REPORT AND RECOMMENDATION ON DEFENDANTS' MOTION TO DISMISS AND MOTION FOR SANCTIONS
ARTHUR J. BOYLAN, Chief Magistrate Judge.
This matter is before the Court, United States Chief Magistrate Judge Arthur J. Boylan, on a Motion to Dismiss by Defendants HSBC Bank USA, N.A. ("HSBC"), as trustee for MortgageIT Securities Corp. Mortgage Loan Trust, Series 2007-2, Mortgage Pass-Through Certificates, Mortgage Electronic Registration Systems, Inc. ("MERS"), and MERSCORP Holdings, Inc. (together, "Defendants") [Docket No. 4] and Defendants' Motion for Sanctions [Docket No. 15]. The matter has been referred to the magistrate judge for report and recommendation to the district court under 28 U.S.C. § 636 and Local Rule 72.1(b). A hearing was held on the motions on August 21, 2013 at the U.S. Courthouse, 300 South Fourth Street, Minneapolis, Minnesota. William Butler appeared on behalf of Plaintiffs. Elizabeth Walker and Charles Webber appeared on behalf of Defendants.
Plaintiffs Jack Simmer and Sheri Simmer seek to invalidate the foreclosure of the mortgage on their home. Plaintiffs assert three claims against Defendants: (1) quiet-title, to determine adverse claims under Minn. Stat. § 559.01; (2) declaratory judgment; and (3) slander of title. For the reasons below, the Court recommends that Defendants' Motion to Dismiss be granted and Plaintiff's claims be dismissed with prejudice. The Court further recommends that Defendants' Motion for Sanctions be denied without prejudice to Defendants' ability to bring the matter before the Honorable James M. Rosenbaum, who has been appointed by the court to investigate appropriate sanctions and/or disciplinary action against Plaintiffs' counsel William Butler.
Plaintiffs reside in and are in possession of real property located in Loretto, Minnesota. (Compl. ¶ 1.) Plaintiffs acquired their interest in the property via warranty deed in 2003. ( Id. at ¶ 2.) On April 27, 2007, Plaintiffs executed and delivered a promissory note to MortgageIt, Inc. ("MortgageIT"). ( Id. at ¶ 6.) The promissory note was secured by a mortgage Plaintiffs executed in favor of MERS, which acted as MortgageIT's nominee. ( Id., Ex. 1.) The Complaint contains no express allegation that Plaintiffs have defaulted on the promissory note, but the allegations in the Complaint and documents attached thereto regarding foreclosure proceedings indicate that Plaintiffs defaulted on the note by 2012. ( See Compl. ¶¶ 23, 25, 27, Exs. 6-8.)
On April 21, 2011, MERS, as nominee for MortgageIT, assigned Plaintiffs' mortgage to HSBC, as Trustee for MHL 2007-2. (Compl. ¶ 18, Ex. 4.) The assignment was recorded on April 26, 2011. ( Id. ) Tati Mohammad, Assistant Secretary of MERS, executed the assignment of mortgage on behalf of MERS. ( Id. ) Plaintiffs allege that Mohammad did not have legal authority to execute the assignment and that the assignment was improperly notarized. ( Id. at ¶¶ 19-20.)
On June 21, 2012, HSBC, through Wells Fargo Bank, N.A. as its attorney in fact, assigned Plaintiffs' mortgage to HSBC, as Trustee for MortgageIT Securities Corp. Mortgage Loan Trust, Series 2007-2, Mortgage Pass-Through Certificates. (Compl. ¶ 21, Ex. 5.) The assignment was executed by Megan Avon as Vice President Loan Documentation of Wells Fargo Bank, N.A., as HSBC's attorney in fact. ( Id. ) The assignment was recorded on July 3, 2012. ( Id. ) Plaintiffs allege that Avon did not have legal authority to execute the assignment because there was not a recorded power of attorney granting Wells Fargo the ability to act as attorney in fact for HSBC. ( Id. at ¶ 22.)
Plaintiffs allege that Wells Fargo Bank, N.A. securitized Plaintiffs' loan into the MortgageIT Securities Corp. Mortgage Loan Trust, Series 2007-2, Mortgage Pass-Through Certificates trust. (Compl. ¶ 9.) Plaintiffs allege that the securitization was governed by a Pooling and Servicing Agreement ("PSA") which required numerous assignments of mortgage to be prepared and delivered to and from various entities. ( Id. at ¶¶ 10-12.) Plaintiffs appear to allege that none of these purported required assignments were recorded. ( See id. at ¶ 27.)
On July 23, 2012, HSBC, through Wells Fargo as its attorney in fact, prepared a Power of Attorney to Foreclose Mortgage ("July 2012 POA") authorizing the law firm Shapiro & Zielke, LLP ("Shapiro") to foreclose on Plaintiffs' mortgage and ratifying all acts by Shapiro from July 20, 2012 forward. (Compl. ¶ 23, Ex. 6.) The July 2012 POA was executed on July 31, 2012 by Keoviseth Seung as Vice President of Loan Documentation for Wells Fargo, as HSBC's attorney in fact. ( Id. ) The July 2012 POA was recorded on August 16, 2012. ( Id. ) Plaintiffs allege that Seung did not have legal authority to execute the July 2012 POA because there was not a recorded power of attorney granting Wells Fargo the ability to act as attorney in fact for HSBC. ( Id. at ¶ 24.)
On July 23, 2012 Shapiro drafted a Notice of Pendency of Proceeding to Foreclose Mortgage ("July 2012 NOP") on behalf of HSBC. (Compl. ¶ 25, Ex. 7.) The July 2012 NOP was executed by Stephanie Nelson, an attorney with Shapiro, and recorded on July 24, 2012. ( Id. ) Shapiro completed foreclosure by advertisement proceedings and a sheriff's sale was held on September 21, 2012, at which HSBC purchased the property for $800, 063.26. ( Id. at ¶ 27, Ex. 8.) Plaintiffs allege that HSBC did not have legal authority to make a bid or to exercise the power of sale in the mortgage because of invalid and unrecorded assignments of mortgage. ( Id. at ¶ 27.) The Sheriff's Certificate of Sale was recorded on September 27, 2012. ( Id. at Ex. 8.) Plaintiffs did not redeem the property within the six-month statutory redemption period.
STANDARD OF REVIEW
Federal Rule of Civil Procedure 12(b)(6) provides that a complaint must be dismissed if it fails to state a claim upon which relief can be granted. To 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 Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In reviewing a motion to dismiss under Fed.R.Civ.P. 12(b)(6), a court must accept as true all factual allegations in the complaint and draw all reasonable inferences in the plaintiff's favor. Blankenship v. USA Truck, Inc., 601 F.3d 852, 853 (8th Cir. 2010). It must not, however, give effect to conclusory allegations of law. Stalley ex rel. United States v. Catholic Health Initiatives, 509 F.3d 517, 521 (8th Cir. 2007). The plaintiff must do more than offer "labels and conclusions" or a "formulaic recitation of the elements of a cause of action...." Twombly, 550 U.S. at 555. Instead, the "[f]actual allegations must be enough to raise a right to relief above the speculative level...." Id.
Ordinarily, if the parties present, and the court considers, matters outside of the pleadings, a Rule 12(b)(6) motion must be treated as a motion for summary judgment. Fed.R.Civ.P. 12(d). But the court may consider exhibits attached to the complaint and documents that are necessarily embraced by the complaint without converting the motion into one ...