complaint alleges that Helen misrepresented that Rossetta was approved
for either a HAMP modification or a “trial plan modification,” and “would be approved
for a permanent loan medication [sic] upon completion of the trial modification plan
payments/repayment plan payments.” We perceive two glaring problems with these
allegations.
First, Rossetta fails to adequately allege what Helen actually said. As previously
discussed, a HAMP modification is a particular type of loan modification, governed by
uniform rules set forth in Supplemental Directive 09-01, and other guidelines and
procedures promulgated by the Department of the Treasury. (West, supra, 214
Cal.App.4th at p. 787.) A HAMP TPP is an enforceable contract, giving the borrower a
right to sue for breach of contract if the lender fails to grant a permanent loan
modification. (Bushell, supra, 220 Cal.App.4th at p. 928.) By contrast, a non-HAMP
trial period plan may or may not obligate the lender to grant a permanent loan
modification, depending on the terms of the parties’ agreement. (See, e.g., Morgan v.
Aurora Loan Services, LLC (C.D. Cal. Oct. 7, 2013, No. CV 12-4350-CAS (MRWx))
2013 U.S. Dist. LEXIS 145623, *10 [distinguishing non-HAMP agreements from HAMP
TPPs, and noting that non-HAMP agreements “expressly disclaimed any promise of a
permanent modification”].) Likewise, a repayment plan may or may not entitle the
borrower to a permanent loan modification, depending on the terms of the plan. Here, of
course, we have been provided with a copy of the repayment plan, which says nothing
about a permanent loan modification.
Recognizing the significant differences between various types of mortgage relief,
the trial court, in sustaining the demurrer to the first amended complaint, expressed “its
expectation that plaintiff clearly set forth the context of each representation and
agreement in any further pleading, or risk suffering the conclusion that further
amendment would be pointless.” Rossetta failed to comply with the trial court’s
21
instruction. If anything, the new allegations are even more opaque, conflating “HAMP
loan modifications” and “trial plan modifications,” and “trial modification plan
payments” and “repayment plan payments.” These nebulous allegations do not plead an
alleged misrepresentation with the required specificity.
Second, to the extent Rossetta claims to have relied on Helen’s representations as
a promise that she would eventually obtain a permanent loan modification from
CitiMortgage, she fails to plead with particularity that Helen had the authority to commit
CitiMortgage to granting such a loan modification. The complaint alleges that Helen was
an “employee/representative/agent” of CitiMortgage, but offers no allegations concerning
her authority to make binding promises or any facts indicating it would be reasonable to
rely on Helen’s statements as creating a binding promise to eventually provide a
permanent loan modification, especially in light of Helen’s refusal to give her last name.
Therefore, with respect to Helen’s statements, Rossetta fails to satisfy the pleading
requirements for alleging a fraud cause of action against a corporate defendant. (Lazar,
supra, 12 Cal.4th at p. 645.)
c. Repayment Plan
Following her conversation with Helen, Rossetta received a letter from
CitiMortgage stating, in part: “Your request for a repayment plan has been approved.”
The letter attaches an agreement contemplating three monthly payments of $1,209 for
September, October and November 2010. Rossetta agreed to the terms of the repayment
plan on August 15, 2010. Neither the letter nor accompanying agreement makes any
mention of HAMP or any other loan modification program, and Rossetta does not argue
that the repayment plan can or should be construed as a HAMP TPP or other trial period
plan. Nevertheless, Rossetta argues she believed she would receive a permanent loan
modification upon completion of the repayment plan.
Contrary to Rossetta’s apparent belief, her confusion surrounding the significance
of the repayment plan cannot transform Exhibit B into a promise to grant a permanent
22
loan modification. Furthermore, though Rossetta’s confusion may explain her inability to
specify what Helen said, it does nothing to cure that pleading failure. We therefore
conclude, as the trial court did, that Rossetta cannot premise a cause of action for
intentional misinterpretation on the August 2010 statements. Having so concluded, we
decline to consider the alternative ruling that the complaint fails to allege resulting
damages because Rossetta’s income was unstable.
3. April 2012 Representations
Finally, the complaint alleges that Sincox made two false promises to Rossetta in
April 2012. First, the complaint alleges that Sincox misrepresented that Rossetta had
been approved for another trial loan modification, which she would receive as soon as
CitiMortgage received an application and other documents from her.12 Second, the
complaint alleges that Sincox misrepresented that, “upon successful completion of the
trial plan payments, she would receive a permanent loan modification with a 2% interest
rate fixed for [five] years . . . [and] a principal reduction.”
With respect to both allegations, the complaint alleges that Rossetta understood
Sincox to mean she would be receiving a HAMP TPP, as she was under consideration for
a HAMP modification at the time. The complaint further alleges, “Sincox indicated that
the loan modification documentation would not be provided in advance, but rather, would
come after the trial payment period.” The complaint does not specify which “loan
modification documentation” would not be provided in advance, however, we understand
the allegation to refer to a permanent loan modification agreement, as such an agreement
would naturally follow the successful completion of a HAMP TPP. The complaint
alleges that Rossetta submitted another loan modification application and related
12 Rossetta does not allege that she had not been approved for another trial loan
modification.
23

documents, but did not receive a HAMP TPP or other trial period plan. The complaint
does not allege that Rossetta made any trial period payments.
We agree with the trial court that the second alleged misrepresentation (that
Rossetta would receive a permanent loan modification upon successful completion of the
trial plan agreement) fails to state facts sufficient to constitute a cause of action, as
Rossetta fails to allege reliance. Rossetta does not challenge this conclusion. Instead,
she focuses on the first alleged misrepresentation (that Rossetta would receive a trial
period plan upon receipt of her application and related documents), which the trial court
appears to have overlooked.13 Exercising our independent judgment, and reading the
complaint liberally, as we must, we perceive a reasonable possibility that Rossetta could
amend the complaint to state a cause of action for intentional misrepresentation based on
the alleged false promise to provide her with a HAMP TPP. We perceive no possibility
that Rossetta could amend the complaint to state a cause of action for negligent
misrepresentation based on the alleged false promise, since, as discussed, a false promise
to perform in the future cannot support a cause of action for negligent misrepresentation.
(Tarmann v. State Farm Mut. Auto. Ins. Co., supra, 2 Cal.App.4th at pp. 158-159.)
Reading the complaint as a whole, Rossetta adequately alleges that Sincox
promised to provide her with a HAMP TPP as soon as she submitted an updated loan
modification application and supporting documents.14 The complaint also adequately
13 The oversight was understandable. The complaint specifically identifies the second
alleged misrepresentation as the basis for the intentional misrepresentation cause of
action. Although the complaint alleges that Sincox misrepresented that Rossetta would
receive a HAMP TPP, that allegation does not appear in the “Intentional
Misrepresentation” section of the complaint.
14 Although we have some difficulty believing a lender would make an unconditional
offer of a HAMP TPP to a distressed borrower prior to receiving a current loan
modification application, we accept the allegation as true, as we must.
24

alleges that Sincox made the promise without any intention of performing it, with the
intent to induce Rossetta to submit another application, thereby prolonging the loan
modification process and allowing CitiMortgage to charge additional interest, fees, and
penalties. The complaint founders, however, on the element of damages.
The complaint alleges Rossetta was injured in maintaining her delinquent status,
forbearing from pursuing other options to save her home, and spending “over two years
attempting to obtain a loan modification while her arrearages, late fees and penalties
continued to accumulate.” Elsewhere, the complaint alleges Rossetta suffered injury to
her credit and unspecified harm as a result of granting CitiMortgage access to her
personal financial information.15 However, the complaint fails to allege facts
demonstrating that any of these damages were the result of her reliance on the alleged
misrepresentation by Sincox. For example, the complaint alleges Rossetta might have
pursued unspecified “alternate remedies” had she not relied on the false promise that she
would receive a HAMP TPP. Not only does Rossetta fail to identify any of these
“alternate remedies,” she also fails to allege they were available to her in April 2012 and
would have helped to avoid the damage she allegedly suffered as a result of the
misrepresentation. If anything, the complaint suggests Rossetta had no alternative
remedies. According to the complaint, “The only avenue for [Rossetta] to remain in her
permanent residence since 2001, through two [b]reast [c]ancer battles, was for
[CitiMortgage] to fulfill its promises to modify the loan, thus lifting the hardship in a
manner only [CitiMortgage] had the power to do, but failed to do so.” Thus, the
15 The complaint also identifies Rossetta’s attorneys’ fees in this action as damages.
Rossetta’s attorneys’ fees are not recoverable as damages. (Khajavi v. Feather River
Anesthesia Medical Group (2000) 84 Cal.App.4th 32, 62 [“ ‘In the absence of a statute
authorizing attorneys’ fees as an element of damages, or of a contract to pay such fees in
event of the party’s recovery, attorneys’ fees paid by a successful party in an action are
never recoverable against the unsuccessful party’ ”].)
25

complaint expressly disclaims the possibility that Rossetta could have pursued other
options.
Similarly, though Rossetta alleges she suffered damage to her credit and incurred
increased arrears, fees and penalties during the period in which she fruitlessly pursued a
loan modification, she fails to explain why these damages were the result of any false
promise by Sincox, rather than her own default. In this regard, we note that Rossetta
could not have spent two years pursuing a loan modification in reliance on a false
promise by Sincox, as the promise was not even made until April 2012, some twenty-two
months after her default. Furthermore, even assuming arguendo that she incurred such
amounts in reliance on the alleged false promise, Rossetta fails to allege that she actually
paid them.
Finally, Rossetta alleges she spent time and energy on the loan modification
process. In Bushell, another panel of this court concluded that time spent “repeatedly”
responding to a lender’s requests could constitute a cognizable theory of damages, when
combined with other things, like “discontinuing efforts to pursue a refinance from other
financial institutions or to pursue other means of avoiding foreclosure (such as
bankruptcy restructuring, or selling or renting [the borrower’s] home); by having their
credit reports further damaged; and by losing their home and making it unlikely they
could purchase another one.” (Bushell, supra, 220 Cal.App.4th at p. 928.) By contrast,
in Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49 (Lueras), the
court concluded that, “Time and effort spent assembling materials for an application to
modify a loan is the sort of nominal damage subject to the maxim de minimis non curat
lex—i.e., the law does not concern itself with trifles.” (Id. at p. 79.) The damages
alleged in connection with the alleged false promise in April 2012 are more akin to those
in Lueras. Even liberally construed, the complaint fails to allege that Rossetta sustained
more than nominal damage as a result of the time and effort she spent submitting a loan
26
modification application to CitiMortgage in reliance on the alleged false promise in April
2012. We therefore conclude the complaint fails to allege resulting damages.
Not surprisingly, given the trial court’s failure to consider the alleged false
promise to provide a HAMP TPP, Rossetta does not address the pleading failures
discussed above or suggest additional facts that might be alleged to overcome them.
Because she has not had an opportunity to address these issues, and because we see a
reasonable possibility Rossetta can amend to state a viable cause of action for intentional
misrepresentation based on the alleged false promise in April 2012, we conclude the trial
court erred in sustaining the demurrer without leave to amend. (See City of Stockton v.
Superior Court (2007) 42 Cal.4th 730, 747 [as a matter of fairness, a plaintiff who has
not had an opportunity to amend her complaint in response to a demurrer should be
allowed leave to amend unless the complaint shows on its face it is incapable of
amendment].) We therefore reverse to give Rossetta an opportunity to amend to allege
she suffered damages as a result of her reliance on an alleged false promise by Sincox to
provide her with a HAMP TPP in April 2012.
D. Breach of Contract
“A cause of action for damages for breach of contract is comprised of the
following elements: (1) the contract, (2) plaintiff’s performance or excuse for
nonperformance, (3) defendant’s breach, and (4) the resulting damages to plaintiff.”
(Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371,
1388.) The complaint alleges that CitiMortgage breached two contracts: a written
contract and an oral one. As we shall discuss, Rossetta fails to state a cause of action
under either theory.
1. Written Contract
The complaint alleges CitiMortgage and Rossetta entered into a written contract
under which CitiMortgage agreed to grant Rossetta “a permanent loan modification with
the terms identified in Exhibit [B]” upon completion of “the 2010 trial/repayment plan.”
27
The complaint further alleges Rossetta performed the agreement “by making all of the
trial/repayment plan payments of the written contract,” and CitiMortgage breached the
agreement by failing to grant Rossetta a permanent loan modification with the terms
stated in Exhibit B. The trial court rejected these allegations, ruling that the complaint
fails to adequately allege the existence of a written contract. We agree with the trial
court.
On appeal, Rossetta argues that Exhibit B and the repayment plan together
constitute a trial plan agreement. We are not persuaded. As previously discussed, neither
document says anything about a HAMP TPP or other trial period plan. Although Exhibit
B contemplates the possibility of a permanent loan modification, nothing in Exhibit B
suggests Rossetta would be entitled to a permanent loan modification upon the happening
of any particular condition. Similarly, though the repayment plan contemplates that
Rossetta would make three monthly payments, nothing in the repayment plan suggests
she would be entitled to a permanent loan modification upon completion of the plan.
Thus, neither document can reasonably be construed as an agreement to grant Rossetta a
permanent loan modification upon the completion of the repayment plan.
Rossetta argues she believed the repayment plan constituted a HAMP TPP,
because the monthly payments were roughly the same as the “proposed” payments in
Exhibit B, and her total payments pursuant to the plan were approximately half of her
accumulated arrears. However, as previously suggested, Rossetta’s unfounded belief
cannot transform the repayment plan into HAMP TPP. “Contract formation requires
mutual consent, which cannot exist unless the parties ‘agree upon the same thing in the
same sense.’ [Citations.] . . . ‘Mutual assent is determined under an objective standard
applied to the outward manifestations or expressions of the parties, i.e., the reasonable
meaning of their words and acts.’ ” (Bustamante v. Intuit, Inc. (2006) 141 Cal.App.4th
199, 208.) Here, nothing in Exhibit B or the repayment plan suggests that CitiMortgage
and Rossetta mutually agreed to enter into a trial period plan whereby CitiMortgage
28
would offer Rossetta a permanent loan modification upon completion of the repayment
plan. The trial court correctly concluded that Rossetta failed to allege the existence of a
written contract.
2. Oral Contract
Next, the complaint alleges that Rossetta and CitiMortgage entered into an oral
agreement under which Rossetta “would receive a trial plan modification and upon
completion would receive a permanent loan modification with 2% interest fixed for five
years, which would then increase by 1% a year thereafter but would be no greater than
the current market rate.” The complaint alleges Rossetta performed the oral agreement
by sending CitiMortgage documents, and CitiMortgage breached the oral agreement “by
failing to send [Rossetta] the trial plan or permanent loan modification agreement with
the terms represented by Sincox.” The trial court rejected these allegations on the
grounds that, “The alleged oral contract has no terms for a TPP, the condition predicate to
modification.”
Rossetta does not challenge, and we do not reach, the trial court’s conclusion that
the complaint fails to adequately allege an oral TPP or other trial plan agreement.
Instead, she argues the trial court examined the wrong oral contract. According to
Rossetta, the relevant contract was not a TPP, but an oral agreement to provide a TPP.
The trial court overlooked this theory, which is only obliquely alleged in the complaint.
Exercising our independent judgment, we conclude that Rossetta’s newly
developed theory does not save her breach of contract cause of action, as an agreement to
provide a TPP on terms to be specified in the future amounts to an unenforceable
“agreement to agree.” (Bustamante v. Intuit, Inc., supra, 141 Cal.App.4th at pp. 213,
213-214 [“ ‘Preliminary negotiations or [agreements] for future negotiations are not the
functional equivalent of a valid, subsisting agreement’ ”]; see also Daniels, supra, 246
Cal.App.4th at p. 1176 [alleged oral agreement in which lender agreed to grant borrower
a loan modification and borrower agreed to submit documents and make monthly
29
payments of $1000 was unenforceable “agreement to agree”].) We therefore conclude
the trial court properly sustained the demurrer to the breach of contract cause of action.
As noted, the trial court overlooked the allegation that CitiMortgage breached an
oral agreement to provide Rossetta with a TPP. Consequently, Rossetta has not had an
opportunity to address this issue. Nevertheless, we see no reasonable possibility that
Rossetta could amend the complaint to allege an enforceable agreement to provide a TPP.
We therefore conclude the trial court properly sustained the demurrer to the cause of
action for breach of contract without leave to amend.
E. Promissory Estoppel
Promissory estoppel requires: (1) a promise that is clear and unambiguous in its
terms, (2) reliance by the party to whom the promise is made, (3) the reliance must be
reasonable and foreseeable, and (4) the party asserting the estoppel must be injured by his
or her reliance. (Aceves v. U.S. Bank N.A. (2011) 192 Cal.App.4th 218, 225.) Rossetta
premises her promissory estoppel cause of action on two alleged promises: (1) an alleged
promise in 2010 to grant her a loan modification with the terms set forth in Exhibit B, and
(2) an alleged oral promise in 2012 to grant her a trial plan and permanent loan
modification. Neither alleged promise supports a cause of action for promissory
estoppel.
As we have discussed, neither Exhibit B nor the repayment plan can be construed
as a promise to grant Rossetta a permanent loan modification. Rossetta does not suggest
any other factual basis for an alleged promise to grant her a permanent loan modification
in 2010. We therefore conclude that Rossetta’s first promissory estoppel theory fails for
lack of a clear and unambiguous promise.
Rossetta’s second theory does not fare much better. Rossetta alleges Sincox
promised to send a trial period plan or a HAMP TPP. However, a general promise to
send some sort of trial loan modification agreement does not constitute a clear and
unambiguous promise to provide any kind of mortgage relief. Furthermore, to the extent
30
Rossetta alleges a promise to send a trial loan modification agreement on any terms, she
fails to allege reasonable reliance on such a promise. (Cf. Daniels, supra, 246
Cal.App.4th at p. 1179 [no borrower could reasonably rely on an alleged promise to offer
a loan modification on any terms, as the offered modification might not lower their
monthly payments sufficiently to allow her to avoid default].) To the extent Rossetta
alleges a promise to provide a permanent loan modification, she fails to allege actual
reliance, as she does not allege she made any trial plan payments. We therefore conclude
the complaint fails to state a cause of action for promissory estoppel.
The trial court properly sustained the demurrer to the cause of action for
promissory estoppel. Nevertheless, the trial court does not appear to have considered the
alleged promise to send Rossetta a HAMP TPP. We reverse to give Rossetta an
opportunity to amend to state a viable cause of action based on the alleged oral promise
in April 2012, if she can.
F. Negligence
Next, the complaint alleges CitiMortgage negligently mishandled Rossetta’s loan
modification applications. The elements of a cause of action for negligence are (1) the
existence of a duty to exercise due care, (2) breach of that duty, (3) causation, and (4)
damages. (See Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 500.) Whether a duty of
care exists is a question of law to be decided on a case-by-case basis. (Lueras, supra, 221
Cal.App.4th at p. 62.)
As a “general rule,” lenders do not owe borrowers a duty of care unless their
involvement in a transaction goes beyond their “conventional role as a mere lender of
money.” (Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal.App.3d 1089,
1096 (Nymark).) “Even when the lender is acting as a conventional lender,” however,
“the no-duty rule is only a general rule.” (Jolley, supra, 213 Cal.App.4th at p. 901.)
Thus, “ ‘Nymark does not support the sweeping conclusion that a lender never owes a
duty of care to a borrower.’ ” (Ibid.)
31
In order to determine whether a duty of care exists, courts balance the Biakanja16
factors, “among which are [(1)] the extent to which the transaction was intended to affect
the plaintiff, [(2)] the foreseeability of harm to him, [(3)] the degree of certainty that the
plaintiff suffered injury, [(4)] the closeness of the connection between the defendant’s
conduct and the injury suffered, [(5)] the moral blame attached to the defendant’s
conduct, and [(6)] the policy of preventing future harm.” (Nymark, supra, 231
Cal.App.3d at p. 1098, citing Biakanja, supra, 49 Cal.2d at p. 650.)
California courts of appeal have not settled on a uniform application of the
Biakanja factors in cases that involve a loan modification. Although lenders have no
duty to offer or approve a loan modification (Lueras, supra, 221 Cal.App.4th at p. 68;
Jolley, supra, 213 Cal.App.4th at p. 903), courts are divided on the question of whether
accepting documents for a loan modification is within the scope of a lender’s
conventional role as a mere lender of money, or whether, and under what circumstances,
it can give rise to a duty of care with respect to the processing of the loan modification
application. (Compare Lueras, supra, 221 Cal.App.4th at p. 67 [residential loan
modification is a traditional lending activity, which does not give rise to a duty of care]
with Alvarez v. BAC Home Loans Servicing, L.P. (2014) 228 Cal.App.4th 941, 948
(Alvarez) [servicer has no general duty to offer a loan modification, but a duty may arise
when the servicer agrees to consider the borrower’s loan modification application],
Daniels, supra, 246 Cal.App.4th at pp. 1180-1183 [following Alvarez and applying
Biajanka factors to conclude that lender owed borrowers a duty of care in the loan
modification process] and Jolley, supra, at p. 906 [commercial lending creates a special
relationship, thereby creating a duty of care].) Federal district courts in California have
also reached different results. (Compare, e.g., Marques v. Wells Fargo Bank, N.A. (N.D.
16 Biakanja v. Irving (1958) 49 Cal.2d 647 (Biakanja)
32

Cal. Oct. 13, 2016, No. 16-cv-03973-YGR) 2016 U.S. Dist. LEXIS 142193, *19
[servicers do not owe borrowers a duty of care in processing loan modification
applications], Garcia v. PNC Mortgage (N.D. Cal. Sept. 16, 2015, No. 14-cv-3543-PJH)
2015 U.S. Dist. LEXIS 123920, *9 [“a servicer, as any financial institution, owes no duty
of care to a borrower in the provision of ordinary financial services such as loan
modifications”], Hernandez v. Select Portfolio, Inc. (C.D. Cal. June 25, 2015, No. CV
15-01896 MMM (AJWx)) 2015 U.S. Dist. LEXIS 82922, *56 [“a lender that agrees to
consider a borrower’s loan modification application does not act outside its conventional
role as a money lender and does not owe a duty of care”]) with Segura v. Wells Fargo
Bank, N.A. (C.D. Cal. Sept. 26, 2014, No. CV-14-04195-MWF (AJWx)) 2014 U.S. Dist.
LEXIS 143038, *32-33[a duty of care exists once the lender offers a borrower the
opportunity to apply for a loan modification], Penermon v. Wells Fargo Home Mortgage
(N.D. Cal. Aug. 28, 2014, No. 14-cv-00065-KAW) 2014 U.S. Dist. LEXIS 121207, *13-
14 [“once [defendant] provided Plaintiff with the loan modification application and asked
her to submit supporting documentation, it owed her a duty to process the completed
application once it was submitted”), and Johnson v. PNC Mortgage (N.D. Cal. 2015) 80
F.Supp.3d 980, 985-986 [“Once PNC offered the Johnsons an opportunity to modify their
loan, it owed them a duty to handle their application with ordinary care”].) Although the
Ninth Circuit has signaled that it may view the “no duty” line of cases as more persuasive
(see, e.g., Anderson v. Deutsche Bank Nat’l Trust Co. Ams. (9th Cir. 2016) 649 Fed.
Appx. 550, 552 [loan servicer has no common law duty to approve application within a
particular time frame]), the federal appellate court has declined to certify the question to
our Supreme Court, which has yet to speak to the issue. (Id. at p. 552, fn. 1.)
The trial court relied on Lueras to hold that “lenders do not have a common law
duty of care . . . to offer, consider, or approve a loan modification, to offer foreclosure
alternatives, or to handle loans so as to prevent foreclosure.” In Lueras, the plaintiff
borrower alleged the defendant lender breached its duty of care by “ ‘failing to timely and
33
accurately respond to customer requests and inquiries,’ by ‘failing to comply with state
consumer protection laws, properly service the loan, and use consistent methods to
determine modification approvals,’ ” among other things. (Lueras, supra, 221
Cal.App.4th at p. 63.) The Court of Appeal for the Fourth District, Division Three,
concluded that lenders do not owe a duty of care in considering or approving loan
modification applications, reasoning that “a loan modification is the renegotiation of loan
terms, which falls squarely within the scope of a lending institution’s conventional role as
a lender of money.” (Id. at p. 67.)
Applying the Biakanja factors, the court explained: “If the modification was
necessary due to the borrower’s inability to repay the loan, the borrower’s harm, suffered
from denial of a loan modification, would not be closely connected to the lender’s
conduct. If the lender did not place the borrower in a position creating a need for a loan
modification, then no moral blame would be attached to the lender’s conduct.” (Lueras,
supra, 221 Cal.App.4th at p. 67.) Accordingly, the court concluded the Biakanja factors
weighed against the imposition of a common law duty of care. (Ibid.) However, the
court recognized that “a lender does owe a duty to a borrower to not make material
misrepresentations about the status of an application for a loan modification or about the
date, time, or status of a foreclosure sale.” (Id. at p. 68.)
Rossetta contends the trial court erred in relying on Lueras, claiming that Alvarez
is the better reasoned decision. In Alvarez, the plaintiffs alleged the lender breached its
duty of care by failing to review their loan modification applications in a timely manner,
foreclosing on their properties while they were under consideration for a HAMP
modification, misplacing their applications, and mishandling them by relying on incorrect
salary information. (Alvarez, supra, 228 Cal.App.4th at p. 945.) The Court of Appeal for
the First District, Division Three, acknowledged the general rule, but observed that,
“ ‘ “Nymark and the cases cited therein do not purport to state a legal principle that a
lender can never be held liable for negligence in its handling of a loan transaction within
34
its conventional role as a lender of money.” ’ ” (Id. at p. 946, citing Jolley, supra, 213
Cal.App.4th at p. 902.)
Applying the Biakanja factors, the court found: “The transaction was intended to
affect the plaintiffs and it was entirely foreseeable that failing to timely and carefully
process the loan modification applications could result in significant harm to the
applicants.” (Alvarez, supra, 228 Cal.App.4th at p. 948.) With regard to the connection
between the defendant’s conduct and the injury suffered, the court found: “ ‘Although
there was no guarantee the modification would be granted had the loan been properly
processed, the mishandling of the documents deprived [the plaintiffs] of the possibility of
obtaining the requested relief.’ ” (Id. at p. 949.) With respect to blameworthiness, the
court found: “The borrower’s lack of bargaining power, coupled with conflicts of interest
that exist in the modern loan servicing industry, provide a moral imperative that those
with the controlling hand be required to exercise reasonable care in their dealings with
borrowers seeking a loan modification.” (Ibid.) Finally, the court found that the policy
of preventing future harm strongly favored the imposition of a duty of care after the
California Homeowner Bill of Rights was effectuated on January 1, 2013. (Id. at p. 950.)
Accordingly, the court concluded that when a lender agrees to consider a borrower’s
application for a loan modification, the Biakanja factors weigh in favor of imposing a
duty of care. (Id. at p. 948.)
Pending guidance from our Supreme Court, we are persuaded by the reasoning in
Alvarez. We find support for our conclusion in Meixner v. Wells Fargo Bank, N.A. (E.D.
Cal. 2015) 101 F.Supp.3d 938, in which the federal district court, addressing the split in
authority, observed: “Alvarez identified an important distinction not addressed by the
Lueras reasoning—that the relationship differs between the lender and borrower at the
time the borrower first obtained a loan versus the time the loan is modified. The parties
are no longer in an arm’s length transaction and thus should not be treated as such. While
a loan modification is traditional lending, the parties are now in an established
35
relationship. This relationship vastly differs from the one which exists when a borrower
is seeking a loan from a lender because the borrower may seek a different lender if he
does not like the terms of the loan.” (Id. at p. 954.)
Based on the foregoing, we are convinced that a borrower and lender enter into a
new phase of their relationship when they voluntarily undertake to renegotiate a loan, one
in which the lender usually has greater bargaining power and fewer incentives to exercise
care. (See Alvarez, supra, 228 Cal.App.4th at p. 949 [during loan modification
negotiations, “ ‘borrowers are captive, with no choice of servicer, little information, and
virtually no bargaining power . . . [while] servicers may actually have positive incentives
to misinform and under-inform borrowers’ ”].) We do not hold that a duty of care arises
merely because a lender receives or considers a loan modification application. Nor do we
hold, as the concurring opinion suggests, that a duty of care may arise solely by virtue of
the parties’ changing relationship. Rather, we conclude that the change in the parties’
relationship can and should be factored into our application of the Biakanja factors. To
this end, we find it significant that CitiMortgage allegedly refused to consider Rossetta’s
loan modification application until she was three months behind in her mortgage
payments. By making default a condition of being considered for a loan modification,
CitiMortgage did more than simply enhance its already overwhelming bargaining power;
it arguably directed Rossetta’s behavior in a way that potentially exceeds the role of a
conventional lender. (See, e.g., Gerbery v. Wells Fargo Bank, N.A. (S.D. Cal. July 31,
2013, No. 13-CV-614-MMA (DHB)) 2013 U.S. Dist. LEXIS 107744, *32-33.) At a
minimum, the alleged policy of making default a condition of being considered for a loan
modification informs our application of the Biakanja factors (see Ko v. Bank of America,
N.A. (C.D. Cal. Oct. 19, 2015, No. SACV 15-00770-CJC (DFMx)) 2015 U.S. Dist.
LEXIS 142040, *28-99 (Ko)), to which we now turn.
With respect to the first factor, the loan modification transaction was plainly
intended to affect Rossetta. CitiMortgage’s decision on her application for a
36
modification plan would likely determine whether or not Rossetta could keep her house.
(Alvarez, supra, 228 Cal.App.4th at p. 948; Daniels, supra, 246 Cal.App.4th at p. 1182.)
We conclude the first Biakanja factor weighs in favor of finding a duty of care.
With respect to the second factor, the potential harm to Rossetta was readily
foreseeable. “ ‘Although there was no guarantee the modification would be granted had
the loan been properly processed, the mishandling of the documents deprived Plaintiff of
the possibility of obtaining the requested relief.’ ” (Alvarez, supra, 228 Cal.App.4th at p.
948, citing Garcia v. Ocwen Loan Servicing, LLC (N.D. Cal. May 10, 2010, No. C 10-
0290 PVT) 2010 U.S. Dist. LEXIS 45375, *9.) Furthermore, by making default a
condition of being considered for a loan modification, CitiMortgage increased the
likelihood that Rossetta would incur additional expenses of default during the lengthy
loan modification process, thereby increasing the foreseeable potential harm. (Ko, supra,
2015 U.S. Dist. LEXIS 142040, *29-30 [“By creating an inducement for plaintiffs to
default (and incur associated fees and interest payments) for there to be even a possibility
of a modification, [the lender] has increased the foreseeability that a borrower would be
harmed by the additional expenses of default incurred during a negligent implementation
of the modification”].) We conclude the second Biakanja factor weighs in favor of
finding a duty of care.
With respect to the third factor, Rossetta alleges she suffered injury in the form of
damage to her credit, increased interest and arrears, and foregone opportunities to pursue
unspecified other remedies. These allegations adequately establish injury at this stage of
the proceedings. (See Daniels, supra, 246 Cal.App.4th at p. 1182.) We conclude the
third Biakanja factor weighs in favor of finding a duty of care.
We have difficulty evaluating the fourth factor—the closeness of the connection
between CitiMortgage’s conduct and Rossetta’s injuries—on the pleadings. On the one
hand, the complaint alleges Rossetta’s default was “imminent,” suggesting she would
have suffered damage to her credit and increased interest and arrears regardless of
37
CitiMortgage’s conduct. On the other hand, the complaint alleges Rossetta was current
on her mortgage payments through May 2010, when she learned she could not be
considered for a loan modification unless she defaulted. We do not know when Rossetta
would have defaulted if left to her own devices, and “it is very likely that a borrower
induced to default before it becomes absolutely necessary suffers associated injuries
involving increased fees and an increased possibility of losing the home.” (Ko, supra,
2015 U.S. Dist. LEXIS 142040, *30.) Construing the complaint liberally, as we must, we
conclude the fourth Biakanja factor weighs in favor of finding a duty of care.
With respect to the fifth factor, we agree with the Alvarez court’s analysis.
Although the court was unable to assess the lender’s blameworthiness on the pleadings,
the court nevertheless found it “highly relevant” that the borrowers’ “ ‘ability to protect
[their] own interests in the loan modification process [was] practically nil’ ” and the bank
held “ ‘all the cards.’ ” (Alvarez, supra, 228 Cal.App.4th at p. 949.) There, as here, the
borrowers were “ ‘captive, with no choice of servicer, little information, and virtually no
bargaining power.’ ” (Ibid.) Following Alvarez, we conclude the borrower’s lack of
bargaining power, coupled with the lender’s alleged incentive to unnecessarily prolong
the loan modification process, “provide a moral imperative that those with the controlling
hand be required to exercise reasonable care in their dealings with borrowers seeking a
loan modification.” (Ibid.) Additionally, we note that “the moral blame attached to the
defendant’s conduct . . . is heightened when the defendant first induces a borrower to take
a vulnerable position by defaulting and then subjects the borrower’s loan application to a
review process that does not meet the standard of ordinary care.” (Ko, supra, 2015 U.S.
Dist. LEXIS 142040, *30.) Accordingly, we conclude the fifth Biakanja factor weighs in
favor of finding a duty of care.
Finally, with respect to the sixth factor, the legislature has enacted the California
Homeowner Bill of Rights, which “demonstrates ‘a rising trend to require lenders to deal
reasonably with borrowers in default to try to effectuate a workable loan modification’ ”
38
and “ ‘expressed a strong preference for fostering more cooperative relations between
lenders and borrowers who are at risk of foreclosure, so that homes will not be lost.’ ”
(Alvarez, supra, 228 Cal.App.4th at p. 950; see also Civ. Code, § 2923.6 [encouraging
lenders to offer loan modifications to borrowers in appropriate circumstances].)
Imposing a duty of care in the particular circumstances of this case would serve the
policies underlying these legislative preferences, and prevent future harm to borrowers,
by giving lenders an incentive to handle loan modification applications in a timely and
responsible manner. (Alvarez, supra, at p. 950.) We conclude the sixth Biakanja factor
weighs in favor of finding a duty of care.
The complaint alleges CitiMortgage acted unreasonably by dragging Rossetta
through a seemingly endless application process, requiring her to submit the same
documents over and over again (including a “nonexistent” statement of permanent
disability income), losing or mishandling documents, misstating the status of various
applications, and ultimately denying them for bogus reasons. Having carefully weighed
the Biajanka factors, we conclude these allegations adequately allege a cause of action
for negligence that is sufficient to survive demurrer.
Relying on Civil Code section 2923.6, subdivision (g), CitiMortgage argues:
“[CitiMortgage] was under no duty to review further loan modification application [sic]
from [Rossetta] after it denied [Rossetta] for a HAMP loan modification in writing in
2012, which [Rossetta] failed to appeal.” We assume without deciding that Civil Code
section 2923.6, subdivision (g), offers an affirmative defense to negligence in loan
modification cases. 17 Even so assuming, facts necessary to establish the affirmative
17 Civil Code section 2923.6, subdivision (g), which has an effective date of January 1,
2013, provides: “In order to minimize the risk of borrowers submitting multiple
applications for first lien loan modifications for the purpose of delay, the mortgage
servicer shall not be obligated to evaluate applications from borrowers who have already
been evaluated or afforded a fair opportunity to be evaluated for a first lien loan
39

defense do not appear in the complaint. CitiMortgage’s contention that Rossetta failed to
appeal from the denial of her loan modification applications suffers from the same defect.
Whatever the merits of these arguments, they are inappropriate for resolution at the
demurrer stage. (Noguera v. North Monterey County Unified Sch. Dist. (1980) 106
Cal.App.3d 64, 66 [matters outside the complaint will not be considered in evaluating a
demurrer]; see also Matteson v. Wagoner (1905) 147 Cal. 739, 744 [where only part of
the facts necessary to an affirmative defense appear in a complaint, the complaint is not
rendered vulnerable to a general demurrer].) We therefore conclude the trial court erred
in sustaining the demurrer to Rossetta’s negligence cause of action.
G. Intentional Infliction of Emotional Distress
Rossetta contends the alleged mishandling of her application for a loan
modification gave rise to a cause of action for intentional infliction of emotional distress.
“The elements of a prima facie case for the tort of intentional infliction of emotional
distress are: ‘ “ (1) extreme and outrageous conduct by the defendant with the intention of
causing, or reckless disregard of the probability of causing, emotional distress; (2) the
plaintiff’s suffering severe or extreme emotional distress; and (3) actual and proximate
causation of the emotional distress by the defendant’s outrageous conduct.’ ” (Melorich
Builders, Inc. v. Superior Court (1984) 160 Cal.App.3d 931, 935-936.)
“The standard set for measuring outrageous conduct indicates the qualifying
conduct must be so outrageous in character and so extreme in degree as to go beyond all
possible bounds of decency and to be regarded as atrocious and utterly intolerable in a
civilized community.” (Melorich Builders, Inc. v. Superior Court, supra, 160
modification prior to January 1, 2013, or who have been evaluated or afforded a fair
opportunity to be evaluated consistent with the requirements of this section, unless there
has been a material change in the borrower’s financial circumstances since the date of the
borrower’s previous application and that change is documented by the borrower and
submitted to the mortgage servicer.”
40

Cal.App.3d at p. 936.) The complaint alleges CitiMortgage acted outrageously by
leading Rossetta, a cancer survivor, to believe she would receive a loan modification,
making material misrepresentations concerning the status of her loan modification
applications, and mishandling her application materials.
The mishandling of a loan modification may, in some circumstances, constitute
conduct so outrageous as to allow a cause of action for intentional infliction of emotional
distress. (See, e.g., Ragland v. U.S. Bank Nat. Assn. (2012) 209 Cal.App.4th 182, 188-
189 [denying summary judgment on cause of action for intentional infliction of emotional
distress where a trier of fact could find the lender induced the borrower to default,
purposefully refused payment, then sold the home in foreclosure].) But Rossetta’s
allegations do not rise to that level. (See, e.g., Helmer v. Bank of America, N.A. (E.D.
Cal. Mar. 22, 2013, No. CIV S-12-0733 KJM-GGH) 2013 U.S. Dist. LEXIS 40707, *16-
17 [allegation that lender induced borrower to default was not sufficient to show reckless
or intentional behavior]; Becker v. Wells Fargo Bank, N.A. (E.D. Cal. Nov. 30, 2012, No.
2:10-cv-02799 LKK KJN PS) 2012 U.S. Dist. LEXIS 170729, *48 [allegation that lender
failed to make good on alleged promise to grant loan modification quickly if borrower
followed certain instructions was not sufficiently outrageous to support cause of action
for intentional infliction of emotional distress]; Mehta v. Wells Fargo Bank, N.A. (S.D.
Cal. 2010) 737 F.Supp.2d 1185, 1204 [allegation that mortgage lender broke a promise
not to foreclose during pendency of an application for a loan modification was not
sufficiently outrageous to support cause of action for intentional infliction of emotional
distress].)
Although Rossetta undoubtedly suffered frustration and anxiety in her attempts to
secure a loan modification, the alleged mishandling of her loan modification applications
does not constitute conduct so extreme, outrageous, or outside the bounds of civilized
society as to support a cause of action for intentional infliction of emotional distress, even
assuming CitiMortgage knew she was battling cancer. The trial court properly sustained
41
the demurrer to the cause of action for intentional infliction of emotional distress without
leave to amend.
H. Unfair Competition Law
Next, Rossetta argues the trial court erred in sustaining the demurrer to her cause
of action for violations of the Unfair Competition Law, Business and Professions Code
section 17200 et seq. The trial court sustained the demurrer on the grounds that the
complaint fails to allege an underlying unfair practice and fails to allege facts establishing
that Rossetta has standing to bring an Unfair Competition Law cause of action. Rossetta
challenges both of these determinations. We address them, as Rossetta does, in reverse
order.
1. Standing
A private party has standing to bring a Unfair Competition Law action only if he
or she “has suffered injury in fact and has lost money or property as a result of the unfair
competition.” (Bus. & Prof. Code, § 17204 (section 17204).) To plead standing, a
plaintiff must “(1) establish a loss or deprivation of money or property sufficient to
qualify as injury in fact, i.e., economic injury, and (2) show that that economic injury was
the result of, i.e., caused by, the unfair business practice . . . that is the gravamen of the
claim.” (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 322.) There are
“innumerable ways in which economic injury from unfair competition may be shown. A
plaintiff may (1) surrender in transaction more, or acquire in a transaction less, than he or
she otherwise would have; (2) have a present or future property interest diminished; (3)
be deprived of money or property to which he or she has a cognizable claim; or (4) be
required to enter into a transaction, costing money or property, that would otherwise have
been unnecessary.” (Id. at p. 323.) “It suffices to say that . . . a private plaintiff filing
suit . . . must establish that he or she has personally suffered [economic] harm.” (Ibid.)
Relying on Bushell Rossetta argues she suffered economic harm as a result of the
time and money she spent responding to CitiMortgage’s demands. CitiMortgage
42
responds that Bushell does not address standing under section 17204 and, in any case,
wasted time does not constitute an economic injury. These points, though well-taken, do
not resolve the question of standing as they do not address the argument that Rossetta
spent money pursuing a loan modification. (See Reichman v. Poshmark, Inc. (S.D. Cal.
Jan. 3, 2017, No. 16-cv-2359 DMS (JLB)) 2017 U.S. Dist. LEXIS 36371, *16 [“waste of
time, aggravation, and stress do not constitute loss or deprivation of money or property
sufficient to satisfy the economic injury requirement”].)
As previously discussed, costs incurred in preparing and assembling materials for
a single loan modification application (e.g., copy costs and postage) fail to establish the
element of damages under the maxim de minimis non curat lex—the law does not
concern itself with trifles. (See Lueras, supra, 221 Cal.App.4th at p. 79.) But the
question of injury-in-fact is different from the question of damages. (See Clayworth v.
Pfizer, Inc. (2010) 49 Cal.4th 758, 789 [section 17204 does not require “that plaintiffs
prove compensable loss at the outset”].) To establish standing under section 17204, a
plaintiff need only “allege an ‘ “identifiable trifle” ’ [citation] of economic injury.”
(Kwikset Corp. v. Superior Court, supra, 51 Cal.4th at p. 330, fn. 15.) We conclude the
complaint adequately alleges the required trifle.18
The complaint alleges Rossetta spent “a significant amount of time, energy and
resources in her attempts to obtain the loan modifications.” (Italics added.) The term
“resources” encompasses both economic and non-economic losses, and is therefore vague
as to whether Rossetta suffered the requisite economic harm. (See Meriam-Webster’s
18 The Lueras court concluded that costs incurred in preparing and assembling materials
for a loan modification application are “de minimis” and “not sufficient to qualify as
injury in fact under section 17204.” (Lueras, supra, 221 Cal.App.4th at p. 82.) Although
we agree with the court’s characterization of such costs as “de minimis,” we respectfully
disagree with the conclusion that “de minimis” costs cannot constitute injury-in-fact for
purposes of section 17204.
43

Collegiate Dict. (11th ed. 2006) p. 1061, col. 2 [defining “resource” to include “a source
of supply or support,” “a natural source of wealth or revenue,” “a natural feature or
phenomenon that enhances the quality of human life,” “something to which one has
recourse in difficulty,” “a possibility of relief or recovery” and “an ability to meet and
handle a situation”].) However, the complaint also alleges Rossetta repeatedly sent
documents to CitiMortgage via United Parcel Service (UPS), and attaches the relevant
invoices. Reading these allegations liberally, and construing them in the context of the
complaint as a whole, we conclude Rossetta sufficiently alleges she suffered economic
harm as a result of the alleged mishandling of her loan modification application
materials.19 We therefore conclude Rossetta adequately alleges standing to pursue a
cause of action under the Unfair Competition Law.
2. Fraudulent and Unfair Practices
Having concluded that Rossetta has standing, we next consider whether the
complaint alleges a cause of action under the Unfair Competition Law. The Unfair
Competition Law prohibits any “unlawful, unfair or fraudulent business act or practice.”
(Bus. & Prof. Code, § 17200.) Because the statute is written in the disjunctive, it
prohibits three separate types of unfair competition: (1) unlawful acts or practices, (2)
unfair acts or practices, and (3) fraudulent acts or practices. (Cel-Tech Communications,
Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180 (Cel-Tech).) The
trial court concluded the complaint fails to allege a cause of action under any prong.
Relying on Majd v. Bank of America, N.A. (2015) 243 Cal.App.4th 1293 (Majd),
Rossetta argues the complaint alleges a cause of action under the “fraud” and “unfair”
prongs. Specifically, Rossetta argues CitiMortgage violated the fraud and unfair prongs
19 We decline to consider Rossetta’s alternative argument that she incurred economic
harm as a result of having incurred fees and penalties which are not alleged to have been
paid.
44

by denying her application for a loan modification on the “false” grounds that she failed
to submit necessary documents. The trial court did not consider this theory, which
Rossetta offers for the first time on appeal. (See Dudley v. Department of Transportation
(2001) 90 Cal.App.4th 255, 259 [appellant may advance a new theory as to why the
allegations of the complaint state a cause of action on appeal from a demurrer dismissal
without leave to amend].) We conclude the complaint adequately alleges a cause of
action under the “fraud” and “unfair” prongs of the Unfair Competition Law.
20
“A business practice is ‘fraudulent’ within the meaning of [Business and
Professions Code] section 17200 if it is ‘likely to deceive the public. [Citations.] It may
be based on representations to the public which are untrue, and “ ‘also those which may
be accurate on some level, but will nonetheless tend to mislead or deceive. . . . A
perfectly true statement couched in such a manner that is likely to mislead or deceive the
consumer, such as by failure to disclose other relevant information, is actionable under’ ”
the [Unfair Competition Law]. [Citations.] The determination as to whether a business
practice is deceptive is based on the likely effect such practice would have on a
reasonable consumer.’ ” (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342,
1380.) “A ‘fraudulent’ activity includes any act or practice likely to deceive the public,
even if no one is actually deceived.” (Jolley, supra, 213 Cal.App.4th at p. 907; see
Brakke v. Economic Concepts, Inc. (2013) 213 Cal.App.4th 761, 772 [“ ‘Unlike common
law fraud, a Business and Professions Code section 17200 violation can be shown even
without allegations of actual deception, reasonable reliance and damage’ ”].)
Our Supreme Court has not yet established a test for determining whether a
business practice in a consumer case is “unfair.” (See Zhang v. Superior Court (2013) 57
20 Rossetta does not contend—and we do not consider—whether the complaint
adequately alleges a cause of action under the “unlawful” prong of the Unfair
Competition Law.
45

Cal.4th 364, 380, fn. 9 [“The standard for determining what business acts or practices are
‘unfair’ in consumer actions under the [Unfair Competition Law] is currently
unsettled”].) Prior to the Supreme Court’s opinion in Cel-Tech, courts applied a
balancing test to determine whether a practice was “unfair” under the Unfair Competition
Law. (See, e.g., Klein v. Earth Elements, Inc. (1977) 59 Cal.App.4th 965, 969-970.)
Specifically, courts would balance the impact of the practice on the alleged victim,
against the reasons, justifications and motives of the alleged wrongdoer. (Ibid.) The
Supreme Court rejected this approach in Cel-Tech, an anti-competitive practices case,
holding that a cause of action for unfair business practices must “be tethered to some
legislatively declared policy or proof of some actual or threatened impact on
competition.” (Cel-Tech, supra, 20 Cal.4th at pp. 186-187.) Although Cel-Tech
disapproved of consumer cases applying the balancing test, the Supreme Court expressly
limited its holding to anti-competitive practices cases, stating: “Nothing we say relates to
actions by consumers.” (Id. at p. 187, fn. 12.) Following Cel-Tech, a split in authority
has developed concerning the standard for consumer claims under the “unfair” prong of
the Unfair Competition Law. (Compare Smith v. State Farm Mutual Automobile Ins. Co.
(2001) 93 Cal.App.4th 700, 718-719 [adopting the balancing test] with Gregory v.
Albertson’s, Inc. (2002) 104 Cal.App.4th 845, 854 [adopting the “tether[ing]” test]; see
also Camacho v. Automobile Club of Southern California (2006) 142 Cal.App.4th 1394,
1403 [adopting the test for unfairness set forth in 15 U.S.C. § 45(n)].) Another panel of
this court has adopted the balancing test (Progressive West Ins. Co. v. Superior Court
(1999) 135 Cal.App.4th 263, 285-286) and, in the absence of any discussion of the
appropriate standard by the parties, we do the same.
The complaint alleges CitiMortgage subjected Rossetta to a fraudulent application
process, stringing her along with false assurances that a loan modification would be
forthcoming, and then claiming, also falsely, that Rossetta failed to supply requested
documents. The complaint further alleges that CitiMortgage intentionally delayed the
46
application process by demanding that Rossetta submit the same documents over and
over again, all in an attempt to increase arrears, penalties, and fees, resulting in an
incurable default. These allegations adequately support a cause of action under the
“fraudulent” and “unfair” prongs of the Unfair Competition Law. (See Rufini, supra, 227
Cal.App.4th at p. 310 [allegation that lender “pretended to engage in loan modification
efforts while actually intending to foreclose” stated Unfair Competition Law cause of
action under “fraudulent” and “unfair” prongs]; Majd, supra, 243 Cal.App.4th at p. 1304
[borrower sufficiently alleged violation of the Unfair Competition Law based, in part, on
lender’s false assertion that he failed to provide required documentation].) We therefore
conclude the trial court erred in sustaining the demurrer to the Unfair Competition Law
cause of action.21
I. Conversion
Finally, Rossetta contends the trial court erred in sustaining the demurrer to the
cause of action for conversion in the first amended complaint.
22 Rossetta’s conversion
cause of action is based on the theory that the assignment of the deed of trust to
CitiMortgage in October 2012 was invalid. The trial court correctly sustained the
demurrer to Rossetta’s conversion cause of action.
21 We reject CitiMortgage’s argument, based on Mangini, supra, 230 Cal.App.3d at pp.
1155-1156, that the Unfair Competition Law only applies to ongoing conduct. As the
Court of Appeal for the First District, Division Three, has explained, in rejecting an
identical argument: “That was the state of the law when Mangini was decided, but the
following year the Legislature amended [Business and Professions Code] section 17200
to state that it applies to any unlawful ‘ “act or practice,” presumably permitting
invocation of the [Unfair Competition Law] based on a single instance of unfair
conduct.’ ” (Rufini, supra, 227 Cal.App.4th at p. 311.)
22 During oral argument, Rossetta’s counsel informed the court that the claim for
declaratory relief was “moot.” Without deciding whether this claim is properly
characterized as moot, we accept Rossetta’s representation that the claim has been
abandoned.
47

“An essential step in the process of securitizing a loan is the transfer of the
promissory note and deed of trust into a trust.” (Mendoza v. JPMorgan Chase Bank, N.A.
(2016) 6 Cal.App.5th 802, 806.)23 The complaint implies that Rossetta’s loan, which
closed in September 2005, was eligible for inclusion in the 2006-1 Trust, which closed on
August 30, 2006. However, there is nothing in the record to suggest that CitiMortgage
attempted or intended to securitize the loan. To the contrary, the judicially noticeable
assignments reveal that MERS assigned the deed of trust to CitiMortgage on October 12,
2012, and CitiMortgage assigned the deed of trust to the M4 REMIC Trust 1 on April 1,
2014. The complaint does not allege—and nothing suggests—that CitiMortgage
attempted or intended to securitize the loan by transferring the promissory note and deed
of trust to the 2006-1 Trust.
The parties devote considerable attention to the question, left open by our
Supreme Court’s recent opinion in Yvanova v. New Century Mortgage Co. (2016) 62
Cal.4th 919, as to whether a borrower has standing to bring a preemptive action
challenging the validity of a deed of trust assignment to a foreclosing party. (Id. at pp.
924, 943 [holding that a borrower has standing to challenge a nonjudicial foreclosure
based on errors in the assignment by which the foreclosing party purportedly took a
beneficial interest in the deed of trust, but leaving open the question whether a borrower
has standing in the pre-foreclosure context]; and compare Saterbak v. JPMorgan Chase
Bank, N.A., supra, 245 Cal.App.4th at p. 815 [holding California law precludes borrowers
23 “Mortgage-backed securities are created through a complex process known as
‘securitization.’ (See Levitin & Twomey, Mortgage Servicing (2011) 28 Yale J. on Reg.
1, 13 [‘a mortgage securitization transaction is extremely complex . . .’].) In simplified
terms, ‘securitization’ is the process where (1) many loans are bundled together and
transferred to a passive entity, such as a trust, and (2) the trust holds the loans and issues
investment securities that are repaid from the mortgage payments made on the loans.
[Citation.] Hence, the securities issued by the trust are ‘mortgage-backed.’ ” (Glaski v.
Bank of America (2013) 218 Cal.App.4th 1079, 1082, fn. 1.)
48

from bringing preemptive actions to determine whether foreclosing parties have authority
to foreclose because such actions “ ‘would result in the impermissible interjection of the
courts into a nonjudicial scheme [i.e. nonjudicial foreclosures] enacted by the California
Legislature’ ”] with Lundy v. Selene Finance, LP (N.D. Cal. Mar. 17, 2016, No. 15-cv-
05676-JST) 2016 U.S. Dist. LEXIS 35547, *39-40 [predicting that the California
Supreme Court would likely limit a bar on pre-foreclosure suits only to “plaintiffs who
lack any ‘specific factual basis’ for bringing their claims”].) We need not decide whether
Rossetta has standing to challenge alleged deficiencies in the assignment of the deed of
trust from MERS to the 2006-1 Trust because, on the face of the complaint, there was no
such assignment. We therefore conclude the trial court properly sustained the demurrer
to the cause of action for conversion without leave to amend.

Outcome: The judgment of dismissal in favor of CitiMortgage is reversed. The order
sustaining the demurrer is affirmed in part and reversed in part. The order is reversed as to the causes of action for negligence (fifth cause of action) and violations of the Unfair Competition Law (seventh cause of action). The trial court is directed to grant Rossetta leave to amend the causes of action for intentional misrepresentation (first cause of action) and promissory estoppel (fourth cause of action). In all other respects, the judgment is affirmed. The parties shall bear their own costs on appeal.

c 078916 by DinSFLA on Scribd

KYLE BLACKSTONE, ET AL.,
v.
DINESH SHARMA, ET AL.
TERRANCE SHANAHAN, SUBSTITUTE. TRUSTEE, ET AL.,
v.
SEYED MARVASTIAN, ET AL.

Opinion by SALMON, J.

This consolidated appeal originates from two foreclosure cases filed in the Circuit Court for Montgomery County. In both cases, substitute trustees (collectively, “appellants”) acting on behalf of Ventures Trust 2013-I-H-R (“Ventures Trust”), a statutory trust formed under the laws of the State of Delaware, filed orders to docket foreclosure suits against homeowners in the State of Maryland. The circuit court judges who considered the cases dismissed the actions, determining that pursuant to the Maryland Collection Agency Licensing Act (“MCALA”), codified at Maryland Code (1992, 2015 Repl. Vol.), Business Regulation Article (“B.R.”) § 7-101, et seq., Ventures Trust was required to be licensed as a collection agency and, because Ventures Trust had not obtained such a license, any judgment entered as a result of the foreclosure actions would be void. The dismissal of these foreclosure actions, without prejudice, presents us with two questions:

1. Under the MCALA, does a party who authorizes a trustee to initiate a foreclosure action need to be licensed as a collection agency before filing suit?

2. If the answer to question one is in the affirmative, does the licensing requirement apply to foreign statutory trusts such as Ventures Trust?

We shall answer “yes” to both questions and affirm the judgments entered by the Circuit Court for Montgomery County.

BACKGROUND

Appeal No. 1524

On August 4, 2006, Dinesh Sharma, Santosh Sharma, and Ruchi Sharma^[1](collectively “the Sharmas”) executed a deed of trust that encumbered real property in Potomac, Maryland, in order to secure a $1,920,000 loan. Washington Mutual Bank, FA was the lender. The Sharmas, in December 2007, defaulted on the loan by failing to make payments when due.

Ventures Trust, by its trustee MCM Capital Partners, LLC (“MCM Capital”), acquired ownership and “all beneficial interest” of the loan on October 9, 2013. The substitute trustees^[2] appointed by Ventures Trust filed an order to docket, initiating the foreclosure action, on November 25, 2014. The Sharmas owed $3,008,536.23 on the loan as of November 25, 2014.

The Sharmas responded to the foreclosure action by filing a counterclaim which was later severed by order of the circuit court. They also filed a motion to dismiss or enjoin the foreclosure sale pursuant to Md. Rule 14-211.^[3] The substitute trustees moved to strike the Sharmas’ motion, which the court granted on May 7, 2015. The Sharmas filed a motion to alter or amend the May 7th order. On June 22, 2015 the court vacated its May 7th order, denied the substitute trustees’ motion to strike the Sharmas’ motion to dismiss, and set a hearing date for arguments concerning the motion to dismiss.

Following a hearing, the court, on August 28, 2015, issued an opinion and order granting the motion to dismiss the foreclosure action without prejudice. In its written opinion the circuit court determined that, pursuant to the MCALA, Ventures Trust was a collection agency and was therefore required to be licensed before attempting to collect on the deed of trust. The circuit court ruled that because Ventures Trust was not licensed as a collection agency, it had no right to file a foreclosure action. In its written opinion, the court also rejected Ventures Trust’s contention that it was a “trust company” and was therefore exempt from MCALA’s licensure requirements. The substitute trustees noted a timely appeal.

Appeal No. 1525

On June 23, 2006, Seyed and Sima Marvastian executed a deed of trust on property in Bethesda, Maryland in order to secure a $1,396,500 loan. Premier Mortgage Funding, Inc. was the lender. The Marvastians defaulted on the loan by failing to make payments when due in December 2012.

Ventures Trust by its trustee MCM Capital acquired the Marvastians’ loan in February 2014. On October 20, 2014, the substitute trustees filed an order to docket, initiating the foreclosure process. At the time of filing, the substitute trustees alleged that the Marvastians owed $1,632,303.26 on the loan.

The Marvastians responded by filing a counterclaim, which was severed by order of the circuit court. They also filed a motion to dismiss or stay the foreclosure sale pursuant to Md. Rule 14-211. Following extensive briefing and a hearing, the court granted the Marvastians’ motion to dismiss, albeit without prejudice. The judge’s reasons for dismissing the case were exactly the same as those given for dismissing the foreclosure case that is the subject of Appeal No. 1524.

I.

STANDARD OF REVIEW

[B]efore a foreclosure sale takes place, the defaulting borrower may file a motion to stay the sale of the property and dismiss the foreclosure action. In other words, the borrower, may petition the court for injunctive relief, challenging the validity of the lien or . . . the right of the [lender] to foreclose in the pending action. The grant or denial of injunctive relief in a property foreclosure action lies generally within the sound discretion of the trial court. Accordingly, we review the circuit court’s denial of a foreclosure injunction for an abuse of discretion. We review the trial court’s legal conclusions de novo.

Hobby v. Burson, 222 Md. App. 1, 8 (2015) (internal citations and quotation marks omitted). See also Svrcek v. Rosenberg, 203 Md. App. 705, 720 (2012). In the two cases that are the subject of this appeal, the trial judges based their rulings on their legal conclusions. Thus we review those conclusions de novo.

II.

In Finch v. LVNV Funding, LLC, 212 Md. App. 748, 758-64 (2013) we stated that without a license, a collection agency has no authority to file suit against the debtor. Accordingly, a “judgment entered in favor of an unlicensed debt collector constitutes a void judgment[.]” Id. at 764. See also Old Republic Insurance v. Gordon, 228 Md. App. 1, 12-13 (2016) (footnote omitted).

Maryland Code B.R. § 7-101(c) defines a collection agency as follows:

“Collection agency” means a person who engages directly or indirectly in the business of:

(1)(i) collecting for, or soliciting from another, a consumer claim; or

(ii) collecting a consumer claim the person owns, if the claim was in default when the person acquired it;

(2) collecting a consumer claim the person owns, using a name or other artifice that indicates that another party is attempting to collect the consumer claim;

(3) giving, selling, attempting to give or sell to another, or using, for collection of a consumer claim, a series or system of forms or letters that indicates directly or indirectly that a person other than the owner is asserting the consumer claim; or

(4) employing the services of an individual or business to solicit or sell a collection system to be used for collection of a consumer claim.

(Emphasis added.)

As used in the Business Regulations Article, “person” means “an individual . . . trustee . . . fiduciary, representative of any kind, partnership, firm, association, corporation, or other entity.” B.R. § 1-101(g). B.R. 7-101(e) defines a “consumer claim” as meaning a “claim that: 1) is for money owed or said to be owed by a resident of the State; and 2) arises from a transaction in which, for a family, household, or personal purpose, the resident sought or got credit, money, personal property, real property, or services.”

Before the law was amended in 2007, MCALA applied only to businesses that collected debts owed to another person. Old Republic, 228 Md. App. at 16. In 2007, the statute was broadened to include persons who engage in the business of “collecting a consumer claim the person owns, if the claim was in default when the person acquired it[.]” B.R. § 7-101(c)(1)(ii).

The legislative history of the 2007 amendment, insofar as here pertinent, was set forth in Old Republic as follows:

[T]he legislative history makes clear that the General Assembly enacted the 2007 amendments to regulate “debt purchasers,” who were exploiting a loophole in the law to bypass the MCALA’s licensing requirements.

The Senate Finance Committee Report on House Bill 1324 explained:

House Bill 1324 extends the purview of the State Collection Agency Licensing Board to include persons who collect consumer claims acquired when the claims were in default. These persons are known as “debt purchasers” since they purchase delinquent consumer debt resulting from credit card transactions and other bills; these persons then own the debt and seek to collect from consumers like other collection agencies who act on behalf of original creditors.

Charles T. Turnbaugh, Commissioner of Financial Regulation and Chairman of the Maryland Collection Agency Licensing Board offered the following testimony:

[T]he evolution of the debt collection industry has created a “loophole” used by some entities as a means to circumvent current State collection agency laws. Entities, such as “debt purchasers” who enter into purchase agreements to collect delinquent consumer debt rather than acting as an agent for the original creditor, currently collect consumer debt in the State without complying with any licensing or bonding requirement. The federal government has recognized and defined debt purchasers as collection agencies, and requires that these entities fully comply with the Federal Fair Debt Collection Practices Act.

This legislation would include debt purchases within the definition of “collection agency,” and require them to be licensed by the Board before they may collect consumer claims in this State. Other businesses that are collecting their own debt continue to be excluded from this law.

Susan Hayes, a member of the Maryland Collection Agency Licensing Board, submitted the following in support of the bill:

The traditional method of dealing with distressed accounts has been for creditors to assign these accounts to a collection agency. These agencies, operating under a contingency fee arrangement with the creditor, keep a portion of the amount recovered and return the balance to the creditor. Today, a different option is available — selling accounts receivables to a third party debt collector at a discount.

* * *

HB 1324 closes a loophole in licensing of debt collectors under Maryland law. Just because a professional collector of defaulted debt “purchases” the debt, frequently on a contingent fee basis, should not exclude them from the licensing requirements of Maryland law concerning debt collectors.

Id. at 19-20.

Ventures Trust is in the business of buying from banks, at a discount, mortgages and deeds of trust that are in default. In the cases here at issue, there is no dispute that: 1) when Ventures Trust purchased the loans in question, the loans were in default; and 2) Ventures Trust, by filing (through its agents — the trustees) the foreclosure actions it was attempting to collect “consumer debt.”

As we said in Old Republic, the legislative history of the 2007 amendments to the MCALA make it “clear that the General Assembly had a specific purpose in mind in adopting the 2007 amendments, i.e., including [under the Act] debt purchasers, people who purchased defaulted accounts receivable at a discount, within the purview of MCALA.” Id. at 21. Money owed on a note secured by a deed of trust or a mortgage certainly qualifies as an account receivable. And Ventures Trust is in the business of buying up defaulted mortgages or deeds of trust and instituting foreclosure actions to obtain payment.

Appellants contend that the MCALA does not require a party to be licensed as a collection agency in order to file a foreclosure action. They support that contention with the following argument:

Foreclosures are not mentioned [in B.R. § 7-101(c)], although the Legislature clearly knew how to do so if it had wished. There is no specific statement in the MCALA to the effect that “doing business” as a “collection agency” includes actions taken to enforce a security interest, such as foreclosing on a deed of trust, nor is there any specific statement that such actions would fall into the definition of “collecting” a consumer claim. Neither this Court nor the Court of Appeals has ever ruled that pursuing a foreclosure proceeding amounts to “doing business” in Maryland as a “collection agency” under the Act, and for good reason. As the Legislature has made clear in numerous statutes, a foreign entity — including a statutory trust such as Ventures Trust — pursuing foreclosure is not “doing business” in Maryland[.]

Appellants emphasize that Md. Code (2014 Repl. Vol.), Corporations and Associations Article § 12-902(a) requires any foreign statutory trust doing business in Maryland to register with the State Department of Assessments and Taxation (“SDAT”). Section 12-908(a)(5) provides, however, that “[f]oreclosing mortgages and deeds of trust on property in this State” is not considered “doing business.”

According to appellants, because of “the Legislature’s” express decision to make clear that a foreclosure proceeding brought by a foreign statutory trust is by definition, not doing business in Maryland, a foreign trust does not need to be licensed as a collection agency to file a Maryland foreclosure action. That argument would be strong were it not for the fact (relied upon by both circuit court judges who ruled against appellants below) that section 12-908(a) of the Corporations and Associations Article expressly states that the “doing business” exception granted to foreign trusts is “for the purposes of this subtitle[.]” In other words, the foreign trust exception does not apply to the MCALA.

It is true, as appellants point out, that no Maryland appellate court has ever held that a foreign trust needs a license under the MCALA to file a foreclosure action. But the matter has simply not been addressed by any Maryland appellate court.

Judge Ellen Hollander, in Ademiluyi v. PennyMac Mortgage Investment Trust Holdings I, LLC, et al., 929 F.Supp.2d 502, 520-24 (D. Md. 2013) did hold that a MCALA license was needed to bring a foreclosure action based on the allegations set forth in the complaint filed in that case. In Ademiluyi, the holder of the mortgage (PennyMac), filed a foreclosure action on a mortgage even though (it was alleged) that PennyMac purchased the mortgage after it was in default and did not have a debt collection license. Id. at 520. The issue in that case was whether, based on the allegations in the complaint, PennyMac needed a license prior to bringing a foreclosure action. Id.

After a lengthy discussion, Judge Hollander said:

I am persuaded that, even if actions pertinent to mortgage foreclosure are taken in connection with enforcement of a security interest in real property, such actions may constitute debt collection activity under the MCALA. Therefore, based on the facts alleged by plaintiff, PennyMac Holdings may qualify as a collection agency under the MCALA with respect to mortgage debt it seeks to collect, including through judicial foreclosure proceedings or other conduct pertinent to foreclosure.

Id. at 523.

Support for Judge Hollander’s conclusion can be found in a twenty-one page order, dated December 8, 2013, signed by Gordon M. Cooley, Chairperson of the Maryland State Collection Agency Licensing Board.^[4] Mr. Cooley ordered several entities, including NPR Capital, LLC, to stop attempting to collect consumer debts by filing foreclosure actions. At page 17 of his order, the Acting Commissioner determined, inter alia, that NPR Capital violated the provisions of the MCALA (specifically B.R. § 7-401(a)) by attempting to collect a debt by filing a foreclosure action at a time when it was not licensed as a collection agency.

When interpreting the MCALA, the ruling by Commissioner Cooley is of consequence because, as the Court of Appeals recently said, it is well established that appellate courts “should ordinarily give `considerable weight’ to `an administrative agency’s interpretation and application of the statute'” it is charged with administering. Board of Liquor License Commissioners for Baltimore City v. Kougl, 451 Md. 507, 514 (2017), (quoting Maryland Aviation Administration v. Noland, 386 Md. 556, 572 (2005)). As can be seen, the Board that administers the MCALA statute is of the view that the MCALA covers persons who attempt to collect consumer debt by filing a foreclosure action.

In support of their position, appellants point out, accurately, that nowhere in the legislative history of the 2007 amendment to the MCALA, is there any mention of foreclosure actions. From this, appellants ask us to infer that the General Assembly did not intend that persons who purchase defaulted mortgages or deeds of trust and then file foreclosure actions needed to purchase a debt collection license. In our view, the absence of a specific reference in the legislative history is not dispositive because, insofar as the issue here presented is concerned, the MCALA is unambiguous.

With exceptions not here relevant except the one discussed in Part III, infra, “a person must have a license whenever the person does business as a collection agency in the State.” B.R. § 7-301(a). The definition of a “collection agency” has five elements. Old Republic, 228 Md. App. at 23 (Nazarian, J. dissenting). Those elements are:

“[a] a person who [b] engages directly or indirectly in the business of . . . collecting a [c] consumer claim the [d] person owns, [e] if the claim was in default when the person acquired it.” BR § 7-101(c)(ii).

Id.

Ventures Trust admits that it meets elements (a), (c), (d) and (e). It argues, however, that element (b) is not met because it does not “engage in the business of collecting” debt by filing foreclosure actions. Boiled down to its essence, appellants’ “not in the business” argument is based on the contention that the General Assembly intended to exempt from the MCALA persons who attempt to collect consumer debt by bringing foreclosure actions. We can find no such intent in the words of the statute or in anything in the Act’s legislative history. We therefore reject that contention and hold that unless some exception to the MCALA is applicable, the licensing requirements of the MCALA applies to persons who attempt to collect a consumer debt by bringing a foreclosure action.

III.

The MCALA states: “This title does not apply to . . . a trust company[.]” B.R. § 7-102(b)(8). The statute does not define “trust company.” See B.R. § 7-101. Appellants claim that even if the MCALA licensing requirement applies to a person who brings a foreclosure action in order to enforce a consumer debt, the MCALA does not apply to Ventures Trust because it is a “trust company.” Black’s Law Dictionary (10th ed. 2014) defines “trust company” as “[a] company that acts as a trustee for people and entities and that sometimes also operates as a commercial bank.” The appellants claim that Ventures Trust meets that definition because, purportedly, Ventures Trust “certainly holds and maintains trust property.”

We pause at this point to discuss what the record reveals about Ventures Trust. In appellants’ filing with the Montgomery County Circuit Court, appellants’ counsel stated that Ventures Trust is the holder of the notes at issue, and that it is a statutory trust formed in Delaware under 12 DEL. CODE § 3801(g). Ventures Trust has two trustees. They are MCM Capital and Wilmington Federal Savings Fund Society, FSB doing business as Christiana Trust. In Appeal No. 1525, counsel for the substitute trustees orally told the motions judge that Ventures Trust was “like an account at Christiana Bank” and that Christiana Trust was the trustee of Ventures Trust. That representation was also made by counsel for the substitute trustee in that case in a supplemental memorandum where it was said: “Ventures Trust. 2013-I-H-R…, is the holding of a Federal Savings Bank[,] which serves as its co-trustee….”

Using the Black’s Law Dictionary (10th edition) definition of “trust company” set forth above, Ventures Trust does not fit within that definition. It does not act as a bank. Moreover, other entities act as trustees for it. There is nothing in the record that shows that Ventures Trust acts as a trustee for anyone.

Appellants also suggest that we use the slightly different definition of “trust company” set forth in Black’s Law Dictionary (5th ed. 1979) because that edition of Black’s was published “around the time of the 1977 amendment” that exempted trust companies from the MCALA. Black’s 1979 definition of “trust company” was as follows: “a corporation formed for the purpose of taking, accepting, and executing all such trusts as may be lawfully committed to it, and acting as testamentary trustee, executor, guardian, etc.” There is no indication in the record that Ventures Trust is a corporation or, as already mentioned, that it acts as a trustee for anyone. Therefore, Ventures Trust does not meet that definition either.

The words “trust company” is defined in Md. Code (2011 Repl. Vol.), Financial Institutions Article (“Fin. Institutions”) § 3-101(g) as meaning “an institution that is incorporated under the laws of this State as a trust company.” But that definition only applies to matters set forth in the Fin. Institutions Article section 3-101(a). In Fin. Institutions §3-501(d), governing common trust funds, the term “trust companies” is defined as including a national banking association that has powers similar to those given to a trust company under the laws of “this State.” That definition, however, only applies to subtitle 5 of the Financial Institutions Article. Md. Code (2011 Repl. Vol.), Estates and Trusts Article§ 1-101(v) also contains a definition of “Trust Company” but it applies only to laws governing the “estates of decedents.” See Estates & Trusts Article § 1-101(a). Lastly, the term “statutory trust” is defined in Md. Code (2011 Repl. Vol.), Corporations and Associations Article § 12-101(h) as meaning: an unincorporated business, trust, or association:

(i) Formed by filing an initial certificate of trust under § 12-204 of this title; and

(ii) Governed by a governing instrument.

(2) “Statutory trust” includes a trust formed under this title on or before May 31, 2010, as a business trust, as the term business trust was then defined in this title.

Ventures Trust admits that it does not fit within any of the above definitions of “trust company” or “statutory trust.” Moreover, even if it did meet one or more of those definitions, there is no indication that the legislature, in 1977, when it exempted “trust companies” from the MCALA, intended those definitions to be used. As appellants concede, we are thus left with the general definition of “trust company” as set forth in Black’s Law Dictionary. See Ishola v. State, 404 Md. 155, 161 (2008)(Dictionary definitions help clarify the plain meaning of a statute.).

The circuit court judge who dismissed the foreclosure action that is the subject of Appeal 1524 reached the following legal conclusion with which we are in complete accord:

MCALA expressly limits the scope of its license requirement exemptions to those “… provided in this title….” Md. Code Ann., Bus. Reg. § 7-301(a) (emphasis added). MCALA does not explicitly exempt “foreign statutory trusts” that bring foreclosure actions from its licensing requirements. See Bus. Reg. § 7-102(b). In fact, the term “foreign statutory trust” never appears in MCALA. See Bus. Reg. § 7-101, et seq. Thus, the General Assembly expressed a clear intent to subject foreign statutory trusts that bring foreclosure actions in Maryland, like Ventures Trust, to MCALA’s licensing requirements.

CONCLUSION

A debt purchaser that attempts to collect a consumer debt by bringing a foreclosure action is required to have a license unless some statutory exemption applies. Contrary to appellants’ contention, Ventures Trust is not a “trust company” within the meaning of the MCALA and must therefore obtain a debt collection license in accordance with the provisions of the MCALA before bringing a foreclosure action. Because Ventures Trust had no such license, it was barred from filing, through its agents, the two foreclosure actions here at issue.

JUDGMENTS AFFIRMED; COSTS TO BE PAID BY APPELLANTS.

[1] The Sharmas contend that Ruchi Sharma, though listed as a borrower on the deed of trust, was not intended to be listed as such and signed the deed of trust only as a witness. They allege that the deed of trust was altered after Ruchi signed it. Whether that allegation is true has no impact on our decision.

[2] The substitute trustees in Appeal No. 1524 are Kyle Blackstone, Terrance Shanahan, and William O’Neill. The substitute trustee in Case No. 1525 is Terrance Shanahan. At the time of the filing of the order to docket in Appeal No. 1525, Erik Yoder was also a substitute trustee, but he no longer is a party to this action.

[3] Rule 14-211(e) provides:

After the hearing on the merits, if the court finds that the moving party has established that the lien or the lien instrument is invalid or that the plaintiff has no right to foreclose in the pending action, it shall grant the motion and, unless it finds good cause to the contrary, dismiss the foreclosure action. If the court finds otherwise, it shall deny the motion.

[4] Mr. Cooley also signed the order in his capacity as the Acting Director of Financial Regulation for Maryland.

1. Publicly affirm that the Bank has completed a thorough and rigorous review of both the 2011 Russian mirror trading scheme as well as of President Trump’s accounts and those of his family members;
2. Provide the Committee with copies of any document, record, memo, correspondence, or other communication related to the 2011 Russian mirror trading scheme, including:
   a. The scope, purpose, findings, and conclusions of the Bank’s internal review;
   b. The names of all individuals and entities who participated in and benefited from the 2011 scheme, including but not limited to, individuals who are either subject to U.S. sanctions or are politically exposed persons as defined by guidance issued by the Federal Financial Institutions Examination Council;
   c. The origin, ultimate destination, and any beneficiaries of the funds transferred from Russia;
   d. The extent to which any party who participated in, or benefited from, the 2011 scheme continue to maintain accounts or a relationship with Deutsche Bank;
   e. The procedures your firm has in place, at account opening and on an ongoing basis, to manage the risks associated with customers connected to individuals known to be at high-risk for engaging in bribery, corruption, and money laundering;
   f. A list of employees within Deutsche Bank found to be involved in facilitating the 2011 scheme and the actions taken by Deutsche Bank to hold such individuals accountable; and
   g. The Bank’s analysis of any connections between the 2011 scheme and the broader scheme known as “The Global Laundromat,” “The Russian Laundromat,” or “The Moldovan Scheme,” including the involvement of Deutsche Bank employees and customers.
3. Provide the Committee with copies of any document, record, memo, correspondence, or other communication related to the internal review of the personal accounts of the President and his family, including:
   a. A discussion of the scope, purpose, findings and conclusions of the review;
   b. All communications and documentation relating to the underwriting of each loan made to President Trump and his immediate family members, including all assets and guarantees used to collateralize such loans;
   c. The timeframe when Deutsche Bank determined that Trump was a politically exposed person; and
   d. All due diligence conducted by the Bank required by the Bank Secrecy Act regarding Trump’s potential ties to senior Russian political leaders, oligarchs, and organized crime leaders, as well as potential violations of U.S. sanctions and anti-bribery statutes.
4. Appoint an independent auditor to verify the results of the review of the personal accounts of the President and his family and disclose the results of the auditor’s findings to the Committee as soon as reasonably practicable.

BLACKROCK ALLOCATION TARGET SHARES: SERIES S PORTFOLIO, et al., Plaintiffs,
v.
WELLS FARGO BANK, NATIONAL ASSOCIATION, et al., Defendants.
ROYAL PARK INVESTMENTS SA/NV, Individually and on Behalf of all Others Similarly Situated, Plaintiffs,
v.
WELLS FARGO BANK, N.A, as Trustee, Defendant.
NATIONAL CREDIT UNION ADMINISTRATION BOARD, as Liquidating Agent of U.S. Central Federal Credit Union, Western Corporate Federal Credit Union, Members United Corporate Federal Credit Union, Southwest Corporate Federal Credit Union, and Constitution Corporate Federal Credit Union, Plaintiff,
v.
WELLS FARGO BANK, NATIONAL ASSOCIATION, Defendant. and
NCUA GUARANTEED NOTES TRUST 2010-R1, NCUA GUARANTEED NOTES TRUST 2010-R2, NCUA GUARANTEED NOTES TRUST 2010-R3, NCUA GUARANTEED NOTES TRUST 2011-R2, NCUA GUARANTEED NOTES TRUST 2011-R4, NCUA GUARANTEED NOTES TRUST 2011-R5, and NCUA GUARANTEED NOTES TRUST 2011-M1, Nominal Defendants.
PHOENIX LIGHT SF LIMITED, et al., Plaintiffs,
v.
WELLS FARGO BANK, N.A., Defendant.
COMMERZBANK AG, Plaintiffs,
v.
WELLS FARGO BANK N.A., Defendant.

Amherst Advisory & Management, LLC, represented by Elisa Lee, New York City Law Department.

Blackrock Allocation Target Shares: Series S Portfolio, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Jai Kamal Chandrasekhar, Bernstein Litowitz Berger & Grossmann LLP, Jeroen Van Kwawegen, Bernstein Litowitz Berger & Grossmann LLP, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, Brett M. Middleton, Bernstein Litowitz Berger & Grossmann LLP, David R. Kaplan, Bernstein Litowitz Berger & Grossmann LLP, Lucas E. Gilmore, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP, Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP & Timothy Alan DeLange, Bernstein Litowitz Berger & Grossmann LLP.

Blackrock Core Bond Portfolio, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Jai Kamal Chandrasekhar, Bernstein Litowitz Berger & Grossmann LLP, Jeroen Van Kwawegen, Bernstein Litowitz Berger & Grossmann LLP, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, Brett M. Middleton, Bernstein Litowitz Berger & Grossmann LLP, David R. Kaplan, Bernstein Litowitz Berger & Grossmann LLP, Lucas E. Gilmore, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP, Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP & Timothy Alan DeLange, Bernstein Litowitz Berger & Grossmann LLP.

Kore Advisors, L.P., Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Brookfield Mortgage Opportunity Income Fund Inc., Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

MILLERTON ABS CDO LTD., Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Prudential Bank & Trust, FSB, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Prudential Retirement Insurance and Annuity Company, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Prudential Trust Company, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

The Gilbraltar Life Insurance Company, Ltd., Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

The Prudential Insurance Company of America, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

THE PRUDENTIAL INVESTMENT PORTFOLIOS 2;, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

THE PRUDENTIAL INVESTMENT PORTFOLIOS 9, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

THE PRUDENTIAL INVESTMENT PORTFOLIOS INC., Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC. 17, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

THE PRUDENTIAL SERIES FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

TIAA GLOBAL PUBLIC INVESTMENTS, MBS LLC, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

TIAA-CREF Life Insurance Company, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

CREF BOND MARKET ACCOUNT, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

CREF SOCIAL CHOICE ACCOUNT, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

TIAA-CREF BOND FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

TIAA-CREF BOND PLUS FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

TIAA-CREF LIFE BOND FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

TIAA-CREF SHORT-TERM BOND FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

TIAA-CREF Social Choice Bond Fund, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

BLACKROCK COREALPHA BOND FUND E, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

BLACKROCK COREALPHA BOND MASTER PORTFOLIO, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

BLACKROCK COREPLUS BOND FUND B, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

BLACKROCK DYNAMIC HIGH INCOME – STRUCTURED CREDIT PORTFOLIO, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Blackrock Enchanted Government Fund, Inc., Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

BLACKROCK FIXED INCOME GLOBALALPHA MASTER FUND LTD., Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

BLACKROCK INCOME TRUST, INC., Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

BLACKROCK LONG DURATION ALPHAPLUS BOND FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

BLACKROCK MASTER TOTAL RETURN PORTFOLIO OF MASTER BOND LLC, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

BLACKROCK MULTI-SECTOR INCOME TRUST, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Blackrock Strategic Income Oppurtunities Portfolio, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

BLACKROCK TOTAL RETURN PORTFOLIO (INS- SERIES), Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

BLACKROCK US MORTGAGE, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

AST PIMCO TOTAL RETURN BOND PORTFOLIO, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Fixed Income Shares (Series R), Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

FIXED INCOME SHARES: SERIES C, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

FIXED INCOME SHARES: SERIES LD, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Fixed Incomes Shares: Series M, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

FIXED INCOME SHARES: SERIES M, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

LVS I LLC, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

LVS II LLC, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PACIFIC BAY CDO, LTD., Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PCM Fund, Inc., Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO ABSOLUTE RETURN STRATEGY 3D OFFSHORE FUND LTD., Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Absolute Return Strategy II Master Fund LDC, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO ABSOLUTE RETURN STRATEGY III MASTER FUND LDC, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO ABSOLUTE RETURN STRATEGY IV IDF LLC, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO ABSOLUTE RETURN STRATEGY IV MASTER FUND LDC, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO ABSOLUTE RETURN STRATEGY V MASTER FUND LDC, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO BERMUDA TRUST II: PIMCO BERMUDA INCOME FUND (M), Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Bermuda Trust IV: Pimco Bermuda Global Bond Ex-Japan Fund, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO BERMUDA TRUST: PIMCO EMERGING MARKETS BOND FUND (M), Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO CAYMAN SPC LIMITED: PIMCO CAYMAN GLOBAL AGGREGATE BOND SEGREGATED PORTFOLIO, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO CAYMAN SPC LIMITED: PIMCO CAYMAN JAPAN COREPLUS SEGREGATED PORTFOLIO, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO CAYMAN SPC LIMITED: PIMCO CAYMAN JAPAN COREPLUS STRATEGY SEGREGATED PORTFOLIO, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO CAYMAN SPC LIMITED: PIMCO CAYMAN JAPAN LOW DURATION SEGREGATED PORTFOLIO, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Cayman SPC Limited: Pimco Cayman Unconstrained Bond Segregated Portfolio, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO CAYMAN TRUST: PIMCO CAYMAN GLOBAL AGGREGATE BOND FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO CAYMAN TRUST: PIMCO CAYMAN GLOBAL AGGREGATE EX-JAPAN (YEN-HEDGED) BOND FUND II, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO CAYMAN TRUST: PIMCO CAYMAN GLOBAL AGGREGATE EX-JAPAN BOND FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Cayman Trust: Pimco Cayman Global Ex-Japan (Yen- hedged) Bond Fund, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO COMBINED ALPHA STRATEGIES MASTER FUND LDC, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Corporate & Income Oppurtunity Fund, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO CORPORATE & INCOME STRATEGY FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Distressed Senior Credit Oppurtunites Fund II, L.P., Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO DYNAMIC CREDIT INCOME FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO DYNAMIC INCOME FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Equity Series: Pimco Balanced Income Fund, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco ETF Trust: Pimco Enchanced Short Maturity Active Exchange-Traded Fund, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO ETF TRUST: PIMCO LOW DURATION ACTIVE EXCHANGE-TRADED FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco ETF Trust: Pimco Total Return Active Exchange-Traded Fund, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP, Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP, Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP, Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP, Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, DIVERSIFIED INCOME DURATION HEDGED FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, DIVERSIFIED INCOME FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, EMERGING LOCAL BOND FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Funds: Global Investors Series Plc, emerging markets bond funds, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, EURO BOND FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, EURO INCOME BOND FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, GLOBAL ADVANTAGE REAL RETURN FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, GLOBAL BOND FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, GLOBAL INVESTMENT GRADE CREDIT FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, INCOME FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, INFLATION STRATEGY FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, PIMCO CREDIT ABSOLUTE RETURN FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, PIMCO DIVIDEND AND INCOME BUILDER FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Funds: Global Investors Series PLC, Stockplus Fund, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, STRATEGIC INCOME FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, TOTAL RETURN BOND FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: GLOBAL INVESTORS SERIES PLC, UNCONSTRAINED BOND FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO COMMODITIESPLUS STRATEGY FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO COMMODITY REAL RETURN STRATEGY FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO CREDIT ABSOLUTE RETURN FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO DIVERSIFIED INCOME FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO EM FUNDAMENTAL INDEXPLUS AR STRATEGY FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO EMERGING LOCAL BOND FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO EMG INTL LOW VOLATILITY RAFI-PLUS AR FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO FLOATING INCOME FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO FOREIGN BOND FUND (U.S. DOLLAR-HEDGED), Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO FOREIGN BOND FUND (UNHEDGED), Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO FUNDAMENTAL ADVANTAGE ABSOLUTE RETURN STRATEGY FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO GLOBAL ADVANTAGE STRATEGY BOND FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Funds: Pimco Global Bond Fund (U.S. Dollar- Hedged), Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO GLOBAL BOND FUND (UNHEDGED), Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO GLOBAL MULTI-ASSET FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO INCOME FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO INTERNATIONAL FUNDAMENTAL INDEXPLUS AR STRATEGY FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Funds: Pimco International Stockplus AR Strategy Fund (U.S. Dollar- Hedged), Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Funds: Pimco International Stockplus AR Strategy Fund (Unhedged), Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO INTL LOW VOLATILITY RAFI-PLUS AR FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO INVESTMENT GRADE CORPORATE BOND FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO LONG DURATION TOTAL RETURN FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO LONG-TERM CREDIT FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Funds: Pimco Long–Term U.S. Government Fund, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO LOW DURATION FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO LOW DURATION FUND II, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO LOW DURATION FUND III, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO LOW VOLATILITY RAFI- PLUS AR FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO MODERATE DURATION FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO MORTGAGE OPPORTUNITIES FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO REAL ESTATE REAL RETURN STRATEGY FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Funds: Pimco Real Return Asset Fund, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO REAL RETURN FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO SHORT-TERM FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Funds: Pimco Small Cap Stockplus AR Strategy Fund, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO SMALL COMPANY FUNDAMENTAL INDEXPLUS AR STRATEGY FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Funds: Pimco Stockplus Absolute Return Fund, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Funds: Pimco Stockplus AR Short Strategy Fund, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO TOTAL RETURN FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO TOTAL RETURN FUND II, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO TOTAL RETURN FUND III, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO TOTAL RETURN FUND IV, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO UNCONSTRAINED BOND FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO UNCONSTRAINED TAX MANAGED BOND FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PIMCO WORLDWIDE FUNDAMENTAL ADVANTAGE AR STRATEGY FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PRIVATE ACCOUNT PORTFOLIO SERIES ASSET-BACKED SECURITIES PORTFOLIO, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PRIVATE ACCOUNT PORTFOLIO SERIES DEVELOPING LOCAL MARKETS PORTFOLIO, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Funds: Private Account Porfolio Series Emerging Markets Portfolio, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Funds: Private Account Portfolio Series high Yield Portfolio, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PRIVATE ACCOUNT PORTFOLIO SERIES INTERNATIONAL PORTFOLIO, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PRIVATE ACCOUNT PORTFOLIO SERIES MORTGAGE PORTFOLIO, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Funds: Private Account Portfolio Series Real Return Portfolio, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PRIVATE ACCOUNT PORTFOLIO SERIES SHORT-TERM PORTFOLIO, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO FUNDS: PRIVATE ACCOUNT PORTFOLIO SERIES U.S. GOVERNMENT SECTOR PORTFOLIO, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO GLOBAL CREDIT OPPORTUNITY MASTER FUND LDC, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Global Income Oppertunities Fund, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO GLOBAL STOCKSPLUS & INCOME FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco High Income Fund, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Income Oppertunity Fund, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO INCOME STRATEGY FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO INCOME STRATEGY FUND II, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO LARGE CAP STOCKSPLUS ABSOLUTE RETURN FUND, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO MULTI-SECTOR STRATEGY FUND LTD., Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Offshore Funds- Pimco Absolute Return Strategy IV Efund, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Offshore Funds: Pimco Absolute Strategy V Alpha Fund, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Real Return Strategy Fund, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO STRATEGIC INCOME FUND, INC., Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Tactical Oppertunities Master Fund LTD, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO VARIABLE INSURANCE TRUST: PIMCO COMMODITY REAL RETURN STRATEGY PORTFOLIO, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO VARIABLE INSURANCE TRUST: PIMCO EMERGING MARKETS BOND PORTFOLIO, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO VARIABLE INSURANCE TRUST: PIMCO FOREIGN BOND PORTFOLIO (U.S. DOLLAR HEDGED), Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO VARIABLE INSURANCE TRUST: PIMCO GLOBAL ADVANTAGE STRATEGY BOND PORTFOLIO, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO VARIABLE INSURANCE TRUST: PIMCO GLOBAL BOND PORTFOLIO (UNHEDGED), Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Variable Insurance Trust: Pimco Long Term U.S. Government Portfolio, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO VARIABLE INSURANCE TRUST: PIMCO LOW DURATION PORTFOLIO, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Low Duration Portfolio, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO VARIABLE INSURANCE TRUST: PIMCO REAL RETURN PORTFOLIO, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Variable Insurance Trust: Pimco Short-Term Portfolio, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

PIMCO VARIABLE INSURANCE TRUST: PIMCO TOTAL RETURN PORTFOLIO, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Pimco Variable Insurance Trust: Pimco Unconstrained Bond Portfolio, Plaintiff, represented by Blair Allen Nicholas, Bernstein Litowitz Berger & Grossman, LLP, pro hac vice, Benjamin Galdston, Bernstein Litowitz Berger & Grossmann LLP, Niki L. Mendoza, Bernstein, Litowitz, Berger & Grossmann, LLP, Rachel Felong, Bernstein Litowitz Berger & Grossmann LLP, Richard David Gluck, Bernstein Litowitz Berger & Grossmann LLP & Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Royal Park Investments SA/NV, Consolidated Plaintiff, represented by Robert Steven Trisotto, Bernstein Litowitz Berger & Grossman LLP.

Wells Fargo Bank, National Association, Defendant, represented by Jayant W. Tambe, Jones Day, Allison Fuller, Jones Day, Amanda Leigh Dollinger, Jones Day, Chris Waidelich, Jones Day, Dennis Michael Slater, Fried, Frank, Harris, Shriver & Jacobson LLP, Eric Peter Stephens, Jones Day, Harold Keith Gordon, Jones Day, Howard Fredrick Sidman, Jones Day, Jason Jurgens, Jones Day, Jeffrey Baltruzak, Jones Day, Joseph James Boylan, Jones Day, Katherine Lyons Wall, Jones Day, Michael James Dailey, Jones Day, Michael O. Thayer, Jones Day, Paul Bartholomew Green, Jones Day, Rebekah B. Kcehowski, Jones Day, Robert Harrison Golden, Jones Day, Sevan Ogulluk, Jones Day, Thomas E. Lynch, Jones Day, Traci Leigh Lovitt, Jones Day & Tracy V. Schaffer, Jones Day.

OPINION AND ORDER

KATHERINE POLK FAILLA, District Judge.

In the near-decade since the collapse of the United States real-estate market, this District has been inundated with lawsuits brought by putative victims of that collapse against those they blame for it. As time has lapsed, and with it various statutes of limitation, the targets of these lawsuits — as well as the proffered bases of liability — have evolved. The instant cases represent the latest wave: They are brought by and on behalf of certificateholders (“Plaintiffs”) of 53 residential-mortgage-backed securities (“RMBS”) trusts (the “Trusts”) against the Trusts’ common Trustee, Wells Fargo Bank, National Association (“Wells Fargo” or “Defendant”). Plaintiffs allege that Defendant failed to discharge its duties as Trustee. More specifically, Plaintiffs claim that Defendant discovered pervasive documentation errors, breaches of seller representations and warranties (“R&Ws”), and systemic loan-servicing violations, but disregarded its contractual obligations to protect Plaintiffs therefrom because, among other consequences, doing so would have exposed Defendant to liability for its own RMBS-related misconduct.

Defendant has moved to dismiss each of the above-captioned related actions for failure to state a claim.^[1] For the reasons set forth below, Defendant’s motion is granted in part and denied in part. In brief, Defendant’s motion to dismiss Plaintiffs’ breach of contract claims is denied; its motion to dismiss Plaintiffs’ tort claims is granted in part and denied in part; its motion to dismiss Plaintiffs’ claims under the Trust Indenture Act is granted in part and denied in part; its motion to dismiss Plaintiffs’ claims under the Streit Act is granted; its motion to dismiss Plaintiff NCUAB’s derivative claims is granted without prejudice to NCUAB’s ability to move for leave to replead; its motion to dismiss NCUAB’s direct claims is denied; and its motion to dismiss Commerzbank’s claims on timeliness grounds is denied.

BACKGROUND^[2]

A. Factual Background

Explanations of the typical formation process and structure of RMBS trusts abound in this District, and this Court will not here reinvent the wheel. Only a brief description is provided for context. See also BlackRock Allocation Target Shares v. Wells Fargo Bank, Nat’l Ass’n, No. 14 Civ. 9371 (KPF) (SN), 2017 WL 953550, at *1-3 (S.D.N.Y. Mar. 10, 2017) (describing the background of this consolidated action).

1. RMBS Trusts Generally

The Trusts in the instant action were originally securitized by residential mortgage loans, and created to facilitate the sale of those loans to investors. (BR Compl. ¶¶ 3-4).^[3] Such RMBS Trusts are formed according to the following process: First, institutions known as “sponsors” or “sellers” acquire and pool residential mortgage loans. (Id. at ¶¶ 5, 43). Each sponsor also selects the loans’ “servicer,” “often an affiliate of the seller or originator, to collect payments on the loans.” (Id. at ¶ 5). “Once the loans are originated, acquired and selected for securitization, the seller, through an affiliate called the depositor, creates a trust where the loans are deposited for the benefit of the Noteholders.” (Id.). Then the depositor “segments the cash flows and risks in the loan pool among different levels of investment or `tranches.'” (Id. at ¶ 44). Typically, “cash flows from the loan pool are applied in order of seniority, going first to the most senior tranches[,] [and] . . . any losses to the loan pool due to defaults, delinquencies, foreclosure or otherwise, are applied in reverse order of seniority.” (Id.). Next, “the depositor conveys the mortgage pool to the trust in exchange for the transfer of the RMBS to the depositor.” (Id. at ¶ 45). “Finally, the depositor sells the RMBS to an underwriter, and provides the revenue from the sale to the seller. The underwriter markets and sells the RMBS to investors.” (Id. at ¶ 46).

It is the sponsor-selected servicer’s responsibility to collect loan principal and interest (“P&I”) payments from the underlying borrowers. (BR Compl. ¶ 47). “After collection, the servicer sends the funds to the trust, which then makes payments to the noteholders. Mortgage delinquencies and defaults reduce the available P&I payments to be paid to the trust and passed through to investors.” (Id.). Therefore, “proper loan origination and underwriting of the mortgages underlying the RMBS, and proper and timely loan servicing and oversight” are of critical importance to investors, directly dictating their timely receipt of passed-through payments. (Id. at ¶ 48).

2. The Trusts, the Governing Agreements, and Defendant’s Duties Thereunder

The 53 Trusts at issue here are of two kinds: Pooling and Service Agreement (“PSA”) Trusts and Indenture Trusts.^[4] 41 of the 53 Trusts at issue in this case are PSA Trusts. (Def. Br. 5). PSA Trusts “are organized under New York [common] law.” Ret. Bd. of Policemen’s Annuity & Benefit Fund of City of Chi. v. Bank of N.Y. Mellon (hereinafter, “PABF III“), 775 F.3d 154, 156 (2d Cir. 2014). In a PSA trust, “[t]he right to receive trust income is parceled into certificates and sold to investors,” who are called “certificateholders.” Id. (quoting BlackRock Fin. Mgmt. Inc. v. Segregated Account of Ambac Assurance Corp. (hereinafter, “Ambac“), 673 F.3d 169, 173 (2d Cir. 2012)). “The terms of the securitization trusts as well as the rights, duties, and obligations of the trustee, seller, and servicer are set forth in [governing agreements, frequently styled as PSAs].” Id. (alteration in original) (quotation mark omitted) (quoting Ambac, 673 F.3d at 173).

12 of the 53 Trusts at issue in this case are Indenture Trusts. (Def. Br. 5). Indenture Trusts are governed by their Trust Agreements, Mortgage Loan Purchase and Sale Agreements (“MPLAs”), and Sale and Service Agreements (“SSAs”). (See BR Compl. ¶ 49). See generally BlackRock Allocation Target Shares, 2017 WL 953550, at *1-3. As Defendant explains,

Indenture Trusts differ from PSA Trusts in that the Depositor conveys ownership of the pooled loans to the Issuer, which in turn issues its own notes pursuant to the indenture. Under the indenture, the Issuer collateralizes the notes by pledging the mortgage loans to the indenture trustee, which holds the pledge on behalf of the noteholders.

(Def. Br. 5).

The PSAs, Trust Agreements, MPLAs, and SSAs (together, the “Governing Agreements”) are of critical importance to Defendant’s motion; they dictate the scope of Defendant’s duties to Plaintiffs. The duties of an RMBS trustee are “distinct from those of an `ordinary trustee,’ which might have duties extending well beyond the agreement.” Phoenix Light SF Ltd. v. Bank of N.Y. Mellon (hereinafter, “PL/BNYM“), No. 14 Civ. 10104 (VEC), 2015 WL 5710645, at *2 (S.D.N.Y. Sept. 29, 2015) (citing AG Capital Funding Partners, L.P. v. State St. Bank & Tr. Co., 11 N.Y.3d 146, 156 (2008)); see also Fixed Income Shares: Series M v. Citibank N.A. (hereinafter, “Fixed Income Shares“), 130 F. Supp. 3d 842, 857-58 (S.D.N.Y. 2015). In contrast, “the duties of an indenture trustee . . . [are] governed solely by the terms of the indenture[.]” Millennium Partners, L.P. v. U.S. Bank Nat’l Ass’n, No. 12 Civ. 7581 (HB), 2013 WL 1655990, at *3 (S.D.N.Y. Apr. 17, 2013) (quotation mark omitted), aff’d sub nom. Millennium Partners, L.P. v. Wells Fargo Bank, N.A., 654 F. App’x 507 (2d Cir. 2016) (summary order), and aff’d sub nom. Millennium Partners, L.P. v. Wells Fargo Bank, N.A., 654 F. App’x 507 (2d Cir. 2016) (summary order). “This is true regardless of whether the trust is an indenture trust or a PSA [trust].” Royal Park Invs. SA/NV v. HSBC Bank USA, Nat’l Ass’n (hereinafter, “RP/HSBC“), 109 F. Supp. 3d 587, 597 (S.D.N.Y. 2015) (citing Greenwich Fin. Servs. Distressed Mortg. Fund 3 LLC v. Countrywide Fin. Corp., 603 F.3d 23, 29 (2d Cir. 2010); Bank of N.Y. Mellon v. Walnut Place LLC, 819 F. Supp. 2d 354, 364-65 & n.6 (S.D.N.Y. 2011)).

Though the Governing Agreements at issue here are not identical, Plaintiffs argue that they all impose four fundamental duties on Defendant:

• First, Defendant “must ensure that the Trusts take perfected, enforceable title to the mortgage loans and must certify receipt of complete mortgage loan files from the Seller.” (Pl. Opp. 3 (citing BR Compl. ¶¶ 60, 62, 98, 159, Ex. 5; NCUAB Compl. ¶¶ 65-68, Ex. J; PL Compl. ¶¶ 58-67; CB Compl. ¶¶ 34-43)). In the event that Defendant “discovers a material defect (e.g., a missing document),” Defendant is obligated to “promptly identify the loan in its certifications, and require the Seller to cure or repurchase the loan.” (Pl. Opp. 3-4 (citing BR Compl. ¶¶ 6, 54, 98; NCUAB Compl. ¶¶ 70-71, 74-75; PL Compl. ¶¶ 65-66, 68; CB Compl. ¶¶ 41-42, 44)).

? Second, Defendant “must give notice to the Seller and other parties upon `discovery’ of any breach of the R&Ws which materially and adversely affects the interests of the Holders or the Trust, and thereafter enforce the obligations of the Seller to cure or repurchase the breaching loan.” (Pl. Opp. 4 (citing BR Compl. ¶¶ 63, 164; RP Compl. ¶¶ 7-10; NCUAB Compl. ¶¶ 75, 377; PL Compl. ¶ 68; CB Compl. ¶ 44)).

? Third, Defendant “must promptly notify a responsible Servicer upon learning of the Servicer’s failure to perform in any material respect, and demand that such servicing failure be timely remedied.” (Pl. Opp. 4 (citing BR Comp. ¶¶ 1, 63-64; RP Compl. ¶ 10; NCUAB Compl. ¶¶ 75, 90; PL Compl. ¶ 80; CB Compl. ¶ 55)).

? And fourth, in the event of a “servicing `Event of Default'” (“EOD”) as defined in the Governing Agreements, Defendant acquires heightened obligations “to exercise the same degree of care and skill as a prudent person would in the conduct of his or her own affairs.” (Pl. Opp. 4 (citing BR Compl. ¶¶ 27, 207; RP Compl. ¶¶ 17, 61; NCUAB Compl. ¶¶ 92, 414; PL Compl. ¶¶ 73-75; CB Compl. ¶¶ 49-51)).

The PSA Trusts define an EOD to “include a Servicer’s failure to: (i) act in accordance with the normal and usual standards of practice of prudent mortgage servicers; (ii) ensure the loans are serviced legally; and (iii) promptly notify [Defendant] and other parties upon discovery of Sellers’ R&W breaches.” (Pl. Opp. 4 (citing BR Compl. ¶¶ 25-26; RP Compl. ¶¶ 57, 59; NCUAB Compl. ¶¶ 85-87, 285-89, 337; PL Compl. ¶¶ 68, 79-80; CB Compl. ¶¶ 44, 54-55)). Defendant’s heightened obligations under the PSAs in the event of an EOD include “notifying the Servicer to require cure and notifying Certificateholders of any uncured [EODs].” (Id. at 4-5 (citing BR Compl. ¶ 26; RP Compl. ¶ 60; NCUAB Compl. ¶¶ 90-91, 290; PL Compl. ¶¶ 69, 73-77; CB Compl. ¶¶ 45, 49-52)).

The Indenture Trusts’ Governing Agreements “contain similar provisions.” (Pl. Opp. 5 (citing BR Compl. ¶¶ 68-70; NCUAB Compl. ¶ 97 n.12; PL Compl. ¶¶ 131-32)). EODs with regard to Indenture Trusts, however, are “triggered by conduct of the Issuer (i.e., the Trust itself) rather than the Servicer.” (Id. (citing BR Compl. ¶¶ 68-70; NCUAB Compl. ¶ 87 n.12; PL Compl. ¶¶ 131-32)). Plaintiffs maintain that this is a distinction without a difference, because here “each Indenture Trust contracted separately with Sellers and Servicers . . . [to] make certain R&Ws and agree to cure or repurchase defective loans,” such that “known and unremedied Seller and Servicer defaults [would still] constitute . . . a violation of the issuer’s duties under the Indenture.” (Id. (quotation marks omitted) (quoting Royal Park/HSBC, 109 F. Supp. 3d at 604) (citing BR Compl. ¶¶ 6, 59, 68; NCUAB Compl. ¶¶ 64-69, 74, 92; PL Compl. ¶ 131 & Ex. C)).

3. Defendant’s Alleged Breaches

Plaintiffs contend that while serving as Trustee, Defendant realized that the Trusts contained numerous loans and loan files that materially breached the sellers’ R&Ws. (Pl. Opp. 5 (citing BR Compl. ¶¶ 73-120; RP Compl. ¶¶ 70-103; NCUAB Compl. ¶¶ 104-282; PL Compl. ¶¶ 107-15, Ex. F; CB Compl. ¶¶ 80-89, Ex. F)). Plaintiffs infer Defendant’s realization from a host of facts. For example, Defendant “received `Document Exception Reports’ prepared by the custodians identifying massive numbers of loan files that contained missing or incomplete documentation that were not cured within the specified time period.” (Id. (citing BR Compl. ¶¶ 98-99; NCUAB Compl. ¶ 352; PL Compl. ¶¶ 63, 119-20; CB Compl. ¶¶ 39, 93-94)). And Defendant itself “tracked and reported the Trusts’ performance in remittance reports, including unprecedented levels of delinquencies, early payment defaults, loss severity, credit downgrades and mortgage insurance rescissions,” and “admitted” in its “internal documents” that its findings constituted “clear indications of Seller breaches of R&Ws.” (Id. at 5-6 (citing BR Compl. ¶¶ 110, 112; NCUAB Compl. ¶ 336; PL Compl. ¶¶ 53, 104; CB Compl. ¶¶ 29, 78)). Additionally, in certain cases where “historical delinquencies and collateral losses were so severe that [they] caused `Triggering Events’ under the Trusts’ [Governing Agreements],” Defendant had to “change the distribution of Trust proceeds, evaluate the performance of the Trusts’ Servicers, make increased disclosures to the credit rating agencies, and in some instances declare [EODs].” (Id. at 6 (citing BR Compl. ¶ 111)).

Plaintiffs conclude that, given the many different sources of information, Defendant’s responsible officers

knew of and received written notice of Servicer breaches of duties with respect to specific loans in the Trusts, based on data from Servicers that it used to prepare monthly remittance reports and that identified and tracked when certain defaulted loans within the Trusts became distressed, when the loans were processed and eliminated, and the recurring annual and monthly servicing costs incurred by the Trusts for these defaulted loans.

(Pl. Opp. 7 (citing BR Compl. ¶¶ 146-53; RP Compl. ¶ 118; PL Compl. ¶¶ 128, 138-41; CB Compl. ¶¶ 103, 111-14)). Indeed, Defendant “uniquely” had

knowledge of the Servicers’ systemically abusive servicing practices, including (i)[Defendant’s] involvement in government investigations, prosecutions, and settlements targeting both itself and many of the Servicers for the same alleged improper servicing practices; and (ii) [Defendant’s] responsible officers’ receipt of written notice from Holders, monoline insurers and other stakeholders to other RMBS trusts regarding the same servicing violations by the same servicers to the Trusts here.

(Id. (citing BR Compl. ¶¶ 154-56; RP Compl. ¶¶ 121-27; NCUAB Compl. ¶¶ 258-60, 277-82; PL Compl. ¶¶ 142-48, Ex. H; CB Compl. ¶¶ 115-21, Ex. H)). And Plaintiffs contend that Defendant’s knowledge is evinced by its own internal records, which “further confirm that [Defendant] repeatedly received notice from investors and monoline insurers regarding systemic R&W violations.” (Id. at 6 (citing BR Compl. ¶¶ 100, 116; PL Compl. ¶¶ 99-102; CB Compl. ¶¶ 73-77)).

Even if Defendant lacked such direct notice and knowledge, they could not feign ignorance of the fact that “the Trusts were filled with loans originated by some of the most notorious financial-crisis-era lenders . . . and were sponsored by banks with known securitization abuses.” (Pl. Opp. 6 (citing BR Compl. ¶¶ 80, 86, 94-95, Ex. 9; RP Compl. ¶ 71; NCUAB Compl. ¶¶ 47-48, 120-244; PL Compl. ¶¶ 109-10, Ex. F; CB Compl. ¶¶ 82-83, Ex. F)). Plaintiffs argue that at a minimum, Defendant had to be aware of the “[h]ighly publicized news reports, lawsuits, and investigations concerning” its sellers, as well as the fact that “several of the Trusts [had] been the subject of RMBS investor lawsuits alleging pervasive loan underwriting abuses.” (Id. (citing BR Compl. ¶¶ 96-120, Ex. 10-11; RP Compl. ¶¶ 72-103; NCUAB Compl. ¶¶ 261-82; PL Compl. ¶¶ 107-15; CB Compl. ¶¶ 80-89)).

All of Plaintiffs’ claims build on the foundation of Defendant’s alleged discovery and knowledge of these breaches. Plaintiffs allege that despite this awareness, Defendant took “virtually no action to enforce Seller obligations to repurchase defective loans and Servicer obligations to cure defaults and reimburse the Trusts for damages.” (Pl. Opp. 7 (citing BR Compl. ¶¶ 163-87; RP Compl. ¶ 129; NCUAB Compl. ¶¶ 361-96; PL Compl. ¶¶ 115-18, 160-61; CB Compl. ¶¶ 89-92, 129-30)). This “inaction” has caused “billions of dollars in losses to the Trusts.” (Id.).

B. Procedural Background

The Blackrock plaintiffs brought the first of these related cases against Defendant on November 24, 2014. (2014 Civ. 9371, Dkt. #1). Royal Park brought its action on December 11, 2014 (2014 Civ. 9764, Dkt #1); the NCUAB brought its action on December 22, 2014 (2014 Civ. 10067, Dkt. #1); and Phoenix Light and others brought their action on December 23, 2014 (2014 Civ. 10102, Dkt. #1). Royal Park, the NCUAB, and the Phoenix Light plaintiffs all filed amended complaints on March 13, 2015. (2014 Civ. 9764, Dkt #24; 2014 Civ. 10067, Dkt. #27; 2014 Civ. 10102, Dkt. #25).

Defendant filed its Motion to Dismiss the Complaints in each of these four cases on April 30, 2015. (2014 Civ. 9371, Dkt. #46-56).^[5] The motion was fully briefed as of June 29, 2015. (Id. at Dkt. #60-61). While the motion was pending, on December 24, 2015, Commerzbank brought the fifth of the related cases at issue in this Opinion. (2015 Civ. 10033, Dkt. #1). The case was accepted as related to the four earlier-filed cases on December 28, 2015. (2015 Civ. 10033, Docket Entries dated December 28, 2015).

Soon thereafter, on January 19, 2016, Judge Richard M. Berman, to whom these related cases were originally assigned, issued a Decision and Order resolving Defendant’s motion to dismiss. (2014 Civ. 9371, Dkt. #95). Judge Berman declined to exercise supplemental jurisdiction over Blackrock’s PSA-Trust-related claims, granted Defendant’s motion in part, and declined to reach the merits of the parties’ claims. (Id. at Dkt. #95). Judge Berman also extended to Plaintiffs the opportunity to amend their pleadings. (Id.; see also Dkt. #101). The Blackrock Plaintiffs accordingly filed their amended complaint on February 23, 2016. (Id. at Dkt. #105-06).

Defendant requested a pre-motion conference, which was scheduled for May 24, 2016. (2014 Civ. 9371, Dkt. #138, 158). During that conference, a briefing schedule was set for Defendant’s contemplated motion to dismiss the operative complaints. (Id. at Dkt. #158).

Before any motion was filed, however, the five related cases at issue here were reassigned to the undersigned on June 17, 2016. (Docket Entries dated June 17, 2016). Defendant then filed its motion to dismiss each operative complaint on July 8, 2016. (2014 Civ. 9371, Dkt. #168-71). Plaintiffs filed their joint opposition on August 22, 2016 (id. at Dkt. #201-02), and Defendant its reply on September 6, 2016 (id. at Dkt. #208-09).

DISCUSSION

A. Applicable Law

When considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a court should “draw all reasonable inferences in [the plaintiffs’] favor, assume all well-pleaded factual allegations to be true, and determine whether they plausibly give rise to an entitlement to relief.” Faber v. Metro. Life Ins. Co., 648 F.3d 98, 104 (2d Cir. 2011) (quotation marks and citation omitted) (quoting Selevan v. N.Y. Thruway Auth., 584 F.3d 82, 88 (2d Cir. 2009)). Thus, “[t]o survive a motion to dismiss, a complaint must contain 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) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In this regard, a complaint is deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference. See, e.g., Hart v. FCI Lender Servs., Inc., 797 F.3d 219, 221 (2d Cir. 2015) (citing Fed. R. Civ. P. 10(c) (“A statement in a pleading may be adopted by reference elsewhere in the same pleading or in any other pleading or motion. A copy of a written instrument that is an exhibit to a pleading is a part of the pleading for all purposes.”)).

“While Twombly does not require heightened fact pleading of specifics, it does require enough facts to `[nudge a plaintiff’s] claims across the line from conceivable to plausible.'” In re Elevator Antitrust Litig., 502 F.3d 47, 50 (2d Cir. 2007) (per curiam) (quoting Twombly, 550 U.S. at 570). “Where a complaint pleads facts that are `merely consistent with’ a defendant’s liability, it `stops short of the line between possibility and plausibility of entitlement to relief.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557). Moreover, “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id.

B. Analysis

Defendant launches numerous attacks on Plaintiffs’ pleadings, claiming that wholesale dismissal is warranted because: (i) Plaintiffs have failed to plead that Defendant discovered any of the alleged breaches of the Governing Agreements; (ii) Plaintiffs’ breach-of-contract and fiduciary-duty claims are premised on an EOD that occurred, if at all, without Defendant’s knowledge; (iii) Plaintiffs’ tort claims are duplicative of their contract claims, violative of the economic-loss rule, and insufficiently pleaded; (iv) Plaintiffs do not, and cannot, have a cause of action under the Trust Indenture Act (the “TIA”); (v) the Streit Act, New York’s analogue to the TIA, either does not apply to Plaintiffs’ claims or was not violated; (vi) the NCUAB lacks standing to bring its derivative claims, which are actually improper direct claims; (vii) the NCUAB lacks standing to bring direct claims premised on Trusts unwound after it first brought its action; and (viii) Commerzbank’s claims are time-barred. The Court will consider each of these arguments in turn.

1. Defendant’s Motion to Dismiss Plaintiffs’ Breach-of-Contract Claims Is Denied

a. Plaintiffs’ Allegations Are Sufficient at the Pleading Stage

Defendant’s arguments on this first front focus on Defendant’s alleged knowledge, or perhaps more properly, its lack thereof. (Def. Br. 8). That is, Defendant contends Plaintiffs have pleaded only generalized allegations that, at most, Defendant may have been alerted “to a possibility of a breach, not that it discovered any actual breaches in the loans in the Trusts.” (Id.). Such allegations are insufficient as a matter of law, Defendant argues, because a viable breach-of-contract claim requires proof of a Trustee’s actual notice of a breach. Id. (quoting Policemen’s Annuity & Benefit Fund v. Bank of Am., NA (hereinafter, “PABF II“), 943 F. Supp. 2d 428, 442 (S.D.N.Y. 2013), abrogated on other grounds by PABF III, 775 F.3d 154).

These arguments do not succeed. To the contrary, courts in this District have repeatedly rejected similar arguments by reminding litigants of the difference between sufficient pleading and successful claims. So too will this Court.

It is true that “[t]o prevail ultimately on the breach of contract claim, a plaintiff does have to demonstrate breach on a `loan-by-loan and trust-by-trust basis.'” Phoenix Light SF Ltd. v. Deutsche Bank Nat’l Tr. Co. (hereinafter, “PL/DB“), 172 F. Supp. 3d 700, 713 (quoting Royal Park Invs. SA/NV v. Deutsche Bank Nat’l Tr. Co. (hereinafter, “RP/DB“), No. 14 Civ. 4394 (AJN), 2016 WL 439020, at *6 (S.D.N.Y. Feb. 3, 2016)); see also PABF III, 775 F.3d at 162. “But this is not a pleading requirement,” because at the pleading stage such information “is uniquely in the possession of defendants.” PL/DB, 172 F. Supp. 3d at 713 (quotation marks omitted) (quoting PABF II, 943 F. Supp. 2d at 442). “Rather, plaintiffs satisfy their [pleading] burden where their allegations raise a reasonable expectation that discovery will reveal evidence proving their claim.” Id.; accord, e.g., Royal Park Invs. SA/NV v. Bank of N.Y. Mellon (hereinafter, “RP/BNYM“), No. 14 Civ. 6502 (GHW) 2016 WL 899320, at *4-5 (S.D.N.Y. March 2, 2016); Blackrock Core Bond Portfolio v. U.S. Bank Nat’l Ass’n, No. 14 Civ. 9401 (KBF), 165 F. Supp. 3d 80, 99-100 (S.D.N.Y. Feb. 26, 2016); RP/DB, 2016 WL 439020, at *6; PL/BNYM, 2015 WL 5710645, at *4; RP/HSBC, 109 F. Supp. 3d at 602-03. (See also Pl. Opp. 9 & n.5).

Here, Plaintiffs have more than met this standard. Plaintiffs have alleged Defendant’s knowledge of R&W breaches on the basis of Defendant’s internal documents: Defendant received “exception reports identifying incomplete or improperly documented loan files that were not corrected or addressed.” (Pl. Opp. 11 (citing BR Compl. ¶¶ 98-99; PL Compl. ¶¶ 63, 118-20; CB Compl. ¶¶ 39, 93-94)). Defendant also “received mortgage insurance coverage denials and policy rescissions as a result of the improper loan underwriting,” and Defendant’s internal documents both reflect that Defendant tracked “the Trusts’ abject performance,” and “contain admissions that certain adverse metrics were indicative of Seller R&W breaches.” (Id. at 11-12; see also BR Compl. ¶ 110; NCUAB Compl. ¶ 336; PL Compl. ¶¶ 53, 104; CB Compl. ¶¶ 28, 78). It is Plaintiffs’ contention that such allegations “go far beyond many other RMBS trustee complaints, which themselves have been found sufficient to state a claim.” (Id. at 12). The Court agrees.

For good measure, Plaintiffs also amass the R&W breach allegations with which courts in this Circuit have become so familiar: Plaintiffs allege, inter alia, that Defendant had discovered and knew of the alleged breaches on the basis of (i) “the abysmal performance of the Trust collateral” (BR Compl. ¶ 10); (ii) “a steady stream of public disclosures [linking] the abject performance of the Trusts to systemic abandonment of underwriting guidelines” (id. at ¶ 12); (iii) various investor “putback initiatives” (id. at ¶¶ 14-17); (iv) investigations targeting Defendant’s own deficient servicing operations (id. at ¶¶ 19-20); (v) notice Defendant received in its capacity as Trustee to other RMBS trusts “from investors of pervasive and systemic violations of representations and warranties by the loan sellers” (id. at ¶ 100); (vi) lawsuits brought by monoline insurers against sellers “for breach of their representations and warranties in connection with other RMBS trusts” to which Defendant has ties (id. at ¶ 116); and (vii) Defendant’s analysis undertaken in connection with its provision of “collateral risk management services” (id. at ¶ 118). (See also RP Compl. ¶¶ 70-136; NCUAB Compl. ¶¶ 104-282; PL Compl. ¶¶ 107-15; CB Compl. ¶¶ 80-89). And with regard to several of the Trusts, “the historical delinquencies and collateral losses within the Trusts’ loan pools [were] so severe that [they] . . . caused `Triggering Events’ under the Trusts’ Governing Agreements,” some of which amounted to EODs. (BR Compl. ¶ 111). This Court finds, as have many others, that these allegations are sufficient to “raise a reasonable expectation that discovery will reveal evidence proving [Plaintiffs’] claim[s].” PL/DB, 172 F. Supp. 3d at 713 (quoting PABF II, 943 F. Supp. 2d at 442).

Additionally, Plaintiffs allege that EODs occurred when Servicers failed to “(i) act in accordance with the normal and usual standards of practice of prudent mortgage servicers; (ii) ensure the loans were serviced legally; and (iii) promptly notify [Defendant] and other parties upon discovery [of Sellers’] R&W breaches.” (Pl. Opp. 4 (citing BR Compl. ¶¶ 25-26; RP Compl. ¶¶ 57, 59; NCUAB Compl. ¶¶ 85-87, 285-89, 337; PL Compl. ¶¶ 68, 79-80; CB Compl. ¶¶ 44, 54-55)). These allegations also support Plaintiffs’ claims that Defendant breached its post-EOD contractual duty to act as would a prudent person by failing to (i) notify Servicers of the R&W breaches of which it was aware, (ii) require those Servicers to cure those breaches, or to repurchase defective loans; (iii) notify Certificateholders of any uncured EODs; and (iv) reimburse the Trusts for damages. (Pl. Opp. 3-5, 7 (citing BR Compl. ¶¶ 163-87; RP Compl. ¶ 129; NCUAB Compl. ¶¶ 361-96; PL Compl. ¶¶ 115-18, 160-61; CB Compl. ¶¶ 89-92, 129-30)).

In sum, Plaintiffs have pleaded adequately that Defendant discovered and knew of the alleged breaches of the Trusts’ Governing Agreements. Plaintiffs likewise adequately have pleaded that when Defendant failed to act despite its discovery and knowledge, it breached the Governing Agreements. Defendant’s motion to dismiss Plaintiffs’ breach-of-contract claims is denied.

b. Commerce Bank Does Not Change This Court’s Analysis

To its credit, Defendant acknowledges at the outset that its arguments regarding the adequacy of the Complaints’ discovery and knowledge allegations implicate “issues that have been resolved repeatedly against RMBS trustees.” (Def. Br. 8). Undaunted, Defendant contends that recent legal developments so “seriously undermine the federal court decisions to date rejecting the RMBS trustees’ contract-based arguments” that this Court must chart a new course. (Id.). In support, Defendant relies upon the First Department’s “rejection” in Commerce Bank v. Bank of N.Y. Mellon, 35 N.Y.S.3d 63 (1st Dep’t 2016), of the theory that an RMBS Trustee has a duty to “nose to the source” upon learning facts suggestive of breach.^[6]

This Court does not dispute Commerce Bank‘s relevance to its analysis. Indeed the case addresses the very question now before the Court — the sufficiency of pleaded facts regarding an RMBS-trustee defendant’s knowledge of breach. Commerce Bank, 35 N.Y.S.3d at 64. And there, the First Department found the facts alleged by the Commerce Bank plaintiffs insufficient to state a claim. Id. Reviewing the PSAs at issue, the court recited their common requirement that the Trustee discover an R&W breach with regard to a “loan-to-loan ratio, whether there are other liens on a property, whether a loan was underwritten pursuant to [a nonparty’s] underwriting guidelines,” and so on. Id. The First Department concluded the plaintiffs “[did] not allege that defendant discovered breaches of such representations and warranties.” Id. (emphasis added).

But the First Department did not elaborate on the bases for this conclusion. And without more, this Court will not read Commerce Bank to conflict with the very case law from this District that the First Department cited therein as “persuasive” in its analysis of pleading sufficiency. See Commerce Bank, 35 N.Y.S.3d at 64 (citing RP/BNYM, 2016 WL 899320, at *4 (collecting cases); PL/DB, 172 F. Supp. 3d at 712-13). Significantly, Defendant assumes that the Commerce Bank plaintiffs and Plaintiffs here suffer from the same pleading deficiency, viz., a failure to plead Defendant’s actual discovery of R&W breaches. (Def. Br. 8-10). But the First Department’s analysis is not so clear. That court said only that the Commerce Bank plaintiffs “do not allege that defendant discovered breaches of such representations and warranties.” Commerce Bank, 35 N.Y.S.3d at 64 (emphasis added). The court did not explain what precisely it found lacking. This Court cannot therefore determine precisely where the Commerce Bank court would draw a line; the insufficiency of the allegations in that case do not preclude the Court from finding the far more robust allegations in this case to be sufficient.

Moreover, the Court notes that the Commerce Bank court was considering pleading sufficiency under a different standard. Defendant has challenged Plaintiffs’ pleading under Federal Rule of Civil Procedure 12(b)(6), the analytical requirements of which are outlined above. The Commerce Bank court analyzed pleading sufficiency under New York Civil Practice Law and Rules § 3211(a)(1) and (7). Even allowing for a similarity between Section 3211(a)(7) and Rule 12(b)(6), see Util. Metal Research, Inc. v. Generac Power Sys., Inc., No. 02 Civ. 6205 (FB) (RML), 2004 WL 2613993, at *3 n.1 (E.D.N.Y. Nov. 18, 2004) (“This is . . . a distinction without a difference.”), aff’d in part, vacated in part, and remanded on other grounds, 179 F. App’x 795 (2d Cir. 2006) (summary order), the different standard required by § 3211(a)(1) casts Commerce Bank‘s relevance into doubt. See, e.g., DDR Constr. Servs., Inc. v. Siemens Indus., Inc., 770 F. Supp. 2d 627, 647-48 (S.D.N.Y. 2011) (“Rule 3211(a)(1) allows dismissal on the ground that `a defense is founded upon documentary evidence.'” (quoting N.Y. C.P.L.R. 3211(a)(1))). It is possible, for example, that the Commerce Bank court considered defenses not available to this Court at this stage. Stated simply, Commerce Bank is not sufficiently specific for this Court to determine the precise manner in which the First Department concluded that the plaintiffs therein had not alleged the defendant’s discovery.

Defendant also contends that the First Department relieved RMBS Trustees of a duty to “nose to the source.” (Def. Br. 10). But that contention overstates the First Department’s holding. In considering a trustee’s duties prior to an EOD, the First Department recited the well-settled proposition “that prior to default, indenture trustees owe note holders [only] an extracontractual duty to perform basic, nondiscretionary, ministerial functions.” Commerce Bank, 35 N.Y.S.3d at 65 (quotation mark omitted) (quoting AG Capital Funding Partners, 11 N.Y.3d at 157). This limited pre-default duty, the Court concluded, did not encompass a duty to monitor or a duty to “nose to the source” of improper servicing. Id.

This holding is not inconsistent with the District decisions cited by the First Department. Prior to considering a trustee’s pre-default duties, the Commerce Bank court had found that the plaintiffs there had not alleged the requisite discovery by the defendant. Commerce Bank, 35 N.Y.S.3d at 64-65. That is, the plaintiffs had alleged no discovery of R&W breaches, and no provision of written notice of any EOD. Id. Thus, the court reasoned, the defendant could not have violated any duty to afford plaintiffs notice. Id. at 65. Pre-default, and without default discovery or written notice, the Commerce Bank defendant had no such duty. Id.

Courts in this Circuit have agreed. They have held that while “[l]earning of facts merely suggestive of a breach would not require the Trustee to immediately raise a claim,” “upon receipt of such notice, it becomes incumbent upon the [Trustee] to pick up the scent and nose to the source.” Policemen’s Annuity & Benefit Fund of City of Chi. v. Bank of Am., NA (hereinafter, “PABF I”), 907 F. Supp. 2d 536, 553 (S.D.N.Y. 2012) (alterations in original) (emphasis added) (quotation marks omitted) (quoting MASTR Asset Backed Sec. Tr. 2006-HE3 ex rel. U.S. Bank Nat’l Ass’n v. WMC Mortg. Corp., Civil Nos. 11-2542 (JRT/TNL), 12-1372 (JRT/TNL), 12-1831 (JRT/TNL), 12-2149 (JRT/TNL), 2012 WL 4511065, at *6 (D. Minn. Oct. 1, 2012)). In Commerce Bank, there was no notice, no discovery, and therefore no duty to “nose to the source.” This is consistent with the law in this Circuit; it does not undermine it.

Finally, even if Defendant’s proffered interpretation of Commerce Bank were correct, this Court would be skeptical of its authority. As noted above, the case was decided under New York law that differs significantly from Rule 12(b)(6). And a district court only is “bound to apply the law as interpreted by New York’s intermediate appellate courts,” absent “persuasive evidence that the New York Court of Appeals . . . would reach a different conclusion.” Cornejo v. Bell, 592 F.3d 121, 130 (2d Cir. 2010) (omissions in original) (emphasis added) (quotation marks omitted) (quoting Pahuta v. Massey-Ferguson, Inc., 170 F.3d 125, 134 (2d Cir. 1999)). Here, there is such persuasive evidence; it is the abundant case law from this District that the First Department itself cited as persuasive and made no attempt to distinguish.

2. Defendant’s Motion to Dismiss Specific R&W Claims Is Denied

In a catch-all section in its opening brief, Defendant takes issue with various subsets of Plaintiffs’ claims. First, Defendant argues that Plaintiffs have improperly alleged violations of duties to enforce repurchase obligations with regard to certain Trusts that created no such obligations. (Def. Br. 16). Second, Defendant identifies three Trusts for which “Plaintiffs failed to allege that [Defendant] knew of R&W breaches prior to the expiration of the Warrantors’ obligations to repurchase loans that breached R&Ws.” (Id.). Third, Defendant argues that for “four additional Trusts, Plaintiffs fail to include any allegation regarding the relevant Warrantors, let alone allegations supporting a plausible inference that [Defendant] had knowledge of R&W breaches within the applicable limitations period.” (Id. at 17). And fourth, Plaintiffs argue that Defendant cannot be held liable for any failure to enforce its obligations to cure, substitute, or repurchase faulty loans against Warrantor American Home Mortgage Acceptance, Inc. (“AHM”), because AHM filed for bankruptcy in 2007. (Id. at 17-18).

Plaintiffs rebut each allegation. First, Plaintiffs dispute Defendant’s argument that certain Trusts do not impose repurchase obligations on Defendant; they claim that the relevant governing agreements, read as a whole, require that Defendant “notify specified parties upon its discovery of a material R&Ws breach,” which notice “triggers [the] Seller repurchase obligations” that Defendant “has power to enforce.” (Pl. Opp. 13 (citing BR Compl. ¶¶ 63 & n.7, 193; RP Compl. ¶¶ 52-55; NCUAB Compl. ¶¶ 73-75; PL Compl. ¶¶ 44, 68; CB Compl. ¶ 44)). Second, Plaintiffs disclaim a duty to “allege the precise time of [Defendant’s] discovery of R&W breaches or knowledge of Servicer events of default, which will be fleshed out in discovery.” (Id. at 14). In a similar vein, Plaintiffs argue to Defendant’s third point that any “statute of limitations defense cannot be resolved at this stage because it involves factual questions as to when and against whom the claims accrued, whether violations were continuing, and whether tolling applies.” (Id.). And fourth, Plaintiffs reject Defendant’s arguments regarding AHM’s 2007 bankruptcy because “this argument also involves questions of fact that cannot be resolved at the pleading stage, such as what enforcement efforts [Defendant] made or failed to make before AHM declared bankruptcy, whether it should have submitted a bankruptcy claim, and what other responsible parties or claims remain available, including for ongoing Servicer violations.” (Id. at 14-15).

Ultimately, the Court agrees with Plaintiffs. Each of Defendant’s arguments implicating the statute of limitations is premature; the Court cannot resolve these issues from the face of the Complaints. See Staehr v. Hartford Fin. Servs. Grp., Inc., 547 F.3d 406, 425 (2d Cir. 2008) (noting that a statute of limitations defense may be “raise[d] . . . in a pre-answer Rule 12(b)(6) motion if the defense appears on the face of the complaint”). Working backwards from Defendant’s last argument, the Court cannot determine at this stage the implications of AHM’s 2007 bankruptcy filing for Defendant’s duties with regard to the AHM-2004 Trust. As Plaintiffs argue, the possible existence of other responsible parties or claims, including claims for ongoing Servicer violations, precludes resolution of this issue at present. Because, as the Court found above, Plaintiffs need not allege loan-specific breaches at this stage, and because Plaintiffs have raised the specter of tolling agreements and ongoing breaches, the Court is also unable to determine as a matter of law that Plaintiffs have insufficiently alleged discovery of R&W breaches before expiration of applicable statutes of limitations. (Pl. Opp. 14 & n.8). And finally, the Court finds that Plaintiffs have alleged that Defendant breached its obligations even with regard to Trusts the Governing Agreements of which “are silent as to which entity is responsible for enforcing the sellers’ compliance with their repurchase obligations, prior to an [EOD].” (BR Compl. ¶ 63 & n.7 (citing as an example FMIC 2007-1, SSA § 3.02)). At this stage, Plaintiffs are not required to specify precisely when, and precisely on what basis, Defendant breached each of its contractual obligations.

3. Defendant’s Motion to Dismiss Plaintiffs’ Tort and Fiduciary-Duty Claims Is Granted in Part and Denied in Part

a. Defendant’s Motion to Dismiss Plaintiffs’ General Negligence Claim Is Granted

The Court next turns to Defendant’s challenges to Plaintiffs’ tort claims, beginning with their claim for negligence. By way of background, “[t]o establish a negligence claim under New York law, a plaintiff must demonstrate that: [i] the defendant owed the plaintiff a cognizable duty of care as a matter of law; [ii] the defendant breached that duty; and [iii] plaintiff suffered damage as a proximate result of that breach.” Millennium Partners, 2013 WL 1655990, at *4 (citing McCarthy v. Olin Corp., 119 F.3d 148, 156 (2d Cir. 1997)). However, “[a] tort claim cannot be sustained if it `do[es] no more than assert violations of a duty which is identical to and indivisible from the contract obligations which have allegedly been breached.'” Id. (second alteration in original) (quoting Metro. W. Asset Mgmt., LLC v. Magnus Funding, Ltd., No. 03 Civ. 5539 (NRB), 2004 WL 1444868, at *9 (S.D.N.Y. June 25, 2004)); see also Luxonomy Cars, Inc. v. Citibank, N.A., 408 N.Y.S.2d 951, 954 (2d Dep’t 1978). In other words, “a breach of contract will not give rise to a tort claim unless a legal duty independent of the contract itself has been violated.” RP/BNYM, 2016 WL 899320, at *7 (quotation mark omitted) (quoting Bayerische Landesbank, N.Y. Branch v. Aladdin Capital Mgmt. LLC, 692 F.3d 42, 58 (2d Cir. 2012) (citing Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d 382, 389 (1987))).

Here, the sole basis of Plaintiffs’ general negligence claim is Defendant’s alleged breach of its contractual obligations. (See, e.g., BR Compl. ¶ 163 (asserting that Defendant was negligent “by failing to (i) provide notice to the parties to the Governing Agreements and/or the responsible sellers upon its discovery of these breaches, and (ii) take any action to enforce the sellers’ repurchase of the defective mortgage loans”)). As such, “the claim is precluded as duplicative.” RP/DB, 2016 WL 439020, at *9 (quotation mark omitted) (quoting Bayerische Landesbank, 692 F.3d at 58).

To be clear, Plaintiffs at times plead more specific tort claims under the rubric of negligence, and those claims are neither addressed nor dismissed here. The Court grants Defendant’s motion only insofar as it applies to Plaintiffs’ claims that Defendant was negligent in performing its contractual duties. The Court will consider the viability of Plaintiff’s additional tort claims in greater depth in the sections that follow.

b. Defendant’s Motion to Dismiss Plaintiff’s Pre-Default Fiduciary-Duty Claims Is Granted

Plaintiffs’ fiduciary duty claims divide temporally into pre- and postdefault claims. This Court will consider them chronologically.

“Prior to an Event of Default, an indenture trustee’s duty is governed solely by the terms of the indenture, with two exceptions: a trustee must still `[i] avoid conflicts of interest, and [ii] perform all basic, non-discretionary, ministerial tasks with due care.” RP/HSBC, 109 F. Supp. 3d at 597 (quoting Ellington Credit Fund, Ltd. v. Select Portfolio Servicing Inc., 837 F. Supp. 2d 162, 192 (S.D.N.Y. 2011)). However, “[t]hese two pre-default obligations are not construed as fiduciary duties, but as obligations whose breach may subject the trustee to tort liability.” Id. (quotation marks omitted) (quoting Ellington Credit Fund, Ltd., 837 F. Supp. 2d at 192); see also PL/DB, 172 F. Supp. 3d at 719 (“[C]onflict of interest claims and the claims that [Defendant] did not perform ministerial acts with due care are not proper breach of fiduciary claims under New York law, and can only be pleaded in the complaint as negligence claims.”); PL/BNYM, 2015 WL 5710645, at *7; AG Capital Funding Partners, 11 N.Y.3d at 157. Therefore, insofar as Plaintiffs’ conflict-of-interest and ministerial-task claims are pleaded as violations of Defendant’s fiduciary duties, Plaintiffs fail to state a claim and Defendant’s motion to dismiss is granted.

c. Defendant’s Motion to Dismiss Plaintiff’s Post-EOD Fiduciary-Duty Claims Is Denied

With regard to an indenture trustee’s fiduciary duties, however, an EOD is transformative: After an EOD, “an indenture trustee’s fiduciary duties expand under the New York common law such that `fidelity to the terms of an indenture does not immunize an indenture trustee against claims that the trustee has acted in a manner inconsistent with his or her fiduciary duty of undivided loyalty to trust beneficiaries.'” PL/DB, 172 F. Supp. 3d at 717-18 (quoting BNP Paribas Mortg. Corp. v. Bank of Am., N.A., 778 F. Supp. 2d 375, 401 (S.D.N.Y. 2011)); see also Beck v. Mfrs. Hanover Tr. Co., 632 N.Y.S.2d 520, 527-28 (1995). A trustee’s obligations “come more closely to resemble those of an ordinary fiduciary, regardless of any limitations or exculpatory provisions contained in the indenture.” RP/HSBC, 109 F. Supp. 3d at 597 (quotation marks omitted) (quoting BNP Paribas Mortg. Corp., 778 F. Supp. 2d at 401); see also Beck, 632 N.Y.S.2d at 527. A trustee is not required to act beyond the powers conferred by the governing agreements, but it “must, as prudence dictates, exercise those singularly conferred prerogatives in order to secure the basic purpose of any trust indenture, the repayment of the underlying obligation.” Id. (quotation marks omitted) (quoting Philip v. L.F. Rothschild & Co., No. 90 Civ. 0708 (WHP), 2000 WL 1263554, at *5 (S.D.N.Y. Sept. 5, 2000) (quoting Beck, 632 N.Y.S.2d at 528)); see also RP/DB, 2016 WL 439020, at *2.

As described above, Plaintiffs have alleged that EODs occurred when Servicers failed to “(i) act in accordance with the normal and usual standards of practice of prudent mortgage servicers; (ii) ensure the loans are serviced legally; and (iii) promptly notify [Defendant] and other parties upon discovery [of Sellers’] R&W breaches.” (Pl. Opp. 4 (citing BR Compl. ¶¶ 25-26; RP Compl. ¶¶ 57, 59; NCUAB Compl. ¶¶ 85-87, 285-89, 337; PL Compl. ¶¶ 68, 79-80; CB Compl. ¶¶ 44, 54-55)). And Defendant breached its post-EOD duty to act as would a prudent person by failing to (i) notify Servicers of the R&W breaches of which it was aware, (ii) require those Servicers to cure those breaches, or to repurchase defective loans; (iii) notify Certificateholders of any uncured EODs; and (iv) reimburse the Trusts for damages. (Pl. Opp. 7 (citing BR Compl. ¶¶ 163-87; RP Compl. ¶ 129; NCUAB Compl. ¶¶ 361-96; PL Compl. ¶¶ 115-18, 160-61; CB Compl. ¶¶ 89-92, 129-30)). As were these allegations sufficient to support a post-EOD breach-of-contract claim, so too are they sufficient to support Plaintiffs’ post-EOD, breach-of-fiduciary-duty claim. However, for the reasons explained more fully below, the portion of this claim that is duplicative in its remedy with Plaintiffs’ breach-of-contract claims is ultimately barred by the economic-loss doctrine, and Defendant’s motion to dismiss that portion of the claim is granted.

d. Defendant’s Motion to Dismiss Plaintiffs’ Breach-of-Due Care-Claim Is Granted in Part and Denied in Part

“Under New York law, `an indenture trustee owes a duty to perform its ministerial functions with due care, and if this duty is breached the trustee will be subjected to tort liability.'” PL/DB, 172 F. Supp. 3d at 717 (quoting AG Capital Funding Partners, 11 N.Y.3d at 157). In other RMBS cases, courts in this District have recognized that this duty of due care is extra-contractual and, as such, not duplicative of a plaintiff’s contract claims. See, e.g., id. at 718 (citing Nat’l Credit Union Admin. Bd. v. U.S. Bank Nat’l Ass’n (hereinafter, “NCUAB/U.S. Bank II“), No. 14 Civ. 9928 (KBF), 2016 WL 796850, at *11 (S.D.N.Y. Feb. 25, 2016)); PL/BNYM, 2015 WL 5710645, at *7; RP/HSBC, 109 F. Supp. 3d at 609 n.127. The Court finds as much here. Again, the Court clarifies that Defendant’s motion to dismiss these claims is granted to the extent that Plaintiffs have pleaded that Defendant breached its duty to perform ministerial functions with due care in breaching Defendant’s contractual obligations. It is denied with regard to Plaintiffs’ claims that Defendant breached a duty to act with due care other than by “systematically disregard[ing] its contractual . . . duties.” (NCUAB Compl. ¶ 343).^[7] See also PL/DB, 172 F. Supp. 3d at 718 n.7 (citing AG Capital, 866 N.Y.S.2d at 584-85) (“[T]he plaintiffs appear to conflate the duty to perform ministerial acts with due care with their allegations that [the defendant] negligently performed or failed to perform certain duties under the contract. Only tort claims premised on the former survive because New York recognizes a duty to perform ministerial acts as an extra contractual duty.”).

e. Defendant’s Motion to Dismiss Plaintiffs’ Conflict-of-Interest Claims Is Denied

To plead properly a conflict-of-interest claim, a plaintiff must allege more than the existence of a “relationship between an issuer and an indenture trustee that is mutually beneficial and increasingly lucrative.” RP/HSBC, 109 F. Supp. 3d at 598 (quotation mark omitted) (quoting CFIP Master Fund, Ltd. v. Citibank, N.A., 738 F. Supp. 2d 450, 475 (S.D.N.Y. 2010) (quoting Page Mill Asset Mgmt. v. Credit Suisse First Boston Corp., No. 84152 (MBM), 2000 WL 877004, at *2 (S.D.N.Y. June 30, 2000))); accord, e.g., RP/BNYM, 2016 WL 899320, at *7. Nor does “[t]he mere fact that an indenture trustee does repeat business with an entity . . . create a conflict of interest.” RP/HSBC, 109 F. Supp. 3d at 610. Such “bald assertions of conflict” are not sufficient; a plaintiff must show that a trustee “personally benefitted” from the alleged misconduct. Id. at 598 (quoting Elliott Assocs. v. J. Henry Schroder Bank & Tr. Co., 838 F.2d 66, 70 (2d Cir. 1988)).

Courts in this District have found this requirement satisfied where a plaintiff alleges a defendant’s complicity in a “quid pro quo system.” RP/BNYM, 2016 WL 899320, at *7; RP/DB, 2016 WL 439020, at *9 (quoting Ellington Credit Fund, 837 F. Supp. 2d at 193); RP/HSBC, 109 F. Supp. 3d at 610. If a defendant is alleged to have “turn[ed] a blind eye to breaches of R&Ws in the hopes that counterparties would later `return a favor,'” courts will find that the defendant personally benefited from its decision not to act with regard to the known breaches, which “constitut[es] a conflict of interest.” RP/BNYM, 2016 WL 899320, at *7; see also, e.g., Fixed Income Shares, 130 F. Supp. 3d at 858 (finding plaintiffs had alleged defendant was “economically beholden” to sellers and servicers because defendant “faced repurchase liability for the sale and securitization of its own loans if [defendant] took action against them”).

Here, Plaintiffs have alleged that Defendant refused to act against sellers and servicers “because doing so would have exposed [Defendant’s] own misconduct as a Seller or Servicer for other RMBS trusts in which these same entities served as either trustee or servicer.” (Pl. Opp. 21 (citing BR Compl. ¶¶ 173-77; RP Compl. ¶¶ 151-52; NCUAB Compl. ¶¶ 355-59; PL Compl. ¶¶ 149-58; CB Compl. ¶¶ 122-27)). And this conflict, Plaintiffs allege, was “exacerbated” by Defendant’s “ongoing business relationships with the Sellers, Servicers and related companies,” the servicers’ payment of Defendant’s trustee fees, and Defendant’s economic disincentive to declare EODs. (Id. (citing BR Compl. ¶¶ 21, 178-85; RP Compl. ¶¶ 21-24, 63, 137-43; NCUAB Compl. ¶ 360; PL Compl. ¶¶ 149-58; CB Compl. ¶¶ 122-27)). While these exacerbating allegations alone might not be sufficient to support Plaintiffs’ conflict-ofinterest claims, they are certainly sufficient when coupled with Plaintiffs’ quid pro quo contention. Defendant’s motion to dismiss Plaintiffs’ conflict-of-interest claims is accordingly denied.

f. Defendant’s Motion to Dismiss Plaintiffs’ Claims for Breach of the Implied Covenant of Good Faith and Fair Dealing Is Granted

“New York law . . . does not recognize a separate cause of action for breach of the implied covenant of good faith and fair dealing when a breach of contract claim, based upon the same facts, is also pled.” PL/DB, 172 F. Supp. 3d at 721 (omission in original) (quoting Harris v. Provident Life & Accident Ins. Co., 310 F.3d 73, 81 (2d Cir. 2002)). “A plaintiff can maintain a claim for breach of the implied covenant of good faith and fair dealing simultaneously with a breach of contract claim `only if the damages sought by the plaintiff for breach of the implied covenant are not intrinsically tied to the damages allegedly resulting from breach of contract.'” Id. (quoting Page Mill Asset Mgmt. v. Credit Suisse First Bos. Corp., No. 98 Civ. 6907 (MBM), 2000 WL 335557, at *8 (S.D.N.Y. Mar. 30, 2000)).

Again, the viability of this claim must be considered at two stages — before and after an alleged EOD. Before a trustee discovers an EOD, a trustee has “no duties other than its contractual duties,” and “any cause of action for breach of implied duties cannot stand.” PL/BNYM, 2015 WL 5710645, at *9. Accordingly, Plaintiffs’ claims that Defendant breached an implied covenant of good faith and fair dealing before it discovered any EOD must be dismissed.

After an EOD, a trustee’s obligations are not so circumscribed by the Governing Agreements, as explained above. At this stage, the Court must determine whether the “damages sought by [Plaintiffs] for breach of the implied covenant are not intrinsically tied to the damages allegedly resulting from breach of contract.” PL/DB,172 F. Supp. 3d at 721 (quoting Page Mill Asset Mgmt., 2000 WL 335557, at *8(quotation marks omitted)).

Despite Defendant’s argument in its opening brief that this tort claim must be dismissed, Plaintiffs do not defend it. Instead, Plaintiffs’ tort arguments focus on the conflict-of-interest claim. Accordingly, the Court could find Plaintiffs’ implied covenant claim to be abandoned.

But even were it not abandoned, this claim would fail. Plaintiffs argue only that Defendant breached this covenant in failing to fulfill its contractual obligations. (See, e.g., PL Compl. ¶ 201 (“[Defendant] owed Plaintiffs, as express, intended third party beneficiaries under the PSAs, a duty of good faith and fair dealing pursuant to the PSAs that required [Defendant] to ensure that it did not, by act or omission, injure the rights of the Plaintiffs to receive the benefits and protections provided for under the PSAs.” (emphases added))). Plaintiffs’ breach-of-contract and breach-of-implied-covenant claims are based on the same alleged facts, and therefore the latter must fail. Defendant’s motion to dismiss Plaintiffs’ claims regarding a breach of an implied covenant of good faith and fair dealing is granted. See, e.g., PL/DB, 172 F. Supp. 3d at 721; Commerzbank AG v. HSBC Bank USA (hereinafter, “CB/HSBC“), No. 15 Civ. 10032 (LGS), 2016 WL 3211978, at *3-4 (S.D.N.Y. June 8, 2016) (collecting cases).

4. The Economic-Loss Doctrine Bars Plaintiffs’ Claims Insofar as They Seek Only the Benefit of Plaintiffs’ Contract

Plaintiffs’ allegations that Defendant breached duties independent of its contracts do not, themselves, “allow evasion of the economic loss rule, which presents a second, distinct barrier” to tort claims stemming from contractual relationships. RP/HSBC, 109 F. Supp. 3d at 599. The economic-loss rule provides that “a contracting party seeking only a benefit of the bargain recovery may not sue in tort notwithstanding the use of familiar tort language in its pleadings.” Phoenix Light SF Ltd. v. U.S. Bank Nat’l Ass’n (hereinafter, “PL/U.S. Bank“), No. 14 Civ. 10116 (KBF), 2016 WL 1169515, at *9 (S.D.N.Y. Mar. 22, 2016) (quotation marks omitted) (quoting 17 Vista Fee Assocs. v. Teachers Ins. & Annuity Ass’n of Am., 693 N.Y.S.2d 554, 559 (1st Dep’t 1999)); accord NCUAB/U.S. Bank II, 2016 WL 796850, at *11. However, “the rule allows such recovery in the limited class of cases involving liability for the violation of a professional duty.” Hydro Inv’rs, Inc. v. Trafalgar Power Inc., 227 F.3d 8, 18 (2d Cir. 2000) (citing 17 Vista Fee Assocs., 693 N.Y.S.2d at 560; Robinson Redev. Co. v. Anderson, 547 N.Y.S.2d 458, 460 (3d Dep’t 1989)). A court considering the application of this doctrine therefore must scrutinize with care a plaintiff’s proffered extra-contractual claims.

Courts in this District have split with regard to the application of the economic-loss doctrine to tort claims brought against an RMBS trustee. Compare RP/HSBC, 109 F. Supp. 3d at 608-10, with PL/U.S. Bank, 2016 WL 1169515, at *9. Dispositive in each case has been the nature of the plaintiff’s claims: Does plaintiff allege damages that flow from the violation of a professional duty, or merely from the violation of the governing agreements? Courts have denied motions to dismiss where plaintiffs have pleaded tort claims grounded in extra-contractual duties. See, e.g., PL/DB, 172 F. Supp. 3d at 719 (holding that, with regard to the economic-loss doctrine, “[t]he dispositive issue is whether [defendant] owed duties to the plaintiffs that were separate from the duties set forth in the PSAs and the Indenture Agreements” and reasoning that because “[s]everal of the plaintiffs’ arguments supporting the negligence, gross negligence, and breach of fiduciary duty claims are not duplicative of the breach of contract claim[,] . . . the motion to dismiss the tort claims cannot be granted on this basis”); RP/HSBC, 109 F. Supp. 3d at 608-10 (denying motion to dismiss with regard to breaches of extra-contract duty to avoid conflicts of interest and post-EOD fiduciary duties, but granting motion to dismiss negligent misrepresentation claim absent a “special duty for [defendant] to refrain from negligently making misrepresentations to Certificateholders”). Conversely, motions to dismiss have been granted where plaintiffs pled only damages arising from a defendant’s contract obligations. See, e.g., PL/U.S. Bank, 2016 WL 1169515, at *9 (“While the cause of action for breach of fiduciary duty may arise from common law duties and not from the PSA, `the injury’ and `the manner in which the injury occurred and the damages sought persuade us that plaintiffs’ remedy lies in the enforcement of contract obligations,’ and is barred by the economic loss doctrine.” (quoting Bellevue S. Assocs. v. HRH Constr. Corp., 78 N.Y.2d 282, 293 (1991))); NCUAB/U.S. Bank II, 2016 WL 796850, at *11 (same).

This Court draws the same line. The economic-loss doctrine does not foreclose Plaintiffs’ claims that Defendant breached its duty to perform ministerial acts with due care and its duty to avoid conflicts of interest. At least at this stage, Plaintiffs have pleaded that Defendant breached extracontractual duties, for which Plaintiffs are owed damages that do not lie simply in the enforcement of Defendant’s contractual obligations. However, insofar as Plaintiffs have pleaded that Defendant breached, for example, its post-EOD fiduciary duty in failing to act as it was contractually required to, the economic-loss doctrine does bar Plaintiffs’ claims. Defendant’s motion to dismiss that subset of Plaintiffs’ tort claims is granted.

5. Defendant’s Motion to Dismiss Plaintiffs’ TIA Claims Is Granted in Part and Denied in Part

i. Plaintiffs’ TIA Claims Regarding PSA-Governed Trusts Are Dismissed

Plaintiffs assert claims under Sections 315(a), (b), and (c) of the TIA.^[8] Because claims under the TIA can only be asserted with respect to the 12 Trusts governed by Indenture Agreements, the Court here considers only the viability of those claims; any claims brought under the TIA with respect to the PSA-governed Trusts are dismissed to the extent that Plaintiffs have not already withdrawn them. See PABF III, 775 F.3d at 155 (holding that the TIA does not “impose obligations on the trustees of RMBS trusts governed by pooling and servicing agreements”); PL/DB, 172 F. Supp. 3d at 721 (dismissing TIA claims with respect to PSA-governed trusts on this basis). (See also Def. Br. 22; Pl. Opp. 18 & n.14).

ii. Defendant’s Motion to Dismiss Plaintiffs’ Section 315(a) Claim Is Granted

With respect to the Indenture Trusts, an interesting antecedent issue concerns whether Plaintiffs can bring a TIA claim at all. Sections 315(a), (b), and (c) of the TIA do not afford an express private right of action. See 15 U.S.C. § 77ooo; see also, e.g., Blackrock Allocation Target Shares: Series S Portfolio v. Bank of N.Y. Mellon (hereinafter, “BR/BNYM“), 180 F. Supp. 3d 246, 254 (S.D.N.Y. 2016) (“Section 315 of the TIA does not expressly create a federal private cause of action.”), motion to certify appeal denied sub nom. Blackrock Allocation Target Shares Series S Portfolio v. Bank of N.Y. Mellon, No. 14 Civ. 9372 (GBD), 2016 WL 5812627 (S.D.N.Y. Oct. 4, 2016); Fixed Income Shares, 130 F. Supp. 3d at 848. For Plaintiffs’ claims to proceed, therefore, the Court must find an implied private right of action.

The Court concludes, as have its sister courts in this Circuit, that a private right of action is implied under Sections 315(b) and (c), but not under Section 315(a). Considering first Section 315(a), this Court agrees with the other courts to consider the question that “this [S]ection limits, rather than creates, liability.” RP/BNYM, 2016 WL 899320, at *8. Here, Plaintiffs allege that Defendant violated Section 315(a)(1)’s mandate that “the indenture trustee shall not be liable except for the performance of such duties as are specifically set out in such indenture,” 15 U.S.C. § 77ooo(a), by violating the duties specifically set out in the Indenture Agreements. (NCUAB Compl. ¶ 440; RF Compl. ¶ 175). But Section 315(a)(1) does not impose liability for Indenture Agreement violations; it rather limits possible liability to claims premised on Indenture Agreement violations. Accordingly, Defendant’s motion to dismiss Plaintiffs’ claims under Section 315(a) is granted.

iii. Defendant’s Motion to Dismiss Plaintiffs’ Sections 315(b) and (c) Claims Is Denied

A different result obtains under Sections 315(b) and (c). Neither the Supreme Court nor the Second Circuit has determined whether either section affords an implied private right of action. But the Second Circuit has cited favorably case law consistent with such an implied right. See Bluebird Partners, L.P. v. First Fid. Bank, N.A., 85 F.3d 970, 974 (2d Cir. 1996) (agreeing with observations of Zeffiro v. First Pa. Banking & Tr. Co., 623 F.2d 290 (3d Cir. 1980), “which established a private cause of action under the [TIA]”). And district courts within this Circuit addressing the question more directly have found the same: “[S]everal courts in this [D]istrict have found a private right of action to exist under these [S]ections.” RP/BNYM, 2016 WL 899320, at *8 (collecting cases); see also Fixed Income Shares, 130 F. Supp. 3d at 848 (collecting cases).

Defendant decries Plaintiffs’ reliance on cases like Zeffiro, which it claims are “inconsistent with the Supreme Court’s most recent private right of action jurisprudence — Stoneridge, Sandoval[,] and Armstrong v. Exceptional Child Ctr., Inc., 135 S. Ct. 1378, 1387 (2015) (plurality) — which require express textual indicators of a private action and remedy.” (Def. Br. 22 (parenthetical omitted)). The Court has reviewed that jurisprudence, as well as persuasive authority from this District finding an implied private right of action under Sections 315(b) and (c), and cannot agree with Defendant’s claims.

In Fixed Income Shares, Judge Furman considered this issue with care, specifically grappling with the implications of Sandoval. First, Judge Furman looked to the reasoning of Zeffiro, which reasoning he noted “rel[ied] heavily on the factors articulated by the Supreme Court in Cort v. Ash, 422 U.S. 66, 95 (1975)” and was cited with approval by the Second Circuit in Bluebird. 130 F. Supp. 3d at 848-49. Judge Furman recounted that the Zeffiro court had found that:

Congress intended to create a private right of action under the TIA because [i] the TIA was enacted for the benefit of a special class, namely, debenture holders; [ii] legislative history revealed Congress’s intention “to nationalize the issues of concern in the Act”; [iii] the Securities and Exchange Commission (“SEC”) has no power to enforce the terms of an indenture after it has been qualified under the Act, leaving private lawsuits as the only possible enforcement mechanism; and [iv] “[i]t is unquestionable that Congress intended to legislate over trust indentures and deal with the problem on a national scale.”

Id. (quoting Zeffiro, 623 F.2d at 296-301).

Judge Furman also noted that Judge Mukasey had likewise found the TIA’s “text and legislative history [to] support the inference that Congress intended to permit debenture holders to sue in federal court.” 130 F. Supp. 3d at 849 (quoting LNC Invs., Inc. v. First Fid. Bank, Nat’l Ass’n, 935 F. Supp. 1333, 1339 (S.D.N.Y. 1996)). Both judges “emphasized that the SEC is not entitled to enforce the terms of indentures covered by the TIA.” Id.; see also id. at 849-50. All of this, Judge Furman concluded, together with the lack of evidence supporting a contrary interpretation and the TIA’s legislative history, confirmed that Sections 315(a) and (b) afforded implied private rights of action. Id. at 849-50.

Judge Furman noted, however, that he had been given “pause” by the Supreme Court’s decision in Alexander v. Sandoval, 532 U.S. 275 (2001). 130 F. Supp. 3d at 850. In particular, the court was troubled because Sandoval “reasoned that `[s]tatutes that focus on the person regulated rather than the individuals protected create no implication of an intent to confer rights on a particular class of persons.'” Id. (alteration in original) (quoting Sandoval, 532 U.S. at 289). However, Judge Furman concluded that while “the TIA provisions at issue are phrased in terms of the trustee’s duties rather than the investors’ entitlement,” they differed from those at issue in Sandoval because their focus “is not solely on the [trustee], but also on the individuals [they] protect[ ].” Id. (alterations in original) (quoting Zatuchni v. Richman,No. 07 Civ. 4600, 2008 WL 3408554 (CMR), at *9 (E.D. Pa. Aug. 12, 2008)). “Sections 315(b) and (c) impose specific duties that the trustee must perform to protect investors, and `a statute that imposes fiduciary duties necessarily implies corresponding rights in the beneficiaries.'” Id. (first emphasis added) (quoting Int’l Union of Operating Eng’rs, Local 150, AFL-CIO v. Ward, 563 F.3d 276, 286 (7th Cir. 2009)). Therefore, Sandoval did not persuade Judge Furman “to depart from the longstanding view that a private right of action exists to enforce Sections 315(b) and (c).” Id. Nor has it persuaded other Courts in this District. See e.g., RP/BNYYM, 2016 WL 899320, at *8 (“The Court finds Judge Furman’s analysis of this issue in Fixed Income Shares persuasive and adopts Judge Furman’s conclusions here.”).

Later, in Blackrock Allocation Target Shares, Judge Daniels elaborated on Judge Furman’s Sandoval analysis; Judge Daniels considered whether the Supreme Court’s subsequent decision in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (2008), had “abrogated prior case law holding that the TIA establishes a private cause of action.” BR/BNYM, 80 F. Supp. 3d at 255. In Stoneridge, the Supreme Court held that there may be “an implied cause of action only if the underlying statute can be interpreted to disclose the intent to create one.” 552 U.S. at 164. The Stoneridge Court affirmed Sandoval‘s holding that the express provision of a single method of enforcement suggests a Congressional intent to preclude others. Id. at 163. The Court also, however, distinguished its case from those “in which Congress has enacted a regulatory statute and then has accepted, over a long period of time, broad judicial authority to define substantive standards of conduct and liability.” Id.

Judge Daniels picked up on this distinction, noting that “[c]ourts have unanimously recognized a private cause of action under the TIA for at least thirty-five years.” BR/BNYM, 180 F. Supp. 3d at 255. And he reiterated Judge Furman’s argument that Section 315 imposes specific fiduciary duties, and so necessarily implies corresponding rights in beneficiaries. Id. at 255-56. Judge Daniels, too, determined that neither Sandoval nor Stoneridge precluded recognition of an implied private cause of action under the TIA. Id.; see also Ret. Bd. of the Policemen’s Annuity & Benefit Fund of City of Chi. v. Bank of N.Y. Mellon, No. 11 Civ. 5459 (WHP), 2015 WL 9275680, at *2-3 (S.D.N.Y. Dec. 18, 2015) (Pauley, J.) (holding that Stoneridge and Sandoval “do not contravene the line of authority holding that a private right of action exists under Section 315 of the TIA” because (i) “courts have unanimously interpreted Section 315 as implying a private right of action for at least 35 years” and (ii) Section 315 imposes “fiduciary duties, which necessarily impl[y] corresponding rights in the beneficiaries”), motion to certify appeal denied sub nom. Ret. Bd. of the Policemen’s Annuity & Benefit Fund of City of Chi. v. Bank of N.Y. Mellon, No. 11 Civ. 5459 (WHP), 2016 WL 2744831 (S.D.N.Y. May 9, 2016).

This Court reaches the same conclusion, even after considering the Supreme Court’s plurality decision in Armstrong v. Exceptional Child Center, Inc., ___ U.S. ___, 135 S. Ct. 1378 (2015), which Judges Furman, Daniels, and Pauley did not have occasion to discuss. Armstrong reaffirmed the two Sandoval concerns that prior courts have found the TIA to address: (i) it noted the lack of rights-creating language that conferred a right to sue upon a statute’s beneficiaries, and (ii) it found private enforcement impliedly precluded by the provision of an alternate enforcement mechanism. Id. at 1387. Because here, as Judges Furman, Daniels, and Pauley found, and as longstanding precedent confirms, Sections 315(b) and (c) of the TIA (i) necessarily create rights in their beneficiaries and (ii) do not allow potentially preclusive SEC enforcement, Armstrong does not change this Court’s conclusion that the TIA “unambiguously confer[s]” a private right of action. Id. at 1388. The Court declines Defendant’s invitation to stand alone against the jurisprudential tide.

Because Defendant does not otherwise challenge the viability of Plaintiffs’ TIA claims, the Court denies Defendant’s motion to dismiss Plaintiffs’ TIA claims under Section 315(b) and (c).^[9]

6. Defendant’s Motion to Dismiss Plaintiffs’ Streit Act Claims Is Granted

The parties agree that the Streit Act, Article 4A of the New York Real Property Law, does not apply to the 12 Indenture Trusts at issue here. (Def. Br. 24; Pl. Opp. 23 n.18; Def. Reply 10). Accordingly, to the extent that Plaintiffs have pleaded violations of the Streit Act implicating the Indenture Trusts, those claims are dismissed. See, e.g., PL/DB, 172 F. Supp. 3d at 722-23 (citing N.Y. Real Prop. Law § 130-k) (“[O]nly the 45 PSA Trusts are potentially subject to the Streit Act because they are not covered by the TIA.”); RP/HSBC, 109 F. Supp. 3d at 599 (same).

As for the PSA Trusts, Plaintiffs allege that Defendant violated Section 126(1) of the Streit Act when it “failed to exercise its rights under the Governing Agreements after becoming aware of numerous Events of Default, failed to notify Certificateholders and other parties of deficiencies, failed to take steps to address those deficiencies, and . . . failed to enforce the repurchase, cure or substitution of defective Mortgage Loans.” (RP Compl. ¶¶ 198-99; see also NCUAB Compl. ¶¶ 430, 432; PL Compl. ¶¶ 197-98; CB Compl. ¶¶ 165-66).^[10] However, Courts in this District have held consistently that Section 126(1) “requires only that trust instruments include certain provisions, and does not itself impose any affirmative duties on trustees.” CB/HSBC, 2016 WL 3211978, at *2; see also id. at 2-3 (collecting cases holding the same, and noting the dearth of support for defendant’s argument to the contrary); PL/DB, 172 F. Supp. 3d at 723 (dismissing Section 126(1) claim because “[§] 126(1) does not create any additional duties for trustees beyond the duties in the PSAs, and only requires that certain types of provisions be included in the indenture agreement,” and plaintiff’s complaint did “not allege that the PSAs omitted” those provisions); accord, e.g., PL/U.S. Bank, 2016 WL 1169515, at *10-11; RP/BNYM, 2016 WL 899320, at *11; NCUAB/U.S. Bank II, 2016 WL 796850, at *12; PL/BNYM, 2015 WL 5710645, at *11.

This Court now adds its voice to the judicial chorus: Plaintiffs fail to plead a claim under Section 126(1) of the Streit Act because Plaintiffs have not pleaded that Defendant accepted a deficient trust instrument and Section 126(1) imposes no further duty.^[11]

In several of the operative pleadings, Plaintiffs reference “a duty” imposed “upon the trustee to discharge its duties under the applicable indenture with due care to ensure the orderly administration of the trust and to protect the trust beneficiaries’ rights”; this language echoes Section 124 of the Streit Act. (RP Compl. ¶ 69; see also NCUAB Compl. ¶¶ 13, 100). But only the NCUAB’s Complaint seems to allege that Defendant violated Section 124. (See NCUAB Compl. ¶ 431 (“In addition, Section 124 of the Streit Act imposes a duty upon the trustee to discharge its duties under the applicable indenture with due care in order to ensure the orderly administration of the trust and protect the trust beneficiaries’ rights.” (citing N.Y. Real Prop. Law § 124))). All told, the extent to which Plaintiffs intend to allege violations of Section 124 is unclear. Fortunately, the law is not so ambiguous: Section 124 “is a preliminary section that does not create any duties.” CB/HSBC, 2016 WL 3211978, at *2 (quoting RP/HSBC, 109 F. Supp. 3d at 610); accord NCUAB/U.S. Bank II, 2016 WL 796850, at *12 (“Plaintiff’s claims under Section 124 are not actionable because Section 124 is the preamble to the Streit Act and does not impose any obligations. Instead, it merely recites the New York state legislature’s purpose in enacting the law and its applicability to trustees with offices in New York.”). Therefore, to the extent that Plaintiffs may have brought claims under Section 124 of the Streit Act, those claims are dismissed.

The Court is not persuaded by Plaintiffs’ arguments that these conclusions are not in keeping with the purpose, legislative history, and case law that motivated the Streit Act. (See Pl. Opp. 22-23). The Court’s decision is in keeping with current case law and with the Streit Act’s plain text. Defendant’s motion to dismiss Plaintiffs’ Streit Act claims is granted.^[12]

7. Defendant’s Motion to Dismiss NCUAB’s Claims Is Granted in Part, Without Prejudice, and Denied in Part

While most of Defendant’s arguments are applicable to all five Plaintiffs, Defendant mounts individualized arguments against the NCUAB and Commerzbank. Beginning with the former, and because the NCUAB stands in a different position than its peer Plaintiffs, the Court will provide a brief background of the genesis of its claims before considering the issue of its standing.

a. Factual Background

Plaintiff NCUAB manages the NCUA. As relevant here:

The National Credit Union Administration (“NCUA”) is an independent agency of the Executive Branch of the United States Government that, among other things, charters and regulates federal credit unions, and operates and manages the National Credit Union Share Insurance Fund (“NCUSIF”) and the Temporary Corporate Credit Union Stabilization Fund (“TCCUSF”). The TCCUSF was created in 2009 to allow the NCUA to borrow funds from the United States Department of the Treasury (“Treasury Department”) to stabilize corporate credit unions under conservatorship or liquidation, or corporate credit unions threatened with conservatorship or liquidation. The NCUA must repay all monies borrowed from the Treasury Department for the purposes of the TCCUSF by 2021. The NCUSIF insures the deposits of account holders in all federal credit unions and the majority of state-chartered credit unions. The NCUA has regulatory authority over statechartered credit unions that have their deposits insured by the NCUSIF.

(NCUAB Compl. ¶ 17 (citing Federal Credit Union Act, 12 U.S.C. §§ 1751, 1752a(a)). In certain specified circumstances, the NCUAB “may close an insured credit union and appoint itself the Liquidating Agent for such credit union. As liquidating agent for a failed credit union, the [NCUAB] succeeds to all rights, titles, powers, and privileges of the credit union, its members, accountholders, officers, and directors.” (Id.).

At various times in 2010, the NCUAB placed certain corporate credit unions (“CCUs”) into conservatorship, and then into involuntary liquidation, “appointing itself as the liquidating agent.” (NCUAB Compl. ¶ 24). In this capacity, the NCUAB “succeeded to all rights, titles, powers, and privileges of the CCUs and of any member, account holder, officer or director of the CCUs, with respect to the CCUs and their assets, including the right to bring the claims asserted in this action.” (Id. at ¶ 25). As liquidating agent, the NCUAB had the right to “sue on the CCUs’ behalf.” (Id.).

Also in 2010, “the NCUA and the [NCUAB] as liquidating agent created the NCUA Guaranteed Notes Program (the `NGN Program’) as a means of liquidating the distressed investment securities from . . . five failed CCUs (the `Legacy Assets’), thereby stabilizing funding for the credit union system.” (NCUAB Compl. ¶ 27). This program entailed the transfer of certain Legacy Assets, “including the CCU’s investment in the [T]rusts at issue” in this case, to trusts (the “NGN Trusts”). (Id.). To create the NGN Trusts, “the NCUA Board in its Capacity as Liquidating Agent (as Sellers) transferred the [CCUs’ RMBS] certificates to the NGN Trusts (as Issuers) pursuant to the NGN Trust Agreements, and [Defendant] (as Owner Trustee) caused the Owner Trust Certificates . . . to be issued” to the NCUAB. (Id. at ¶ 29). The NGN Trusts are Delaware statutory trusts, created pursuant to and governed by the Delaware Statutory Trust Act, 12 Del. Code §§ 3801-3826 (the “DSTA”). (Pl. Opp. 26).

Once the RMBS certificates were conveyed to the NGN Trusts, and the NCUAB left with only its Owner Trust Certificates, the NGN Trusts executed a second transaction. The Trusts entered into an Indenture Agreement with the Bank of New York Mellon (“BNYM”), through which they “(as Issuers) pledged the [c]ertificates and the other assets of the trust estates to [BNYM] (as Indenture Trustee) and caused . . . Notes to be issued pursuant to the NGN Indentures.” (NCUAB Compl. ¶ 29). “BNYM (as Indenture Trustee) [then] delivered the Notes [to] . . . Initial Purchasers for further sale to investors.” (Id.).

The NGN Trust Agreements facilitated the following exchange: The NCUAB as liquidating agent “transferred and assigned” the former CCU-owned certificates, as well as the NCUAB’s “rights, title, and interest to assert the claims at issue in this [case] to the NGN Trusts,” and in exchange, the NCUAB received “certain certificates that represent a beneficial ownership interest in the NGN Trusts (the `Owner Trust Certificates’).” (NCUAB Compl. ¶ 30). This beneficial ownership interest entitled the NCUAB in its capacity as Liquidating Agent “to payments from the NGN Trusts after the principal balance of the Notes issued by the various NGN Trusts has been reduced to zero.” (Id.; see also id. at ¶ 31). And the NCUA, “in its capacity as an agency of the Executive Branch of the United States Government (in such capacity, the `Guarantor’) provided a guarantee, backed by the full faith and credit of the United States, of the timely repayment of all principal and interest to the investors in the NGN Trusts.” (Id. at ¶ 32; id. at Ex. D).

b. Defendant’s Motion to Dismiss NCUAB’s Derivative Claims Is Granted

Defendant’s standing claim with regard to the NCUAB is intertwined with its challenge to the NCUAB’s claims on their merits: Defendant claims that that the NCUAB lacks standing to assert its derivative claims (which, according to Defendant, are not in fact derivative), and, further, that the NCUAB lacks standing to bring direct claims as well. The Court will consider first the threshold question of the NCUAB’s standing, before addressing the derivative or direct nature of the claims the NCUAB asserts standing to bring.^[13]

i. Procedural History

To consider properly the NCUAB’s derivative claims, the Court first revisits events that followed the NGN Trust formation process described above. Critical to the Court’s analysis of the NCUAB’s standing is the fact that through the NGN Indenture Agreement, “BNYM was granted the right to take action against Defendant with respect to the certificates and the Trusts.” (NCUAB Compl. ¶ 33; id. at Ex. B). Specifically, the Granting Clause of the Indenture Agreement gave BNYM as Indenture Trustee “all of [the Trusts’] right, title and interest in and to . . . the Underlying Securities . . ., and all distributions thereon, . . . [and] all present and future claims, demands, causes, and choses in action in respect of the foregoing, including . . . the rights of the [Trusts (as the Issuers)] under the Underlying Securities and Underlying Agreements.” (Id. at Ex. B).

On January 30, 2015, NCUA in its capacity as Guarantor asked BNYM to exercise this right and pursue the claims at issue in the instant action. (NCUAB Compl. ¶ 34). On February 24, 2015, BNYM declined to do so, stating that

BNY Mellon as Indenture Trustee on the various NCUA re-securitization trusts does not intend to pursue the claims outlined in the Amended Complaints[.] We take no position on the merits, but acknowledge and agree that the Guarantor [NCUA] has the right to pursue claims based on the re-securitization Trust Indentures when the Indenture Trustee fails to do so after receiving notice (which we have for the claims in the Amended Complaints).

(Id.; see also id. at Ex. G). In a sworn declaration provided on July 13, 2015, BNYM modified its position regarding the NCUAB’s standing slightly:

BNYM, solely in its capacity as the Indenture Trustee of the NGN Trusts, does not object to NCUA’s pursuit of the NCUA Suits on behalf of the NGN Trusts. BNYM, solely in its capacity as the Indenture Trustee of the NGN Trusts, takes a neutral position with respect to any challenge to NCUA’s standing and leaves it to the decision of the courts presiding over the NCUA Suits. The statements made in this paragraph 5 are made in reliance on NCUA’s statement in its letter to BNYM, dated July 7, 2015, that: “In bringing the NCUA Suits on behalf of the NGN Trusts, the NCUA Board has fully committed to protecting the best interests of the NGN Trusts and the NGN Noteholders. Recoveries on claims brought on behalf of the NGN Trusts will be remitted to the NGN Indenture Trustee for deposit into the NGN Trust accounts.”

(Id.; see also id. at Ex. I).

Subsequently, “for the certificates in the NGN Trusts, the [NCUAB] as liquidating agent” brought the claims in the instant case “derivatively on behalf of the NGN Trusts, and [named] each NGN Trust . . . herein as a nominal defendant.” (NCUAB Compl. ¶ 35). The NCUAB asserts standing to bring its action on three bases: “as liquidating agent [with] an interest in the NGN Trusts as the holder of the NGN Owner Trust Certificates, as an express thirdparty beneficiary of the NGN Trust Indentures, and pursuant to its authority under 12 U.S.C. § 1787 as the liquidating agent of the CCUs.” (Id.).^[14]

ii. Analysis

Defendant’s preliminary challenge to the NCUAB’s standing is its argument that the NCUAB cannot vindicate the NGN Trusts’ rights because the Trusts themselves were not entities capable of such vindication; because a trust is not an entity that can sue, another entity cannot sue on its behalf. (Def. Br. 24). Plaintiffs retort that the specific Trusts at issue are an exception to this rule. While common-law trusts may not be entities with the capacity to sue or be sued (id. (citing Tran v. Bank of N.Y.,No. 13 Civ. 580 (RPP), 2014 WL 1225575, at *1 n.4 (S.D.N.Y. Mar. 24, 2014); Bu ex rel. Bu v. Benenson, 181 F. Supp. 2d 247, 249 & n.1 (S.D.N.Y. 2001)), the NGN Trusts are Delaware statutory trusts afforded the capacity to sue and be sued under the DSTA. (Pl. Opp. 30 & nn.30-32). See 12 Del. Code § 3804(a) (establishing that a Delaware statutory trust is a juridical entity that “may sue and be sued”); Nat’l Credit Union Admin. Bd. v. U.S. Bank Nat’l Ass’n (hereinafter, “NCUAB/U.S. Bank I“), No. 14 Civ. 9928 (KBF), 2015 WL 2359295, at *4 (S.D.N.Y. May 18, 2015) (“[T]he NGN Trusts are Delaware statutory trusts, which are separate legal entities with their own indenture trustee. These trusts are statutorily empowered to sue and be sued in their own right.” (citation omitted)). The Court agrees with Plaintiffs.

Accepting the proposition that the DSTA empowers the NGN Trusts to sue, the Court must determine whether the NCUAB may sue derivatively in NGN Trust’s stead. Defendant’s second challenge to the NCUAB’s derivative claims proceeds from its first: Both build on the foundational principle that “[a] plaintiff who asserts a derivative cause of action must establish the existence of a cause of action in the party whose rights are sought to be enforced. A cause of action cannot be derived from a source in which it does not exist.” Waters v. Horace Waters & Co., 201 N.Y. 184, 188 (1911). (See also Def. Br. 25 (citing Fed. R. Civ. P. 23.1 for proposition that derivative action permissible to “enforce a right that the corporation or association may properly assert”)). Defendant argues that the NGN Trusts transferred their rights to sue with regard to the RMBS certificates to BNYM in the Indenture Agreement. (Def. Br. 24-25 (citing NCUAB Compl. Ex. B)). Therefore, it claims, the NCUAB has no right to assert derivative claims on behalf of the NGN Trusts, because the Trusts have no right to sue in the first instance. (Id.).^[15]

Again, in analyzing these claims, the Court finds itself traveling what is fast becoming become a well-worn path in this District. Within the past two years alone, both Judges Scheindlin and Forrest have considered challenges to the NCUAB’s standing to bring direct and derivative claims against an RMBS trustee; indeed Judge Forrest has done so twice. See NCUAB/U.S. Bank II, 2016 WL 796850, at *8; Nat’l Credit Union Admin. Bd. v. HSBC Bank USA, Nat. Ass’n (hereinafter, NCUAB/HSBC“), 117 F. Supp. 3d 392, 398-99 (S.D.N.Y. 2015); NCUAB/U.S. Bank I, 2015 WL 2359295, at *4.

In each of their 2015 opinions, Judges Scheindlin and Forrest found that the NCUAB lacked standing at least in part because it had failed to meet the requirements imposed by Federal Rule of Civil Procedure 23.1 and Delaware law to bring a derivative suit. Judge Forrest found that the NCUAB had failed to state a derivative claim on behalf of the NGN trusts because the NCUAB had sued to recover for itself: “[I]f NCUA were in fact acting in a derivative capacity . . . for the NGN Trusts, any recovery would necessarily go to those Trusts.” NCUAB/U.S. Bank I, 2015 WL 2359295, at *5 (citing 12 Del. Code § 3816(a) (“A beneficial owner may bring an action . . . in the right of a statutory trust to recover a judgment in its favor[.]”)). Moreover, the NCUAB had failed to satisfy Rule 23.1’s demand-futility requirement: “Rule 23.1 requires NCUA to `state with particularity’ its efforts to obtain the desired action from persons with authority and `the reasons for not obtaining the action or not making the effort.’ It has failed to do so.” Id. at *6 (citation omitted) (quoting Fed. R. Civ. P. 23.1(b)(3)). Judge Scheindlin reached the same conclusion on two different bases. She found that the NCUAB had failed (i) to verify its complaint as Rule 23.1 requires and (ii) to name the NGN Trusts “as nominal defendants so that they can receive the monetary award in the event of recovery.” NCUAB/HSBC, 117 F. Supp. 3d at 400. Putting these pleading defects to the side, Judge Forrest was more skeptical than Judge Scheindlin with regard to the NCUAB’s standing, but neither judge dismissed the NCUAB’s pleading on such a basis. Compare NCUAB/U.S. Bank I, 2015 WL 2359295, at *5 (reasoning that “if NCUA were in fact acting in a derivative capacity — and if it could — for the NGN Trusts,” the NCUAB would not have sought recovery for itself (emphasis added)), with NCUAB/HSBC, 117 F. Supp. 3d at 399 (“NCUA may, however, assert a claim derivatively on behalf of the NGN Trusts.”). Both judges gave the NCUAB leave to amend its pleading to remedy its standing-related deficiencies. See NCUAB/U.S. Bank I, 2015 WL 2359295, at *6; NCUAB/HSBC, 117 F. Supp. 3d at 404.

Only Judge Forrest had a subsequent opportunity to revisit the question of NCUAB’s standing,^[16] and she found that the NCUAB lacked standing. Judge Forrest’s analysis is instructive, and the Court summarizes it here.

Judge Forrest began with every court’s initial task in a putative derivative action: the determination of “who has the right to assert a direct claim, and who stands in a derivative position with regard to that claim.” NCUAB/U.S. Bank II, 2016 WL 796850, at *9. She found that in her case, this analysis was complicated by an assignment of rights that took place in two steps. See id. First, the NCUA as the liquidating agent and seller, transferred all interests it had in the underlying securities to the NGN Trusts, including its right to pursue a claim relating to the underlying RMBS. Id. Second, the NGN Trusts transferred their rights to BNYM, the Indenture Trustee. Id. As did the first, so too did this second transfer divest the transferor of any right to pursue a direct claim. Judge Forrest therefore found that “[t]he party who stands in direct line to assert a derivative claim” was not the plaintiff, “but, rather, the Trustee of the NGN Trust.” Id. The NCUAB stood “twice removed.” Id. “At the very least,” Judge Forrest reasoned, this meant that the NCUAB standing “in a derivative position to an intervening holder of any rights . . . would need to fulfill the Rule 23.1 demand requirement vis-à-vis [Defendant] (Owner Trustee).” Id. at *10. Defendant would then, “if it chose to pursue such claims, be required to make its own demand on BNYM. In other words, a derivative claim based on a derivative claim.” Id.

This conclusion, Judge Forrest found, was confirmed by the “breadth and completeness of the Granting Clause,” the expansive language of which itself “forecloses derivative claims.” NCUAB/U.S. Bank II, 2016 WL 796850, at *10. Allowing that there could be cases in which a party “grant[s] all rights to an underlying asset” but “retain[s] a right to sue directly as a party retaining a beneficial ownership interest,” Judge Forrest found that hers was not such a case: “The contractual agreements together effected a complete transfer of all rights including explicitly the right to sue.” Id. (emphasis omitted).

Unsurprisingly, Plaintiffs take issue with Judge Forrest’s reasoning. Among other criticisms, Plaintiffs argue that Judge Forrest “disregarded the fundamental role of a trustee vis-à-vis its trust and beneficial owners, and erroneously treated the Indenture assignment from the NGN Trust to the Indenture Trustee as divesting NCUA of its ability to bring a derivative claim,” apparently viewing the Indenture Trustee as “an entity entirely separate and apart from its duties and role as trustee to the NGN Trust and its beneficiaries.” (Pl. Opp. 29). Because “BNYM also is a trustee of the NGN Trust with duties flowing directly to beneficial owners, including NCUA,” Plaintiffs argue, the NCUAB is not twice removed from BNYM. (Id. at 29-30). Moreover, Plaintiffs argue that Judge Forrest confused the NCUAB’s rights to bring direct and derivative claims. The NCUAB brings its derivative claim on behalf of the NGN Trusts, on the basis of the Trusts’ right to bring that claim directly and BNYM’s acquiescence to the NCUAB’s suit. (Pl. Opp. 31). The NCUAB admits that it has no standing to bring a direct claim against Defendant on the basis of its beneficial-owner status alone. (Id.). But, citing to the DSTA, the NCUAB argues that as a beneficial owner holding Owner Trust Certificates, it is statutorily authorized “to sue derivatively `if persons with authority to do so have refused to bring the action,’ and where trust `property is held or will be held by a trustee or trustees . . . for the benefit of . . . beneficial owners.” (Id. at 31-32 (citing 12 Del. Code §§ 3801(g), 3816(a))).

This Court reaches the same conclusion as did Judge Forrest, though its reasoning is slightly different. “Under the NGN Trust Agreements, the [NCUAB] as liquidating agent transferred and assigned its rights, title, and interest to assert the claims at issue . . . to the NGN Trusts.” (NCUAB Compl. ¶ 30 (citing Ex. C, NGN Trust Agreement § 3.01)).^[17] The NGN Trusts subsequently entered into Indenture Agreements with BNYM, the Indenture Trustee. And “[u]nder the NGN Indentures, BNYM was granted the right to take action against Defendant with respect to the [RMBS] certificates and the Trusts.” (NCUAB Compl. ¶ 33; see also id. at Ex. B (granting BNYM all “right, title, and interest in and to . . . all present and future claims, demands, causes and choses in action in respect of the [RMBS certificates]”)). BNYM was also empowered and authorized

to do all things not inconsistent with the provisions of [the] Indenture that it may deem advisable in order to enforce the provisions hereof or to take any action with respect to a default or an Event of Default hereunder, or to institute, appear in or defend any suit or other proceeding with respect hereto, or to protect the interests of the Noteholders and the Guarantor.

(Id. at Ex. B § 5.01(a)(i)).

Plaintiffs argue that irrespective of the NGN Trusts’ conveyance of their right to bring suits with respect to the certificates to BNYM, BNYM was also a trustee of the NGN Trust with duties flowing directly to beneficial owners. This the Court does not dispute. Plaintiffs’ argument, however, elides the role of the NGN Trusts in the equation. It may be true that BNYM owed duties to the NCUAB as a beneficial owner. But the NCUAB cannot bring a derivative suit simply because it meets certain prerequisites: It is a beneficial owner, and it has made a demand of BNYM. In so arguing, Plaintiffs miss the forest for the trees. The NCUAB may only sue “to enforce a right that [the Trusts] may properly assert but ha[ve] failed to enforce.” Fed. R. Civ. P. 23.1 (emphasis added). And here, there is no underlying right, because the NGN Trusts contracted it away.

Still, the NCUAB insists that the DSTA authorizes its suit. The NCUAB is correct insofar as the DSTA provides that

[a] beneficial owner may bring an action in the Court of Chancery in the right of a statutory trust to recover a judgment in its favor if persons with authority to do so have refused to bring the action or if an effort to cause those persons to bring the action is not likely to succeed.

12 Del. Code. § 3816(a).^[18] However, the DSTA also expressly limits this right. It specifies that “[a] beneficial owner’s right to bring a derivative action may be subject to such additional standards and restrictions, if any, as are set forth in the governing instrument of the statutory trust.” Id. § 3816(e) (emphasis added).

Here, the NCUAB is a beneficial owner of the NGN Trusts insofar as it is a holder of NGN Owner Trust Certificates (NCUAB Compl. ¶ 30); these gave the NCUAB a beneficial interest in the NGN Trusts, to which Trusts the NCUAB transferred the former-CCUs’ RMBS certificates. (Id. at ¶¶ 29-30). Had this been the only transaction, the NCUAB may well have had standing as a beneficial owner in the NGN Trusts to assert claims against Defendant on the NGN Trusts’ behalf. Those Trusts had a claim as RMBS certificateholders, and the NCUAB may have been able to vindicate their claim in a derivative suit.

This was not the only transaction, however. In the very moment the NGN Trusts became certificateholders, they entered into the Indenture Agreement with BNYM, to which agreement the NCUAB was not a party. In the Indenture Agreement, the NGN Trusts “assign[ed] the Trust Estate as collateral to the Indenture Trustee, to be held by the Indenture Trustee, as security for the benefit of the Noteholders and the Guarantor.” (NCUAB Compl., Ex. B at 5). The NGN Trusts also granted to BNYM all of their “right, title and interest in and to” the Trust Estate as well as “all present and future claims, demands, causes and choses in action.” (Id.). This language effected a broad grant of rights to BNYM. Any right to sue that the NCUAB had against Defendant with regard to the Trust Estate was transferred, along with that Estate, to BNYM.

The Court understands Plaintiffs to be arguing that the NCUAB’s DSTAconferred right to bring a derivative claim exists notwithstanding the Granting Clause; the DSTA created a specific right for Delaware-statutory-trust trustees that could not be, or at least was not here, contracted away by the NGN Trusts. But this argument would require the Court to read the sweeping language of the Granting Clause to have limits that it lacks on its face. This the Court will not do. As Judge Forrest held, the “contract must be read to mean what it says.” NCUAB/U.S. Bank II, 2016 WL 796850, at *10. New York law, which governs the Indenture Agreement (see NCUAB Compl., Ex. B), requires the Court to enforce the plain meaning of contracts when that meaning is clear and unambiguous. See, e.g., Law Debenture Tr. Co. of N.Y. v. Maverick Tube Corp., 595 F.3d 458, 467 (2d Cir. 2010) (quoting Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569 (2002)). The Court must do so here. The word “all” must mean “all,” such that “[t]he breadth and completeness of the Granting Clause forecloses derivative claims.” NCUAB/U.S. Bank II, 2016 WL 796850, at *10.

Moreover, reading the DSTA to imply a right that exists despite and unaffected by the parties’ agreements would be inconsistent with the preference that the statute consistently evinces for freedom of contract. Here, “[p]rinciples of contract law trump the principle of pursuing of a claim derivatively upon which plaintiff relies[,]” because that is what the DSTA itself requires. NCUAB/U.S. Bank II, 2016 WL 796850, at *10. The DSTA expressly states that its policy is “to give maximum effect to the principle of freedom of contract and to the enforceability of governing instruments.” 12 Del. Code § 3825(b). And throughout its provisions, the statute establishes default rules, but makes clear that they are subject to modification by contract. See, e.g., id. § 3802(b) (“Except as provided in the governing instrument, a beneficial owner is obligated to the statutory trust to perform any promise to contribute cash, property, or to perform services[.]”); id. § 3803(a) (“Except to the extent otherwise provided in the governing instrument of the statutory trust, the beneficial owners shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit[.]”); id. § 3806(d) (“Unless otherwise provided in a governing instrument, a trustee or beneficial owner or other person shall not be liable to a statutory trust or to another trustee or beneficial owner[.]”). The DSTA permits parties to contract even to eliminate entire categories of rights and liabilities, if that is their preference. See id. § 3806(e) (“A governing instrument may provide for the limitation or elimination of any and all liabilities for breach of contract and breach of duties (including fiduciary duties) of a trustee, beneficial owner or other person to a statutory trust[.]”). And where the DSTA’s default rules are not subject to modification by contract, the statute makes that plain. See, e.g., id. § 3804(e) (“[A] beneficial owner who is not a trustee may not waive its right to maintain a legal action or proceeding in the courts of the State with respect to matters relating to the organization or internal affairs of a statutory trust.”); id. § 3806(e) (“[A] governing instrument may not limit or eliminate liability for any act or omission that constitutes a bad faith violation of the implied contractual covenant of good faith and fair dealing[.]”).

Precisely for this reason, the few cases to interpret the DSTA and similar statutes have affirmed that a court must give force to the parties’ bargain. See Grand Acquisition, LLC v. Passco Indian Springs DST, 145 A.3d 990, 999 (Del. Ch. 2016),as revised (Sept. 7, 2016) (“[T]he prefatory clause in Section 3819 is what indicates that a DST’s governing document may restrict the inspection rights granted under that section.”), aff’d, No. 469, 2016, 2017 WL 836929 (Del. Mar. 3, 2017); Hartsel v. Vanguard Grp., Inc., C.A. No. 5394-VCP, 2011 WL 2421003, at *21 (Del. Ch. June 15, 2011) (“The DSTA is enabling in nature and, as such, permits a trust through its declarations of trust to delineate additional standards and requirements with which a stockholder-plaintiff must comply to proceed derivatively in the name of the trust. The Declarations for both [Delaware statutory trusts] have done just that[.]”), aff’d, 38 A.3d 1254 (Del. 2012); cf. Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286, 293-94 (Del. 1999) (“Although [plaintiff] correctly points out that Delaware law allows for derivative suits against management of an LLC, [plaintiff] contracted away its right to bring such an action in Delaware and agreed instead to dispute resolution in California.”).

Here, the contracts are clear. The Trust Agreement established that the NCUAB was “the sole beneficial owner of the portion of the [RMBS certificates] it [was] conveying to the Trust.” (NCUAB Compl., Ex. C, § 2.10(iv)). In Section 3.01, the NCUAB agreed that it would “contribute, transfer, convey and assign to, and deposit with, the Trust, without recourse, all of such Seller’s right, title and interest in and to the portion of the Trust Estate consisting of such Seller’s portion of the [RMBS certificates].” (Id. at § 3.01 (emphasis added)). And this conveyance was to be “absolute,” and also was “intended by the parties, other than for federal, state and local income and franchise tax purposes, to constitute a sale of the [RMBS certificates] and all other assets constituting the Trust Estate by each Seller to the Trust.” (Id. at § 2.14(b)). Beneficial owners were expressly left without “legal title to any part of the Trust Estate solely by virtue of their status as Certificateholders.” (NCUAB Compl. ¶ 10.02). Thus, all of the NCUAB’s rights regarding the RMBS securities were conveyed to the NGN Trusts. Then, as previously discussed, the Trusts conveyed all of their interests in those securities to the Indenture Trustee BNYM.

In sum: The NCUAB lacks standing to bring a derivative claim against Defendant on behalf of the NGN Trusts because the NGN Trusts lack standing to bring a claim against Defendant, having transferred all rights to such claim to BNYM through the Indenture Agreement. Defendant’s motion to dismiss the NCUAB’s derivative claims is granted.

c. Defendant’s Motion to Dismiss the NCUAB’s Direct Claims Is Denied

Separately, Defendant opposes the NCUAB’s standing to bring certain direct claims “arising from certificates previously held by a `recently unwound’ NGN Trust.” (Def. Br. 30 (citing NCUAB Compl. ¶ 26 & n.2)). Defendant asserts that this Court must assess the NCUAB’s standing as of the original complaint, despite the NCUAB’s subsequent amendment thereof. (Id.). In support of this argument, Defendant quotes language attributed to an unpublished Memorandum Decision and Order issued by Judge Forrest on May 11, 2016: “The subsequent winding-down of one NGN trust does not . . . change the fact that at the time NCUA brought this suit, it did not have standing to pursue claims on behalf of the NGN trusts.” (Def. Br. 30 (citing 14 Civ. 9928, Dkt. #141)).

As a preliminary matter, the Court agrees with the NCUAB that Defendant here confuses the standards for Article III standing and “real-partyin-interest” status. (Pl. Opp. 33-34). “The Second Circuit has held that when defendants assert that a party other than plaintiff has standing, `their unspoken premise [is] that [plaintiffs] lacked standing because [the non-party] remained . . . the real party in interest.'” Abu Dhabi Commercial Bank v. Morgan Stanley & Co. Inc., 888 F. Supp. 2d 478, 484 (S.D.N.Y. 2012) (quoting Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 20 (2d Cir. 1997)) (citing Dayton Monetary Assocs. v. Donaldson, Lufkin & Jenrette Sec. Corps., No. 91 Civ. 2050, 1998 WL 236227 (SHS), at *6 (S.D.N.Y. Mar. 31, 1998) (noting that in such a situation, the distinction between “real party in interest” and a lack of standing is “merely semantic”)). Here, Defendant’s real concern with respect to standing is whether the NCUAB was the proper owner of its direct claims at the time it brought the instant action; in other words, a concern that the NCUAB may not have been the “real party in interest” when it originally brought its claims. See Digizip.com, Inc. v. Verizon Servs. Corp., 139 F. Supp. 3d 670, 679 (S.D.N.Y. 2015). Such an argument implicates Federal Rule of Civil Procedure 17(a), rather than Article III. See id. (considering difference between Rule 17’s implication of “the prudential aspect of standing” and an argument under Article III).^[19]

Considered as such, Defendant’s argument fails. As explained above, the NGN Trusts transferred all rights to assert claims regarding the certificates comprising the Trust Estate to BNYM in the Indenture Agreement. However, these rights reverted to the NCUAB as the NGN Trusts were unwound and the RMBS certificates conveyed back. (Pl. Opp. 33 (citing NCUAB Compl. ¶ 26 n.2)). Rule 17 “allows for the substitution of a real party in interest,” see In re SLM Corp. Sec. Litig., 258 F.R.D. 112, 115 (S.D.N.Y. 2009), and the Second Circuit instructs that “Rule 17(a) substitution of plaintiffs should be liberally allowed,” House of Europe Funding I Ltd. v. Wells Fargo Bank, N.A., No. 13 Civ. 519 (RJS), 2015 WL 5190432, at *2 (S.D.N.Y. Sept. 4, 2015) (quoting Advanced Magnetics, 106 F.3d at 20). Here, NCUAB’s substitution of itself as the direct claimant for itself as a derivative claimant would only replace an incorrect party with the real party in interest. The Court does not expect that substitution would “alter[] the original complaint’s factual allegations as to the events or the participants.” House of Europe Funding I Ltd., 2015 WL 5190432, at *2 (quoting Advanced Magnetics, 106 F.3d at 20). Defendant’s motion to dismiss the NCUAB’s direct claims on this basis is denied.

d. The Dismissal of the NCUAB’s Derivative Claims Is Without Prejudice

Defendant contends that the NCUAB’s dismissal should be with prejudice. (Def. Br. 26). It argues that allowing the NCUAB to amend its pleading would cause undue delay and prejudice, and would moreover be futile absent a basis to relate back the NCUAB’s new claims. (Id. at 27-29).

Plaintiffs dispute each of these claims. They remind the Court of the liberal standard afforded by Rule 17 for substitution. (Pl. Opp. 32). They further explain that the NCUAB did not amend its complaint earlier because it believed in good faith that the case law in this area was in flux, and was awaiting the Court’s disposition of the issue in this case. (Id.). And Plaintiffs assert that there is no relation-back problem because Rule 17 provides that a substituted party’s “claims will relate back to the date of the original complaint.” (Id. (quotation marks omitted) (quoting Advanced Magnetics, 106 F.3d at 21)).

The Court agrees with Plaintiffs. If the NCUAB still wishes to amend its pleading, it may move the Court for leave to do so. However, the NCUAB is advised that it will have to identify the party with whom it will replace itself and explain how such a substitution would rectify the standing deficiencies identified above. The NCUAB must further address, in detail, the contemplated impact that a substitution (and, conversely, a failure to substitute) would have on this case, particularly the ongoing discovery schedule.

8. Defendant’s Motion to Dismiss Commerzbank’s Claims as Untimely Is Denied

Finally, Defendant raises a claim of timeliness solely as to Commerzbank, resolution of which requires a determination of the applicable statute of limitations. “Under New York’s `borrowing statute,’ a case filed by a non-resident plaintiff requires application of the shorter statute of limitations period, as well as all applicable tolling provisions, provided by either New York or the state where the cause of action accrued.” Cantor Fitzgerald Inc. v. Lutnick, 313 F.3d 704, 710 (2d Cir. 2002) (citation omitted) (citing N.Y. C.P.L.R. § 202); Antone v. Gen. Motors Corp., Buick Motor Div., 64 N.Y.2d 20, 26 (1984)).<sup>[20]</sup> “New York follows `the traditional definition of accrual — a cause of action accrues at the time and in the place of the injury.'” Cantor Fitzgerald Inc., 313 F.3d at 710 (quoting Glob. Fin. Corp. v. Triarc Corp., 93 N.Y.2d 525, 529 (1999)); see also Commerzbank AG v. Deutsche Bank Nat’l Tr. Co. (hereinafter, “CB/DB“), No. 15 Civ. 10031 (JGK), 2017 WL 564089, at *5 (S.D.N.Y. Feb. 10, 2017) (citing Portfolio Recovery Assocs., LLC v. King, 14 N.Y.3d 410, 416 (2010) (noting that, where a cause of action has been assigned, the question of where and when the cause of action accrued focuses on the original assignor)). And “[w]here, as here, the `injury is purely economic, the place of injury usually is where the plaintiff resides and sustains the economic impact of the loss.'” Cantor Fitzgerald Inc., 313 F.3d at 710 (quoting Global Fin. Corp., 93 N.Y.2d at 529); see also Norex Petroleum Ltd. v. Blavatnik, 23 N.Y.3d 665, 671 (2014) (“As a resident of Alberta, Canada, alleging purely economic injuries, [plaintiff’s] injuries accrued in Alberta.”). For purposes of the borrowing statute, the residency of a corporate plaintiff is typically the corporation’s place of incorporation or principal place of business. See, e.g., CB/DB, 2017 WL 564089, at *5; IKB Deutsche Industriebank AG v. McGraw Hill Fin., Inc., No. 14 Civ. 3443 (JSR), 2015 WL 1516631, at *3 (S.D.N.Y. Mar. 26, 2015) (finding that corporate plaintiff resided in Germany because it was incorporated and had its principal place of business in Germany), aff’d, 634 F. App’x 19 (2d Cir. 2015) (summary order).

At the outset, the Court notes that the following facts are not in dispute: (i) the applicability of New York’s statute of limitations; (ii) the economic nature of Commerzbank’s alleged injuries; (iii) Commerzbank’s residency in Germany, on the basis of its incorporation and maintenance of its principal place of business in that country; and (iv) the fact that Commerzbank is asserting claims assigned to it by Dresdner Bank, a German entity; Eurohypo AG New York Branch, a German entity; Barrington II CDO Ltd., a Cayman Islands entity; and Palmer Square 3 Limited, an Irish entity. (CB Compl. ¶¶ 16-17).^[21] The parties’ central disagreement is this: Defendant argues that Commerzbank’s claims are untimely under the three-year statute of limitations imposed by German Civil Code § 195, because Commerzbank knew before January 1, 2012, of Defendant’s alleged breaches. (Def. Br. 31-33). Commerzbank retorts that (i) it alleged ongoing breaches throughout Defendant’s tenure as Trustee; (ii) the identification of the place of accrual presents a question of fact ill-suited for resolution at this stage; and (iii) even if its claims accrued in Germany, Defendant has not shown they are untimely under German law. (Pl. Opp. 34-40). The Court notes that a nearly identical argument was presented to and resolved by Judge Koeltl very recently in a case also brought by Commerzbank. See CB/DB, 2017 WL 564089, at *5-9.^[22] The Court is aided here by Judge Koeltl’s thoughtful analysis, and reaches the same conclusion.

First, the Court rejects Commerzbank’s invocation of the “financial base” exception to New York’s accrual rules. Commerzbank argues that German law may not apply because

Commerzbank’s acquisitions and other activities related to certificates were conducted at and through Commerzbank AG London Branch (“London Branch”), which is a separate financial base[,] and “[w]here a plaintiff maintain[s] [a] separate financial base and where the impact of the financial loss is felt at that location, it may constitute an alternative place of injury” under the New York borrowing statute.

(Pl. Opp. 35-36 (alterations in original) (quoting Beana v. Woori Bank, No. 05 Civ. 7018 (PKC), 2006 WL 2935752, at *6 (S.D.N.Y. Oct. 11, 2006))). But as Judge Koeltl found, no law supports the equation of a separate branch with a separate base. See CB/DB, 2017 WL 564089, at *6. On the contrary, case law abounds supporting a distinction between the two. Id. (collecting cases).

Even if a branch could constitute a base, Commerzbank has not made any effort to show that this case is one of the “extremely rare case[s] where the party has offered unusual circumstances” to justify the Court’s employment of the financial-base exception. CB/DB, 2017 WL 564089, at *6 (alteration in original) (quotation marks omitted) (quoting Deutsche Zentral-Genossenchaftsbank AG v. HSBC N. Am. Holdings, Inc., No. 12 Civ. 4025 (AT), 2013 WL 6667601, at *5 (S.D.N.Y. Dec. 17, 2013)). The pleading language considered by Judge Koeltl is identical to the language included in Commerzbank’s Complaint in the instant case: “The sales of the Sold Certificates were made by London Branch and the economic losses from those sales were experienced in Commerzbank in England and/or in Germany where Commerzbank is located.” (Compare CB Compl. ¶ 132, with CB/DB, 2017 WL 564089, at *6). Considering this language, Judge Koeltl concluded that it was apparent that Commerzbank could not “establish the presence of unusual circumstances . . ., such as a showing that it was operating so far outside of normal corporate banking existence at the time its claims accrued that they could not be said to have accrued in Germany.” CB/DB, 2017 WL 564089, at *6. Judge Koeltl also rejected Commerzbank’s attempt to circumvent this finding by casting it as a factual determination inappropriate for resolution on a motion to dismiss. Id. at *7.

Considering the very same language as did Judge Koeltl, this Court reaches the very same conclusion. “Even if all of the material decisions with respect to the purchase of the Certificates were made at the London branch of Commerzbank, Commerzbank ultimately felt its economic losses at its principal place of business and state of incorporation: Germany.” CB/DB, 2017 WL 564089, at *6. Because the law is clear that “Commerzbank’s branches have no separate existence from Commerzbank,” this conclusion is apparent from the face of Commerzbank’s Complaint, and the Court needs no discovery to reach it. Id. at *7. Commerzbank must show that each of its claims is timely under German law.

Finding that German law applies, the Court must consider whether it bars Commerzbank’s claims. The silver lining of the “proliferation of RMBS litigation in America involving claims that accrued in Germany” is that “American courts have recently had the opportunity to interpret the German statute of limitations applicable to this case.” CB/DB, 2017 WL 564089, at *7. The parties, the parties’ experts, and recent case law agree on the applicable provisions of German law, and their general requirements:

[T]he relevant provision of German law is Section 195 of the German Civil Code, which has a three-year limitations period. That period begins to run at the end of the calendar year in which [i] the claim arose and [ii] the plaintiff either has knowledge of the circumstances giving rise to the claim and the identity of the defendant, or would have had such knowledge but for gross negligence. [U]nder German law, a plaintiff has knowledge of the circumstances giving rise to the claim when she obtains knowledge of the facts necessary to commence an action in Germany with an “expectation of success” or “some prospect of success,” though not without risk and even if the prospects of success are uncertain[.] To satisfy this standard, a plaintiff need not know all the relevant details or have conclusive proof available; knowledge of the factual circumstances underlying the claim is sufficient.

Id. at *7-8 (quoting IKB Deutsche Industriebank AG v. McGraw Hill Fin., Inc., 634 F. App’x 19, 22 (2d Cir. 2015) (summary order)). (See also Sidman Decl., Ex. 20; Kane Decl., Ex. 3).^[23]

Defendant argues that “Commerzbank has affirmatively alleged that it had knowledge of [Defendant’s] alleged breaches prior to January 1, 2012” because Commerzbank pled that at the time of its sale of certain RMBS certificates in 2011, “it was apparent that Wells Fargo had breached its duties and would not take steps to remedy its failures.” (Def. Br. 32 (quoting CB Compl. ¶ 132)). But the Court cannot find this admission, even together with Commerzbank’s 2011 lawsuit “against several rating agencies in connection with RMBS” (id.), sufficient to prove that the German statute of limitations accrued on or before the end of 2011. The German standard for accrual is high: “Under German law, Commerzbank must have had sufficient knowledge of each element of each of its claims with respect to each Trust for Section 195 to bar all of the claims that accrued in Germany.” CB/DB, 2017 WL 564089, at *8. And courts in this Circuit are skeptical of “[l]imitations-based arguments in RMBS fraud actions . . . at the motion to dismiss phase,” given the difficulty that inheres in such cases for plaintiffs “in obtaining sufficient notice of the facts underlying their claims.” Id. at *8 (quotation marks omitted) (quoting HSN Nordbank AG v. RBS Holdings USA Inc., No. 13 Civ. 3303 (PGG), 2015 WL 1307189, at *6 (S.D.N.Y. Mar. 23, 2015)(collecting cases)).

This Court shares this skepticism. Ultimately, it cannot determine, from the face of the Complaint, “that Commerzbank had sufficient knowledge of each element of each of its claims with respect to each, or any, Trust [at the relevant time] such that it could have commenced this action with an expectation, or some prospect, of success.” CB/DB, 2017 WL 564089, at *8. Discovery may prove Defendant’s timeliness challenge meritorious, but the Court cannot find it so at this stage. Defendant’s motion to dismiss Commerzbank’s Complaint as untimely under German law is denied.^[24]

CONCLUSION

For the foregoing reasons, Defendant’s motion is GRANTED IN PART and DENIED IN PART as described in the text of this Opinion. If the NCUAB still wishes to amend its pleading, it is directed to move the Court for leave to do so within two weeks of this Opinion and Order.

The Clerk of Court is directed to terminate the following motions: in Case No. 14 Civ. 9371, the motion pending at Docket Entry #169; in Case No. 14 Civ. 9764, the motion pending at Docket Entry #113; in Case No. 14 Civ. 10067, the motion pending at Docket Entry #126; in Case No. 14 Civ. 10102, the motion pending at Docket Entry #111; and in Case No. 15 Civ. 10033, the motion pending at Docket Entry #56.

SO ORDERED.

[1] Specifically, Defendant has moved to dismiss each of the five operative complaints in these actions: (i) the Amended Complaint in the action brought by certain BlackRock funds (“BlackRock”) and others (the “BR Compl.,” 14 Civ. 9371, Dkt. #102-06); (ii) the Amended Complaint in the action brought by Royal Park Investments SA/NV (“Royal Park”) (the “RP Compl.,” 14 Civ. 9764, Dkt. #24); (iii) the Second Amended Complaint in the action brought by the National Credit Union Administration Board (the “NCUAB”) (the “NCUAB Compl.,” 14 Civ. 10067, Dkt. #82), (iv) the Second Amended Complaint in the action brought by Phoenix Light SF Ltd. (“Phoenix Light”) and others (the “PL Compl.,” 14 Civ. 10102, Dkt. #80); and the Complaint in the action brought by Commerzbank AG (“Commerzbank”) (the “CB Compl.,” 15 Civ. 10033, Dkt. #1) (all five complaints, collectively, the “Complaints”). Because Defendant’s five motions are contained in a consolidated brief, the Court will refer to them in this Opinion as a single motion.

[2] This Opinion draws the facts in this section from the Complaints. The Court takes all well-pleaded allegations therein as true, as it must at this stage. See, e.g., Peralta v. St. Luke’s Roosevelt Hosp., No. 14 Civ. 2609 (KPF), 2015 WL 3947641, at *1 n.1 (S.D.N.Y. June 26, 2015). The Court has also reviewed the briefing submitted by the parties and will refer to it as follows: Defendant’s Memorandum of Law in Support of Defendant’s Motion to Dismiss the Complaints (14 Civ. 9371, Dkt. #171) will be referred to as “Def. Br.,” Plaintiffs’ Joint Opposition to Defendant’s Motion to Dismiss (14 Civ. 9371, Dkt. #201) as “Pl. Opp.,” and Defendant’s Reply Brief in Further Support of Defendant’s Motion to Dismiss (14 Civ. 9371, Dkt. #208) as “Def. Reply.” Declarations in support of this briefing and exhibits attached thereto are referred to by the name of the declarant and the exhibit designation, e.g., “[ ] Decl., Ex. [ ].”

[3] The Court cites to this Complaint for simplicity’s sake. Each of the Complaints contains a comparable description of RMBS trusts.

[4] Defendant clarifies that while “Plaintiffs’ complaints identify claims on behalf of 59 RMBS trusts, . . . six of those trusts overlap with each other among the various actions.” (Def. Br. 2 n.2).

[5] At the time, there was a fifth related case that has since been separated from the original four, over which this Court does not preside, and which therefore is not at issue in this Opinion: Blackrock Balanced Capital Portfolio (FI) v. Deutsche Bank Nat’l Tr. Co., No. 14 Civ. 9367 (JMF). To avoid confusion, this Court in this section only refers to Defendant Wells Fargo.

[6] Defendant also cites an oral ruling by New York State Supreme Court Justice Charles E. Ramos “that discovery or actual knowledge cannot be inferred from generic public information about originator and servicer misconduct.” (Def. Br. 10). This decision is not germane to the Court’s analysis here, where Plaintiffs have alleged knowledge on the basis of far more than generic public information.

[7] The Court shares Judge Koeltl’s dismay with regard to Plaintiffs’ mode of pleading: Plaintiffs’ complaints include “discursive histor[ies]” of Defendant’s conduct and then include “all of those allegations by incorporation in all the specific causes of action including . . . for breach of fiduciary duty and for negligence and gross negligence.” Phoenix Light SF Ltd. v. Deutsche Bank Nat’l Tr. Co., 172 F. Supp. 3d 700, 718 n.8 (S.D.N.Y. 2016). This presents the Court with the difficult task of untangling a mass of allegations to determine whether they may support actionable tort claims. “This form of pleading is not ideal and leaves to further motion practice a realistic determination of the scope of the tort claims in this case.” Id.

[8] “The [TIA] was enacted because previous abuses by indenture trustees had adversely affected `the national public interest and the interest of investors in notes, bonds [and] debentures,’ and Congress sought to address this national problem in a uniform way.” Bluebird Partners, L.P. v. First Fid. Bank, N.A. N.J., 85 F.3d 970, 974 (2d Cir. 1996) (citations omitted) (quoting 15 U.S.C. § 77bbb(a)) (citing S. Rep. No. 248, 76th Cong., 1st Sess. 3 (1939)). “The Act is `designed to vindicate a federal policy of protecting investors.'” Id. (emphasis omitted) (quoting In re Nucorp Energy Sec. Litig., 772 F.2d 1486, 1489 (9th Cir. 1985)). As relevant here, Section 315(a) provides that, prior to default,

(1) the indenture trustee shall not be liable except for the performance of such duties as are specifically set out in such indenture; and (2) the indenture trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, in the absence of bad faith on the part of such trustee, upon certificates or opinions conforming to the requirements of the indenture; but the indenture trustee shall examine the evidence furnished to it pursuant to [S]ection 77nnn of this title to determine whether or not such evidence conforms to the requirements of the indenture.

15 U.S.C. § 77ooo(a). Section 315(b) requires that

[t]he indenture trustee shall give to the indenture security holders . . . notice of all defaults known to the trustee, within ninety days after the occurrence thereof: Provided, That such indenture shall automatically be deemed (unless it is expressly provided therein that such provision is excluded) to provide that, except in the case of default in the payment of the principal of or interest on any indenture security, or in the payment of any sinking or purchase fund installment, the trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or responsible officers, of the trustee in good faith determine that the withholding of such notice is in the interests of the indenture security holders.

Id. at § 77ooo(b). And Section 315(c) dictates that

[t]he indenture trustee shall exercise in case of default (as such term is defined in such indenture) such of the rights and powers vested in it by such indenture, and to use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.

Id. at § 77ooo(c).

[9] This resolution is critical to the Court’s jurisdiction in this case: “[A]n affirmative answer” to the private-right-of-action question “is necessary to support jurisdiction.” LNC Invs., Inc. v. First Fid. Bank, Nat’l Ass’n, 935 F. Supp. 1333, 1338 (S.D.N.Y. 1996). The parties here have not disputed this Court’s jurisdiction, though a lack thereof with regard to the PSA-governed claims was dispositive in Judge Berman’s Decision and Order resolving Defendant’s first motion to dismiss. See Blackrock Allocation Target Shares v. Deutsche Bank Nat’l Tr. Co., No. 14 Civ. 9367 (RMB), 2016 WL 269570, at *1 (S.D.N.Y. Jan. 19, 2016). Judge Berman found that he could exercise supplemental jurisdiction because “there arguably [could] be sufficient facts `to demonstrate that the claims relating to the PSA Trusts form part of the same case or controversy as those relating to the Indenture Trusts.'” Id. at *4 (quoting Fixed Income Shares: Series M v. Citibank N.A., 130 F. Supp. 3d 842, 851 (S.D.N.Y. 2015)). However, Judge Berman declined to exercise supplemental jurisdiction because he found (i) the state-law claims substantially predominated over the federal claims, (ii) judicial economy would not be furthered by such an exercise, and (iii) there was evidence that Plaintiffs were engaging in forum-shopping. Id. at *4-5. Judge Berman granted Defendant’s motion to dismiss, but provided Plaintiffs with leave to replead. Id. at *5.

Plaintiffs amended. Because (i) Judge Berman was correct in finding that he could exercise supplemental jurisdiction; (ii) Plaintiffs’ federal Trust claims are no longer as numerically overwhelmed, and therefore substantially predominated, by Plaintiffs’ PSA Trust claims; (iii) discovery in this case has progressed significantly since Judge Berman’s Decision and Order; and (iv) Defendant has not moved the Court to withhold supplemental jurisdiction over Plaintiffs’ PSA Trust claims, the Court affirms here that it has and is exercising supplemental jurisdiction over Plaintiffs’ state-law claims. See 28 U.S.C. § 1367.

[10] That section provides:

No trustee shall hereafter accept a trust under any trust indenture or mortgage within the contemplation of this article or act as trustee thereunder unless the instrument creating the trust shall contain the following provisions, among others, which confer the following powers and impose the following duties upon the trustees:

1. In the case of an event of default (as such term is defined in such instrument), to exercise such of the rights and powers vested in the trustee by such instrument, and to use the same degree of care and skill in their exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.

N.Y. Real Prop. Law § 126(1).

[11] Plaintiffs raise for the first time in their opposition brief the existence of an additional duty under Section 130-e. (Pl. Opp. 23). However, Plaintiffs do not allege that any duty imposed by Section 130-e was violated by Defendant, nor have they pleaded any such violation. Accordingly, the Court will not consider the viability of a Streit Act claim under Section 130-e. Moreover, the Court is skeptical that such a claim could succeed even if pleaded properly. See Commerzbank AG v. Deutsche Bank Nat’l Tr. Co., No. 15 Civ. 10031 (JGK), 2017 WL 564089, at *10 (S.D.N.Y. Feb. 10, 2017) (“The exclusive remedy afforded to an aggrieved party under Section 130-e is the removal of the trustee. [Plaintiff] has not pleaded that it is entitled to such relief.”).

[12] “Because Defendant’s motion is granted as to the Streit Act claim[s], the Court does not address whether the Streit Act applies to RMBS trusts or whether it provides a private cause of action for damages.” Phoenix Light SF Ltd. v. Bank of N.Y. Mellon, No. 14 Civ. 10104 (VEC), 2015 WL 5710645, at *11 n.11 (S.D.N.Y. Sept. 29, 2015).

[13] Defendant originally challenged the standing of both the NCUAB and Royal Park with regard to the derivative claims brought by each. Royal Park has subsequently abandoned its derivative claims. (Pl. Opp. 33 n.34 (“Royal Park’s action was brought as a class action, or in the alternative, derivatively in the right and for the benefit of the Covered Trusts against Wells Fargo. In light of recent authority, which has no effect on NCUA’s claims whatsoever, Royal Park is electing to proceed only on a class basis.” (citing RP Compl. ¶¶ 1-2; Royal Park Invs. SA/NV v. Deutsche Bank Nat’l Tr. Co., No. 14 Civ. 4394 (AJN), 2016 WL 439020, at *6 (S.D.N.Y. Feb. 3, 2016)))).

[14] In its opening brief, Defendant argues that Plaintiffs may not bring derivative actions on behalf of RMBS Trusts because such claims can only be brought directly, by investors in those Trusts; the RMBS Trusts themselves were not the parties who suffered the alleged harm and who would receive the benefit of recovery. (Def. Br. 29-30 (citing Yudell v. Gilbert, 949 N.Y.S.2d 380, 381 (1st Dep’t 2012) (adopting the test for determining whether a claim is direct or derivative established in Tooley v. Donaldson, Lufkin, & Jenrette, Inc., 845 A.2d 1031 (Del. 2004))). But, as Plaintiffs clarify, the NCUAB has not attempted to bring derivative claims on behalf of the RMBS trusts for which Defendant serves as Trustee. (Pl. Opp. 33). The NCUAB’s derivative claims are brought on behalf of the NGN Trusts, in the NGN Trusts’ capacity as RMBS certificateholders. Defendant abandoned this argument on reply, and so the Court will consider it no further in the following section. Defendant’s motion to dismiss any derivative claims brought on behalf of the RMBS Trusts is denied as moot, because, as the NCUAB affirms, the NCUAB has brought no such claims.

The Court also will not consider whether the NCUAB has standing to sue on behalf of the NGN Trusts “as an express third-party beneficiary of the NGN Trust Indentures, and pursuant to its authority under 12 U.S.C. § 1787 as the liquidating agent of the CCUs.” (NCUAB Compl. ¶ 35). Defendant has not challenged and Plaintiffs have not defended the NCUAB’s standing on these bases. Moreover, the courts in this District to have considered the question have found that neither the NCUAB’s third-party-beneficiary status nor its authority under 12 U.S.C. § 1787 afford it standing to sue. See Nat’l Credit Union Admin. Bd. v. HSBC Bank USA, Nat’l Ass’n, 117 F. Supp. 3d 392, 398-99 (S.D.N.Y. 2015); Nat’l Credit Union Admin. Bd. v. U.S. Bank Nat’l Ass’n, No. 14 Civ. 9928 (KBF), 2015 WL 2359295, at *4 (S.D.N.Y. May 18, 2015). For the reasons those Courts articulated, this Court would find the same.

[15] As an aside, the Court notes that Defendant brought its motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) rather than under Rules 12(b)(1) (permitting dismissal for lack of subject-matter jurisdiction) or 23.1 (establishing prerequisites and pleading requirements for derivative suits). And this distinction is not without import: “In contrast to a motion to dismiss pursuant to Rule 12(b)(6),” for example, “a Rule 23.1 motion to dismiss for failure to [meet the rule’s pleading requirements] is not intended to test the legal sufficiency of the plaintiffs’ substantive claim. `Rather, its purpose is to determine who is entitled, as between the corporation and its shareholders, to assert the plaintiff’s underlying substantive claim on the corporation’s behalf.” In re Veeco Instruments, Inc. Sec. Litig., 434 F. Supp. 2d 267, 273 (S.D.N.Y. 2006) (quoting Levine v. Smith, 1989 WL 150784, at *5 (Del. Ch. 1989), aff’d, 591 A.2d 194 (Del. 1991)). Similarly, a motion under Rule 12(b)(6) differs from a motion under Rule 12(b)(1): “[A] typical dismissal under Rule 12(b)(6), i.e., for failure to state a claim, is an adjudication on the merits with preclusive effect,” All. for Envtl. Renewal, Inc. v. Pyramid Crossgates Co., 436 F.3d 82, 88 n.6 (2d Cir. 2006), while dismissals for lack of standing are without prejudice, Wyatt v. Fed. Commc’ns Comm’n, No. 15 Civ. 1935 (WHP), 2016 WL 4919958, at *2 n.3 (S.D.N.Y. Sept. 14, 2016). Moreover, while a Rule 12(b)(1) motion permits a court to consider evidence outside the pleadings, a Rule 12(b)(6) motion typically does not. See Goel v. Bunge, Ltd., 820 F.3d 554, 558-59 (2d Cir. 2016); Tandon v. Captain’s Cove Marina of Bridgeport, Inc., 752 F.3d 239, 243 (2d Cir. 2014). Here, the Court finds Defendant’s decision to move only under Rule 12(b)(6) to be curious, because the substance of Defendant’s Rule 12(b)(6) argument with regard to the NCUAB’s standing is that the NCUAB lacks standing “to enforce a right” that the NGN Trusts “may properly assert” because the NGN Trusts have no such right. See Fed. R. Civ. P. 23.1.

[16] The defendant in Judge Scheindlin’s case, which was reassigned to Judge Schofield on April 19, 2016, did not file a renewed motion to dismiss NCUAB’s pleading on the basis of its standing or lack thereof. (See generally Docket, No. 15 Civ. 2144 (LGS) (SN)).

[17] The NCUAB has represented that the relevant NGN agreements are substantively similar, and attached representative examples as exhibits to its pleading. The Court can therefore consider them. See Goel, 820 F.3d at 559.

[18] The Court looks to Delaware law here because Delaware law governed the NGN Trusts’ formation. See In re Goldman Sachs Mut. Funds, No. 04 Civ. 2567 (NRB), 2006 WL 126772, at *5 n.11 (S.D.N.Y. Jan. 17, 2006) (“Because the Funds are series of the Trusts, which were formed under Delaware law, that state’s law governs the issue of whether a claim should be brought derivatively.” (citing Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 98 (1991))). Moreover, Section 10.13 of the Trust Agreement specifies that it “shall be governed by and construed in accordance with the laws of the state of Delaware.” (NCUAB Compl., Ex. C). See Debussy LLC v. Deutsche Bank AG, No. 05 Civ. 5550 (SHS), 2006 WL 800956, at *2 (S.D.N.Y. Mar. 29, 2006) (“Not only was the Trust established under Delaware law . . . but also the Trust Agreement explicitly sets forth that the Agreement `shall in all respects be governed by, and construed in accordance with, the laws of the state of Delaware, including all matters of construction, validity and performance.'” (citations omitted)), aff’d, 242 F. App’x 735 (2d Cir. 2007) (summary order).

[19] On reply, Defendant changes tack, recasting its original argument as one that the NCUAB lacked “a cognizable injury when it commenced this litigation.” (Def. Reply 14). Because this argument is raised for the first time on reply, this Court need not consider it. Cf. Cruz v. Zucker, 116 F. Supp. 3d 334, 349 n.10 (S.D.N.Y. 2015) (finding arguments not raised in an opening brief waived), reconsideration denied, 195 F. Supp. 3d 554 (S.D.N.Y. 2016), on reconsideration, No. 14 Civ. 4456 (JSR), 2016 WL 6882992 (S.D.N.Y. Nov. 14, 2016). But even if the Court were to construe Defendant’s original arguments as arguments against the NCUAB’s Article III standing, it is skeptical that they could succeed. To the extent Defendant disputes standing on the basis of a lack of “injury,” the NCUAB “had Article III standing at the outset, even before it held the certificates directly, based on its NGN Owner Trust Certificates the value of which were diminished by [Defendant’s] PSA breaches.” (Pl. Opp. 34).

[20] New York Civil Practice Law and Rules Section 202 provides:

An action based upon a cause of action accruing without the state cannot be commenced after the expiration of the time limited by the laws of either the state or the place without the state where the cause of action accrued, except that where the cause of action accrued in favor of a resident of the state the time limited by the laws of the state shall apply.”

[21] Commerzbank has not addressed whether the laws of Ireland or the Cayman Islands might apply in the event that its claims accrued prior to their assignments.

[22] The Court notes also that Judge Daniels issued a Memorandum Decision and Order only days prior to the issuance of this Opinion, on March 21, 2017, in which he reached the same conclusion as did Judge Koeltl regarding the applicability of the German statute of limitations to RMBS claims brought by Commerzbank AG. See Commerzbank v. Bank of N.Y. Mellon, No. 15 Civ. 10029 (GBD), 2017 WL 1157278 (S.D.N.Y. Mar. 21, 2017).

[23] Rule 44.1 of the Federal Rules of Civil Procedure permits the Court to consider, “in determining foreign law . . . any relevant material or source, including testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence.” Fed. R. Civ. P. 44.1. The Rule further provides that “the court’s determination must be treated as a ruling on a question of law.” Id. “Accordingly, foreign law should be argued and briefed like domestic law. As with domestic law, judges may rely on both their own research and the evidence submitted by the parties to determine foreign law.” Commerzbank AG v. Deutsche Bank Nat’l Tr. Co., No. 15 Civ. 10031 (JGK), 2017 WL 564089, at *7 (S.D.N.Y. Feb. 10, 2017) (citation omitted) (quoting Sealord Marine Co. v. Am. Bureau of Shipping, 220 F. Supp. 2d 260, 271 (S.D.N.Y. 2002)). Here, the Court finds that the parties’ proffered expert opinions largely overlap in their recitation of the law, but reach different conclusions regarding the application of that law to the parties’ timeliness dispute. (Compare Sidman Decl., Ex. 20, with Kane Decl., Ex. 3).

[24] In its reply brief, Defendant for the first time posits a timeliness challenge to Commerzbank’s claims based on New York’s six-year statute of limitations for breachof-contract claims. (Def. Reply 14). Ironically, this timeliness argument fails by reason of its untimeliness. Cf. Cruz, 116 F. Supp. 3d at 349 n.10. But even if it had been raised in Defendant’s opening brief, this contention would fail for the same reason as do Defendant’s arguments with regard to German law. The Court cannot determine from the face of the NCUAB Complaint the date on which Defendant knew of the loanspecific breaches it must prove. Admittedly, Plaintiffs’ admission that “by January 1, 2009, [Defendant] [had] discovered that all of the Trusts’ loan pools contained high percentages of mortgage loans that materially breached the Sellers’ R&Ws” does Plaintiffs no favors. (Pl. Opp. 14 (citing BR Compl. ¶ 97; NCUA Compl. ¶ 104; PL Compl. ¶ 97; CB Compl. ¶ 71)). But discovery of these high breach percentages is not precisely the same as discovery of the relevant breaches themselves. Indeed, Defendant’s duties with regard to R&Ws breached by the sellers could not possibly be violated until some period of time following those breaches, because they arise from Defendant’s failure to disclose and cure those breaches.

MERTON CAPITAL L.P. and MERTON CAPITAL II L.P., Petitioners,
v.
LENDER PROCESSING SERVICES, INC., Respondent.

Bradley R. Aronstam, S. Michael Sirkin, ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware; John A. Neuwirth, Evert J. Christensen, Jr., Matthew S. Connors, Elizabeth Kerwin-Miller, WEIL, GOTSHAL & MANGES LLP, New York, New York; Counsel for Respondent.

MEMORANDUM OPINION

LASTER, Vice Chancellor.

Petitioners Merion Capital L.P. and Merion Capital II L.P. (together, “Merion”) brought this statutory appraisal proceeding to determine the fair value of their shares of stock in Lender Processing Services, Inc. (“LPS” or the “Company”). The valuation date is January 2, 2014, when Fidelity National Financial, Inc. (“Fidelity” or “FNF”) completed the merger by which it acquired the Company (the “Merger”). This post-trial decision determines that the fair value of the Company’s common stock at the effective time of the Merger is $37.14.

I. FACTUAL BACKGROUND

Trial took place over four days. The parties submitted 357 exhibits and lodged eight depositions. Four fact witnesses and two experts testified live. The following facts were proven by a preponderance of the evidence.

A. The Company

At the time of the Merger, the Company provided integrated technology products, data, and services to the mortgage lending industry, and it had a market leading position in mortgage processing in the United States. Its business operated through two principal divisions: Transaction Services (“Services” or “TS”) and Technology, Data & Analytics division (“Analytics” or “TD&A”).

The primary segment within the Services division focused on loan originations. It supported lenders by facilitating many of the steps necessary to originate a loan. Most of the originations, however, were not new loans, but refinancings of existing loans. The Services division also had a segment that supported lenders, servicers, and investors by facilitating many of the steps necessary to foreclose on a property.

The Analytics division focused on providing ongoing support to lenders and loan servicers. Its “MSP platform” automated many of the loan servicing functions performed during the life of a loan. A smaller business segment specialized in troubled loans.

B. The Company’s Origins

The Company started as the financial and mortgage services division of Alltel Information Services. PTO ¶ 11. In 2003, Alltel sold that division to Fidelity, which is a leading provider of (i) title insurance, escrow, and other title-related services, and (ii) technology and transactional services for the real estate and mortgage industries. Id. ¶¶ 6, 11. Thomas H. Lee Partners (“THL”) is a private equity firm that worked with Fidelity on the acquisition but did not co-invest at the time of the deal.

Fidelity reorganized the former Alltel division as part of a subsidiary called FNF National Information Services, Inc. (“FNF Services”). PTO ¶ 11. In 2005, THL invested in FNF Services. In 2006, Fidelity spun off FNF Services. Id.

In 2008, FNF Services spun off the Company. Its shares traded on the New York Stock Exchange until the Merger closed. Id. Because of the Company’s historic ties to Fidelity, the Company continued to share an office campus with its former parent (although occupying separate buildings). The two companies also shared private jets, hangar facilities, and server space.

C. The Effect Of The Great Recession On The Company’s Business

The Company’s spinoff coincided with the Great Recession of 2008. Although devastating to many households, the financial crisis was a boon to the Company, because loan defaults drove key segments of its business. Revenue grew by approximately 80% from pre-recession levels to peak in 2010. JX 111 at 21.

But the Company also was involved in some of the problematic loan protocols that led to the Great Recession, colloquially known as “robo-signing.” In 2010, the United States Department of Justice, the Federal Bureau of Investigation, and attorneys general from all fifty states commenced civil and criminal investigations into the Company’s practices. Stockholders also filed lawsuits. PTO ¶ 12.

D. Fidelity’s Early Overtures

In April 2010, amidst the negative publicity from the robo-signing allegations, Fidelity, THL, and the Blackstone Group made an unsolicited offer to buy the Company. The Company’s board of directors (the “Board”) retained the Goldman Sachs Group, Inc. (“Goldman”) as its financial advisor. The discussions did not go far. PTO ¶ 13.

In early 2011, THL and Blackstone approached the Company again. Goldman continued in its advisory role. Again, no deal was reached. PTO ¶ 14.

In late 2011, the Company’s CEO retired due to medical issues. In October, the Board hired Hugh Harris to serve as President and CEO. He also became a director.

Harris had ties to Fidelity. In 2003, he worked for Fidelity and THL as a consultant on the Alltel deal. Afterwards, Fidelity hired Harris to run one of the new business units. Harris continued to work for FNF Services after its spinoff. He retired in 2007, before the Company’s spinoff in 2008.

Harris also had ties to THL. In addition to consulting on the Alltel deal, he worked with THL for several years in the mid-1990s. Tr. 9 (Harris). He also was a friend of and owned hunting land with one of THL’s principals. Tr. 12 (Harris). Given these relationships, the Board excluded Harris from its deliberations about any potential transaction with THL and Fidelity, and Harris recused himself from voting as a director. The Board determined that Harris could, however, “do all the normal things that the CEO would do as far as presenting the company, the business, what was going on with the company, our projections, our results, et cetera.” Tr. 25 (Harris); see PTO ¶ 7.

In late November 2011, THL reached out to Harris. He referred the call to Lee Kennedy, the Company’s Chairman. This time, the discussions progressed further. In December, the Company and THL signed a confidentiality agreement. In February 2012, after conducting due diligence, THL offered to buy the Company for $26.50 per share. THL’s offer noted that Blackstone and Fidelity would participate in the deal, and THL later explained that Fidelity would contribute its ServiceLink business to the surviving entity. The ServiceLink business competed with LPS and was a source of synergies.

On February 28, 2012, the Board met to discuss the offer. Goldman continued in its advisory role. The Board determined that a transaction was potentially attractive, but not at that price. PTO ¶ 19. The Board decided to explore whether someone might pay more by reaching out to other financial sponsors and strategic buyers. Tr. 27 (Harris).

In March 2012, Goldman reviewed the Company’s financial performance with the Board. After analyzing several market-based metrics, Goldman opined that “the Company was fully valued at current trading prices.” JX 33 at 2. Goldman’s illustrative discounted cash flow analysis, which used LPS’s historical discount rate and assumed a 1% perpetuity growth rate, produced a valuation of $25.91 per share. Id. at 17. The Company’s stock closed at $24.66 that day. Id. at 13.

In April 2012, after additional due diligence, THL, Blackstone, and Fidelity increased their offer to $28.00 per share, comprising $26.00 in cash and $2.00 in Fidelity stock. The Board rejected that price as inadequate. PTO ¶¶ 22-23.

In May 2012, THL, Blackstone, and Fidelity increased their offer to $29 per share, payable entirely in cash or in a combination of $27.00 in cash and $2.00 in Fidelity stock. JX 38 at 2. The bidding group explained that the premium depended in part on anticipated synergies with the ServiceLink business. JX 260 at 53.

By this point, with the country emerging from the Great Recession, management was concerned that the Company’s performance would deteriorate. During a series of meetings in May 2012, management provided the Board with updated financial forecasts that contemplated revenue declining approximately 25% by 2017. JX 44 at 927. The forecasts projected that EBITDA would decrease by 7.2% through 2017 before increasing by 7.5% through 2022. Id. Despite the weaker forecasts, the Board told THL that the proposed consideration “was inadequate and should be raised to a price in the $30s.” JX 44 at 3.

During the last week of May 2012, Goldman contacted three financial sponsors: Texas Pacific Group Capital (“TPG”), Kohlberg Kravis Roberts & Co. L.P. (“KKR”), and Advent International. Goldman also contacted seven potential strategic buyers: Accenture, Berkshire Hathaway, IBM, Infosys, Oracle, Tata Consultancy Services, and Total Systems Services. Several of the parties entered into confidentiality agreements, conducted due diligence, and received management presentations. None made an offer. Five of the strategic buyers had no interest. Two said they needed more time to evaluate the opportunity. KKR and Advent said they could not pay a premium and meet their internal hurdle rates. TPG was only interested if it could be part of the THL/Blackstone/Fidelity consortium.

On June 8, 2012, THL told the Company that the consortium would not offer more than $29.00 per share. PTO ¶ 25. The directors felt that was a good price but remained committed to $30.00 per share. They rejected THL’s offer, but decided to negotiate the terms of the transaction documents in case the consortium changed its collective mind.

In June 2012, two strategic bidders — Total Systems Services and Infosys— expressed interest in buying the Company, only to promptly change their minds. Total Systems wanted to team up with a financial sponsor but said it could not find one. Infosys cited LPS’s size, lack of strategic fit, and legacy issues.

The Board and the consortium negotiated a draft merger agreement that included a go-shop, but neither would budge on price. One critical issue dividing the parties was the extent of the Company’s legal risk due to the pending investigations and lawsuits. In August 2012, discussions terminated. PTO ¶ 27.

E. The Board Hires BCG.

In October 2012, the Board hired the Boston Consulting Group (“BCG”) to evaluate the Company’s core businesses, research market trends, assess the legal and regulatory environment, and test the reliability of management’s projections. The Board also asked BCG to evaluate the Company’s strategic alternatives with a focus on two particular opportunities: (i) continuing to operate the Company in its existing configuration, or (ii) splitting up the Company’s two businesses.

BCG would spend the next six months conducting an in-depth review of the Company’s business that included over 120 interviews with LPS employees, customers, and investors. Based on its work, BCG generated a report that spanned more than 200 pages. See JX 111. Through this process, BCG “pressure tested” each element of the Company’s five-year projections based on macroeconomic factors, industry trends, and the Company’s specific product lines. See Tr. 226 (Schilling); Tr. 19 (Harris).

F. The Company Addresses Its Legal Problems.

On January 31, 2013, the Company announced that it had entered into a settlement agreement with the attorneys general from forty-six states and the District of Columbia. PTO ¶ 31. As part of the settlement, the Company agreed to make a settlement payment of $127 million. The Company also entered into a non-prosecution agreement with the Department of Justice that contemplated a payment of $35 million. The Company settled the outstanding stockholder litigation for a payment of $14 million. Although the regulators charged some of the Company’s employees with criminal activity, they did not charge the Company. The settlement was profoundly good news, and the Company’s shares rose 7.5% to $24.08 on the announcement. JX 71 at 1.

Part of the settlement with the Department of Justice required the Company to operate under the terms of a consent order. Ironically, the consent order gave the Company “a competitive advantage” because many loan servicers were still trying to adjust to the new post-financial crisis regulatory regime. Tr. 61 (Harris). The Company’s settlement signaled that the Company had achieved compliance. Management believed this would result in a “flight to quality” as customers chose the Company over competitors whose systems had not yet been validated. See Tr. 61 (Harris).

Around this time, Harris told the Board he planned to retire at the end of 2013.

G. Offers From Fidelity And Altisource

After the Company announced the settlements, two of the Company’s competitors expressed interest in buying the Company. Fidelity was first out of the gate. On January 31, 2013, Fidelity and THL made a joint proposal to acquire the Company for $30.00 per share, consisting of $13.20 in cash and $16.80 in Fidelity common stock. PTO ¶ 32. The proposal represented a premium of approximately 32% over the Company’s average closing stock price during the five previous trading days. JX 72 at 3.

Four days later, Altisource Portfolio Solutions S.A. (“Altisource”) proposed to acquire the Company in a transaction valued at $31.00 per share, consisting of $21.50 in cash and $9.50 in Altisource common stock. PTO ¶ 33. The offer represented a 28% premium over the Company’s closing price on February 1 and a 32% premium over its trailing 30-day weighted average. JX 74 at 2. Altisource competed with the Company’s Analytics business. Tr. 30 (Harris).

During a meeting on February 6, 2013, the Board received a presentation from the Company’s finance team. They advised the Board that 2013 would “continue to be a challenging year for the mortgage industry and for LPS.” JX 75 at 464. They noted that “new entrants will emerge” and that the Company would face continuing competition from entities like Ocwen and NationStar. Id. They projected that the Company’s revenue for 2013 would be “down about 4% compared to 2012, with a 4% increase in [Analytics] revenue being offset by a 9% decline in [Services] revenue.” Id. They expected EBITDA to be flat, EBITDA margin to increase from 26.7% to 27.5%, and earnings per share to decline from $2.80 to $2.74 due to increased shares outstanding. Id.

The Board also heard from the Company’s investor relations team. Although the Company’s stock had risen by 63% in 2012 versus only a 12% increase for the S&P 500, the investor relations team believed that the market did not appreciate the Company’s strong fundamentals. To address this, the team had launched a strategy to explain to the market that “LPS is a stronger company today” with “[s]ustainable competitive advantages” and “[l]ong-term growth opportunities.” JX 76 at 497. The goal for 2013 was to “Achieve Fair Value of LPS Securities.” Id. at 509; see Schilling Dep. 151; see also Tr. 358 (Schilling).

Against this backdrop, the directors considered the offers from Fidelity and Altisource. In light of Harris’ prior ties to Fidelity and THL, the Board limited his role to responding to the overtures in his capacity as CEO. Lee Kennedy was the Company’s Chairman, had previously served as a director of a THL portfolio company, and had served as CEO of Information Services from 2006 until 2009. The Board determined that he did not have a conflict. James Hunt was a non-management director who had served as an officer of one of THL’s portfolio companies. The Board determined that he should not be involved in any discussions about a sale. The Board decided to tell Fidelity and Altisource that their offers undervalued the Company and that the Company was not interested. PTO ¶¶ 7, 34, 35.

H. More Expressions Of Interest

Over the ensuing weeks, four more unsolicited expressions of interest arrived. One was an increased bid from Fidelity and THL. By letter dated February 26, 2013, they increased their proposal by 7% to $32.00 per share, with $14.72 paid in cash and $17.28 in Fidelity common stock. PTO ¶ 36. Their letter stated that $32.00 was the highest price they would offer. JX 89 at 99.

In March 2013, First American National Financial Corporation expressed interest in a joint venture between its mortgage servicing arm and the Services business. First American’s proposal valued the Services business at $450-$600 million. First American said it could complete diligence in four to six weeks. Also in March, two private equity firms expressed interest in the Services business. Flexpoint Ford LLC proposed to buy the business on a cash-free, debt-free basis for 5.0x-5.5x normalized EBITDA. PTO ¶¶ 41-42. Golden Gate Capital also proposed to buy the business but did not suggest a price. PTO ¶¶ 37, 41-42.

Having received a flurry of proposals, the Board engaged Credit Suisse Securities (USA) LLC (“Credit Suisse”) as a second financial advisor. The Board decided to defer considering the offers until after BCG completed its strategic review.

I. The March 2013 Board Meeting

On March 21, 2013, the Board met to consider the Company’s alternatives. The meeting began with a presentation from BCG. Based on its six months of work, BCG projected that without any new business initiatives, “[m]arket headwinds” would cause the Company’s revenue to decline by $470 to $510 million by 2015 and $580 to $680 million by 2017. JX 111 at 37. BCG attributed the declines to a 75-80% drop in refinancings and a 60-70% drop in defaults. Id. at 31. The declines would affect the Services business disproportionately, which would suffer 95% of the net impact. Id. at 70. The Analytics business would experience slow and steady growth, but not enough to offset the decline in the Services business.

BCG next presented three sets of five-year projections created in collaboration with management: (i) a Reduced Base Case, (ii) a Base Case, and (iii) an Optimistic Case. BCG regarded its Base Case as “the most likely scenario.” Id. at 27. The Base Case started with the macro-economic trend line then added “additional initiatives and opportunities” to increase revenue. Id. at 28. BCG identified ten initiatives, almost all involving the Analytics business, that could generate roughly $350 million in revenue. To succeed, the Company would have to devote resources to all ten and capture market share with new products. Because the Analytics division’s two biggest products already had captured 56% and 80% of their respective markets, the bulk of the Company’s growth would come from new initiatives. See Tr. 20 (Harris); Tr. 511 (Geller); JX 111 at 51, 65. Even then, under the Base Case, 2017 revenue still would be less than 2012 revenue: Projected 6% compound annual growth rate for the Analytics business and -11% compound annual growth rate for the Services business, resulting in combined compound annual growth for the Company of -3%. JX 111 at 66.

The Reduced Base Case contemplated a forecast between doing nothing and the Base Case in which the initiatives did not fully succeed and revenue decreased by $485 million by 2017. JX 196 ¶ 89. The Optimistic Case contemplated that the initiatives would succeed to a greater degree than the Base Case and generate between $651 million to $1 billion in new revenue. JX 111 at 66. BCG believed the Optimistic Case was “achievable” but “not the most likely outcome.” Id. at 66-67. Ultimately, “everyone got comfortable with the [B]ase [C]ase.” Tr. 20 (Harris).

During the same meeting, Credit Suisse and Goldman made a joint presentation. Their view of industry trends matched BCG’s. See JX 114 at 4; JX 113 at 19. They also examined stock market trends and concluded that analysts appeared to understand the Company well because there was little difference between their consensus forecasts and the Company’s actual performance. See JX 113 at 11. The bankers observed that since March 2012, most analysts had maintained a “hold” rating on the Company. The median price target was $25.00 with a high price target of $31.00.

Using the three cases from the BCG Report, the bankers prepared valuation models and analyzed alternatives, including an expanded share repurchase plan, a leveraged recapitalization, a spinoff of the Analytics business, a joint venture involving the Services business, a sale of the Services business, a sale of the entire Company, and a leveraged buy-out. One analysis estimated the present value of the Company’s future stock price. Using an EBITDA multiple of 6.0x, the bankers estimated that if LPS achieved the Base Case, its stock would trade at $29.43 in 2015 and $41.35 in 2017. Discounted at 11%, those figures equated to present values of $23.88 and $28.70 respectively, with the former representing a 3% discount to the Company’s current market price and the latter a 10% premium over market. JX 113 at 23. Using an EBITDA multiple of 7.0x, the Company’s stock would trade at $35.07 in 2015 and $47.76 in 2017. Discounted at 11%, those figures equated to present values of $28.46 and $31.45 respectively, implying a 15% or 28% premium over market. Id.

Another analysis used a discounted cash flow methodology to value the Company using the Base Case. Id. at 25. It generated the following range of values:

   Discount Rate    Terminal Value Next Twelve Month EBITDA Multiple:

                   5.00x      6.00x      7.00x      8.00x

    8.0%          $27.14     $31.78     $36.36     $40.83

    9.0%          $25.76     $30.23     $34.63     $38.93

    10.0%         $24.45     $28.76     $32.96     $37.12

The bankers separately analyzed the ability of strategic bidders and financial sponsors to finance a transaction. For strategic bidders, the bankers examined the level of accretion or dilution that a transaction would involve and the acquirer’s post-transaction debt-to-equity levels, without accounting for synergies, and assuming either an all-cash deal or a transaction involving 50% cash and 50% stock at prices ranging from $30 to $34 per share. Id. at 42. For financial sponsors, the bankers calculated the internal rates of return that a sponsor could expect at prices of $28 to $33 per share, assuming total leverage of 5.0x and a January 1, 2018 exit. They following chart summarizes the results:

                               Illustrative Purchase Price Per Share

   Exit Multiple   $28.00    $29.00   $30.00    $31.00   $32.00   $33.00

   6.0×            20.3%     18.1%    16.2%     14.4%    12.8%    11.3%

   6.5×            23.3%     21.0%    19.0%     17.2%    15.5%    14.0%

   7.0×            26.0%     23.7%    21.6%     19.8%    18.0%    16.5%

   7.5×            28.4%     26.1%    24.0%     22.1%    20.4%    18.8%

   8.0×            30.7%     28.4%    26.2%     24.3%    22.5%    20.9%

Id. at 43. A financial sponsor thus could not pay $33 or more per share and still clear a hurdle rate of 20% unless it projected an exit at 8.0x EBITDA.

At the conclusion of the Board meeting, Credit Suisse and Goldman recommended “in light of the strategic plan review, the indications of interest that the Company had received and the Company’s prior negotiating history with certain of the interested parties, that the Company would be best off if it could proceed with soliciting and evaluating offers for the sale of the Company (or its Transaction Services business).” JX 114 at 5. BCG “concurred that in their view, the best alternative for the Company would be to pursue a potential sale of the Company at an attractive price.” Id. Management agreed, citing the “unfavorable macroeconomic trends and the market and execution risks inherent in the strategic initiatives.” Id.

The directors decided to task Credit Suisse with contacting parties about a sale of the Company or the Services business. They asked the bankers to develop a recommendation for a sale process that the Board could evaluate and approve. PTO ¶ 43.

J. The Recommended Sale Process

To implement the Board’s directive, Company management and the financial advisors developed a list of the most likely bidders. It included six strategic buyers (Fidelity, Altisource, First American, Nationstar, CoreLogix, and IBM) and one financial sponsor (Golden Gate). All had expressed interest earlier in 2013; most had also expressed interest in 2012.

The financial advisors recommended a three-step sale process. They proposed that “given the history of discussions with [Fidelity],” the Company should first reach out to First American, Altisource, Nationstar, and Golden Gate “to create credible competitive tension in the process.” JX 115 at 1. After getting “feedback” from those firms, the bankers would contact Fidelity. Then, after receiving a first round of bids, the bankers would contact CoreLogix and IBM. The bankers also contemplated approaching other parties that were less likely to be interested in or capable of completing a transaction, such as Infosys. Tr. 515 (Geller). The bankers envisioned announcing a deal on June 11, 2013.

On March 25, 2013, the Board approved the process. PTO ¶ 44.

K. The Actual Sale Process

The Company and its bankers did not follow the recommended process. Rather than delaying the approach to Fidelity, management met with Fidelity on April 1, 2013. JX 121 at 3. During the same period, the bankers reached out to the other parties. Everyone but Altisource expressed interest. Altisource said it would not participate, citing the Company’s exposure to declining refinancings and defaults. PTO ¶ 46.

The Company entered into confidentiality agreements with Fidelity, THL, Nationstar, Golden Gate, and First American. Management made presentations to Fidelity and Golden Gate. Management was scheduled to make a presentation to Nationstar, but they dropped out on April 9, 2013. PTO ¶ 51.

Fidelity and THL took less than two weeks to update their analysis of the Company and make a revised offer. By letter dated April 18, 2013, they offered to acquire LPS for $32.00 per share, consisting of $16.00 in cash and $16.00 in Fidelity common stock. PTO ¶ 53. It was the same price they offered in late February, but with more cash. Fidelity and THL made their offer more than a month-and-a-half faster than the timeline that the bankers had recommended.

On April 25, 2013, the Company announced results for the first quarter. Compared to the prior quarter, revenue decreased by 6% and EBITDA decreased by 7%. JX 133 at 3. Year over year, revenue decreased by 3% and EBITDA increased by 7%. As expected, the bulk of the decline came from the Services business. The numbers matched management’s guidance and the analysts’ consensus.

Management updated the Base Case in light of the Company’s first quarter (the “Updated Base Case”). The new projections lowered the numbers for 2013 and 2014 but kept the figures for 2015:

    Revenue:              2013         2014         2015

    Updated Base Case   $1,868.3     $1,789.5     $1,669.7

    Analyst Consensus   $1,861.1     $1,795.7     $1,845.9

    % Difference            0.4%        -0.3%        -9.5%

    EBITDA:

    Updated Base Case     $523.0      $536.9        $506.6

    Analyst Consensus     $493.7      $485.8        $503.1

    % Difference            5.9%       10.5%          0.7%

    EBITDA Margin:

    Updated Base Case      28.0%       30.0%         30.3%

    Analyst Consensus      26.5%       27.1%         27.3%

    %Difference             5.5%       10.9%         11.3%

“[T]he modifications did not result in any significant impact” on the bankers’ valuations of the Company. JX 149 at 2. The Company provided the Updated Base Case to Fidelity, First American, and Golden Gate. PTO ¶ 45; JX 189.

L. The Board Decides To Sell The Company.

On May 1 and 2, 2013, First American and Golden Gate submitted their indications of interest. First American proposed to buy the Services business for $450-550 million in cash. PTO ¶ 55; JX 145. First American said that it preferred a joint venture and would increase its valuation of Services by 15-20% as part of that structure. Golden Gate proposed to have the Company contribute the Services business to a Golden Gate controlled entity in which LPS would retain a “substantial interest.” JX 146 at 2. Golden Gate valued its proposal at $800 million. PTO ¶ 54.

On May 3, 2013, the Board met with its financial advisors to discuss the proposals. The bankers generated a range of values, including:

• Comparable companies: $21.46 to $30.35 per share.

• Precedent transactions: $28.09 to $34.00 per share.

• DCF analysis: $27.95 to $40.11 per share.

JX 147 at 16. At the time, LPS’s stock was trading around $27.28. The Company’s 52-week low was $21.14 and its 52-weeks high was $30.88.

To enable the Board to compare a sale of the Company with a transaction involving the Services business, the bankers analyzed the EBITDA trading multiples that the latter implied for the Analytics business, which ranged from 8.0× to 9.1×. The Fidelity offer implied a range of EBITDA trading multiples for Analytics of 9.3× to 10.4×. The Board concluded that selling the Company as a whole was the better course.

In their original plan for the sale process, the bankers envisioned using a bid from Altisource to create competition for Fidelity. Without Altisource, the Board decided to counter at $34.50 per share and ask Fidelity for a collar to support the stock component. PTO ¶ 56; JX 150. After the Board meeting on May 3, 2013, Credit Suisse conveyed this proposal to Fidelity’s banker.

Instead of having its banker respond, Fidelity’s Chairman called the Company’s Chairman directly. Fidelity’s Chairman was Foley, who previously had served as the Chairman of FNF Services. The Company’s Chairman was Kennedy, who had served as Chairman, President, and CEO of a company that Fidelity acquired in 2006 in connection with the spinoff of FNF Services. Kennedy then served as CEO of FNF Services under Foley from 2006 through 2009. The petitioners perceive Foley’s call as a way for Fidelity to capitalize on Foley’s history with Kennedy and to take advantage more generally of the relationships among Fidelity, THL, and the members of the LPS Board.

The call took place on Sunday, May 5, 2013. Foley proposed to split the difference between Fidelity’s offer and the Company’s counter by increasing the proposed consideration to $33.25 per share. PTO ¶ 57. The composition would remain 50% cash and 50% stock, but with a one-way collar that would provide protection against a decline in Fidelity’s stock price of more than 7.5%. He conveyed that Fidelity wanted the right to increase the cash component to offset the dilutive effect of issuing additional shares.

The next day, after a meeting of the Board, Credit Suisse contacted Fidelity’s banker to ask for a price increase and a reduction in the percentage decline necessary to trigger the collar. Fidelity refused to increase its price but offered to improve the collar. Fidelity also agreed that if the average price of its stock increased by more than 6% and Fidelity substituted cash for shares, then the cash would reflect the upside that the Company’s stockholders would have enjoyed if they received shares.

On May 14, 2013, the Board held a telephonic meeting. Credit Suisse reported on the negotiations, and the Board instructed management and the deal team to begin due diligence on Fidelity and negotiate a merger agreement. The parties used the merger agreement they had negotiated in 2012 as a template, which included a go-shop. The parties kept the go-shop largely because of legal advice the Board received regarding its ability to mitigate potential legal risk. See Carpenter Dep. 124. The concept of a go-shop was not part of the bankers’ design for the sale process.

On May 22, 2013, the Wall Street Journal reported that Fidelity and the Company were in merger talks. JX 171 at 1. In response, Macquarie Capital (USA) Inc. issued a report titled, “Best Outcome for LPS is to be Acquired.” JX 173 at 1. Macquarie argued that “the [loan] cycle has peaked” and the deal would “rescue[] shareholders from pending fundamental slowdown.” Id. At the time, Macquarie valued LPS at $22 per share. Id.

M. The Board Approves The Merger Agreement.

On May 27, 2013, the Board met to consider the agreement and plan of merger (the “Merger Agreement”). It contemplated consideration of $33.25 per share, paid 50% in cash and 50% in Fidelity stock (the “Original Merger Consideration”). The formula for the stock component built in a one-way collar that protected against a decline of more than 5% in the value of Fidelity’s common stock and established a floor for the stock component at $15.794 per share. The Merger Agreement gave Fidelity the right to increase the cash portion and contained a formula that specified how much gain from an increase in Fidelity’s stock price would flow through to the Company’s stockholders.

The Merger Agreement provided for (i) a 40-day go-shop that would expire on July 7, 2013, (ii) a five-day initial match right that fell back to a two-day unlimited match right, and (iii) a $37 million termination fee for a deal generated during the go-shop. Otherwise the termination fee was $74 million. The lower fee represented 1.27% of the equity value of the deal ($2.9 billion); the higher fee represented 2.5% of equity value. Once the go-shop ended, LPS could continue negotiating with any party that had achieved excluded party status or if a party made a bid that met the terms of the fiduciary out.

Credit Suisse and Goldman opined that the transaction consideration was fair. The bankers’ valuations had not changed materially since their earlier assessments. Credit Suisse’s ranges included:

• Comparable companies: $21.25 to $32.93 per share.

• Precedent transactions: $27.81 to $33.67 per share.

• DCF analysis: $27.67 to $39.76 per share.

JX 175 at 12. Goldman’s ranges included:

• Comparable companies: $20.35 to $31.74 per share.

• Precedent transactions: $25.42 to $34.41 per share.

• DCF analysis: $26.50 to $37.25 per share.

• Present value of future share price: $21.32 to $32.97 per share.

JX 177 at 17.

The Board unanimously adopted and approved the Merger Agreement and recommended that the LPS stockholders vote in favor of the transaction.

N. The Go-Shop

On May 28, 2013, the bankers started the go-shop process. They contacted twenty-five potential strategic buyers and seventeen potential financial buyers. JX 213 at 5. Only Altisource and two financial sponsors expressed interest and executed confidentiality agreements. PTO ¶ 61.

The discussions with the financial sponsors never gained traction. Altisource, however, brought in a large team and conducted a “very rigorous level of diligence.” Tr. 277 (Schilling). Altisource accessed the data room, received a management presentation, and was given the Company’s projections. JX 194; JX 202; Tr. 123 (Harris). Altisource appeared serious and said they would make an offer that included an equity component. In response, the Company began conducting reverse due diligence on Altisource. Tr. 279 (Schilling); JX 199. Management generally preferred Altisource over Fidelity because they thought they would keep their jobs after a deal with Altisource. Tr. 419 (Carpenter).

On June 21, 2013, Altisource withdrew without explaining why. JX 206; Tr. 42 (Harris). There were rumors that several LPS clients did not want a competitor to acquire LPS. See JX 357 at 1; Tr. 189 (Harris). Credit Suisse had previously estimated that Altisource would face “a net revenue dis-synergy” from acquiring the Company because many of LPS’s clients would have concerns if it were owned by a competitor, and “any theoretical cost synergy” available to Altisource “would likely be more than offset by the revenue dis-synergy with customers.” JX 103.

On July 7, 2013, the go-shop ended. No one had submitted an indication of interest, much less a topping bid.

O. The Period Leading Up To The Stockholder Vote

In July 2013, management reported on the Company’s second quarter results. Revenues decreased by 1% and EBITDA remained flat. Year over year, revenue decreased by 9% and EBITDA by 13%. These results were consistent with management guidance and the consensus forecast.

On August 29, 2013, Fidelity filed a Form S-4 in connection with the transaction. The filing included the Updated Base Case, marking the first time it was publicly disclosed.

In October 2013, management reported on the Company’s third quarter results. Revenue declined by 10.6% and EBITDA by 18.4%. Year over year, revenue declined by 15.8% and EBITDA by 25%. The results fell within management’s guidance but at the lower end of the range. They came in below analysts’ consensus estimates.

On October 31, 2013, LPS filed its definitive proxy statement relating to the Merger. The proxy statement included the Updated Base Case.

Institutional Shareholder Services and Glass Lewis & Co. recommended that stockholders vote in favor of the Merger. At a meeting of stockholders held on December 19, 2013, holders of 78.6% of the outstanding shares voted in favor of the deal. Of the shares that voted, 98.4% voted in favor.

Goldman received $22.8 million for its work on the transaction. The proxy statement revealed that Goldman had a lucrative relationship with THL that generated $97 million during the previous two years. Goldman had not previously disclosed these amounts to the Board or LPS management. They learned about the figures when they saw the proxy statement. Tr. 171 (Harris).

Credit Suisse received $21.8 million for its work on the deal. The proxy statement revealed that Credit Suisse had received $26 million from THL during the previous two years. Credit Suisse had not previously disclosed these amounts to the Board or LPS management. The directors learned about the figures when they saw the proxy statement.

P. The Merger Closes.

On January 2, 2014, the Merger closed. Fidelity’s stock price had increased in the interim, resulting in an increase in the merger consideration. Fidelity elected twice to increase the cash component, which ended up at $28.10 per share. The collar yielded a stock component valued at $9.04 per share. The aggregate merger consideration received by the Company’s stockholders at closing was $37.14 per share (the “Final Merger Consideration”). The equity value of the final deal was $3.4 billion, an increase of approximately $500 million over the value at signing. Net of $287 million in cash and $1.1 billion in debt, the enterprise value of the deal was $4.2 billion.

The Initial Merger Consideration of $33.25 per share and the Final Merger Consideration of $37.14 per share represented premiums of 14% and 28% respectively over the Company’s unaffected market price on May 22, 2013, the last trading day before the Wall Street Journal reported on the merger discussions. The Final Merger Consideration provided a premium of approximately 20% over Altisource’s expression of interest in February 2013.

Evidence in the record indicates that the Initial Merger Consideration and the Final Merger Consideration included a portion of the value that Fidelity and THL expected to generate from synergies.

• In May 2012, when THL, Blackstone, and Fidelity made an offer of $29 per share to acquire the Company, they explained that the offer price depended in part on anticipated synergies with Fidelity’s ServiceLink business. JX 260 at 53.

• In March 2013, Credit Suisse made a preliminary estimate that a transaction with Fidelity could generate annual synergies of $50 to $65 million, with $40 to $50 million coming from the combination of Services and ServiceLink and another $10 to $15 million from reduced corporate overhead. JX 103.

• In May 2013, in its presentation to the Board, Credit Suisse estimated “Potential Synergies—$50mm in cost synergies in 2013E, $100mm in 2014E and $100mm thereafter. JX 180 at 45. Goldman estimated that “net synergies include $100mm in run-rate cost savings.” JX 178 at 34.

• In May 2013, Fidelity made a presentation to the rating agencies that forecasted “$75 million of [annual] cost synergies” from the transaction. JX 164 at 4. Fidelity cited its “strong history of overachieving forecasted synergies.” Id. at 8.

• The press release announcing the deal attributed the following quote to Foley, Fidelity’s Chairman: “We believe there are meaningful synergies that can be generated through the similar businesses in centralized refinance and default related products, elimination of some corporate and public company costs and the shared corporate campus. We have set a target of $100 million for cost synergies and are confident that we can meet or exceed that goal.” JX 186, Ex. 99.1 at 2.

• Merion internally modeled $100 million in synergies as part of its investment analysis. JX 310.

• The respondent’s expert cited an analyst report which described the synergy estimate as “conservative, considering business overlap between [Services] and ServiceLink (~$2B in combined revenue) and the potential elimination of corporate and management cost redundancies.” JX 296 ¶ 126.

The prospect of $100 million in synergies was a significant source of value. Using a higher discount rate than this decision adopts, the Company’s expert calculated that the $100 million target would translate into approximately $660.4 million of present value, or $7.50 per share. Id. ¶ 128.

Q. The Company’s Post-Closing Performance

Post-closing, Fidelity divided the Company’s operations into two separate subsidiaries, combined the Services business with its ServiceLink business, and issued a 35% interest in each subsidiary to THL. On March 31, 2014, KPMG LLP issued a final financial report for the combined entity. Across the board, the Company’s results came in below the Updated Base Case.

                              Actual      Updated Base Case   Actual v. Updated
                                                                                      Base Case

    TD&A                      $757.2        $800.9             ($43.7)     (5.5%)

    Transaction Services      $965.8      $1,067.3            ($101.5)     (9.5%)

    Total Revenue           $1,723.5      $1,868.3            ($144.8)     (7.8%)

    Operating Expense       $1,285.1      $1,345.3             ($60.2)     (4.5%)

    EBITDA                    $438.4        $523.0              ($84.6)    (16.2%)

    % Margin                  25.4%         28.0%             (2.6%)     (9.1%)

    EBIT                      $333.0        $415.1             ($82.1)    (19.8%)

JX 296 Ex. 15 (summarizing documents).

R. This Litigation

Merion purchased 5,682,276 shares after the announcement of the Merger and before the stockholder vote. Merion demanded appraisal, did not withdraw its demand or vote in favor of the Merger, and eschewed the Final Merger Consideration. Merion pursued this appraisal action to obtain a judicial determination of the fair value of its shares.

II. LEGAL ANALYSIS

“An appraisal proceeding is a limited legislative remedy intended to provide shareholders dissenting from a merger on grounds of inadequacy of the offering price with a judicial determination of the intrinsic worth (fair value) of their shareholdings.” Cede & Co. v. Technicolor, Inc. (Technicolor I), 542 A.2d 1182, 1186 (Del. 1988). Section 262(h) of the Delaware General Corporation Law (the “DGCL”) states that

the Court shall determine the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors.

8 Del. C. § 262(h).

Because of the statutory mandate, the allocation of the burden of proof in an appraisal proceeding differs from a liability proceeding. “In a statutory appraisal proceeding, both sides have the burden of proving their respective valuation positions by a preponderance of evidence.” M.G. Bancorporation, Inc. v. Le Beau, 737 A.2d 513, 520 (Del. 1999).

Each party also bears the burden of proving the constituent elements of its valuation position by a preponderance of the evidence, including the propriety of a particular method, modification, discount, or premium. If both parties fail to meet the preponderance standard on the ultimate question of fair value, the Court is required under the statute to make its own determination.

Jesse A. Finkelstein & John D. Hendershot, Appraisal Rights in Mergers & Consolidations, 38-5th C.P.S. §§ IV(H)(3), at A-89 to A-90 (BNA) (collecting cases) [hereinafter Appraisal Rights]. “Proof by a preponderance of the evidence means proof that something is more likely than not. It means that certain evidence, when compared to the evidence opposed to it, has the more convincing force and makes you believe that something is more likely true than not.” Agilent Techs., Inc. v. Kirkland, 2010 WL 610725, at *13 (Del. Ch. Feb. 18, 2010) (Strine, V.C.) (internal quotation marks omitted). “Under this standard, [a party] is not required to prove its claims by clear and convincing evidence or to exacting certainty. Rather, [a party] must prove only that it is more likely than not that it is entitled to relief.” Triton Constr. Co. v. E. Shore Elec. Servs., Inc., 2009 WL 1387115, at *6 (Del. Ch. May 18, 2009),aff’d, 988 A.2d 938 (Del. 2010) (TABLE).

The standard of “fair value” is “a jurisprudential concept that draws more from judicial writings than from the appraisal statue itself.” Del. Open MRI Radiology Assocs., P.A. v. Kessler, 898 A.2d 290, 310 (Del. Ch. 2006) (Strine, V.C.). “The concept of fair value under Delaware law is not equivalent to the economic concept of fair market value. Rather, the concept of fair value for purposes of Delaware’s appraisal statute is a largely judge-made creation, freighted with policy considerations.” Finkelstein v. Liberty Dig., Inc., 2005 WL 1074364, at *12 (Del. Ch. Apr. 25, 2005) (Strine, V.C.).

In Tri-Continental Corp. v. Battye, 74 A.2d 71 (Del. 1950), the Delaware Supreme Court explained in detail the concept of value that the appraisal statute employs:

The basic concept of value under the appraisal statute is that the stockholder is entitled to be paid for that which has been taken from him, viz., his proportionate interest in a going concern. By value of the stockholder’s proportionate interest in the corporate enterprise is meant the true or intrinsic value of his stock which has been taken by the merger. In determining what figure represents the true or intrinsic value, . . . the courts must take into consideration all factors and elements which reasonably might enter into the fixing of value. Thus, market value, asset value, dividends, earning prospects, the nature of the enterprise and any other facts which were known or which could be ascertained as of the date of the merger and which throw any light on future prospects of the merged corporation are not only pertinent to an inquiry as to the value of the dissenting stockholder’s interest, but must be considered. . . .^[1]

When applying this standard, the corporation “must be valued as a going concern based upon the operative reality’ of the company as of the time of the merger, taking into account its particular market position in light of future prospects.” M.G. Bancorporation, 737 A.2d at 525. A determination of fair value assesses “the value of the company . . . as a going concern, rather than its value to a third party as an acquisition.” M.P.M. Enters., Inc. v. Gilbert, 731 A.2d 790, 795 (Del. 1999).

“The statutory obligation to make a single determination of a corporation’s value introduces an impression of false precision into appraisal jurisprudence.” In re Appraisal of Dell Inc. (Dell Fair Value), 2016 WL 3186538, at *22 (Del. Ch. May 31, 2016). “The value of a corporation is not a point on a line, but a range of reasonable values, and the judge’s task is to assign one particular value within this range as the most reasonable value in light of all the relevant evidence and based on considerations of fairness.” Cede & Co. v. Technicolor, Inc., 2003 WL 23700218, at *2 (Del. Ch. July 9, 2004), aff’d in part, rev’d on other grounds, 884 A.2d 26 (Del. 2005).

A. The Deal Price As Evidence Of Fair Value

The Company contends that the Final Merger Consideration establishes a ceiling for the fair value of the Company. As the proponent of this valuation methodology, the Company bears the burden of establishing its reliability. In this case, the Initial Merger Consideration provides reliable evidence of the Company’s fair value at the time of signing, and the Final Merger Consideration provides reliable evidence of the Company’s fair value at the effective time.

1. Deal Price As One Form Of Market Evidence

“The consideration that the buyer agrees to provide in the deal and that the seller agrees to accept is one form of market price data, which Delaware courts have long considered in appraisal proceedings.” Dell Fair Value, 2016 WL 3186548, at *22. See generally Appraisal Rights, supra, at A-57 to A-59. Chancellor Allen summarized the law on the use of market price data as follows:

It is, of course, axiomatic that if there is an established market for shares of a corporation the market value of such shares must be taken into consideration in an appraisal of their intrinsic value. . . . It is, of course, equally axiomatic that market value, either actual or constructed, is not the sole element to be taken into consideration in the appraisal of stock.^[2]

Numerous cases support Chancellor Allen’s observations that (i) pricing data from a thick and efficient market should be considered^[3] and (ii) market price alone is not dispositive.^[4] The trial court “need not accord any weight to [values derived from the market] when unsupported by evidence that they represent the going concern value of the company at the effective date of the merger.” M.P.M., 731 A.2d at 796.

“Recent jurisprudence has emphasized Delaware courts’ willingness to consider market price data generated not only by the market for individual shares but also by the market for the company as a whole.” Dell Fair Value, 2016 WL 3186548, at *23. If the merger giving rise to appraisal rights “resulted from an arm’s-length process between two independent parties, and if no structural impediments existed that might materially distort the `crucible of objective market reality,'” then “a reviewing court should give substantial evidentiary weight to the merger price as an indicator of fair value.”^[5]

“Here too, however, the Delaware Supreme Court has eschewed market fundamentalism by making clear that market price data is neither conclusively determinative of nor presumptively equivalent to fair value.” Dell Fair Value, 2016 WL 3186548, at *23.

Section 262(h) neither dictates nor even contemplates that the Court of Chancery should consider the transactional market price of the underlying company. Rather, in determining “fair value,” the statute instructs that the court “shall take into account all relevant factors.” Importantly, this Court has defined “fair value” as the value to a stockholder of the firm as a going concern, as opposed to the firm’s value in the context of an acquisition or other transaction. Determining “fair value” through “all relevant factors” may be an imperfect process, but the General Assembly has determined it to be an appropriately fair process. . . .

Section 262(h) unambiguously calls upon the Court of Chancery to perform an independent evaluation of “fair value” at the time of a transaction. It vests the Chancellor and Vice Chancellors with significant discretion to consider “all relevant favors” and determine the going concern value of the underlying company. Requiring the Court of Chancery to defer—conclusively or presumptively—to the merger price, even in the face of a pristine, unchallenged transactional process, would contravene the unambiguous language of the statute and the reasoned holdings of our precedent. It would inappropriately shift the responsibility to determine “fair value” from the court to the private parties. Also, while it is difficult for the Chancellor and Vice Chancellors to assess wildly divergent expert opinions regarding value, inflexible rules governing appraisal provide little additional benefit in determining “fair value” because of the already high costs of appraisal actions. . . . Therefore, we reject . . . [the] call to establish a rule requiring the Court of Chancery to defer to the merger price in any appraisal proceeding.

Golden Telecom, Inc. v. Glob. GT LP (Golden Telecom II), 11 A.3d 214, 217-18 (Del. 2010) (footnotes omitted).

Since Golden Telecom II, the Court of Chancery has regularly considered the deal price as a relevant factor when determining fair value, but it has not deferred automatically or presumptively to the deal price. The court also has not equated satisfying the standards of review that govern fiduciary duty claims with carrying the burden of proof in an appraisal proceeding. Because the two inquiries are different, a sale process might pass muster for purposes of a breach of fiduciary claim and yet still constitute a sub-optimal process of an appraisal.^[6]

In evaluating the persuasiveness of the deal price, this court has cautioned that “[t]he dependability of a transaction price is only as strong as the process by which it was negotiated.” Merlin P’rs LP v. AutoInfo, Inc., 2015 WL 2069417, at *11 (Del. Ch. Apr. 30, 2015). What is required is “a proper transactional process likely to have resulted in an accurate valuation of [the] acquired corporation.” LongPath Capital, LLC v. Ramtron Int’l Corp., 2015 WL 4540443, at *21 (Del. Ch. June 30, 2015). Under this standard, the court will rely “on the merger price itself as evidence of fair value, so long as the process leading to the transaction is a reliable indicator of value and any merger-specific value in that price is excluded.” Merion Capital LP v. BMC Software, Inc., 2015 WL 6164771, at *11 (Del. Ch. Oct. 21, 2015). “[T]he Court will give little weight to a merger price unless the record supports its reliability.” AutoInfo, 2015 WL 2069417, at *11. The deal price “is informative of fair value only when it is the product of not only a fair sale process, but also of a well functioning market.” In re Appraisal of DFC Glob. Corp., 2016 WL 3753123, at *21 (Del. Ch. July 8, 2016).

Evaluating the reliability and persuasiveness of the deal price for purposes of establishing fair value in an appraisal proceeding is a multifaceted, fact-specific inquiry. The relevant factors can vary from case to case depending on the nature of the company, the overarching market dynamics, and the areas on which the parties focus. The last is perhaps an underappreciated aspect of appraisal jurisprudence. Because an appraisal decision results from litigation in which adversarial parties advance arguments and present evidence, the issues that the court considers and the outcome that it reaches depend in large part on the arguments that the advocates make and the evidence they present. An argument may carry the day in a particular case if counsel advance it skillfully and present persuasive evidence to support it. The same argument may not prevail in another case if the proponents fail to generate a similarly persuasive level of probative evidence or if the opponents respond effectively.

2. The Persuasiveness Of The Initial Merger Consideration

The Company demonstrated at trial that the Initial Merger Consideration provides a reliable indicator of the Company’s fair value at the time of the signing of the Merger Agreement. Multiple factors contribute to this court’s determination that the sale process that the Board conducted provided an effective means of price discovery.

a. Meaningful Competition During The Pre-Signing Phase

The first factor supporting the persuasiveness of the Company’s sale process is the existence of meaningful competition among multiple bidders during the pre-signing phase.^[7] Scholars who study auction design agree on the importance of creating competition among multiple bidders.^[8] Renowned M&A practitioner Marty Lipton has contrasted the effects of adding another interested party at the front end of a negotiation with the effect of bargaining more vigorously with a single counterparty at the back end. Lipton even roughly quantified the added value of adding another interested party: “The ability to bring somebody into a situation is far more important than the extra dollar a share at the back end. At the front end, you’re probably talking about 50%. At the back end, you’re talking about 1 or 2 percent.”^[9]

Equally important, the Company’s process involved different types of bidders, which is critical for promoting competition.^[10] “[T]he most important driver of market efficiency for [change of control] transactions [is] heterogeneous buyers.” Subramanian, supra, at 713. Among homogenous bidders, a sale process functions as a common-value auction, but with heterogeneous bidders, the sale process functions as a private-value auction.^[11] The latter is better for the seller because in a private-value auction, “honest reporting of values is a dominant strategy for bidders.”^[12] Finding heterogeneous bidders generally means involving strategic buyers.^[13]Financial sponsors, by contrast, predominantly use the same pricing models, the same inputs, and the same value-creating techniques.^[14] Absent distorted market conditions, “strategic bidders are systematically willing to pay more than financial bidders,”^[15] and the fact that “average returns to [strategic] acquirers are close to zero or even negative” suggests that acquirers pay full value for targets, inclusive of the benefits of control and synergies. See Gorbenko & Malenko, supra, at 2537. Financial buyers, by contrast, generally pay lower premiums^[16] and are hampered by limitations on leverage and the need to achieve their internal hurdle rates.^[17]

In this case, the Board conducted a sale process that involved a reasonable number of participants and created credible competition among heterogeneous bidders during the pre-signing phase. The process began after the Board received five unsolicited indications of interest, with three from strategic buyers (Fidelity, Altisource, and First American) and two from financial sponsors (Flexpoint and Golden Gate). The Board did not immediately enter into negotiations or launch a sale process. Instead it awaited the results of BCG’s analysis and obtained input from management and its financial advisors about strategic alternatives. With the benefit of that information, including estimates of the Company’s standalone value based on BCG’s scenarios, the Board was well-positioned to solicit bids for the Company and its Services business and to evaluate those bids against other possibilities, including remaining a standalone entity. Having decided to solicit bids, the Board went beyond the parties who had submitted unsolicited expressions of interest by identifying three additional strategic buyers. The Board’s financial advisors approached all of the potential bidders on equal terms, and all knew that the Board was conducting a sale process and so faced the prospect of competition when formulating their offers.

The petitioners have argued that although the Board may have set out to generate competition, its efforts failed because Altisource decided not to bid. They say that this left Fidelity without any competition as the only strategic bidder for the whole Company. It is possible that a single-bidder process, even one that would be defensible from a fiduciary duty standpoint, could be unpersuasive for purposes of price discovery for an appraisal. In CKx, for example, the court relied exclusively on the market price, but stressed that the case involved meaningful pre-signing competition and was not one in which “the only evidence that a merger price was the result of `market’ forces was a post-signing go-shop period (which failed to produce competing bids). . . .” 2013 WL 5878807, at *13. Likewise in Orchard Enterprises, the court declined to give weight to the merger price in an appraisal action where “the trial did not focus extensively on the quality of marketing . . . or the utility of the `go shop’ provision in the merger agreement, which could obviously have been affected by [a large stockholder’s] voting power and expressed interest to acquire all of [the company] for itself.” 2012 WL 2923305, at *5.

Importantly, however, if bidders perceive a sale process to be relatively open, then a credible threat of competition can be as effective as actual competition:

Even when there is only one buyer, that buyer could feel compelled to act as if there were more. In a perfectly contestable market, competitive pressures exerted by the perpetual threat of entry (as well as by the presence of actual rivals) induce competitive behavior. Free entry is a sufficient condition for a market to be perfectly contestable. . . .

Aktas et al., supra, at 242-43. Consequently, “competition need not be observed ex post for the M&A market to be efficient.” Id. at 242. “Competition, or the threat of competition, is a strong incentive for buyers to make higher bids for sellers.” Bulletproof, supra, at 884 (emphasis added); see also id at 879-80 (surveying literature on auction theory and concluding that “[t]he two key insights are that competition, or the threat of competition, will lead to a price closer to the buyer’s reservation price and that the price effect of one additional competitor is greater than the price effects attributable to bargaining”).

During the pre-signing phase, Fidelity and THL did not know that Altisource had dropped out. They instead knew that the Company was conducting a sale process involving multiple parties, and they also knew that the merger agreement that they had negotiated with the Company in 2012 and planned to use as the framework for their 2013 deal included a go-shop, which could create a path for post-signing competition by a strategic competitor.^[18] In this case, the Company established the presence of a competitive dynamic during the pre-signing phase that that generated meaningful price discovery.

Reinforcing the threat of competition from other parties was the realistic possibility that the Company would reject the Fidelity/THL bid and pursue a different alternative. Fidelity and THL had approached the Company previously in 2010, 2011, and 2012. Each time, the Board had declined to pursue a transaction. In 2012, the Board had rejected premium bids of $26.50, $28.00, and $29.00 per share, choosing instead to continue operating the Company on a stand-alone basis. In early 2013, the Board also rejected Fidelity/THL’s preliminary indication of interest of $30.00 per share. The Board’s track record of saying “no” gave Fidelity/THL a credible reason to believe that the Board would not sell below its internal reserve price. See Tr. 483 (Carpenter) (“And I might add that [Fidelity] had learned in prior times that we would walk away when they didn’t raise their bid.”).

By citing the involvement of multiple, heterogeneous bidders during the pre-signing phase, this decision is not suggesting any legal requirement to engage with multiple bidders. There may be sound business reasons for not doing so, and “[n]othing in our jurisprudence suggests that an auction process need conform to any theoretical standard.” CKx, 2013 WL 5878807, at *14. As this court has observed, “a multi-bidder auction of a company” is not a “prerequisite to finding that the merger price is a reliable indicator of fair value.” Ramtron, 2015 WL 4540443, at *21. The point of citing the involvement of multiple bidders in this case is more limited. It is simply that because the Company contacted a reasonable number of heterogeneous bidders during the pre-signing phase, its argument for reliance on the deal price (all else equal) is more persuasive.^[19]

b. Adequate And Reliable Information During The Pre-Signing Phase

Another factor supporting the effectiveness of the sale process in this case was that adequate and reliable information about the Company was available to all participants, which contributed to the existence of meaningful competition. Delaware cases have questioned the validity of a sale process when reliable information is unavailable for reasons that have included regulatory uncertainty^[20] and persistent misperceptions about the corporation’s value.^[21] A company also can create informational inadequacies by providing disparate information to bidders. See Goeree & Offerman, supra, at 600. If a seller only makes information available to one bidder, then the seller has given that bidder a subsidy. See id. The effect of disparate information is greater in a common value auction than in a private value auction.^[22]Strategic buyers, who have their own private sources of value and trade-based informational advantages, are less affected by information disparities than financial buyers, who are more susceptible to the winner’s curse. See Dell Fair Value, 2016 WL 3186538, at *42; Denton, supra, at 1546.

In this case, all bidders received equal access to information about the Company. All had the opportunity to conduct due diligence before submitting their bids, and several did so. There is no evidence in the record suggesting that the Company or its advisors provided any particular bidder with informational advantages. This is also not a case where the size of the Company or the nature of its business made it difficult to understand and assess. Cf. Dell Fair Value, 2016 WL 3186538, at *40-41. Every bidder who submitted an indication of interest, including Altisource in early 2013, identified a limited amount of time for conducting due diligence, typically four weeks.

The record in this case lacked persuasive evidence of factors that would undermine the reliability of information that bidders received, such as a regulatory overhang or a significant disconnect between the Company’s unaffected market price and informed assessments of fair value by insiders. Compare DFC Glob., 2016 WL 3753123, at *21; Dell Fair Value, 2016 WL 3186538, at *32-36. The petitioners have pointed to the legal uncertainty that surrounded the Company and the proximity of the sale process to the settlements that the Company announced in January 2013. They argue that stockholders did not sufficiently understand the Company’s significant value once its legal risk had been addressed. It is true that there was a regulatory overhang from the investigations in the Company’s involvement in robo-signing and related stockholder litigation, but the settlements cleared up those issues. The weight of the evidence at trial indicated that the settlements made the Company easier to understand, and the Company’s stock price increased substantially following the announcement of the settlements.

The record in this case lacked persuasive indications of irrational or exaggerated pessimism, whether driven by short-termism or otherwise, that could have anchored the price negotiations at levels below fair value.^[23] A variety of factors indicated that the market price was providing a reliable valuation indicator. Management believed that its efforts to educate the market had succeeded, that the Company’s stockholders understood its business, and that they were focused on its long-term prospects. Since 2011, analysts had established a pattern of accurately predicting the Company’s performance. The valuation ranges that the Company’s advisors generated in 2012 and 2013 using DCF analyses were also generally consistent with market indicators. See JX 33 at 17.

c. Lack Of Collusion Or Unjustified Favoritism Towards Particular Bidders

A third factor supporting the effectiveness of the sale process in this case was the absence of any explicit or implicit collusion, whether among bidders or between the seller and a particular bidder or subset of bidders.^[24] Under Delaware law, only an “arms-length merger price resulting from an effective market check” is “entitled to great weight in an appraisal.” Glob. GT LP v. Golden Telecom, Inc. (Golden Telecom I), 993 A.2d 497, 508-09 (Del. Ch. 2010) (Strine, V.C.), aff’d, 11 A.3d 214 (Del. 2010). A common risk in corporate sale processes is the possibility that management will favor a particular bidder for self-interested reasons, even if the favoritism does not rise to the level of an actionable breach of duty; a reliable sales process avoids that taint.^[25]

The Merger was not an MBO. To the contrary, the Company’s management team believed that Fidelity would not retain them if it acquired the Company. This gave the management team a powerful personal incentive not to favor Fidelity and not to seek (consciously or otherwise) to deliver the Company to Fidelity at an advantageous price. Instead it gave the management team an additional incentive to seek out other bidders and create competition for Fidelity.

The petitioners have pointed to ties among Fidelity, THL, and members of the Board which they say undermined the sale process in general and the price negotiation in particular. It is true that there were relationships among Fidelity, THL, and members of the Board, in large part because of the Company’s history. Recall that Fidelity purchased the Alltel financial division that eventually became the Company in 2003, reorganized it as part of FNF Services, then spunoff FNF Services in 2006. FNF Services in turn spun off the Company in 2008. The Company’s CEO, Harris, had consulted for Fidelity and THL on the Alltel acquisition and managed FNF Services from 2002 through 2006. Kennedy, the Company’s Chairman, had served as CEO of FNF Services from 2006 through 2009, and during that time Foley, the Chairman of Fidelity, was Executive Chairman of FNF Services. Hunt, another outside director, served as an officer of one of THL’s portfolio companies. The Company and Fidelity also shared a common business campus in Jacksonville, Florida (although they occupied separate office buildings).

These relationships warranted close examination, but they did not compromise the sale process. Harris interacted with Fidelity and other bidders in his capacity as CEO, but he recused himself from deliberating as a director during the 2013 sale process. Hunt also recused himself. Kennedy participated only after the Board determined that he did not have a conflict. All of the members of the Board and management were net sellers in the deal, and they collectively expected to receive approximately $100 million from the Merger in stock-based compensation. See JX 260 at 91-99; Tr. 784 (Hausman). Harris in particular had an incentive to maximize the value of his shares, because he planned to retire. As noted, the management team as a whole believed that if Fidelity acquired the Company, they would not retain their positions, meaning that maximizing the value of the merger consideration was the best way for them to obtain value from the deal. There also was a history of competition between Fidelity’s ServiceLink business and the Company, and during the sale process management resisted providing sensitive information to what it regarded as its closest competitor. See JX 46.

The petitioners complain the loudest about the call that Foley made to Kennedy, where Foley proposed consideration of $33.25 per share, essentially splitting the difference between Fidelity’s offer of $32 per share and the Company’s counteroffer of $34.50 per share. Although the Company’s bankers made one more try to get more consideration, the headline price term was effectively set during that telephone call, and negotiations from that point on revolved around the collar and other aspects of the deal. The petitioners seem to believe that during that call, Kennedy committed to $33.25 per share, ending the negotiations at a point below where they would have ended up otherwise. But Kennedy did not have authority to lock the Board in to $33.25 per share, and the Board in fact had its bankers push back once more. Nor is it clear that the negotiations would have ended in a different place if Fidelity’s banker had responded to Credit Suisse, as the petitioners would have preferred.

More importantly, the record indicates that even at $33.25 per share, the deal price included a portion of the synergies that Fidelity and THL hoped to achieve from the transaction, including revenue synergies from combining the Company’s Services business with Fidelity’s ServiceLink unit. Assuming for the sake of argument that a negotiator without a historical relationship with Foley might have extracted more than $33.25 per share, the record indicates that the additional amount would have represented a portion of the combinatorial value of the Company to Fidelity, not increased going concern value to which the petitioners would be entitled in an appraisal. “A merger price resulting from arms-length negotiations . . . is a very strong indication of fair value,” but it “must be accompanied by evidence tending to show that it represents the going concern value of the company rather than just the value of the company to one specific buyer.” M.P.M., 731 A.2d at 797. “The fact that a board has extracted the most that a particular buyer (or type of buyer) will pay does not mean that the result constitutes fair value.” Dell Fair Value, 2016 WL 3186538, at *29. Likewise, the fact that a negotiator has failed to extract the most a particular buyer (or type of buyer) will pay does not mean that what the negotiator obtained did not already exceed fair value. In Dell, the former was true. In this case, the latter was true.

d. Conclusion Regarding The Initial Merger Consideration

The evidence at trial established that the Initial Merger Consideration is a reliable indicator of fair value as of the signing of the Merger Agreement. The evidence indicating that the transaction price included synergies suggests that the fair value of the Company as of the signing of the Merger Agreement would not have exceeded the value of the Initial Merger Consideration. The valuation date for purposes of an appraisal, however, is not the date on which the Merger Agreement was signed, but rather the date on which the merger closes.

3. Evidence From The Post-Signing Period

Over seven months elapsed between the signing of the Merger Agreement on May 27, 2013, and the closing of the merger on January 2, 2014. The parties have to address this temporal gap, because “[t]he time for determining the value of a dissenter’s shares is the point just before the merger transaction `on the date of the merger.'” Appraisal Rights A-33 (quoting Technicolor I, 542 A.2d at 1187). Consequently, if the value of the corporation changes between the signing of the merger and the closing, the fair value determination must be measured by the “operative reality” of the corporation at the effective time of the merger. Cede & Co. v. Technicolor, Inc. (Technicolor II), 684 A.2d 289, 298 (Del. 1996).

Neither side presented analyses of the potential for valuation change between signing and closing. Neither analyzed changes in value of market indices or (arguable) peer companies. Neither attempted to use these metrics to bring the Company’s market price forward, as parties sometimes historically did under the Delaware Block Method. See Appraisal Rights, supra, at A-58 (collecting cases). The petitioners pointed to the existence of the temporal gap as a reason not to rely on either the deal price or market-based metrics associated with the signing of the deal. They argued that in light of the temporal gap, the court should construct its own valuation as of the closing date.

The respondent approached the temporal gap differently. They argued that (i) the failure of a topping bid to emerge between announcement of the deal and the stockholder vote validated the deal price, (ii) the Company’s performance declined during the gap period, and (iii) Fidelity’s stock traded up, resulting in the Company’s stockholders receiving the higher Final Merger Consideration. The respondent argued that the Final Merger Consideration therefore exceeded fair value, particularly because of evidence that the deal included combinatorial synergies.

Taken as a whole, the evidence at trial established that the Final Merger Consideration was a reliable indicator of fair value as of the closing of the Merger and that, because of synergies and a post-signing decline in the Company’s performance, the fair value of the Company as of the closing date did not exceed the Final Merger Consideration.

a. The Absence Of A Topping Bid

During the seven-month period between signing and closing, no other bidder submitted an indication of interest or made a competing proposal. During the first forty days of the post-signing period, the Company conducted a go-shop. After that, until the meeting of stockholders on December 19, 2014, the Company was free to respond to a topping bid that constituted a Superior Proposal. The time leading up to the meeting of stockholders amounted to a five-month window-shop.

A go-shop period is less common in deals involving strategic buyers like Fidelity than in MBOs involving private equity sponsors.^[26] MBOs in which a management team has affiliated with an incumbent financial sponsor rarely generate topping bids, particularly from other financial sponsors.^[27] It is not clear how a go-shop in a deal with a strategic acquirer would affect the behavior of other strategic bidders. It seems logical that relative to a deal without a go-shop, a strategic buyer would be more likely to compete when a deal involved a go-shop.

In this case, however, several factors undermined the efficacy of the go-shop. First, it was not part of the bankers’ plan for the sale process. The parties appear to have kept the go-shop because of legal advice indicating that it would help mitigate litigation risk in the event a stockholder sued the board for breach of fiduciary duty. The bankers gave no advice regarding the timing or structure of the go-shop, and the respondent’s counsel invoked the attorney-client privilege to block discovery into discussions regarding the go-shop. The go-shop appears to have been a lawyer-driven add-on.

Second, the quality of the contacts during the go-shop is suspect. It is true that the Company’s financial advisors contacted twenty-five potential strategic buyers and seventeen potential financial buyers, which are impressive headline numbers. The bulk of those companies, however, already had demonstrated that they were not interested in acquiring the Company, had been ruled out by the Board and its bankers as unlikely transaction partners, or were “the usual opportunities.” Carpenter Dep. 129-30.

Only Altisource and two financial buyers expressed interest during the go-shop period. Neither bid. One could view the lack of interest and absence of bidding during the go-shop phase as providing support for the proposition that the Initial Merger Consideration equaled or exceeded fair value. See Highfields Capital, Inc. v. AXA Fin., Inc., 939 A.2d 34, 62 (Del. Ch. 2007) (“The more logical explanation for why no bidder ever emerged is self-evident: MONY was not worth more than $31 per share.”). The more logical explanation on the facts of this case is that potential overbidders did not see a realistic path to success. To make it worthwhile to bid, a potential deal jumper must not only value the target company above the deal price, but also perceive a pathway to success that is “sufficiently realistic to warrant incurring the time and expense to become involved in a contested situation, as well as the potential damage to professional relationships and reputation from intervening and possibly being unsuccessful.” Dell Fair Value, 2016 WL 3186538, at *39. The lack of a realistic path to success explains why a bidder “would choose not to intervene in a go-shop, even if it meant theoretically leaving money on the table by allowing the initial bidder to secure an asset at a beneficial price.” Id.

In this case, the most persuasive explanation is that the existence of an incumbent trade bidder holding an unlimited match right was a sufficient deterrent to prevent other parties from perceiving a realistic path to success.^[28] Put differently, for another bidder to warrant intervening, the bidder would have had to both (i) value the Company more highly than $33.25 per share and (ii) believe that it could outbid Fidelity, recognizing that Fidelity could achieve synergies from acquiring the Company and therefore would be likely to be able to outbid any competitor that lacked similar access to synergies or a comparable source of private value. Without the second half of the equation, an overbidder could force Fidelity to pay more, but it could not ultimately prevail. Without a realistic path to success, it made no sense to get involved.

At first blush, Altisource’s decision not to bid during the go-shop phase appears to suggest that the Initial Merger Consideration exceeded fair value. Altisource was a trade bidder and therefore might have been expected to generate synergies from a transaction with the Company. If so, and if the Initial Merger Consideration was equivalent to or less than fair value, than Altisource could have contested Fidelity’s position. But there is also evidence in this case that because Altisource competed with some of the Company’s clients, Altisource actually faced revenue dis-synergies as part of a potential deal, and that those dis-synergies would outweigh any cost savings that Altisource might achieve.

On the facts presented, the probative value of the go-shop is inconclusive. The same is true for the post-signing period between the end of the go-shop and the stockholder vote. During that nearly six-month period, the Company could no longer solicit additional bids, and the termination fee doubled from $37 million to $74 million, but otherwise the Company could entertain a bid that qualified as a Superior Proposal. Just as during the go-shop period, however, a topping bidder needed a realistic path to success to make it rational to intervene. The marginally greater impediments to a topping bid made that path less realistic, rather than more realistic, than during the post-go-shop phase.

b. Post-Closing Performance And The Operation Of The Collar

Immediately after the announcement of the Merger, Fidelity’s stock price rose. It continued to rise during the post-signing period. Due to the collar, these increases caused the value of the merger consideration to increase. Fidelity twice exercised its right to increase the cash component, resulting in the Final Merger Consideration of $37.04 per share.

During the same time period that Fidelity’s stock price was going up, the Company’s financial performance was going down. In October 2013, the Company announced that quarter over quarter, revenue had declined by 10.6% and EBITDA by 18.4%. Compared to the Updated Base Case’s projections for FY 2013, actual revenues were down 7.8% and EBITDA was down 16.2%.

The petitioners might have sought to address these issues. They might have attempted to show by reference to other companies or indices that but for the Merger, the Company’s stock price would have risen as well, perhaps even more than Fidelity’s. Or they might have sought to show that the declines in the Company’s performance resulted from the Merger itself and therefore should be excluded as a valuation consideration, perhaps because the sale process diverted management’s attention and harmed employee morale. They petitioners did not advance these or other arguments, which they would have had to support with persuasive evidence. The record rather indicates that Fidelity’s performance improved, causing an increase in the value of the merger consideration, while the Company’s performance declined.

Instead, the petitioners argued the declines in the Company’s performance post-closing did not require any adjustments to the Updated Base Case and that management reaffirmed the Company’s belief in the reliability of its projections. Accepting that as true, it suggests that the going concern value of the Company did not change such that the Initial Merger Consideration remained a reliable indicator of fair value and the Final Merger Consideration established a ceiling for fair value. See Union Ill., 847 A.2d at 343 (relying on merger price in appraisal case despite six-month lag between signing and closing because “nothing occurred between the signing of the Merger Agreement and the effective date of the Merger that resulted in an increase in the value of UFG”).

A final factor pertinent to the Company’s post-signing, pre-closing performance is the extensive evidence indicating that the Initial Merger Consideration included a portion of the value that Fidelity and THL expected to generate from synergies. The Final Merger Consideration logically incorporated an additional portion of this value because of the component consisting of Fidelity stock, which drew some (admittedly unquantified) portion of its value from the synergies that Fidelity and its stockholders would enjoy. The existence of combinatorial synergies provides an additional reason to think that the Final Merger Consideration exceeded the fair value of the Company.

B. The DCF Analysis As Evidence Of Fair Value

Both the petitioners and the Company submitted valuation opinions from distinguished experts. The petitioners’ expert, Professor Jerry A. Hausman, used a DCF analysis to opine that the Company’s fair value at closing was $50.46 per share. The respondent’s expert, Daniel Fischel, used a DCF analysis to opine that the Company’s fair value at closing was $33.57 per share. The Final Merger Consideration was $37.14 per share.

“[T]he DCF . . . methodology has featured prominently in this Court because it is the approach that merits the greatest confidence within the financial community.” Owen v. Cannon, 2015 WL 3819204, at *16 (Del. Ch. June 17, 2015) (quotation marks omitted).

Put in very simple terms, the basic DCF method involves several discrete steps. First, one estimates the values of future cash flows for a discrete period. . . . Then, the value of the entity attributable to cash flows expected after the end of the discrete period must be estimated to produce a so-called terminal value, preferably using a perpetual growth model. Finally, the value of the cash flows for the discrete period and the terminal value must be discounted back. . . .

Andaloro v. PFPC Worldwide, Inc., 2005 WL 2045640, at *9 (Del. Ch. Aug. 19, 2005)(Strine, V.C.) (footnote omitted). This decision does not exhaustively describe the DCF methodology; it only addresses the areas of substantial disagreement between the experts.

1. The Projection Period

The first issue for any DCF analysis is to determine the appropriate forecasts to use for the projection period. Both experts used the Updated Base Case with minor adjustments. Hausman added back deferred income taxes and subtracted accounts payable, accrued liabilities, and other liabilities for 2014. JX 297 ¶ 67. Fischel added back deferred tax income and other investments. JX 296, Ex. 23. Neither provided a detailed explanation for their adjustments. This decision adopts the Updated Base Case and averages the adjustments that the experts made.

2. The Terminal Period

The next challenge for a DCF analysis is to extend the forecasts beyond the projection period to derive an estimate of cash flows during the terminal period. The experts disagreed on two aspects of the calculation.

The experts disagreed initially over the level of capital expenditures needed to sustain the Company’s business during the terminal period. Over the long run, capital expenditures should equal depreciation. Robert W. Holthausen & Mark E. Zmijewski, Corporation Valuation Theory, Evidence & Practice 232 (2014). In the last year of the projection period, however, the Updated Base Case contemplated an amount for depreciation that exceeded capital expenditures. To bring the two into harmony, Hausman assumed that capital expenditures would exceed depreciation over time by an amount sufficient to cause net amortizable assets to grow at the Company’s long-term growth rate. Fischel chose to increase capital expenditures to equal depreciation. The record shows that the Company historically had high levels of depreciation relative to capital expenditures, so it is more reasonable to assume depreciation would decrease during the terminal period to match capital expenditures. This decision adopts that approach.

The experts also disagreed over the perpetuity growth rate. Hausman used 3.4%, which he derived from the projected rate of loan originations. Fischel used 2.2%, equal to the long-term rate of inflation.

“This Court often selects a perpetuity growth rate based on a reasonable premium to inflation.” DFC Glob., 2016 WL 3753123, at *17. This is because “[i]n a steady state, it is typically assumed that future business growth will approximate that of the overall economy.” In re Trados S’holder Litig., 73 A.3d 17, 73 (Del. Ch. 2013). “[O]nce an industry has matured, a company will grow at a steady rate that is roughly equal to the rate of nominal GDP growth.” Golden Telecom I, 993 A.2d at 511. The risk-free rate is a viable proxy for expected nominal GDP growth. See DFC Glob., 2016 WL 3753123, at *17.

The Company was a mature firm, so ordinarily it would grow at a rate approximating GDP growth. The Company’s operative reality on the closing date, however, included the Services business, which had declining prospects, and a smaller Analytics business, which was growing. Given this business mix, the Company should grow over the long-term at a rate between inflation and nominal GDP that is closer to the latter. Hausman’s rate of 3.4% better fits the operative reality of the Company, so this decision adopts his figure.

3. The Discount Rate

The final issue is the appropriate discount rate, which the experts derived by calculating the Company’s weighted average cost of capital (“WACC”). They disagreed on virtually every input except the appropriate tax rate, where they both used 37%.

Hausman used a capital structure consisting of 81.1% equity, relying on the Company’s financial statements from 2013 and the equity value implied by his DCF analysis. Fischel used a capital structure consisting of 70% equity, relying on the Company’s pre-announcement debt-to-equity ratio. This decision adopts Fischel’s approach, which is consistent with precedent and avoids the circularity in Hausman’s method.

Hausman opined that the Company’s cost of debt was 5.0% without citing any support. Fischel used a cost of debt of 5.02%, explaining that the Company’s was rated BB+ from 2008 through 2014 and that the yield to maturity of a BB-rated bond index as of January 2, 2014 was 5.02%. Fischel provided a better justification for his number, so this decision uses it.

The experts disagreed about the risk-free rate. Hausman used 3.63%, which was the return on a 20-year U.S. Treasury bond as of December 2013. Fischel used 3.68%, which was the return on a 20-year U.S. Treasury bond as of January 2, 2014. Fischel’s measurement was closer to the closing date, so this decision adopts it.

Both experts used the supply-side equity risk premium. Hausman used 6.11%, which he obtained from Ibbotson’s 2013 Valuation Yearbook. Fischel used 6.18%, which he obtained from the 2014 Duff & Phelps Valuation Handbook. Fischel’s figure better captures the Company’s operative reality on the closing date. See Ancestry.com, 2015 WL 399726, at *21 (rejecting argument that court should have used 2012 Ibbotson Yearbook instead of 2013 Yearbook for merger that closed on December 28, 2012, because the 2013 Yearbook would not have been available to investors yet when the merger closed).

The experts chiefly disagreed over beta. Hausman derived a beta of 0.845 from five years of daily observations. Fischel used a beta of 1.395, which represented the average of (i) a beta derived from five years of monthly observations and (ii) a beta derived from two years of weekly observations. The beta drives the bulk of the valuation difference between the experts. Inserting Hausman’s beta into Fischel’s model generates a value of $51.18 per share.

“Beta, like cost of capital itself, is a forward-looking concept. It is intended to be a measure of the expected future relationship between the return on an individual security (or portfolio of securities) and the overall market.” Duff & Phelps, 2015 Valuation Handbook: Guide to Costs of Capital 5-3 (2015). The Company’s performance during the measuring period therefore should match, to the extent possible, the anticipated performance of the Company going forward. The financial literature indicates that using a five-year measurement period is both acceptable and common, but that a shorter period should be used if a five-year look back encompasses significant changes in the macroeconomic environment^[29] or the company’s business.^[30] In this case, five years covers the Great Recession and attendant housing crisis, which benefitted the Company and caused it to outperform the S&P 500. Company management and BCG anticipated that the Company would perform going forward at substantially lower levels. Looking back five years also covers a period when the Company was more dependent on Services, while going forward the Company will rely more on Analytics. These factors counsel in favor of using a two-year period as a better predictor of the Company’s operative reality at the time of the Merger.

Discarding the five-year betas leaves Fischel’s measurement of 1.503, which relied on weekly observations. The financial literature supports using a two-year beta with weekly observations, so this decision could adopt this estimate.^[31] Fischel, however, used a lower beta of 1.395. By doing so, Fischel favored the petitioners. That fact enhances the credibility of his selection, so this decision uses his figure.

The last input is the size premium. Hausman added a size premium of 0.92%. Fischel did not add a size premium, arguing that there “is no consensus in the academic literature as to whether such a premium still exists.” JX 296 ¶ 113 n.163. Adding a size premium increases the discount rate and lowers the value of the Company. As with his estimate of beta, Fischel’s judgment favored the petitioners, so this decision uses it.

These inputs result in a WACC of 9.56%, which this decision adopts. Adding a size premium of 0.92% to the cost of equity would increase the WACC to 10.2%.

4. The DCF Valuation

A DCF valuation using the foregoing inputs produces a value of $38.67 per share, which is 4% higher than the Final Merger Consideration of $37.14 per share. Using a WACC of 10.02% would produce a value of $34.50 per share, or 8% less than the Final Merger Consideration. These figures bracket what the stockholders received. Nevertheless, the figure of $38.67 per share is my best estimate of the fair value of the Company based on the DCF method.

B. The Weight Given To The Methodologies

When presented with multiple indicators of fair value, the court must determine how to weigh them. “In discharging its statutory mandate, the Court of Chancery has discretion to select one of the parties’ valuation models as its general framework or to fashion its own.” M.G. Bancorporation, 737 A.2d at 525-26. “The Court may evaluate the valuation opinions submitted by the parties, select the most representative analysis, and then make appropriate adjustments to the resulting valuation.”^[32] The court also may “make its own independent valuation calculation by either adapting or blending the factual assumptions of the parties’ experts.” M.G. Bancorporation, 737 A.2d at 524. “When . . . none of the parties establishes a valuation that is persuasive, the Court must make a determination based on its own analysis.”^[33]

Delaware law does not have a rigid hierarchy of valuation methodologies, nor does it have a settled formula for weighting them. “Appraisal is, by design, a flexible process.” Golden Telecom II, 11 A.3d at 218. The statute “vests the Chancellor and Vice Chancellors with significant discretion to consider `all relevant factors’ and determine the going concern value of the underlying company.” Id. (quoting 8 Del. C. § 262(h)).

In a series of decisions since Golden Telecom II, this court has considered how much weight to give the deal price relative to other indications of fair value. In five decisions since Golden Telecom II, the Court of Chancery has given exclusive weight to the deal price, particularly where other evidence of fair value was unreliable or weak. In five other decisions since Golden Telecom II, the court has declined to give exclusive weight to the deal price in situations where the respondent failed to overcome the petitioner’s attacks on the sale process and thus did not prove that it was a reliable indicator of fair value.

CKx was the first post-Golden Telecom II decision to rely exclusively on the merger price. The court found that “[t]he company was sold after a full market canvass and auction,” the process was “free of fiduciary and process irregularities,” and “the sales price [was] a reliable indicator of value.” 2013 WL 5878807 at *1. By contrast, the parties’ experts in CKx did not establish the reliability of their methods. The court found that (i) the company lacked sufficiently comparable peers and (ii) that “the evidence [was] overwhelming” that a key element of management’s projections “was not prepared in the ordinary course of business” and “was otherwise unreliable.” Id. at *10. “In the absence of comparable companies or transactions to guide a comparable companies analysis or a comparable transactions analysis, and without reliable projections to discount in a DCF analysis,” the court relied “on the merger price as the best and most reliable indication of [the company’s] value.” Id. at *11. The court stressed that the “conclusion that merger price must be the primary factor in determining fair value is justified in light of the absence of any other reliable valuation analysis.” Id. at *13.

In Ancestry.com, the court again relied exclusively on the merger price. The court found that the company was sold after an “auction process” which involved “a market canvass and uncovered a motivated buyer. 2015 WL 399726, at *1. The court concluded that the sale process “represent[ed] an auction of the Company that is unlikely to have left significant stockholder value unaccounted for.” Id. at *16. As in CKx, there were “no comparable companies to use for purposes of valuation.” Id. at *18. The court also had “reason to question management[‘s] projections, which were done in light of the transaction and in the context of obtaining a fairness opinion,” and where “management did not create projections in the normal course of business.” Id. at *18. The court prepared its own DCF analysis, which it regarded as a reliable indicator of value, but the answer was reasonably close to the deal price. That outcome gave the court “comfort that no undetected factor skewed the sales process.” Id. at *23. The court found that “fair value in these circumstances [was] best represented by the market price.” Id.

In AutoInfo, the court again relied exclusively on the merger price. The company conducted an extensive sale process in which its financial advisor contacted 165 potential strategic and financial acquirers, seventy signed NDAs, ten submitted indications of interest after conducting due diligence, nine received management presentations, five submitted verbal valuations or written letters of intent, and the company ultimately negotiated exclusively with the highest bidder. 2015 WL 2069417, at *3-6. The court concluded that “evidence regarding AutoInfo’s sales process substantiates the reliability of the Merger price.” Id. at *11. The court later reiterated that “the sales process was generally strong and can be expected to have led to a Merger price indicative of fair value.” Id. at *14. The expert’s valuation methodologies lacked similar persuasiveness. Management had prepared projections as part of the sale process, but management had never prepared projections before, and the court found them unreliable. Id. at *8. The court also found that there were no comparable companies that could be used for valuation purposes. Id. The court rejected both sides’ valuation analyses as unreliable, but as in Ancestry, prepared its own DCF analysis. Id. at *16. Despite noting that the “[u]nder Delaware law, it would be appropriate to provide weight to the value as implied by the Court’s DCF analysis,” the decision elected to put “full weight” on the deal price as “the best estimate of value.” Id.

In Ramtron, the court once again relied exclusively on the merger price. The company conducted a “thorough” sale process in response to an unsolicited tender offer. 2015 WL 4540443, at *1. The company rejected the hostile bid on multiple occasions and “actively solicited every buyer it believed could be interested in a transaction.” Id. at *21. The company ultimately agreed to a transaction with the unsolicited bidder only after extracting five separate price increases. Id. at *24. As in CKx, management’s projections were “not reliable,” and the parties’ experts agreed that there were “no comparable companies.” Id. at *1, *18.

In BMC, the court relied exclusively on the merger price yet again. The company engaged in “a thorough and vigorous sales process” that involved outreach to financial and strategic buyers. 2015 WL 6164771, at *1. The court found that the merger price was “sufficiently structured to develop fair value” and hence a reliable indicator of value. Id. at *16. The court also constructed a DCF analysis based on a set of management projections, which the court believed represented “the best DCF valuation based on the information available to me.” Id. at *18. The court nevertheless declined to give weight to the DCF valuation, reasoning as follows:

My DCF valuation is a product of a set of management projections, projections that in one sense may be particularly reliable due to BMC’s subscription-based business. Nevertheless, the Respondent’s expert, pertinently, demonstrated that the projections were historically problematic, in a way that could distort value. The record does not suggest a reliable method to adjust these projections. I am also concerned about the discount rate in light of a meaningful debate on the issue of using a supply side versus historical equity risk premium. Further, I do not have complete confidence in the reliability of taking the midpoint between inflation and GDP as the Company’s expected growth rate.

Taking these uncertainties in the DCF analysis—in light of the wildly-divergent DCF valuation of the experts—together with my review of the record as it pertains to the sales process that generated the Merger, I find the merger price . . . to be the best indicator of fair value. . . .

Id. at *18.

In five other decisions since Golden Telecom II, the Court of Chancery has considered the deal price, but has either not relied on it or given it limited weight. In Orchard Enterprises, the court declined to give weight to the merger price in an appraisal proceeding that followed a merger between a corporation and an affiliate of a large stockholder, observing that “the trial did not focus extensively on the quality of marketing. . . or the utility of the `go shop’ provision in the merger agreement, which could obviously have been affected by [a large stockholder’s] voting power and expressed interest to acquire all of [the company] for itself.” 2012 WL 2923305, at *5. Similarly in 3M Cogent, the court gave no weight to a deal price of $10.50 per share where the respondent corporation did not seek to have the court award that amount as fair value and relied instead on its experts’ opinions that proposed a fair value award of $10.12 per share. Merion Capital, L.P. v. 3M Cogent, Inc., 2013 WL 3793896, at *5 (Del. Ch. July 8, 2013). The court also noted that the respondent corporation and its experts had not made any attempt to adjust the merger price for synergies or similar elements of value that arose from the merger.^[34]

In Dell, I gave limited weight to the deal price, finding that the respondent corporation “did not establish that the outcome of the sale process offer[ed] the most reliable evidence of the Company’s value as a going concern.” Dell Fair Value, 2016 WL 3186538, at *44. I nevertheless found that the market data was sufficient

to exclude the possibility, advocated by the petitioners’ expert, that the Merger undervalued the Company by $23 billion. Had a value disparity of that magnitude existed, then [a strategic bidder] would have emerged to acquire the Company on the cheap. What the market data [did] not exclude is an underpricing of a smaller magnitude.

Id. A confluence of multiple factors caused me not to give greater weight to the deal price, including (i) the transaction was an MBO, (ii) the bidders used an LBO pricing model to determine the original merger consideration, (iii) there was compelling evidence of a significant valuation gap driven by the market’s short-term focus, and (iv) the transaction was not subjected to meaningful pre-signing competition. See id. at *29-37. Although the deal price increased as a result of post-signing developments, the pattern of bidding by financial sponsors during the go-shop reinforced the conclusion that the consideration did not represent fair value, and the petitioners proved that there were structural impediments to a topping bid on the facts of the case, particularly in light of the size and complexity of the company and the sell-side involvement of the company’s founder. See id. at *37-44. I relied instead on a DCF analysis to determine fair value. Id. at *51.

More recently, in DFC Global, the court gave equal weight to the deal price, the court’s DCF valuation, and one of the expert’s comparable companies analysis. 2016 WL 3753123, at *23. The court found that the merger giving rise to the appraisal proceeding had been “negotiated and consummated during a period of significant company turmoil and regulatory uncertainty, calling into question the reliability of the transaction price as well as management’s financial projections.” Id. at *1. The company’s competitors faced similar challenges, and the resulting uncertainty undermined the projections. Id. at *22. It also meant that the company was sold during a valuation trough, which suggested that “the transaction price would not necessarily be a reliable indicator.” Id. The court also noted that the financial sponsor who acquired the company had focused “on achieving a certain internal rate of return and on reaching a deal within its financing constraints,” which could generate an outcome different from fair value. Id. To a lesser degree, the uncertainly also undermined the multiples-based valuation, because that valuation relied on two years of management projections. The court concluded that “all three metrics suffer from various limitations but . . . each of them still provides meaningful insight into [the company’s] value.” Id. at *23. The court also observed that “all three of them fall within a reasonable range.” Id. The court therefore elected to weight them equally.

Most recently, in Dunmire v. Farmers & Merchants Bancorp of Western Pennsylvania, Inc., 2016 WL 6651411 (Del. Ch. Nov. 10, 2016), the court declined to rely on the deal price where a controlling stockholder set the exchange ratio for a stock-for-stock transaction between the company and another entity controlled by the same family. The decision noted that (i) “the Merger was not the product of an auction,” (ii) no third parties were solicited, (iii) a controlling stockholder stood on both sides of the deal, (iv) although a special committee negotiated with the controller, the record did “not inspire confidence that the negotiations were truly arms-length,” and (v) the transaction was not conditioned on a majority-of-the minority vote. Id. at *7-8. The only surprising aspect of Dunmire is the respondent argued in favor of deference to the deal price.

This case is most similar to AutoInfo and BMC. The Company ran a sale process that generated reliable evidence of fair value. The Company also created a reliable set of projections that support a meaningful DCF analysis. Small changes in the assumptions that drive the DCF analysis, however, generate a range of prices that starts below the merger price and extends far above it. My best effort to resolve the differences between the experts resulted in a DCF valuation that is within 3% of the Final Merger Consideration. The proximity between that outcome and the result of the sale process is comforting. See S. Muoio & Co. LLC v. Hallmark Entm’t Invs. Co.,2011 WL 863007, at *19 (Del. Ch. Mar. 9, 2011) (“[W]hat you actually like to see when you’re doing a valuation is some type of overlap between the various methodologies.” (quotation marks omitted)), aff’d, 35 A.3d 419 (Del. 2011) (TABLE).

As noted, a DCF analysis depends heavily on assumptions. Under the circumstances, as in AutoInfo and BMC, I give 100% weight to the transaction price.

C. Whether To Make An Adjustment For Combinatorial Synergies

The Company argued belatedly that the court should make a finding regarding the value of the combinatorial synergies and deduct some portion of that value from the deal price to generate fair value. That is a viable method. See, e.g., Union Ill., 847 A.2d at 353 n.26; Highfields, 939 A.2d at 61. In this case, however, the Company litigated on the theory that the Final Merger Consideration represented the “maximum fair value” of the shares. JX 296 ¶ 128. In his expert report, Fischel declined to offer any opinion on the quantum of synergies or to propose an adjustment to the merger price. Id. At trial, Fischel affirmed that he did not have any basis to opine regarding a specific quantum of synergies. Tr. 982 (Fischel). Having taken these positions, it was too late for the Company to argue in its post-trial briefs that the court should deduct synergies.

III. CONCLUSION

The fair value of the Company on the closing date was $37.14 per share. The legal rate of interest, compounded quarterly, shall accrue on this amount from the date of closing until the date of payment. The parties shall cooperate on preparing a final order. If there are additional issues that need to be resolved before a final order can be entered, the parties shall submit a joint letter within two weeks that identifies them and recommends a schedule for bringing this matter to a conclusion, at least at the trial court level.

[1] Id. at 72. Subsequent Delaware Supreme Court decisions have adhered consistently to this definition of value. See, e.g., Montgomery Cellular Hldg. Co. v. Dobler, 880 A.2d 206, 222 (Del. 2005); Paskill Corp. v. Alcoma Corp., 747 A.2d 549, 553 (Del. 2000); Rapid-Am. Corp. v. Harris, 603 A.2d 796, 802 (Del. 1992); Cavalier Oil Corp. v. Hartnett, 564 A.2d 1137, 1144 (Del. 1989); Bell v. Kirby Lumber Corp., 413 A.2d 137, 141 (Del. 1980); Universal City Studios, Inc. v. Francis I. duPont & Co., 334 A.2d 216, 218 (Del. 1975).

[2] Cede & Co. v. Technicolor, Inc., 1990 WL 161084, at *31 (Del. Ch. Oct. 19, 1990) (quoting In re Del. Racing Ass’n, 213 A.2d 203, 211 (Del. 1965) (citing Tri-Cont’l, 74 A.2d; Chicago Corp. v. Munds, 172 A. 452 (Del. Ch. 1934)), rev’d on other grounds, 636 A.2d 956 (Del. 1994).

[3] See ONTI, Inc. v. Integra Bank, 751 A.2d 904, 915 (Del. Ch. 1999); Gonsalves v. Straight Arrow Publ’rs, Inc., 793 A.2d 312, 316 (Del. Ch. 1998), aff’d in pertinent part, rev’d on other grounds, 725 A.2d 442 (Del. 1999) (TABLE); Cooper v. Pabst Brewing Co., 1993 WL 208763, at *8 (Del. Ch. June 8, 1993). Relatedly, when this court considers comparable company analyses in valuations, it effectively relies upon the market prices of the comparable companies to generate valuation metrics. See, e.g., Andaloro v. PFPC Worldwide, Inc., 2005 WL 2045640, at *18-20 (Del. Ch. Aug. 19, 2005) (Strine, V.C.); Doft & Co. v. Travelocity.com Inc., 2004 WL 1152338, at *8 (Del. Ch. May 20, 2004); Taylor v. Am. Specialty Retailing Gp., Inc., 2003 WL 21753752, at *9 (Del. Ch. July 25, 2003).

[4] See, e.g., Rapid-Am. Corp., 603 A.2d at 806 (“[T]he Court of Chancery long ago rejected exclusive reliance upon market value in an appraisal action.”); Kirby Lumber, 413 A.2d at 141 (“[M]arket value may not be taken as the sole measure of the value of the stock.”); Del. Racing, 213 A.2d at 211 (“It is, of course, equally axiomatic that market value, either actual or constructed, is not the sole element to be taken into consideration in the appraisal of stock.”); Jacques Coe & Co. v. Minneapolis-Moline Co., 75 A.2d 244, 247 (Del. Ch. 1950) (observing that market price should not be exclusive measure of value); Munds, 172 A. at 455 (“There are too many accidental circumstances entering into the making of market prices to admit them as sure and exclusive reflectors of fair value.”).

[5] Highfields Capital, Inc. v. AXA Fin., Inc., 939 A.2d 34, 42 (Del. Ch. 2007); see also M.P.M., 731 A.2d at 796 (“A merger price resulting from arms-length negotiations where there are no claims of collusion is a very strong indication of fair value.”); Prescott Gp. Small Cap, L.P. v. Coleman Co., 2004 WL 2059515, at *27 (Del. Ch. Sept. 8, 2004) (explaining that “the price actually derived from the sale of a company as a whole . . . may be considered as long as synergies are excluded”); see also Van de Walle v. Unimation, Inc., 1991 WL 29303, at *17 (Del. Ch. Mar. 6, 1991) (commenting in an entire fairness case that “[t]he fact that a transaction price was forged in the crucible of objective market reality (as distinguished from the unavoidably subjective thought process of a valuation expert) is viewed as strong evidence that the price is fair”).

[6] See In re Appraisal of Ancestry.com, Inc., 2015 WL 399726, at *16 (Del. Ch. Jan. 30, 2015) (“[A] conclusion that a sale was conducted by directors who complied with their duties of loyalty is not dispositive of the question of whether that sale generated fair value.”); Huff Fund Inv. P’ship v. CKx, Inc., 2013 WL 5878807, at *13 (Del. Ch. Nov. 1, 2013) (“[T]he issue in this case is fair value, not fiduciary duty.”); In re Orchard Enters., Inc., 2012 WL 2923305, at *5 (Del. Ch. July 18, 2012) (Strine, C.) (“[Respondent] makes some rhetorical hay out of its search for other buyers. But this is an appraisal action, not a fiduciary duty action, and although I have little reason to doubt [respondent’s] assertion that no buyer was willing to pay Dimensional $25 million for the preferred stock and an attractive price for [respondent’s] common stock in 2009, an appraisal must be focused on [respondent’s] going concern value”); see also M.P.M., 731 A.2d at 797 (“A fair merger price in the context of a breach of fiduciary duty claim will not always be a fair value in the context of determining going concern value.”); In re Orchard Enters., Inc. S’holder Litig., 88 A.3d 1, 30 (Del. Ch. 2014) (“A price may fall within the range of fairness for purposes of the entire fairness test even though the point calculation demanded by the appraisal statute yields an award in excess of the merger price.”). Compare Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1176-77 (Del. 1995) (affirming that merger consideration of $23 per share was entirely fair), with Cede & Co. v. Technicolor, Inc., 884 A.2d 26, 30 (Del. 2005) (awarding fair value in appraisal of $28.41 per share). See generally Charles R. Korsmo & Minor Myers, Appraisal Arbitrage and the Future of Public Company M&A, 92 Wash. U.L. Rev. 1551, 1608 (2015) (explaining that “[s]atisfying one of the various Revlon-type tests . . . is not necessarily a market test” sufficient to establish fair value for purposes of appraisal); Lawrence A. Hamermesh & Michael L. Wachter, The Fair Value of Cornfields in Delaware Appraisal Law, 31 J. Corp. L. 119, 154 (2005) (“The dissenting shareholders need not prove breach of fiduciary duty, although such a claim is available to them, but only that the sale process was defective in some manner.”).

[7] See, e.g., BMC, 2015 WL 6164771, at *14-15 (giving exclusive weight to merger process where the company conducted “a robust, arm’s-length sales process” that involved “two auctions over a period of several months,” where the company “was able to and did engage multiple potential buyers during these periods,” and where the lone remaining bidder “raised its bid multiple times because it believed the auction was still competitive”); AutoInfo, 2015 WL 2069417, at *12 (giving exclusive weight to merger price that “was negotiated at arm’s length, without compulsion, and with adequate information” and where it was “the result of competition among many potential acquirers”); Ancestry.com, 2015 WL 399726, at *1 (giving exclusive weight to the deal price where the transaction resulted from an “auction process, which process itself involved a market canvas and uncovered a motivated buyer”); id. at *18 (describing sale effort as “an open auction process”); CKx, 2013 WL 5878807, at *14 (evaluating sale process and concluding that “the bidders were in fact engaged in a process resembling the English ascending-bid auction” involving direct competition between bidders); see also Ramtron, 2015 WL 4540443, at *9 (relying on “thorough” sale process initiated in response to “a well-publicized hostile bid and a target actively seeking a white knight”); id. at *21 (observing that “Ramtron actively solicited every buyer it believed could be interested in a transaction” before signing a merger agreement with the hostile bidder); Union Ill. 1995 Inv. Ltd. P’ship v. Union Fin. Gp., Ltd., 847 A.2d 340, 359 (Del. Ch. 2003) (Strine, V.C.) (using merger price as “best indicator of value” where the merger “resulted from a competitive and fair auction” in which “several buyers with a profit motive” were able to evaluate the company and “make bids with actual money behind them”); cf. In re Del Monte Foods Co. S’holders Litig., 25 A.3d 813, 840 n.5 (Del. Ch. 2011) (noting “the importance of the pre-signing phase to developing price competition among private equity bidders”). See generally Brian JM Quinn, Bulletproof: Mandatory Rules for Deal Protection, 32 J. Corp. L. 865, 879-80 (2007) [hereinafter Bulletproof] (surveying literature on auction theory and concluding that “[t]he two key insights are that competition, or the threat of competition, will lead to a price closer to the buyer’s reservation price and that the price effect of one additional competitor is greater than the price effects attributable to bargaining”).

[8] See Jacob K. Goeree & Theo Offerman, Competitive Bidding in Auctions with Private and Common Values, 113 Econ. J. 598, 611 (2003) (explaining that having “all potentially interested bidders participate” before signing produces “more competition [and] results in a more efficient allocation” of surplus between the buyer and seller); id. at 600 (“Another factor improving efficiency is an increase in competition: expected efficiency and expected revenue increase with each extra bidder. In the limit when the number of bidders goes to infinity, an efficient allocation again materializes. Interestingly, the effect of more competition on efficiency and revenues is stronger than the effect of information provided by the auctioneer. When the seller has the choice between finding more interested bidders or providing information about the value of the commodity, she should choose the former.”); Jeremy Bulow & Paul Klemperer, Auctions Versus Negotiations, 86 Am. Econ. Rev. 180, 180 (1996) (conducting empirical study and concluding that “a single extra bidder more than makes up for any diminution in negotiating power” such that “there is no merit in arguments that negotiation should be restricted to one or a few bidders to allow the seller to maintain more control of the negotiating process, or to credibly withdraw the company from the market”); cf. Nihat Aktas et al., Negotiations Under the Threat of an Auction, 98 J. Fin. Econ. 241, 242 (2010) (finding that “that target-initiated deals are more often auctions while negotiations are more frequently initiated by bidders”).

[9] Guhan Subramanian, The Drivers of Market Efficiency in Revlon Transactions, 28 J. Corp. L. 691, 691 (2003) (quoting Author’s Interview with Martin Lipton, Senior Partner, Wachtell, Lipton, Rosen & Katz, in New York, NY (June 14, 2000)).

[10] See DFC Glob., 2016 WL 3753123, at *21 (giving weight to deal price where sale process “involved DFC’s advisor reaching out to dozens of financial sponsors as well as several potential strategic buyers”); BMC, 2015 WL 6164771, at *14 (giving exclusive weight to merger process where the company conducted “a robust, arm’s-length sales process” that included “two auctions over a period of several months” and involved both financial sponsors and strategic buyers); AutoInfo, 2015 WL 2069417, at *3 (relying exclusively on deal price where financial advisor contacted 164 potential strategic and financial acquirers, approximately 70 signed NDAs and received a confidential information memorandum, interested parties received several weeks of due diligence, ten bidders submitted indications of interest, and nine moved on to a second round); Ramtron, 2015 WL 4540443, at *23 (relying exclusively on deal price where financial advisor “(1) contacted twenty-four third parties . . .; (2) sent non-disclosure agreements (`NDAs’) to twelve . . .; (3) received executed NDAs from six . . .; and (4) remained in discussions with [three]”); Ancestry.com, 2015 WL 399726, at *3 (relying exclusively on deal price where process that involved discussion with fourteen potential bidders, including six potential strategic buyers and eight financial sponsors); CKx, 2013 WL 5878807, at *4-5(relying exclusively on deal price where sale process in which sell-side financial advisor reached out to multiple financial and strategic buyers). Compare Dell Fair Value, 2016 WL 3186538, at *7-10, *29, *36-37 (giving limited weight to deal price where pre-signing phase involved no strategic bidders and only two financial sponsors, one of which dropped out, as did the firm invited to replace it).

[11] A common value auction is one in which “every bidder has the same value for the auctioned object.” Peter Cramton & Alan Schwartz, Using Auction Theory to Inform Takeover Regulation, 75 L. Econ. & Org. 27, 28-29 (1991). A private value auction is one in which “the value of the auctioned object differs across potential acquirers.” Id.

[12] Jeremy Bulow & John Roberts, The Simple Economics of Optimal Auctions, 97 J. Pol. Econ. 1060, 1065 (1989); accord Paul Klemperer, Auction Theory: A Guide to the Literature, 13 J. Econ. Survs. 227, 230 (1999).

[13] See Paul Povel & Rajdeep Singh, Takeover Contests with Asymmetric Bidders, 19 Rev. Fin. Stud. 1399, 1399-1400 (2006); Christina M. Sautter, Auction Theory and Standstills: Dealing with Friends and Foes in A Sale of Corporate Control, 64 Case W. Res. L. Rev. 521, 529 (2013).

[14] See Dell Fair Value, 2016 WL 3186538, at *30 (“[T]he outcome of competition between financial sponsors primarily depends on their relative willingness to sacrifice potential IRR.”); see also Povel & Singh, supra, at 1399-1400. See generally Paul Gompers, Steven N. Kaplan, & Vladimir Mukharlyamov, What Do Private Equity Firms Say They Do?, 121 J. Fin. Econ. 449, 450 (2016) (noting predominance of similar techniques and strategies across private equity firms). An exception would be a financial buyer with a synergistic portfolio company, which would provide a source of private value.

[15] Alexander S. Gorbenko & Andrey Malenko, Strategic & Financial Bidders in Takeover Auctions, 69 J. Fin. 2513, 2514 (2014); see id. at 2532 (finding that the “average valuation of a strategic (financial) bidder of an average target is 16.7% (11.7%) above its value under the current management”); id. at 2538 (“Not only do strategic acquirers pay, on average, higher premiums than financial acquirers, but the maximum premiums that they are willing to pay are considerably higher.”); Mark E. Thompson & Michael O’Brien, Who Has the Advantage: Strategic Buyers or Private Equity Funds?, Financier Worldwide (Nov. 2005) (“Strategic buyers have traditionally had the advantage over private equity funds, particularly in auctions, because strategic buyers could pay more because of synergies generated from the acquisition that would not be enjoyed by a fund.”).

[16] See Steven N. Kaplan & Per Strömberg, Leveraged Buyouts and Private Equity, 23 J. Econ. Perspectives 121, 122 (2009) (“[T]here is also evidence consistent with private equity investors taking advantage of market timing (and market mispricing) between debt and equity markets particularly in the public-to-private transactions of the last 15 years.”); id. at 136 (“[P]rivate equity firms pay lower premiums than public company buyers in cash acquisitions. These findings are consistent with private equity firms identifying companies or industries that turn out to be undervalued. Alternatively, this could indicate that private equity firms are particularly good negotiators, and/or that target boards and management do not get the best possible price in these acquisitions.”); id. at 135-36 (“[P]ost-1980s public-to-private transactions experience only modest increases in firm operating performance, but still generate large financial returns to private equity funds. This finding suggests that private equity firms are able to buy low and sell high.”).

[17] See DFC Glob., 2016 WL 3753123, at *22; Dell Fair Value, 2016 WL 3186538, at *29; see also Joshua Rosenbaum & Joshua Pearl, Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions 235-36 (2009) (explaining that a sponsor’s ability to pay in a leveraged buy-out is constrained by “leverage capacity, credit market conditions, and the sponsor’s own IRR hurdles”).

[18] See Dell Fair Value, 2016 WL 3186538, at *36 (“[T]he prospect of post-signing competition can help raise the price offered during the pre-signing phase.”); Brian JM Quinn, Omnicare: Coercion and the New Unocal Standard, 38 J. Corp. L. 835, 844 (2013) (“[K]nowing that a transaction will include a go-shop, wherein the seller will treat the initial bidder as a stalking horse to generate an active post-signing auction, may incent initial bidders to offer a preemptive bid to deter subsequent bids. In that view, the prospect of competition, even if no competition subsequently emerges, should be sufficient incentive for a bidder to shift transaction surplus to the seller.”).

[19] The focus is on a reasonable number of bidders, rather than all potential bidders, because as the number of bidders increases, the marginal value of each additional bidder declines. “At about 10 bidders, you’ll get 85% of the revenue that you could expect to get from an auction with 50 bidders.” Guhan Subramanian, Negotiation? Auction? A Deal Maker’s Guide, Harv. Bus. Rev. (Dec. 2009), https://hbr.org/2009/12/negotiation-auction-a-deal-makers-guide.

[20] See DFC Glob., 2016 WL 3753123, at *21.

[21] See Dell Fair Value, *32 (“A second factor that undermined the persuasiveness of the Original Merger Consideration as evidence of fair value was the widespread and compelling evidence of a valuation gap between the market’s perception and the Company’s operative reality.”). In the Dell Fair Value decision, the misperception resulted from “(i) analysts’ focus on short-term, quarter-by-quarter results and (ii) the Company’s nearly $14 billion investment in its transformation, which had not yet begun to generate the anticipated results.” Id.

[22] J. Russel Denton, Note, Stacked Deck: Go-Shops & Auction Theory, 60 Stan. L. Rev. 1529, 1536 (2008) (citing Jeremy Bulow, Ming Huang & Paul Klemperer, Toeholds and Takeovers, 107 J. Pol. Econ. 427, 430 (1999)). In an ascending private value auction, the winning bidder is more likely to have prevailed because it has a greater private value than the next highest bidder. See Denton, supra, at 1536. In common value auctions, the prospect of information asymmetries drives the winner’s curse. See Dell, 2016 WL 3186538, at *42; Paul Povel & Rajdeep Singh, Takeover Contests with Asymmetric Bidders, 19 Rev. Fin. Stud. 1399-1400 (2006).

[23] See Dell Fair Value, 2016 WL 3186538, at *33-36 (explaining why record supported existence of significant valuation gap, driven by short-term pessimism, that depressed the market price and anchored price negotiations below fair value); Malcom Baker, Xin Pan, & Jeffery Wurgler, The Effect of Reference Point Prices on Mergers and Acquisitions, 106 J. Fin. Econ. 49, 50 (2012) (finding the “26-week high price [of a particular stock] has a statistically and economically significant effect on offer prices [in mergers and acquisitions], and the 39-, 52-, and 65-week high prices also have independent explanatory power” and speculating as to the causes of this reference point effect); id. at 64-65 (finding that deals with higher premiums tend to close more often, which is “consistent with reference point behavior.”); Inga Chira & Jeff Madura, Reference Point Theory and Pursuit of Deals, 50 Fin. Rev. 275, 277, 299 (2015) (“Our analysis reveals that a higher target 52-week reference point, relative to the target’s current stock price, . . . increases the likelihood of a management buy out (MBO). . . . Overall, the results from our analyses offer strong evidence that target and bidder reference points serve as potent anchors that shape the outcomes and structures of mergers.”); Sangwon Lee & Vijay Yerramilli, Relative Values, Announcement Timing, and Shareholder Returns in Mergers and Acquisitions 2 (January 2016) (unpublished manuscript) (adopting finding of Baker, Pan, & Wurger, supra, that “key decision makers in the bidding and target firms and investors are likely to use recent prices as reference points”). See generally Guhan Subramanian, Negotiauctions: New Dealmaking Strategies for a Competitive Marketplace, 16-18 (2010) (explaining that anchoring “works by influencing your perceptions of where the [zone of possible agreement] lies”).

[24] See M.P.M., 731 A.2d at 796 (“A merger price resulting from arms-length negotiations where there are no claims of collusion is a very strong indication of fair value.”); Paul Klemperer, What Really Matters in Auction Design, 16 J. Econ. Persp. 169, 170 (2002) (citing “the risk that participants may explicitly or tacitly collude to avoid bidding up prices”).

[25] See DFC Glob., 2016 WL 3753123, at *21 (giving weight to deal price where “[t]he deal did not involve the potential conflicts of interest inherent in a management buyout or negotiation to retain existing management”); CKx, 2013 WL 5878807, at *13 (giving exclusive weight to sales process where “[t]he record and the trial testimony supports a conclusion that the process by which [the company] was marketed to potential buyers was thorough, effective, and free from any spectre of self-interest or disloyalty.”). For these and other reasons, “the weight of authority suggests that a claim that the bargained-for price in an MBO represents fair value should be evaluated with greater thoroughness and care than, at the other end of the spectrum, a transaction with a strategic buyer in which management will not be retained.” Dell Fair Value, 2016 WL 3186548, at *28. See Iman Anabtawi, Predatory Management Buyouts, 49 U.C. Davis L. Rev. 1285, 1320 (2016) (discussing factors that undermine pricing efficiency in the market for corporate control when the transaction is an MBO); Matthew D. Cain & Steven M. Davidoff, Form Over Substance? The Value of Corporate Process and Management Buy-outs, 36 Del. J. Corp. L. 849, 862 (2011) (“There is a more concrete argument against MBOs on fairness grounds. It is the prospect that management is utilizing inside information when it arranges an MBO. Management by its inherent position has in its possession non-public knowledge of the corporation, and management can use this informational asymmetry between itself and public shareholders to time the buy-out process. MBOs can thus be arranged at advantageous times in the business cycle or history of the corporation.” (footnotes omitted)); Marcel Canoy, Yohanes E. Riyanto & Patrick van Cayseele, Corporate Takeovers, Bargaining and Managers’ Incentives to Invest, 21 Managerial & Decision Econs. 1, 2, 14 (2000) (“Long-term investments, such as R&D investments, are slow yielding and more difficult to be evaluated by the market, despite the fact that they could generate higher profits. Consequently, firms investing heavily in long-term projects may be more susceptible to a takeover attempt. . . . If being taken over is better than taking over [for target management] . . . then obviously, [management] would like to overinvest to facilitate a takeover. . . .”); Deborah A. DeMott, Directors’ Duties in Management Buyouts and Leveraged Recapitalizations, 49 Ohio St. L.J. 517, 536 (1988) (explaining that overhang from past acquisitions may artificially depress a company’s stock market price and make the buyout price appear generous); James R. Repetti, Management Buyouts, Efficient Markets, Fair Value, and Soft Information, 67 N.C. L. Rev. 121, 125 (1988) (“Other methods for management to realize large gains in management buyouts are not as innocuous as the use of leverage or as apparently innocuous as increasing cash flow. Management may actively depress the price of the shares prior to the management buyout in order to reduce the price they have to pay. Management may accomplish this by . . . channeling investments into long-term projects which will not provide short-term returns.”); James Vorenberg, Exclusiveness of the Dissenting Stockholder’s Appraisal Right, 77 Harv. L. Rev. 1189, 1202-03 (1964) (“Far more difficult is ensuring to departing stockholders the benefit of improved prospects, where, at the time of appraisal, the evidence of improvement is more intuitive than tangible. . . . The appraisal process will tend to produce conservative results where the values are speculative, and the majority’s power to pick the time at which to trigger appraisal may encourage them to move when full values may be temporarily obscured.” (footnote omitted)); see also Benjamin Hermalin & Alan Schwartz, Buyouts in Large Companies, 25 J. Legal Stud. 351, 356 (1996) (“With respect to timing, the firm could initiate a freeze-out (i) before it invests effort, (ii) after it invests effort but before the value of the firm conditional on effort is revealed, or (iii) after the value of the firm is revealed but before earnings are realized. We generally assume that the firm would wait until point iii because waiting in the model is costless but produces gains: were the firm to initiate a freeze-out before it learns its value, it might have to pay too much.”).

[26] See JX 296 ¶ 79 (finding that a merger agreement contained a go-shop in only 4% of sample of transactions that involved a strategic entity buying a publicly traded U.S. target for a deal price above $100 million); id. ¶ 80 (finding that only 1% of transactions had an auction and a go-shop where strategic buyers acquired a U.S. publicly traded target for a deal price above $100 million).

[27] See Denton, supra, at 1547 (“In the sixty-three deals that utilized go-shop provisions, there have been nine deals with jump bids. Furthermore, there were jump bids in none of the MBOs containing go-shops. . . . Of the nine jump bids that were made, strategic buyers made seven.” (footnotes omitted)); id. at 1549 (“[G]o-shops have structures that discourage bidding wars between financial buyers. Management involvement with the initial private equity bidder only increases the advantages that are given to the initial bidder, since it gives the initial bidder better information about the value of the target. Despite appearing to encourage additional bidders and a post-signing auction, go-shop provisions are structured in a way that discourages financial buyers from bidding for the company.”).

[28] A matching right is the functional equivalent of a right of first refusal and can foreclose a topping bidder from having a realistic path to success. See Bulletproof, supra, at 870 (“The presence of rights of first refusal can be a strong deterrent against subsequent bids. . . . Success under these circumstances may involve paying too much and suffering the `winner’s curse.'”); see also Frank Aquila & Melissa Sawyer, Diary Of A Wary Market: 2010 In Review And What To Expect In 2011, 14 M & A Law. Nov.-Dec. 2010, at 1 (“Match rights can result in the first bidder `nickel bidding’ to match an interloper’s offer, with repetitive rounds of incremental increases in the offer price. . . . Few go-shops are successful as it is . . . and match rights are just one more factor that may dissuade a potential competing bidder from stepping in the middle of an already-announced transaction.”); Marcel Kahan & Rangarajan K. Sundaram, First-Purchase Rights: Rights of First Refusal and Rights of First Offer, 14 Am. L. & Econ. Rev. 331, 331 (2012) (finding “that a right of first refusal transfers value from other buyers to the right-holder, but may also force the seller to make suboptimal offers”); David I. Walker, Rethinking Rights of First Refusal, 5 Stan. J.L. Bus. & Fin. 1, 20-21 (1999) (discussing how a right of first refusal affects bidders); cf. Steven J. Brams & Joshua R. Mitts, Mechanism Design in M&A Auctions, 38 Del. J. Corp. L. 873, 879 (2014) (“The potential for a bidding war remains unless interlopers are restricted-say, to one topping bid, which then can be matched.”).

[29] Duff & Phelps, 2015 Valuation Handbook, supra, at 5-7 (“If a fundamental change in the business environment in which an individual company (or even an industry) operates occurs, the valuation analyst should consider whether using historical data from before the change should be included in the overall [beta] analysis.”). As an example, the Duff and Phelps 2015 Valuation Handbook cites the effect of the Great Recession on the financial sector, suggesting it would not be appropriate for an analyst to include pre-crisis data. Id.

[30] Holthausen & Zmijewski, supra, at 300 (“Using more recent data might better reflect a company’s current (and more forward-looking) systematic risk. Betas can shift because of changes in capital structure or because of changes in the underlying business risk of the company, or because of fundamental changes in the market. . . .”); Tim Koller, Marc Goedhart & David Wessels, Valuation: Measuring and Managing the Value of Companies 247 (5th ed. 2010) (advocating for five-year monthly but noting that “changes in corporate strategy or capital structure often lead to changes in risk for stockholders. In this case, a long estimation period would place too much weight on irrelevant data”); Shannon P. Pratt & Roger J. Grabowski, Cost of Capital: Applications and Examples 208 (5th ed. 2014) (“Most services that calculate beta use a two- or five-year sample measurement or look-back period. Five years is the most common . . . But if the business characteristics change during the sampling period . . ., it may be more appropriate to use a shorter sampling period. However, as the sampling period used is reduced, the accuracy of the estimate is generally reduced.”); see DFC Glob., 2016 WL 3753123, at *10 n.124 (“[L]ong estimation period may be inappropriate when analysis of the five-year historical chart shows changes in corporate strategy or capital structure that could render prior data irrelevant.” (citing Koller, Goedhart & Wessels, supra, at 247)); see also James R. Hitchner, Financial Valuation: Applications and Models 256 (3d ed. 2011) (noting that in measuring closely-held companies, sources “use anywhere from a two- to five-year period to measure beta, with the five-year period being the most common”).

[31] John Y. Campbell, Andrew W. Lo & A. Craig Mackinlay, The Econometrics of Financial Markets 184 (1997); Holthausen & Zmijewski, supra, at 301 (noting that Bloomberg’s default is to use “104 weeks of weekly observations or two years of data”); id. at 300 (“The most commonly used intervals for estimating betas are monthly, weekly, and, to a lesser extent, daily returns. The precision of regression parameters tends to increase with more observations; hence, all else equal, we prefer to use more observations.”); id. at 302 (“When using daily beta, a common rule of thumb is to use one to two years of data. . . . When using weekly data, it is a fairly common practice to use two years of data. . . .); see also Hitchner, supra, at 256 (noting that in valuing closely-held companies, “the frequency of the data measurements varies, with monthly data being the most common, although some sources use weekly data”).

[32] Appraisal Rights, supra, at A-31 (citing ONTI, 751 A.2d at 907) (basing fair value calculation on one expert’s valuation, “modifying it where appropriate by the primary adjustment claims asserted by [the company]”); Kleinwort Benson Ltd. v. Silgan Corp., 1995 WL 376911, at *5 (Del. Ch. June 15, 1995) (“I will not construct my own DCF model. From the evidence presented by [the] experts, I will choose the DCF analysis that best represents Silgan’s value. Next, . . . I will scrutinize that DCF analysis to remove the adversarial hyperbole that inevitably influences an expert’s opinion in valuation proceedings.” (citation omitted))).

[33] Pabst Brewing Co., 1993 WL 208763, at *8; accord Del. Open MRI Radiology Assocs., 898 A.2d at 310-11 (“I cannot shirk my duty to arrive at my own independent determination of value, regardless of whether the competing experts have provided widely divergent estimates of value, while supposedly using the same well-established principles of corporate finance.”).

[34] Id. If the respondent corporation had relied affirmatively on the deal price and made some attempt to deal with synergies, it seems likely that the court would have given the deal price at least some weight. The transaction resulted from a process that involved a pre-signing outreach to twenty-five potential strategic and financial partners, followed by competition among four strategic bidders to acquire the company. See id. at *2-3. Using a DCF analysis, the court ultimately determined that the fair value of the company as $10.87 per share, just above the deal price. Id. at *26. If the respondent had made a different tactical decision, the 3M Cogent court could well have relied on the deal price.

PENNSYLVANIA PUBLIC SCHOOL EMPLOYEES’ RETIREMENT SYSTEM, individually and on behalf of all others similarly situated, Plaintiff,
v.
BANK OF AMERICA CORPORATION, et al., Defendants.

Pipefitters Local No. 636 Defined Benefit Plan, Plaintiff, represented by David Avi Rosenfeld, Robbins Geller Rudman & Dowd LLP & Samuel Howard Rudman, Robbins Geller Rudman & Dowd LLP.

Patricia Grossberg Living Trust, Consolidated Plaintiff, represented by A. Arnold Gershon, Barrack, Rodos & Bacine.

Anchorage Police & Fire Retirement System, Consolidated Plaintiff, represented by A. Arnold Gershon, Barrack, Rodos & Bacine.

Sjunde Ap-Fonden, Movant, represented by Geoffrey Coyle Jarvis, Grant & Eisenhofer P.A..

Arkansas Teacher Retirement System, Movant, represented by Geoffrey Coyle Jarvis, Grant & Eisenhofer P.A..

KBC Asset Management NV, Movant, represented by Geoffrey Coyle Jarvis, Grant & Eisenhofer P.A..

Local 338 Funds, Movant, represented by David A. Bishop, Kirby McInerney LLP, Ira M. Press, Kirby McInerney LLP, Roger W. Kirby, Kirby McInerney LLP, Andrew Martin McNeela, Kirby McInerney LLP & Surya Palaniappan, Kirby McInerney LLP.

Forsta AP-Fonden, Movant, represented by A. Arnold Gershon, Barrack, Rodos & Bacine & Jeffrey Alan Barrack, Barrack, Rodos & Bacine.

Pennsylvania Public School Employees’ Retirement System, Movant, represented by A. Arnold Gershon, Barrack, Rodos & Bacine, Jeffrey Alan Barrack, Barrack, Rodos & Bacine, Jeffrey B. Gittleman, Barrack, Rodos & Bacine, pro hac vice, M. Richard Komins, Barrack, Rodos & Bacine, pro hac vice, Mark Robert Rosen, Barrack, Rodos & Bacine, pro hac vice & William J. Ban, Barrack, Rodos & Bacine.

Bank of America Corporation, Defendant, represented by Jay B. Kasner, Skadden, Arps, Slate, Meagher & Flom LLP, Christopher P. Malloy, Skadden, Arps, Slate, Meagher & Flom LLP, David Emmett Carney, Skadden, Arps, Slate, Meagher & Flom LLP, pro hac vice, Michael Scott Bailey, Skadden, Arps, Slate, Meagher & Flom LLP & Scott D. Musoff, Skadden, Arps, Slate, Meagher & Flom LLP.

Brian T. Moynihan, Defendant, represented by Patrick J. Smith, DLA Piper US LLP, Jeffrey David Rotenberg, DLA Piper US LLP, John Michael Hillebrecht, DLA Piper US LLP & Samantha Noel Bent, DLA Piper.

Charles H. Noski, Defendant, represented by Jay B. Kasner, Skadden, Arps, Slate, Meagher & Flom LLP, Robert Jeffrey Jossen, Dechert, LLP, Katherine Keely Rankin, Dechert, LLP & Scott D. Musoff, Skadden, Arps, Slate, Meagher & Flom LLP.

Neil Cotty, Defendant, represented by Lawrence Jay Portnoy, Davis Polk & Wardwell LLP, Brian Marc Burnovski, Davis Polk & Wardwell L.L.P. & Charles S. Duggan, Davis Polk & Wardwell L.L.P..

William P. Boardman, Defendant, represented by Charles S. Duggan, Davis Polk & Wardwell L.L.P., Brian Marc Burnovski, Davis Polk & Wardwell L.L.P. & Lawrence Jay Portnoy, Davis Polk & Wardwell LLP.

Frank Paul Bramble, Sr, Defendant, represented by Charles S. Duggan, Davis Polk & Wardwell L.L.P., Brian Marc Burnovski, Davis Polk & Wardwell L.L.P. & Lawrence Jay Portnoy, Davis Polk & Wardwell LLP.

Virgis William Colbert, Defendant, represented by Charles S. Duggan, Davis Polk & Wardwell L.L.P., Brian Marc Burnovski, Davis Polk & Wardwell L.L.P. & Lawrence Jay Portnoy, Davis Polk & Wardwell LLP.

Charles K. Gifford, Jr., Defendant, represented by Charles S. Duggan, Davis Polk & Wardwell L.L.P., Brian Marc Burnovski, Davis Polk & Wardwell L.L.P. & Lawrence Jay Portnoy, Davis Polk & Wardwell LLP.

Charles Otis Holliday, Jr., Defendant, represented by Charles S. Duggan, Davis Polk & Wardwell L.L.P., Brian Marc Burnovski, Davis Polk & Wardwell L.L.P. & Lawrence Jay Portnoy, Davis Polk & Wardwell LLP.

Monica C. Lozano, Defendant, represented by Charles S. Duggan, Davis Polk & Wardwell L.L.P., Brian Marc Burnovski, Davis Polk & Wardwell L.L.P. & Lawrence Jay Portnoy, Davis Polk & Wardwell LLP.

Thomas John May, Defendant, represented by Charles S. Duggan, Davis Polk & Wardwell L.L.P., Brian Marc Burnovski, Davis Polk & Wardwell L.L.P. & Lawrence Jay Portnoy, Davis Polk & Wardwell LLP.

Thomas Michael Ryan, Defendant, represented by Charles S. Duggan, Davis Polk & Wardwell L.L.P., Brian Marc Burnovski, Davis Polk & Wardwell L.L.P. & Lawrence Jay Portnoy, Davis Polk & Wardwell LLP.

Robert W. Scully, Defendant, represented by Charles S. Duggan, Davis Polk & Wardwell L.L.P., Brian Marc Burnovski, Davis Polk & Wardwell L.L.P. & Lawrence Jay Portnoy, Davis Polk & Wardwell LLP.

Pricewaterhousecoopers LLP, Defendant, represented by James J. Capra, Jr., King & Spalding LLP.

Cantor Fitzgerald & Co., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Cowen & Company, L.L.C., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Daiwa Capital Markets America Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Deutsche Bank Securties Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Gleacher & Company Securities, Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Goldman & Sachs & Co, Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Keefe Bruyette & Woods, Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

KeyBanc Capital Markets Inc, Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Macquarie Capital (USA) Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Mizuho Securities USA Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Morgan Stanley & Co. LLC, Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

National Australia Bank Limited, Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

RBS Securities Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Samuel A. Ramirez & CO., Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Sanford C. Bernstein & Co. LLC, Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Santander Investment Securities, Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Southwest Securities, Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Stifel Nicholaus & Company, Incorporated, Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

SunTrust Robinson Humphrey, Inc, Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

UniCredit Capital Markets, Inc., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Wells Fargo Securities, LLC., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

ICBC International Securities Limited, Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Samsung Securities Co., Ltd., Defendant, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP.

Brian T. Moynihan, Consolidated Defendant, represented by Patrick J. Smith, DLA Piper US LLP, Jeffrey David Rotenberg, DLA Piper US LLP, John Michael Hillebrecht, DLA Piper US LLP & Samantha Noel Bent, DLA Piper.

Charles H. Noski, Consolidated Defendant, represented by Jay B. Kasner, Skadden, Arps, Slate, Meagher & Flom LLP, Robert Jeffrey Jossen, Dechert, LLP & Katherine Keely Rankin, Dechert, LLP.

Kenneth D Lewis, Consolidated Defendant, represented by Colby A. Smith, Debevoise & Plimpton LLP & Ada Fernandez Johnson, Debevoise & Plimpton LLP, pro hac vice.

Joseph L. Price, Consolidated Defendant, represented by David M. Locher, Baker Botts LLP, Harry Christopher Morgan, Baker Botts LLP, pro hac vice, Julia E. Guttman, Baker Botts LLP, pro hac vice & Richard Benjamin Harper, Baker Botts L.L.P.

Bank of America Corporation, Consolidated Defendant, represented by David Emmett Carney, Skadden, Arps, Slate, Meagher & Flom LLP, pro hac vice.

Merrill Lynch Pierce Fenner & Smith Incorporated, ADR Provider, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

UBS Securities LLC, ADR Provider, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

SG Americas Securities LLC, ADR Provider, represented by Fraser Lee Hunter, Jr., Wilmer Cutler Pickering Hale & Dorr LLP, Jacob David Zetlin-Jones, Wilmer, Cutler, Hale & Dorr, L.L.P., Jeffrey B. Rudman, Wilmer Cutler Pickering Hale and Dorr LLP, pro hac vice & Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP.

Board of Governors of the Federal Reserve System, ADR Provider, represented by Yvonne Facchina Mizusawa, Board of Governors of The Federal Reserve System.

Comptroller of the Currency, OCC, US Treasury Dept., Miscellaneous, represented by Ashley Wilcox Walker, Shearman & Sterling LLP & Melton Amber, Federal Government – Office of The Comptroller of The Curren.

Federal Deposit Insurance Corporation, in its Corporate capacity, Miscellaneous, represented by Thomas M. Clark, Federal Deposit Insurance Corporation.

OPINION & ORDER

WILLIAM H. PAULEY, III, District Judge.

Lead Plaintiff Pennsylvania Public School Employees’ Retirement System (“PPSERS”) seeks final approval of a $335 million settlement (the “Settlement”) with Bank of America (“BofA”), the Executive Defendants, the Director Defendants, the Underwriter Defendants, and PricewaterhouseCoopers (collectively, “Defendants”). The Settlement resolves this class action involving misleading statements regarding BofA’s reliance on the Mortgage Electronic Registration System (“MERS”) and exposure to mortgage-backed security repurchase claims during the 2008 financial crisis. The law firm of Barrack, Rodos & Bacine (“Barrack”), Lead Counsel for PPSERS, also seeks this Court’s approval of their request for attorneys’ fees and expenses stemming from their representation of the class. For the following reasons, the motion for approval of the Settlement and Plan of Allocation is granted, and the motion for approval of attorneys’ fees and expenses is granted in part and denied in part.

BACKGROUND

The factual background of this action is described in this Court’s prior opinions and orders. See Pipefitters Local No. 636 Defined Ben. Plan v. Bank of America Corp., 275 F.R.D. 187 (S.D.N.Y. 2011); Penn. Public Sch. Employees’ Retirement Sys. v. Bank of America Corp., 874 F. Supp. 2d 341 (S.D.N.Y. 2012); Penn. Public Sch. Employees’ Retirement Sys. v. Bank of America Corp., 939 F. Supp. 2d 445 (S.D.N.Y. 2013).

A. Procedural Background

This Settlement is the product of nearly six years of litigation, which included several motions to dismiss and a protracted mediation. This Court appointed PPSERS as Lead Plaintiff and Barrack as Lead Counsel in June 2011 (ECF No. 56), and PPSERS filed the Consolidated Class Complaint several months later (ECF No. 59). Defendants moved to dismiss, with mixed results. This Court dismissed the Securities Act claims against all Defendants with prejudice and the Exchange Act claims against the Executive Defendants without prejudice, but denied the motion with respect to the Exchange Act claims against BofA. (ECF No. 148.) BofA moved for reconsideration, which this Court denied in August 2012. (ECF No. 167.)

Another round of procedural sparring broke out after PPSERS filed the Amended Class Complaint (ECF No. 158), which ended with the denial of Defendants’ motion to dismiss and the Executive Defendants’ motion for reconsideration in mid-2013 (see ECF Nos. 183, 222). The parties then shifted their focus to class certification. PPSERS moved to certify the class in November 2013 (ECF No. 243), and three months later Defendants stipulated to class certification without further motion practice (ECF No. 253).

The class certification stipulation largely marked the end of formal litigation, aside from several discovery disputes. Thereafter, the parties agreed to mediation. That mediation consisted of three sessions over the course of ten months, and involved ongoing discovery and “detailed written submissions,” which Barrack claims were “akin to briefs and supporting exhibits that a party plaintiff would file in support of a summary judgment motion.” (Lead Plaintiff’s Post-Hearing Submission (“Post-Hearing Sub.”), ECF No. 371 at 5.) At the third mediation session in August 2015, the parties agreed to settle all claims for a $335 million cash payment by BofA.

B. The Settlement Agreement and Plan of Allocation

The Settlement covers a class consisting of purchasers of BofA common stock between February 27, 2009 and October 19, 2010 and creates a $335 million fund (the “Fund”) to compensate class members for losses due to the alleged artificial inflation in the prices of BofA’s common stock during the time that each member held shares. On June 15, 2016 the Court granted preliminary approval of the Settlement and directed the parties to begin the notice process. (ECF No. 338.) To date, the Claims Administrator has received nearly 375,000 timely Proofs of Claim and only one timely objection,^[1]which the individual subsequently withdrew. (See ECF No. 362.) Fifty-one class members asked to be excluded from the Settlement, including a single institutional investor that had previously entered into a tolling agreement with BofA. The Plan of Allocation directs Lead Counsel to reallocate any funds remaining six months after the initial distribution among those class members who have cashed initial checks. Any residual monies will then be donated to the New York Bar Foundation.

C. Attorneys’ Fees and Expenses

Barrack, which has litigated on behalf of the class on a contingency basis, seeks approval of fees and expenses in the following amounts, drawn from the Settlement Fund: (1) attorneys’ fees of $51,675,000; (2) litigation expenses of $1,386,167.33; and (3) costs and expenses incurred by PPSERS as Lead Plaintiff in the amount of $130,323.70. Over the course of this action, Barrack devoted the time of forty-two attorneys and seven paralegals working at a blended rate of approximately $450 per hour. (See Declaration of Mark R. Rosen (“Rosen Decl.”), ECF No. 357; Post-Hearing Sub., Exs. A-E.) In total, Barrack recorded 77,026.25 billable hours for a lodestar of $34,450,696.50. (See Rosen Decl., Ex. D.)

DISCUSSION

A. Motion to Approve the Settlement and Plan of Allocation

Under Federal Rule of Civil Procedure 23, the District Court must approve any class action settlement. See Fed. R. Civ. P. 23(e). The Court must “carefully scrutinize the settlement to ensure its fairness, adequacy and reasonableness, and that it was not the product of collusion.” D’Amato v. Deutsche Bank, 236 F.3d 78, 85 (2d Cir. 2001) (internal citations omitted). This is a two-part inquiry wherein the Court “must determine whether both the negotiating process leading to a settlement and the settlement itself are fair, adequate, and reasonable.” In re Currency Conversion Fee Antitrust Litig., 263 F.R.D. 110, 122 (S.D.N.Y. 2009).

i.) Procedural Fairness

The procedural fairness prong requires that the settlement “be the result of arm’s-length negotiations and that plaintiffs’ counsel have possessed the experience and ability, and have engaged in the discovery, necessary to [effective representation] of the class’s interests.” Weinberger v. Kendrick, 698 F.2d 61, 74 (2d Cir. 1982). Negotiation processes are presumed fair when these elements are present. See Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 116 (2d Cir. 2005). This Settlement is the product of nearly a full year of arm’s-length mediation between able and experienced counsel, as well as a discovery process that involved more than eight million pages of documents and required Barrack to hire sixteen attorneys dedicated solely to this matter. (See Rosen Decl, ¶¶ 34-37, 68-74.) Although the parties ultimately stipulated to class certification, the mediation occurred after PPSERS had briefed the issue. See D’Amato, 236 F.3d at 85 (“When a settlement is negotiated prior to class certification. . . it is subject to a higher degree of scrutiny in assessing its fairness.”). Accordingly, this Court finds that the negotiation process leading to this Settlement was fair, adequate and reasonable. See Wal-Mart, 396 F.3d at 116.

ii.) Substantive Fairness

At the substantive fairness stage of settlement approval, courts in the Second Circuit consider the nine factors set forth in City of Detroit v. Grinnell Corp.: (1) the complexity, expense, and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining the class action through trial; (7) the ability of the defendants to withstand greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; and (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of the litigation. 495 F.2d 488, 463 (2d Cir. 1974). “[N]ot every factor must weigh in favor of settlement, rather the court should consider the totality of these factors in light of the particular circumstances.” In re Global Crossing Sec. and ERISA Litig., 225 F.R.D. 436, 456 (S.D.N.Y. 2004) (citations omitted).

In this case, the Grinnell factors weigh in favor of approving the Settlement. This case was a complex securities class action—a breed of litigation that courts have recognized as “notably difficult and notoriously uncertain,” In re Flag Telecom Holdings, Ltd. Sec. Litig., No. 02-CV-3400, 2010 WL 4537550, at *15 (S.D.N.Y. Nov. 8, 2010)—that began in 2011 and reached a resolution through the exhaustive efforts of both parties. As discussed above, Defendants tested PPSERS’s claims twice through motions to dismiss and the ensuing motions for reconsideration. The parties also took thirty-four depositions and briefed a discovery motion concerning Defendants’ assertion of the bank examiner privilege. (See Rosen Decl. ¶¶ 43-44, 47-55.) Furthermore, the absence of objections to the Settlement and substantial number of timely Proofs of Claim is “extraordinarily positive.” Dial Corp. v. News Corp., ___ F.R.D. ___, 2016 WL 6426409, at *4; see also Maley v. Del. Global Tech. Corp., 186 F. Supp. 2d 358, 362 (S.D.N.Y. 2002) (“It is well-settled that the reaction of the class to the settlement is perhaps the most significant factor to be weighed in considering its adequacy.”).

Although Defendants stipulated to class certification, they reserved their right to move to alter or amend the certification order if the parties failed to reach an agreement. (See Rosen Decl. ¶ 96.) This Settlement allows class members to recover part of their losses as soon as possible and without the need for expert discovery, summary judgment motions, trial, and any appeal. See Maley, 186 F. Supp. 2d at 366 (“Settling avoids delay as well as uncertain outcome at summary judgment, trial and on appeal.”). As with any complicated securities action, the class faced the very real risk “that a jury could be swayed by experts . . . who could minimize or eliminate the amount of Plaintiffs’ losses.” In re Am. Bank Note Holographics, Inc., Sec. Litig., 127 F. Supp. 2d 418, 426-27 (S.D.N.Y. 2001). Accordingly, the Court finds that the Settlement and Plan of Allocation is fair, reasonable, and adequate under the Grinnell standard. The parties are directed to submit a revised judgment that designates the New York Bar Foundation as the recipient of any cy pres funds and provides that Plaintiff’s attorneys’ fees may be paid when 75% of the Settlement Fund has been distributed.

B. Motion for Attorneys’ Fees and Expenses

i.) Attorneys’ Fees

In a class action settlement, courts must carefully scrutinize lead counsel’s application fee in order to “ensure that the interests of the class members are not subordinated to the interests of . . . class counsel.” Maywalt v. Parker & Parsley Petroleum Co., 67 F.3d 1072, 1078 (2d Cir. 1995). A court’s role in this context is “to act as a fiduciary who must serve as a guardian of the rights of absent class members.” McDaniel v. Cty. Of Schenectady, 595 F.3d 411, 419 (2d Cir. 2010). The trend in the Second Circuit is to assess a fee application using the “percentage of the fund” approach, which “assigns a proportion of the common settlement fund toward payment of attorneys’ fees.” Dial Corp., 2016 WL 6426409, at *6. As a “cross-check on the reasonableness of the requested percentage,” however, courts also look to the lodestar multiplier, which should be a reasonable multiple of the total number of hours billed at a standard hourly rate. Goldberger v. Integrated Res., Inc., 209 F.3d 43, 53 (2d Cir. 2000). In this case, Barrack has submitted billing records reflecting 77,026.25 hours for a lodestar of $34,450,696.50. (See Rosen Decl., Ex. D.) The requested fee of $51,675,000 thus represents approximately 15.4% of the Fund and a lodestar multiplier of 1.5.

When assessing a fee application under the percentage of the fund method, courts consider the six Goldberger factors: (1) the time and labor expended by counsel; (2) the magnitude and complexities of the litigation; (3) the risk of litigation; (4) the quality of representation; (5) the requested fee in relation to the settlement; and (6) public policy considerations. 209 F.3d at 50. In class actions involving “mega funds”—i.e. funds of more than $100 million—courts typically “account[] for these economies of scale by awarding fees in the lower ranges.” Goldberger, 209 F.3d at 52. Here, the Court finds that the second, third, and fourth factors weigh in favor of the requested fee, while the remaining three factors support a reduction.

a.) Factors Favoring Fee Application

This case was lengthy, complex, and vigorously contested up to the point of class certification. Plaintiffs brought two different types of complicated allegations: (1) the “rep and warranty claims,” regarding BofA’s alleged misleading statements to investors about its exposure to repurchase demands in connection with mortgage-backed securities; and (2) the “MERS claims,” focusing on institutional risks from BofA and Countrywide’s reliance upon a national mortgage database to track changes in the quality of loans secured by residential properties. These claims survived two motions to dismiss, but even if Plaintiffs had prevailed on liability they faced considerable risk in establishing damages at trial. With the assistance of able and experienced counsel, the class obtained a favorable result that obviates the uncertainties associated with summary judgment, trial, and appeals. Thus the second, third, and fourth Goldberger factors favor approval of Barrack’s fee application.

b.) Factors Favoring a Reduction

Because plaintiffs’ firms typically handle class actions on a contingency basis, public policy encourages the award of reasonable attorneys’ fees to ensure that such cases find their way to court. However, courts must also “guard against providing a monetary windfall to class counsel to the detriment of the plaintiff class.” In re NTL Inc. Sec. Litig., No 02-CV-3013, 2007 WL 1294377, at *8 (S.D.N.Y. May 2, 2007). For example, this Court has reduced fees “in view of the large percentage of hours attributable to attorneys with the highest billing rates, as well as the relatively early stage of the litigation in which the settlement was reached.” In re Platinum and Palladium Commodities Litig., No 10-CV-3617, 2015 WL 4560206, at *4 (S.D.N.Y. July 7, 2015). Ultimately, this Court’s role is to ensure that “the lodestar [is not] enhanced without restraint above a fair and reasonable amount under all the facts and circumstances.” In re Sumitomo Copper Litig., 74 F. Supp. 2d 393, 396 (S.D.N.Y. 1999). There are two interconnected billing practices in this case that support a reduction in Barrack’s fee application: the predominance of partner-level work on the substantive aspects of the litigation, and the use of temporary associates for the bulk of document discovery at standard associate hourly rates.

First, this Court notes that the overwhelming amount of billable legal work in this case was devoted to discovery. While there were two substantial motions to dismiss, the parties stipulated to class certification and never proceeded to summary judgment. Instead, they resolved the case at mediation. An examination of Barrack’s post-hearing submission reveals that motion practice and mediation generated about 5% of the total billable hours and 6.7% of the lodestar. (See Post-Hearing Sub., Exs. A-E.) On closer scrutiny, however, it seems that most of the substantive work relating to motion practice and mediation was performed by Barrack partners: eleven different partners billed 88% of the hours devoted to the mediation and motions, creating 94% of the fees associated with those tasks. (See Post-Hearing Sub., Exs. A-E.) Indeed, no fewer than four Barrack partners—but no associates—attended the mediation sessions. (See Post-Hearing Sub. at 6.) This allocation of resources stands in stark contrast to the division of labor in the case as a whole. Twenty-six Barrack associates accounted for nearly 70% of the total hours and generated about 60% of the lodestar. (See Rosen Decl., Ex. D.) If partners handled the bulk of the motion practice and mediation responsibilities but generated comparatively few of the total hours, it stands to reason that the Barrack associates were primarily assigned to discovery work.

Delegating the legwork of complex litigation (such as routine document review) to less-costly associates or temporary contract attorneys is common practice, and it is not this Court’s place to dictate law firm structure or workflow. What is troublesome, however, is Barrack’s practice of “gear[ing] up” for discovery by hiring a large group of temporary “associates” and billing them at the firm’s standard rates for what this Court must assume was first-cut document review. (Rosen Decl. ¶ 34.) Barrack hired sixteen temporary attorneys in 2013 and 2014 to work exclusively on this matter at a blended rate of $362.50 per hour. (See Rosen Decl., Ex. D; Post-Hearing Sub., Ex. F.) Although these attorneys were “full-time [Barrack] associate attorneys” who were eligible to participate in the firm’s health insurance and 401(k) plans, not one of the sixteen remains at the firm—the group as a whole stayed an average of twelve months, some as few as one month. (See Rosen Decl. ¶ 34, n.2; Post-Hearing Sub., Ex. F.) The new hires billed nearly 40% of the total hours in the case and generated $10,805,725 (or 31% of the lodestar) in legal fees for Barrack. (See Rosen Decl., Ex. D.) However, hiring a group of temporary associates and billing them out at more than $350 per hour for work that is typically the domain of contract attorneys or paralegals seems excessive.

On this point, Barrack’s citation to In re Citigroup Inc. Bond Litig., 988 F. Supp. 2d 371 (S.D.N.Y. 2013) is instructive. In that case, Judge Stein drew a distinction between “contract” attorneys and “staff” attorneys—the latter being “full-time employees of the law firm” who are “provided benefits and ongoing legal education”—to determine the appropriate reduction in a fee application where plaintiffs’ counsel had billed its staff attorneys at $385 per hour. In re Citigroup, 988 F. Supp. 2d at 377.

Barrack makes much of the Citigroup court’s reference to a submission showing that defense counsel in that case—Paul, Weiss, Rifkind, Wharton & Garrison LLP—had submitted a fee application in an unrelated bankruptcy case with a blended rate of $333 per hour for staff attorneys, who performed “document review and similar routine tasks.” 988 F. Supp. 2d at 377. But that ignores Judge Stein’s finding that “$200 per hour [is] a fair approximation of the rate a reasonable paying client with bargaining power would pay” for the type of work performed by a contract attorney (e.g. first-cut document review), as well as the fact that Paul Weiss’s clients—unlike the class members in this case—have the benefit of ex ante negotiations as to what they will pay for legal services. Citigroup, 988 F. Supp. 2d at 377. If it is true, as Barrack submits, that “[t]here were no so-called `contract’ lawyers hired either directly by [Barrack] or through an external attorney provider,” then this Court must conclude that the sixteen new hires performed work that might otherwise have been handled by contract attorneys. See Rosen Decl., ¶ 34, n.2; see also Dial, 2016 WL 6426409, at *11 (“To Counsel’s credit, this [contract] attorney time was accounted as an expense rather than included in the lodestar.”). The blended rate charged by Barrack for that work is unreasonable and warrants a reduction in the attorneys’ fees.

It must be noted that this reduction is not a rebuke of Barrack’s structure as a lean, partner-heavy firm that hires associates when necessary to prosecute large actions such as this one. Indeed, it is debatable which route more effectively advances a young lawyer’s career: temporary placement through a staffing agency on a document-review project, or brief full-time employment with the understanding that the job ends with the discovery deadline. This Court does not presume to resolve that question here. Rather, this Court simply concludes that a reduction in the requested fees is warranted to avoid a windfall to Barrack for charging more than $350 per hour for associates who are contract attorneys in all but name, while simultaneously overstaffing the substantive legal work with high-priced partners.^[2]

Considering all the circumstances, the simplest resolution is to reduce the lodestar multiplier from 1.5 to 1.2, resulting in attorneys’ fees of $41,340,835.80, or 12% of the Fund. This percentage and multiplier is within the range of fees awarded in similar cases in this Circuit. See In re NASDAQ Market-Makers Antitrust Litig., 187 F.R.D. 465, 486 (S.D.N.Y. 1998) (“[W]here a class recovers more than $75-$200 million . . . fees in the range of 6-10 percent and even lower are common.); In re IndyMac Mortgage-Backed Sec. Litig., 385 F. Supp. 2d 363 (S.D.N.Y. 2015) (awarding 12% of a $75 million settlement fund); In re Bristol-Meyers Squibb Sec. Litig., 361 F. Supp. 2d 229 (S.D.N.Y. 2005) (awarding 3% of a $300 million fund); In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., 991 F. Supp. 2d 437 (E.D.N.Y. 2014) (awarding 9.6% of a $5.7 billion settlement).

ii.) Litigation Expenses

Barrack also seeks reimbursement of $1,386,167.33 in litigation expenses. In class action settlements, “[a]ttorneys may be compensated for reasonable out-of-pocket expenses incurred and customarily charged to their clients.” In re Currency Conversion, 263 F.R.D. at 131. When the “lion’s share” of expenses reflects the typical costs of complex litigation such as “experts and consultants, trial consultants, litigation and trial support services, document imaging and copying, deposition costs, online legal research, and travel expenses,” courts should not depart from “the common practice in this Circuit of granting expense requests.” In re Visa/Mastermony Antitrust Litig., 94 F. Supp. 3d 517, 525 (S.D.N.Y. 2015). In this case, the Court finds that Barrack’s itemized litigation expenses reflect these traditional costs of maintaining a complex securities action. (See Rosen Decl., Ex. E.) The motion for reimbursement of these expenses from the Fund is approved.

iii.) Lead Plaintiff’s Expenses

PPSERS seeks approval of $130,323.70 in costs and expenses associated with its role as Lead Plaintiff. Under the PSLRA, the Court may award “reasonable costs and expenses (including lost wages) directly relating to the representation of the class to any representative party serving on behalf of the class.” 15 U.S.C. § 78u-4(a)(4). These awards compensate lead plaintiffs for “the substantial time and effort the class representatives incurred, including written discovery, being deposed, reviewing and editing submissions, and attending hearings.” In re Currency Conversion, 263 F.R.D. at 131. Here, PPSERS actively participated in this litigation throughout the action and should be compensated for its time and effort in bringing about a favorable result. (See Rosen Decl., Ex. A.) The amount requested represents less than one hundredth of a percent of the Fund. This award is comfortably below the rate awarded in similar cases, and is approved. See In re Currency Conversion, 263 F.R.D. at 131 (award representing approximately 0.1% of the fund); Roberts v. Texaco, 979 F. Supp. 185 (S.D.N.Y. 1997) (0.18% of the total fund).

CONCLUSION

The motion to approve the Settlement and Plan of Allocation is granted. The motion to approve the application for attorneys’ fees, litigation expenses, and Lead Plaintiff’s expenses is granted in part and denied in part. The litigation expenses and Lead Plaintiff’s expenses are approved, and the fee request is approved in the amount of $41,340,835.80. The litigation expenses and Lead Plaintiff’s expenses may be reimbursed immediately. Attorneys’ fees may be paid once 75% of the Settlement Fund has been distributed. Plaintiff is directed to submit a revised judgment in accord with this Opinion and Order forthwith. The Clerk of Court is directed to close the motions pending at ECF Nos. 350 and 352.

SO ORDERED.

[1] The Court received one other objection from an individual who may or may not have been a class member. (See ECF No. 370.) This objection was untimely by more than a month and did not conform to the requirements set out in the Notice Form for objecting to the Settlement. Specifically, it does not contain any dates, prices, or numbers of shares/units of BofA stock to show that the individual is a class member. This objection is deemed waived.

[2] Barrack also assigned seven paralegals to this matter, billing them at rates between $270 and $325 per hour—the same “lofty” range that weighed in favor of a fee reduction in a similar case before this Court. See Dial, 2016 WL 6426409, at *11; Rosen Decl., Ex. D.

BANK OF AMERICA, N.A., SUCCESSOR BY MERGER TO BAC HOME LOANS SERVICING LP, fka COUNTRYWIDE HOME LOANS SERVICE, LP, Plaintiff-Appellee,
v.
WILLIAM DARKADAKIS, et al., Defendants-Appellant.

Reversed and Remanded.

Atty. William Joseph Baker, 1300 East Ninth St., Suite 1600, Cleveland, Ohio 44114, Atty. Sherrie Mikhail Mlday, P.O. Box 165028, Columbus, Ohio 43216, for Plaintiff-Appellee.

Atty. Edwin Romero, Atty. Thomas F. Hull II, 201 E. Commerce St., Atrium Level Two, Commerce Building, Youngstown, Ohio 44503, for Defendants-Appellants.

Judges: Hon. Gene Donofrio, Hon. Carol Ann Robb, Hon. Stephen A. Yarbrough, Sitting by, Assignment.

OPINION

DONOFRIO, P.J.

{¶1} Defendant-appellant, William Darkadakis, appeals from a Mahoning County Common Pleas Court judgment granting a decree in foreclosure for plaintiff-appellee, Bank of America, N.A., Successor by merger to BAC Home Loans Servicing LP, fka Countrywide Home Loans Servicing LP (the Bank).

{¶2} On June 25, 2012, the Bank initiated a foreclosure action against William and Elizabeth Darkadakis for the property located at 10450 New Buffalo Road, Canfield Ohio. On September 4, 2004, Elizabeth signed a note with the Bank’s predecessor for $207,000.00. As collateral for that note, Elizabeth signed a mortgage to the property. Her initials and William’s initials were on the mortgage but William did not sign the signatory page of the mortgage.

{¶3} At the time Elizabeth signed the mortgage and note, the property was in William’s name only. In an affidavit attached to the Bank’s motion for summary judgment, Elizabeth claimed that throughout their marriage ownership of the property was constantly transferred between her, William, and other third parties. But nothing in her affidavit indicated that at the time she signed the note and mortgage she was listed as an owner of the property. William, in his affidavit, disputed Elizabeth’s claims that the property was continually transferred and asserted the property was never deeded in Elizabeth’s name. The appraisal in July 2004, prior to the execution of the note and mortgage, stated William was the owner of the property. It did not list Elizabeth as the owner.

{¶4} During the foreclosure proceedings William and Elizabeth divorced. Their February 14, 2013 divorce decree stated that the parties agreed the real estate would remain solely in William’s name.

{¶5} As the foreclosure action proceeded, the Bank filed for summary judgment and sought reformation of the mortgage. The Bank claimed it was a mutual mistake that William did not sign the note and mortgage. It also asserted William would be unjustly enriched if he were able to retain the property. Elizabeth’s affidavit was attached to this motion. In her affidavit she stated it was a mistake that William did not sign the mortgage.

{¶6} William filed a motion in opposition. He claimed reformation and unjust enrichment were new claims. He asserted the Bank had no standing because he did not sign the note or mortgage. He argued unjust enrichment was barred by the statute of limitations, there was no mutual mistake, and parol evidence could not be used to support reformation.

{¶7} The Bank filed a reply focusing on the facts that William initialed every page of the mortgage and the mortgage was used to pay off a pervious note and mortgage for which William was liable.

{¶8} On June 11, 2014, the trial court granted summary judgment for the Bank and held it was entitled to a judgment and decree in foreclosure. The court found it was the intent of the parties for the mortgage to encumber the entire property, and thus, reformation was appropriate. It held reformation was not precluded by parol evidence or the statute of frauds. It also found the unjust enrichment claim was not barred by the statute of limitations and William would be unjustly enriched if the mortgage did not encumber the entire property. Lastly, it stated the Bank had standing to seek foreclosure because the uncontradicted evidence established it was a holder of the note and mortgage at the time the complaint was filed.

{¶9} William filed an appeal from that decision with this court. We found the judgment was not a final appealable order because it did not enter a monetary amount on the award of summary judgment and did not resolve the issue of liens. We granted a 60-day limited remand for William to obtain a final appealable order from the trial court.

{¶10} Upon remand the parties filed additional motions. William filed a motion for summary judgment on February 5, 2015. The arguments raised in this motion were the same arguments raised in his motion in opposition to summary judgment. The Bank filed a motion in opposition and a motion to strike on February 23, 2015.

{¶11} On April 21, 2015, the trial court struck William’s motion for summary judgment finding the matter was remanded from the court of appeals for the limited purpose of issuing a final appeal order on the remaining issues. It stated the only remaining issue was the default of Elizabeth on the promissory note and mortgage.

{¶12} That same day the trial court issued the judgment entry and decree in foreclosure. Thereafter, William amended his notice of appeal to include this judgment.

{¶13} William now raises six assignments of error. His first assignment of error states:

THE TRIAL COURT ERRED IN AWARDING SUMMARY JUDGMENT TO THE BANK.

{¶14} An appellate court reviews the granting of summary judgment de novo. Comer v. Risko, 106 Ohio St.3d 185, 2005-Ohio-4559, 833 N.E.2d 712, ¶ 8. Thus, we shall apply the same test as the trial court in determining whether summary judgment was proper.

{¶15} A court may grant summary judgment only when (1) no genuine issue of material fact exists; (2) the moving party is entitled to judgment as a matter of law; and (3) the evidence can only produce a finding that is contrary to the non-moving party. Mercer v. Halmbacher, 9th Dist., 2015-Ohio-4167, 44 N.E.3d 1011, ¶ 8; Civ.R. 56(C). The initial burden is on the party moving for summary judgment to demonstrate the absence of a genuine issue of material fact as to the essential elements of the case with evidence of the type listed in Civ.R. 56(C). Dresher v. Burt,75 Ohio St.3d 280, 292, 662 N.E.2d 264 (1996). If the moving party meets its burden, the burden shifts to the non-moving party to set forth specific facts to show that there is a genuine issue of material fact. Id.; Civ.R. 56(E). “Trial courts should award summary judgment with caution, being careful to resolve doubts and construe evidence in favor of the nonmoving party.” Welco Industries, Inc. v. Applied Cos., 67 Ohio St.3d 344, 346, 617 N.E.2d 1129 (1993).

{¶16} In this assignment of error, William raises seven separate arguments asserting summary judgment was improper. We will address each argument separately.

1. Statute of Frauds

{¶17} It is undisputed Elizabeth was listed on the mortgage as the borrower and she initialed every page of the mortgage. William was not listed on the mortgage, although he initialed every page of the mortgage. Elizabeth solely signed the mortgage. Additionally, Elizabeth is the sole borrower on the note and she, not William, signed the note.

{¶18} The deeds indicate William was solely listed on the deed when Elizabeth signed this mortgage and note. Furthermore, nothing in Elizabeth’s affidavit stated that at the time she signed the mortgage she was listed on the deed.

{¶19} Given these facts, William asserts Elizabeth did not have the right to mortgage his property and thus, the Bank is not permitted to foreclose on his interest in the property. He asserts any mortgage interest is barred by the statute of frauds. According to him, the trial court incorrectly determined the statute of frauds did not apply.

{¶20} The statute of frauds states, “No action shall be brought * * * upon a contract or sale of lands * * * or interest in or concerning them * * * unless the agreement upon which such action is brought * * * is in writing and signed by the party to be charged therewith or some other person thereunto by him or her lawfully authorized.” R.C. 1335.05.

{¶21} The Ohio Supreme Court has held that a mortgage is a conveyance to which the statute of frauds applies. FirstMerit Bank, N.A. v. Inks, 138 Ohio St.3d 384, 2014-Ohio-789, 7 N.E.3d 1150, quoting Webb’s Admr. v. Roff, 9 Ohio St. 430 (1859),paragraph one of the syllabus.

{¶22} The Bank agrees that typically a mortgage falls within the statute of frauds. But it contends that in this case there was a mutual mistake that removed the case from the statute of frauds.

{¶23} Courts have held that a mutual mistake does remove a case from the statute of frauds. Holt v. Martino, 3d Dist. No. 14-97-43, 1998 WL 126247, (Mar. 19, 1998) (statute of frauds requires the transaction be in writing; however, where both parties to a contract agree the terms within the contract do not actually evince their true intentions, then a mutual mistake could be one explanation for the discrepancy.); Phoenix Concrete, Inc. v. Res.-Creekway, Inc., 100 Ohio App.3d 397, 405, 654 N.E.2d 155 (10th Dist.1995) (“[T]he Statute of Frauds does not preclude reformation of a written agreement which as a result of a mutual mistake fails to reflect the intent of the parties.”); Davenport v. Sovil’s Heirs, 6 Ohio St. 459, 464 (1856) (“mutual mistake of the parties to a contract concerning lands will take the case out of the statute of frauds, as that a part performance will do so”).

{¶24} In Davenport, one party claimed the description in the mortgage did not embrace the land intended to be mortgaged. The mistake was claimed to be mutual. The question before the court was whether the contract could be reformed on the basis of mutual mistake. The Court determined that it could:

It is admitted everywhere that a defendant in equity may allege, and prove by parol, a mistake in a contract sought to be enforced against him; and we are unable to perceive any good reason why a distinction should be made between a plaintiff and defendant in cases of this kind. That it is difficult or impossible to reconcile this doctrine with the letter of the statute for the prevention of frauds and perjuries, may be admitted; but it would be quite as difficult to reconcile with that statute the unquestioned doctrine that a parol contract for the sale of lands, when partly performed, is not within its operation. In both cases we proceed on the ground, that to allow the statute to operate would be to give success and effect to the very evil the statute was designed to prevent. And, so far as a uniform course of judicial determination can settle anything, it would seem to be as well settled, at least in Ohio, that mutual mistake of the parties to a contract concerning lands will take the case out of the statute of frauds, as that a part performance will do so.

Id. at 463-464.

{¶25} The mistake in Davenport not only occurred in the mortgage, but also happened when the property was sold to another party. The Court held the decree of sale was not an obstacle to reforming the mortgage. Id. at 465-466.

{¶26} Davenport demonstrates the statute of frauds does not bar reformation when there is a mutual mistake in a mortgage. William correctly points out the mistake in Davenport did not concern who signed the mortgage, but instead concerned the description of the real property.

{¶27} The question then becomes does that distinction mean the general rule, that a mortgage can be reformed if there is a mutual mistake, no longer applies. This court holds the general rule applies; the issue is proving mutual mistake in order to take the contract outside the statute of frauds. Mutual mistake is similar to the issue of part performance. Part performance removes an oral contract concerning real property from the operation of the statute of frauds. Martin v. Jones, 4th Dist. No. 14CA992, 2015-Ohio-3168, ¶ 47. Even though there is no official signature in an oral contract, the party can prove there was a contract. The same applies in this case.

{¶28} It is possible that the Bank could prove William intended to sign the mortgage since his initials appear on each page of the mortgage. In that case, mutual mistake would apply taking the contract outside of the statute of frauds. But it is likewise possible that William could prove he did not intend to sign the mortgage because, in fact, he did not sign it. In that case, there would be no mutual mistake and the statute of frauds would bar reformation.

{¶29} Thus, it is possible that mutual mistake can be used to reform the mortgage and the statue of frauds will not apply. But, as will be discussed in detail below, a genuine issue of material fact exists as to whether William mistakenly failed to sign the mortgage or whether he intentionally did not sign it.

2. New Claims

{¶30} William argues the trial court should not have considered the Bank’s claims for unjust enrichment and reformation because it did not raise those claims in the complaint. He asserts the Bank raised these claims for the first time in its motion for summary judgment. William asserts he was not put on notice of these claims and never had a chance to file an answer or to conduct discovery regarding these claims. William further argues the complaint did not state any claim against him.

{¶31} In the complaint, William was named as a defendant. The complaint was clearly a foreclosure complaint. The second count of the complaint indicated “defendants,” which included William, “have or claim to have an interest in the premises.” The next paragraph alleged the mortgage with the Bank was the first lien on the premises and the Bank was entitled to foreclose on the property because all conditions precedent had been performed. Therefore, the Bank made a claim against William in the complaint.

{¶32} That being said, William is correct that the words “unjust enrichment” and “reformation” do not appear in the complaint. The words “mutual mistake” also do not appear in the complaint. Therefore, we must determine whether the complaint was required to notify William that the Bank alleged mutual mistake and sought reformation, and if so, whether the complaint complied with that requirement.

{¶33} Ohio is a notice-pleading state. York v. Ohio State Highway Patrol, 60 Ohio St.3d 143, 144, 573 N.E.2d 1063 (1991). Civ.R. 8(A) requires only that a complaint “contain (1) a short and plain statement of the claim showing that the party is entitled to relief, and (2) a demand for judgment for the relief to which the party claims to be entitled.” Civ.R. 8(E) further directs averments contained in a pleading be simple, concise, and direct. “Ohio law does not ordinarily require a plaintiff to plead operative facts with particularity.” Cincinnati v. Beretta U.S.A. Corp., 95 Ohio St.3d 416, 2002-Ohio-2480, 768 N.E.2d 1136, ¶ 29.

{¶34} Other appellate districts have found that as long as the complaint sets forth the proper allegations upon which there is a right to reformation, that remedy may be granted. For instance, the Ninth District has concluded reformation is implicitly pleaded when reformation of the contract is the only means the trial court has to grant the relief requested. Elmar Co. v. Bernacchia, 9th Dist. No. 91CA005153, 1992 WL 82656, (Apr. 22, 1992). As long as the pleadings set forth sufficient operative facts to give the other party fair notice of the nature of the action, the “plaintiff is not required to explicitly state `reformation’ within its complaint before the trial court may grant such relief.” Id. Likewise, the Eleventh District has found that as long as the complaint sets forth the proper allegations upon which there is a right to reformation, the court may grant reformation. Allstate Ins. Co. v. Zampedro, 11th Dist. No. 3247, 1983 WL 6040, (Dec. 30, 1983).

{¶35} Here, the complaint indicated the Bank was seeking foreclosure. It was clear from the complaint and the attachments that only Elizabeth signed the note and mortgage and she was listed as the sole borrower. As mentioned above, the Bank alleged in the complaint that William had an interest in the property. If William was the only party listed on the deed, then unjust enrichment and reformation would be the only means to obtain foreclosure. Thus, under these facts, the Bank implicitly raised claims for unjust enrichment and reformation.

{¶36} Moreover, when the Bank filed its motion for summary judgment, the only means by which it would be entitled to foreclose on the property was under a claim of unjust enrichment and by having the mortgage reformed. Through the summary judgment motion, William had notice of these claims. The Bank points out William could have moved pursuant to Civ.R. 56(F) for additional time to conduct discovery on these newly raised issues. Van Wert v. Akron Metro. Regional Transit Auth., 5th Dist. No. 2014CA00201, 2015-Ohio-3243, ¶ 21 (Civ.R. 56(F) provides the remedy for a party who seeks a continuance on a motion for summary judgment in order to conduct discovery relevant to the motion.). This was an option for him which he did not pursue.

{¶37} In conclusion, the complaint was sufficient to put William on notice of the unjust enrichment and reformation claims. As to the summary judgment motion, William had the opportunity to defend the claims. We find no error with the trial court considering these issues.

3. Standing

{¶38} William claims the Bank lacks standing to bring the foreclosure action for two reasons. First, the Bank did not have any interest in the mortgage in 2004 when the mortgage was executed. Its interest was not acquired until it was assigned the loan in 2012. Second, William claims the Bank does not possess a valid mortgage on the premises.

{¶39} Recently, the Ohio Supreme Court explained standing as “`[a] party’s right to make a legal claim or seek judicial enforcement of a duty or right.'” Wells Fargo Bank, N.A. v. Horn, 142 Ohio St.3d 416, 2015-Ohio-1484, 31 N.E.3d 637, ¶ 8, quoting Black’s Law Dictionary 1625 (10th Ed.2014). A party lacks standing to invoke a court’s jurisdiction unless the party has some real interest in the subject matter of the action. Id., citing State ex rel. Dallman v. Franklin Cty. Court of Common Pleas, 35 Ohio St.2d 176, 179, 298 N.E.2d 515 (1973).

{¶40} In order for the Bank to have standing here to bring its foreclosure action, it must have had an interest in the note or mortgage at the time it filed suit. Federal Home Loan Mortg. Corp. v. Schwartzwald, 134 Ohio St.3d 13, 2012-Ohio-5017, 979 N.E.2d 1214, ¶ 28. The note and mortgage attached to the complaint established it had an interest. Thus, the Bank had standing to bring the foreclosure action.

4. Statute of Limitations

{¶41} William argues the claim for unjust enrichment is barred by the statute of limitations. R.C. 2305.07 provides a six-year statute of limitations for a claim of unjust enrichment. Williams asserts the statute of limitations began to run on September 4, 2004, when the mortgage from Countrywide Home Loans Servicing (the Bank’s predecessor) was used to pay off Elizabeth and William’s previous mortgage on the premises. The Bank asserts the statute of limitations did not begin to run until 2012, when William “asserted an adverse interest in the Property by means of his position in this litigation.”

{¶42} The general rule in Ohio is “a cause of action accrues and the statute of limitations begins to run at the time the wrongful act was committed.” Collins v. Sotka,81 Ohio St.3d 506, 507, 692 N.E.2d 581 (1998). There is an exception to this general rule known as the discovery rule. The discovery rule provides that “a cause of action accrues when the plaintiff discovers, or in the exercise of reasonable care should have discovered, that he or she was injured by the wrongful conduct of the defendant.” Id. The discovery rule, however, has not been extended to unjust enrichment claims. Marok v. Ohio State Univ., 10th Dist. No. 13AP-12, 2014-Ohio-1184, ¶ 25; Palm Beach Co. v. Dun & Bradstreet, Inc., 106 Ohio App.3d 167, 665 N.E.2d 718 (1st Dist.1995).

{¶43} That said, in Palm Beach Co., it was explained, “a cause of action for unjust enrichment accrues on the date that money is retained under circumstances where it would be unjust to do so.” Palm Beach Co. at 175. In that case, the defendant allegedly deceived the plaintiff into buying more of its services than the plaintiff needed. Id. at 169-170. In holding that the claim was barred by the statute of limitations, the court explained:

Although in certain cases the unlawfulness of the retention may not arise until there is a request for a return of the money, in the instant case, if Palm Beach’s allegations are true, it was the receipt of the money that was unlawful, and therefore the cause of action accrued at the latest, as the trial court determined, in 1982 when the last of the alleged overcharges, or false billings or accountings, occurred.

Id. at 175.

{¶44} Appellate courts have applied the Palm Beach reasoning to varying degrees. The Eighth Appellate District reviewed the language of Palm Beach and held the unjust enrichment claim, given the facts before them, was barred. Pomeroy v. Schwartz, 8th Dist. No. 99638, 2013-Ohio-4920, ¶ 43-47. In Pomeroy, an insurance agency brought an action against a commercial client to recover funds advanced to pay non-covered “trail funds.” The trial court determined the last payment, September 2003, of the “trail claims” triggered the statute of limitations, not April 2006, when there was a demand for reimbursement of the “trail funds.” Id. at 45. It explained:

Appellees’ failure to reimburse appellants, if unjust under the circumstances as appellants allege, was unjust from the beginning; when appellants decided to demand the return of the allegedly wrongfully retained benefit is not a significant event for purposes of the statute of limitations. To conclude otherwise would allow a plaintiff to unilaterally control the statutory time.

Id. at ¶ 46.

{¶45} The Ninth Appellate District has also reviewed the Palm Beach decision. Desai v. Franklin, 177 Ohio App.3d 679, 690-93, 2008-Ohio-3957, 895 N.E.2d 875 (9th Dist.), ¶ 17-23. In Desai, Desai and Franklin entered into an employment agreement whereby Desai would join Franklin’s professional corporation. Id. at ¶ 2. The agreement indicated Desai’s compensation would be computed as a percentage of the operating net income. Id. The agreement also provided Desai would be entitled to 45% of the accounts receivable for any termination occurring after July 1, 1981. Id.Desai resigned September 1, 2000. Following his resignation, questions arose as to whether or not Franklin had comported with the terms of the employment agreement. Desai filed suit two years later and asserted, among other claims, a claim for unjust enrichment. The case proceeded to a jury trial. The jury determined Franklin had engaged in unjust enrichment from 1987 until Desai’s departure in 2000 and awarded Desai $301,597.34 in damages for the unjust enrichment claim. Id. at ¶ 8.

{¶46} On appeal, Franklin argued that under the theory of unjust enrichment Desai was entitled to recover only for the injuries he received on the date of the filing of his complaint, January 22, 2002, and the six years preceding that date. Id. at ¶ 13.

{¶47} The appellate court disagreed. Id. at ¶ 23. It discussed the Palm Beach holding and stated the First District focused on the last date the benefit was received and conferred. Id. at ¶ 17. The Ninth Appellate District then explained Palm Beach Co.’s unjust-enrichment claim failed because it had stopped conferring any benefit upon Dun & Bradstreet in 1982, 11 years before it filed its claim. Id. at ¶ 19. It then stated its previous decision regarding when an unjust enrichment claim accrues comports with the Palm Beach decision:

Previously, this court held that an unjust-enrichment claim did not begin to accrue until the point at which the defendant’s retention became unjust. See Chaplain Kieffer Post 1081 v. Wayne Cty. Veterans Assn.(Sept. 21, 1988), 9th Dist. No. 2358, 1988 WL 99188. In Chaplain Kieffer Post 1081, a Veterans of Foreign Wars Post (“post”) placed some of its assets in a trust account under the name of the Wayne County Veterans Association (“association”). The assets were always to be for the benefit of the post. In 1980, the association became a separate organization, but continued to hold the post’s assets. In 1985, new officers of the post asked the association about the assets, but the association claimed that it was entitled to them and that the statute of limitations barred the post from bringing suit to reclaim them. This court held that the post’s unjust-enrichment claim did not accrue until 1985, when the association informed the post that it planned to keep the assets instead of holding them for the post’s benefit. Chaplain Kieffer Post 1081 at *3. Thus, even though the association had possession of the post’s assets prior to 1985, the unjust-enrichment claim did not accrue until the association announced its intent to keep the assets for its own benefit. That announcement made the retention of the post’s benefit unlawful and gave rise to the unjust-enrichment claim. Id. This holding comports with Palm Beach Co.‘s holding that an unjust-enrichment claim accrues, at the latest, when the last unjust retention of the benefit occurs. See Palm Beach Co., 106 Ohio App.3d at 175, 665 N.E.2d 718.

Id. at ¶ 20.

{¶48} The Desai decision, based on the Palm Beach decision, concluded a claim does not accrue until the last point in time the plaintiff conferred and a defendant unjustly received a benefit. Id. at ¶ 22. In Desai the court determined that since Desai stopped working for Diagnostic Imaging in 2000, that was when he effectively stopped being a benefit to Franklin. Thus, the 2002 claim was not barred by the statute of limitations and furthermore, damages could extend back until 1987 since the jury found Franklin was unjustly enriched from 1987 until 2000.

{¶49} In this case, there are three potential accrual dates. The first one is the date of the mortgage signed by Elizabeth, September 4, 2004. William insists that is the correct accrual date. The proceeds of the September 4, 2004 mortgage were used to pay off a previous mortgage signed by William and Elizabeth. He insists that is the only date the benefit was conferred and retained.

{¶50} This reasoning, however, fails to acknowledge payments made on the September 4, 2004 note secured by the mortgage. It may be unjust to hold the accrual date as September 4, 2004, because it would allow William to unilaterally control the statutory time. See Pomeroy, 2013-Ohio-4920 at ¶ 46. William could ensure the mortgage was paid for six years and then stop payment but retain the benefit of having his previous mortgage paid off and getting to keep his house free and clear of debt.

{¶51} The above analysis demonstrates the second potential date of the accrual — date of default or failure to pay on the note. The benefit was being conferred and retained as long as payments on the note were made. Conference and retention of the benefit would not cease until Elizabeth was in default on the note. Thus, the cause of action may not accrue until payments were no longer made on the note. The trial court found the note went into default in February 2012.

{¶52} The third potential accrual date is the date the foreclosure action was filed. The Bank asserts this is when the statute of limitations began to run because this is when William asserted his claim that the Bank could not foreclose on his interest in the property.

{¶53} Considering all potential accrual dates, we agree with the Bank’s position. The statute of limitations did not begin to run until the claim was filed in 2012. Therefore, since the unjust enrichment claim did not accrue until 2012, the claim is not barred by the statute of limitations.

5. Parol Evidence Rule

{¶54} William argues the parol evidence rule prevents the Bank from using Elizabeth’s affidavit to add additional terms to the mortgage, specifically, to use her testimony to assert it was the intention of the Bank, William, and Elizabeth that William was to sign the mortgage. The Bank asserts parol evidence may be introduced to show a mistake where the written contract fails to express the actual agreement. It contends the Supreme Court has allowed parol evidence to be introduced to support reformation of a mortgage.

{¶55} Elizabeth’s affidavit was attached to the Bank’s summary judgment motion. In her affidavit she averred the loan was taken with William’s full knowledge and consent. (Elizabeth Aff. ¶ 8). She further avowed at the time the mortgage was executed, both she and William intended the mortgage would encumber the entire interest in the property and it was a mistake when William did not sign the mortgage. (Elizabeth Aff. ¶ 10). She also stated she and William signed the Bank’s HUD Settlement Statement at closing. (Elizabeth Aff. ¶ 12).

{¶56} The parol evidence rule provides that when parties intend a writing to be a final embodiment of their agreement, it cannot be modified by evidence of earlier or contemporaneous agreements that might add to, vary, or contradict the writing. Bellman v. Am. Internatl. Group, 113 Ohio St.3d 323, 2007-Ohio-2071, 865 N.E.2d 853, ¶ 7, citing Black’s Law Dictionary (8th Ed.2004) 1149. The parol evidence rule is meant to prevent a party from introducing extrinsic evidence of negotiations that took place before or while the agreement was being reduced to writing. Id., citing Black’s Law Dictionary at 1149. Furthermore, the rule assumes the writing reflects the parties’ minds at a point of maximum resolution. Id., citing Black’s Law Dictionary at 1150. Therefore, the rule provides that duties and restrictions that do not appear in the writing were not intended by the parties to survive. Id., citing Black’s Law Dictionary at 1150.

{¶57} A court can only go behind the face of an unambiguous contract where there is mutual mistake, circumventing the parol evidence rule, so long as the court is persuaded by the clearest kind of evidence that a mistake has been made by both parties. D.F.D., Inc. v. Frick, 2d Dist. No. 10769, 1988 WL 59394, (June 2, 1988), citing 13 Williston on Contracts 213, Section 1552, (1972).

{¶58} Here, there is a claim of mutual mistake. Therefore, if the Bank can show mutual mistake then the parol evidence rule will not bar outside evidence of the parties’ intentions. But if mutual mistake does not exist, the parol evidence rule will bar any evidence outside of the contract itself.

6. Reformation Unprecedented

{¶59} William argues that there is no evidence of mutual mistake between the Bank and him.

{¶60} A person seeking reformation of a written instrument must prove by clear and convincing evidence that the mistake regarding the instrument was mutual. Amsbary v. Brumfield, 177 Ohio App.3d 121, 128, 2008-Ohio-3183, 894 N.E.2d 71, ¶13 (4th Dist.), quoting Patton v. Ditmyer, 4th Dist. Nos. 05CA12, 05CA21, and 05CA22, 2006-Ohio-7107, ¶ 28. Clear and convincing evidence is “that measure or degree of proof which is more than a mere `preponderance of the evidence,’ but not to the extent of such certainty as is required `beyond a reasonable doubt’ in criminal cases, and which will produce in the mind of the trier of facts a firm belief or conviction as to the facts sought to be established.” State ex rel. Husted v. Brunner, 123 Ohio St.3d 288, 2009-Ohio-5327, 915 N.E.2d 1215, ¶ 18, quoting Cross v. Ledford, 161 Ohio St. 469, 120 N.E.2d 118 (1954), paragraph three of the syllabus.

{¶61} The record before us discloses a portion of the Bank’s mortgage was used to pay off a 2003 mortgage to which both Elizabeth and William were obligated. The other portion of that 2003 mortgage was paid off with a loan for $36,500.00 from Fifth Third Bank, which was executed the same day the Bank’s mortgage was executed. The Fifth Third loan mortgaged the property, listed the borrowers as Elizabeth and William, and was signed by Elizabeth and William. Attached to William’s motion in opposition to summary judgment was a document from the Bank’s predecessor that lists the conditions of the loan to Elizabeth as of September 1, 2004. One condition was payoffs must be paid at closing. Another condition was the loan for $36,500 from Fifth Third must close. Another condition was “Spouse to sign TIL, RTC & MTG.” That document is dated three days prior to the execution of the loan. The first two conditions were met.^[1] The spouse’s signature condition was not met.

{¶62} In his affidavit, William averred that he never consented to the loan and mortgage. (William Aff. ¶ 4). William further averred that it was not by his mistake that he did not sign the mortgage. (William Aff. ¶ 5).

{¶63} Generally, self-serving affidavits, without corroboration, are not sufficient to demonstrate material issues of fact. Bangor v. Amato, 7th Dist. No. 14 CO 9, 2014-Ohio-5503, ¶ 32. But in this case, William’s affidavit is corroborated by the evidence that not only did he not sign the mortgage, he also did not sign the HUD Settlement Statement. (Elizabeth Aff. Ex. C). Only Elizabeth’s signature is present on the HUD Settlement Statement despite her averment in her affidavit that she and William both signed the HUD Settlement Statement at the closing of the loan. (Elizabeth Aff. ¶ 12). The facts that not only did William not sign the mortgage but also he did not sign the HUD Settlement Statement, when construed together and in the light most favorable to William create a genuine issue of material fact as to whether the lack of William’s signature on the mortgage was intentional on William’s part or was simply a mistake.

{¶64} Moreover, the fact that William initialed pages of the mortgage documents suggest only that he read these pages. Nothing in the mortgage indicates that by initialling the pages the party is agreeing to the terms of the mortgage. This statement is reserved for the signatory page at the end of the mortgage, which states, “BY SIGNING BELOW, Borrower accepts and agrees to the terms and covenants contained in this Security Instrument an in any Rider executed by Borrower and recorded with it.” (Elizabeth Aff. Ex. B). And on the notary page at the end of the mortgage, the notary public stated that the document was acknowledged before him by Elizabeth. (Elizabeth Aff. Ex. B). The notary public does not mention William at all. (Elizabeth Aff. Ex. B).

{¶65} Based on the above, a genuine issue of material fact exists as to whether William’s missing signature on the mortgage was accidental or intentional. This genuine issue of material fact precludes summary judgment.

7. Material Issues of Fact

{¶66} William asserts the only evidence for or against summary judgment are his and Elizabeth’s affidavits. As stated above, Elizabeth’s affidavit indicated it was a mistake that William did not sign the mortgage. (Elizabeth Aff. ¶ 10). William’s affidavit indicated it was not a mistake that he did not sign the mortgage. (William Aff. ¶ 5).

{¶67} William contends the statements in Elizabeth’s affidavit are unreliable, and therefore, lack credibility. He states, at the minimum, the contradictory affidavits create a genuine issue of material fact.

{¶68} William is correct that Elizabeth’s affidavit does contain an inconsistency with the document attached to the affidavit. As set forth above, Elizabeth avowed in the affidavit William signed the HUD Settlement Statement at closing. (Elizabeth Aff. ¶ 12). The HUD Settlement Statement was attached to the summary judgment motion and does not contain William’s signature.

{¶69} The Bank asserts, despite the fact William states it was not his intent to sign the mortgage, there are not any genuine issues of material fact. It states the intent of Elizabeth and the Bank was the only relevant intent to determine if William was to sign the mortgage. That may be true if Elizabeth or the Bank were attempting to have the contract deemed void. However, the Bank is attempting to reform the document to encumber William’s interest in the property. It wants to have him bound by the contract. Therefore, his intent is relevant. If he never intended to be a party to the contract, he cannot be made to be a party to the contract. In simple terms, if two parties to a contract intended a third party to be a party to the contract, but the third party had no intent to be a party to the contract, the two parties cannot reform the contract to include the third party. Therefore, the Bank’s assertion that William’s intent is irrelevant lacks merit.

{¶70} As stated above, there is conflicting evidence as to whether a mutual mistake exists in this case. On July 29, 2003, William and Elizabeth borrowed $229,500 from Accredited Home Lenders. That loan was secured by a mortgage to the property located at 10450 New Buffalo Road, Canfield, Ohio. The mortgage was signed by both William and Elizabeth. Almost one year later, Elizabeth borrowed approximately $207,000 from the Bank and Elizabeth and William borrowed approximately $36,000 from Fifth Third Bank. Those two loans were used to pay off the Accredited Home Lenders loan. The Bank’s loan and the Fifth Third loan closed on the same day. William signed the mortgage with Fifth Third Bank. Significantly, however, William did not sign the mortgage with the Bank. Not only did he not sign the mortgage, he also did not sign the HUD Settlement Statement. Moreover, the notary public stated on the notary page at the end of the mortgage that the mortgage was acknowledged before him by Elizabeth. The notary makes no mention of William acknowledging the mortgage.

{¶71} Considering all of the evidence in the light most favorable to William, the non-moving party, we conclude a genuine issue of material fact exists as to whether William’s missing signature on the mortgage was accidental or intentional.

Thus, the trial court erred in granting summary judgment.

{¶72} Accordingly, William’s first assignment of error has merit and is sustained because the trial court erroneously granted summary judgment.

{¶73} William’s second assignment of error states:

THE TRIAL COURT ERRED IN STRIKING DARKADAKIS’ MOTION FOR SUMMARY JUDGMENT.

{¶74} The trial court granted summary judgment to the Bank on June 11, 2014. That order was not a final appealable order because it did not include a final decree of foreclosure. Thus, we remanded the matter so the trial court could issue a final appealable order. William filed his motion for summary judgment on February 5, 2015. The trial court struck the motion on April 21, 2015. A final decree of foreclosure was issued the same day.

{¶75} William asserts the trial court abused its discretion in striking his motion without considering it. He asserts the motion was timely filed, a statute of limitations defense on reformation arose in the interim, the filing of the motion did not exceed our limited remand, and the Bank was not prejudiced.

{¶76} An appellate court will not overturn a trial court’s decision to grant a motion to strike absent an abuse of discretion. Embry v. Bur. of Workers’ Comp., 10th Dist. No. 04AP-1374, 2005-Ohio-7021, ¶ 12. Abuse of discretion connotes more than an error of law or judgment; it implies that the trial court’s attitude is unreasonable, arbitrary, or unconscionable. Blakemore v. Blakemore, 5 Ohio St.3d 217, 219, 450 N.E.2d 1140 (1983).

{¶77} Following our December 15, 2014 order remanding the case for the parties to obtain a final appealable order, the magistrate issued an order on January 6, 2015. William’s first argument is that the magistrate’s January 6, 2015 order permitted the parties to file any pleadings in this case. According to the Bank, the magistrate’s order directed the parties to file pleadings to “prosecute the case.” It claims the motion for summary judgment was not filed to prosecute the case, but rather was seeking to re-argue issues already decided by the trial court.

{¶78} The Bank’s assessment of the issue is correct. The trial court had already granted summary judgment to the Bank on its reformation and unjust enrichment claims. William’s motion for summary judgment re-raised arguments already asserted in his motion in opposition to the Bank’s motion for summary judgment. The only new argument was a statute of limitations argument concerning the reformation claim, which will be discussed below. Thus, William’s motion was not being used to prosecute the case.

{¶79} William’s second argument is the ten-year statute of limitation period for the reformation claim expired on September 1, 2014, while the appeal was pending. According to William, the summary judgment motion was necessary to assert this new defense.

{¶80} “R.C. 2305.14 provides that actions not specifically limited in any provision of the Code must be brought within ten years after the cause accrued. A cause of action for reformation of a written instrument based upon mistake accrues upon the execution of the instrument.” Bonham v. Hamilton, 12th Dist. No. CA2006-02-030, 2007-Ohio-349, ¶ 31. The Bank filed its claim for reformation prior to September 4, 2014. Thus, the statute of limitations had not expired. The claim does not have to be resolved within the statute of limitations period, rather it must be filed within the statute of limitations. R.C. 2305.14 (“An action for relief * * * shall be brought within ten years after the cause thereof accrued.”). Therefore, William’s argument on this point fails.

{¶81} Next, William argues his motion for summary judgment did not exceed our limited remand.

{¶82} When we remanded the matter on December 15, 2014, our judgment entry discussed what is required for a foreclosure decree to be final. We stated, “the trial court did not enter a monetary award on the award of summary judgment, nor did it resolve the issue of liens.” We also explained that there are two appealable judgments in foreclosure actions — the order of foreclosure and sale, and the confirmation of sale. In this case, no decree of foreclosure was issued when the trial court granted summary judgment to the Bank. Thus, we issued a “limited remand” for 60 days to permit William to obtain a final appealable order.

{¶83} In the June 4, 2015 judgment entry concerning the Bank’s argument that we should not address the trial court’s decision to strike William’s motion for summary judgment we stated:

On December 15, 2014 this Court issued a limited remand to allow the trial court to enter final judgment regarding the foreclosure proceedings, as no decree in foreclosure had yet been issued. The limited remand was for a very specific purpose. In short, there did not exist a final appealable order at the time the Notice of Appeal was filed.

{¶84} We made it clear that the remand was a limited remand. We were not remanding to permit William to file his own summary judgment motion. William had the opportunity to file a summary judgment motion if he wanted at an earlier time. But he did not. The trial court was correct in determining our remand was limited. The trial court did not abuse its discretion when it struck William’s motion for summary judgment.

{¶85} William’s last argument is the Bank was not prejudiced by his motion for summary judgment. Lack of prejudice to a party does not mean the trial court abused its discretion in striking the motion. As stated above, our remand was a limited remand for the trial court to issue a final appealable order, specifically a foreclosure decree.

{¶86} Accordingly, William’s second assignment of error is without merit and is overruled.

{¶87} William’s third assignment of error states:

THE TRIAL COURT ERRED IN NOT GRANTING DARKADAKIS’ MOTION FOR SUMMARY JUDGMENT.

{¶88} William argues the trial court erred in not granting his motion for summary judgment. But the trial court struck his summary judgment motion. We have already found the trial court did not abuse its discretion in striking William’s summary judgment motion.

{¶89} Therefore, William’s third assignment of error is without merit and is overruled.

{¶90} William’s fourth assignment of error states:

{¶91} THE TRIAL COURT ERRED IN OVERRULING DARKADAKIS’ MOTION TO DISMISS.

{¶92} As stated above, William argues the complaint was insufficient and failed to state a claim against him. He contends the trial court erred when it failed to grant his motion to dismiss the complaint for failure to state a claim.

{¶93} The Bank asserts William did not file a motion to dismiss. Therefore, the trial court did not err in failing to grant a nonexistent motion.

{¶94} Technically, the Bank is correct. William did not file a separate motion to dismiss. However, in his motion in opposition to the Bank’s motion for summary judgment, he stated:

Bank has raised unjust enrichment but failed to plead same in its complaint. William’s answer would have asserted an affirmative. [sic] This unjust enrichment claim at his [sic] late date constitute a failure to state a claim upon which relief may be granted pursuant to Civ.R. 12(B)(6). * * *

As the Bank’s motion for summary judgment is the first presentation of the mutual mistake and unjust enrichment claims and this memorandum in opposition is the first opportunity to raise such defense, it is believed that these defenses under Civ.R. 12 are timely being raised and ought to be considered by the court before it determines the appropriateness of the motion for summary judgment.

Wherefore, Defendant William Darkadakis, pursuant to facts in dispute and defenses now raised to new claims being made, respectfully requests that the Bank’s motion for summary judgment be denied and, if necessary that the Bank’s complaint be amended to include well-pleaded claims and the joinder of a necessary party.

{¶95} What is notably missing is a request to dismiss the complaint for failure to state a claim.

{¶96} Therefore, William’s fourth assignment of error is without merit and is overruled.

{¶97} William’s fifth assignment of error states:

THE TRIAL COURT ERRED IN ORDERING THE FORECLOSURE ON DARKADAKIS’ HOME.

{¶98} Because we have already determined that the trial court erred in granting summary judgment in this case, the trial court’s order of foreclosure will be reversed.

{¶99} Accordingly, William’s fifth assignment of error is moot.

{¶100} William’s sixth assignment of error states:

THE TRIAL COURT ERRED IN DENYING DARKADAKIS’ MOTION TO SUPPLEMENT THE RECORD WITH THE BANK’S PROPOSED FINDINGS OF FACT AND CONCLUSION OF LAW.

{¶101} While the appeal was pending, William filed a motion with this court to supplement the record. We held the magistrate and trial court were in a superior position to determine if the record should be supplemented. The trial court denied the motion.

{¶102} We have already determined that the trial court erred in granting summary judgment in this case.

{¶103} Accordingly, William’s sixth assignment of error is moot.

{¶104} For the reasons stated above, the trial court’s judgment is hereby reversed. The matter is remanded to the trial court for further proceedings pursuant to law and consistent with this opinion.

Robb, J., dissents with attached dissenting opinion.

Yarbrough, J., concurs.

Robb, J., dissenting opinion.

{¶105} I respectfully dissent from the decision reached by my colleagues. In reversing the trial court’s grant of summary judgment for the Bank, the majority holds, “a genuine issue of material fact exists as to whether William mistakenly failed to sign the mortgage or whether he intentionally did not sign it.” Opinion ¶ 29. I disagree with this holding and would affirm the trial court’s grant of summary judgment for the Bank.

{¶106} The majority’s holding suggests if William intentionally did not sign the loan then reformation would not be available. I find fault with that suggestion. If William intended to encumber his property, but intentionally did not sign the document in an attempt to take advantage of the situation, then mistake still could be found and reformation could still be available. When a unilateral mistake occurs “`due to a drafting error by one party and the other party knew of the error and took advantage of it, the trial court may reform the contract. * * * Reformation is appropriate if one party believes a contract correctly integrates the agreement and the other party is aware that it does not, even though the mistake was not mutual.'” 425 Beecher, L.L.C. v. Unizan Bank, Natl. Assn., 186 Ohio App.3d 214, 2010-Ohio-412, 927 N.E.2d 46, ¶ 44 (10th Dist.), quoting Galehouse Constr. Co., Inc. v. Winkler, 128 Ohio App.3d 300, 303, 714 N.E.2d 954 (9th Dist.1998).

{¶107} Consequently, I believe the issue before this court is not whether there is a genuine issue of material fact as to whether William mistakenly failed to sign the document or whether he intentionally failed to sign it. Rather, the issue is whether there is a genuine issue of material fact as to whether there was a mutual mistake in the execution of the mortgage. Specifically, is there a genuine issue of material fact as to whether William intended to encumber the property?

{¶108} Civ.R. 56 provides summary judgment shall be granted if “there is no genuine issue as to any material fact” and the moving party is “entitled to judgment as a matter of law.” Civ.R. 56(C). That said, the rule further provides:

A summary judgment shall not be rendered unless it appears from the evidence or stipulation, and only from the evidence or stipulation, that reasonable minds can come to but one conclusion and that conclusion is adverse to the party against whom the motion for summary judgment is made, that party being entitled to have the evidence or stipulation construed most strongly in the party’s favor.

Civ.R. 56(C).

{¶109} Given the facts of this case, in my opinion, there is no genuine issue of material fact because the only reasonable conclusion the jury could reach is that William intended to encumber the property.

{¶110} The United States Supreme Court has explained:

If the defendant in a run-of-the-mill civil case moves for summary judgment or for a directed verdict based on the lack of proof of a material fact, the judge must ask himself not whether he thinks the evidence unmistakably favors one side or the other but whether a fair-minded jury could return a verdict for the plaintiff on the evidence presented. The mere existence of a scintilla of evidence in support of the plaintiff’s position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff. The judge’s inquiry, therefore, unavoidably asks whether reasonable jurors could find by a preponderance of the evidence that the plaintiff is entitled to a verdict— “whether there is [evidence] upon which a jury can properly proceed to find a verdict for the party producing it, upon whom the onus of proof is imposed.” Munson, supra, 14 Wall., at 448.

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505 (1986).

{¶111} Here, the undisputed facts are William and Elizabeth, a married couple, borrowed $229,500 from Accredited Home Lenders on July 29, 2003, which was secured by a mortgage on the property located at 10450 New Buffalo Road, Canfield, Ohio. Both William and Elizabeth signed the mortgage. That loan was paid off one year later by two loans; Elizabeth borrowed approximately $207,000 from the Bank, and Elizabeth and William borrowed approximately $36,000 from Fifth Third Bank. Those two loans closed on September 2, 2004 with William present at both closings.^[2] William signed the mortgage with Fifth Third Bank; however, he only initialed the mortgage with the Bank. From 2004 until the note went into default in February 2012, payments were made. During that time William and Elizabeth were married and resided in the residence located at 10450 New Buffalo Road, Canfield, Ohio.

{¶112} William’s initials on the bottom of every page, except the signature page of the Bank’s mortgage, are a confirmation he read the document. When that confirmation is taken together with the facts that the loan was used to pay off his 2003 mortgage with Accredited Home Lenders and payments were made on the mortgage, a reasonable person could only conclude that William knew his property was to be encumbered and intended to encumber his property. There is no evidence William protested the mortgage with the Bank; instead, he used the loan to pay off his obligation to Accredited Home Lenders. Given those facts, a reasonable trier of fact could only conclude it was a mistake when William failed to sign the mortgage and reformation is available.

{¶113} To conclude otherwise unjustly enriches William. I agree with the majority’s conclusion that unjust enrichment was properly pled. The elements of unjust enrichment are “(1) a benefit conferred by a plaintiff upon a defendant; (2) knowledge by the defendant of the benefit; and (3) retention of the benefit by the defendant under circumstances where it would be unjust to do so without payment (`unjust enrichment’).” Hambleton v. R.G. Barry Corp., 12 Ohio St.3d 179, 183, 465 N.E.2d 1298 (1984). There are no disputes as to these elements. William’s loan with Accredited Home Lenders was paid off. William knew the loan was paid off and he knew of the loan with the Bank. It is unjust for William to retain the benefit of having his loan paid off but not pay the Bank. In essence, if he does not have to pay the Bank, then he will receive a house for free.

{¶114} For those reasons, even when viewing the evidence in a light most favorable to William, a reasonable trier of fact could only conclude that it was William’s intent to encumber the property. Any conclusion to the contrary is unreasonable and would result in William being unjustly enriched; he would receive the house free and clear of the mortgage even though the note undisputedly paid off William’s previous mortgage on the property. Thus, I would affirm the trial court’s grant of summary judgment for the Bank.

[1] This document does not meet the requirements of Civ.R. 56 to qualify as proper summary judgment evidence. However, no one objects to it.

[2] Despite assertions at oral argument that William was not present at the closing of the Bank’s mortgage, the record does not support such a position. Elizabeth averred in her affidavit that William was present at the mortgage closing. William’s affidavit does not deny that averment or state he was not present at the mortgage closing.

Liberty Mortgage Corporation, a Georgia corporation; BB&T Corporation, a North Carolina corporation; and Branch Banking and Trust Company, a North Carolina corporation; Petitioners,
v.
Raymond L. Fiscus, a/k/a Ray Fiscus. Respondent.

Hoskin Farina & Kampf, P.C., David M. Dodero, Nicholas H. Gower, Grand Junction, Colorado, Attorneys for Respondent.

No appearance by or on behalf of Liberty Mortgage Corporation, a Georgia corporation; or BB&T Corporation, a North Carolina corporation.

JUSTICE EID delivered the Opinion of the Court.

JUSTICE COATS joins with the majority and specially concurs.

JUSTICE HOOD concurs in part and dissents in part, and JUSTICE MÁRQUEZ joins in the concurrence in part and dissent in part.

JUSTICE GABRIEL does not participate.

Justice EID delivered the Opinion of the Court.

¶1 Petitioner Branch Banking and Trust Company asks us to decide whether a deed of trust securing a promissory note is a negotiable instrument under Article 3 of Colorado’s Uniform Commercial Code (“UCC”). The court of appeals held that deeds of trust are not negotiable instruments within the meaning of Article 3, and therefore the bank was not a holder in due course with respect to the deed at issue here. Fiscus v. Liberty Mortg. Corp., 2014 COA 79, ¶¶ 47-49, ___ P.3d ___.

¶2 We affirm the judgment of the court of appeals, but on different grounds. In this case, the deed and other documents were forged. We hold that, even assuming a deed of trust qualifies as a negotiable instrument, holder-in-due-course status does not preclude a purported maker from asserting a forgery defense. Here, the purported maker possesses a valid forgery defense, his negligence did not contribute to the forgery, and he did not ratify the forged documents. As such, we need not and do not reach the issue of the negotiability of deeds of trust under Article 3.

I.

¶3 Respondent Ray Fiscus (“Husband”) married Vickie Casper-Fiscus (“Wife”) in 1985. In 1987, he purchased property in Grand Junction, Colorado, and titled it solely in his name. He financed the purchase with a mortgage loan, and the couple used the property as their marital home. Throughout their marriage, Wife managed their finances, which included the payment of household bills as well as mortgage and credit card debts. Husband neither confirmed these payments nor reviewed the couple’s bank statements or tax returns, and so he had little knowledge of their precise finances. ¶4 In June 2008, without his knowledge or authorization, Wife signed Husband’s name on a General Power of Attorney, a Limited Power of Attorney, and a Power of Attorney (Real Estate) (collectively, the “forged POAs”), which together purported to appoint her as Husband’s lawful attorney. Her daughter from a previous marriage notarized the documents. Using the forged POAs, Wife closed on a promissory note for approximately $220,000 with Liberty Mortgage Corporation and secured it with a deed of trust (the “2008 deed”) purporting to encumber the property. She signed the 2008 deed as “Raymond Fiscus by Vickie L. Casper-Fiscus as Attorney in Fact.” The couple’s 2008 tax return, signed by both spouses, included a mortgage interest deduction in the amount of $1,722. This was consistent with the amount Husband would have expected to have paid on the original 1987 mortgage loan. At no time in 2008 did Husband become aware of the note Wife executed.

¶5 In early 2009, Wife began making inquiries about refinancing the 2008 note. While doing so, she sent an email to a mortgage broker informing him that Husband “is out of town a lot so I have power of attorney” and asking if proceeding with the refinancing by power of attorney would be a problem. In February and March, she signed Husband’s name to several loan application documents, and, on March 30, she executed another note in the amount of $220,000 with Liberty Mortgage, once again using the forged POAs, securing the note with a deed of trust purporting to encumber the property (the “2009 deed”), and signing both documents as “Raymond Fiscus by Vickie L. Casper-Fiscus as Attorney in Fact.” Husband never authorized her to execute the 2009 note or deed in his name and had no knowledge of them at the time. Wife paid off the 2008 note with the proceeds from the 2009 note, and the 2008 note was released. Liberty Mortgage subsequently assigned the 2009 note and deed to BB&T Corporation, which, in turn, assigned them to petitioner Branch Banking and Trust.

¶6 The mortgage interest deduction on the couple’s 2009 tax return was $12,323, an amount much higher than Husband would have expected to claim on the original mortgage loan from 1987. Wife signed his name on the tax return without his knowledge, and, when he asked about it, she told him he did not need to sign it because he had authorized electronic filing. Husband never saw the tax return.

¶7 Wife hid all the documents evidencing the 2008 and 2009 transactions in the crawl space of their home. Husband did not learn of the transactions until 2011 when his broker contacted him to authorize an attempted withdrawal from his IRA account in the amount of $5,000. During that conversation, Husband learned that Wife had made an unauthorized withdrawal from his account earlier for $10,000 with the help of her son-in-law, who had impersonated Husband on the phone. Husband then performed a credit check and discovered the 2009 note. After discovering the note, he checked the county property records and uncovered the 2008 and 2009 deeds as well as the forged POAs. He filed an identity theft report with the sheriff’s office and an identity theft statement with Branch Banking and Trust. He also sued Liberty Mortgage, BB&T, and Branch Banking and Trust under the spurious lien statute, §§ 38-35-201 to -204, C.R.S. (2015), seeking to have the 2009 deed invalidated.

¶8 The district court held a show cause hearing in August 2012 at which Husband, Wife, Wife’s daughter, and a BB&T representative, among others, testified. In a detailed order, the district court held that the 2009 deed was spurious because it was not created, suffered, assumed, or agreed to by Husband, the property’s sole owner, and contained a material misstatement, that is, Husband’s signature.

¶9 The court also rejected Branch Banking and Trust’s defenses. As relevant here, the bank argued that, under Article 3 of the UCC, it qualified as a holder in due course and took the 2009 deed free from any forgery defense. In the alternative, it contended that Husband’s negligence contributed to the making of the forged deed and that he ratified the deed. The trial court, however, held that the 2009 deed was not a “negotiable instrument” but a “security instrument,” and therefore the bank could not assert a holder-in-due-course or negligent-contribution defense under Article 3. It also rejected Branch Banking and Trust’s ratification argument, concluding instead that Husband lacked knowledge of the facts relating to the documents’ creation until December 2011 and took no action at that time to approve them. Consequently, the court invalidated the 2009 deed and ordered its release.

¶10 The court of appeals affirmed. Fiscus, ¶ 1. It agreed with the trial court that a deed of trust is a security instrument, not a negotiable instrument, and therefore held that the Article 3 defenses did not apply. Id. at ¶ 47. It further concluded that there was record support for the trial court’s finding that Husband lacked knowledge of the material facts relating to the 2009 deed until December 2011. Id. at ¶ 41. Correspondingly, it affirmed the lower court’s holding that Husband did not ratify the note. Id. at ¶¶ 41, 43.

¶11 Branch Banking and Trust petitioned this court to review the court of appeals’ holding, and we granted certiorari to determine whether a lender in possession of a promissory note secured by a deed of trust on real property may assert a holder-in-due-course defense under section 4-3-305, C.R.S. (2015), to a claim that the deed of trust was forged. We conclude, however, that Husband has a valid forgery defense, not barred by negligence or ratification, and thus decline to address this issue. We therefore affirm the judgment of the court of appeals, but on other grounds.

II.

¶12 Branch Banking and Trust argues that the 2009 deed is a negotiable instrument under Article 3 because it secures the promise to pay contained in the 2009 note, which plainly qualifies as a negotiable instrument. But even assuming (without deciding) that Branch Banking and Trust is correct, we conclude that, on these facts, Husband has a valid forgery defense to any claim the bank might assert as a holder in due course, and that this defense is not precluded by any negligence or ratification on Husband’s part. As such, we need not and do not address the negotiability of a deed of trust under Article 3.

¶13 Article 3 of the UCC governs the issuance, transfer, enforcement, and discharge of negotiable instruments. Under Article 3, a holder in due course of a negotiable instrument takes it free of most defenses. § 4-3-305(b) (enumerating the defenses that do and do not apply to holders in due course); see also 2A Cathy Stricklin Krendl et al., Colorado Methods of Practice § 83:11 (6th ed. 2012) (“A holder in due course takes the instrument free from all claims of any party and of all defenses of any party with whom he has not dealt except for `real’ defenses. . . . A person who is not a holder in due course (including both a transferee and a holder) has much more limited rights.” (footnotes omitted)). Nevertheless, some defenses, such as infancy, duress, lack of legal capacity, and “fraud that induced the obligor to sign the instrument with neither knowledge nor reasonable opportunity to learn of its character or its essential terms,” still apply to holders in due course. § 4-3-305(a)(1), (b). On the other hand, other defenses enumerated in Article 3 and those provided by contract law may not be used to challenge the enforcement of an instrument. § 4-3-305(a)(2), (b).

¶14 Branch Banking and Trust asserts that, under section 4-3-305(b), holders in due course are only subject to the defenses outlined in subsection (a)(1). Because subsection (a)(1) does not include forgery, the bank argues that it is a contract defense to which holders in due course are not subject under subsection (a)(2). We disagree.

¶15 By its plain terms, the statute only identifies the defenses that apply to “[t]he right of a holder in due course to enforce the obligation of a party to pay the instrument.” § 4-3-305(b) (emphasis added); see also § 4-3-305(a) (listing the defenses to which “the right to enforce the obligation of a party to pay an instrument is subject”) (emphasis added). This language presupposes that an obligation exists and that the holder in due course has a right to enforce it.

¶16 When a purported maker raises a forgery defense, however, he is challenging the very existence of the obligation itself, not its enforcement. For an instrument to bind a person under Article 3, that person must either personally sign the instrument or be represented by an agent who signs it on his behalf. § 4-3-401, C.R.S. (2015); see also § 4-3-401 cmt. 1 (“Obligation on an instrument depends on a signature that is binding on the obligor. The signature may be made by the obligor personally or by an agent authorized to act for the obligor.”). This requirement is plainly not satisfied where his name is signed without authorization. Indeed, section 4-3-403(a), C.R.S. (2015), specifically provides that an “unauthorized signature” does not bind the person whose name is signed absent ratification, and section 4-1-201(b)(41), C.R.S. (2015), specifies that the term “unauthorized signature” includes a forgery.

¶17 The omission of forgery from section 4-3-305(a)(1) thus makes sense because it is not a defense to enforcement and therefore falls outside the scope of subsections (a) and (b). See § 4-3-302 cmt. 2, C.R.S. (2015) (“Notice of forgery or alteration is stated separately [in section 4-3-302(a)(1)] because forgery and alteration are not technically defenses under subsection (a) of Section 3-305.”). It follows that, despite this omission, a party may still assert forgery against a holder in due course. See Real Defense, Black’s Law Dictionary (10th ed. 2014) (listing “forgery of a necessary signature” as a “defense that is good against any possible claimant, so that the maker or drawer of a negotiable instrument can raise it even against a holder in due course”).

¶18 Article 3’s requirements for proving the validity of signatures on a negotiable instrument bolster this conclusion. In general, when a party files suit to enforce an instrument, the court presumes that signatures are valid unless specifically contested by the purported maker. § 4-3-308(a), C.R.S. (2015). Holder-in-due-course status becomes relevant only after the validity of the signatures has been established. § 4-3-308(b); see also § 4-3-308 cmt. 2 (“Once signatures are proved or admitted a holder, by mere production of the instrument, proves `entitlement to enforce the instrument’. . . . Until proof of a defense or claim in recoupment is made, the issue as to whether the plaintiff has rights of a holder in due course does not arise.”). In this way, Article 3 provides for the assertion of a forgery defense even against holders in due course.

¶19 Therefore, consistent with other jurisdictions interpreting their versions of Article 3, we hold that a purported maker may raise forgery as a defense to an obligation on an instrument held by a party claiming holder-in-due-course status. See, e.g., Ingersoll-Rand Fin. Corp. v. Anderson, 921 F.2d 497, 503 (3d Cir. 1990) (“[U]nder New Jersey law, when a negotiable instrument is claimed to be a forgery, until such time as its status as a genuine instrument is established, even a holder in due course takes subject to the forgery defense.”); Fed. Fin. Co. v. Chiaramonte, No. CV 950148828, 1998 WL 727768, at *2 n.2 (Conn. Oct. 5, 1998) (“[The defense of forgery] is available to the defendants whether the holder is a holder in due course or not, since an unauthorized signature is ineffective. . . .”); Southtrust Bank of Ga. v. Parker, 486 S.E.2d 402, 404-06 (Ga. Ct. App. 1997) (reversing grant of summary judgment where questions of material fact remained as to forgery, even though holder was holder in due course).

¶20 On the facts as found by the district court, Husband has a valid forgery defense. The district court found that he never appointed Wife as his attorney or authorized her to sign his name on the forged POAs, any of the notes or deeds, or the loan applications. She thus was not an “an agent or representative” of Husband within the meaning of section 4-3-401. Yet she fraudulently signed his name on all of these documents, had her daughter from a prior marriage notarize them, and represented herself as his attorney. Husband therefore has a valid forgery defense.

¶21 Furthermore, although Article 3 bars a person whose signature was forged from asserting forgery as a defense if his own negligence contributed to the forgery, § 4-3-406(a), C.R.S. (2015), the district court’s detailed factual findings preclude any finding of negligence on Husband’s part here. Given that the interest deduction on the 2008 tax return was in the amount he expected, the district court concluded that the earliest Husband could or should have discovered the 2009 deed by the exercise of reasonable diligence was in April 2010, when he could have reviewed the 2009 tax returns. But when he asked Wife about the returns, she deliberately misled him, telling him that he did not need to sign them. We decline to declare him negligent for trusting his wife. And the next time he detected suspicious activity—in December 2011—he exercised “ordinary care” under section 4-3-406 by performing a credit check and filing identity theft reports with the police and the bank.

¶22 This was not a case where a purported maker failed to exercise reasonable control over his checks or signing devices. See § 4-3-406 cmt. 3. Rather, it was an active effort on Wife’s part to encumber the property without Husband’s knowledge. She forged his signature on three powers of attorney by signing his name without his permission; had her daughter from a previous marriage fraudulently notarize them; encumbered the property without his consent using the forged POAs; falsely advised the mortgage broker that he was unavailable and that they therefore had to proceed using powers of attorney; hid the documents evidencing the transactions in the crawl space of their home; and lied when he asked her about the 2009 tax returns. In short, Wife went to great lengths to defraud Husband, and he was not negligent for falling victim to her elaborate scheme.

¶23 We also agree with the court of appeals that the record supported the district court’s finding on ratification. While a purported holder may ratify an unauthorized signature, and thus make it binding on him, § 4-3-403(a), “ratification can never exist unless it is clearly shown that the party charged with ratification has full knowledge of all material facts, and thereafter knowingly accepts and approves the contract,” Colo. Mgmt. Corp. v. Am. Founders Life Ins. Co. of Denver, 359 P.2d 665, 669 (Colo. 1961). The party alleging ratification—here, Branch Banking and Trust—carries the burden of proof. Film Enters., Inc. v. Selected Pictures, Inc., 335 P.2d 260, 265 (Colo. 1959). Husband testified, however, that he never knew of the 2008 or 2009 loan transactions or their resulting deeds of trust, and the district court credited that testimony. The record therefore supports the district court’s conclusion that he lacked “full knowledge of all material facts” about the transactions required for ratification, Colo. Mgmt. Corp., 359 P.2d at 669, and we affirm the court of appeals’ holding on this point, see C.R.C.P. 52 (“Findings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses.”); Amos v. Aspen Alps 123, LLC, 2012 CO 46, ¶ 25, 280 P.3d 1256, 1262 (“In an appeal of a judgment entered after a trial to the court, we defer to the trial court’s credibility determinations and will disturb its findings of fact only if they are clearly erroneous and are not supported by the record.”).

¶24 Overall, then, the facts as found by the district court indicate that Husband has a valid forgery defense, did not negligently contribute to the forgery, and never ratified the notes or the deeds of trust securing them. On these facts, even assuming without deciding that Article 3 applies to the 2009 deed of trust, Husband prevails.

¶25 Because Husband has a valid forgery defense, not precluded by any negligence or ratification on his part, we need not and do not reach the question of whether a deed of trust is a negotiable instrument under Article 3. Correspondingly, we hold that it was unnecessary for the court of appeals to address this issue, and affirm its judgment on other grounds.

III.

¶26 We affirm the judgment of the court of appeals on other grounds.

JUSTICE COATS joins with the majority and specially concurs.

JUSTICE HOOD concurs in part and dissents in part, and JUSTICE MÁRQUEZ joins in the concurrence in part and dissent in part.

Justice COATS, specially concurring.

¶27 While I concur in the majority opinion and fully agree that we need not reach the issue of the negotiability of deeds of trust under Article 3 or Colorado’s Uniform Commercial Code, in light of Justice Hood’s alternate opinion urging the treatment of the deed of trust in this case as a negotiable instrument, I write separately to explain my own understanding of the controlling statutes.

¶28 I emphasize “controlling statutes” because I think it clear that the question whether a deed of trust referenced by, and securing a promise to pay contained in, a negotiable instrument is therefore to be treated as inseparable from that negotiable instrument itself, is first and foremost a matter of statutory interpretation. By contrast, Justice Hood would resolve the question on the basis of ancient interpretations of the common law and principles of equity, and the decisions of two intermediate appellate courts still relying on pre-Uniform Commercial Code precedent in their respective states. See Carnegie Bank v. Shalleck, 606 A.2d 389, 400 (N.J. Super. Ct. App. Div. 1992) (citing Magie v. Reynolds, 26 A. 150 (N.J. Ch. Div. 1893)); Pitman Place Dev., LLC v. Howard Invs., LLC, 330 S.W.3d 519, 536 (Mo. Ct. App. 2010) (citing Bellistri v. Ocwen Loan Serv., LLC, 284 S.W.3d 619, 623 (Mo. Ct. App. 2009) (relying in turn on George v. Surkamp, 76 S.W.2d 368, 371 (Mo. 1934))). Justice Hood relies primarily on the authority of an 1882 decision of the United States Supreme Court, sitting as an appellate court for one of its territories—the Territory of Colorado—rather than as the highest constitutional court in our federal system of government, and interpreting then-controlling principles of law and equity. See Carpenter v. Longan, 83 U.S. (16 Wall.) 271 (1872). While the view expressed in Carpenter had become accepted by a majority of the jurisdictions of this country by some point in the first half of the twentieth century, prior to the widespread adoption of the Uniform Commercial Code, a substantial minority of states offered compelling objections and remained unwilling to adopt it. See W. W. Allen, Annotation, Right of Holder of Negotiable Paper Secured by Mortgage or of Trustee in Mortgage to Protection as Regards Defenses Against Mortgage, 127 A.L.R. 190 (1940). Since the widespread adoption of the Commercial Code, the two examples cited by the majority appear to be isolated examples of states unselfconsciously continuing to rely on their pre-Code precedents.

¶29 Although we have previously made clear that our adoption of the Uniform Commercial Code allows for the continued vitality of preexisting principles of law and equity only to the extent that they have not been displaced by the Code, and that “displacement,” as that term appears in the Code, contemplates the abrogation of common law rules without requiring unequivocal, explicit reference to the doctrine in question, see Clancy Sys. Int’l, Inc. v. Salazar, 177 P.3d 1235, 1237 (Colo. 2008), Justice Hood offers no explanation why the rule of Carpenter, even if we were to find it useful as a matter of policy, has not been displaced by the statutory scheme of the Code. And although the Code treats the age-old problem of the bona fide purchaser in its own way, through its own scheme of tightly interlocking concepts like the “negotiable instrument” and the “holder in due course,” Justice Hood offers no explanation how the Code can be interpreted to allow for the treatment of a security document as a negotiable instrument, or how the legislature’s distinctly separate treatment of real property interests, including mortgages and deeds of trust, can be reconciled with their conversion into commercial paper.

¶30 In perhaps the only case decided by this court concerning the effect of referencing a deed of trust in a promissory note, we addressed the converse question: whether the note lost its character as a negotiable instrument by being collateralized by the mortgage. In Haberl v. Bigelow, 855 P.2d 1368 (Colo. 1993), we answered that question with a resounding “no.” Although, as the court of appeals noted below, we did not directly answer the question whether a deed of trust can, nevertheless, become a negotiable instrument by partaking in the character of the promissory note, our reasoning in Haberl could hardly be considered favorable. In fact, our rationale in Haberl necessarily implied that it cannot. For the very reason that a deed of trust, by definition, includes undertakings other than simply an unconditional promise or order to pay a fixed amount of money on demand or at a definite time, it cannot, in and of itself, be a negotiable instrument, a proposition with which Justice Hood clearly agrees. If the deed of trust were treated as an integral part of, or inseparable from, a promissory note for which it provided security, as Justice Hood would have it, the effect would necessarily be to strip the note of its character as a negotiable instrument rather than to turn the deed into a negotiable instrument. In combination with the deed of trust, the note would necessarily state additional undertakings or instructions, and for that reason, if no other, fail to meet the statutory definition of a “negotiable instrument.”

¶31 Apart from the fact that the Code’s definition of “negotiable instrument” therefore necessarily displaces the “equitable” solution carved out in Carpenter, the legislature’s choice to separately define “spurious liens,” without including the defenses applicable to negotiable instruments, and to provide a specific, expedited process for having such liens declared invalid and removed further demonstrate its intent to draw a clear demarcation between negotiable instruments and liens. Part 2 of title 38, article 35 of the revised statutes, entitled “Spurious Liens and Documents,” defines, in pertinent part, a “[s]purious lien” to mean “a purported lien or claim of lien that . . . [i]s not created, suffered, assumed, or agreed to by the owner of the property it purports to encumber.” § 38-35-201(4), (4)(c), C.R.S. (2015). The legislature similarly provides for an expedited procedure by which any person whose property is affected by a recorded lien he believes to be spurious may petition the district court for an order to show cause why the lien should not be declared invalid and ordered released. § 38-35-204, C.R.S. (2015). Although easily lost sight of in Justice Hood’s discussion of negotiable instruments and holders in due course under the Commercial Code, the action at issue here is one brought by Fiscus pursuant to this Part 2.

¶32 A lien is an encumbrance on property. For the foregoing reasons, the Uniform Commercial Code simply cannot be construed to include a lien within the definition of a negotiable instrument or intend that one can be a holder in due course of a lien. In light of the legislature’s express provision for the removal of any lien that is “spurious,” however, even if a deed of trust collateralizing a promissory note could be considered a combination lien and negotiable instrument, the lien would nevertheless be subject to removal, as long as it was “not created, suffered, assumed, or agreed to by the owner of the property it purports to encumber.” The trier of fact in this spurious lien action expressly found from the evidence that Fiscus did not create, suffer, assume, or agree to Liberty’s lien on his property.

¶33 Justice Hood’s contention that the reasoning of cases pre-dating our adoption of the commercial code remains valid today seems to me best explained as an attempt to substitute a court-devised solution to the dilemma of the bona fide purchaser for the one chosen by the legislature. With regard to the class of which this case stands as a good example, it is a mystery to me how one could find greater equities to lie with a trader in commercial paper than with a homeowner who has been victimized by forgery.

¶34 Notwithstanding my doubts about the position taken by Justice Hood’s alternate opinion, I concur in the majority opinion and fully concur with its determination that we need not reach the negotiability of deeds of trust in this case.

Justice HOOD, concurring in part and dissenting in part.

¶35 I agree with the majority that the purported maker of a negotiable instrument may raise forgery as a defense to an obligation held by a party claiming holder-in-due-course status. As the majority correctly notes, when a purported maker raises a forgery defense, he challenges the existence of the obligation, not its enforcement. Maj. op. ¶ 16. On the facts found by the trial court, I likewise agree that Husband has a valid forgery defense not barred by ratification.

¶36 I respectfully part company with the majority regarding whether remanding on negligence would amount to idle ceremony. Section 4-3-406, C.R.S. (2015), precludes a person from asserting that his signature was forged on a negotiable instrument if his own negligence contributed to the alleged forgery. Because the trial court concluded that the 2009 deed was not a negotiable instrument, it rejected Branch Banking and Trust’s section 4-3-406 negligence argument on its face. The majority deems further consideration of Husband’s alleged negligence unnecessary due to Wife’s highly deceptive conduct and his understandable faith in his spouse. Maj. op. ¶ 21 (“We decline to declare him negligent for trusting his wife.”). But Wife’s undeniably egregious behavior and the trust implicit in most marital relationships do not allow us to resolve a fact-intensive defense that the factfinder has yet to address.

¶37 Of course, if the deed of trust is not a negotiable instrument, then asking the trial court to examine Husband’s alleged negligence truly would be inviting idle ceremony. After all, any defenses under the UCC would then be unavailable. Therefore, I first address the threshold legal matter on which we granted certiorari: “Whether a lender in possession of a promissory note secured by a deed of trust on real property may assert a holder-in-due-course defense under section 4-3-305, C.R.S. (2014), to a claim that the deed of trust was forged.”

¶38 UCC Article 3 governs the issuance, transfer, enforcement, and discharge of negotiable instruments. A promissory note, such as the one Wife executed in this case, is a negotiable instrument governed by Article 3. A deed of trust is a “security instrument containing a grant to a public trustee together with a power of sale,” § 38-38-100.3(7), C.R.S. (2015), and is generally governed by real property law.

¶39 Jurisdictions are split on whether a deed of trust securing a promissory note is, like the note itself, a negotiable instrument subject to the UCC’s provisions and protections. Compare Hogan v. Wash. Mut. Bank, N.A., 277 P.3d 781, 783 (Ariz. 2012) (concluding trustee seeking to commence non-judicial foreclosure on deed of trust was not required to comply with UCC provisions, though compliance would have been required to collect on the accompanying note), and You v. JP Morgan Chase Bank, N.A., 743 S.E.2d 428, 433 (Ga. 2013) (stating that a security deed is not a negotiable instrument and is not governed by UCC Article 3), with Pitman Place Dev., LLC v. Howard Invs., LLC, 330 S.W.3d 519, 536 (Mo. Ct. App. 2010) (holding that a deed of trust shares the negotiable characteristics of the note it secures), and Carnegie Bank v. Shalleck, 606 A.2d 389, 400 (N.J. Super. Ct. App. Div. 1992) (explaining that upon assignment of negotiable instrument and accompanying mortgage to holder in due course, assignee may enforce both mortgage and note free of personal defenses mortgagor may have had against assignor).

¶40 On the one hand, because a deed of trust provides a security interest in real property, guaranteeing a remedy in the event of a default on a promise to pay, it may be considered to exist separately from the promise to pay itself; accordingly, it would not be subject to negotiable-instrument law. But on the other hand, the promissory note and accompanying deed of trust are functionally interdependent: a default on the note triggers rights under the deed of trust. Consequently, one could argue, the deed shares the note’s negotiability, and both must be governed by the UCC.

¶41 This latter notion that a deed of trust shares a promissory note’s negotiability dates back to the United States Supreme Court’s opinion in Carpenter v. Longan, 83 U.S. (16 Wall.) 271 (1872), an appeal from the Supreme Court of Colorado Territory. In Carpenter, the Court held that the assignee of a mortgage and negotiable note takes the mortgage as he takes the note, “free from the objections to which it was liable in the hands of the mortgagee.” Id. at 273. The Court explained the inseparability of the mortgage and the note: the note, as debt, is the principal thing, and the mortgage is an accessory that is carried with an assignment of the note. Id. at 274-75. It considered this dependence necessary to honor the bargain made between the parties that formed the mortgage, as well as the parties that agreed to its assignment. See id. at 273.

¶42 Early Colorado cases in the years following Carpenter emphasized the close relationship between a note and the mortgage securing it. E.g., Coler v. Barth, 48 P. 656, 659 (Colo. 1897) (“It is stated as a general rule, and it is unquestionably correct, that the note secured by a mortgage, or a deed of trust in the nature of a mortgage, is the principal thing, and the security but an incident. . . .”); Fassett v. Mulock, 5 Colo. 466, 469 (1880) (“It is a familiar principle that a mortgage is but an incident of the debt it secures, and an assignment of the debt carries the mortgage with it.”); accord McGovney v. Gwillim, 65 P. 346, 347 (Colo. App. 1901) (holding that where action upon note was barred by statute of limitations, action to foreclose on deed of trust securing note was also barred).

¶43 Though these cases pre-date the adoption of the UCC, I believe their reasoning remains valid today. Indeed, decades after Colorado’s 1965 codification of the UCC, this court observed the synergetic relationship between a promissory note and a deed of trust. See Columbus Invs. v. Lewis, 48 P.3d 1222, 1226 & n.4 (Colo. 2002) (“The transfer or assignment of a negotiable promissory note carries with it, as an incident, the deed of trust or mortgage upon real estate or chattels that secure[s] its payment.”). Given this court’s steadfast acknowledgement that a deed of trust is incidental to the note it secures, I would join those jurisdictions that have held that a deed of trust securing a promissory note takes on the note’s negotiable character.

¶44 In the briefing, Husband relies on Upson v. Goodland State Bank & Trust Co., 823 P.2d 704 (Colo. 1992), for a contrary result. That reliance is misplaced. In Upson, we held that when the release of a deed is obtained through fraud, that release is invalid. Id. at 706. We reached this result in part by analogizing to cases from other jurisdictions stating that a forged deed cannot pass title. Id. at 705-06. We also concluded that without a valid release, even a subsequent bona fide purchaser for value is not protected against a claim by the original beneficiary of the deed of trust. Id. at 706. Husband argues that, following Upson, the 2009 deed of trust executed using the forged POAs is void, and thus unenforceable by Branch Banking and Trust. But Upson held only that the release of a deed based on a forged request has no legal effect. Id. Although we indicated that a forged deed is void, we did not consider whether the UCC applies to a deed of trust securing a promissory note, which is the question we face here. Furthermore, the UCC displaces conflicting common law provisions. Clancy Sys. Int’l, Inc. v. Salazar, 177 P.3d 1235, 1237 (Colo. 2008); see also § 4-1-103(b), C.R.S. (2015). Consequently, Upson must yield to the UCC and its holder-in-due-course provisions to the extent that the two might conflict. Thus, Upson is distinguishable and not controlling.

¶45 Similarly, Haberl v. Bigelow, 855 P.2d 1368 (Colo. 1993), which the court of appeals used to reject Branch Banking and Trust’s argument that a deed of trust is a negotiable instrument, is of limited relevance. In Haberl, this court considered whether the silence of a holder of a deed of trust securing a promissory note was sufficient to establish his consent to subordinate the instrument to another deed of trust. See id. at 1372. As a preliminary matter, we stated that the note secured was a negotiable instrument governed by UCC Article 3, and we supported that statement with a string of citations from other jurisdictions establishing that a promissory note is a negotiable instrument even when secured by a deed of trust. Id. at 1372-73. But while we acknowledged this general principle, it was not a focal point of our analysis. Moreover, we did not address the issue before the court today. Haberl therefore has minimal significance here.

¶46 Additionally, holding a deed of trust to be a negotiable instrument would further a fundamental policy of the UCC’s holder-in-due-course doctrine by encouraging the use of commercial paper to facilitate the flow of capital. See Georg v. Metro Fixtures Contractors, Inc., 178 P.3d 1209, 1212 (Colo. 2008). Such a result would ensure that Branch Banking and Trust is able to enforce the deed of trust that was “conditioned to secure the fulfilment of [the promissory note],” Carpenter, 83 U.S. (16 Wall.) at 273, to the same extent as it is able to enforce the note itself, protecting Branch Banking and Trust and other similarly situated parties’ bargained-for expectations and promoting commercial transactions.

¶47 Accordingly, I would hold that because a deed of trust is fundamentally interdependent with the note it secures, the deed takes on the note’s negotiable character and is governed by Article 3. And because the trial court initially held to the contrary and rejected Branch Banking and Trust’s section 4-3-406 negligence defense on the grounds that Article 3 did not apply, I would remand to the trial court for a full consideration of that defense.^[1]

¶48 For these reasons, I concur with the majority’s conclusions regarding forgery and ratification, but I respectfully dissent from its holding that Husband was not negligent and Branch Banking and Trust may not raise section 4-3-406 as a defense to Husband’s forgery claim.

I am authorized to state that JUSTICE MÁRQUEZ joins in the concurrence in part and dissent in part.

[1] I also respectfully disagree with the majority’s implication that the negligence defense should be confined to “checks or signing devices.” Maj. op. ¶ 22. The comments to section 4-3-406 explain that the current version of that section was expanded from its former iteration “to apply not only to drafts but to all instruments.” § 4-3-406 cmt. 1.

LESLIE J. SHAW, Plaintiff,
v.
CITIMORTGAGE, INC.; et al., Defendants.

CitiMortgage, Inc., Defendant, represented by Andrew A. Bao, Wolfe & Wyman LLP & Colt B. Dodrill, Wolfe & Wyman LLP.

ORDER

LARRY R. HICKS, District Judge.

This is a breach of contract action arising from an alleged residential loan modification agreement between plaintiff Leslie J. Shaw (“Shaw”) and defendant CitiMortgage, Inc. (“CMI”). Shaw alleges that in mid-2011, the parties executed a loan modification agreement on his residential home loan, but CMI breached the agreement prompting Shaw to stop making payments on his modified loan. Shaw then fell into default and CMI initiated non-judicial foreclosure proceedings in early 2013.

On July 26, 2013, Shaw filed a complaint against CMI and defendant Northwest Trustee Services, Inc. (“NTS”), the trustee identified on the recorded notice of default. ECF No. 1, Exhibit A, p. 8-19. On April 3, 2014, Shaw filed an amended complaint adding defendant Bank of New York Mellon (“BNY”), as trustee for SASCO Fund 2003-37A, as a defendant to this action. ECF No. 52. Subsequently, on August 25, 2014, Shaw filed a second amended complaint against defendants alleging eight causes of action: (1) declaratory relief against defendant BNY; (2) declaratory relief against defendant CMI; (3) breach of contract; (4) breach of the implied covenants of good faith and fair dealing; (5) fraudulent misrepresentation and concealment; (6) negligent misrepresentation; (7) interference with prospective economic advantage; and (8) violation of the Real Estate Settlement Procedures Act (“RESPA”). ECF No. 109.

On January 14, 2015, the court granted defendant NTS’ motion to dismiss (ECF No. 110) and dismissed NTS as a defendant in this action. ECF No. 124. Three weeks later, on February 5, 2015, the court granted defendants BNY and CMI’s motion to dismiss (ECF No. 113). ECF No. 128. In that order, the court dismissed BNY as a defendant and dismissed Shaw’s fifth cause of action for fraudulent misrepresentation and sixth cause of action for negligent misrepresentation. Id.

A bench trial was held on Shaw’s remaining claims^[1] against sole-remaining defendant CMI from May 3 through May 5, 2016. See ECF Nos. 203-05. The court, having heard the testimony of all witnesses at trial^[2] and having considered all exhibits accepted into evidence, renders the following findings of fact and conclusions of law:^[3]

I. Findings of Fact

1. Plaintiff Shaw is a resident of the State of Nevada. Shaw is also an attorney duly licensed to practice law in the States of Nevada and California. Shaw practices primarily in the areas of family and divorce law and during the relevant time period had a practice at Lake Tahoe that moved to Reno, Nevada.

2. In 2001, Shaw purchased a vacant lot located in Zephyr Cove, Nevada, and built a singlefamily residence commonly known as 251 McFaul Court (“the McFaul Court property”), the underlying residential property at issue in this action.

3. On October 8, 2003, Shaw executed a promissory note for a residential home loan on the McFaul Court property in favor of non-party Lehman Brothers Bank, FSB (“Lehman Brothers”), a federal savings bank, in the amount of $875,000.00 with an adjustable interest rate starting at 5.125%. The residential loan was secured by a first deed of trust recorded against the McFaul Court property on October 14, 2003, in the official records of Douglas County, Nevada (Doc. No. 0593479). Def. Trial Ex. 501-B, CMI000001-22.

4. Immediately following the execution of the residential home loan, non-party Aurora Loan Services (“Aurora”), a servicing branch of Lehman Brothers, began servicing Shaw’s residential loan and accepted all mortgage payments on behalf of non-party Lehman Brothers. In June 2005, Aurora ceased servicing the loan and transferred the servicing rights to CMI.

5. At some point prior to the relevant time period, Lehman Brothers sold Shaw’s residential home loan as part of an investment mortgage package to an unknown party.

6. Defendant CMI, a foreign corporation duly qualified to conduct business in the State of Nevada, is a mortgage servicing company. CMI is owned by non-party CitiBank and is part of the Citi Group corporate organization. Since June 2005, CMI has been servicing Shaw’s residential home loan and has collected all payments on behalf of the various owners of the loan. On June 20, 2012, CMI became the beneficiary under the first deed of trust pursuant to an assignment of deed of trust recorded in the official records of Douglas County, Nevada (Doc. No. 0804389). Def. Trial Ex. 504-B, CMI000038-39.

7. Each mortgage account serviced by CMI is assigned an electronic account file. The electronic account file, identified by a specific numerical identifier (the mortgage account number), is accessible to CMI employees and contains information about each particular account including payment information, loan terms, account notes, and other relevant account information. As part of its servicing of Shaw’s residential home loan, CMI maintained such an electronic account file for Shaw’s loan. It is in this electronic account that CMI booked the terms of Shaw’s residential loan and all payments made under that agreement.

8. In August 2006, Shaw and his then wife, non-party Janice Shaw, separated. As part of their eventual divorce — as evidenced by the divorce decree issued in July 2007 — Shaw was awarded the McFaul Court property as his sole and separate property.

9. On or about January 19, 2007, Shaw obtained a loan from non-party Katherine Barkley in the amount of $225,000.00 at an annual interest rate of 10%. This loan was secured by a second deed of trust recorded against the McFaul Court property on January 23, 2007, in the official records of Douglas County, Nevada (Doc. No. 0693296). Def. Trial Ex. 502-B, CMI000023-27.

10. On September 20, 2007, a third deed of trust was recorded in the amount of $77,123.50 against the McFaul Court property in favor of non-party Janice Shaw, Shaw’s ex-wife, in the official records of Douglas County, Nevada (Doc. No. 0709512). Def. Trial Ex. 503-B, CMI000028-37.

11. In 2010, Shaw began experiencing financial difficulties. On or about the fall of 2010, while still current on his monthly mortgage payments, Shaw contacted CMI to request a modification of his residential mortgage loan. At that time, Shaw’s monthly mortgage obligation was approximately $4,300.00.

12. During the relevant time period, CMI had a company policy that it would not consider any application for the modification of an existing loan unless a borrower was at least three (3) months in arrears on the borrower’s monthly mortgage obligations. This policy was communicated to Shaw during one of the telephonic conversations in the fall of 2010.

13. Beginning October 2010, and continuing through December 2010, Shaw withheld his monthly mortgage payments from CMI. Def. Trial Ex. 510-B, CMI000067. Shaw then contacted CMI and received a loan modification application. Shaw completed and submitted the application to CMI in early December 2010.

14. CMI reported Shaw’s mortgage account as delinquent to the various credit reporting agencies for the months that Shaw withheld payment on his account: October, November, and December 2010.

15. At the time he submitted his loan modification application Shaw had never, in memory, been denied an application for credit and was current on all credit obligations except for his mortgage account.

16. On December 24, 2010, Shaw received an e-mail from CMI. Pl. Trial Ex. 1, P00001. The e-mail advised Shaw that his “mortgage assistance request [had] been approved” and he could expect a “mortgage solution package within the next 5-7 business days.” Id.

17. On December 28, 2010, four days after receiving CMI’s approval e-mail, Shaw received a letter from CMI denying his request for a loan modification. Pl. Trial Ex. 2, P00002-5. The letter specifically stated that CMI could not “approve a mortgage modification under the government’s Home Affordable Modification Program (“HAMP”)” and that Shaw’s “mortgage terms [would] remain unchanged.” Id. at P00002. At the time Shaw received this letter from CMI, he had not applied for a specific HAMP loan modification. Rather, Shaw had only applied for a general loan modification with defendant CMI.^[4]

18. Commencing on or about December 28, 2010, and continuing through February 2011, Shaw began near daily telephonic efforts with CMI to resolve the inconsistent and contradictory written communications of December 24 and December 28, 2010. Despite repeated phone calls with CMI employees in various departments, including Loss Mitigation, Shaw never received an explanation as to why he received two separate communications from CMI about his loan modification application, or why he had been denied a modification after already receiving notification that his application had been approved.^[5] Further, Shaw did not receive an answer from CMI as to which of the two communications constituted CMI’s final determination of his loan modification application.

19. Shaw did not make either of his monthly mortgage payments for January or February 2011. Def. Trial Ex. 510-B, CMI000067. Subsequently, CMI reported Shaw’s mortgage account as delinquent to the various credit reporting agencies for those months.

20. Between December 28, 2010, and early February 2011, Shaw did not receive any written communication from CMI concerning his loan modification application.

21. On February 15, 2011, Shaw received another e-mail from CMI. Pl. Trial Ex. 3, P00006. This e-mail again advised Shaw that his “mortgage assistance request [had] been approved” and that he could expect a “mortgage solution package within the next 5-7 business days.” Id.

22. On or about February 16, 2011, after receiving CMI’s second approval e-mail, Shaw received another letter from CMI again denying his request for a loan modification. Pl. Trial Ex. 4, P00007-10. The letter specifically stated that CMI could not “approve a mortgage modification under the government’s Home Affordable Modification Program (“HAMP”)” and that Shaw’s “mortgage terms [would] remain unchanged.” Id. at P00007.

23. Commencing February 16, 2011, Shaw again contacted CMI to resolve the inconsistent and contradictory written communications concerning his loan modification application. Despite repeated calls with CMI employees, Shaw never received an explanation why he had received new communications regarding his application,^[6] or why he had once again been denied mortgage assistance after receiving notification that his loan modification application had been approved. Further, Shaw did not receive an answer from CMI as to which of the four communications constituted CMI’s final determination of his loan modification application.

24. On or about February 23, 2011, Shaw received a mortgage solution package from CMI. Def. Trial Ex. 505-A, CMI000051-56. The mortgage solution package advised Shaw that he had been “approved to enter into a trial period plan” modifying his residential loan for a period of ninety (90) days. Id. at CMI000051. The package further advised Shaw that in order to qualify for a permanent modification, Shaw must comply with two requirements. First, Shaw was required to timely make three modified monthly mortgage payments of $3,079.30 starting March 2011. Id. Second, Shaw was required to submit various documents to CMI. Id. If Shaw complied with both requirements, CMI advised Shaw that his residential home loan would be “permanently modified” and it would send him “a modification agreement detailing the terms of the modified loan.” Id. at CMI000052.

25. Shaw timely made all three required trial payments of $3,079.30 under the trial period plan for the months of March, April, and May 2011. Def. Trial Ex. 510-B, CMI000067.

26. CMI reported Shaw delinquent on his mortgage account to the various credit reporting agencies for the months of March, April, and May 2011, despite granting Shaw a trial modification plan and having received all three modified payments in a timely manner. By this time, Shaw had been reported delinquent on his mortgage account for eight months.

27. During the time period after submitting his loan modification application through the time of the trial modification plan, Shaw received various collection calls from CMI seeking payment on his delinquent account. Approximately April 2011, Shaw registered for CMI’s no-call list, thereby precluding CMI from initiating telephonic contact with Shaw. Since that time, Shaw has received no telephonic attempts to collect on his mortgage account.

28. On May 11, 2011, having submitted all trial plan payments, Shaw received an e-mail from CMI advising him that his “mortgage assistance documents [had] been sent” the previous day, May 10, 2011. Pl. Trial Ex. 5, P00011. The e-mail further directed Shaw to “review and sign the documents as instructed.” Id.

29. On May 18, 2011, Shaw received a letter from CMI authored by CMI employee Kim Vukovich (“Vukovich”). Pl. Trial Ex. 6, P00014-20. The letter advised Shaw that he was “eligible for a Citi Affordable Modification” and directed him to complete and return the enclosed modification agreement (also prepared by Vukovich) no later than May 20, 2011. Id. at P00014. The enclosed proposed modification agreement, titled “Citi Affordable Modification Agreement” (“May 2011 Modification Agreement”), outlined the various terms of the proposed loan modification. Id. at P00016-20. Those terms included, in relevant part to this action, that: (1) permanent modified payments in the amount of $3,079.30^[7] would commence starting June 1, 2011; (2) the new principal balance under the modified loan would be set at $910,110.34 and include all past due amounts, including the difference between the original monthly payment amount (approximately $4,300) and the payment amount made under the three months of the trial modification plan ($3,079.30); (3) $85,777.89 of the new principal balance was deferred from interest charges during the life of the modification and would be due as a balloon payment; (4) the effective date of the properly executed agreement would be May 1, 2011; and (5) the maturity date under the modified loan would be November 1, 2033. Id.

30. Also on May 18, 2011, Shaw promptly executed, by notarized signature, the May 2011 Modification Agreement and submitted the signed agreement to CMI via an enclosed Next Day Air envelope. Pl. Trial Ex. 6, P00013; Def. Trial Ex. 506-A, CMI000061.

31. On May 19, 2011, CMI received the executed May 2011 Modification Agreement. Pl. Trial Ex. 7, P00021.

32. On May 23, 2011, CMI entered and booked the terms of the May 2011 Modification Agreement into Shaw’s electronic mortgage account. Def. Trial Ex. 510-B, CMI000066. At the time CMI booked the terms of the modification, CMI misentered the length of the loan, extending the loan from three hundred and sixty (360) months to four hundred and eighty (480) months. Id. This administrative booking error extended the loan maturity date and subsequent due date of the $85,777.89 balloon payment from November 1, 2033, to November 1, 2045.

33. Shaw timely made his modified mortgage payments of $3,079.30 for the months of June and July 2011. Def. Trial Ex. 510-B, CMI000066.

34. On June 30, 2011, Larry Bauman, Vice-President for CMI, executed, by notarized signature, the May 2011 Modification Agreement. Def. Trial Ex. 506-A, CMI000061; Pl. Trial Ex. 18, P00055-56.

35. From May 20, 2011, through mid-July 2011, Shaw did not receive any communication from CMI concerning the May 2011 Modification Agreement and was not informed that the agreement had been executed by CMI.

36. Prior to July 2011, Shaw maintained, in good standing, a Diners Club Charge Card credit account and had sufficient credit to qualify as a cosigner on his daughter’s student loans obtained through non-party Wells Fargo Bank. At that time, Shaw was also at the tail end of a thirty-six (36) month lease agreement with non-party Audi Financial Services on a 2008 Audi A-4 automobile.

37. Approximately early-July 2011, Loss Mitigation reviewed Shaw’s mortgage account and unilaterally determined that there was an issue with the modified terms of his residential loan booked pursuant to the May 2011 Modification Agreement documents. Loss Mitigation then, without consultation or communication with Shaw, unbooked the May 2011 Modification Agreement from Shaw’s electronic mortgage account. Def. Trial Ex. 510-B, CMI000065-66. This action automatically unbooked Shaw’s timely made modified mortgage payments under both the trial and permanent modification periods, and placed his account in default. Id. As Shaw’s account then showed that no payment had been made on his account for the months of June and July 2011, CMI reported Shaw’s account as delinquent to the various credit reporting agencies for those months.

38. On July 15, 2011, non-party BMO Financial Group sent Shaw a letter advising him that his Diners Club Charge Card account, a credit account with Citicorp Credit Services, Inc., was going to be closed effective July 20, 2011. Pl. Trial Ex. 50, P00022.

39. On July 16, 2011, non-party U.S. Bank, National Association sent Shaw a letter advising him that his credit application for an auto loan to purchase his leased 2008 Audi A-4 automobile had been denied. Pl. Trial Ex. 51, P00023.

40. On July 18, 2011, CMI sent Shaw a letter advising him that his mortgage account was in default and that monthly mortgage payments had not been made as required under his residential home loan. Pl. Trial Ex. 10, P00035-36. In that letter, CMI further demanded Shaw pay, in full, the past due amount of $31,684.34 by August 18, 2011, or the McFaul Court property could be sold in accordance with the terms of the first deed of trust. Id. at P00035.

41. On July 19, 2011, CMI sent Shaw a letter authored by CMI employee Juan Mayorga (“Mayorga”).^[8] Pl. Trial Ex. 9, P00025-33. This letter again advised Shaw that he was “eligible for a Citi Affordable Modification” and directed him to complete and return the new “corrected” modification agreement (separately prepared by Mayorga) no later than August 2, 2011. Id. at P00025. The enclosed “corrected” modification agreement, again titled “Citi Affordable Modification Agreement” (“July 2011 Modification Agreement”), outlined the various terms and provisions of the new agreement. Id. at P00027-33. The majority of the terms in the July 2011 Modification Agreement were similar, or even identical, to the terms and provisions of the May 2011 Modification Agreement, including that: (1) permanent modified payments of $3,079.30 would commence starting June 1, 2011;^[9] (2) the modified principal balance was set at $910,110.34; (3) $85,777.89 of the principal balance was deferred from interest charges and would be due as a balloon payment; (4) the effective date of the properly executed agreement would be May 1, 2011; and (5) the maturity date under the modified residential loan would be November 1, 2033. Id. However, the July 2011 Modification Agreement also included specific language establishing the due date of the deferred principal balloon payment that was not in the May 2011 Modification Agreement. Compare Pl. Trial Ex. 6 at P00018 (no date) with Pl. Trial Ex. 9 at P00028 (establishing the maturity date of the modified loan (November 1, 2033) as the due date). Further, the “corrected” agreement contained several additional provisions that were not in the May 2011 Modification Agreement, including Section 5(G). Id. at P00032. Section 5(G) required, in pertinent part, that under the July 2011 Modification Agreement Shaw would be required to execute any and all other documents requested by CMI or forfeit all his rights under the modified agreement. Id. (“If I elect not to sign any such corrected documentation, the terms of the original Loan Documents shall continue in full force and effect, such terms will not be modified by this Agreement, and I will not be eligible for a modification . . . .”).

42. On July 20, 2011, Shaw received an e-mail from CMI advising him that “mortgage assistance documents” had been sent on July 19, 2011. Pl. Trial Ex. 8, P00024. The communication further directed Shaw to “review and sign the documents as instructed.” Id. On the same day, Shaw received CMI’s communications dated July 18 and July 19, 2011. Shaw immediately contacted CMI, including a conversation with Mayorga, but was never provided an explanation why his mortgage account was placed in default, or why a new modification agreement had been sent only two months after he executed and submitted the May 2011 Modification Agreement. Instead, Shaw was directed to review and sign the July 2011 Modification Agreement.^[10]

43. On July 21, 2011, Shaw sent a letter to Mayorga objecting to CMI’s handling of his mortgage account, including CMI’s unilateral decision to unbook the May 2011 Modification Agreement and place his mortgage account in default, as well as the additional material terms in the July 2011 Modification Agreement not present in the May 2011 Modification Agreement. Pl. Trial Ex. 13, P00040.

44. Shaw did not execute the July 2011 Modification Agreement.

45. On July 22, 2011, Shaw received a letter from CMI dated July 20, 2011, advising him that CMI had reviewed his loan modification application and could not approve a modification at that time. Pl. Trial Ex. 11, P00037-38. CMI sent the letter to Shaw even though it had already executed the May 2011 Modification Agreement and sent the separate July 2011 Modification Agreement.

46. Also on July 22, 2011, Shaw received an e-mail from CMI advising Shaw that his “mortgage assistance documents [had] been received by [CMI.]” Pl. Trial Ex. 12, P00039. However, Shaw had not submitted any mortgage assistance documents to CMI and had refused to execute the July 2011 Modification Agreement.

47. Commencing late July 2011, Shaw again contacted CMI to resolve the inconsistent and contradictory communications received during the previous weeks including why he had received a loan modification denial letter after having just received the July 2011 Modification Agreement. Once again, Shaw did not receive any explanation from CMI for these contradictory communications.

48. Approximately July 2011, in response to Shaw’s near daily communications with CMI, CMI deemed Shaw’s mortgage account an Escalated Case and turned his account over to the Executive Response Unit, a CMI department dedicated to addressing customer account issues. Shaw’s account was placed with Chris Gabbert (“Gabbert”), a Homeowner Support Specialist in the Executive Response Unit. Shaw contacted Gabbert to outline and discuss his ongoing mortgage and modification issues. At that time, Gabbert advised Shaw that the July 2011 Modification Agreement was the only modification agreement that CMI would accept, directed him to execute the agreement, and informed him that there was not a prior modification of his residential loan under the May 2011 Modification Agreement.

49. As a result of CMI’s repeated inconsistent communications and complete lack of any explanation for CMI’s conduct in handling his mortgage account and loan modification, Shaw experienced increasing confusion, frustration, stress, and a general feeling of worthlessness over not being able to resolve his issues with CMI. This frustration and stress caused Shaw to suffer occasional sleeplessness during this time. Further, Shaw spent significant amounts of time and energy, sometimes as much as eight (8) hours in a single day, contacting CMI and dealing with various CMI employees that were unable to address his concerns or help with his mortgage and modification issues.

50. Due to Shaw’s ongoing frustration in dealing with CMI, Shaw sought the identity of the owner/beneficiary of his loan in the hopes of resolving his problems directly with the loan’s owner.

51. Between July 25 and July 28, 2011, Shaw contacted Gabbert several times. In those telephonic conversations, Shaw requested information about the current owner of his loan. Gabbert advised Shaw that the current owner of his loan was Lehman Brothers through Structured Asset Security Corporation (“SASCO”) Mortgage Pass-Through Certificates.

52. On July 31, 2011, Shaw again e-mailed Gabbert. Pl. Trial Ex. 15, P00044-45. In that email, Shaw specifically requested information related to the owner of his loan, as Shaw had determined on his own that Lehman Brothers had previously gone bankrupt and the SASCO Mortgage Pass-Through Certificates that included his residential loan had been transferred to a new, unknown owner. Id.

53. Shaw requested contact information for the current owner of his loan in order to seek a modification directly from the owner and to make sure that he was receiving credit from the owner for payments made on the mortgage.

54. Shaw timely made a modified mortgage payment in the amount of $3,079.30 for the month of August 2011. Def. Trial Ex. 510-B, CMI000065. CMI did not book Shaw’s payment into his electronic mortgage account.

55. Approximately August 2011, Shaw applied for and was denied credit with non-party Audi Financial Services to purchase his Audi automobile which he had been leasing from Audi for approximately four (4) years.

56. On August 2, 2011, CMI sent Shaw another letter again advising Shaw that his mortgage account was in default and demanded Shaw pay, in full, the past due amount of $31,697.84 by September 2, 2011, or the McFaul Court property could be sold in accordance with the terms of the first deed of trust. Pl. Trial Ex. 16, P00046-47.

57. On August 9, 2011, CMI sent Shaw a letter from the Document Processing Modification Unit that included a copy of the completed and executed May 2011 Modification Agreement signed by CMI Vice-President Bauman. Pl. Trial Ex. 18, P00049-56. The letter advised Shaw that the copy of the agreement executed by both parties was solely for his records and that “no further action [was] necessary.” Id.

58. Upon receiving his copy of the executed May 2011 Modification Agreement, Shaw immediately contacted Gabbert who initiated the involvement of Dana Ross (“Ross”), Assistant General Counsel of CMI, to resolve Shaw’s mortgage account and loan modification.

59. On August 12, 2011, after reviewing Shaw’s account and the May 2011 Modification Agreement, Ross advised Shaw that he would be receiving a letter outlining CMI’s resolution of Shaw’s mortgage account and loan modification. Pl. Trial Ex. 22, P00061.

60. On August 15, CMI rebooked the terms of the May 2011 Modification Agreement into Shaw’s electronic mortgage account. Def. Trial Ex. 510-B, CMI000064. As of that date, Shaw’s account reflected all of the modification terms outlined in the May 2011 Modification Agreement, including principal amount, deferred principal amount, and modified payment amounts. See Pl. Trial Ex. 19, P00057-58. CMI also rebooked all payments Shaw made under the trial period plan and the May 2011 Modification Agreement to date. These actions brought Shaw’s mortgage account current and removed his account from default.

61. On August 23, 2011, Ross sent Shaw an e-mail advising him that CMI had resolved the issues on his account and directed him to access a document on his online mortgage account constituting CMI’s resolution. Pl. Trial Ex. 20, P00059. The aforementioned document was a letter signed by Gabbert explaining the actions CMI took on Shaw’s mortgage account in July 2011, and outlining CMI’s resolution of his account and modification. Pl. Trial Ex. 21, P00060. The resolution document advised Shaw that although the May 2011 Modification Agreement did not have clear balloon payment language (as no due date was specifically mentioned in that provision), the agreement correctly identified the appropriate maturity date for the loan (November 1, 2033), and thus, “there [was] nothing legally deficient with the [May 2011 Modification Agreement.]” Id. Further, the resolution document advised Shaw that CMI had already rebooked the May 2011 Modification Agreement and that his account was permanently modified under that agreement going forward. Id.

62. Shaw believed that he had a binding loan modification with CMI and that all his account issues had been resolved. Thereafter, Shaw timely made all modified monthly payments of $3,079.30 pursuant to the May 2011 Modification Agreement through December 2011. Def. Trial Ex. 510-B, CMI000063-64.

63. Beginning in September and continuing through December 2011, Shaw received sporadic written collection notices from CMI that consisted of formal collection notices and informal door hangers left in plain view at the McFaul Court property, demanding payment on past due amounts. Whenever he received a collection notice, Shaw contacted the telephone number on that notice. However, Shaw was repeatedly told by various CMI employees that because Shaw’s account had been transferred to the Executive Response Unit, only his dedicated Homeowner Support Specialist was allowed to deal with, discuss, and handle his account issues. Shaw would then contact and advise Gabbert that he was still receiving collection notices from CMI despite the rebooking of the May 2011 Modification Agreement and the inclusion of all past due amounts into his new principal balance.

64. Sometime in the fall of 2011, Shaw applied for and was denied credit as a cosigner on his daughter’s student loans through non-party Wells Fargo Bank for the 2011-12 school year.

65. Throughout the fall of 2011, Shaw repeatedly sought the identity and contact information for the owner of his residential home loan from CMI. Shaw’s efforts consisted of various telephonic and written requests to Gabbert. In response to these requests, Gabbert advised Shaw of different owners at different times. Lehman Brothers through SASCO Mortgage Pass-Through Certificates was identified, non-party Aurora Loan Services was identified, and even CMI itself was identified as the owner.

66. On December 5, 2011, Shaw attempted to e-mail Gabbert requesting specific information about his loan — including copies of the original note, deed of trust, and any assignment of rights — as well as contact information for the current owner of his loan as Shaw had previously received such inconsistent information about the owner from CMI. See Def. Trial Ex. 512-A. At that time, Shaw was informed that Gabbert was no longer employed with CMI. Shaw then forwarded the email directly to Ross, CMI’s Assistant General Counsel. Def. Trial Ex. 512-A.

67. On December 8, 2011, CMI sent Shaw a letter advising him that his account had been transferred to a new Homeowner Support Specialist in the Executive Response Unit, Jennifer Butler (“Butler”). Pl. Trial Ex. 23, P00062-63. Shaw contacted Butler to outline his account history and discuss CMI’s ongoing collection efforts despite his resolved loan modification. Butler informed Shaw that Shaw did not have any loan modification with CMI because he had not yet signed the July 2011 Modification Agreement. Shaw provided Butler all prior communications allegedly resolving his modification, but was then informed that CMI’s Loss Mitigation and underwriting departments had confirmed that Shaw did not have a loan modification with CMI at that time, and would not have any modification with CMI unless and until he executed and submitted the July 2011 Modification Agreement.

68. Upon now being informed that he did not have a binding loan modification with CMI under the May 2011 Modification Agreement, Shaw did not make his modified mortgage payment of $3079.30 for the month of January 2012. Def. Trial Ex. 510-B, CMI000063. Since January 2012, Shaw has not made any payments on his mortgage account. See Def. Trial Ex. 510-B, CMI000062-63; Def. Trial Ex. 511-B.

69. On January 3, 2012, Shaw again e-mailed Ross, CMI’s Assistant General Counsel, requesting information related to his loan and informing Ross that he was withholding all mortgage payments until CMI officially and finally resolved his account under the May 2011 Modification Agreement. Pl. Trial Ex. 24, P00064-65. Ross responded and informed Shaw that she had reached out to CMI Senior Management for the information Shaw had requested. Id.

70. On January 9, 2012, CMI sent Shaw a letter in response to his recent request advising him that non-party Aurora was the owner of his mortgage. Pl. Trial Ex. 25, P00066. Shaw then contacted Aurora and was informed by Aurora that it was not the owner of his mortgage and had no involvement in either his mortgage account or his loan modification since transferring the servicing rights to CMI. See Pl. Trial Ex. 26, P00067-69.

71. On January 20, 2012, Shaw sent Ross a formal letter outlining the information obtained from Aurora that it was not the owner of his residential home loan and requested correct ownership information, as well as all documents related to his mortgage account. Pl. Trial Ex. 26, P00067-69.

72. Approximately February 2012, Shaw’s mortgage account was placed in default.

73. On February 13, 2012, CMI sent Shaw another letter again identifying the owner of his loan as non-party Aurora. Pl. Trial Ex. 31, P00099.

74. On February 23, 2012, Shaw e-mailed Butler after receiving another collection notice requesting she contact him to resolve his loan modification issues. Pl. Trial Ex. 26, P00070.

75. On March 12, 2012, Shaw received an e-mail from Butler outlining CMI’s final position concerning his loan modification. Pl. Trial Ex. 27, P00068. The e-mail informed Shaw that he did not have a loan modification with CMI under the May 2011 Modification Agreement and would not have any modification of his residential loan unless and until Shaw executed the July 2011 Modification Agreement. Id. Butler then sent Shaw another copy of the July 2011 Modification Agreement. Pl. Trial Ex. 29, P00074-85.

76. On March 16, 2012, Shaw e-mailed Butler requesting confirmation that it was CMI’s final position that the May 2011 Modification Agreement executed by both parties was not in force. Pl. Trial Ex. 30, P00086. Butler responded and confirmed that CMI was not recognizing the May 2011 Modification Agreement and was not changing its position that Shaw had to sign the July 2011 Modification Agreement. Id. at P00088. Further, Butler advised Shaw that because he refused to sign the July 2011 Modification Agreement, his Escalated Case file with the Executive Response Unit was closed and she would no longer communicate with Shaw about his mortgage account. Id. at P00088; P00093. At that point, Shaw’s Escalated Case with the Executive Response unit was closed and he received no further communication from Butler.

77. Two months later, on May 30, 2012, CMI sent Shaw a letter advising him that his mortgage account had again been deemed an Escalated Case and had been transferred to a new Homeowner Support Specialist in the Executive Response Unit, Robert Orcutt (“Orcutt”). Pl. Trial Ex. 33, P00101-02. Shaw contacted Orcutt and outlined the history of his mortgage account and CMI’s inconsistent positions on his loan modification. Orcutt advised Shaw that he would review Shaw’s mortgage account and contact him to resolve his account issues.

78. On June 13, 2012, Orcutt sent Shaw an e-mail outlining a proposed reinstatement of Shaw’s mortgage account. Pl. Trial Ex. 35, P00104-06. The reinstatement offer provided that if Shaw paid a past due amount of $18,534.34 by June 30, 2012, CMI would reinstate Shaw’s mortgage account and remove his account from default. Id. at P00105. However, the reinstatement offer made no mention of any loan modification or the terms of Shaw’s loan going forward after reinstatement. Shaw contacted Orcutt and asked whether CMI would recognize the May 2011 Modification Agreement if he made the reinstatement payment but was not given any assurance that CMI would rebook the modification agreement or not require him to execute the July 2011 Modification Agreement documents at some time in the future. Shaw refused the reinstatement offer and did not make any reinstatement payment.

79. On June 20, 2012, Shaw e-mailed Orcutt and requested contact information for the representative or trustee of the SASCO 2003-37A Mortgage Pass-Through Certificates, the bundled mortgage investment that included Shaw’s residential home loan. Pl. Trial Ex. 36, P00107. In response, Orcutt provided Shaw with the e-mail contact of non-party Deborah Lenhart, a representative of the bondholders of the SASCO Mortgage Pass-Through Certificates 2003-37A.

80. On June 21, 2012, Shaw sent an e-mail to Deborah Lenhart at the contact information provided by Orcutt, but the e-mail was returned as undeliverable. Pl. Trial Ex. 37, P00110-111.

81. On June 22, 2012, Shaw again contacted Orcutt to request correct contact information for Lenhart, or another representative, as the information Orcutt provided was incorrect. Pl. Trial Ex. 37, P00112-114. Orcutt informed Shaw that he did not have any other contact information for Lenhart. Pl. Trial Ex. 37, P00115.

82. On June 26, 2012, Shaw received an e-mail from CMI stating that his online account had been suspended and that he would no longer be able to receive online statements or access his online account. Pl. Trial Ex. 37, P00117.

83. In August 2012, Shaw moved out of the McFaul Court property.

84. At the end of 2012, CMI began foreclosure proceedings on the McFaul Court property. In response, Shaw placed the McFaul Court property up for sale as a short sale with nonparty Pinnacle Realty.

85. On January 3, 2013, dismissed defendant NTS recorded a Notice of Default and Election to Sell Under Deed of Trust in the official records of Douglas County, Nevada (Doc. No. 0815587). Def. Trial Ex. 505-B, CMI000042-47.

86. On January 29, 2013, Shaw sent a letter to CMI objecting to the pending foreclosure of the McFaul Court property and again requesting information and documents pertaining to his residential loan. Pl. Trial Ex. 38, P00120-22.

87. On February 5, 2013, Shaw received an e-mail from attorney Joseph E. Bleeker on behalf of both CMI and dismissed defendant NTS. Pl. Trial Ex. 39, P00123-24. The e-mail informed Shaw that attorney Bleeker was in receipt of Shaw’s January 29, 2013 letter and was treating that letter as a “Qualified Written Request” pursuant to RESPA. Id. Attorney Bleeker then advised Shaw that CMI would respond to his letter within sixty days as required under RESPA. Id.

88. On February 8, 2013, Shaw received and accepted an offer on the McFaul Court property from non-parties Jeff and Cathy Knapp (“the Knapps”). Pl. Trial Ex. 40, P00125-135. The offer was a contingent short sale offer with a purchase price of $857,000.00 (“the Knapp Offer”).

89. At the time of the Knapp Offer, Shaw owed approximately $900,000.00 to CMI on the residential loan and approximately $250,000.00 on the two junior liens for a total liability on the McFaul Court Property of approximately $1,150,000.

90. On February 14, 2013, Shaw forwarded to CMI, through his real estate agent, the accepted Knapp Offer. Pl. Trial Ex. 44, P00202.

91. On February 25, 2013, Shaw received a letter from CMI advising him that pursuant to the terms of the May 2011 Modification Agreement, Shaw’s modified payments would be increasing from $3079.30 to $3,539.22 starting June 1, 2013. Pl. Trial Ex. 42, P00138. Shaw received this letter despite CMI repeatedly informing Shaw as early as December 2011, that he did not have a loan modification with CMI under the May 2011 Modification Agreement.

92. On March 6, 2013, Shaw received a package from Kristin Dennis, a Default Research Specialist at CMI, in response to Shaw’s January 29, 2013 “Qualified Written Request.” Pl. Trial Ex. 43, P00139-87. The package included copies of Shaw’s account history with CMI from February 2006 through March 2013 (Id. at P00140-49); CMI’s transaction codes for its electronic mortgage accounts (Id. at P00150-51); Shaw’s adjustable rate note dated October 8, 2013 (Id. at P00152-60); the recorded first deed of trust (Id. at P00161-82); and the June 20, 2012 assignment of deed of trust to CMI (Id. at P00183-87). The letter further advised Shaw that CMI had determined that Shaw had been eligible for a modification of his residential loan, but that his application was closed for lack of documentation because he did not sign and return the July 2011 Modification Agreement. Id. at P00139.

93. On or about March 19, 2013, Maria Mejia (“Mejia”), an employee in CMI’s Homeowner Assistance Department, was assigned as the short sale advisor to review the Knapp Offer. Def. Trial Ex. 26.

94. On March 26, 2013, Mejia contacted Shaw’s real estate agent and advised Shaw, through his real estate agent, that in order for CMI to review the Knapp Offer, Shaw had to submit several documents including: (1) a hardship letter; (2) a signed purchase agreement (as the original offer had expired in late February 2013); (3) Shaw’s tax returns for the tax years 2011 and 2012; (4) all payoffs for the junior liens on the property within the last sixty days, if any; or, (5) if the junior liens still needed to be paid off, then approval letters of the short sale by each junior lien holder and releases of their junior liens; (6) the 2011 real estate tax bill for the McFaul Court property; and (7) a hazard insurance policy on the property. Def. Trial Ex. 525-A.

95. In mid-March 2013, Shaw and the Knapps signed an agreement to extend the Knapp Offer for an additional thirty (30) days.

96. On April 3, 2013, an appraisal of the McFaul Court property was conducted at the request of CMI as part of the evaluation of the Knapp Offer. Pl. Trial Ex. 49, P00283. At that time, the McFaul Court property was appraised at a value of $1,082,000.00. Id.

97. In mid-April 2013, after no response to the Knapp Offer by CMI, Shaw and the Knapps executed a second thirty (30) days extension on the Knapp Offer.

98. On May 6, 2013, dismissed defendant NTS recorded a Notice of Trustee’s Sale on the McFaul Court property in the official records of Douglas County, Nevada (Doc. No. 0823028) setting the trustee’s sale for June 5, 2013. Def. Trial Ex. 507-B, CMI000049-50.

99. On May 16, 2013, Shaw received an e-mail from Mejia informing him that CMI had not received all required documentation for CMI to review and consider the Knapp Offer. Shaw resubmitted most of the documentation but did not provide, at any point during the relevant time period, payoff information on the junior liens or a release of liens from the junior lien holders.

100. On May 23, 2013, CMI denied the short sale of the McFaul Court property under the Knapp Offer for lack of documentation related to the junior lien holders. However, by that point, the Knapp Offer had already expired under the terms of the second extension.

101. On June 5, 2013, dismissed defendant NTS sent Shaw a letter advising him that the trustee’s sale set for June 5, 2013, was postponed until August 7, 2013. Pl. Trial Ex. 45 P00204.

102. In July 2013, Shaw and the Knapps revived the Knapp Offer to purchase the McFaul Court property as a short sale for the purchase price of $857,000.00. Shaw submitted the revived Knapp Offer to CMI. Along with the revived Knapp Offer, Shaw submitted all documents originally requested by CMI for consideration of the short sale except for releases from the junior lien holders.

103. On July 26, 2013, Shaw filed his initial complaint against CMI initiating the present action. ECF No. 1, Exhibit 1, p.8-19.

104. In mid-August 2013, after no response to the revived Knapp Offer by CMI, Shaw and the Knapps executed a thirty (30) day extension on the offer.

105. In mid-September 2013, again after no response to the revived Knapp Offer by CMI, Shaw and the Knapps executed a second thirty (30) day extension on the offer.

106. In October 2013, Shaw applied for and was denied credit as a cosigner for his son on a thirty-six (36) month lease of a Kia automobile.

107. In mid-October 2013, after still no response to the revived Knapp Offer by CMI, Shaw and the Knapps executed a third and final thirty (30) day extension on the offer.

108. In mid-November 2013, the revived Knapp Offer expired under the terms of the last extension. At that point, Shaw ended his listing agreement with non-party Pinnacle Realty and the McFaul Court property was no longer listed for sale.

109. On December 11, 2013, and in response to developments in the litigation, dismissed defendant NTS recorded a rescission of the notice of default in the official records of Douglas County, Nevada (Doc. No. 0835262). Def. Trial Ex. 508-B.

110. During the infancy of the litigation, defendant CMI was represented by Attorney Colt Dodrill (“Attorney Dodrill”). While the litigation was proceeding, Shaw contacted and met with Attorney Dodrill several times. In December 2013, after a court hearing, Attorney Dodrill and Shaw had a discussion about the possible short sale of the McFaul Court property. As part of that conversation, Attorney Dodrill advised Shaw that if he was to re-list the property for sale and accept any short sale offers, those offers should be submitted directly to Attorney Dodrill as counsel of record for CMI, rather than to CMI’s Homeowner’s Assistance department.

111. After the discussion with Attorney Dodrill, Shaw listed the McFaul Court property as a short sale with non-party Chase International Realty, at a listing price of $1,082,000.00, the appraised value of the property in April 2013.

112. On April 3, 2014, Shaw filed an amended complaint in this litigation. ECF No. 52.

113. On April 8, 2014, Shaw received a short sale offer on the McFaul Court property from non-parties Darin and Lisette Smith (“the Smiths”) to purchase the property for $785,000.00. Pl. Trial Ex. 48A.

114. On April 11, 2014, Shaw submitted a counter-offer to the Smiths for the same purchase price which they accepted (“the first Smith Offer”). Pl. Trial Ex. 48A. The terms of the accepted counter-offer included that: (1) CMI had until April 30, 2014, to approve the short sale; (2) Katherine Barkley and Janice Shaw, the second and third junior lien holders, would be paid in full on their junior liens from the sale proceeds of the McFaul Court property; (3) Shaw would receive $75,000.00 from the sale proceeds of the property; and (4) CMI would receive the remaining sale proceeds as full and final satisfaction of Shaw’s residential loan and the first deed of trust. Id.

115. On April 14, 2014, Shaw forwarded the first Smith Offer to Attorney Dodrill and demanded a response on the offer by April 28, 2014. Pl. Trial Ex. 48A.

116. On April 30, 2014, the first Smith Offer lapsed pursuant to its terms without any action by CMI on the short sale offer.

117. On June 2, 2014, CMI denied the first Smith Offer. However, by that point, the offer had already expired under its terms more than a month earlier.

118. On July 11, 2014, Shaw received another short sale offer from the Smiths to purchase the McFaul Court property for $825,000.00 (“the second Smith Offer”). Pl. Trial Ex. 48B. The terms of the second Smith Offer included: (1) approval of the short sale by CMI within 5 business days of acceptance by Shaw; (2) Katherine Barkley and Janice Shaw, the second and third junior lien holders, would be paid in full on their junior liens from the sale proceeds; (3) Shaw would receive $75,000.00 from the sale proceeds; and (4) CMI would receive the remaining proceeds as full and final satisfaction of Shaw’s residential loan and the first deed of trust. Id. Shaw accepted and forwarded the second Smith Offer to Attorney Andrew Bao (“Attorney Bao”), CMI’s new counsel of record in the litigation. Pl. Trial Ex. 48B. Attorney Bao advised Shaw that the second Smith Offer had been submitted to CMI and that if any further information was required to consider the offer he would contact Shaw. Id.

119. On July 19, 2014, the second Smith Offer lapsed without any action by CMI.

120. During Shaw’s attempts to sell the property in 2013 and 2014, junior lien holder Katherine Barkley did not have any conversations with Shaw regarding the various short sale offers on the McFaul Court property, had not agreed to any short sale offers on the property, and had not agreed to release her junior lien.

121. Similarly, junior lien holder Janice Shaw did not have any conversations with Shaw regarding the various short sale offers on the McFaul Court property, had not agreed to any short sale offer on the property, and had not agreed to release her junior lien.^[11]

122. On August 25, 2014, Shaw filed his second amended complaint in this action. ECF No. 109. The second amended complaint is the operative complaint in this litigation.

123. By the time trial began in May 2016, Shaw’s mortgage account with CMI showed a total amount due of $1,162,304.95. Pl. Trial Ex. 57. This amount was calculated as the combination of the remaining principal balance of $891,467.07; $221,350.69 in accrued interest; $43,110.45 in advanced escrow charges;^[12] $186.90 in fees; and $7963.83 in past-due fees and late charges. Id.

124. Throughout the history of this action, Shaw sought contact information from CMI for the current owner of his residential loan. However, prior to trial in June of 2016, CMI never provided contact information for, or identified the actual current owner of Shaw’s residential loan.

125. Throughout the history of this action Shaw suffered a loss of personal and business reputation as a direct consequence of CMI’s conduct, collection activities, and eventual initiation of foreclosure proceedings on the McFaul Court property.

II. Conclusions of Law

In his second amended complaint, Shaw has alleged five causes of action against CMI that are currently before the court: declaratory relief, breach of contract, breach of the implied covenants of good faith and fair dealing, interference with prospective economic advantage, and violation of the Real Estate Settlement Procedures Act. ECF No. 109. Shaw has the burden of proof on all his claims and must prove each claim by a preponderance of the evidence. See, e.g., Cal. State Bd. of Equilization v. Renovisor’s Inc., 282 F.3d 1233 (9th Cir. 2002) (stating the basic premise that civil claims must be proven by a preponderance of the evidence). Along with contract and tort damages, Shaw also seeks punitive damages for CMI’s conduct in this action. See ECF No. 109. In order to be eligible for an award of punitive damages, Shaw must prove by clear and convincing evidence that CMI engaged in oppression, fraud, or malice. See NRS §42.005(1). The court addresses each of Shaw’s remaining causes of action below.

A. Declaratory Relief

Pursuant to Section 2201 of the Declaratory Judgment Act, “any court of the United States. . . may declare the rights and other legal relations of any interested party seeking such declaration.” 28 U.S.C. §2201. Further “[a]ny such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.” Id. In his claim for declaratory relief, Shaw seeks a declaration from the court that the May 2011 Modification Agreement was a fully executed, valid, and binding loan modification agreement between the parties and that such agreement was, pursuant to its terms, effective May 1, 2011. See ECF No. 109. Shaw also seeks an order from the court declaring the parties’ obligations and financial relationship under that agreement. Id.

The existence of a contract is a question of law. May v. Anderson, 119 P.3d 1254, 1257 (Nev. 2005); Kabil Developments Corp. v. Mignot, 566 P.2d 505, 577 (Or. 1977). “Formation of a valid contract requires that there be a meeting of the minds as evidenced by a manifestation of mutual intent to contract.” Ridenour v. Bank of Am., N.A., 23 F. Supp. 3d 1201, 1208 (D. Idaho 2014). This manifestation can take the form of an offer by one party and acceptance by the other. Id.; see also Erection Co. v. W&W Steel, LLC, 2011 U.S. Dist LEXIS 121581, at *19 (D. Or. 2011) (citing Ken Hood Construction Co. v. Pacific Coast Construction, Inc., 120 P.3d 6 (Or. 2005) (“Manifestation of mutual assent ordinarily occurs through an offer or proposal by one party followed by acceptance of the other party.”); Integrated Storage Consulting Servs. v. NetApp, Inc., 2013 U.S. Dist. LEXIS 107705, at *19 (N.D. Cal. 2013) (“The formation of a contract is properly shown through evidence of an offer and acceptance of definite terms.”). The party asserting the existence of a contract has the burden to establish the contract’s existence and its terms. Erection Co., 2011 U.S. Dist. LEXIS 121581, at *20.

Here, the undisputed evidence presented at trial establishes that defendant CMI offered to modify Shaw’s residential home loan in May 2011. CMI sent Shaw a letter written by CMI employee Kim Vukovich along with a copy of the May 2011 Modification Agreement. CMI’s letter specifically advised Shaw that he was eligible for a loan modification as outlined by the terms of the enclosed agreement. The letter further advised Shaw that if he accepted the terms of that agreement, he should execute and submit the agreement to CMI. Shaw properly executed, by notarized signature, the May 2011 Modification Agreement and submitted the agreement to CMI on May 18, 2011, pursuant to CMI’s instructions. CMI then accepted the executed May 2011 Modification Agreement by booking the terms of the modification into Shaw’s electronic mortgage account on May 23, 2011. After that date, Shaw’s mortgage account showed that his residential loan had been modified pursuant to the terms of the May 2011 Modification Agreement.

Additionally, on June 30, 2011, after having already booked the May 2011 Modification Agreement into Shaw’s mortgage account and having accepted Shaw’s first timely made modified payment under the agreement, CMI Vice-President Larry Bauman separately executed, by notarized signature, the May 2011 Modification Agreement on behalf of CMI. CMI then sent a copy of the completed May 2011 Modification Agreement, executed by both parties, to Shaw on August 9, 2011. Moreover, CMI, through its Assistant General Counsel, Dana Ross, and Homeowner Support Specialist Chris Gabbert, recognized both the validity and the legality of the May 2011 Modification Agreement in a separate letter to Shaw sent on August 23, 2011. Finally, it is undisputed that CMI accepted Shaw’s timely made modified monthly payments of $3079.30 from June through December 2011.

The court finds that this record of activity is sufficient to establish an offer of a modification by CMI and acceptance of that offer by Shaw. Such conduct establishes the formation of a contract as a matter of law. See Erection Co., 2011 U.S. Dist. LEXIS 121581, at *19. Further, this record of activity unequivocally established “a manifestation of mutual intent” between the parties to modify Shaw’s residential home loan. Ridenour, 23 F. Supp. 3d at 1208. Therefore, the court finds that the undisputed evidence in this action establishes that the parties executed a valid and binding loan modification agreement known as the May 2011 Modification Agreement that defines the financial relationship, duties, and obligations between Shaw and CMI, the terms of which are outlined in the agreement. See Pl. Trial Ex. 6, P00016-20. The court makes this finding concerning the formation and validity of the May 2011 Modification Agreement nunc pro tunc.

As the court has found that the May 2011 Modification Agreement is a valid contract between the parties, the court finds that due to the long history of this action it is necessary to define the obligations and financial relationship of the parties under the May 2011 Modification Agreement and going forward from this order. In that regard, the court makes these additional findings. First, the modification of Shaw’s residential loan pursuant to the May 2011 Modification Agreement became effective May 1, 2011. See Pl. Trial Ex. 6, P00017, Section 4. Second, pursuant to the contract, Shaw’s modified monthly payments for the first two years of the agreement were set at $3,079.30, with the first payment having been due on June 1, 2011. Id. at P00018, Section 4(C). It is undisputed that Shaw timely made modified monthly payments under the May 2011 Modification Agreement from June through December 2011, for a total of seven (7) modified payments. As addressed in depth below when analyzing Shaw’s breach of contract claim, the court finds that Shaw’s breach of the May 2011 Modification Agreement — by withholding his modified monthly mortgage payments beginning in January 2012 — was reasonable and excused because of CMI’s anticipatory repudiation of the May 2011 Modification Agreement in December 2011. See Infra Section II(B)(ii). Accordingly, the court considers the time period from January 2012, through the date of this order tolled and excluded under the agreement. The court finds that this tolling of the modification agreement is equitable based on CMI’s continued refusal to recognize the existence of the May 2011 Modification Agreement until the filing of the pretrial order in late 2015, four-and-a-half years after the May 2011 Modification Agreement was executed by both parties. Therefore, going forward from this order, Shaw’s modified monthly payment under the May 2011 Modification Agreement remains $3,079.30 for the next seventeen (17) months, after which the monthly payment will increase pursuant to the staggered payment plan outlined in the agreement with the date the staggered payments begin commencing from the date of this order and excluding the tolled period. See Pl. Trial Ex. 6, P00018, Section 4(C). Similarly, the maturity date of Shaw’s modified loan is extended from November 1, 2033, until approximately August 1, 2038, to account for the time tolled in this action.

Third, as specified in the May 2011 Modification Agreement, Shaw’s principal balance on the loan was set at $910,110.34, $85,777.89 of which was deferred from interest charges and is due as a balloon payment at the end of Shaw’s loan. See Pl. Trial Ex. 6, P00017-18, Section 4(B) & 4(C). Since that time, Shaw made seven modified payments of $3,079.30 under the agreement and reduced the principal balance on his residential loan. According to Shaw’s April 2016 mortgage statement admitted at trial, his current remaining principal balance under his loan is $891,467.07. Pl. Trial Ex. 57. Thus, going forward, the court finds that the remaining principal balance on Shaw’s loan is $891,467.07, and that Shaw’s mortgage account with CMI should reflect this amount.

Fourth, the court recognizes that beginning in January 2012, CMI advanced $43,100.45 in escrow funds to Shaw’s mortgage account in order to protect its security interest in the McFaul Court property during the parties’ dispute and this litigation. See Pl. Trial Ex. 57; Def. Trial Ex. 513-B. These advanced escrow funds included quarterly property tax payments on the McFaul Court property, monthly Homeowner’s Insurance premiums, and other escrow expenses for which Shaw was responsible under the terms of his original residential loan, first deed of trust, and the May 2011 Modification Agreement. CMI made all escrow payments on Shaw’s account since January 2012, even though Shaw’s escrow account had insufficient funds to make these payments. Though it was in CMI’s interest to advance these funds in order to protect its security interest in the McFaul Court property, Shaw directly benefited from CMI’s conduct as no property tax liens were recorded on the McFaul Court property during the parties’ dispute and his Homeowner’s Insurance policy did not lapse. Accordingly, the court finds that in the interest of equity between the parties, Shaw is liable for, and CMI is entitled to recover from Shaw, the $43,100.45 in advanced escrow charges. Therefore, going forward from this order, Shaw’s mortgage account should reflect that he continues to owe $43,100.45 to CMI in advanced escrow charges.

Finally, the court finds that any other fees charged by CMI against Shaw’s mortgage account since January 2012, are invalid and improper. As the court has found the time between January 2012 and this order is tolled and excluded from the May 2011 Modification Agreement, all interest charges, late payment fees, and any other fees or past due amounts charged against Shaw under either his original residential loan or the May 2011 Modification Agreement are excluded. The court’s finding specifically extends to and includes the $221,350.89 in accrued interest, $189.90 in fees, and $7,963.83 in past-due fees and late charges reflected on Shaw’s April 2016 mortgage statement, as well as any and all other expenses and fees that have accumulated since January 2012, except for the aforementioned advanced escrow charges. See Pl. Trial Ex. 57. Accordingly, the court shall issue judgment on Shaw’s claim for declaratory relief as outlined above.

B. Breach of Contract

To prevail on a breach of contract claim, a plaintiff must prove: (1) the existence of a valid contract; (2) a breach of that contract by the defendant; and (3) damages resulting from defendant’s breach. Saini v. Int’l Game Tech., 434 F. Supp. 2d 913, 919-20 (D. Nev. 2006); Brown v. Kinross Gold U.S.A., Inc., 531 F. Supp. 2d 1234, 1240 (D. Nev. 2008). A breach of contract can occur in one of two ways. See Nev. Power Co. v. Calpine Corp., 2006 U.S. Dist. LEXIS 36135, at *22 (D. Nev. 2006). The first is an actual breach of the specific terms and obligations of the contract. Brown, 531 F. Supp. 2d at 1240. The second is an anticipatory breach, or repudiation, of the contract. Nev. Power Co., 2006 U.S. Dist. LEXIS 36135, at *23.

In this action, Shaw has alleged both an actual breach of contract claim and an anticipatory breach of contract claim against CMI. See ECF No. 109; ECF No. 168. As each type of breach permits different relief and requires proof of separate and distinct elements, the court shall evaluate CMI’s conduct for each type of breach separately.

i. Actual Breach

As addressed above, the court has found that the May 2011 Modification Agreement constitutes a valid and binding contract. Supra Section II(A). Thus, the remaining issues for the court to determine are (1) whether CMI breached the terms of the May 2011 Modification Agreement, and (2) if there was a breach of that agreement, the damages Shaw incurred as a result of that breach, if any. See Saini, 434 F. Supp. 2d at 920.

Under the terms of the May 2011 Modification Agreement, CMI had a duty to correctly book and apply all of Shaw’s timely made modified payments throughout the life of the modified loan. Further, CMI had a duty to keep correct records of Shaw’s mortgage account so that his account was not improperly placed in default. However, in direct contravention of its obligations and duties under the May 2011 Modification Agreement, CMI unbooked the modified loan terms from Shaw’s electronic mortgage account, unbooked Shaw’s timely made mortgage payments for the months of June and July 2011; placed Shaw’s account into default at a time that he was current on all his mortgage obligations under the express terms of the May 2011 Modification Agreement; and refused to book Shaw’s timely made mortgage payment for the month of August 2011. Further, CMI sent Shaw collection notices demanding payment on over $30,000.00 in past due amounts in both July and August 2011, even though pursuant to the terms of the May 2011 Modification Agreement, all amounts that were previously past due (including the unpaid monthly payments from October 2010, through February 2011, as well as the difference between Shaw’s prior monthly payments and the modified payments under the trial modification period) were specifically included in the new principal balance of $910,110.34, and thus, there was no past due balance on Shaw’s mortgage account at the time.

The court finds that CMI’s undisputed conduct was a direct breach of the May 2011 Modification Agreement. Further, the court finds that CMI’s unilateral actions were made without justification. As recognized by CMI, there was nothing legally deficient with the May 2011 Modification Agreement. Pl. Trial Ex. 21, P00060. Thus, CMI was not justified in unbooking both the modification’s terms and Shaw’s monthly payments from his electronic mortgage account simply because the May 2011 Modification Agreement lacked a payment date for the balloon payment.

As the court has found that CMI breached the May 2011 Modification Agreement, the court now turns to the issue of damages. Damages for a breach of contract claim are limited to those specifically outlined in the contract, if any, and those expectation damages sufficient to put the nonbreaching party in the position it would have been in had the breach not occurred. See, e.g., Keife v. Metro. Life Ins. Co., 931 F. Supp. 2d 1100, 1108-09 (D. Nev. 2013); Midwest Precision Services, Inc. v. PTM Indus. Corp., 887 F.2d 1128, 1136-37 (1st Cir. 1989). Here, the May 2011 Modification Agreement does not set forth any damages for a breach of that agreement by CMI. See Pl. Trial Ex. 6, P00016-20. As such, Shaw’s damages claim is limited to being placed in the same position under the May 2011 Modification Agreement as if the agreement had not been breached by CMI, which is a modification of his residential loan under the terms of that agreement. Shaw has already achieved this position as addressed above in the court’s analysis of Shaw’s declaratory relief claim. See Supra Section II(A). Further, it is undisputed that after CMI breached the May 2011 Modification Agreement it resolved and cured its breach of that agreement on August 15, 2011, when it rebooked the modification terms and Shaw’s payments into his electronic mortgage account. See Def. Trial Ex. 510-B, CMI000064. At the same time, CMI removed Shaw’s account from default and corrected the delinquent payment reports it had made to the various credit reporting agencies during its breach. Finally, CMI waived all late fees and other charges that it had charged to Shaw’s account during its breach. Thus, Shaw was already placed in the same position under the May 2011 Modification Agreement in late August 2011, as if CMI’s breach had not occurred. And, Shaw has failed to prove any other consequential damages resulting from CMI’s one-month breach of the May 2011 Modification Agreement. Accordingly, the court finds that Shaw is not entitled to contract damages for CMI’s breach.

ii. Anticipatory Breach

An anticipatory breach is a breach of a contract that occurs when one party to the contract, without justification and prior to a breach by the other party, makes a statement or engages in conduct indicating that it will not or cannot substantially perform its duties under the contract. Nev. Power Co., 2006 U.S. Dist. LEXIS 36135, at *28. An anticipatory breach, or repudiation, of a contract may be express or implied. Id. An express repudiation occurs when one party demonstrates “a definite unequivocal and absolute intent not to perform a substantial portion of the contract.” Kahle v, Kostiner, 455 P.2d 42, 44 (Nev. 1969); see also Stratosphere Litigation, LLC v. Grand Casinos, 298 F.3d 1137, 1147 (9th Cir. 2002) (holding that an “[a]nticipatory repudiation occurs when a party through conduct or language makes a clear, positive and unequivocal declaration of an intent not to perform.”). An implied repudiation occurs when one party acts in such a manner as to make its future performance under the contract impossible. Covington Bros. v. Valley Plastering, Inc., 566 P.2d 814, 817 (Nev. 1977). If one party anticipatorily breaches the contract, a repudiation of the contract has occurred and the non-breaching party is excused from performing its obligations under the contract. Kahle, 455 P.2d at 44; see also Cleverley v. Ballantyne, 2013 U.S. Dist. LEXIS 177416, at *13 (D. Nev. 2013) (stating that an anticipatory repudiation of a contract excuses the necessity for the non-breaching party to tender performance).

The court has reviewed the evidence presented at trial and finds that CMI expressly repudiated the May 2011 Modification Agreement. The evidence in this action establishes that CMI made repeated, unambiguous, and unequivocal statements to Shaw that the May 2011 Modification Agreement was not a binding modification agreement between the parties, that Shaw did not have any modification agreement with CMI, and that CMI would not recognize any modification agreement until Shaw executed the July 2011 Modification Agreement. CMI began making these statements to Shaw in July 2011, when Chris Gabbert, Shaw’s Homeowner Support Specialist, told Shaw that CMI would only grant him a modification of his loan if he signed the July 2011 Modification Agreement. And CMI continued making similar statements about the need for Shaw to execute the July 2011 Modification Agreement even after CMI had rebooked the May 2011 Modification Agreement in August 2011. For example, Shaw’s next Homeowner Support Specialist, Jennifer Butler, unequivocally advised Shaw in December 2011, and repeatedly through early 2012, that he would not have any modification of his residential loan unless he signed the July 2011 Modification Agreement and that this decision was confirmed by CMI’s Loss Mitigation and underwriting departments. Although Gabbert’s statement concerning the validity of the May 2011 Modification Agreement was prior to CMI curing its breach in August 2011, Butler’s statements regarding the validity of the May 2011 Modification Agreement occurred in December 2011, over four months after CMI rebooked that agreement. And still no explanation was ever provided to Shaw for CMI’s change in position between August 23, 2011, and early December 2011.

Based on this conduct, especially all conduct that occurred after CMI’s “resolution” of Shaw’s mortgage account in August 2011, the court finds that CMI expressly repudiated the May 2011 Modification Agreement. CMI’s conduct constituted “a definite unequivocal and absolute intent not to perform” under the contract. Kahle, 455 P.2d at 44. In fact, this court cannot imagine a more unequivocal and absolute intent to not perform under the May 2011 Modification Agreement than stating that the agreement executed by the parties simply did not exist, and would not be honored. Moreover, as addressed above in Shaw’s actual breach of contract claim, the court finds that CMI was not justified in its conduct simply because the May 2011 Modification Agreement did not contain a specific due date for the balloon payment. See Supra Section II(B)(i). Therefore, the court finds that because CMI repudiated the May 2011 Modification Agreement, Shaw was excused from his performance under that agreement beginning in January 2012. Further, the court finds that Shaw was reasonable in withholding his payments after being told by Butler in December 2011, that the May 2011 Modification Agreement was not in force and that there would be no modification unless and until he executed the July 2011 Modification Agreement based on CMI’s prior conduct in both breaching and repudiating the contract in July 2011, and its history of inconsistent and contradictory statements. Thus, because Shaw’s non-performance under the May 2011 Modification Agreement was excused, all interest, late fees, and past due charges accrued on Shaw’s loan since January 2012, are not recoverable by CMI and the court finds that these charges shall be excluded from Shaw’s mortgage account.^[13]

C. Breach of the Implied Covenants of Good Faith and Fair Dealing

Under Nevada law, “[e]very contract imposes upon each party a duty of good faith and fair dealing in its performance and execution.” A.C. Shaw Constr. v. Washoe Cty., 784 P.2d 9, 9 (Nev. 1989) (quoting Restatement (Second) of Contracts §205); see also Nelson v. Heer, 163 P.3d 420, 427 (Nev. 2007) (“It is well established that all contracts impose upon the parties an implied covenant of good faith and fair dealing, which prohibits arbitrary or unfair actions by one party that work to the disadvantage of the other.”). “The implied covenants of good faith and fair dealing impose a burden that requires each party to a contract to `refrain from doing anything to injure the right of the other to receive the benefits of the agreement.'” Integrated Storage Consulting Servs., 2013 U.S. Dist. LEXIS 107705, at *23 (quoting San Jose Prod. Credit Ass’n v. Old Republic Life Ins. Co., 723 F.2d 700, 703 (9th Cir. 1984).

To establish a claim for breach of the implied covenants of good faith and fair dealing, a plaintiff must prove: (1) the existence of a contract between the parties; (2) that defendant breached its duty of good faith and fair dealing by acting in a manner unfaithful to the purpose of the contract; and (3) the plaintiff’s justified expectations under the contract were denied. See Perry v. Jordan, 900 P.2d 335, 338 (Nev. 1995) (citing Hilton Hotels Corp. v. Butch Lewis Prod. Inc., 808 P.2d 919, 922-23 (Nev. 1991). Generally, the remedy for a breach of the implied covenants of good faith and fair dealing is limited to contractual remedies. Mundy v. Household Fin. Corp., 885 F.2d 542, 544 (9th Cir. 1989); see also Nev. Power Co., 2006 U.S. Dist. LEXIS 36135, at *26 (“As a contract concept, breach of duty leads to the imposition of contract damages determined by the nature of the breach and contract principles.”). However, in limited circumstances, a breach of the implied covenants can give rise to tort liability. See, e.g., State v. Sutton, 103 P.3d 8, 19 (Nev. 2004) (holding that in special circumstances, a breach of the implied covenants of good faith and fair dealing can give rise to tort liability).

In his second amended complaint, Shaw has alleged a breach of the implied covenants of good faith and fair dealing arising from CMI’s repeated refusal to accept the May 2011 Modification Agreement and continued demands for both payment on past due amounts and the execution of the July 2011 Modification Agreement. ECF No. 109. As part of this claim, Shaw has requested both contract and tort damages. Id. Because Shaw is requesting both contract and tort damages, the court shall evaluate Shaw’s breach of the implied covenants claims separately for both a contractual and tortious breach.

i. Contractual Breach of Implied Covenants

A contractual breach of the implied covenants of good faith and fair dealing occurs “[w]here the terms of a contract are literally complied with but one party to the contract deliberately countervenes the intention and spirit of the contract.” Hilton Hotels Corp., 808 P.2d at 923-24. “Establishing such a breach of the implied covenant depends upon the `nature and purposes of the underlying contract and the legitimate expectations of the parties arising from the contract.'” Integrated Storage Consulting Servs., 2013 U.S. Dist. LEXIS 107705, at *23 (quoting Mundy, 885 F.2d at 544) As such, a breach of the implied covenants of good faith and fair dealing is “limited to assuring compliance with the express terms of the contract, and cannot be extended to create obligations not contemplated by the contract.” McKnight v. Torres, 563 F.3d 890, 893 (9th Cir. 2009)

At trial, Shaw testified that under the terms of the May 2011 Modification Agreement he expected to receive a modification of his loan as outlined by the express terms of that agreement and that his mortgage account would no longer be in default as a result of the modification. However, after the parties executed the May 2011 Modification Agreement, CMI engaged in a pattern of conduct specifically designed to thwart the purpose of the contract and Shaw’s reasonable expectations^[14] of a modification of his residential home loan.

Initially, the court notes that some of CMI’s conduct which Shaw contends establishes a breach of the implied covenants cannot support his claim as a matter of law. It is well established that a claim alleging breach of the implied covenants of good faith and fair dealing cannot be based on the same conduct establishing a separately pled breach of contract claim. Daly v. United Healthcare Ins. Co., 2010 U.S. Dist. LEXIS 116048, at *4 (N.D. Cal. 2010); see also Guz v. Betchel Nat. Inc., 8 P.3d 1089 (Cal. 2010) (holding that when both a breach of contract and breach of implied covenants claim are based on the same conduct, the implied covenants claim is superfluous). Thus, CMI’s conduct that was a direct actual breach of the May 2011 Modification Agreement in July 2011, cannot support Shaw’s implied covenants claim. As such, the court cannot, and shall not, consider CMI’s conduct in unbooking the May 2011 Modification Agreement and all payments made under that agreement from Shaw’s electronic mortgage account in determining whether CMI breached the implied covenants.

Nonetheless, the court finds that Shaw has proven by a preponderance of the evidence that CMI breached the implied covenants of good faith and fair dealing. First, it is undisputed that within two weeks after CMI executed the May 2011 Modification Agreement, CMI sent Shaw an entirely new modification agreement, the July 2011 Modification Agreement. This new agreement was identified by CMI employee Juan Mayorga as a “corrected” agreement that had to be signed by Shaw before CMI would modify Shaw’s residential loan even though it contained new material terms. No explanation was ever provided to Shaw for why the new modification agreement had been sent. Even Mayorga, the CMI employee who sent the July 2011 Modification Agreement, was unable to inform Shaw as to why the new agreement had been drafted. Shaw was given similar unresponsive answers from Chris Gabbert, who also directed Shaw to sign the new agreement if he wanted a loan modification. The court finds that within the context of the confusing signals to Shaw, CMI’s conduct of executing a loan modification agreement and then insisting upon a new agreement with materially different terms without explanation to Shaw “deliberately contravenes the intention and spirit” of the properly executed and valid May 2011 Modification Agreement. Hilton Hotels Corp., 808 P.2d at 923-24. CMI’s conduct was completely unfaithful to the purpose of the May 2011 Modification Agreement which was to provide Shaw with a modification of his residential home loan.^[15]

Further, CMI engaged in a similar pattern of conduct after resolving Shaw’s account in August 2011. For example, Shaw timely made all modified monthly payments of $3,079.30 under the May 2011 Modification Agreement through December 2011. Def. Trial Ex. 510-B, CMI000063-64. However, during that same time, Shaw received written collection notices from CMI demanding payment on non-existent past due amounts. Further, after his account was transferred to Jennifer Butler in December 2011, CMI reversed its position on the May 2011 Modification Agreement and once again claimed that Shaw did not have any modification with CMI because he had not yet signed the July 2011 Modification Agreement. Moreover, even after being informed that CMI had previously determined that there was nothing legally deficient in the May 2011 Modification Agreement, CMI’s Loss Mitigation and underwriting departments confirmed that Shaw did not have a loan modification with CMI in December 2011, and would not have a recognized loan modification with CMI unless and until he signed the July 2011 Modification Agreement. The court finds that this post August 2011 conduct likewise “deliberately contravenes the intention and spirit” of the May 2011 Modification Agreement. Hilton Hotel Corp., 808 P.2d at 923-24. Based on all of CMI’s conduct in this action, the court finds that CMI breached the implied covenants of good faith and fair dealing.

As the court has found that CMI breached the implied covenants of good faith and fair dealing, the court now turns to the issue of damages. Damages under a contractual breach of the implied covenants are limited to regular contract damages. Munly, 885 F.2d at 544. As addressed above in the court’s analysis of Shaw’s actual breach of contract claim, Shaw is not entitled to contract-based damages. See Supra Section II(B)(i). Shaw has already been placed in the position that he would have been under the May 2011 Modification Agreement absent CMI’s breach of the implied covenants. Id. Further, Shaw has not proven any other contract damages that could be awarded under this claim. Therefore, the court finds that Shaw is not entitled to any damages for CMI’s contractual breach of the implied covenants.

ii. Tortious Breach of Implied Covenants

Generally, a breach of the implied covenants is a contract-based claim. Hilton Hotels Corp., 808 P.2d at 923. However, a breach of the implied covenants can give rise to tort liability when there is a special relationship between the contracting parties. Id. (stating that a tort action for an implied covenants claim requires a special element of reliance or fiduciary duty); see also Sutton, 103 P.3d at 19 (Tort liability for breach of the implied covenants of good faith and fair dealing is appropriate where “the party in the superior or entrusted position has engaged in grievous and perfidious misconduct.”); Max Baer Prods., Ltd. v. Riverwood Partners, LLC, 2010 U.S. Dist. LEXIS 100325, at *14 (D. Nev. 2010) (“Although every contract contains an implied covenant of good faith and fair dealing, an action in tort for breach of the covenant arises only `in rare and exceptional cases’ when there is a special relationship between the victim and tortfeasor.”). A special relationship is “characterized by elements of public interest, adhesion, and fiduciary responsibility.” Id. Under a tortious breach, “a successful plaintiff is entitled to compensation for all of the natural and probable consequences of the wrong, including injury to the feelings from humiliation, indignity and disgrace to the person.” Sutton, 103 P.3d at 19.

Here, the court finds that there is a special relationship between the parties sufficient to support tort liability in this action. First, the parties are in drastically different and unequal bargaining positions. Max Baer Prods., Ltd., 2010 U.S. Dist. LEXIS 100325, at *9 (holding that courts allow tort liability where one party holds “vastly superior bargaining power”). CMI, as the servicer of Shaw’s residential loan, held all of the bargaining power as it controlled the decision of whether to offer Shaw a loan modification, as well as the terms of that agreement. In contrast, Shaw had limited bargaining power as a financially strapped borrower seeking a modification to a loan agreement that he agreed to years earlier and for which CMI held a protected security interest. Although it was in CMI’s interest to grant Shaw a modification so that Shaw would continue making payments, CMI was under no obligation to offer Shaw the May 2011 Modification Agreement or any modification agreement at all. Further, the loan modification agreement is an adhesion contract as CMI completely dictated the terms of the modification with no input by Shaw and offered that agreement to Shaw with his only option to agree to or refuse the agreement. The parties’ relationship necessarily shares “a special element of reliance” sufficient for the court to find a special relationship between the parties for tort liability. Id. at *15. In such relationships, courts have routinely recognized that “there is a need to `protect the weak from the insults of the stronger’ that is not adequately met by ordinary contract damages.” Id.

Further, the same conduct that supports a claim for contractual breach of the implied covenants also supports a claim for tortious breach of the implied covenants. See Supra Section II(C)(i). The court now turns to the issue of compensable damages under this claim. In his complaint, Shaw seeks general tort damages pursuant to NRS §41.334.^[16] See ECF No. 109. NRS §41.334 allows for a party to receive compensation for “loss of reputation, shame, mortification and hurt feelings.” Further, under a tortious breach of the implied covenants claim, “a successful plaintiff is entitled to compensation for all of the natural and probable consequences of the wrong, including injury to the feelings from humiliation, indignity and disgrace to the person.” Sutton, 103 P.3d at 19.

The court has reviewed all the testimony and documents admitted at trial and finds that Shaw has proven by a preponderance of the evidence that he suffered a loss of reputation, shame, mortification, indignity and disgrace as a direct result of CMI’s tortious breach of the implied covenants. Shaw testified that he suffered both a loss in personal and business reputation as a proximate result of CMI’s improper collection efforts after executing the May 2011 Modification Agreement. For example, Shaw testified that door hanger collection notices were placed on the door of the McFaul Court property in plain sight and were visible to his neighbors and guests to the property. Further, Shaw testified that he received various e-mails, letters, and comments from former clients and former spouses of former clients. In those various communications, Shaw was chastised and his professional skills as an attorney were questioned as he, himself, was suffering financial difficulties and facing potential foreclosure upon his personal residence. Further, Shaw’s prior business partner in his legal practice used Shaw’s lack of creditworthiness, as a result of CMI’s pending foreclosure, in a separate legal dispute regarding the partnership’s assets (which included another property) which eventually led to Shaw leaving the business and starting a new practice in Reno, Nevada. Additionally, Shaw testified that he suffered from increasing feelings of frustration, worthlessness, shame and sleeplessness in not being able to resolve or even confront his financial difficulties because of the dispute with CMI. The court finds that Shaw has proven by a preponderance of the evidence that he suffered a loss of reputation, shame, indignity and disgrace, and other general damages as a proximate cause of CMI’s conduct.

As the court has determined that Shaw has proven that he suffered general damages as a result of CMI’s conduct, the next significant issue for the court is to quantify Shaw’s general damages. A second issue is to determine the time frame for Shaw’s damages arising from CMI’s tortious conduct. At trial, Shaw presented no evidence related to any monetary figure for his general damages. In fact, the only number offered for Shaw’s general damages was presented by Shaw’s counsel in closing. In Shaw’s closing, Shaw’s counsel asked the court to award Shaw damages in the amount of $2,700 per day from the date of the execution of the May 2011 Modification Agreement by both parties through the date of trial for compensation in an amount of approximately $5,000,000.00. However, there is no testimony or evidence to support that number and the $2,700 per day figure has no relation to anything specific in this action.

The court has reviewed the documents and evidence admitted at trial and finds that an appropriate award of compensatory damages to Shaw is $500 per day during the critical time periods from May 23, 2011, through December 31, 2011, subject to tolling from August 23, 2011, to December 7, 2011, during which the May 2011 Modification Agreement was being recognized by CMI; $250 per day during the period commencing in January 2012 (when Shaw discontinued further house payments) through August 2012 (when Shaw vacated the home); and a reduced amount of $100 per day from August 2012 through the close of trial on May 5, 2016.

The court reaches the $500 per day figure based upon the reasonable amount of time spent by Shaw in the many contacts, conversations, and other uneventful communications he had with CMI concerning the properly executed and “not legally deficient” May 2011 Modification Agreement. These uneventful contacts resulted in great stress and frustration to Shaw as well as adverse effects upon Shaw’s standing in the community, business reputation and credit worthiness. In support of the damages amount, the court takes judicial notice that the hourly billing rate for an experienced attorney of similar skills as Shaw in this district would have been a minimum of $300 per hour and there is no question that Shaw spent at least one to two hours a day, and on some days much longer, either directly responding to or communicating with CMI and its representatives, or attempting to understand CMI’s inconsistent and contradictory positions concerning his mortgage account and loan modification. The court also takes into consideration that any homeowner whose home represented his or her most significant asset and also greatest debt, in this case over $900,000.00, would undergo such frustration, feelings of worthlessness and shame which should be reasonably and fairly compensable at a daily rate of $500.00 per day during this critical time period. Calculating Shaw’s damages during this period at a rate of $500 per day, the court finds that Shaw is entitled to compensation in the amount of $57,000.00 ($500 per day for 114 days).

With regard to the period commencing January 2012, when Shaw stopped making his monthly payments, through August 2012, when he voluntarily vacated the McFaul Court property, the court finds that Shaw’s decision to terminate payments for lack of reasonable treatment by CMI and to ultimately vacate the house eight months later and move to Reno, Nevada, is reflective in part of the continuation of Shaw’s frustration, bitterness and shame imposed upon him by CMI prior to January 2012. Thus the court finds that Shaw is entitled to receive compensation for the harm he suffered during this time period. However, the court finds that Shaw’s damages during this period should be adjusted to $250 per day. Calculating Shaw’s damages for this period, the court finds that Shaw is entitled to compensation in the amount of $60,750.00 ($250 per day for 243 days).

Finally, with regard to the period commencing in August 2012 through the close of trial on May 5, 2016, the court finds that the tortious conduct inflicted upon Shaw prior to this time continued to cause him to suffer similarly compensable harm at an average rate of $100 per day. The reduction in this amount of compensation is reflective of the fact that Shaw was no longer paying his monthly mortgage payment and was no longer living in the McFaul Court property, although he continued to suffer from the compensable harm previously imposed upon him by CMI as previously set forth. Calculating Shaw’s damages for this period, the court finds that Shaw is entitled to compensation in the amount of $122,100.00 ($100.00 per day for 1,221 days).

D. RESPA

The Real Estate Settlement Procedures Act, found at 12 U.S.C. §2601 et seq., places certain duties and restrictions on mortgage lenders, services, and other entities that deal with residential mortgages. Pertinent to this action is Section 2605 of RESPA which requires a loan servicer, like CMI, to respond to inquires from a borrower. See 12 U.S.C. §2605(e). Pursuant to Section 2605(e), if a loan servicer receives a “qualified written request from the borrower” for information relating to the servicing of the borrower’s loan, “the servicer shall provide a written response” appropriately responding to the borrower’s request and providing any requested documentation. 12 U.S.C. §2605(e)(1)(A) & (2)(C). Similarly, pursuant to Section 2605(k), a loan servicer shall provide “the identity, address, and other relevant contact information about the owner or assignee of the loan” when requested by the borrower. 12 U.S.C. §2605(k)(1)(D). For purposes of triggering a servicer’s duty under RESPA, a Qualified Written Request must (1) be a written communication, and (2) include “the name and account of the borrower,” and “a statement of the reasons for the belief of the borrower, to the extent applicable, that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.” 12 U.S.C. §2605(e)(1)(B)(i)-(ii).

If a servicer receives a Qualified Written Request from a borrower, then the servicer has sixty (60) days to conduct an investigation into the borrower’s account, make any appropriate corrections to that account, and respond to the borrower’s request “with production of the requested information or an explanation of why the information is unavailable.” Pettie v. Saxon Mortg. Servs., 2009 U.S. Dist. LEXIS 4149, at *7 (W.D. Wash. 2009); see also 12 U.S.C. §2605(e)(2). Further, the servicer shall provide the contact information for an employee who can provide assistance to the borrower. 12 U.S.C. §2605(e)(2). During the servicer’s sixty day investigation and response period, a servicer is precluded from providing “information regarding any overdue payment, owed by such borrower and relating to such period or qualified written request, to any consumer reporting agency.” 12 U.S.C. §2605(e)(3). If a servicer fails to comply with its duties under RESPA, the servicer may be liable for (1) any actual damages the borrower suffered as a result of the servicer’s failure to comply with its duties, and/or (2) statutory damages not to exceed $2,000.00. 12 U.S.C. §2605(f).

In his second amended complaint, Shaw has alleged that he sent several Qualified Written Requests to CMI requesting contact information for the owner of his loan and copies of various loan documents, but that CMI failed to respond to his requests in violation of RESPA. ECF No. 109. The initial step for the court under Shaw’s RESPA claim is to determine whether Shaw submitted Qualified Written Requests to CMI. At trial, Shaw testified that he requested information from CMI about his mortgage and the owner of his loan immediately after CMI unbooked the May 2011 Modification Agreement and placed his account into default and continued to request this information throughout this litigation. In particular, Shaw alleged that he made the following Qualified Written Requests to CMI: (1) a July 31, 2011 e-mail request to Chris Gabbert; (2) a December 5, 2011 e-mail request to Dana Ross; (3) a January 3, 2012 e-mail request to Ross; (4) a January 20, 2012 formal letter to Ross; (5) a June 20, 2012 e-mail request to Robert Orcutt; (6) a January 29, 2013 formal letter to CMI; and (7) multiple written requests to Gabbert, Jennifer Butler, and Orcutt beginning in the fall of 2011 and continuing until Shaw initiated this litigation. The court shall address each alleged Qualified Written Request below.

To constitute a Qualified Written Request under RESPA, a letter must include the name and account of the borrower as well as a statement of reasons for believing the account is in error. Pettie, 2009 U.S. Dist. LEXIS 4149, at *5. Initially, the court notes that Shaw’s generally identified written requests to Gabbert, Butler, and Orcutt beginning in the fall of 2011 are not sufficient to constitute Qualified Written Requests. First, Shaw failed to provide any evidence of the dates of these various communications or what information was requested or included in these communications sufficient for the court to determine whether these communications met the requirements of RESPA. Therefore, the court finds that Shaw has not met his burden to prove these communications were Qualified Written Requests under RESPA.

As to the remaining alleged Qualified Written Requests, the court finds that Shaw did proffer copies of these communications at trial. These admitted exhibits contain sufficient information for the court to determine whether these communications meet the requirements for Qualified Written Requests under RESPA. First, the court has reviewed the July 31, 2011 e-mail request to Gabbert and finds that it does not constitute a Qualified Written Request. Although the email (and all of Shaw’s communications) appropriately identified Shaw and his mortgage account, the e-mail does not contain a statement for why Shaw believes that his mortgage account is in error. See Pl. Trial Ex. 15. Rather, the e-mail only complains of CMI’s failure to previously identify the current owner of his residential loan. These statements are insufficient to trigger CMI’s RESPA duties because they do not mention or discuss his default or mortgage account. See Pettie, 2009 U.S. Dist. LEXIS 4149, at *6 (finding that RESPA “clearly requires that a disputing party give specific `reasons’ for claiming that an account it in error.”); Banayan v. OneWest Bank F.S.B., 2012 U.S. Dist. LEXIS 35301, at *15 (S.D. Cal. 2012) (finding that a qualified written request must seek information “relating to the servicing of a loan.”). Thus, because this e-mail did not provide any statement of reasons for Shaw’s dispute with CMI regarding his mortgage account, the July 31, 2011 e-mail does not constitute a Qualified Written Request. Pettie, 2009 U.S. Dist. LEXIS 4149, at *7. Similarly, the court finds that Shaw’s June 20, 2012 e-mail to Orcutt likewise did not constitute a Qualified Written Request. That e-mail only complains of Orcutt’s failure to provide information about CMI’s reinstatement offer and references several telephonic conversations. See Pl. Trial Ex. 36. But, like Shaw’s July 31, 2011 e-mail, the June 20, 2012 e-mail does not provide any statement of the reasons for Shaw’s dispute with CMI or the ongoing problems with his mortgage account. Thus, as with the July 31, 2011 e-mail to Gabbert, the court finds that Shaw’s June 20, 2012 e-mail to Orcutt does not constitute a Qualified Written Request.

As for Shaw’s remaining alleged Qualified Written Requests — the December 5, 2011 email; January 3, 2012 e-mail; January 20, 2012 letter to Dana Ross; and the January 29, 2013 formal letter to CMI — the court finds that these document did constitute Qualified Written Requests sufficient to trigger CMI’s investigation and response duties under RESPA. In his December 5, 2011 e-mail to Ross, Shaw specifically laid out in detail the parties’ dispute over his mortgage account and also requested various documents from CMI including contact information for the current owner of his loan, a copy of the original mortgage note and deed of trust, and copies of any assignment of the mortgage note and deed of trust, if any. See Def. Trial Ex. 512-A. Similarly, the January 3, 2012 e-mail to Ross references CMI’s lack of response to the December 5, 2011 e-mail, and again details the parties’ dispute including CMI’s ongoing collection attempts, and requests relevant loan documents and owner information. Pl. Trial Ex. 24. Likewise, the formal letter Shaw sent to Ross on January 20, 2012, contained similar information about the parties’ dispute and requested loan documents and contract information for the owner of his loan. Pl. Trial Ex. 26, P00067-69. Finally, the January 29, 2013 e-mail contained similar dispute information and demanded documentation from CMI. Such communications constitute Qualified Written Requests under RESPA. Pettie, 2009 U.S. Dist. LEXIS 4149, at *6; Banayan v. OneWest Bank F.S.B., 2012 U.S. Dist. LEXIS 35301, at *15 (finding that a letter which contained “an extremely detailed account of various communications between the two parties” constitutes a qualified written request).

Now that the court has found that four of Shaw’s written communications were Qualified Written Requests sufficient to trigger CMI’s investigation and response duties under RESPA, the court must determine whether CMI’s response to those requests, if any, was in accordance with its duties under RESPA. Initially, the court finds that CMI did not even respond to or acknowledge Shaw’s December 5, 2011 Qualified Written Request. This lack of acknowledgment of the request is, itself, a violation of RESPA. See 12 U.S.C. §2605(e)(1)(A) (stating that a loan servicer “shall provide a written response acknowledging receipt of the correspondence . . . .”). CMI’s failure to acknowledge receipt of Shaw’s Qualified Written Request, as evidenced by the January 3, 2012 email to Ross which references CMI’s lack of response, was a direct violation of its duties under RESPA.

The court finds that CMI likewise violated its duties under RESPA as it relates to the January 3, 2012 Qualified Written Request. Although Dana Ross properly acknowledged this request in a January 5, 2012 e-mail to Shaw, CMI did not appropriately respond to the request after the investigation period. The evidence establishes that CMI’s only response to Shaw’s January 3, 2012 Qualified Written Request was a January 9, 2012 letter advising Shaw that non-party Aurora was the current owner of his residential loan and provided contact information for Aurora. Pl. Trial Ex. 25, P00066. However, at no point within sixty (60) days after receiving Shaw’s request did CMI provide any of the loan documents that had been requested. CMI’s failure to provide these documents to Shaw is a direct violation of RESPA. Pettie, 2009 U.S. Dist. LEXIS 4149, at *7.

After receiving CMI’s January 9, 2012 letter identifying Aurora as the current owner of his loan, Shaw contacted Aurora at the contact information provided by CMI. Aurora advised Shaw that it was not the owner of his loan at which point Shaw again contacted CMI as outlined in his January 20, 2012 Qualified Written Request. See Pl. Trial Ex. 26, P00067-69. Similar to Shaw’s December 3, 2011 request, CMI did not acknowledge receipt of Shaw’s January 20, 2012 request. As addressed above, this failure by CMI is a violation of its duties under RESPA. 12 U.S.C. §2605(e)(1)(A). Further, the only response to Shaw’s request was a February 13, 2012 letter from CMI again identifying non-party Aurora as the owner of Shaw’s residential loan. Pl. Trial Ex. 31, P00099. However, by that point Shaw had already informed CMI that Aurora was not the owner of his residential loan. Thus, the information CMI provided, stating that Aurora was the current owner of his loan, was false information. CMI’s failure to provide Shaw correct contact information for the owner of his loan is an express violation of RESPA. See 12 U.S.C. §2605(k)(1)(D) (stating that a loan servicer shall provide “the identity, address, and other relevant contact information about the owner of assignee of the loan” when requested by the borrower). Further, once again, at no point did CMI provide Shaw with any of the loan documents that he had been requesting since December 5, 2011. As addressed above, this is also a violation of RESPA. Pettie, 2009 U.S. Dist. LEXIS 4149, at *7.

Shaw’s last Qualified Written Request was his January 29, 2013 Qualified Written Request. Attorney Joseph Bleeker, CMI’s counsel of record at that time, acknowledged Shaw’s request within the twenty day time period and stated that CMI would be responding to Shaw’s request within the requisite sixty (60) days time period. See Pl. Trial Ex. 39, P00123-124. Further, in contrast to CMI’s prior responses, or lack of responses to Shaw’s requests, CMI sent Shaw a package on March 6, 2013, from Kristin Dennis, a Default Research Specialist at CMI. Pl. Trial Ex. 43, P00139-187. The court has reviewed CMI’s response and finds that it properly and appropriately complied with its duties under RESPA. The package included copies of all of the documents that Shaw requested, provided a detailed explanation for CMI’s actions on Shaw’s mortgage account, and explained the reasons for any lacking information. As such, the court finds that CMI did not violate RESPA as it relates to Shaw’s January 29, 2013 Qualified Written Request. See, e.g., Pettie, 2009 U.S. Dist. LEXIS 4149, at *7.

Based on the evidence presented at trial, the court has found that CMI violated RESPA on three separate occasions when dealing with Shaw’s various Qualified Written Requests. A plaintiff who establishes that a servicer violated RESPA is entitled to recover “any actual damages” that the plaintiff suffered as a result of the defendant’s violation and statutory damages. 12 U.S.C. §2605(f)(1)(A) & (1)(B). RESPA’s “actual damages” are limited to pecuniary damages. Zeich v. Select Portfolio Servicing, Inc., 2015 U.S. Dist. LEXIS 151519, at *5 (D. Or. 2015). Here, Shaw has not proven any actual damages as a result of CMI’s violations of RESPA. In contrast to Shaw’s claim for tortious breach of the implied covenants, under RESPA a plaintiff “cannot recover for worry, concern, or frustration.” Id. Thus, the court finds that Shaw is not entitled to any actual damages. Instead, Shaw’s damages award for CMI’s violations is limited to statutory damages. Under RESPA, statutory damages may not exceed $2,000.00. 12 U.S.C. §2605(f)(1)(B). Here, the court finds that such a statutory maximum is warranted based on the repeated pattern of CMI’s failure to appropriately respond to Shaw’s Qualified Written Requests and the fact that Shaw was never once provided correct contact information for the owner of his residential loan. Accordingly, the court shall enter judgment in the amount of $6,000.00 favor of Shaw and against CMI on Shaw’s claims for violation of RESPA.

E. Intentional Interference

In Nevada, a claim for intentional interference with prospective economic advantage requires a plaintiff establish: “(1) a prospective contractual relationship between the plaintiff and a third party; (2) knowledge by the defendant of the prospective relationship; (3) intent to harm the plaintiff by preventing the relationship; (4) the absence of privilege or justification by the defendant; and (5) actual harm to the plaintiff as a result of the defendants’ conduct.” Fagin v. Doby George, LLC, 2011 U.S. Dist. LEXIS 86389, at *15 (D. Nev. 2011) (citing Wichinsky v. Mosa, 847 P.2d 727, 729-30 (Nev. 1993)); see also Barket v. Clarke, 2012 U.S. Dist. LEXIS 88097 (D. Nev. 2012).

The court has reviewed the evidence submitted at trial in this matter and finds that Shaw has failed to prove his claim for intentional interference with prospective economic advantage by a preponderance of the evidence. Shaw’s claim for intentional interference with prospective economic advantage relates solely to CMI’s alleged failure to approve a short sale of the McFaul Court property in a timely manner, which stigmatized the property for potential buyers and caused a devaluation of the property. Although it is undisputed that Shaw had entered into four (4) separate short sale contracts on the McFaul Court property with two different parties, the Knapps and the Smiths, and that CMI had knowledge of these short sale agreements because Shaw had forwarded all four accepted short sale offers to CMI, the court finds that Shaw has not proven that CMI intended to harm Shaw by either denying the short sale offers or not responding to the short sale offers in a timely manner. At trial, Shaw only established that CMI did not respond to any of the four short sale offers in a timely manner thereby causing all four offers to expire under their terms. However, Shaw failed to provide any evidence that CMI’s delay was specifically intended to cause the proposed buyers to walk away from the McFaul Court property or to cause harm to Shaw.

Further, the court finds that Shaw has not proven that CMI, as the servicer of his loan who had final approval on all short sales of the property, was not justified in its conduct. Initially, the court notes that CMI was justified in any delay in its responses to the two Knapp Offers because Shaw did not provide all necessary documents to CMI for it to properly evaluate and respond to these offers. It is undisputed that after receiving the first Knapp Offer, CMI requested various documentation from Shaw including: (1) a hardship letter; (2) a signed purchase agreement (as the original offer had expired in late February 2013); (3) Shaw’s tax returns for the tax years 2011 and 2012; (4) all payoffs for the junior liens on the property within the last sixty days, if any; or, (5) if the junior liens still needed to be paid off, then approval letters of the short sale by each junior lien holder and releases of their junior liens; (6) the 2011 real estate tax bill for the McFaul Court property; and (7) a hazard insurance policy on the property. Def. Trial Ex. 525-A. Shaw submitted, and re-submitted, all requested documents except for signed releases from the junior lien holders. Shaw testified at trial that he had prepared appropriate junior lien holder releases including a consent to judgment in favor of non-party Katherine Barkley and a stipulated monetary judgment in favor of non-party Janice Shaw so that CMI could evaluate the Knapp Offers. However, both Katherine Barkley and Janice Shaw testified that they did not have any conversations with Shaw regarding the various short sale offers on the McFaul Court property, had not agreed to any short sale offers on the property, and had not agreed to release their junior liens or signed any paperwork releasing their junior liens. Further, Shaw did not provide the “judgment” documents to CMI and CMI never received any release documents signed by the junior lien holders. Accordingly, the court finds that CMI did not have any duty to approve, or even respond to, the Knapp Offers in a timely manner as Shaw failed to provide all required documents.

As to the first and second Smith Offers, the court finds that Shaw was not required to provide any releases from the junior lien holders for CMI to consider these short sale offers because under both offers, the junior lien holders were being paid in full. However, the court finds that because CMI had final authority to approve the short sales, Shaw has not established that under the short sales he had reasonable expectations of any economic advantage under these offers. Generally, a loan servicer like CitiMortgage has no duty to approve a short sale. See Blanford v. Suntrust Mortgage, Inc., 2012 U.S. Dist. LEXIS 141666, at *11 (D. Nev. 2012). Further, as the servicer of Shaw’s loan, all short sale offers had to be approved by CMI, thus, even though Shaw accepted the short sale offers, he did not have any true prospective economic benefit from these offers. For example, if CMI declined both Smith Offers, then Shaw would not have received any economic benefit as a matter of law because the McFaul Court property could not be sold at an amount less than Shaw’s remaining indebtedness without CMI’s permission. The court cannot now say that simply because CMI took no action on the offers, rather than deny them outright, that Shaw would have received an economic benefit. As CMI had no duty to respond,^[17] a lack of response which caused the offers to lapse would constitute the same action as a denial and thus, not be actionable for an intentional interference with prospective economic advantage. As CMI has no duty to approve, act on, or even acknowledge any short sale offers Shaw received on the McFaul Court property, the court finds that Shaw has failed to prove he had a prospective economic advantage under the contracts as the determination of whether to allow the property to be sold at short sale was solely within CMI’s control. Further, the testimony at trial establishes that the two Smith Offers were not reasonable short sale offers, such that the court cannot find that CMI’s lack of response on these offers was designed to intentionally cause harm to Shaw or was not justified. At trial, Attorney Dodrill testified that CMI would not have approved either Smith Offer as both offers proposed to pay off both junior lien holders in full and give Shaw $75,000 while CMI lost roughly $500,000 in the sale of the McFaul Court property. Attorney Dodrill further testified that CMI had never approved a short sale in such a situation and that no short sale offer which allowed for the borrower to receive money would be approved. Therefore, the court finds that CMI was justified in not responding to these short sale offers as such offers were not reasonable offers for the purchase of the property. Accordingly, based on all of the evidence presented at trial, the court finds that Shaw has not established by a preponderance of the evidence that CMI engaged in conduct that intentionally interfered with any prospective economic advantage. The court shall enter judgment in favor of CMI and against Shaw on this claim.

F. Punitive Damages

In his second amended complaint, Shaw seeks punitive damages for CMI’s conduct outlined in this action. ECF No. 109. Punitive damages are not available in contract-based claims. See NRS §42.005(1) (stating that punitive damages are available in any action “for the breach of an obligation not arising from contract”). Thus, the only claim for which punitive damages could be awarded in this action is Shaw’s claim for tortious breach of the implied covenants of good faith and fair dealing.

Under Nevada law, in order to recover punitive damages, a plaintiff must show the defendant acted with oppression, fraud or malice. Pioneer Chlor Alkali Co. v. National Union Fire Ins. Co., 863 F.Supp. 1237, 1250 (D. Nev. 1994). Oppression is a conscious disregard for the rights of others constituting cruel and unjust hardship. Id. at 1251 (citing Ainsworth v. Combined Ins. Co. of America, 763 P.2d 673, 675 (Nev. 1988)). “Conscious disregard” is defined as “the knowledge of the probable harmful consequences of a wrongful act and a willful and deliberate failure to act to avoid those consequences.” NRS §42.001(1). Malice is conduct which is intended to injure a person or despicable conduct which is engaged in with a conscious disregard of the rights and safety of others. See NRS §42.005(1). In order to establish that a defendant’s conduct constitutes conscious disregard, the conduct must at a minimum “exceed mere recklessness or gross negligence.” Pioneer Chlor Alkali Co., 863 F.Supp. at 1251; see also Countrywide Home Loans, Inc. v. Thitchener, 192 P.3d 243, 255 (Nev. 2008) (holding that conscious disregard requires a “culpable state of mind” and therefore “denotes conduct that, at a minimum, must exceed mere recklessness or gross negligence.”).

Based upon the substantial factual history in this action, and recognizing that CMI is a large home loan servicing company, the court finds by clear and convincing evidence that CMI’s business practices and its specific conduct toward Shaw constituted oppression and a conscious disregard for Shaw’s rights warranting punitive damages. Given the fact that Shaw’s debt of over $900,000 was for his home, that a home is most Americans greatest asset and also greatest liability and is such an integral part of any homeowner’s personal well being, the court finds that a homeowner is particularly vulnerable as a result of a tortious breach of the implied covenant of good faith and fair dealing oppressively committed by a large corporate servicing company such as CMI.

Here, there was a willful and unconscionable failure to avoid needless and harmful consequences in refusing to honor or recognize the May 2011 Modification Agreement (executed by CMI’s Vice-President in May 2011). CMI’s conduct in recognizing then continuously disavowing that agreement — despite a resolving document from CMI’s Assistant General Counsel — was made with a conscious disregard for the harm that it was causing Shaw. Further, there was a willful and deliberate failure by CMI to avoid these consequences. Accordingly, the court finds that this is an appropriate case for punitive damages.

The court has already cited many of the factors that support the court’s finding within the findings of fact and tortious breach of the implied covenants section of this order and those factors find equal weight here. But, the court now highlights several factors which particularly stand out in support of punitive damages and which have not been more specifically addressed. These include CMI’s lack of policies, procedures, practices and management oversight in handling mortgage account issues such as Shaw’s. The lack of company policies and management oversight in this action allowed CMI, through its Loss Mitigation, underwriting, and Executive Response Unit departments, to take the offensive position that CMI was entitled to require Shaw to abandon the fully executed May 2011 Modification Agreement in favor of the proposed July 2011 Modification Agreement despite upper management and assistant general counsel taking inconsistent and contrary positions. In essence, CMI chose to ignore its own agreement (and its own corporate counsel) because the company was aware that a financially strapped homeowner who was in default on a home loan during the post-recession economic downturn was in no position to hold CMI to the agreement it had unilaterally chosen to ignore. Given the obvious effects such a position would have upon any borrower/homeowner and the lack of any bargaining position to challenge CMI’s position, it is clear that there would be dramatic and harmful consequences to a borrower which would cause feelings of utter frustration, worthlessness, and shame — shame and fear over losing a home — at the very time that the borrower was likely experiencing an insurmountable burden of debt. A non-attorney borrower would likely have caved in to CMI while an attorney like Shaw chose instead to rely upon his contract, though not without obvious compensable injury.

Beyond the above, the court also finds that there was a serious lack of practices, policies and procedures to deal with and explain the company’s positions and actions to the borrower/homeowner. Here, despite repeated requests for information as to why Shaw received contradictory and inconsistent communications, CMI never provided any meaningful explanations. Moreover, CMI’s responses to Shaw’s requests for identification of his loan holder, including both those that qualified under RESPA and those that did not qualify, show a lack of policy and procedure to identify to a borrower/homeowner the creditor (whom CMI was representing) who owned the loan and how the creditor might be contacted. These are just a few examples of CMI’s lack of centralized management policy and speak to the very core of CMI’s conscious disregard of Shaw’s rights. Significantly, even after going through a full trial, there has been no identification by CMI of the owner of Shaw’s loan.

CMI’s failures in this action are exacerbated by the frustration and unexplained revolving door of CMI personnel with whom Shaw was required to deal. Just during the time period from May 2011 through July 2012 when CMI effectively stopped communication with Shaw concerning his mortgage account, Shaw had dealt with two different individuals who had drafted separate modification agreements (Kim Vukovich and Juan Mayorga), three separate Homeowner Support Specialists (Chris Gabbert, Jennifer Butler, and Robert Orcutt), and CMI’s Assistant General Counsel, Dana Ross, not to mention the myriad of unnamed employees Shaw contacted in 2011 through 2012. And there was commonly no meaningful explanation of why a new person, new department, or some other representative was being identified as the person with whom Shaw was now required to deal. Moreover, the evidence established that Shaw informed each new CMI representative of the history of his mortgage account and rather than investigate the matter further — an investigation readily available through Shaw’s electronic mortgage account and the documents in Shaw’s and CMI’s possession — these representatives continued to push forward with CMI’s untenable position that there was no valid and binding loan modification under the May 2011 Modification Agreement. CMI willfully ignored the harm it was causing to Shaw despite clear warning signs from Shaw that its conduct was improper.

Another failure, previously mentioned, was CMI’s inexcusably delayed recognition of the May 2011 Modification Agreement. An agreement executed by its Vice-President but then rejected by some employee in the Loss Mitigation department only to be honored by CMI’s own assistant general counsel and then rejected again by an employee in the Executive Response Unit without any meaningful explanation to the borrower/homeowner and without any regard for the financial burden, frustration and stress such inconsistency placed on the borrower/homeowner is strong evidence of oppression. After three plus years of litigation and a three-day bench trial, an explanation for CMI’s behavior is still unknown.

Also significant to the court in finding that punitive damages are warranted in this action is the effect of CMI’s actions and lack of actions concerning Shaw’s credit status. While it is clear that he was in default on his original loan, it is also clear that he cured the default through the execution of the May 2011 Modification Agreement which subsumed all past due amounts into a new principal balance, made all payments under that agreement in a timely fashion through December 2011, and yet Shaw received negative and unreliable credit reporting by CMI throughout much of this period and afterward. Although the evidence could not show the reasons for the revocation of Shaw’s credit card, and the denial for Shaw’s credit applications for his daughter’s student loans, the rejection of the credit application for the purchase of his son’s automobile, and the rejection of Shaw’s own automobile purchase, it is a reasonable conclusion that CMI’s negative reporting during the periods of time when the default had been cleared contributed to Shaw’s credit problems, particularly when his only negative credit issues were related to his mortgage, and would have been a factor in the shame, embarrassment, stress and frustration suffered by Shaw over the relevant time period. Taking all of these factors together, they demonstrate that CMI acted with conscious disregard of Shaw’s rights and support an award of punitive damages.

In Nevada, an award of punitive damages is limited to “[t]hree times the amount of compensatory damages awarded to the plaintiff if the amount of compensatory damages is $100,000 or more.” NRS §42.005(a). Here, the compensatory damages under Shaw’s tortious breach of the implied covenants claim is $239,850.00 and the court finds that an appropriate amount of punitive damages for the conduct outlined above is the statutory limit. Thus, trebling this amount, the court shall enter judgment in the amount of $719,550.00 in favor of Shaw and against CMI for punitive damages.

G. Attorney’s Fees

Although not presently before the court, the court notes for the benefit of the parties that it would consider a motion for attorney’s fees filed by Shaw pursuant to NRS §18.010 and 12 U.S.C. §2605(f)(3), as Shaw is the prevailing party in this action under his declaratory relief, tortious breach of the implied covenants, and RESPA claims. Therefore, the court shall grant Shaw leave to file a motion for attorney’s fees, if any, within twenty (20) days of entry of this order. Such motion shall comply with Local Court Rule 54-14.

IT IS THEREFORE ORDERED that the clerk of court shall enter judgment in favor of plaintiff Leslie Shaw and against defendant CitiMortgage, Inc. on Shaw’s claim for declaratory relief and breach of contract in accordance with this order.

IT IS FURTHER ORDERED that the clerk of court shall enter judgment in the amount of $239,850.00 in favor of plaintiff Leslie Shaw and against defendant CitiMortgage, Inc. on plaintiff’s claim for breach of the implied covenants of good faith and fair dealing.

IT IS FURTHER ORDERED that the clerk of court shall enter judgment in the amount of $6,000.00 in favor of plaintiff Leslie Shaw and against defendant CitiMortgage, Inc. on plaintiff’s claims for violation of the Real Estate Settlement Procedures Act.

IT IS FURTHER ORDERED that the clerk of court shall enter judgment in favor of defendant CitiMortgage, Inc. and against plaintiff Leslie Shaw on plaintiff’s claim for intentional interference with prospective economic advantage.

IT IS FURTHER ORDERED that the clerk of court shall enter judgment in the amount of $719,550.00 in favor of plaintiff Leslie Shaw and against defendant CitiMortgage, Inc. for punitive damages.

IT IS FURTHER ORDERED that plaintiff shall serve a copy of this order upon junior lien holders Katherine Barkley and Janice Shaw within (10) days of entry of this order.

IT IS FURTHER ORDERED that plaintiff shall have twenty (20) days from entry of this order to file a motion for attorney’s fees in accordance with this order, if any.

IT IS SO ORDERED.

[1] Shaw’s remaining claims are his second cause of action for declaratory relief, third cause of action for breach of contract, fourth cause of action for breach of the implied covenants of good faith and fair dealing, seventh cause of action for interference with prospective economic advantage, and eighth cause of action for violation of RESPA.

[2] At trial the court heard the live testimony of plaintiff Leslie Shaw; Attorney Colt Dodrill, counsel of record for defendant CMI; Jill Hackman, business operations analyst and corporate representative of CMI; Dan Leck, Shaw’s real estate expert; and Michael Brunson, CMI’s real estate expert. The court also heard the testimony by deposition of Travis Nurse, CMI’s designated Rule 30(b)(6) witness; Christopher Gabbert, a CMI employee in the Executive Response Unit; Attorney Dana Ross, Assistant General Counsel for CMI; Katherine Barkley, junior lien holder; and Janice Shaw, Shaw’s ex-wife and junior lien holder.

[3] If any finding of fact herein is considered to be a conclusion of law, or any conclusion of law is considered to be a finding of fact, it is the court’s intention that it be so considered.

[4] During the relevant time period, CMI had a policy that when a borrower submitted a completed loan modification application, Loss Mitigation would review the application for all available modification options — from company modification options to government supported modification programs like HAMP. However, it was not CMI’s policy to advise or disclose to applicants that an application would be reviewed by Loss Mitigation for all possible modification options including government programs. Nor was it CMI’s policy to advise or disclose to applicants that they may receive several responses from CMI concerning the outcome of an application and that such responses could differ in whether an application was approved or denied.

In accordance with CMI’s policies, Loss Mitigation reviewed Shaw’s application and determined, through an underwriter, that Shaw was eligible for a modification of his existing residential loan but was ineligible for a HAMP modification. But Shaw was never advised that his application would be considered for all available modification options, that he would receive multiple responses from CMI about his application, that those responses could be contradictory (as they were in this case), and which of those responses would constitute CMI’s final determination of his application.

[5] At trial, it was explained for the first time that Shaw had received a separate response on his loan modification application relating specifically to the government’s HAMP program because any denial of a modification under HAMP must be directly communicated to the buyer and contain the reasons for the denial along with information related to other loan modification programs and credit counseling. This simple explanation was never provided to Shaw throughout the history of this action.

[6] At trial, it was explained that Shaw had received two separate sets of written communications, first in December 2010 and then again in February 2011, because of the amount of principal remaining on his residential loan. In December 2010, an underwriter for CMI approved Shaw for a modification of his existing loan obligations. Based on that decision, the first set of communications was sent to Shaw in December 2010.

However, because Shaw’s remaining principal obligation was substantial (over $800,000), the original underwriter did not have final authority on Shaw’s application and a manager-level underwriter had to separately review Shaw’s application and make a final determination on whether to approve or deny the application. Upon review, this manager-level underwriter approved Shaw’s application and another set of communications was sent to Shaw in February 2011. Once again, this simple explanation was never provided to Shaw throughout the history of this action.

[7] The proposed modification agreement contained a staggered payment and interest rate schedule that increased the monthly payment on Shaw’s modified loan over the course of several years. See Pl. Trial Ex. 6, P000018. However, for purposes of this order and the relevant time period, Shaw’s modified payment was $3,079.30. Id.

[8] No mention was made during the course of trial as to why Mayorga had been assigned to Shaw’s account to draft the “corrected” modification agreement or what happened to Vukovich during that two month period.

[9] This June 1, 2011 date was still established as the first due date for modified payments even though the July 2011 Modification Agreement was not drafted until some time in July 2011, and sent to Shaw on July 19, 2011.

[10] At trial, it was established that the May 2011 Modification Agreement was missing language in the balloon payment provision setting a specific due date for the balloon payment, although the agreement contained the correct loan maturity date of November 1, 2033. Thus, when CMI received the executed agreement and booked the modification terms into Shaw’s electronic mortgage account, CMI mistakenly entered a 480 month term for the balloon payment, thereby extending Shaw’s loan past the maturity date. When Loss Mitigation audited Shaw’s mortgage account in July 2011, it determined that a “corrected” modification agreement should be sent to Shaw containing a specific due date for the balloon payment, that of the maturity date of November 1, 2033. This “corrected” agreement was sent to Shaw in order to correct CMI’s own mistake. However, no explanation was ever provided at trial as to why the July 2011 Modification Agreement, if all it was supposed to do was correct the balloon payment language error, contained additional material terms like Section 5(G), which placed additional duties and obligations on Shaw.

[11] Due to their status as junior lien holders on the McFaul Court property and beneficiaries under Shaw’s obligations in their favor, the court will order that copies of this order be served upon them by Shaw’s counsel.

[12] Since January 2012, CMI has advanced and paid all taxes, Homeowner’s Insurance premiums, and other escrow expenses on the McFaul Court property in order to protect its security interest under the first deed of trust. Def. Trial Ex. 513-B.

[13] The court has previously addressed the impact of CMI’s anticipatory breach and how it affects the parties going forward from the court’s order in the court’s analysis of Shaw’s declaratory relief claim. See Supra Section II(A).

[14] The court has reviewed the May 2011 Modification Agreement and finds that Shaw’s expectations under that agreement were reasonable and justified.

[15] The court recognizes that this aforementioned conduct occurred prior to Shaw receiving his copy of the fully executed May 2011 Modification Agreement and the involvement of CMI’s Assistant General Counsel, Dana Ross. Once Ross got involved with Shaw’s mortgage issues, CMI resolved Shaw’s account by determining that the May 2011 Modification Agreement was a valid agreement which constituted a modification of Shaw’s residential home loan. However, CMI’s conduct prior to this resolution in August 2011 is still relevant to Shaw’s claim as it constitutes a breach of the implied covenants until that resolution.

[16] At trial, Shaw specifically stated that he was not seeking any damages for lost income, lost rent on the McFaul Court property, or emotional distress within the context of a emotional distress claim. Thus, Shaw’s damages are limited to those under NRS §41.334.

[17] At trial, Shaw argued that CMI created a duty to respond to the Smith Offers in a timely manner by specifically requesting that Shaw re-list the McFaul Court property for sale and forward all accepted short sale offers directly to Attorney Colt Dodrill, CMI’s counsel of record at that point. However, the court has reviewed the evidence submitted at trial and finds that it does not support Shaw’s argument or interpretation of the December conversation that Shaw had with Attorney Dodrill. Attorney Dodrill testified that he told Shaw that if he accepted any short sale offers on the McFaul Court property that such offers should be submitted directly to him as counsel of record for CMI, but did not tell Shaw to put the property back up for sale or that he would be able to handle any short sale offers. Instead, Attorney Dodrill testified that Shaw needed to submit any offers to him directly because by that point in time, Shaw had initiated litigation against CMI and was not allowed to directly contact CMI as an adverse party. Thus, the court finds that based on this testimony, CMI did not create a specific duty to respond to the Smith Offers.

IN THE SUPREME COURT OF THE STATE OF WASHINGTON

CERTIFICATION FROM THE UNITED
STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF WASHINGTON

IN
LAURA ZAMORA JORDAN, as her
separate estate, and on behalf of others
similarly situated,
Plaintiff,

v.

NATIONSTAR MORTGAGE, LLC,
a Delaware limited liability company,
Defendant.

________________________)

OWENS, J. -After defaulting on her home mortgage payment, plaintiff
Laura Jordan returned home from work one evening to discover she could not enter
her own house: the locks had been changed without warning. A notice informed her
that in order to gain access to her home, she must call defendant Nationstar Mortgage
LLC to obtain the lockbox code and retrieve the new key inside. Although she

eventually reentered her home, she removed her belongings the next day and has not
returned since. Jordan’s home loan was secured by a deed oftrust, a commonly used
security instrument that was created as an alternative to traditional mortgages to
provide for a simpler method offoreclosure. The deed oftrust contained provisions
that allowed Nationstar to enter her home upon default without providing any notice
to the homeowner. Today, we are asked to decide whether those provisions conflict
with Washington law.

Jordan represents a class action proceeding in federal court, which has certified
two questions to us. The first question asks whether the deed oftrust provisions
conflict with a Washington law that prohibits a lender from taking possession of
property prior to foreclosure. We hold that it does because the provisions allow
Nationstar to take possession of the property after default, which conflicts with the
statute. The second question asks whether Washington’s statutory receivership
scheme–providing for a third party to possess and manage property in lieu of either
the lender or homeowner-is the exclusive remedy by which a lender may gain access
to the property. As explained below, we hold nothing in our law establishes the
receivership statutes as an exclusive remedy.

FACTS
In 2007, Jordan bought a home in Wenatchee, Washington, with a home loan of
$172,000 from Homecomings Financial. She secured the loan by signing a deed of

trust. The original lender assigned the loan to the Federal National Mortgage
Association (Fannie Mae), one ofthe nation’s largest mortgagees that primarily
participates in the secondary mortgage market, which hired Nationstar to service the
loan.

Jordan went into default on her mortgage payments in January 20 11. In March
2011, one ofNationstar’s vendors came to Jordan’s home and changed the locks on
her front door. Jordan returned home to find a notice on the front door informing her
that the property was found to be “unsecure or vacant” and that to protect her and the
mortgagee’s interest in the property, it was “secured against entry by unauthorized
persons to prevent possible damage.” Order Certifying Questions to Wash. Supreme
Ct., Jordan v. Nationstar Mortg., LLC, No. 2:14-CV-0175-TOR at 6 (E.D. Wash.
Aug. 10, 20 15). While the above-noted facts are undisputed, the parties dispute
whether the home was vacant. Jordan contends she was living there, left for work that
morning as usual, and returned to find the lockbox and notice. On the other hand,
Nationstar contends that its vendor performed an inspection of the property and
determined it was vacant.

Upon finding the notice when she returned home, Jordan called the phone
number provided and got the key from the lockbox to reenter her home. She took all
of her belongings and vacated the house the next day. Since then, Nationstar’s vendor
has maintained the property’s exterior and winterized the interior. Nationstar does not

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claim to have attempted to provide Jordan any notice of its intention to inspect the
property and rekey it. Nationstar contends that its usual practice is to change the locks
on only one door, such that it can access the home in the future, but also so that the
owner can still enter the home through another door. Here, Jordan’s home had only a
front door and a sliding glass door in the rear ofthe home. Therefore, when
Nationstar’s vendor rekeyed the front door, she had no means of entry.

Jordan represents a certified class of3,600 Washington homeowners who were
locked out oftheir homes pursuant to similar provisions in their deeds oftrust with
Nationstar. This case presents an important issue for these homeowners and the
thousands of others subject to similar provisions, as well as the many mortgage
companies that have a concern with preserving and protecting the properties in which
they have an interest. Three amicus briefs were filed in this case: Federal Home Loan
Mortgage Corporation (Freddie Mac) and the city of Spokane supporting defendant
Nationstar, and the Northwest Consumer Law Center supporting plaintiff Jordan.
Freddie Mac tells us that the provisions such as the ones at issue here are important to
the foreclosure process because they allow lenders to enter the property to maintain
and secure it. It contends that such provisions help meet Freddie Mac’s requirements
it imposes on companies like Nationstar to preserve properties.

In April20 12, Jordan filed a complaint against Nationstar in Chelan County

Superior Court, alleging state law claims that include trespass, breach of contract, and

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violations ofthe Washington Consumer Protection Act and the Fair Debt Collection
Practices Act. Ch. 19.86 RCW; 15 U.S.C. §§ 1692-1692p. Chelan County Superior
Court certified the class action, with Jordan as the representative for the 3,600
similarly situated homeowners. Nationstar removed the action to the United States
District Court for the Eastern District ofWashington (District Court). The parties
each filed motions for partial summary judgment. Nationstar asked the District Court
to find the provisions at issue enforceable under Washington law. Jordan asked the
District Court to find that before the lender can enter a borrower’s property, the lender
must obtain either the borrower’s postdefault consent or permission from a court.
Furthermore, Jordan contends that receivership is the only remedy by which a lender
may gain access to the borrower’s property. Finding that the case raised unresolved

questions of Washington state law, the District Court certified two questions to us.

We accepted the following certified questions.

CERTIFIED QUESTIONS

1. Under Washington’s lien theory ofmortgages and RCW 7.28.230(1), can
a borrower and lender enter into a contractual agreement prior to default that allows the
lender to enter, maintain, and secure the encumbered property prior to foreclosure?
2. Does chapter 7.60 RCW, Washington’s statutory receivership scheme,
provide the exclusive remedy, absent postdefault consent by the borrower, for a lender
to gain access to an encumbered property prior to foreclosure?
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ANALYSIS

Certified questions present questions of law and we review them de novo. See,
e.g., Parents Involved in Cmty. Sch. v. Seattle Sch. Dist., No. 1, 149 Wn.2d 660, 670,
72P.3d 151 (2003).

1.
Washington’s Lien Theory and RCW 7.28.230(1) Prevent a Borrower and a
Lender from Contracting To Allow the Lender To Take Possession Based on
Borrower Default
The District Court asks us to determine whether a predefault clause in a deed of
trust that allows a lender to enter, maintain, and secure the property before foreclosure
is enforceable. We must determine whether these provisions contravene Washington
law. As described below, the deed oftrust provisions authorize a lender to enter the
borrower’s property after default. The parties agree that a Washington statute
prohibits a lender from taking possession of a borrower’s property prior to
foreclosure. The controversial issue here is whether the deed oftrust provisions
allowing the lender to enter constitute taking possession prior to foreclosure, such that
they conflict with state law. Based on Nationstar’s practices, we find that the
provisions do allow the lender to take possession and thus they are in conflict with
state law. As such, we answer the first certified question in the negative.

a.
The Deed ofTrust Provisions Allow a Lender To Enter the Borrower’s
Property upon Default or Abandonment
“[I]t is the general rule that a contract which is contrary to the terms and policy
of an express legislative enactment is illegal and unenforcible [sic].” State v. Nw.

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Magnesite Co., 28 Wn.2d 1, 26, 182 P.2d 643 (1947). While we recognize an

overarching freedom to contract, provisions are unenforceable where they are

prohibited by statute. State Farm Gen. Ins. Co. v. Emerson, 102 Wn.2d 477,481, 687

P.2d 1139 (1984).

The provisions at issue are made up oftwo sections in the deed oftrust. The

first provision, in pertinent part, is as follows:

9. Protection of Lender’s Interest in the Property and Rights
Under this Security Instrument. If (a) Borrower fails to perform the
covenants and agreements contained in this Security Instrument, … or
(c) Borrower has abandoned the Property, then Lender may do and pay
for whatever is reasonable or appropriate to protect Lender’s interest in
the Property and rights under this Security Instrument, including
protecting and/or assessing the value ofthe Property, and securing
and/or repairing the Property …. Securing the Property includes, but is
not limited to, entering the Property to make repairs, change locks,
replace or board up doors and windows, drain water from pipes,
eliminate building or other code violations or dangerous conditions, and
have utilities turned on or off. Although Lender may take action under
this Section 9, Lender does not have to do so and is not under any duty
or obligation to do so.
Ex. 19, at 8. The provisions also allows the lender to “make reasonable entries upon

and inspections ofthe Property” where the lender has reasonable cause and gives the

borrower notice. !d. at 7. It also requires the borrower to maintain and protect the

property. !d.

Together, these sections are the so-called “entry provisions” that are at issue in

this case, which allow the lender to enter, maintain, and secure the property after the

borrower’s default or abandonment. Nationstar hinges its argument on the need to

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secure abandoned property, stating it does not enter occupied property. However, the
provision plainly states that the lender may “secure” the property after the borrower
defaults or abandons the property. The provision specifically lists changing the locks
as a method of securing the property. Thus, the provisions authorize the lender to
enter and rekey the property solely upon default, regardless of whether the borrower
has abandoned the property.

As explained below, it is well settled that Washington law prohibits lenders
from taking possession of borrowers’ property before foreclosure. This question turns
on whether the above provisions authorize lenders to “take possession” and if, in fact,
the lender’s actions here constituted taking possession.

b.
Washington’s Lien Theory Does Not Permit a Lender To Take Possession of
Property Prior to Foreclosure
Our case law is clear that Washington law prohibits a lender from taking
possession of property before foreclosure of the borrower’s home. Importantly, the
parties agree on this point; under state law, a secured lender cannot gain possession of
the encumbered property before foreclosure.

RCW 7.28.230 provides that

(I ) A mortgage of any interest in real property shall not be deemed a
conveyance so as to enable the owner of the mortgage to recover possession of
the real property, without a foreclosure and sale according to law.Pl
1 Before 1969, this section of the statute ended after “without a foreclosure and sale according to
law.” CODE OF 1881, § 546. It was amended in 1969 to make clear that the statute should not be

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This statute essentially codified Washington’s lien theory of mortgages. The
mortgage lien theory prevails in Washington, meaning that the mortgage is seen as
“nothing more than a lien upon the property to secure payment of the mortgage debt,
and in no sense a conveyance entitling the mortgagee to possession or enjoyment of
the property as owner.” W. Loan & Bldg. Co. v. Mifflin, 162 Wash. 33, 39,297 P. 743
(1931). We have interpreted RCW 7.28.230(1) to mean that a mortgagor’s default
does not disrupt the mortgagor’s right to possession ofreal property, and that the
mortgagor retains the right to possession until there has been foreclosure and sale of
the property. Howard v. Edgren, 62 Wn.2d 884, 885, 385 P.2d 41 (1963).

The Restatement (Third) ofProperty takes the approach that mortgagee
possession agreements conflict with lien theory statutes. See RESTATEMENT (THIRD)
OF PROP.: MORTGAGES § 4.1 cmt. b (AM. LAW INST. 1997). Several lien theory
jurisdictions hold that provisions that allow the lender to take possession ofthe
property contravenes public policy that is inherent to the lien theory; indeed, some
states have even codified statutes that specifically invalidate such agreements. See,
e.g., COLO. REV. STAT. ANN.§ 38-35-117; IDAHO CODE ANN.§ 6-104; NEV. REV.
STAT.§ 40.050; OKLA. STAT. ANN. tit. 42, § 10; UTAH CODE ANN.§ 78B-6-1310.

interpreted to prohibit a mortgagee from collecting rents before foreclosure. See LAws OF 1969,
1st Ex. Sess., ch. 122, §I; and see Kezner v. Landover Corp., 87 Wn. App. 458,464,942 P.2d
I 003 (1997). However, the bedrock principle that borrowers have a right to possession prior to
foreclosure was not altered by the amendment.

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Washington’s legislature, however, did not specifically invalidate such contrary
agreements in its codification of lien theory prohibiting the lender from taking
possession of property before foreclosure. That the legislature did not specifically
invalidate such contract provisions, as did other states, does not mean the provisions
do not conflict with our laws. Thus, we must determine whether its statute is in
conflict with such an agreement.

Nationstar concedes that the borrower’s right to possession cannot be overcome
by a contrary provision in the mortgage or deed oftrust because such a provision
would be nnenforceable as it would contravene Washington law. Def.’s Answering
Br. at 11. However, Nationstar argues that the entry provisions do not authorize the
lender to take “possession” and that its specific conduct at Jordan’s residence did not
constitute possession. Therefore, the determinative issue in answering this first
certified question is whether the entry provisions cause the lender to gain
“possession.” As explained below, the entry provisions do authorize conduct that
constitutes “possession.”

c.
These Entry Provisions Allow a Lender To Take Possession Prior to
Foreclosure and Therefore Conflict with State Law
We must determine if the entry provisions authorize the lender to take
“possession” ofthe property. Ifthey do, the provisions are in conflict with
Washington law. Here, we look to the actions that Nationstar took pursuant to the
entry provisions to see if they constituted “possession.” Possession has slightly

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different meanings in different areas ofthe law. The parties supplied defmitions from
real property law, tort law, and landlord-tenant law because it is unclear which
definition is applicable to RCW 7.28.230(1).

Under any definition, the conduct allowed under the entry provisions
constitutes possession because Nationstar’s actions satisfY the key element of
possession: control. In property law, “possession” is defined as “a physical relation to
the land of a kind which gives a certain degree ofphysical control over the land, and
an intent so to exercise such control as to exclude other members of society in general
from any present occupation ofthe land.” RESTATEMENT (FIRST) OF PROP.:
DEFINITION OF CERTAIN GENERAL TERMS§ 7(a) (AM. LAW INST. 1936).

The key element to the property defmition of “possession” is the “certain
degree ofphysical control.” Tort law similarly requires control. In tort law, which is
concerned primarily with liability, a “possessor of land” is defined as “a person who
occupies the land and controls it.” RESTATEMENT (THIRD) OF TORTS: LIABILITY FOR
PHYSICAL AND EMOTIONAL HARM§ 49 (AM. LAW INST. 2012).

The Court ofAppeals applied the tort definition of possession when it
considered the phrase “mortgagees in possession” for purposes of premises liability.
Coleman v. Hoffman, 115 Wn. App. 853, 858-59, 64 P.3d 65 (2003). There, the
lender used RCW 7 .28.230(1) as a defense to its putative possession to avoid liability,
arguing that it could not have been “in possession” because the statute forbids it. !d.

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at 863. The court relied on the above tort definition of”possession” and another
prominent source that stated for a lender to be liable, it must ‘”exercise dominion and
control over the property.”‘ !d. at 859 (quoting 62 AM. JUR. 2D Premises Liability
§ 8, at 356 (1990)). In finding that the plaintiff showed enough facts oflender’s
possession, the court pointed to the lender’s repairs and payments of utility bills. !d.
at 862-63.

We also find that landlord-tenant law’s treatment of”possession” helpful-
particularly its analysis ofthe impact of changing locks. In Aldrich v. Olson, the
Court ofAppeals found that when the landlord changed the locks of her tenant’s
home, it was an unlawful eviction. 12 Wn. App. 665, 672, 531 P .2d 825 (1975). The
court reasoned, “It is difficult to visualize an act of a landlord more specifically
intended as a reassumption of possession by the landlord and a permanent deprivation
of the tenant’s possession than a ‘lockout’ without the tenant’s knowledge or
permission.” !d. at 667.

From any approach, we find that Nationstar’s conduct constituted possession.
The foregoing possession definitions, as well as Coleman and Aldrich, are instructive.
Nationstar’s vendor’s actions constituted possession because its actions are
representative of control. The vendor drilled out Jordan’s existing locks and replaced
the lock with its own. Nationstar stated in its brief that it rekeyed Jordan’s property to
allow itself access to return to secure the property by winterizing it and to make

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repmrs. Def.’s Answering Br. at 33-34. Perhaps that is true; however, rekeying the
property also had the effect of communicating to Jordan that Nationstar now
controlled the property. The action left Jordan with no method of entering her own
property. Nationstar relies on the fact that it did not change the locks to exclude
Jordan (because it provided her a lockbox and phone nmnber to call) to provide proof
that it did not possess the premises. However, although she was able to obtain a key
by calling, the process made Nationstar the “middle man.” She could no longer
access her home without going through Nationstar. This action of changing the locks
and allowing her a key only after contacting Nationstar for the lockbox code is a clear
expression ofcontrol. Although Nationstar did not exclude Jordan from the premises
(as she was able to gain a key and enter), she left the next day and did not return. In
its amicus brief, the Northwest Consumer Law Center advised us anecdotally that
many similarly situated Washington homeowners felt that when the lender changed
the locks to their homes, they no longer had a right to continue to possess the
property. See Br. ofAmicus Curiae Nw. Consumer Law Ctr. at 6.

Nationstar effectively ousted Jordan by changing her locks, exercising its
control over the property. Although the mortgagee-mortgagor context is different
from the landlord-tenant context, Aldrich provides an apt analogy here because the
court there found that changing the tenant’s locks was the most striking showing of a
reassmnption ofpossession. 12 Wn. App. at 667. Changing the locks is akin to

13

Jordan v. Nationstar Mortgage, LLC

No. 92081-8

exercising control, which is the key element of possession. By changing the locks,
Nationstar took possession ofthe property. Since these actions are authorized by the
entry provisions, the entry provisions allow the lender to take possession ofthe
property. Because Washington law prohibits lenders from taking possession ofthe
borrower’s property before foreclosure, the provisions are in conflict with state law.
Therefore, we must answer the first certified question in the negative and find that the
entry provisions are unenforceable.

2.
Chapter 7. 60 RCWDoes Not Provide the Exclusive Remedy for a Lender To
Gain Access to an Encumbered Property Prior to Foreclosure
The second certified question asks whether this state’s receivership statutes
separately prohibit the entry provisions. Specifically, this second question asks
whether chapter 7.60 RCW, which provides for the judicial appointment ofa third
party receiver to manage the property, is the exclusive method by which lenders can
gain access to encumbered property prior to foreclosure.

This is an issue offirst impression in this court, and no Washington appellate
decision is on point. We must answer this question in the negative because nothing
indicates that the statutory receivership scheme provides the exclusive remedy for
lenders to access a property.

a.
Background on Receivership and Its Role in Mortgage Foreclosure
Chapter 7.60 RCW governs Washington’s receivership scheme. A “receiver”
is a third party appointed by a court to take charge ofproperty and manage it as the

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Jordan v. Nationstar Mortgage, LLC

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court directs. 18 WILLIAM B. STOEBUCK & JOHN W. WEAVER, WASHINGTON
PRACTICE: REAL ESTATE: TRANSACTIONS,§ 18.6, at 310 (2d ed. 2004). The statutes
enumerate some 40 circumstances under which a receiver may be appointed. Only a
few concern mortgaged real property. See RCW 7.60.025(1)(b), (g), (cc), (dd).
Although authorized by statute, lenders are not entitled to a receiver, even where a
clause in the mortgage provides for the appointment of a receiver. STOEBUCK &
WEAVER, supra, § 18.6, at 312. While statutory grounds exist for a court-appointed
receiver prior to foreclosure, it is rarely sought. I d. at 314.

In the context ofmortgaged real property, a receiver might be appointed as a
“custodial receiver,” who would take possession ofthe property and preserve it.
RCW 7.60.015; 7.60.025(1)(g). Commonly, receivers are appointed to collect rent
from income-producing property. STOEBUCK & WEAVER, supra, § 18.6, at 310-11;
see RCW 7 .28.230(1) (providing grounds for appointing a receiver to collect rent for
application to mortgage). Importantly, nothing in the text ofRCW 7.28.230(1) or
chapter 7.60 RCW requires the appointment of a receiver in this context.

Jordan argues that the entry provisions are Nationstar’s attempt to contract
around chapter 7.60 RCW’s requirements and that the legislature intended for the
statutes to provide lenders an exclusive remedy. However, as explained below,
Jordan’s arguments fail to establish that chapter 7.60 RCW does so.

15

Jordan v. Nationstar Mortgage, LLC

No. 92081-8

b. The Contract Provisions Do Not Conflict with Chapter 7. 60 RCW
We have held that the deed of trust act in chapter 61.24 RCW cannot be
contracted around in two recent cases where parties attempted to modify the deed of
trust act’s requirements by private contract. See Bain v. Metro. Mortg. Grp., Inc., 175
Wn.2d 83, 107,285 P.3d 34 (2012) (holding that parties cannot contract to fit a
statutory definition to fulfill the act’s requirements); Schroeder v. Excelsior Mgmt.
Grp., LLC, 177 Wn.2d 94, 107,297 P.3d 677 (2013) (holding that parties cannot
contractually waive a requirement under the act that agricultural properties may only
be foreclosed judicially).
Jordan argues that like in B a in and Schroeder, the entry provisions attempt to
“bypass” statutes that dictate a lender’s only entry method. Pl.’s Opening Br. at 25.
However, Jordan misconstrues the receivership statutes as providing a “list of
requisites to a lender gaining access to a borrower’s property.” Id. at 28. While the
statutes enumerate receivership requirements, they are not concerned with a lender’s
access to borrower’s property but rather merely set forth requirements should a
receiver be necessary. Thus, the entry provisions do not attempt to circumvent the
receivership statutes and thus do not conflict with chapter 7.60 RCW. Similarly,
Jordan’s other arguments do not support her contention that the receivership statutes
provide lenders an exclusive remedy to access property. In fact, as explained below,

16

Jordan v. Nationstar Mortgage, LLC

No. 92081-8

the text of the statute and policy considerations support a finding that chapter 7.60
RCW does not provide lenders the exclusive remedy.

c.
The Statute’s Text Supports Finding That It Does Not Provide an
Exclusive Remedy
The text of the statute supports a finding that it does not provide the exclusive
remedy. First, the plain language ofthe statute must be examined to determine
exclusivity. We have held that when engaging in statutory interpretation, our
“fundamental objective is to ascertain and carry out the Legislature’s intent, and ifthe
statute’s meaning is plain on its face, then the court must give effect to that plain
meaning as an expression of legislative intent.” Dep ‘t ofEcology v. Campbell &
Gwinn, LLC, 146 Wn.2d 1, 9-10,43 P.3d 4 (2002).

Of course, an exclusivity clause would be the clearest indication ofthe
legislature’s intent that the statute be exclusive, but as Jordan concedes, this statute
does not have one. However, Jordan argues that because the statutory scheme is
“comprehensive,” the legislature intended for the statute to provide the exclusive
remedy for lenders such that they cannot contract for entry otherwise. See generally
Pl. Opening Br. at 24-37; and see LAWS OF 2004, ch. 165, § 1. It is true that the
receivership statutory scheme is comprehensive, but the plain language ofthe statute
does not suggest that chapter 7.60 RCW was intended to be an exclusive remedy.

If a court were to appoint a receiver in this context, it would likely be pursuant
to RCW 7.60.025(1). Thus, we analyze the question of whether the receivership

17

Jordan v. Nationstar Mortgage, LLC

No. 92081-8

provides lenders the exclusive remedy under that portion of the provision. The statute
provides, in part:
A receiver may be appointed by the superior court ofthis state in the following
instances, but except in any case … in which a receiver’s appointment with
respect to real property is sought under (b)(ii) of this subsection, a receiver
shall be appointed only ifthe court additionally determines that the
appointment of a receiver is reasonably necessary and that other available

remedies either are not available or are inadequate.
RCW 7 .60.025(1) (emphasis added). Subsection (b )(ii) provides that a receiver may
be appointed after the commencement of a foreclosure proceeding on a lien against
real property where the appointment is provided for by agreement or is necessary to
collect rent or profits from the property.

In analyzing this text, we look to its plain language. In general, the court’s
discretion is illustrated by the word “may.” Under subsection (b )(ii), a receiver shall
be appointed, but only ifthe court makes additional fmdings. First the court must find
a receiver is “reasonably necessary.” RCW 7.60.025(l)(b)(ii). Second, and more
importantly, the court determines that “other available remedies either are not
available or are inadequate.” RCW 7.60.025(1) (emphasis added).

Courts consider all ofthe facts and circumstances to determine whether to
appoint a receiver. Union Boom Co. v. Samish Boom Co., 33 Wash. 144, 152, 74 P.
53 (1903). “It is well established that a receiver should not be appointed if there is
any other adequate remedy.” King County Dep ‘t ofCmty. & Human Servs. v. Nw.
Dejs. Ass ‘n, 118 Wn. App. 117, 126, 75 P.3d 583 (2003) (citing Bergman Clay Mfg.

18

Jordan v. Nationstar Mortgage, LLC

No. 92081-8

Co. v. Bergman, 73 Wash. 144, 147, 131 P. 485 (1913)). The Court ofAppeals
reasoned that allowing a current board of directors to oversee a corporation “was not
an adequate remedy” and, thus, found that appointment of a receiver was appropriate.
!d. at 126.

Thus, in general, other remedies exist outside of appointing a receiver. It is not
before us to determine what particular remedies are available. To answer this
question, it is sufficient that the plain language of the provision does not indicate that
chapter 7.60 RCW was meant to provide an exclusive remedy to lenders. Finally,
public policy also supports the finding that the statute is not the exclusive remedy,
which we discuss below.

d.
Public Policy Supports Finding That Chapter 7.60 RCWDoes Not Provide
an Exclusive Remedy
To the extent that chapter 7.60 RCW’s language is not explicit, it is worth
noting a relevant policy consideration. One ofthe advantages of a deed oftrust is that
it offers ‘”efficient and inexpensive”‘ nonjudicial foreclosure. Schroeder, 177 Wn.2d
at 104 (quoting Cox v. Helenius, 103 Wn.2d 383,387,693 P.2d 683 (1985)). Thus,
requiring lenders to wade through the judicial receivership process in all cases-
regardless ofthe facts and circumstances-is illogical. Overall, both policy and the
plain text of the statute support finding that it does not provide an exclusive remedy to
lenders. Thus, we must answer this question in the negative.

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Jordan v. Nationstar Mortgage, LLC

No. 92081-8

CONCLUSION

We answer the first certified question in the negative. Washington law
prohibits lenders from taking possession of property prior to foreclosure. These entry
provisions enable the lender to take possession after default, and the lender’s action
here constitutes taking possession. Therefore, the entry provisions are in direct
conflict with state law and are unenforceable.

As to the second question, we also answer it in the negative. The text of the
receivership statutes, the legislative intent behind them, and public policy
considerations compel us to find that chapter 7.60 RCW is not the exclusive remedy
for lenders to gain access to a borrower’s property.

20

Jordan v. Nationstar Mortgage, LLC

No. 92081-8

WE CONCUR:

21

Jordan v. Nationstar Mortgage, LLC

No. 92081-8

STEPHENS, J. (dissenting}-! respectfully dissent because the majority
erroneously equates the entry provisions at issue with actual possession. Months
after Laura Jordan defaulted on her loan, Nationstar Mortgage LLC inspected
Jordan’s property and determined that it was vacant. Pursuant to the deed of trust’s
entry provisions, Nationstar secured the home by changing the lock to the front door
and posted instructions on how Jordan could enter the home if she returned. This
practice is not inconsistent with Washington’s lien theory of mortgages and RCW
7.28.230(1). Accordingly, the first certified question should be answered in the
affirmative.

“Washington courts have hesitated to ‘invoke public policy to limit or avoid
express contract terms absent legislative action.”‘ Brown v. Snohomish County
Physicians Corp., 120 Wn.2d 747, 753, 845 P.2d 334 (1993) (quoting State Farm

Jordan v. Nationstar Mortgage, LLC, 92081-8 (Stephens, J. Dissenting)

Gen. Ins. Co. v. Emerson, 102 Wn.2d 477, 481, 687 P.2d 1139 (1984)). It is
undisputed that the deed oftrust’s entry provisions were contractually agreed to and
authorized Nationstar to change the locks on Jordan’s home after default. And as
the majority correctly notes, Washington’s legislature has not “specifically
invalidate[d] such contrary agreements in its codification of lien theory prohibiting
the lender from taking possession ofproperty before foreclosure.” Majority at 10.

The majority nevertheless finds the entry provisions contravene Washington’s
rule against lenders taking preforeclosure possession of borrowers’ property. The
majority does so by describing the entry provisions as authorizing the lender to take
“possession.” Id. at 8, 12. But the certified question asks not whether lenders can
take “possession” ofproperty before foreclosure. Instead, it asks whether the lender
can “enter, maintain, and secure the encumbered property” before foreclosure.
Order Certifying Questions to Wash. Supreme Court, Jordan v. Nationstar Mortg.,
LLC, No. 2:14-CV-0175-TOR at 9 (E. Wash. Aug. 10, 2015). Absent legislation
stating otherwise, the entry provisions at issue are not inconsistent with
Washington’s lien theory ofmortgages and RCW 7.28.230(1).

The majority cites inapposite authority to equate the entry provisions with

actual possession. At the outset, the majority’s reliance on the Restatement is

misplaced. RESTATEMENT (THIRD) OF PROP: MORTGAGES§ 4.1 (AM. LAW. INST.

-2

Jordan v. Nationstar Mortgage, LLC, 92081-8 (Stephens, J. Dissenting)

1997). The Restatement does not contemplate entry provisions, like those considered
here, but rather a lender taking possession. The Restatement merely reiterates the
general rule against accelerated pre foreclosure possession ofproperty. In illustrative
applications of this rule, the Restatement examines instances where the mortgagee
has “file[d] an action to obtain possession of [the property].” REsTATEMENT§ 4.1
cmt. b, illus. 1-3. Here, however, Nationstar has not filed an action to obtain
possession of Jordan’s property. Instead, after Jordan defaulted on her loan,
Nationstar took contractually authorized steps to secure the abandoned propertyand
it posted instructions on how Jordan could access the property, consistent with
her continued right of possession.

Neither of the two Court of Appeals decisions cited by the majority support
equating the entry provisions to possession. Aldrich v. Olson does not even interpret
“possession” in RCW 7.28.230(1). 12 Wn. App. 665, 531 P.2d 825 (1975). And
Coleman v. Hoffman merely clarifies the difference between the right to possession
(applicable to foreclosure actions) and actual possession (applicable to premises
liability matters): “Although RCW 7.28.230 effectively precludes a mortgagee from
obtaining possession of property to the mortgagor’s exclusion, the statute does nof
bear on the question of whether a mortgagee actually possess the property. Actual
possession, not a right to possession, is the critical inquiry in premises liability

-3

Jordan v. Nationstar Mortgage, LLC, 92081-8 (Stephens, J. Dissenting)

cases.” 115 Wn. App. 853, 863-64, 64 P.2d 65 (2003). But unlike the landlords in
Aldrich and Coleman, Nationstar never possessed the property to Jordan’s exclusion.
Rather, Nationstar provided Jordan with instructions on how to enter her home if she
returned. At no point did Nationstar ever object to Jordan’s continued right to
possession before foreclosure.

Finally, even if we regarded the entry provisions as interfering with Jordan’s
right to possession, Nationstar was nevertheless justified in securing Jordan’s
abandoned property. The Restatement recognizes three exceptions to the general
rule that mortgagees cannot obtain possession of the mortgagor’s property before
foreclosure: (1) mortgagor consent, (2) mortgagee’s possession as the result of
peaceful entry in good faith after purchasing the property at a void or voidable
foreclosure sale, and (3) mortgagor abandonment. RESTATEMENT§ 4.1 cmt. c. Here,
the evidence supported Nationstar securing Jordan’s home under the mortgagor
abandonment exception. Months after Jordan defaulted on her loan, Nationstar
inspected Jordan’s property and determined that it was vacant. Nationstar then
changed the locks, which it was allowed to do under the entry provisions in order to
secure the property. Cf PNC Bank, NA v. Van Hoornaar, 44 F. Supp. 3d 846, 85657
(E.D. Wis. 2014) (dismissing trespass claim against lender for changing a
homeowner’s locks upon default because the mortgage agreement authorizing the

-4

Jordan v. Nations tar Mortgage, LLC, 92081-8 (Stephens, J. Dissenting)

lender to secure the premises upon default or abandonment created an implied
consent to entry); see also Tennant v. Chase Home Fin., LLC, 187 So. 3d 1172,
1181-82 (Ala. Civ. App. 2015). Moreover, public policy considerations support
Nationstar securing Jordan’s abandoned property: “Not only is it important to protect
the [property] against the elements and vandalism, but society is benefited by [the
property’s] productive use.” RESTATEMENT§ 4.1 cmt. c.

Pursuant to entry agreements like the one mutually agreed on by Nationstar
and Jordan, a lender may “enter, maintain, and secure” seemingly abandoned
property before foreclosure without taking “possession” of it. Because the first
certified question should be answered in the affirmative, I dissent.

-5

Jordan v. Nationstar Mortgage, LLC, 92081-8 (Stephens, J. Dissenting)

-6

H/T Dave Krieger

May 4 2016
Case Number: DA 15-0108
DA 15-0108

IN THE SUPREME COURT OF THE STATE OF MONTANA
2016 MT 101

ROBIN C. JACOBSON and
KATHLEEN S. JACOBSON,

Plaintiffs and Appellees,

v.

BAYVIEW LOAN SERVICING, LLC,
and CHARLES J. PETERSON, Trustee,
Defendants and Appellants.

APPEAL FROM:
District Court of the Twenty-Second Judicial District,
In and For the County of Carbon, Cause No. DV 10-58Honorable Blair Jones, Presiding Judge

COUNSEL OF RECORD:
For Appellants:
Maxon R. Davis, Derek J. Oestreicher, Davis, Hatley, Haffeman& Tighe, P.C., Great Falls, Montana
For Appellees:
Raymond G. Kuntz, Attorney at Law, Red Lodge, Montana

Submitted on Briefs: December 9, 2015
Decided: May 4, 2016

Filed:

Clerk

Justice Michael E Wheat delivered the Opinion of the Court.

¶1 Bayview Loan Servicing, LLC, (“Bayview”) and Charles J. Peterson, Trustee,
(“Peterson”) appeal from the Order of the Montana Twenty-Second Judicial District
granting judgment for Robin C. Jacobson and Kathleen S. Jacobson (“Jacobsons”). The
District Court determined that Bayview violated the Fair Debt Collections Practices Act
(“FDCPA”), 15 U.S.C. § 1692a-p, and the Montana Consumer Protection Act
(“MCPA”), Title 30, Chapter 14, part 1, MCA. The District Court also awarded damages
in the amount of $226,408.14 and attorney fees in the amount of $109,108.50 to the
Jacobsons. The Jacobsons also prevailed on two post-trial motions for additional relief
and the District Court awarded the Jacobsons an additional $60,000.00 in damages and
$31,020.00 in attorney fees. We affirm.

ISSUES
¶2 Appellant raises several issues on appeal, which we address as follows:
1. Whether the District Court erred in determining that Bayview violated the
FDCPA.
2. Whether the District Court erred in determining that Bayview violated the
MCPA.
3. Whether the District Court erred in awarding damages to the Jacobsons.
4. Whether this Court should award costs and fees to the Jacobsons on appeal.
FACTUAL AND PROCEDURAL BACKGROUND
¶3 In October 2007, the Jacobsons borrowed money and purchased a home and land

on Elbow Creek Road in Carbon County, Montana. They executed a Promissory Note

2

and Trust Indenture in the amount of $391,400.00 to secure the loan. The original lender
and servicer on the loan was CitiMortgage, Inc. and the “nominee” beneficiary of the
Trust Indenture was Mortgage Electronic Registration Systems, Inc. (“MERS”). The
2008 economic crisis brought negative financial impacts to Robin’s business as a home
builder. As a result, the Jacobsons missed at least one mortgage payment in December
2008. CitiMortgage worked with the Jacobsons by entering into an extension agreement
to defer the delinquent payment and interest to the end of the loan. On March 7, 2009,
CitiMortgage transferred the loan servicing duties to Bayview Loan Servicing, LLC.
¶4 On March 24, 2009, Bayview sent the Jacobsons a default letter demanding
payment of all past due amounts within 30 days or the loan would be accelerated with the
entire obligation due and payable, along with the commencement of foreclosure
proceedings. The letter further advised that once the loan was accelerated, it could be
reinstated if all past due installments and late charges were paid at least 5 days before the
scheduled foreclosure sale.
¶5 Both the Trust Indenture and the Promissory Note signed by the Jacobsons provide
rules for notice when the borrower is delinquent on payments or in default. Section 22(c)
of the Trust Indenture provides:

Acceleration; Remedies. Lender shall give notice to Borrower prior to
acceleration following Borrower’s breach of any covenant or agreement in
this Security Instrument (but not prior to acceleration under Section 18
[transfer of property] unless Applicable law provides otherwise). The
notice shall specify: (a) the default; (b) the action required to cure the
default; (c) a date, not less than 30 days from the date the notice is given to
Borrower, by which the default must be cured; and (d) that failure to cure

3

the default on or before the date specified in the notice may result in
acceleration. . . .

If the default is not cured on or before the date specified in the
notice, Lender at its option may require immediate payment in full of all
sums secured by this Security Instrument without further demand and may
invoke the power of sale and any other remedies permitted by Applicable
Law. (Emphasis added).

With regard to the Promissory Note, Section 6(c) states:

Notice of Default

If I am in default, the Note Holder may send a written notice telling
me that if I do not pay the overdue amount by a certain date, the note
holder may require me to pay immediately the full amount of Principal
which has not been paid and all the interest that I owe on that amount. That
date must be at least 30 days after the date on which the notice is mailed to
me or delivered by other means. (Emphasis added.)

¶6 As part of its efforts to collect payment from the Jacobsons, Bayview sent the
aforementioned default letter but did not send a notice of acceleration with a “date
specified” or “certain date” by “which the default must be cured” subsequent to the
default letter of March 24 as required by the Promissory Note. (If the default letter was
meant to be the notice, it did not conform to the requirements of the Promissory Note
because it failed to give the full 30 days and failed to specify the “certain date.”)
¶7 The Jacobsons made a payment on their loan on April 30, but Bayview resisted
acceptance of that payment. A Bayview representative told the Jacobsons to stop making
payments on their loan in May 2009, advising them that this would help them qualify for
a loan modification. Bayview represented to the Jacobsons in May 2009 that it would

4

process a loan modification for them, but did not forward an application for the HAMP1
program until January 2011. Instead, Bayview reinitiated foreclosure proceedings,
sending a second default letter on May 4, 2009, containing language identical to the
March foreclosure letter. Similar to the March foreclosure letter, Bayview failed to send
a notice of acceleration and provide a “certain date” for cure.
¶8 On July 21, 2009, as part of the first foreclosure proceeding, Bayview filed,
through Peterson, three documents with the clerk and recorder. The documents were an
“Assignment of Deed of Trust,” the “Substitution of Trustee,” and a “Notice of Trustee’s
Sale.” The “Assignment of Deed of Trust” assigned the deed of trust from MERS to
CitiMortgage. The “Substitution of Trustee” substituted Peterson as trustee in the place
of the original trustee, First American Title. Bayview also filed a “Notice of Trustee’s
Sale,” seeking to exercise the power of sale under the trust and setting a sale of the
Jacobsons property for November 23, 2009. In the Notice of Trustee’s Sale, Bayview
and Peterson identified Bayview as the beneficiary under the Trust Indenture, when
Bayview has never been the beneficiary of the Trust Indenture. The Notice of Trustee’s
Sale states in bold letters at the bottom of page 2 “THIS IS AN ATTEMPT TO
COLLECT A DEBT.”

The federal Home Affordable Modification Program (“HAMP”) “is intended to help
homeowners in default or at immediate risk of default on their home loans by modifying their
monthly payments to affordable levels. The program requires participating loan servicers to
execute a servicer participation agreement and service eligible loans according to a uniform
modification process. The process begins with a Trial Period Plan, under which the homeowner
makes reduced payments for three months, while the loan servicer verifies income and other
eligibility information. At the end of the trial period, if the homeowner has successfully made
the trial payments and if eligibility has been verified, the modification is made permanent.”
Morrow v. Bank of Am., N.A., 2014 MT 117, ¶ 11, 375 Mont. 38, 324 P.3d 1167.

5

¶9 In September 2009, Bayview informed the Jacobsons that they were not qualified
for HAMP, even though the Jacobsons were never given an application for modification
under the program. At this point, according to the record, the Jacobsons complained to
the Better Business Bureau because Bayview was “offering” modification while
simultaneously pursuing foreclosure against them. The Better Business Bureau
apparently contacted Bayview, because Bayview responded by cancelling the trustee’s
sale scheduled for November 2009 and offering a loan modification. Bayview then
offered to lower the interest rate from 9.5% to 7.5% and extend the term of the loan out to
480 months. The Jacobsons rejected the offer. The Jacobsons then complained about
Bayview’s practices to U.S. Senator Jon Tester. In a conference call with the Senator’s
office, Bayview, and the Jacobsons, Bayview made a second offer: offering to dismiss
the foreclosure action, waive the late charges, remove the negative credit reporting,
dismiss legal fees and costs, and reduce the interest rate to 7.5%, if the loan was brought
current. The Jacobsons accepted this offer, but Bayview refused to put the offer in
writing. As a result, no agreement was finalized between the parties.
¶10 In December 2009, Bayview once again sent the Jacobsons “notice of default”
letters. These letters again failed to provide a date for cure under § 22 of the Trust
Indenture and failed to grant the Jacobsons the ability to cure within the 5 days prior to
the date set for sale. Bayview also failed to send the required acceleration notice
subsequent to the default letter.

6

¶11 In January 2010, CitiMortgage, the true beneficiary of the loan, executed a power
of attorney, effective January 14, 2010, naming Bayview as its attorney-in-fact, but the
document did not ratify the past actions of Bayview. On February 5, 2010, Peterson
executed a second Notice of Trustee’s Sale setting a sale date of June 15, 2010. This
second notice also erroneously identified Bayview Loan Servicing as the beneficiary. On
March 9, 2010, Bayview assigned the Trust Indenture to U.S. Bank as trustee, and then
assigned it again to another entity identified as “CBO-6 REO Corp.” Bayview
represented that it was acting as attorney-in-fact for U.S. Bank for the purposes of this
second assignment when it had no such authority. Bayview subsequently executed a
false notarization of the assignment of the Trust Indenture to CBO-6 REO. Corp. CBO-6
REO Corp. did not exist on March 9 when Bayview purported to assign the Jacobsons’
Trust Indenture to that entity. Bayview claimed that it meant to assign the Trust
Indenture to “CBO-6 Corp.” and that the “REO” was a typographical error.
Nevertheless, CBO-6 Corp. was not formed until June 3, 2010, three months after the
alleged “typographical error” assignment on March 9.
¶12 On March 23, 2010, Bayview informed the Jacobsons that it was now servicing
their loan on behalf of U.S. Bank, with knowledge that U.S. Bank was not the
beneficiary. Bayview falsely represented that CBO-6 REO Corp. existed and that the
Jacobsons’ loan was transferred to the entity on June 10, 2010. Bayview also
misrepresented that it was servicing the loan on behalf of CBO-6 REO Corp. and that the
non-existent entity was the Jacobsons’ creditor. Bayview did not record the March 9,

7

2010 assignment of the Trust Indenture until September 21, 2010. When it did record,
the assignment from U.S. Bank to CBO-6 Corp. was still an assignment to a nonexistent
entity. As a result of these assignments, Bayview acted from March 9, 2010, to July 26,
2012, on behalf of beneficiaries that did not exist and had no interest in the Jacobsons’
loan.
¶13 The Jacobsons filed this action on June 9, 2010, to enjoin the sale of their house at
the June 15, 2010 trustee’s sale. The District Court issued an Order to cancel the
trustee’s sale set for June 15, 2010. Subsequently, the Jacobsons amended their
complaint to add FDCPA and MCPA claims. Bayview answered the Jacobsons’
complaint on November 8, 2010. After the case was filed, Bayview contacted the
Jacobsons, instead of their counsel, in June 2011, January 2011, February 2011, and July
2013.
¶14 Bayview moved for summary judgment in June 2012, asserting that it was the
current beneficiary of the deed of trust, and had the authority to foreclose. The court set a
hearing for September 19, 2012, on the motion for summary judgment. After changes in
counsel and numerous motions, including a second summary judgment motion by
Bayview, the court held a summary judgment hearing on August 7, 2013. The court
denied Bayview’s motion for summary judgment at the hearing. A bench trial was held
on November 21 and 22, 2013, at which both parties presented exhibits and witness
testimony. On March 10, 2014, the District Court issued its Findings of Fact,
Conclusions of Law, and Order. The court determined that Bayview engaged in deceit,

8

negligent misrepresentation, and intentional violations of the FDCPA and the MCPA.
The court awarded money damages under the FDCPA and the MCPA to the Jacobsons
including emotional distress damages and statutory damages totaling $226,408.14. The
court awarded the Jacobsons their costs and attorney fees in the case of $109,108.50.
¶15 After the trial, the Jacobsons filed a Motion for Additional Damages, Equitable
Relief and Sanctions because Bayview contacted them while they were still represented
by counsel, to notify them that Bayview was adding $33,696.00 to their loan for attorney
fees and expenses related to the November trial. On August 20, 2014, the court held a
hearing and determined that Bayview’s attempts to collect their trial-related attorney fees
and costs from the Jacobsons were in violation of the FDCPA, the MCPA, and the
District Court’s Order in the case prohibiting debt collection by Bayview during the
pendency of the action. Accordingly, the court imposed an additional $50,000.00 of
damages under § 30-14-133(1), MCA, to “further the remedial purposes of the Act.”
¶16 On the same day as the August 20, 2014 hearing, Bayview once again sent
additional correspondence to the Jacobsons. The letter was a mortgage statement which
included a $13,565.84 bill for attorney fees added to their mortgage. The Jacobsons filed
a Motion for Contempt and Bayview responded that it was deliberately charging the
Jacobsons for Bayview’s attorney fees and adding those to their mortgage. The District
Court held a hearing on the motion on October 28, 2014, at which Bayview continued to
assert its claims for attorney fees and other costs even while it could not produce any
authority for this claim. The District Court issued additional Findings of Fact,

9

Conclusions of Law, and Order on December 10, 2014, regarding the second violation of
the Order in the case. The court held:

1. Bayview is in contempt of the District Court, but may purge its
contempt by strict future compliance with the Court’s orders.
2. Bayview should pay Jacobsons attorney fees and costs incurred in
bringing the motions. Bayview should pay $10,000.00 to aid in
deterring Bayview’s unlawful conduct.
¶17 Two more Orders were entered in the case in regard to the attorney fees and costs.

The District Court determined:

1. Jacobsons are awarded $17,580.00 against Bayview and Peterson for the
first violation of the Order as determined by the District Court on
August 20, 2014.
2. Jacobsons are awarded $13,440.00 against Bayview and Peterson for the
second violation of the Order as determined by the District Court on
December 10, 2014.
¶18 Bayview appeals from the District Court’s Orders in this case, including the
subsequent orders related to Bayview’s violations of the original order. Bayview does
not appeal the attorney fees awarded pursuant to the Orders.

STANDARD OF REVIEW

¶19 This Court will affirm the factual findings of a district court sitting without a jury
unless those findings are clearly erroneous. Pedersen v. Ziehl, 2013 MT 306, ¶ 10, 372
Mont. 223, 311 P.3d 765 (citing M. R. Civ. P. 52(a)(6); Steiger v. Brown, 2007 MT 29,
¶ 16, 336 Mont. 29, 152 P.3d 705). “A district court’s findings are clearly erroneous if
they are not supported by substantial evidence, if the district court has misapprehended
the effect of the evidence, or if a review of the record leaves this Court with the definite

10

and firm conviction that a mistake has been committed.” Pedersen, ¶ 10 (citations
omitted). To determine whether substantial credible evidence supports the district court’s
findings, we review the evidence in the light most favorable to the prevailing party.
Pedersen, ¶ 10 (citation omitted). We review a district court’s conclusions of law for
correctness. Public Lands Access Ass’n v. Bd. of Co. Comm’rs, 2014 MT 10, ¶ 14, 373
Mont. 277, 321 P.3d 38.

DISCUSSION

¶20
1. Whether the District Court erred in determining that Bayview violated the
FDCPA.

¶21 The District Court made numerous determinations under the FDCPA, all of which
are contested by Bayview on appeal. The court found that Bayview was in violation of
the FDCPA for the following reasons: it engaged in FDCPA collection activity; it told
the Jacobsons to stop making payments and then commenced foreclosure; it informed the
Jacobsons it could not reinstate their loan within 5 days prior to the foreclosure sale; it
failed to provide a date for cure of the default; it wrongfully (under § 71-1-306(2), MCA)
appointed Peterson as trustee; it attempted to foreclose the property with a defective
trustee; it falsely represented that it held the beneficial interest as servicer; it falsely
promised to modify the loan in the Jacobsons favor; it falsely informed the Jacobsons
they were not qualified for the HAMP program; it falsely notarized the assignment of the
Trust Indenture to a corporation that did not exist; and falsely recorded the assignment to
a fictitious creditor without authority; it made false representations in discovery by
providing false answers and withholding documents; it contacted the Jacobsons while

11

they were represented by counsel; and it failed to comply with the requirements for
default procedure in the Trust Indenture.
¶22 On appeal, Bayview argues that its conduct and communications with the
Jacobsons do not constitute violations of the FDCPA or the MCPA and are insufficient to
justify the damages awarded to the Jacobsons. Bayview’s counsel argues that because no
foreclosure sale took place, no harm has been done, and regardless, conduct related to
foreclosure proceedings is not an attempt to collect a debt and is outside the scope of the
FDCPA and MCPA.
¶23 The Jacobsons argue that Bayview is a debt collector subject to the FDCPA. They
assert that Bayview’s claim to be exempt from the FDCPA is raised for the first time on
appeal. They further contend that Bayview and Peterson’s practices are the type of
abusive conduct the FDCPA and MCPA were enacted to remedy. They support the
District Court’s conclusions that Bayview’s actions were serious, material violations of
the law. Because the District Court made specific findings and conclusions regarding
Bayview’s violations of the FDCPA and MCPA, we consolidate and review the
conclusions with the parties’ arguments below. First, we address the Jacobsons’
argument that Bayview is changing its legal theory on appeal. Next, we review
Bayview’s violations of the FDCPA including the loan modification misrepresentations,
foreclosure rights misrepresentations, beneficiary status misrepresentations, improper
contact with a represented party, and the false assignments of the loan.

12

Change in Legal Theory on Appeal

¶24 On appeal, Bayview reframes its argument regarding the FDCPA. It argues the
FDCPA is inapplicable to Bayview because its actions—conduct related to foreclosure
proceedings by the originator of the loan—are not debt collection activity under the
FDCPA. This Court generally does not “address issues raised for the first time on appeal,
or a party’s change in legal theory” from that argued at the district court. Vader v.
Fleetwood Enterprises, Inc., 2009 MT 6, ¶ 37, 348 Mont. 344, 201 P.3d 139. The
District Court determined that “Bayview and Peterson are debt collectors” and supported
the conclusion by detailing Bayview’s debt collection efforts against the Jacobsons. The
District Court also noted in its Order that “[n]either Bayview nor Peterson has alleged
any affirmative defenses under the FDCPA, and neither has argued that they are not debt
collectors as defined by the FDCPA.” Bayview seeks to avoid the effect of these
conclusions by arguing a new theory on appeal. This theory was not offered to the
District Court, the District Court was not given the opportunity to weigh these arguments,
and we decline to address them on appeal. Instead, this Court will address the merits of
the arguments as they were made to the District Court.

Fair Debt Collection Practices Act (FDCPA)

¶25 The FDCPA is a strict liability statute which specifically prohibits “[t]he use of
any false representation or deceptive means to collect or attempt to collect any debt or to
obtain information regarding a consumer.” 15 U.S.C. § 1692e(10). The FDCPA was
enacted “to eliminate abusive debt collection practices by debt collectors, to ensure that

13

those debts collectors who refrain from using abusive debt collection practices are not
competitively disadvantaged, and to promote consistent State action to protect consumers
against debt collection abuses.” Miller v. Javitch, Block & Rathbone, 561 F.3d 588, 591
(6th Cir. 2009) (quoting 15 U.S.C. § 1692(e)).
¶26 To assess whether particular conduct violates the FDCPA, courts use the “least
sophisticated debtor” standard. See Swanson v. Southern Oregon Credit Service, Inc.,
869 F.2d 1222, 1227 (9th Cir. 1988). This objective standard “ensure[s] that the FDCPA
protects all consumers, the gullible as well as the shrewd.” Clomon v. Jackson, 988 F.2d
1314, 1318-19 (2nd Cir. 1993).
¶27 When applying the “least sophisticated consumer” standard, the misleading
statement must also be materially false or misleading to violate FDCPA 15 U.S.C.
§ 1692e. Miller at 596-97. “The materiality standard simply means that in addition to
being technically false, a statement would tend to mislead or confuse the reasonable
unsophisticated consumer.” Wallace v. Washington Mut. Bank, F.A., 683 F.3d 323,
326-27 (6th Cir. 2012).
¶28 The District Court concluded that Bayview committed numerous violations using
false representations and unfair and deceptive practices to collect against the Jacobsons.

Loan Modification

¶29 The District Court found that Bayview’s authorized representatives told the
Jacobsons to stop making payments on their loan in May 2009 under the premise that it
would help them get a loan modification. Bayview also advised the Jacobsons that they

14

would not qualify for a HAMP modification without actually reviewing a HAMP
application submitted by the Jacobsons. Then, instead of assisting with a loan
modification, Bayview commenced foreclosure proceedings against the Jacobsons.
When the Jacobsons subsequently sought outside help, first from the Better Business
Bureau and then from Senator Tester’s office, Bayview finally engaged in “in-house”
loan modification negotiations. Bayview offered the first loan modification and the
Jacobsons rejected it because the terms were onerous. In the second negotiation (with
assistance from Senator Tester’s office), Bayview offered an acceptable loan
modification but refused to provide the offer in writing, resulting in its rejection by the
Jacobsons. The District Court found that Bayview’s false offers and promises to modify
constituted a false representation in connection with the collection of a debt and a
deceptive practice in the conduct of trade or commerce in violation of 15 U.S.C. § 1692e
and § 30-14-103, MCA.
¶30 Bayview argues that the District Court “completely misstates” the record
regarding negotiations between the parties, and that loan modification procedures were
online for the Jacobsons to access. In other words, Bayview did not fail to send a HAMP
application to the Jacobsons; the Jacobsons failed to pursue the option. Bayview asserts
that the loan modification negotiations were fair and the Jacobsons rejected the offer out
of hand. Finally, however, Bayview admits that its representative advised the Jacobsons
not to make mortgage payments.

15

¶31 The Jacobsons support the District Court’s findings regarding the loan
modification citing substantial evidence relied upon by the court. They argue that
evidence regarding the loan modifications was offered at trial, and the court made a
proper determination that Bayview made false representations that misled them in regard
to their modification options.
¶32 From the outset, we see no clear error in the District Court’s conclusions regarding
the loan modifications; the court relies on credible evidence. Bayview’s arguments
offered here were thoroughly weighed by the District Court. The court found Robin
Jacobson’s testimony regarding Bayview’s questionable HAMP application procedures
and subsequent negotiations for modification to be reliable, and gave it the greater weight
in light of the false statements made by Bayview’s witnesses to the court. The District
Court gave proper weight to testimony based on its evaluation of the witnesses and
supported its conclusions with substantial evidence. Furthermore, Bayview advised the
Jacobsons to stop making payments on their home while beginning foreclosure and
negotiating in bad faith regarding in-house loan modification. These false representations
caused the Jacobsons to question how they could modify or cure their default, and
whether they could trust any representation by Bayview regarding their loan. We
conclude the District Court relied on substantial evidence and properly found the false
representations regarding the loan modification were materially misleading and violations
of 15 U.S.C. § 1692(e) and § 30-14-103, MCA.

16

Foreclosure—False Representation of Debtor’s Rights

¶33 The District Court found that Bayview misrepresented the Jacobsons’ rights
regarding the reinstatement of their loan when it misinformed the Jacobsons regarding
their ability to cure and reinstate their loan within 5 days preceding the foreclosure sale in
its letters to the Jacobsons. The court determined that this was an unfair or deceptive
practice in violation of A.R.M. § 23.19.101(1)(l) and was a false representation of the
debtor’s rights in violation of 15 U.S.C. § 1692e(10). The District Court also found that
Bayview improperly advised the Jacobsons regarding their contractual rights by
demanding cure of the default in less than 30 days instead of the full 30 days, and failed
to give a specific date for cure provided by the Trust Indenture § 22(c). The District
Court determined these violations were false representations of the Jacobsons’ rights in
violation of 15 U.S.C. § 1692e(10) and constituted unfair practices in violation of
15 U.S.C. § 1692f and § 30-14-103, MCA.
¶34 Bayview does not deny these errors. Instead, it argues the errors are immaterial
because there was never a sale or foreclosure, and that the violations are only technical
and not the type of violation that the FDCPA intends to punish. The Jacobsons argue that
these are exactly the type of violations the FDCPA intends to prevent.
¶35 We find no error in the District Court’s interpretation or perception of the
evidence. Bayview failed to properly notify the Jacobsons regarding the timing of their
right to cure. Bayview’s argument does not hold up when compared to the statute. The
FDCPA provides that false representations connected to debt collection and “attempts
to

17

collect any debt” are violations of the law. 15 U.S.C. § 1692e(10) (emphasis added).
Bayview’s misrepresentations of the Jacobsons’ rights to cure the default pertained to
“attempts” to collect on the loan. Bayview’s misrepresentations regarding the time for
cure changed the contractual and statutory rights provided to the Jacobsons by cutting
short the time available for cure. Further, no specific date for cure was provided to the
Jacobsons, materially affecting their rights. The District Court correctly concluded
Bayview’s false representations about the Jacobsons’ legal rights are a violation of 15

U.S.C. § 1692e(10) and under 15 U.S.C. § 1692f are an unfair practice; the FDCPA
violations also constitute violations of § 30-14-103, MCA.
Beneficiary Status

¶36 The District Court found that Bayview was never the beneficiary on the
Jacobsons’ loan. Accordingly, the court concluded that Bayview misrepresented itself as
the beneficiary in both notices of trustee’s sale when Bayview stated: “[t]he beneficial
interest is currently held by Bayview Loan Servicing, LLC” as servicer for CitiMortgage.
The District Court held this constituted a false representation in connection with the
collection of a debt and a deceptive practice in the conduct of trade or commerce in
violation of 15 U.S.C. § 1692e and § 30-14-103, MCA. Bayview admits the
misrepresentation but argues the District Court erred in its conclusion because the
misrepresentation is irrelevant and immaterial to the Jacobsons’ default.
¶37 We conclude the misrepresentation was material because the Jacobsons were
misled regarding the identity of the beneficiary, which directly affected their ability to

18

resolve the debt. In addition, Bayview created a false corporation to hold the note, made
false representations regarding the note, and made an improper beneficiary designation;
the result is materially misleading to the consumer. Given the wide range of
misrepresentations, the “least sophisticated consumer” would clearly have difficulty
ascertaining who owns the loan, and who can foreclose or resolve the loan. Bayview’s
misrepresentation regarding the beneficiary of the Trust Indenture was a material
misrepresentation and the District Court properly concluded it was a deceptive practice in
violation of the FDCPA and the MCPA.

Bayview’s Improper Communications

¶38 The FDCPA prohibits a debt collector from communicating with a consumer in
connection with the collection of any debt “if the debt collector knows the consumer is
represented by an attorney . . . .” 15 U.S.C. § 1692c(a)(2). The District Court
determined that Bayview knew the Jacobsons were represented by counsel on June 9,
2010. The District Court found that at least four letters (June 28, 2010, January 18, 2011,
February 1, 2011, and July 1, 2013) sent to the Jacobsons after that date were direct
communications to collect a debt in violation of the statute. Bayview argues that these
communications were not violations of 15 U.S.C. § 1692c because they were not attempts
to collect a debt. However, the argument fails because the letters state “[t]his letter is an
attempt to collect a debt . . . .” Bayview knew the Jacobsons were represented by counsel
but persisted in sending debt collection notices in violation of the statute. The District
Court’s conclusions regarding Bayview’s direct communications with the Jacobsons are

19

properly based on substantial evidence. The District Court did not err when it determined
Bayview improperly contacted the Jacobsons.

False Assignments

¶39 The District Court found numerous FDCPA violations pertaining to Bayview’s
assignments of the Jacobsons’ Trust Indenture. The court sifted through a confusing
series of assignments finding the following: Bayview falsely told the Jacobsons that

U.S. Bank was the “current” beneficiary of the Trust Indenture and Bayview was
servicing on U.S. Bank’s behalf; Bayview then falsely represented that CBO-6 REO
Corp. existed and that the loan was transferred to the entity on June 10, 2010; Bayview
also falsely represented that it was servicing the loan on behalf of the non-existent entity;
Bayview recorded the false assignment without authority (because it was not the
beneficiary and was not attorney-in-fact for the beneficiary), to a non-existent entity,
CBO-6 REO Corp. It did not stop there. Bayview then misinformed the District Court
that Bayview was the current beneficiary of the loan when it was not. Bayview also
provided false discovery answers claiming to have no communications with either U.S.
Bank or CBO-6 REO Corp. and Bayview representative Gerardo Trueba admitted at trial
that he prepared false discovery responses regarding the misrepresentations. The District
Court concluded that this long series of Bayview’s actions was in violation of 15 U.S.C.
§ 1692e and § 30-14-103, MCA.
¶40 Bayview argues that the District Court’s conclusions regarding Bayview’s false
assignments are erroneous. It argues that Bayview’s foreclosure activity is not debt
20

collection, that the false assignments do not give rise to an actionable FDCPA claim, and
that it is not a violation of the FDCPA to initiate foreclosure before a note and mortgage
assignment is completed so long as it occurs prior to final judgment. The Jacobsons
argue that Bayview’s misrepresentations of the identity of the original creditor are
materially misleading and violations of the FDCPA.
¶41 The core of Bayview’s argument is that it can assign the note and mortgage so
long as it occurs prior to final judgment on the foreclosure. To support this argument,
Bayview cites Whittiker v. Deutsche Bank Nat’l Trust Co., 605 F. Supp. 2d 914, 931

(N.D. Ohio 2009), a case in which the court found no violation of the FDCPA when the
bank (DBNTC) falsely asserted it was the owner and holder of the notes and mortgages.
There, the court determined the claim failed because it was not misleading or deceptive
because the bank, which was properly the mortgage holder, could assign the loan so long
as the process was complete prior to final judgment in the foreclosure. Bayview relies on
the court’s conclusion that “simple inability to prove present debt ownership at the time a
collection is filed does not constitute a FDCPA violation.” Whittiker at 929.
¶42 Bayview’s actions here are easily distinguished from the actions in Whittiker.
Bayview’s misdeeds go far beyond a “simple inability to prove ownership” of the debt.
Whittiker at 929. Bayview made numerous misrepresentations as part of the false
assignments of the loan. It falsely represented that it was “attorney-in-fact” for U.S.
Bank when it assigned the Trust Indenture to “CBO-6 REO Corp.” when it did not exist.
The assignment to the non-existent entity was made with a false notarization by Bayview
21

and its employee. From there, Bayview falsely told the Jacobsons that U.S. Bank was the
current beneficiary, and falsely stated that it was servicing the loan for U.S. Bank. U.S.
Bank was never the beneficiary. Bayview never had authority to assign the loan because
it never was the beneficiary. Bayview misinformed the court that it was the beneficiary
of the loan. Bayview also admitted to providing false discovery answers. Finally,
Bayview recorded the assignment under false authority to a fictitious creditor.
¶43 Bayview’s arguments fall short because the sum of its misrepresentations is not
“simple.” Instead, Bayview’s activities are seriously misleading misrepresentations
regarding the Jacobsons’ loan and its status. The misrepresentations are material because
they would mislead the “least sophisticated consumer” due to the confusion regarding
who owns the loan and who possesses authority to impose requirements on the Jacobsons
regarding payment of the loan. Individually, and taken as a whole, the false
misrepresentations and conduct misled the Jacobsons regarding the status of their loan
and its true owner. The District Court did not err; it properly concluded that Bayview’s
false assignments and surrounding misrepresentations and conduct were unfair and
deceptive practices in violation of 15 U.S.C. § 1692e, f, and the MCPA.
¶44 The District Court’s factual findings pertaining to Bayview’s violations of the
FDCPA are supported by substantial evidence. Bayview repeatedly violated the FDCPA
and MCPA, and violated the contractual requirements of the Trust Indenture. Bayview’s
arguments that the violations are immaterial and irrelevant fail to account for intentional
violations of the law. Bayview’s unfair and deceptive practices against the Jacobsons

22

cannot be tolerated as they are clear violations of the FDCPA and the MCPA. We
conclude that the District Court made detailed and accurate conclusions of law under the
FDCPA and accordingly, we affirm its decision with respect to the FDCPA claims.
¶45 2. Whether the District Court erred in determining that Bayview violated the

MCPA.
¶46 The Montana Consumer Protection Act declares “[u]nfair methods of competition
and unfair or deceptive acts or practices in the conduct of any trade or commerce are
unlawful.” Section 30-14-103, MCA. In Baird v. Norwest Bank, we determined that the
Montana Consumer Protection Act applies to “consumer loans by banks in the lending
and collecting of such loans.” 255 Mont. 317, 328, 843 P.2d 327, 334 (1992). This
Court further determined that under the Montana Consumer Protection Act, “an unfair act
or practice is one which offends established public policy and . . . is either immoral,
unethical, oppressive, unscrupulous or substantially injurious to consumers.” Rohrer v.
Knudson, 2009 MT 35, ¶ 31, 349 Mont. 197, 203 P.3d 759. In Morrow, we noted it is
“an unfair or deceptive practice when a party ‘states that a transaction involves rights,
remedies or obligations that it does not involve.’” Morrow, ¶ 67 (citing Admin. R. M.
23.19.101(1)(l)). We further added that “[a] consumer may sue under the act if he or she
has suffered ‘any ascertainable loss of money or property’ as the result of an unfair
practice.” Morrow, ¶ 67 (citing § 30-14-133, MCA).
¶47 Bayview disputes the District Court’s determination that Bayview violated the
Montana Consumer Protection Act. Bayview argues that MCPA claims must be
established on “independent grounds” and that neither the Jacobsons, “nor the District

23

Court, cite any authority in the MCPA itself, or in any authority construing the MCPA,
for the proposition that purported violations of the FDCPA are also violations of the
MCPA.” For its “independent grounds” argument, Bayview cites Federal Home Loan
Mortgage Corp. v. Lamar, 503 F.3d 504, 513 (6th Cir. 2007).
¶48 In Lamar, the Sixth Circuit states, “the purpose of both acts [the FDCPA and
OCSPA [Ohio Consumer Sales Practices Act]] is to prohibit both unfair and deceptive
acts and this court holds that any violation of any one of the enumerated sections of the
FDCPA is necessarily an unfair and deceptive act or practice in violation of [Ohio’s
OCSPA] R.C. § 1345.02 and/or § 1345.03.” Lamar at 513 (emphasis added). A cursory
reading of the Lamar opinion establishes that Bayview misinterpreted the facts and law
of Lamar when it concluded that violations of the OCSPA (a law substantially similar to
Montana’s MCPA) require “independent grounds” from the FDCPA. The OCSPA
claims in the Lamar case failed because they relied entirely on the FDCPA claims, which
the court determined were not substantiated by the plaintiffs. In this case, the FDCPA
and MCPA claims rely on the same grounds, and we have determined that the FDCPA
claims are valid; thus, the MCPA claims succeed on the same basis. We reiterate here
and hold that it is well established that a violation of federal consumer law pursuant to the
FDCPA can also constitute grounds for violation of Montana law pursuant to the MCPA.
See Morrow, ¶¶ 67-69 (holding that HAMP claims under the FDCPA are violations
sufficient to state claims under the MCPA and, more generally, both the FDCPA and
MCPA apply to the “collection and servicing of loans”); see also, Lamar at 513.

24

¶49 On the merits, the District Court provided substantial evidence that Bayview’s
Action violated the MCPA. In Morrow, we held that instructing a borrower to default on
a loan, giving conflicting representations regarding the borrower’s status, all while
causing the borrower’s default to grow constitutes a practice “substantially injurious to
consumers” in violation of the MCPA. Morrow, ¶¶ 67-69. Here, the District Court
found that Bayview told the Jacobsons not to make payments, while at the same time
commencing foreclosure. Bayview also violated provisions of the Trust Indenture
§ 22(c) and § 71-1-306(2), MCA. These violations are very similar to those addressed in
Morrow
and clearly constitute violations of Montana law while also in violation of the
FDCPA.
¶50 In addition, Bayview violated Admin. R. M. 23.19.101(1)(l) when it failed to
provide an option for cure of the default in the five days preceding the Trustee’s sale.
The result of this violation would be “substantially injurious” to the Jacobsons and falls
well within unfair or deceptive practices prohibited by the MCPA. The District Court
also found specific grounds for Peterson’s liability, as he acted pursuant to an invalid
Trustee substitution when he twice initiated foreclosure proceedings against the
Jacobsons. The District Court properly concluded the action was a violation of
§ 71-1-306(2), MCA, and § 30-14-103, MCA. Finally, the court correctly concluded that
Bayview’s attempt to collect attorney fees and expenses post-trial against the Jacobsons
was a clear violation of the FDCPA and the MCPA.

25

¶51 We conclude that the District Court’s findings under the FDCPA regarding
Bayview’s actions establish state law grounds for violations of the MCPA. Further, we
find no error in the District Court’s conclusions because the findings are supported by
substantial evidence demonstrating Bayview and Peterson’s liability under the MCPA.
¶52 3. Whether the District Court erred in awarding damages to the Jacobsons.
¶53 Section 27-1-202, MCA, provides that “[e]very person who suffers detriment from
the unlawful act or omission of another may recover . . . [damages].” Section
30-14-133(1), MCA, provides that “[t]he court may, in its discretion, award up to three
times the actual damages sustained and may provide any other equitable relief that it
considers necessary or proper.” The MCPA provides this discretion to the courts
“without imposing any particular criteria, to grant an award of treble damages if it finds
that such an increase will further the purpose of the CPA.” Vader, ¶ 47. A district
court’s damage determination is a factual finding this Court will uphold if the finding is
supported by substantial evidence. Watson v. West, 2009 MT 342, ¶ 18, 353 Mont. 120,
218 P.3d 1227 (citing Tractor & Equipment Co. v. Zerbe Bros., 2008 MT 449, ¶ 12, 348
Mont. 30, 199 P.3d 222). This Court will not overturn a district court’s determination of
damages unless it is clearly erroneous. Watson, ¶ 18 (citation omitted).
¶54 The District Court awarded $226,408.14 on the FDCPA and MCPA claims, which
Bayview argues is not based on any injury sustained by the Jacobsons and is not
supported by evidence that could be construed as a violation of the FDCPA. Specifically,
the District Court awarded $172,615.20 of actual damages and $50,000.00 of additional

26

damages “for emotional distress suffered by the Jacobsons together with the deception,
stonewalling, and utter disregard for their contractual and statutory rights that the
Jacobsons have been forced to endure as a result of [Bayview’s] conduct.” The court also
assessed statutory damages of $1,000.00 for each of the Jacobsons under 15 U.S.C.
§ 1692k(a)(2). The court awarded money damages, emotional distress damages, statutory
damages, and additional damages for Bayview’s post-trial actions under the MCPA,
which we review individually.

Damages

¶55 The District Court concluded that because Bayview resisted payment and
instructed the Jacobsons not to pay on their loan, the Jacobsons incurred damages
resulting from Bayview’s conduct, and those damages were the late charges and interest
that Bayview assessed to the Jacobsons. To determine damages, the District Court used
Bayview’s February 5, 2010 “Notice of Trustee’s Sale.” The court calculated damages
across a date range from the first defective notice of foreclosure on March 24, 2009, until
the second day of trial on November 22, 2013. Thus, per the notice, this included
$1,792.94 in late charges, plus the interest accrued since the first notice of default until
the second day of trial, which was $101.30 interest per day multiplied by 1,704 days or
$172,615.20.
¶56 Bayview argues that because the Jacobsons’ house was never foreclosed and sold,
its actions have not damaged the Jacobsons in any way, because no “actual damage” was
sustained under the provisions of 15 U.S.C. § 1692k(a)(1) (stating that a debt collector

27

who fails to comply with the provisions of the FDCPA is liable to such person in an
amount equal to that persons actual damages). Under Bayview’s reasoning, a loan
servicer could undertake any sort of action to collect debt so long as the loan does not
actually foreclose. This logic fails because the FDCPA and the MCPA were enacted to
stop unfair practices including false representations of the sort Bayview has used in this
case. Furthermore, Bayview does not have to be successful in its debt collection actions;
it is liable for false representations and unfair practices because it was “attempting” to
collect debt. 15 U.S.C. § 1692e(10).
¶57 Here, in addition to its deception and unfair practices, Bayview imposed late
charges and interest on the Jacobsons’ loan, increasing the amount of their default. In
Morrow, we determined that causing a consumer’s default to grow would “constitute a
practice substantially injurious to consumers.” Morrow, ¶¶ 68-69. Here, Bayview
instructed the Jacobsons to miss payments and default on their loan. That default led to
subsequent misrepresentations by Bayview regarding the Jacobsons’ rights, including
their ability to cure the default. While Bayview was making misrepresentations to the
Jacobsons and using unfair practices, it was simultaneously increasing the amount of
their liability on their loan through late charges and interest. Similar to Morrow, this
increase in the loan liability is substantially injurious to the Jacobsons. The District
Court correctly found that the Jacobsons suffered a financial detriment because their loan
liability was wrongfully increased as a result of Bayview’s actions.

28

¶58 We find further support for this conclusion in Wigod v. Wells Fargo Bank, N.A.,

673 F.3d 547 (7th Cir. 2012). The U.S. Seventh Circuit Court of Appeals determined that

Wigod alleged recoverable pecuniary loss under the Illinois Consumer Protection Act as

a result of unfair HAMP procedures by Wells Fargo. Wigod, 673 F.3d at 575. The court

found Wigod’s allegations that “she incurred costs and fees, lost other opportunities to

save her home, suffered a negative impact to her credit, never received a Modification

Agreement, and lost her ability to receive incentive payments during the first five years

of the modification” were sufficient to establish pecuniary loss. Wigod, 673 F.3d at 575.2

The Jacobsons have suffered a pecuniary loss similar to that suffered by Wigod and

accordingly, we conclude that the damages suffered by the Jacobsons are a financial

detriment and the losses are properly considered actual damages by the District Court.

We reject Bayview’s contentions that the Jacobsons have suffered no financial detriment

as a result of Bayview’s conduct. There is no question that the Jacobsons suffered a

financial detriment as a result of Bayview’s unfair practices and conduct. We conclude

2 We also note that the Seventh Circuit Court of Appeals included the following at endnote 14 of
their opinion for additional support of this conclusion: “In a number of third-generation HAMP
cases, district courts have found that plaintiffs successfully pled claims under other states’
analogous consumer fraud statutes.” See, e.g., Allen v. CitiMortgage, Inc., No. CCB-10-2740,
2011 U.S. Dist. LEXIS 86077, 2011 WL 3425665, at *10 (D. Md. Aug. 4, 2011) (“The plaintiffs
have alleged that CitiMortgage’s misleading letters led to the following damages: damage to
Mrs. Allen’s credit score, emotional damages, and forgone alternative legal remedies to save
their home. Accordingly, at this stage, the plaintiffs have stated sufficiently an actual injury or
loss as a result of a prohibited practice under [the Maryland Consumer Protection Act].”);
Stagikas v. Saxon Mortg. Services, Inc., 795 F. Supp. 2d 129, 137 (D. Mass. 2011) (“The
complaint also alleges several injuries resulting from defendant’s allegedly deceptive
representations about plaintiff’s HAMP eligibility, including increased interest on the debt, a
negative impact on plaintiff’s credit history, and the loss of other economic benefits of the loan
modification. That is enough to sustain a claim of injury under [the Massachusetts Consumer
Protection Act].) (internal citation omitted).” Wigod, 673 F.3d at 575, n.14.

29

that these injuries alleged under the FDCPA and MCPA find a proper remedy in actual
damages.
¶59 We do not find error with the District Court’s damage award because it is
reasonable compensation for the substantial injury and financial detriment suffered by the
Jacobsons. As noted above in ¶ 56, the court calculated damages from the date of the
first defective notice of foreclosure on March 24, 2009, through the second day of trial on
November 22, 2013. The interest charged totaled $172,615.20, and the late charges
totaled $1,792.94. If Bayview was the mortgage holder in this case, we would direct that
the late charges and interest that have accumulated on the mortgage balance since the
date of the first defective notice of foreclosure be subtracted from the present mortgage
balance. However, Bayview is merely the loan servicer; it does not hold the mortgage.
In order that the Jacobsons have the funds necessary to pay down the mortgage balance
by the amount of late charges and accumulated interest, we deem it appropriate to uphold
this aspect of the District Court’s damage award against Bayview. In addition, because
we are remanding to the District Court for a hearing to determine attorney fees on appeal,
the District Court should also take the opportunity on remand to assess any additional late
charges and interest that have accumulated on the debt from November 22, 2013, through
the date of the District Court’s final order following remand.

Emotional Distress Damages

¶60 Under § 30-14-133(1), MCA, the District Court awarded $50,000.00 to the
Jacobsons for emotional distress damages based on testimony from Robin Jacobson

30

“together” with damages for the deceit, stonewalling, and disregard for the Jacobsons
rights. Bayview contests the award claiming the District Court speculated to obtain the
amount of damages without testimony or evidence. The Jacobsons argue that substantial
evidence establishes the damages inflicted by Bayview including the inability to
determine the holder of their Promissory Note or the beneficiary of their Trust Indenture,
and the consequent loss of ability to properly resolve the default.
¶61 Under § 30-14-133(1), MCA, the District Court is granted broad authority to
award, in its discretion, “up to three times the actual damages sustained and may provide
any other equitable relief that it considers necessary or proper.” (Emphasis added.)
Here, the District Court properly awarded damages under the MCPA based upon
testimony regarding the emotional distress of the Jacobsons and on the sum of the
damages “the Jacobsons were forced to endure” as a result of Bayview’s misconduct.
Robin Jacobson’s testimony and the extensive record of Bayview’s misdeeds are
substantial evidence offered by the court to support the damages. Further, we note that
under the FDCPA, witness testimony alone is sufficient to support an award for
emotional distress damages with no requirement for substantial evidence to support the
damages. Zhang v. American Gem Seafoods, Inc., 339 F.3d 1020, 1040 (9th Cir. 2003).
We conclude it was well within the District Court’s discretion to award these damages.

Statutory Damages

¶62 The District Court awarded statutory damages under 15 U.S.C. § 1692k(a)(2)(A)
of $1,000.00 for each of the Jacobsons as individual plaintiffs in the case. Bayview

31

argues the damages are limited to $1,000.00 in any one action under the statute. The
language of subsection 1692k(a)(2)(A) on its face dictates that a debt collector is liable
for a single award of statutory damages per plaintiff per lawsuit. In this case, the District
Court awarded a single award of $1,000.00 for each plaintiff in their lawsuit against
Bayview. Each plaintiff has an individual stake in the lawsuit, and we conclude that the
District Court properly awarded statutory damages to each of the Jacobsons.

Post-Trial Communication Damages

¶63 After trial, the District Court awarded damages under the MCPA of $50,000.00 on
the first post-trial motion and $10,000.00 on the second post-trial motion when Bayview
improperly contacted the Jacobsons about collections and attorney fees on two separate
occasions. Bayview argues that the damages are awarded in error as they are not
supported by “substantial credible” evidence. The Jacobsons accurately contend that
Bayview fails to discuss or analyze the District Court’s additional damage award as its
briefing only raises but does not analyze the issue. Nonetheless, we will briefly address
the issue on the merits.
¶64 Part of the inherent “remedial purpose” of the damage provisions of the MCPA is
to deter inappropriate action against consumers by debt collectors, or in this case, loan
servicing companies. Vader, ¶ 48. An award of damages may benefit the plaintiffs in a
case, but its remedial nature also serves as notice to all that violations of the MCPA are
consequential and will not be tolerated.

32

¶65 Here, the District Court issued two additional orders in the case. The August 20,
2014 Order was on a Motion for Additional Damages, Equitable Relief, and Sanctions
sought by the Jacobsons because Bayview, after trial, directly contacted them to collect
on the loan and attorney fees in violation of the Judgment in the case, the MCPA, and the
FDCPA. The District Court found for the Jacobsons on the motion and ordered Bayview
to pay $50,000.00 “to further the remedial purposes of the [MCPA].” The second Order
was on a Motion for Contempt of Court by the Jacobsons after Bayview contacted them
again for collection purposes and to inform them that it intended to charge the Jacobsons
for Bayview’s attorney fees related to the case. The District Court found that Bayview’s
actions violated the Small Tract Financing Act, the FDCPA, the MCPA, and the court’s
judgment in the case. The District Court awarded the Jacobsons an additional $10,000.00
as equitable relief under the MCPA.
¶66 The two damage awards are well within the court’s discretion under
§ 30-14-133(1), MCA. The damages serve as a proper deterrent under the Act to stop
Bayview’s improper conduct and to “further the purpose of the [MCPA]” by providing
warning to Bayview and other loan servicers that improper debt collection conduct will
not be tolerated. Vader, ¶ 47. The damages are supported by substantial evidence and
demonstrate a thorough, well-reasoned remedy fashioned by the court. We conclude that
the District Court did not err in awarding damages to the Jacobsons.

33

¶67 4. Whether this Court should award costs and fees to the Jacobsons on appeal.
¶68 The Jacobsons contend that attorney fees are available for consumers who
successfully defend a verdict in their favor under the MCPA. Vader ¶¶ 52-53. They also
argue that the Ninth Circuit Court of Appeals has held that a plaintiff who successfully
defends an FDCPA action is entitled to attorney fees and costs on appeal. Joe v.
Payco-General Am. Credits., 34 F.3d 1072 (9th Cir. 1994). The Jacobsons request that
we remand this matter to the District Court for a determination of reasonable attorney
fees and costs incurred on appeal.
¶69 We have held that, under the MCPA, attorney fees and costs are allowed upon
successful defense of a verdict on appeal. Vader, ¶¶ 50-53. The MCPA states, “[i]n any
action brought under this [Act] the court may award the prevailing party reasonable
attorney fees incurred in prosecuting or defending the action.” Section 30-14-133(3),
MCA; Vader, ¶ 52. In this action, the Jacobsons are entitled to fees and costs because
they necessarily defended the verdict in their favor. Bayview has not objected to an
award of attorney fees and costs on appeal. Accordingly, we remand this matter to the
District Court to determine a reasonable award of attorney fees incurred by the Jacobsons
in the defense of their claims on appeal.

CONCLUSION
¶70 The District Court did not err when it determined that Bayview violated the
FDCPA when it made false representations to the Jacobsons regarding the Trust
Indenture and engaged in unfair trade practices to collect the debt. Bayview violated

34

§ 30-14-103, MCA, because any violation of the FDCPA corresponds with an unfair and
deceptive act or practice in violation of the Act. The District Court properly determined
damages incurred by the Jacobsons as a result of Bayview’s actions and supported those
conclusions with substantial evidence. We conclude that the Jacobsons are entitled to
their attorney fees and costs on appeal because they have necessarily defended the verdict
in their favor under § 30-14-133(3), MCA.
¶71 Affirmed.

/S/ MICHAEL E WHEAT

We Concur:

/S/ MIKE McGRATH
/S/ PATRICIA COTTER
/S/ JAMES JEREMIAH SHEA
/S/ JIM RICE

Justice Jim Rice, concurring.
¶72 I concur in the Court’s opinion.
¶73 The Court holds that Bayview committed numerous “clear violations of the
FDCPA,” Opinion, ¶ 44, and analyzes those violations extensively under Issue 1. I think
it bears repeating that, for procedural reasons, we have not undertaken consideration of
Bayview’s argument that the FDCPA does not apply, as a matter of law, to foreclosure of
secured interests. Thus, the Court’s holdings on that issue rest on the assumption that the
Act applies, which is how we have determined the matter was litigated before the District
Court. If properly raised and preserved, this would be a threshold issue about which, as

35

the parties note, there has been spirited debate in the federal courts. See Gray v. Four
Oak Court Ass’n, Inc., 580 F. Supp. 2d 883, 887 (D. Minn. 2008) (FDCPA’s “definition
of ‘debt collector’ clearly reflects Congress’s intent to distinguish between ‘the collection
of any debts’ and ‘the enforcement of security interests.’”) (citation omitted); Derisme v.
Hunt Leibert Jacobson P.C., 880 F. Supp. 2d 339, 363 (D. Conn. 2012) (“a majority of
courts who have addressed this question have also concluded that foreclosing on a
mortgage does not qualify as debt collection activity for purposes of the FDCPA” and
collecting cases); cf. Kaymark v. Bank of Am., N.A., 783 F.3d 168, 179 (3d Cir. 2015)
(“Nowhere does the FDCPA exclude foreclosure actions from its reach. On the contrary,
foreclosure meets the broad definition of ‘debt collection’ under the FDCPA . . . .”)
(citation omitted). Consequently, resolution of this threshold issue is left for another day.

/S/ JIM RICE

36

Jacobson v Bayview Loan Servicing LLC et al, 2016 MT 101 (May 4, 2016)

TSVETANA YVANOVA, Plaintiff and Appellant,
v.
NEW CENTURY MORTGAGE CORPORATION et al., Defendants and Respondents.

Law Office of Mark F. Didak and Mark F. Didak as Amici Curiae on behalf of Plaintiff and Appellant.

Kamala D. Harris, Attorney General, Nicklas A. Akers, Assistant Attorney General, Michele Van Gelderen and Sanna R. Singer, Deputy Attorneys General, for Attorney General of California as Amicus Curiae on behalf of Plaintiff and Appellant.

Lisa R. Jaskol; Kent Qian; and Hunter Landerholm for Public Counsel, National Housing Law Project and Neighborhood Legal Services of Los Angeles County as Amici Curiae on behalf of Plaintiff and Appellant.

The Sturdevant Law Firm and James C. Sturdevant for National Association of Consumer Advocates and National Consumer Law Center as Amici Curiae on behalf of Plaintiff and Appellant.

The Arkin Law Firm, Sharon J. Arkin; Arbogast Law and David M. Arbogast for Consumer Attorneys of California as Amicus Curiae on behalf of Plaintiff and Appellant.

Houser & Allison, Eric D. Houser, Robert W. Norman, Jr., Patrick S. Ludeman; Bryan Cave, Kenneth Lee Marshall, Nafiz Cekirge, Andrea N. Winternitz and Sarah Samuelson for Defendants and Respondents.

Pfeifer & De La Mora and Michael R. Pfeifer for California Mortgage Bankers Association as Amicus Curiae on behalf of Defendants and Respondents.

Denton US and Sonia Martin for Structured Finance Industry Group, Inc., as Amicus Curiae on behalf of Defendants and Respondents.

Goodwin Proctor, Steven A. Ellis and Nicole S. Tate-Naghi for California Bankers Association as Amicus Curiae on behalf of Defendants and Respondents.

Wright, Finlay & Zak and Jonathan D. Fink for American Legal & Financial Network and United Trustees Association as Amici Curiae on behalf of Defendants and Respondents.

WERDEGAR, J.

The collapse in 2008 of the housing bubble and its accompanying system of home loan securitization led, among other consequences, to a great national wave of loan defaults and foreclosures. One key legal issue arising out of the collapse was whether and how defaulting homeowners could challenge the validity of the chain of assignments involved in securitization of their loans. We granted review in this case to decide one aspect of that question: whether the borrower on a home loan secured by a deed of trust may base an action for wrongful foreclosure on allegations a purported assignment of the note and deed of trust to the foreclosing party bore defects rendering the assignment void.

The Court of Appeal held plaintiff Tsvetana Yvanova could not state a cause of action for wrongful foreclosure based on an allegedly void assignment because she lacked standing to assert defects in the assignment, to which she was not a party. We conclude, to the contrary, that because in a nonjudicial foreclosure only the original beneficiary of a deed of trust or its assignee or agent may direct the trustee to sell the property, an allegation that the assignment was void, and not merely voidable at the behest of the parties to the assignment, will support an action for wrongful foreclosure.

Our ruling in this case is a narrow one. We hold only that a borrower who has suffered a nonjudicial foreclosure does not lack standing to sue for wrongful foreclosure based on an allegedly void assignment merely because he or she was in default on the loan and was not a party to the challenged assignment. We do not hold or suggest that a borrower may attempt to preempt a threatened nonjudicial foreclosure by a suit questioning the foreclosing party’s right to proceed. Nor do we hold or suggest that plaintiff in this case has alleged facts showing the assignment is void or that, to the extent she has, she will be able to prove those facts. Nor, finally, in rejecting defendants’ arguments on standing do we address any of the substantive elements of the wrongful foreclosure tort or the factual showing necessary to meet those elements.

Factual and Procedural Background

This case comes to us on appeal from the trial court’s sustaining of a demurrer. For purposes of reviewing a demurrer, we accept the truth of material facts properly pleaded in the operative complaint, but not contentions, deductions, or conclusions of fact or law. We may also consider matters subject to judicial notice. (Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6.)^[1] To determine whether the trial court should, in sustaining the demurrer, have granted the plaintiff leave to amend, we consider whether on the pleaded and noticeable facts there is a reasonable possibility of an amendment that would cure the complaint’s legal defect or defects. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.)

In 2006, plaintiff executed a deed of trust securing a note for $483,000 on a residential property in Woodland Hills, Los Angeles County. The lender, and beneficiary of the trust deed, was defendant New Century Mortgage Corporation (New Century). New Century filed for bankruptcy on April 2, 2007, and on August 1, 2008, it was liquidated and its assets were transferred to a liquidation trust.

On December 19, 2011, according to the operative complaint, New Century (despite its earlier dissolution) executed a purported assignment of the deed of trust to Deutsche Bank National Trust, as trustee of an investment loan trust the complaint identifies as “Msac-2007 Trust-He-1 Pass Thru Certificates.” We take notice of the recorded assignment, which is in the appellate record. (See fn. 1, ante.) As assignor the recorded document lists New Century; as assignee it lists Deutsche Bank National Trust Company (Deutsche Bank) “as trustee for the registered holder of Morgan Stanley ABS Capital I Inc. Trust 2007-HE1 Mortgage Pass-Through Certificates, Series 2007-HE1” (the Morgan Stanley investment trust). The assignment states it was prepared by Ocwen Loan Servicing, LLC, which is also listed as the contact for both assignor and assignee and as the attorney in fact for New Century. The assignment is dated December 19, 2011, and bears a notation that it was recorded December 30, 2011.

According to the complaint, the Morgan Stanley investment trust to which the deed of trust on plaintiff’s property was purportedly assigned on December 19, 2011, had a closing date (the date by which all loans and mortgages or trust deeds must be transferred to the investment pool) of January 27, 2007.

On August 20, 2012, according to the complaint, Western Progressive, LLC, recorded two documents: one substituting itself for Deutsche Bank as trustee, the other giving notice of a trustee’s sale. We take notice of a substitution of trustee, dated February 28, 2012, and recorded August 20, 2012, replacing Deutsche Bank with Western Progressive, LLC, as trustee on the deed of trust, and of a notice of trustee’s sale dated August 16, 2012, and recorded August 20, 2012.

A recorded trustee’s deed upon sale dated December 24, 2012, states that plaintiff’s Woodland Hills property was sold at public auction on September 14, 2012. The deed conveys the property from Western Progressive, LLC, as trustee, to the purchaser at auction, THR California LLC, a Delaware limited liability company.

Plaintiff’s second amended complaint, to which defendants demurred, pleaded a single count for quiet title against numerous defendants including New Century, Ocwen Loan Servicing, LLC, Western Progressive, LLC, Deutsche Bank, Morgan Stanley Mortgage Capital, Inc., and the Morgan Stanley investment trust. Plaintiff alleged the December 19, 2011, assignment of the deed of trust from New Century to the Morgan Stanley investment trust was void for two reasons: New Century’s assets had previously, in 2008, been transferred to a bankruptcy trustee; and the Morgan Stanley investment trust had closed to new loans in 2007. (The demurrer, of course, does not admit the truth of this legal conclusion; we recite it here only to help explain how the substantive issues in this case were framed.) The superior court sustained defendants’ demurrer without leave to amend, concluding on several grounds that plaintiff could not state a cause of action for quiet title.

The Court of Appeal affirmed the judgment for defendants on their demurrer. The pleaded cause of action for quiet title failed fatally, the court held, because plaintiff did not allege she had tendered payment of her debt. The court went on to discuss the question, on which it had sought and received briefing, of whether plaintiff could, on the facts alleged, amend her complaint to plead a cause of action for wrongful foreclosure.

On the wrongful foreclosure question, the Court of Appeal concluded leave to amend was not warranted. Relying on Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497 (Jenkins), the court held plaintiff’s allegations of improprieties in the assignment of her deed of trust to Deutsche Bank were of no avail because, as an unrelated third party to that assignment, she was unaffected by such deficiencies and had no standing to enforce the terms of the agreements allegedly violated. The court acknowledged that plaintiff’s authority, Glaski v. Bank of America, supra, 218 Cal.App.4th 1079 (Glaski), conflicted with Jenkins on the standing issue, but the court agreed with the reasoning of Jenkins and declined to follow Glaski.

We granted plaintiff’s petition for review, limiting the issue to be briefed and argued to the following: “In an action for wrongful foreclosure on a deed of trust securing a home loan, does the borrower have standing to challenge an assignment of the note and deed of trust on the basis of defects allegedly rendering the assignment void?”

Discussion

I. Deeds of Trust and Nonjudicial Foreclosure

A deed of trust to real property acting as security for a loan typically has three parties: the trustor (borrower), the beneficiary (lender), and the trustee. “The trustee holds a power of sale. If the debtor defaults on the loan, the beneficiary may demand that the trustee conduct a nonjudicial foreclosure sale.” (Biancalana v. T.D. Service Co. (2013) 56 Cal.4th 807, 813.) The nonjudicial foreclosure system is designed to provide the lender-beneficiary with an inexpensive and efficient remedy against a defaulting borrower, while protecting the borrower from wrongful loss of the property and ensuring that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser. (Moeller v. Lien (1994) 25 Cal.App.4th 822, 830.)

The trustee starts the nonjudicial foreclosure process by recording a notice of default and election to sell. (Civ. Code, § 2924, subd. (a)(1).)^[2] After a three-month waiting period, and at least 20 days before the scheduled sale, the trustee may publish, post, and record a notice of sale. (§§ 2924, subd. (a)(2), 2924f, subd. (b).) If the sale is not postponed and the borrower does not exercise his or her rights of reinstatement or redemption, the property is sold at auction to the highest bidder. (§ 2924g, subd. (a); Jenkins, supra, 216 Cal.App.4th at p. 509; Moeller v. Lien, supra, 25 Cal.App.4th at pp. 830-831. Generally speaking, the foreclosure sale extinguishes the borrower’s debt; the lender may recover no deficiency. (Code Civ. Proc., § 580d; Dreyfuss v. Union Bank of California (2000) 24 Cal.4th 400, 411.)

The trustee of a deed of trust is not a true trustee with fiduciary obligations, but acts merely as an agent for the borrower-trustor and lender-beneficiary. (Biancalana v. T.D. Service Co., supra, 56 Cal.4th at p. 819; Vournas v. Fidelity Nat. Tit. Ins. Co. (1999) 73 Cal.App.4th 668, 677.) While it is the trustee who formally initiates the nonjudicial foreclosure, by recording first a notice of default and then a notice of sale, the trustee may take these steps only at the direction of the person or entity that currently holds the note and the beneficial interest under the deed of trust—the original beneficiary or its assignee—or that entity’s agent. (§ 2924, subd. (a)(1) [notice of default may be filed for record only by “[t]he trustee, mortgagee, or beneficiary”]; Kachlon v. Markowitz (2008) 168 Cal.App.4th 316, 334 [when borrower defaults on the debt, “the beneficiary may declare a default and make a demand on the trustee to commence foreclosure”]; Santens v. Los Angeles Finance Co. (1949) 91 Cal.App.2d 197, 202 [only a person entitled to enforce the note can foreclose on the deed of trust].)

Defendants emphasize, correctly, that a borrower can generally raise no objection to assignment of the note and deed of trust. A promissory note is a negotiable instrument the lender may sell without notice to the borrower. (Creative Ventures, LLC v. Jim Ward & Associates (2011) 195 Cal.App.4th 1430, 1445-1446.) The deed of trust, moreover, is inseparable from the note it secures, and follows it even without a separate assignment. (§ 2936; Cockerell v. Title Ins. & Trust Co. (1954) 42 Cal.2d 284, 291; U.S. v. Thornburg (9th Cir. 1996) 82 F.3d 886, 892.) In accordance with this general law, the note and deed of trust in this case provided for their possible assignment.

A deed of trust may thus be assigned one or multiple times over the life of the loan it secures. But if the borrower defaults on the loan, only the current beneficiary may direct the trustee to undertake the nonjudicial foreclosure process. “[O]nly the `true owner’ or `beneficial holder’ of a Deed of Trust can bring to completion a nonjudicial foreclosure under California law.” (Barrionuevo v. Chase Bank, N.A. (N.D.Cal. 2012) 885 F.Supp.2d 964, 972; see Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1378 [bank and reconveyance company failed to establish they were current beneficiary and trustee, respectively, and therefore failed to show they “had authority to conduct the foreclosure sale”]; cf. U.S. Bank Nat. Assn. v. Ibanez (Mass. 2011) 941 N.E.2d 40, 51 [under Mass. law, only the original mortgagee or its assignee may conduct nonjudicial foreclosure sale].)

In itself, the principle that only the entity currently entitled to enforce a debt may foreclose on the mortgage or deed of trust securing that debt is not, or at least should not be, controversial. It is a “straightforward application[] of well-established commercial and real-property law: a party cannot foreclose on a mortgage unless it is the mortgagee (or its agent).” (Levitin, The Paper Chase: Securitization, Foreclosure, and the Uncertainty of Mortgage Title (2013) 63 Duke L.J. 637, 640.) Describing the copious litigation arising out of the recent foreclosure crisis, a pair of commentators explained: “While plenty of uncertainty existed, one concept clearly emerged from litigation during the 2008-2012 period: in order to foreclose a mortgage by judicial action, one had to have the right to enforce the debt that the mortgage secured. It is hard to imagine how this notion could be controversial.” (Whitman & Milner, Foreclosing on Nothing: The Curious Problem of the Deed of Trust Foreclosure Without Entitlement to Enforce the Note (2013) 66 Ark. L.Rev. 21, 23, fn. omitted.)

More subject to dispute is the question presented here: under what circumstances, if any, may the borrower challenge a nonjudicial foreclosure on the ground that the foreclosing party is not a valid assignee of the original lender? Put another way, does the borrower have standing to challenge the validity of an assignment to which he or she was not a party?^[3] We proceed to that issue.

II. Borrower Standing to Challenge an Assignment as Void

A beneficiary or trustee under a deed of trust who conducts an illegal, fraudulent or willfully oppressive sale of property may be liable to the borrower for wrongful foreclosure. (Chavez v. Indymac Mortgage Services (2013) 219 Cal.App.4th 1052, 1062; Munger v. Moore (1970) 11 Cal.App.3d 1, 7.)^[4] A foreclosure initiated by one with no authority to do so is wrongful for purposes of such an action. (Barrionuevo v. Chase Bank, N.A., supra, 885 F.Supp.2d at pp. 973-974; Ohlendorf v. American Home Mortgage Servicing (E.D.Cal. 2010) 279 F.R.D. 575, 582-583.) As explained in part I, ante, only the original beneficiary, its assignee or an agent of one of these has the authority to instruct the trustee to initiate and complete a nonjudicial foreclosure sale. The question is whether and when a wrongful foreclosure plaintiff may challenge the authority of one who claims it by assignment.

In Glaski, supra, 218 Cal.App.4th 1079, 1094-1095, the court held a borrower may base a wrongful foreclosure claim on allegations that the foreclosing party acted without authority because the assignment by which it purportedly became beneficiary under the deed of trust was not merely voidable but void. Before discussing Glaski‘s holdings and rationale, we review the distinction between void and voidable transactions.

A void contract is without legal effect. (Rest.2d Contracts, § 7, com. a.) “It binds no one and is a mere nullity.” (Little v. CFS Service Corp. (1987) 188 Cal.App.3d 1354, 1362.) “Such a contract has no existence whatever. It has no legal entity for any purpose and neither action nor inaction of a party to it can validate it. . . .” (Colby v. Title Ins. and Trust Co. (1911) 160 Cal. 632, 644.) As we said of a fraudulent real property transfer in First Nat. Bank of L. A. v. Maxwell (1899) 123 Cal. 360, 371, “`A void thing is as no thing.'”

A voidable transaction, in contrast, “is one where one or more parties have the power, by a manifestation of election to do so, to avoid the legal relations created by the contract, or by ratification of the contract to extinguish the power of avoidance.” (Rest.2d Contracts, § 7.) It may be declared void but is not void in itself. (Little v. CFS Service Corp., supra, 188 Cal.App.3d at p. 1358.) Despite its defects, a voidable transaction, unlike a void one, is subject to ratification by the parties. (Rest.2d Contracts, § 7; Aronoff v. Albanese (N.Y.App.Div. 1982) 446 N.Y.S.2d 368, 370.)

In Glaski, the foreclosing entity purportedly acted for the current beneficiary, the trustee of a securitized mortgage investment trust.^[5] The plaintiff, seeking relief from the allegedly wrongful foreclosure, claimed his note and deed of trust had never been validly assigned to the securitized trust because the purported assignments were made after the trust’s closing date. (Glaski, supra, 218 Cal.App.4th at pp. 1082-1087.)

The Glaski court began its analysis of wrongful foreclosure by agreeing with a federal district court that such a cause of action could be made out “`where a party alleged not to be the true beneficiary instructs the trustee to file a Notice of Default and initiate nonjudicial foreclosure.'” (Glaski, supra, 218 Cal.App.4th at p. 1094, quoting Barrionuevo v. Chase Bank, N.A., supra, 885 F.Supp.2d at p. 973.) But the wrongful foreclosure plaintiff, Glaski cautioned, must do more than assert a lack of authority to foreclose; the plaintiff must allege facts “show[ing] the defendant who invoked the power of sale was not the true beneficiary.” (Glaski, at p. 1094.)

Acknowledging that a borrower’s assertion that an assignment of the note and deed of trust is invalid raises the question of the borrower’s standing to challenge an assignment to which the borrower is not a party, the Glaski court cited several federal court decisions for the proposition that a borrower has standing to challenge such an assignment as void, though not as voidable. (Glaski, supra, 218 Cal.App.4th at pp. 1094-1095.) Two of these decisions, Culhane v. Aurora Loan Services of Nebraska (1st Cir. 2013) 708 F.3d 282 (Culhane) and Reinagel v. Deutsche Bank Nat. Trust Co. (5th Cir. 2013) 735 F.3d 220 (Reinagel),^[6] discussed standing at some length; we will examine them in detail in a moment.

Glaski adopted from the federal decisions and a California treatise the view that “a borrower can challenge an assignment of his or her note and deed of trust if the defect asserted would void the assignment” not merely render it voidable. (Glaski, supra, 218 Cal.App.4th at p. 1095.) Cases holding that a borrower may never challenge an assignment because the borrower was neither a party to nor a third party beneficiary of the assignment agreement “`paint with too broad a brush'” by failing to distinguish between void and voidable agreements. (Ibid., quoting Culhane, supra, 708 F.3d at p. 290.)

The Glaski court went on to resolve the question of whether the plaintiff had pled a defect in the chain of assignments leading to the foreclosing party that would, if true, render one of the necessary assignments void rather than voidable. (Glaski, supra, 218 Cal.App.4th at p. 1095.) On this point, Glaski held allegations that the plaintiff’s note and deed of trust were purportedly transferred into the trust after the trust’s closing date were sufficient to plead a void assignment and hence to establish standing. (Glaski, at pp. 1096-1098.) This last holding of Glaski is not before us. On granting plaintiff’s petition for review, we limited the scope of our review to whether “the borrower [has] standing to challenge an assignment of the note and deed of trust on the basis of defects allegedly rendering the assignment void.” We did not include in our order the question of whether a postclosing date transfer into a New York securitized trust is void or merely voidable, and though the parties’ briefs address it, we express no opinion on the question here.

Returning to the question that is before us, we consider in more detail the authority Glaski relied on for its standing holding. In Culhane, a Massachusetts home loan borrower sought relief from her nonjudicial foreclosure on the ground that the assignment by which Aurora Loan Services of Nebraska (Aurora) claimed authority to foreclose—a transfer of the mortgage from Mortgage Electronic Registration Systems, Inc. (MERS),^[7] to Aurora—was void because MERS never properly held the mortgage. (Culhane, supra, 708 F.3d at pp. 286-288, 291.)

Before addressing the merits of the plaintiff’s allegations, the Culhane court considered Aurora’s contention the plaintiff lacked standing to challenge the assignment of her mortgage from MERS to Aurora. On this question, the court first concluded the plaintiff had a sufficient personal stake in the outcome, having shown a concrete and personalized injury resulting from the challenged assignment: “The action challenged here relates to Aurora’s right to foreclose by virtue of the assignment from MERS. The identified harm—the foreclosure—can be traced directly to Aurora’s exercise of the authority purportedly delegated by the assignment.” (Culhane, supra, 708 F.3d at pp. 289-290.)

Culhane next considered whether the prudential principle that a litigant should not be permitted to assert the rights and interest of another dictates that borrowers lack standing to challenge mortgage assignments as to which they are neither parties nor third party beneficiaries. (Culhane, supra, 708 F.3d at p. 290.) Two aspects of Massachusetts law on nonjudicial foreclosure persuaded the court such a broad rule is unwarranted. First, only the mortgagee (that is, the original lender or its assignee) may exercise the power of sale,^[8] and the borrower is entitled to relief from foreclosure by an unauthorized party. (Culhane, at p. 290.) Second, in a nonjudicial foreclosure the borrower has no direct opportunity to challenge the foreclosing entity’s authority in court. Without standing to sue for relief from a wrongful foreclosure, “a Massachusetts mortgagor would be deprived of a means to assert her legal protections. . . .” (Ibid.) These considerations led the Culhane court to conclude “a mortgagor has standing to challenge the assignment of a mortgage on her home to the extent that such a challenge is necessary to contest a foreclosing entity’s status qua mortgagee.” (Id. at p. 291.)

The court immediately cautioned that its holding was limited to allegations of a void transfer. If, for example, the assignor had no interest to assign or had no authority to make the particular assignment, “a challenge of this sort would be sufficient to refute an assignee’s status qua mortgagee.” (Culhane, supra, 708 F.3d at p. 291.) But where the alleged defect in an assignment would “render it merely voidable at the election of one party but otherwise effective to pass legal title,” the borrower has no standing to challenge the assignment on that basis. (Ibid.)^[9]

In Reinagel, upon which the Glaski court also relied, the federal court held that under Texas law borrowers defending against a judicial foreclosure have standing to “`challenge the chain of assignments by which a party claims a right to foreclose.'” (Reinagel, supra, 735 F.3d at p. 224.) Though Texas law does not allow a nonparty to a contract to enforce the contract unless he or she is an intended third-party beneficiary, the borrowers in this situation “are not attempting to enforce the terms of the instruments of assignment; to the contrary, they urge that the assignments are void ab initio.” (Id. at p. 225.)

Like Culhane, Reinagel distinguished between defects that render a transaction void and those that merely make it voidable at a party’s behest. “Though `the law is settled’ in Texas that an obligor cannot defend against an assignee’s efforts to enforce the obligation on a ground that merely renders the assignment voidable at the election of the assignor, Texas courts follow the majority rule that the obligor may defend `on any ground which renders the assignment void.'” (Reinagel, supra, 735 F.3d at p. 225.) The contrary rule would allow an institution to foreclose on a borrower’s property “though it is not a valid party to the deed of trust or promissory note. . . .” (Ibid.)^[10]

Jenkins, on which the Court of Appeal below relied, was decided close in time to Glaski (neither decision discusses the other) but reaches the opposite conclusion on standing. In Jenkins, the plaintiff sued to prevent a foreclosure sale that had not yet occurred, alleging the purported beneficiary who sought the sale held no security interest because a purported transfer of the loan into a securitized trust was made in violation of the pooling and servicing agreement that governed the investment trust. (Jenkins, supra, 216 Cal.App.4th at pp. 504-505.)

The appellate court held a demurrer to the plaintiff’s cause of action for declaratory relief was properly sustained for two reasons. First, Jenkins held California law did not permit a “preemptive judicial action[] to challenge the right, power, and authority of a foreclosing `beneficiary’ or beneficiary’s `agent’ to initiate and pursue foreclosure.” (Jenkins, supra, 216 Cal.App.4th at p. 511.) Relying primarily on Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, Jenkins reasoned that such preemptive suits are inconsistent with California’s comprehensive statutory scheme for nonjudicial foreclosure; allowing such a lawsuit “`would fundamentally undermine the nonjudicial nature of the process and introduce the possibility of lawsuits filed solely for the purpose of delaying valid foreclosures.'” (Jenkins, at p. 513, quoting Gomes at p. 1155.)

This aspect of Jenkins, disallowing the use of a lawsuit to preempt a nonjudicial foreclosure, is not within the scope of our review, which is limited to a borrower’s standing to challenge an assignment in an action seeking remedies for wrongful foreclosure. As framed by the proceedings below, the concrete question in the present case is whether plaintiff should be permitted to amend her complaint to seek redress, in a wrongful foreclosure count, for the trustee’s sale that has already taken place. We do not address the distinct question of whether, or under what circumstances, a borrower may bring an action for injunctive or declaratory relief to prevent a foreclosure sale from going forward.

Second, as an alternative ground, Jenkins held a demurrer to the declaratory relief claim was proper because the plaintiff had failed to allege an actual controversy as required by Code of Civil Procedure section 1060. (Jenkins, supra, 216 Cal.App.4th at p. 513.) The plaintiff did not dispute that her loan could be assigned or that she had defaulted on it and remained in arrears. (Id. at p. 514.) Even if one of the assignments of the note and deed of trust was improper in some respect, the appellate court reasoned, “Jenkins is not the victim of such invalid transfer[] because her obligations under the note remained unchanged. Instead, the true victim may be an individual or entity that believes it has a present beneficial interest in the promissory note and may suffer the unauthorized loss of its interest in the note.” (Id. at p. 515.) In particular, the plaintiff could not complain about violations of the securitized trust’s transfer rules: “As an unrelated third party to the alleged securitization, and any other subsequent transfers of the beneficial interest under the promissory note, Jenkins lacks standing to enforce any agreements, including the investment trust’s pooling and servicing agreement, relating to such transactions.” (Ibid.)

For its conclusion on standing, Jenkins cited In re Correia (Bankr. 1st Cir. 2011) 452 B.R. 319. The borrowers in that case challenged a foreclosure on the ground that the assignment of their mortgage into a securitized trust had not been made in accordance with the trust’s pooling and servicing agreement (PSA). (Id. at pp. 321-322.) The appellate court held the borrowers “lacked standing to challenge the mortgage’s chain of title under the PSA.” (Id. at p. 324.) Being neither parties nor third party beneficiaries of the pooling agreement, they could not complain of a failure to abide by its terms. (Ibid.)

Jenkins also cited Herrera v. Federal National Mortgage Assn. (2012) 205 Cal.App.4th 1495, which primarily addressed the merits of a foreclosure challenge, concluding the borrowers had adduced no facts on which they could allege an assignment from MERS to another beneficiary was invalid. (Id. at pp. 1502-1506.) In reaching the merits, the court did not explicitly discuss the plaintiffs’ standing to challenge the assignment. In a passage cited in Jenkins, however, the court observed that the plaintiffs, in order to state a wrongful foreclosure claim, needed to show prejudice, and they could not do so because the challenged assignment did not change their obligations under the note. (Herrera, at pp. 1507-1508.) Even if MERS lacked the authority to assign the deed of trust, “the true victims were not plaintiffs but the lender.” (Id. at p. 1508.)

On the narrow question before us—whether a wrongful foreclosure plaintiff may challenge an assignment to the foreclosing entity as void—we conclude Glaski provides a more logical answer than Jenkins. As explained in part I, ante, only the entity holding the beneficial interest under the deed of trust—the original lender, its assignee, or an agent of one of these—may instruct the trustee to commence and complete a nonjudicial foreclosure. (§ 2924, subd. (a)(1); Barrionuevo v. Chase Bank, N.A., supra, 885 F.Supp.2d at p. 972.) If a purported assignment necessary to the chain by which the foreclosing entity claims that power is absolutely void, meaning of no legal force or effect whatsoever (Colby v. Title Ins. and Trust Co., supra, 160 Cal. at p. 644; Rest.2d Contracts, § 7, com. a), the foreclosing entity has acted without legal authority by pursuing a trustee’s sale, and such an unauthorized sale constitutes a wrongful foreclosure. (Barrionuevo v. Chase Bank, N.A., at pp. 973-974.)

Like the Massachusetts borrowers considered in Culhane, whose mortgages contained a power of sale allowing for nonjudicial foreclosure, California borrowers whose loans are secured by a deed of trust with a power of sale may suffer foreclosure without judicial process and thus “would be deprived of a means to assert [their] legal protections” if not permitted to challenge the foreclosing entity’s authority through an action for wrongful foreclosure. (Culhane, supra, 708 F.3d at p. 290.) A borrower therefore “has standing to challenge the assignment of a mortgage on her home to the extent that such a challenge is necessary to contest a foreclosing entity’s status qua mortgagee” (id. at p. 291)—that is, as the current holder of the beneficial interest under the deed of trust. (Accord, Wilson v. HSBC Mortgage Servs., Inc. (1st Cir. 2014) 744 F.3d 1, 9 [“A homeowner in Massachusetts—even when not a party to or third party beneficiary of a mortgage assignment—has standing to challenge that assignment as void because success on the merits would prove the purported assignee is not, in fact, the mortgagee and therefore lacks any right to foreclose on the mortgage.”].)^[11]

Jenkins and other courts denying standing have done so partly out of concern with allowing a borrower to enforce terms of a transfer agreement to which the borrower was not a party. In general, California law does not give a party personal standing to assert rights or interests belonging solely to others.^[12] (See Code Civ. Proc., § 367 [action must be brought by or on behalf of the real party in interest]; Jasmine Networks, Inc. v. Superior Court (2009) 180 Cal.App.4th 980, 992.) When an assignment is merely voidable, the power to ratify or avoid the transaction lies solely with the parties to the assignment; the transaction is not void unless and until one of the parties takes steps to make it so. A borrower who challenges a foreclosure on the ground that an assignment to the foreclosing party bore defects rendering it voidable could thus be said to assert an interest belonging solely to the parties to the assignment rather than to herself.

When the plaintiff alleges a void assignment, however, the Jenkins court’s concern with enforcement of a third party’s interests is misplaced. Borrowers who challenge the foreclosing party’s authority on the grounds of a void assignment “are not attempting to enforce the terms of the instruments of assignment; to the contrary, they urge that the assignments are void ab initio.” (Reinagel, supra, 735 F.3d at p. 225; accord, Mruk v. Mortgage Elec. Registration Sys., Inc. (R.I. 2013) 82 A.3d 527, 536 [borrowers challenging an assignment as void “are not attempting to assert the rights of one of the contracting parties; instead, the homeowners are asserting their own rights not to have their homes unlawfully foreclosed upon”].)

Unlike a voidable transaction, a void one cannot be ratified or validated by the parties to it even if they so desire. (Colby v. Title Ins. and Trust Co., supra, 160 Cal. at p. 644; Aronoff v. Albanese, supra, 446 N.Y.S.2d at p. 370.) Parties to a securitization or other transfer agreement may well wish to ratify the transfer agreement despite any defects, but no ratification is possible if the assignment is void ab initio. In seeking a finding that an assignment agreement was void, therefore, a plaintiff in Yvanova’s position is not asserting the interests of parties to the assignment; she is asserting her own interest in limiting foreclosure on her property to those with legal authority to order a foreclosure sale. This, then, is not a situation in which standing to sue is lacking because its “sole object . . . is to settle rights of third persons who are not parties.” (Golden Gate Bridge etc. Dist. v. Felt (1931) 214 Cal. 308, 316.)

Defendants argue a borrower who is in default on his or her loan suffers no prejudice from foreclosure by an unauthorized party, since the actual holder of the beneficial interest on the deed of trust could equally well have foreclosed on the property. As the Jenkins court put it, when an invalid transfer of a note and deed of trust leads to foreclosure by an unauthorized party, the “victim” is not the borrower, whose obligations under the note are unaffected by the transfer, but “an individual or entity that believes it has a present beneficial interest in the promissory note and may suffer the unauthorized loss of its interest in the note.” (Jenkins, supra, 216 Cal.App.4th at p. 515; see also Siliga v. Mortgage Electronic Registration Systems, Inc. (2013) 219 Cal.App.4th 75, 85 [borrowers had no standing to challenge assignment by MERS where they do not dispute they are in default and “there is no reason to believe . . . the original lender would have refrained from foreclosure in these circumstances”]; Fontenot v. Wells Fargo Bank, N.A., supra, 198 Cal.App.4th at p. 272 [wrongful foreclosure plaintiff could not show prejudice from allegedly invalid assignment by MERS as the assignment “merely substituted one creditor for another, without changing her obligations under the note”].)

In deciding the limited question on review, we are concerned only with prejudice in the sense of an injury sufficiently concrete and personal to provide standing, not with prejudice as a possible element of the wrongful foreclosure tort. (See fn. 4, ante.) As it relates to standing, we disagree with defendants’ analysis of prejudice from an illegal foreclosure. A foreclosed-upon borrower clearly meets the general standard for standing to sue by showing an invasion of his or her legally protected interests (Angelucci v. Century Supper Club (2007) 41 Cal.4th 160, 175)—the borrower has lost ownership to the home in an allegedly illegal trustee’s sale. (See Culhane, supra, 708 F.3d at p. 289 [foreclosed-upon borrower has sufficient personal stake in action against foreclosing entity to meet federal standing requirement].) Moreover, the bank or other entity that ordered the foreclosure would not have done so absent the allegedly void assignment. Thus “[t]he identified harm—the foreclosure—can be traced directly to [the foreclosing entity’s] exercise of the authority purportedly delegated by the assignment.” (Culhane, at p. 290.)

Nor is it correct that the borrower has no cognizable interest in the identity of the party enforcing his or her debt. Though the borrower is not entitled to object to an assignment of the promissory note, he or she is obligated to pay the debt, or suffer loss of the security, only to a person or entity that has actually been assigned the debt. (See Cockerell v. Title Ins. & Trust Co., supra, 42 Cal.2d at p. 292 [party claiming under an assignment must prove fact of assignment].) The borrower owes money not to the world at large but to a particular person or institution, and only the person or institution entitled to payment may enforce the debt by foreclosing on the security.

It is no mere “procedural nicety,” from a contractual point of view, to insist that only those with authority to foreclose on a borrower be permitted to do so. (Levitin, The Paper Chase: Securitization, Foreclosure, and the Uncertainty of Mortgage Title, supra, 63 Duke L.J. at p. 650.) “Such a view fundamentally misunderstands the mortgage contract. The mortgage contract is not simply an agreement that the home may be sold upon a default on the loan. Instead, it is an agreement that if the homeowner defaults on the loan, the mortgagee may sell the property pursuant to the requisite legal procedure.” (Ibid., italics added and omitted.)

The logic of defendants’ no-prejudice argument implies that anyone, even a stranger to the debt, could declare a default and order a trustee’s sale—and the borrower would be left with no recourse because, after all, he or she owed the debt to someone, though not to the foreclosing entity. This would be an “odd result” indeed. (Reinagel, supra, 735 F.3d at p. 225.) As a district court observed in rejecting the no-prejudice argument, “[b]anks are neither private attorneys general nor bounty hunters, armed with a roving commission to seek out defaulting homeowners and take away their homes in satisfaction of some other bank’s deed of trust.” (Miller v. Homecomings Financial, LLC (S.D.Tex. 2012) 881 F.Supp.2d 825, 832.)

Defendants note correctly that a plaintiff in Yvanova’s position, having suffered an allegedly unauthorized nonjudicial foreclosure of her home, need not now fear another creditor coming forward to collect the debt. The home can only be foreclosed once, and the trustee’s sale extinguishes the debt. (Code Civ. Proc., § 580d; Dreyfuss v. Union Bank of California, supra, 24 Cal.4th at p. 411.) But as the Attorney General points out in her amicus curiae brief, a holding that anyone may foreclose on a defaulting home loan borrower would multiply the risk for homeowners that they might face a foreclosure at some point in the life of their loans. The possibility that multiple parties could each foreclose at some time, that is, increases the borrower’s overall risk of foreclosure.

Defendants suggest that to establish prejudice the plaintiff must allege and prove that the true beneficiary under the deed of trust would have refrained from foreclosing on the plaintiff’s property. Whatever merit this rule would have as to prejudice as an element of the wrongful foreclosure tort, it misstates the type of injury required for standing. A homeowner who has been foreclosed on by one with no right to do so has suffered an injurious invasion of his or her legal rights at the foreclosing entity’s hands. No more is required for standing to sue. (Angelucci v. Century Supper Club, supra, 41 Cal.4th at p. 175.)

Neither Caulfield v. Sanders (1861) 17 Cal. 569 nor Seidell v. Tuxedo Land Co. (1932) 216 Cal. 165, upon which defendants rely, holds or implies a home loan borrower may not challenge a foreclosure by alleging a void assignment. In the first of these cases, we held a debtor on a contract for printing and advertising could not defend against collection of the debt on the ground it had been assigned without proper consultation among the assigning partners and for nominal consideration: “It is of no consequence to the defendant, as it in no respect affects his liability, whether the transfer was made at one time or another, or with or without consideration, or by one or by all the members of the firm.” (Caulfield v. Sanders, at p. 572.) In the second, we held landowners seeking to enjoin a foreclosure on a deed of trust to their land could not do so by challenging the validity of an assignment of the promissory note the deed of trust secured. (Seidell v. Tuxedo Land Co., at pp. 166, 169-170.) We explained that the assignment was made by an agent of the beneficiary, and that despite the landowner’s claim the agent lacked authority for the assignment, the beneficiary “is not now complaining.” (Id. at p. 170.) Neither decision discusses the distinction between allegedly void and merely voidable, and neither negates a borrower’s ability to challenge an assignment of his or her debt as void.

For these reasons, we conclude Glaski, supra, 218 Cal.App.4th 1079, was correct to hold a wrongful foreclosure plaintiff has standing to claim the foreclosing entity’s purported authority to order a trustee’s sale was based on a void assignment of the note and deed of trust. Jenkins, supra, 216 Cal.App.4th 497, spoke too broadly in holding a borrower lacks standing to challenge an assignment of the note and deed of trust to which the borrower was neither a party nor a third party beneficiary. Jenkins‘s rule may hold as to claimed defects that would make the assignment merely voidable, but not as to alleged defects rendering the assignment absolutely void.^[13]

In embracing Glaski‘s rule that borrowers have standing to challenge assignments as void, but not as voidable, we join several courts around the nation. (Wilson v. HSBC Mortgage Servs., Inc., supra, 744 F.3d at p. 9; Reinagel, supra, 735 F.3d at pp. 224-225; Woods v. Wells Fargo Bank, N.A. (1st Cir. 2013) 733 F.3d 349, 354; Culhane, supra, 708 F.3d at pp. 289-291; Miller v. Homecomings Financial, LLC, supra, 881 F.Supp.2d at pp. 831-832; Bank of America Nat. Assn. v. Bassman FBT, LLC, supra, 981 N.E.2d at pp. 7-8; Pike v. Deutsche Bank Nat. Trust Co. (N.H. 2015) 121 A.3d 279, 281; Mruk v. Mortgage Elec. Registration Sys., Inc., supra, 82 A.3d at pp. 534-536; Dernier v. Mortgage Network, Inc. (Vt. 2013) 87 A.3d 465, 473.) Indeed, as commentators on the issue have stated: “[C]ourts generally permit challenges to assignments if such challenges would prove that the assignments were void as opposed to voidable.” (Zacks & Zacks, Not a Party: Challenging Mortgage Assignments (2014) 59 St. Louis U. L.J. 175, 180.)

That several federal courts applying California law have, largely in unreported decisions, agreed with Jenkins and declined to follow Glaski does not alter our conclusion. Neither Khan v. Recontrust Co. (N.D.Cal. 2015) 81 F.Supp.3d 867 nor Flores v. EMC Mort. Co. (E.D.Cal. 2014) 997 F.Supp.2d 1088 adds much to the discussion. In Khan, the district court found the borrower, as a nonparty to the pooling and servicing agreement, lacked standing to challenge a foreclosure on the basis of an unspecified flaw in the loan’s securitization; the court’s opinion does not discuss the distinction between a void assignment and a merely voidable one. (Khan v. Recontrust Co., supra, 81 F.Supp.3d at pp. 872-873.) In Flores, the district court, considering a wrongful foreclosure complaint that lacked sufficient clarity in its allegations including identification of the assignment or assignments challenged, the district court quoted and followed Jenkins‘s reasoning on the borrower’s lack of standing to enforce an agreement to which he or she is not a party, without addressing the application of this reasoning to allegedly void assignments. (Flores v. EMC Mort. Co., supra, at pp. 1103-1105.)

Similarly, the unreported federal decisions applying California law largely fail to grapple with Glaski‘s distinction between void and voidable assignments and tend merely to repeat Jenkins‘s arguments that a borrower, as a nonparty to an assignment, may not enforce its terms and cannot show prejudice when in default on the loan, arguments we have found insufficient with regard to allegations of void assignments. While unreported federal court decisions may be cited in California as persuasive authority (Kan v. Guild Mortgage Co. (2014) 230 Cal.App.4th 736, 744, fn. 3), in this instance they lack persuasive value.

Defendants cite the decision in Rajamin v. Deutsche Bank Nat. Trust Co. (2nd Cir. 2014) 757 F.3d 79 (Rajamin), as a “rebuke” of Glaski. Rajamin‘s expressed disagreement with Glaski, however, was on the question whether, under New York law, an assignment to a securitized trust made after the trust’s closing date is void or merely voidable. (Rajamin, at p. 90.) As explained earlier, that question is outside the scope of our review and we express no opinion as to Glaski‘s correctness on the point.

The Rajamin court did, in an earlier discussion, state generally that borrowers lack standing to challenge an assignment as violative of the securitized trust’s pooling and servicing agreement (Rajamin, supra, 757 F.3d at pp. 85-86), but the court in that portion of its analysis did not distinguish between void and voidable assignments. In a later portion of its analysis, the court “assum[ed] that `standing exists for challenges that contend that the assigning party never possessed legal title,'” a defect the plaintiffs claimed made the assignments void (id. at p. 90), but concluded the plaintiffs had not properly alleged facts to support their voidness theory (id. at pp. 90-91).

Nor do Kan v. Guild Mortgage Co., supra, 230 Cal.App.4th 736, and Siliga v. Mortgage Electronic Registration Systems, Inc., supra, 219 Cal.App.4th 75 (Siliga), which defendants also cite, persuade us Glaski erred in finding borrower standing to challenge an assignment as void. The Kan court distinguished Glaski as involving a postsale wrongful foreclosure claim, as opposed to the preemptive suits involved in Jenkins and Kan itself. (Kan, at pp. 743-744.) On standing, the Kan court noted the federal criticism of Glaski and our grant of review in the present case, but found “no reason to wade into the issue of whether Glaski was correctly decided, because the opinion has no direct applicability to this preforeclosure action.” (Kan, at p. 745.)

Siliga, similarly, followed Jenkins in disapproving a preemptive lawsuit. (Siliga, supra, 219 Cal.App.4th at p. 82.) Without discussing Glaski, the Siliga court also held the borrower plaintiffs failed to show any prejudice from, and therefore lacked standing to challenge, the assignment of their deed of trust to the foreclosing entity. (Siliga, at p. 85.) As already explained, this prejudice analysis misses the mark in the wrongful foreclosure context. When a property has been sold at a trustee’s sale at the direction of an entity with no legal authority to do so, the borrower has suffered a cognizable injury.

In further support of a borrower’s standing to challenge the foreclosing party’s authority, plaintiff points to provisions of the recent legislation known as the California Homeowner Bill of Rights, enacted in 2012 and effective only after the trustee’s sale in this case. (See Leuras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 86, fn. 14.)^[14] Having concluded without reference to this legislation that borrowers do have standing to challenge an assignment as void, we need not decide whether the new provisions provide additional support for that holding.

Plaintiff has alleged that her deed of trust was assigned to the Morgan Stanley investment trust in December 2011, several years after both the securitized trust’s closing date and New Century’s liquidation in bankruptcy, a defect plaintiff claims renders the assignment void. Beyond their general claim a borrower has no standing to challenge an assignment of the deed of trust, defendants make several arguments against allowing plaintiff to plead a cause of action for wrongful foreclosure based on this allegedly void assignment.

Principally, defendants argue the December 2011 assignment of the deed of trust to Deutsche Bank, as trustee for the investment trust, was merely “confirmatory” of a 2007 assignment that had been executed in blank (i.e., without designation of assignee) when the loan was added to the trust’s investment pool. The purpose of the 2011 recorded assignment, defendants assert, was merely to comply with a requirement in the trust’s pooling and servicing agreement that documents be recorded before foreclosures are initiated. An amicus curiae supporting defendants’ position asserts that the general practice in home loan securitization is to initially execute assignments of loans and mortgages or deeds of trust to the trustee in blank and not to record them; the mortgage or deed of trust is subsequently endorsed by the trustee and recorded if and when state law requires. (See Rajamin, supra, 757 F.3d at p. 91.) This claim, which goes not to the legal issue of a borrower’s standing to sue for wrongful foreclosure based on a void assignment, but rather to the factual question of when the assignment in this case was actually made, is outside the limited scope of our review. The same is true of defendants’ remaining factual claims, including that the text of the investment trust’s pooling and servicing agreement demonstrates plaintiff’s deed of trust was assigned to the trust before it closed.

Conclusion

We conclude a home loan borrower has standing to claim a nonjudicial foreclosure was wrongful because an assignment by which the foreclosing party purportedly took a beneficial interest in the deed of trust was not merely voidable but void, depriving the foreclosing party of any legitimate authority to order a trustee’s sale. The Court of Appeal took the opposite view and, solely on that basis, concluded plaintiff could not amend her operative complaint to plead a cause of action for wrongful foreclosure. We must therefore reverse the Court of Appeal’s judgment and allow that court to reconsider the question of an amendment to plead wrongful foreclosure. We express no opinion on whether plaintiff has alleged facts showing a void assignment, or on any other issue relevant to her ability to state a claim for wrongful foreclosure.

Disposition

The judgment of the Court of Appeal is reversed and the matter is remanded to that court for further proceedings consistent with our opinion.

Cantil-Sakauye, C. J., Corrigan, J., Liu, J., Cuéllar, J., Kruger, J. and Huffman, J.^[*], concurs.

[1] The superior court granted defendants’ request for judicial notice of the recorded deed of trust, assignment of the deed of trust, substitution of trustee, notices of default and of trustee’s sale, and trustee’s deed upon sale. The existence and facial contents of these recorded documents were properly noticed in the trial court under Evidence Code sections 452, subdivisions (c) and (h), and 453. (See Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264-266.) Under Evidence Code section 459, subdivision (a), notice by this court is therefore mandatory. We therefore take notice of their existence and contents, though not of disputed or disputable facts stated therein. (See Glaski v. Bank of America (2013) 218 Cal.App.4th 1079, 1102.)

[2] All further unspecified statutory references are to the Civil Code.

[3] Somewhat confusingly, both the purported assignee’s authority to foreclose and the borrower’s ability to challenge that authority have been framed as questions of “standing.” (See, e.g., Levitin, The Paper Chase: Securitization, Foreclosure, and the Uncertainty of Mortgage Title, supra, 63 Duke L.J. at p. 644 [discussing purported assignee’s “standing to foreclose”]; Jenkins, supra, 216 Cal.App.4th at p. 515 [borrower lacks “standing to enforce [assignment] agreements” to which he or she is not a party]; Bank of America Nat. Assn. v. Bassman FBT, LLC (Ill.App. Ct. 2012) 981 N.E.2d 1, 7 [“Each party contends that the other lacks standing.”].) We use the term here in the latter sense of a borrower’s legal authority to challenge the validity of an assignment.

[4] It has been held that, at least when seeking to set aside the foreclosure sale, the plaintiff must also show prejudice and a tender of the amount of the secured indebtedness, or an excuse of tender. (Chavez v. Indymac Mortgage Services, supra, 219 Cal.App.4th at p. 1062.) Tender has been excused when, among other circumstances, the plaintiff alleges the foreclosure deed is facially void, as arguably is the case when the entity that initiated the sale lacked authority to do so. (Ibid.; In re Cedano (Bankr. 9th Cir. 2012) 470 B.R. 522, 529-530; Lester v. J.P. Morgan Chase Bank (N.D.Cal. 2013) 926 F.Supp.2d 1081, 1093; Barrionuevo v. Chase Bank, N.A., supra, 885 F.Supp.2d 964, 969-970.) Our review being limited to the standing question, we express no opinion as to whether plaintiff Yvanova must allege tender to state a cause of action for wrongful foreclosure under the circumstances of this case. Nor do we discuss potential remedies for a plaintiff in Yvanova’s circumstances; at oral argument, plaintiff’s counsel conceded she seeks only damages. As to prejudice, we do not address it as an element of wrongful foreclosure. We do, however, discuss whether plaintiff has suffered a cognizable injury for standing purposes.

[5] The mortgage securitization process has been concisely described as follows: “To raise funds for new mortgages, a mortgage lender sells pools of mortgages into trusts created to receive the stream of interest and principal payments from the mortgage borrowers. The right to receive trust income is parceled into certificates and sold to investors, called certificateholders. The trustee hires a mortgage servicer to administer the mortgages by enforcing the mortgage terms and administering the payments. The terms of the securitization trusts as well as the rights, duties, and obligations of the trustee, seller, and servicer are set forth in a Pooling and Servicing Agreement (`PSA’).” (BlackRock Financial Mgmt. v. Ambac Assur. Corp. (2d Cir. 2012) 673 F.3d 169, 173.)

[6] The version of Reinagel cited in Glaski, published at 722 F.3d 700, was amended on rehearing and superseded by Reinagel, supra, 735 F.3d 220.

[7] As the Culhane court explained, MERS was formed by a consortium of residential mortgage lenders and investors to streamline the transfer of mortgage loans and thereby facilitate their securitization. A member lender may name MERS as mortgagee on a loan the member originates or owns; MERS acts solely as the lender’s “nominee,” having legal title but no beneficial interest in the loan. When a loan is assigned to another MERS member, MERS can execute the transfer by amending its electronic database. When the loan is assigned to a nonmember, MERS executes the assignment and ends its involvement. (Culhane, supra, 708 F.3d at p. 287.)

[8] Massachusetts General Laws chapter 183, section 21, similarly to our Civil Code section 2924, provides that the power of sale in a mortgage may be exercised by “the mortgagee or his executors, administrators, successors or assigns.”

[9] On the merits, the Culhane court rejected the plaintiff’s claim that MERS never properly held her mortgage, giving her standing to challenge the assignment from MERS to Aurora as void (Culhane, supra, 708 F.3d at p. 291); the court held MERS’s role as the lender’s nominee allowed it to hold and assign the mortgage under Massachusetts law. (Id. at pp. 291-293.)

[10] The Reinagel court nonetheless rejected the plaintiffs’ claim of an invalid assignment after the closing date of a securitized trust, observing they could not enforce the terms of trust because they were not intended third-party beneficiaries. The court’s holding appears, however, to rest at least in part on its conclusion that a violation of the closing date “would not render the assignments void” but merely allow them to be avoided at the behest of a party or third-party beneficiary. (Reinagel, supra, 735 F.3d at p. 228.) As discussed above in relation to Glaski, that question is not within the scope of our review.

[11] We cite decisions on federal court standing only for their persuasive value in determining what California standing law should be, without any assumption that standing in the two systems is identical. The California Constitution does not impose the same “`case-or-controversy'” limit on state courts’ jurisdiction as article III of the United States Constitution does on federal courts. (Grosset v. Wenaas (2008) 42 Cal.4th 1100, 1117, fn. 13.)

[12] In speaking of personal standing to sue, we set aside such doctrines as taxpayer standing to seek injunctive relief (see Code Civ. Proc., § 526a) and “`”public right/public duty”‘” standing to seek a writ of mandate (see Save the Plastic Bag Coalition v. City of Manhattan Beach (2011) 52 Cal.4th 155, 166).

[13] We disapprove Jenkins v. JPMorgan Chase Bank, N.A., supra, 216 Cal.App.4th 497, Siliga v. Mortgage Electronic Registration Systems, Inc., supra, 219 Cal.App.4th 75, Fontenot v. Wells Fargo Bank, N.A., supra, 198 Cal.App.4th 256, and Herrera v. Federal National Mortgage Assn., supra, 205 Cal.App.4th 1495, to the extent they held borrowers lack standing to challenge an assignment of the deed of trust as void.

[14] Plaintiff cites newly added provisions that prohibit any entity from initiating a foreclosure process “unless it is the holder of the beneficial interest under the mortgage or deed of trust, the original trustee or the substituted trustee under the deed of trust, or the designated agent of the holder of the beneficial interest” (§ 2924, subd. (a)(6)); require the loan servicer to inform the borrower, before a notice of default is filed, of the borrower’s right to request copies of any assignments of the deed of trust “required to demonstrate the right of the mortgage servicer to foreclose” (§ 2923.55, subd. (b)(1)(B)(iii)); and require the servicer to ensure the documentation substantiates the right to foreclose (§ 2924.17, subd. (b)). The legislative history indicates the addition of these provisions was prompted in part by reports that nonjudicial foreclosure proceedings were being initiated on behalf of companies with no authority to foreclose. (See Sen. Rules Com., Conference Rep. on Sen. Bill No. 900 (2011-2012 Reg. Sess.) as amended June 27, 2012, p. 26.)

[*] Associate Justice of the Court of Appeal, Fourth Appellate District, Division One, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.

BRENDAN BRINDISE and SUZANNE BRINDISE, Appellants,
v.
U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE, FOR THE BENEFIT OF HARBORVIEW 2005-3 TRUST FUND; COCO BAY COMMUNITY ASSOCIATION, INC.; and MORTGAGE ELECTRONIC REGISTRATION SYSTEMS INC. AS NOMINEE FOR COUNTRYWIDE HOME LOANS, INC., Appellees.

Nancy M. Wallace of Akerman, LLP, Tallahassee; William P. Heller of Akerman, LLP, Fort Lauderdale; and Rebecca N. Shwayri of Akerman, LLP, Tampa, for Appellee U.S. Bank National Association, as Trustee, for the Benefit of Harborview 2005-3 Trust Fund.

No appearance for remaining Appellees.

LaROSE, Judge.

Brendan and Suzanne Brindise appeal a final foreclosure judgment. They raise but one issue—one that may be of first impression in the district courts of appeal. They claim that the trial court erroneously entered final judgment because, prior to filing suit, U.S. Bank National Association, the holder of the note, failed to give them written notice of the assignment of their mortgage loan as required by section 559.715, Florida Statutes (2012). According to the Brindises, such notice was a condition precedent to suit. The Brindises posit that U.S. Bank’s failure of pleading and proof on this issue barred foreclosure. We have jurisdiction. See Fla. R. App. P. 9.030(b)(1)(A). We affirm the final foreclosure judgment. In doing so, we hold only that providing the notice described in section 559.715 is not a condition precedent to foreclosure.

Background

In 2005, the Brindises took out a loan and signed a promissory note, secured by a mortgage, to buy a home in Lee County. Countrywide Home Loans, Inc., was their lender. Later, U.S. Bank acquired the note by an assignment through a blank indorsement. See § 673.2051(2), Fla. Stat. (2014) (“If an indorsement is made by the holder of an instrument and it is not a special indorsement, it is a `blank indorsement.’ When indorsed in blank, an instrument becomes payable to bearer and may be negotiated by transfer of possession alone until specially indorsed.”). U.S. Bank also became the assignee of the mortgage.

The Brindises stopped making loan payments sometime in 2010. As holder of the note, U.S. Bank filed a foreclosure suit in the fall of 2012.^[1] In addition to foreclosure, U.S. Bank sought a money judgment for the entire accelerated principal due on the note, together with any deficiency after sale, interest, and attorney’s fees. A legend on the bottom of U.S. Bank’s amended complaint states that the lawsuit “is an attempt to collect a debt.”

As a defense to the suit, the Brindises alleged that U.S. Bank failed to give them written notice of assignment as required by section 559.715. The Brindises contend that upon becoming holder of the note through an assignment, and at least thirty days before filing suit, U.S. Bank had to provide written notice to them. The trial court rejected this argument and denied their motion for involuntary dismissal. At the conclusion of a nonjury trial, the trial court entered a final foreclosure judgment in favor of U.S. Bank.

Analysis

Because the parties ask us to interpret a statute, our standard of review is de novo. See W. Fla. Reg’l Med. Ctr., Inc. v. See, 79 So. 3d 1, 8 (Fla. 2012); Fla. Ins. Guar. Ass’n, Inc. v. Lustre, 163 So. 3d 624, 628 (Fla. 2d DCA 2015).

Enacted in 1989, section 559.715 is part of the Florida Consumer Collection Practices Act (FCCPA). See § 559.551. Debt collection practices are also subject to federal oversight under the Fair Debt Collection Practices Act. 15 U.S.C. §§ 1692-1692p (FDCPA). Our brief reference to the federal statute is important because each party relies on any number of federal cases interpreting the FDCPA, an analog to the FCCPA. See § 559.552 (providing that the FCCPA does not limit or restrict the application of the FDCPA; in the event of any inconsistency in the two acts, the more protective for the consumer or debtor prevails). State law does not mandate that the state courts obey federal precedent. Section 559.77(5) provides that “[i]n applying and construing this section, due consideration and great weight shall be given to the interpretations of the Federal Trade Commission and the federal courts relating to the [FDCPA].” Dish Network Serv., L.L.C. v. Myers, 87 So. 3d 72, 77 (Fla. 2d DCA 2012).

Section 559.715 provides as follows:

Assignment of consumer debts. — This part does not prohibit the assignment, by a creditor, of the right to bill and collect a consumer debt. However, the assignee must give the debtor written notice of such assignment as soon as practical after the assignment is made, but at least 30 days before any action to collect the debt. The assignee is a real party in interest and may bring an action to collect a debt that has been assigned to the assignee and is in default.

The legislature intended the statute to streamline the collection of consumer debts. See Fla. S. Comm. on Judiciary, CS for CS for SB 196 (1989) Staff Analysis 1 (Apr. 25, 1989). By allowing the assignment of the right to bill and collect, the statute “permits the consolidation of all claims by various creditors against a particular debtor.” See Fla. H.R. Comm. on Com., HB 1566 (1989) Staff Analysis 1 (June 22, 1989). The salutary result of such consolidation is to reduce the number of lawsuits that collection agencies must pursue. Id. Indeed, the assignment and consolidation process allows a stranger to the initial financing transaction, typically a collection agency, to proceed more efficiently to obtain payment of delinquent obligations from a single debtor for the benefit of multiple creditors. See Fla. S. Comm. on Judiciary, CS for CS for SB 196 (1989) Staff Analysis 1 (Apr. 25, 1989). The written notice of assignment alerts the consumer that the creditor has delegated a right to recover to the assignee. It is not apparent, however, that section 559.715 applies neatly in the mortgage foreclosure context where, more often than not, a single note holder seeks to foreclose on a single mortgage and note upon the mortgagor’s default. The assignee of the note is not a collection agent for others.^[2]

Because section 559.715 applies to consumer debt, the parties battle over whether a foreclosure suit is an effort to collect a consumer debt. The parties jockey almost ceaselessly trying to convince us that a foreclosure action is or is not a debt collection proceeding. On that point, the federal cases to which they cite offer no meaningful consistency. See, e.g., Dunavant v. Sirote & Permutt, P.C., 603 Fed. Appx. 737 (11th Cir. 2015) (holding that publishing mortgage foreclosure notices amounts only to enforcement of a security interest and not a collection of debt for purposes of the FDCPA); Summerlin Asset Mgmt. V Trust v. Jackson, No. 9:14-cv-81302, 2015 WL 4065372 (S.D. Fla. July 2, 2015) (stating that compliance with section 559.715 of the FCCPA is not a condition precedent to the commencement of a mortgage foreclosure action); Reese v. Ellis, Painter, Ratterree & Adams, LLP, 678 F. 3d 1211 (11th Cir. 2012) (noting, in the context of a “dunning” letter from a law firm, that a plausible claim was stated under the FDCPA where it was alleged (1) that the defendant is a “debt collector” and (2) that the challenged conduct is related to debt collection); Birster v. Am. Home Mortg. Servicing, Inc., 481 Fed. Appx. 579 (11th Cir. 2012) (holding that mortgage loan servicer’s conduct supported conclusion that it engaged in debt collection activity, in addition to enforcing a security interest, under FDCPA).

Section 559.55(6)^[3] defines “debt” or “consumer debt” as “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.” Because the Brindises borrowed money to buy a home, they argue that they incurred a consumer debt to which section 559.715 applies.

U.S. Bank does not seriously argue that an effort to collect on a defaulted mortgage loan can never be an attempt to collect a consumer debt. Rather, and despite the admonition in its amended complaint, U.S. Bank contends that the filing of a foreclosure suit, alone, is but an attempt to enforce its security interest in the property.^[4] See, e.g., Dunavant, 603 Fed. Appx. 737 (stating that publication of foreclosure notices amounts only to enforcement of a security instrument and not a debt for purposes of the FDCPA).

Focusing solely on whether the foreclosure suit is an effort to collect a consumer debt, the parties urge us to become ensnared unnecessarily in a briar patch. We need not fight their fight. Even if a foreclosure suit is an effort to collect a consumer debt, several reasons compel us to conclude that the trial court did not err.

First, we examine the statute’s text. Section 559.715 has no language making written notice of assignment a condition precedent to suit. The Legislature, of course, knows how to condition the filing of a lawsuit on some prior occurrence. It has done so, for example, for libel and slander actions. §§ 770.01-.02, Fla. Stat. (2014). Before a victim of alleged medical malpractice can file a negligence suit, the victim must engage in a rigorous presuit investigation and discovery process. §§ 766.203-.206, Fla. Stat. (2014). In the condominium context, the Legislature has mandated that the parties engage in an alternative dispute resolution process before seeking trial court relief. § 718.1255 (4), Fla. Stat. (2014). The Legislature knows how to create a condition precedent. Because the Legislature declined to be more specific when enacting section 559.715, we will not expand the statute to include language the Legislature did not enact.

Second, anticipating the assignment of the right to bill and collect to a third party, section 559.715 provides that the assignee is “a” real party in interest empowered to collect the debt. The open-ended “a” indicates that the assignee is not the only real party in interest. If that were the intent, the Legislature would have referred to “the” real party in interest. Accordingly, the statute reflects that the assignor retains rights against the debtor. The right to bill and collect, thus, does not rest exclusively with the assignee. In such a situation, requiring written notice from the assignee makes perfect sense; notice alerts the debtor that multiple parties may seek to collect a delinquent debt.

The foreclosure suit, here, poses no such concern. Nothing in our record suggests that, upon assignment, U.S. Bank received anything less than the full bundle of rights associated with the Brindises’ mortgage loan. By assignment, U.S. Bank owned the note and the mortgage. The assignor divested itself of any interest in the Brindises’ mortgage loan. U.S. Bank alleged and proved that it held the note at the time it filed suit. On appeal, the Brindises do not challenge U.S. Bank’s standing. Florida law is clear that the note holder has the right to foreclose. See § 673.3011(2), Fla. Stat. (2014); Creadon v. U.S. Bank N.A., 166 So. 3d 952, 954 (Fla. 2d DCA 2015); Mazine v. M & I Bank, 67 So. 3d 1129, 1130 (Fla. 1st DCA 2011). That right exists whether or not another entity services the loan or whether the holder acquired the note by assignment. U.S. Bank is “the” real party in interest.

Third, viewing section 559.715 in the broader context of the FCCPA further undermines the Brindises’ position. The Brindises argue that if compliance with section 559.715 is not a condition precedent to suit, they will have no remedy for the alleged failure to provide notice. Section 559.72 prohibits specified debt collection practices. For example, it prohibits a debt collector from using threats of force or violence, wrongful disclosure of information, abusive or harassing techniques, abusive language, and improper timing of collection phone calls. See, e.g., § 559.72(2), (5), (6), (8), (17); Dish Network, 87 So. 3d at 74 (stating a claim that Dish (1) willfully engaged in conduct that could reasonably be expected to abuse or harass in violation of section 559.72(7), and (2) attempted to collect a debt while knowing that it was not a legitimate debt in violation of section 559.72(9)).^[5] The Brindises do not claim that U.S. Bank engaged in such untoward tactics. If it had, the legislature has created private causes of action for consumers to recover damages and other relief. See § 559.77. Those remedies, however, do not extend to section 559.715. Indeed, the prohibitions in section 559.72 do not include the alleged failure to give notice. But, the FCCPA imposes a sweeping scheme of administrative enforcement. See §§ 559.725, .726, .727, .730, .77, .78, .785. For example, a person who violates any provision of the FCCPA is subject to a cease and desist order. § 559.727. Further, persons registered or required to be registered under section 559.553 are subject to disciplinary action for failure to comply with any provision of the FCCPA. § 559.565. We are unaware if the Brindises availed themselves of these procedures. Nevertheless, we are not prepared to conclude that not applying section 559.715 immunizes an alleged violator as they contend.

The FCCPA prohibits egregious debt collection practices and provides legal remedies to protect consumers from harassing collection efforts. See Summerlin, 2015 WL 4065372, at *4 (stating that the purpose and intent of the FCCPA “is to eliminate abusive and harassing tactics in the collection of debts”). The Brindises have not demonstrated that the mere filing of a foreclosure suit, even one seeking money damages, implicates those concerns. Thus, where administrative enforcement mechanisms exist, making section 559.715 a condition precedent is not necessary to the primary purpose of the FCCPA.

Fourth, with this broader understanding of the FCCPA, we conclude that the Brindises’ reliance on Gann v. BAC Home Loans Servicing LP, 145 So. 3d 906 (Fla. 2d DCA 2014), is misplaced. They contend that Gann compels the conclusion that filing a foreclosure suit constitutes a section 559.715 “action to collect a debt.” But, Gann does not implicate section 559.715. In Gann, a mortgagor sued under the FCCPA, alleging illegal collection practices by a creditor in violation of section 559.72(9), Florida Statutes (2011). 145 So. 3d at 907. Gann held only that the mortgagor stated a cause of action for prelitigation harassing debt collection practices. Id. at 910. The Brindises make no such claim against U.S. Bank.

Fifth, the Brindises’ reliance on Burt v. Hudson & Keyse, LLC, 138 So. 3d 1193 (Fla. 5th DCA 2014), is also off the mark. In that case, the Fifth District reversed entry of summary judgment for a creditor because a material issue of fact remained as to whether the creditor had actually provided the written notice required by section 559.715. Id. at 1194-95. Reading far too much into Burt, the Brindises argue that the case establishes that section 559.715 has been incorporated into the elements of pleading a foreclosure complaint. Burt, however, did not even discuss section 559.715 as a condition precedent to suit. Most significant, Burt involved the assignment of a credit card debt, the quintessential form of consumer debt. See Burt, 138 So. 2d at 1194.

Sixth, the Brindises ignore the fact that the lender could transfer the note without prior notice to them. Specifically, paragraph 20 of the mortgage they executed provides that the note “can be sold one or more times without prior notice to [the Brindises].” As a matter of contract, section 559.715 is inapplicable.

We also find it significant that the Brindises contractually agreed with their lender on the procedure by which they would receive notice of any default and the manner in which the lender could accelerate all payments due. Paragraph 22 of the mortgage specifically provides as follows:

22. Acceleration; Remedies. Lender shall give notice to Borrower prior to acceleration following Borrower’s breach of any covenant or agreement in the Security Instrument . . . The notice shall specify: (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by this Security Instrument, foreclosure by judicial proceeding[,] and sale of the Property. The notice shall further inform Borrower of the right to reinstate after acceleration and the right to assert in the foreclosure proceeding the non-existence of a default or any other defense of Borrower to acceleration and foreclosure. . . .

The Brindises have not argued on appeal that they did not receive the paragraph 22 notice or that the notice was deficient.^[6]

The Brindises entered into a binding contract and must recognize “the unique nature of the mortgage obligation and the continuing obligations of the parties in that relationship.” Singleton, 882 So. 2d at 1007. Under paragraph 20, the Brindises are not entitled to the notice they claim is due under section 559.715. And, in the event of default, they agreed to a notice method independent of section 559.715.

Conclusion

We hold that failure to provide written notice under section 559.715 did not bar U.S. Bank’s foreclosure suit, nor did it create a condition precedent to the institution of the foreclosure suit. Accordingly, we affirm the trial court’s final foreclosure judgment. However, because innumerable foreclosure cases are pending in the trial and district courts where defendants have raised section 559.715 as a bar to foreclosure, we certify to the supreme court the following question as one of great public importance:

IS THE PROVISION OF WRITTEN NOTICE OF ASSIGNMENT UNDER SECTION 559.715 A CONDITION PRECEDENT TO THE INSTITUTION OF A FORECLOSURE LAWSUIT BY THE HOLDER OF THE NOTE?

Affirmed; question certified.

NORTHCUTT, J., Concurs.

KHOUZAM, J., Dissents with opinion.

KHOUZAM, Judge, Dissenting.

I would hold that the plain language of section 559.715 does create a condition precedent to a foreclosure suit. Therefore, in my view, U.S. Bank was required to give the Brindises written notice that it had become the holder of the note through assignment at least thirty days before filing a foreclosure complaint against them. Accordingly, I would reverse the final foreclosure judgment in this case.

“[T]he polestar of statutory construction [is the] plain meaning of the statute at issue.” Dep’t of Transp. v. Mid-Peninsula Realty Inv. Grp., LLC, 171 So. 3d 771, 776 (Fla. 2d DCA 2015) (second alteration in original) (quoting Acosta v. Richter, 671 So. 2d 149, 153 (Fla. 1996)). A reviewing court must look first to the actual language of the statute and give that language its plain and ordinary meaning. Therlonge v. State, 40 Fla. L. Weekly D1646 (Fla. 4th DCA July 15, 2015). Looking at the plain meaning of the statute is the primary way a court should determine legislative intent. State v. Dorsett, 158 So. 3d 557, 560 (Fla. 2015). Only where the language of a statute is unclear or ambiguous should a court use the rules of statutory construction to discern legislative intent. Id. A reviewing court cannot add words that the legislature did not include. Therlonge, 40 Fla. L. Weekly at D1647. “If the words are plain, they give meaning to the act, and it is neither the duty nor the privilege of the courts to enter speculative fields in search of a different meaning.” Glazer v. Chase Home Fin. LLC, 704 F.3d 453, 460 (6th Cir. 2013) (quoting Caminetti v. United States, 242 U.S. 470, 490 (1917)).

The FCCPA does not specifically exclude foreclosure—or, more generally, the enforcement of security interests—from its reach. And a borrower’s obligation under a promissory note in a residential foreclosure suit falls within the broad definition of “consumer debt” contained in section 559.55(6). Though this definition has already been recited by the majority, it is worth repeating here:

“Debt” or “consumer debt” means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.

In the foreclosure context, a borrower is a consumer who is obligated under the promissory note to pay money to the mortgagee. See Reese v. Ellis, Painter, Ratterree & Adams, LLP, 678 F.3d 1211, 1216 (11th Cir. 2012) (interpreting the FDCPA’s definition of a “debt,” which is essentially identical to the definition found in the FCCPA); Glazer, 704 F.3d at 463 (“There can be no serious doubt that the ultimate purpose of foreclosure is the payment of money.”). And this payment obligation arose out of a transaction whose subject is property used primarily for personal, family, or household purposes because the borrower lives on the property. See Reese, 678 F.3d at 1217.

The fact that foreclosure suits have a dual purpose—both the collection of a debt under the promissory note and the enforcement of a security interest under the mortgage—does not prevent them from being a debt collection activity. As this court has acknowledged, “[a] communication related to debt collection does not become unrelated to debt collection simply because it also relates to the enforcement of a security interest. A debt is still a `debt’ even if it is secured.” Gann v. BAC Home Loans Servicing LP, 145 So. 3d 906, 909 (Fla. 2d DCA 2014) (alteration in original) (quoting Reese, 678 F.3d at 1218); see also Birster v. Am. Home Mortg. Servicing, Inc., 481 Fed. Appx. 579, 582 (11th Cir. 2012) (applying Reese and holding that an attempt to enforce a security instrument and collect a debt qualifies as a debt collection activity under the FDCPA) (unpublished opinion); Freire v. Aldridge Connors, LLP, 994 F. Supp. 2d 1284, 1288 (S.D. Fla. 2014) (“Because the foreclosure complaint sought to enforce a promissory note, not solely to enforce a mortgage, and because the foreclosure complaint sought a deficiency judgment, a judgment for an amount beyond the collateral, Defendant sought to collect a debt, and therefore Plaintiffs were the object of debt collection activity.”); Battle v. Gladstone Law Grp., P.A., 951 F. Supp. 2d 1310, 1313 (S.D. Fla. 2013) (“[M]oney owed on a promissory note secured by a mortgage is a debt for purposes of the FDCPA.”). The practical result of holding otherwise would create a huge loophole in the FCCPA because the actions that the act seeks to curtail would not be prohibited so long as the debt in question was secured. See Gann, 145 So. 3d at 909; Reese, 678 F.3d at 1217-18; Birster, 481 Fed. Appx. at 582-83.

Going even further, the very purpose of a mortgage is to secure repayment of a debt and therefore the enforcement of the mortgage itself is a debt collection activity. See Black’s Law Dictionary (10th ed. 2014) (defining “mortgage” as “[a] conveyance of title to property that is given as security for the payment of a debt or the performance of a duty and that will become void upon payment or performance according to the stipulated terms” and “foreclosure” as “[a] legal proceeding to terminate a mortgagor’s interest in property, instituted by the lender (the mortgagee) either to gain title or to force a sale in order to satisfy the unpaid debt secured by the property”); see also Glazer, 704 F.3d at 461 (broadly holding that “mortgage foreclosure is debt collection under the FDCPA” because “every mortgage foreclosure, judicial or otherwise, is undertaken for the very purpose of obtaining payment on the underlying debt, either by persuasion (i.e., forcing a settlement) or compulsion (i.e., obtaining a judgment of foreclosure, selling the home at auction, and applying the proceeds from the sale to pay down the outstanding debt)”). Indeed, U.S. Bank acknowledged in its amended complaint that the foreclosure suit was “an attempt to collect a debt.”

Once we establish that a foreclosure suit is an action to collect a debt to which the FCCPA applies, it becomes clear based on the plain language of section 559.715 that it creates a condition precedent to a foreclosure suit. Section 559.715 provides that an “assignee must give the debtor written notice of [an] assignment as soon as practical after the assignment is made, but at least 30 days before any action to collect the debt” (emphasis added). Though the majority suggests that this language is not specific enough to effectively create a condition precedent, I disagree. It is true that the legislature has, in other areas of the law, created more involved and specific conditions precedent. But that fact does not undermine the clear mandate found in section 559.715 that an assignee must give the debtor written notice of an assignment at least thirty days before taking any action to collect the debt. The majority is correct that the Fifth District’s decision in Burt v. Hudson & Keyse, LLC, 138 So. 3d 1193 (Fla. 5th DCA 2014), is not directly on point because it was an appeal of a final summary judgment and dealt with credit card debt; however, Burt does stand for the proposition that lack of compliance with section 559.715 may, at a minimum, be raised as a defense. Thus, I believe Burt does support the position that section 559.715 creates a condition precedent.

Because the plain language of section 559.715 is clear and unambiguous, the majority’s focus on the broader purpose of the FCCPA is misplaced. See Dorsett, 158 So. 3d at 560 (stating that a court should look primarily at a statute’s plain meaning to determine legislative intent and that a court should only apply rules of statutory construction to determine legislative intent where the plain language of the statute is unclear or ambiguous). However, I also believe that interpreting 559.715 as creating a condition precedent to foreclosure does not conflict with the broader purpose of that section or the FCCPA as a whole.

The majority points out that section 559.715 was intended to streamline the collection of consumer debts by allowing various creditors’ claims against a single debtor to be consolidated and pursued by a collection agency. Accordingly, the majority suggests that the section does not apply in the mortgage foreclosure context because the assignee of the note is generally not a collection agent for others. But the fact that mortgage foreclosure is not the typical scenario to which the statute is applied does not mean that the statute is not applicable to mortgage foreclosure. And there is nothing in the language of the statute itself—or, indeed, the staff analyses that the majority cites— that limits its application to debt collection agencies. Rather, the statute simply permits the assignment of consumer debts and provides that the assignee must give the debtor written notice of the assignment “at least 30 days before any action to collect the debt.”

The majority also cites to the language in section 559.715 stating that the assignee is “a” real party in interest as opposed to “the” real party in interest, suggesting that this word choice shows that this section only applies where the assignor retains some rights. But it seems to me that this language simply allows the assignee to be one of multiple parties who hold an interest; it does not limit the section’s application to scenarios where the assignor has retained some rights.

Next, the majority points out that the Brindises could have sought relief under the sections of the FCCPA that provide for administrative enforcement. For example, section 559.725 provides that consumers’ complaints against debt collectors must be investigated and section 559.727 provides that corrective actions may be taken to remedy violations. But in my view the fact that these procedures were available to the Brindises does not negate the language found in section 559.715 providing for notice as a condition precedent to suit. Moreover, without notice of the assignment, it would be logistically difficult for borrowers like the Brindises to meaningfully pursue these administrative remedies.

Additionally, the majority asserts that making section 559.715 a condition precedent is not necessary to the primary purpose of the FCCPA, which is to protect consumers from abusive and harassing collection efforts. The majority points out that the Brindises do not allege that U.S. Bank engaged in these egregious tactics. But the plain language of section 559.715 reveals that it does not address these egregious tactics that are the primary focus of the FCCPA; rather, section 559.715 allows the assignment of consumer debts and requires assignees to give notice of an assignment.

The majority points out that Paragraph 20 of the mortgage allows the lender to transfer the note without prior notice to the Brindises, concluding that this provision renders section 559.715 inapplicable as a matter of contract law. But section 559.715 does not require notice prior to transfer and therefore does not conflict with Paragraph 20 in any way. Indeed, Paragraph 20 is completely consistent with section 559.715 because it goes on to provide that written notice of a change in loan servicer “will be given” to the borrower and specify that the notice must include “the name and address of the new Loan Servicer, the address to which payments should be made[,] and any other information RESPA [Real Estate Settlement Procedures Act, 12 USC §§ 2601-17] requires in connection with a notice of transfer of servicing.”

Finally, the majority opines that the Brindises are not entitled to a notice under section 559.715 because they received a notice under Paragraph 22 of the mortgage. It is true that Paragraph 22 of the Brindises’ mortgage provides how they would be notified of any default and the manner in which the lender could accelerate all payments due. But Paragraph 22 does not provide for a notice of the assignment of debt, which is the notice that section 559.715 requires. Because Paragraph 22 addresses a completely different notice than section 559.715, a sufficient Paragraph 22 notice cannot substitute for a sufficient notice under section 559.715.

For all of these reasons, I would hold that section 559.715 creates a condition precedent to a foreclosure suit and therefore I would reverse.

NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION AND, IF FILED, DETERMINED.

[1] Although U.S. Bank held the note, our record indicates that Nationstar Mortgage, LLC, has serviced the loan since August 2013. BAC Home Loans Servicing, LP, was a prior servicer.

[2] It does not seem obvious that U.S. Bank would qualify as a collection agency under the FCCPA. See § 559.533(3)(c), (i) (providing that registration requirements for collection agencies do not apply to financial institutions authorized to do business in Florida or to an FDIC insured institution), as amended in 2014, which renumbered the provision, without change, from section 559.553(4) to 559.553(3). 2014 Fla. Sess. Law Serv. Ch. 2014-116.

[3] As amended in 2014, which renumbered the definition provision, without change, from section 559.55(1) to 559.55(6). Ch. 2014-116, Laws of Fla.

[4] Mortgage foreclosures are equitable in nature. § 702.01, Fla. Stat. (2012-2014); see Singleton v. Greymar Assoc., 882 So. 2d 1004, 1005 (Fla. 2004); Clark v. Lachenmeier, 237 So. 2d 583, 585 (Fla. 2d DCA 1970).

[5] Many of the federal cases upon which the Brindises rely include such unlawful conduct by a debt collector or loan servicer. See, e.g., Birster, 481 F. Appx. 579; Lara v. Specialized Loan Servicing, LLC, No. 1:12-cv-24405-UU, 2013 WL 4768004 (S.D. Fla. Sept. 6, 2013).

[6] Although not directly relevant to our decision, we observe that the Brindises have not shown what, if any, prejudice they suffered as a result of receiving no notice under section 559.715. They stopped making payments in 2010. They received the paragraph 22 letter, they appeared and defended in the lawsuit, and the original note was placed in the court file, eliminating the risk of another suit on the same note. We also observe that the paragraph 22 letter gave the Brindises a thirty-day cure period, a breathing period similar to that contained in section 559.715.