The Kuhn Law Firm

Lawyers are immune to third persons for actions arising during the representation.

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Kevin M. Murphy and Kathleen K. Murphy,
James L. Lang, Charlene Ann Brady, Erika
R. Hogenson, Harold J. Thompson, III, and
Julianne Thompson, Miriam E. Stone,
Jeffrey A. Kirschbaum, and Tou A. Vang
and May K. Vang
Plaintiffs,

v.

Aurora Loan Services, LLC, Aurora Bank
FSB, Mortgage Electronic Registration
Systems, Inc., MERSCORP, Inc., and
Wilford & Geske, P.A.,
Defendants.
______________________________________________________________________________
Can you sue a lawyer for representing a party?  An attorney acting withing the scope of his employment is immune from liability to third persons for actions arising out of that professional relationship unless the attorney is dominated by his own personal interest or knowingly participates with his client in the perpetration of a fraudulent or unlawful act; the attorney immunity does not cover affirmative misrepresentations.
______________________________________________________________________________
I. INTRODUCTION
On January 6, 2012, the undersigned United States District Judge heard oral argument on
Defendants Aurora Loan Services, LLC, Aurora Bank FSB, Mortgage Electronic Registration
Systems, Inc., MERSCORP, Inc.’s (collectively “Bank Defendants”) Motion to Dismiss
Amended Complaint [Docket No. 7] and Defendant Wilford & Geske, P.A.’s (“W&G”) Motion
to Dismiss Amended Complaint [Docket No. 10]. Additionally, Plaintiffs filed an Amended
Motion to Remand [Docket No. 33]. For the reasons set forth below, Bank Defendants’ Motion
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to Dismiss and W&G’s Motion to Dismiss are granted, and Plaintiffs’ Amended Motion to
Remand is denied.
II. BACKGROUND1
Plaintiffs are homeowners and mortgagors with residential properties in four different
Minnesota counties. Am. Compl. [Docket No. 6] ¶¶ 1–8. Plaintiffs allege that they executed
original promissory notes and mortgages with an entity different than the Bank Defendants, and
that Bank Defendants are not in possession of the promissory notes because they securitized and
sold Plaintiffs’ promissory notes. Id. ¶¶ 17–19, 27, 30. Plaintiffs’ Amended Complaint claims
that without possession of these promissory notes,2 Bank Defendants’ foreclosure by
advertisement of Plaintiffs’ properties is unlawful. Id. ¶¶ 35, 37. The case was removed from
Ramsey County District Court to this Court on September 26, 2011.
III. DISCUSSION
A. Standard of Review – Motion to Dismiss
A motion to dismiss a complaint for failure to state a claim is governed by Rule 12 of the
Federal Rules of Civil Procedure. Fed. R. Civ. P. 12(b)(6). In considering a Rule 12(b)(6)
motion, the court views the pleadings in the light most favorable to the nonmoving party and
treats the alleged facts as true. See Ossman v. Diana Corp., 825 F. Supp. 870, 879-80 (D. Minn.
1 In considering Defendants’ Motions to Dismiss, the Court takes the facts alleged in
Plaintiffs’ Complaint to be true. See Hamm v. Groose, 15 F.3d 110, 112 (8th Cir. 1994).
2 At the January 6, 2012 hearing, Defendants and Plaintiffs agreed that Defendants were
in possession of most, if not all, of the promissory notes, and that Plaintiffs had been shown
these notes. This fact does not change the Court’s analysis and is not considered here.
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1993). Conclusions of law made by the nonmoving party, however, are not “blindly accept[ed].”
Westcott v. City of Omaha, 901 F.2d 1486, 1488 (8th Cir. 1990). A Rule 12(b)(6) motion to
dismiss is granted when the factual allegations, even assumed to be true, do not entitle that party
to relief. See, e.g., Taxi Connection v. Dakota, Minn. & E. R.R. Corp., 513 F.3d 823, 826-27
(8th Cir. 2008).
Pleadings must “contain a short and plain statement of the claim showing that the pleader
is entitled to relief.” Fed. R. Civ. P. 8(a). Rule 8(a) has been interpreted to mean that a pleading
must allege “enough facts to state a claim of relief that is plausible on its face.” Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 570 (2007). To satisfy the standard of facial plausibility, a claim
must “plead[] factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009).
This plausibility determination is “context-specific” and “requires the reviewing court to draw
on its judicial experience and common sense.” Id. at 1950. However, “where the well-pleaded
facts do not permit the court to infer more than the mere possibility of misconduct, the
complaint has alleged—but not ‘shown’—‘that the pleader is entitled to relief.’” Id. (quoting
Fed. R. Civ. P. 8(a)(2)).
B. Bank Defendants’ Motion to Dismiss
Plaintiffs’ Amended Complaint asserts thirteen causes of action, all based on the central
claims that the Bank Defendants lack the legal right to foreclose by advertisement. Plaintiffs
argue that Bank Defendants must be both the record mortgagee and the holder of the promissory
note in order to foreclose by advertisement. Bank Defendants argue, conversely, that the “show
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me the note” argument has been expressly rejected in Minnesota courts and that several of the
alleged causes of action are not cognizable claims.
1. “Show me the note” Argument
Plaintiffs argue, without citation, that “[t]he power of sale is a remedy reserved to the
note holder for nonpayment; it thus follows that the mortgagee cannot act without either owning
the note or without the authorization of the entity entitled to invoke the power of sale, the note
holder.” Mem. in Opp’n to Defs.’ Mot. to Dismiss [Docket No. 37] 9. This argument has been
colloquially dubbed the “show me the note” theory, a theory that an entity must hold and exhibit
the promissory note as well as the mortgage deed in order to foreclose on a property. See, e.g.,
Stein v. Chase Home Fin., LLC, Civ. No. 09-1995, 2010 WL 4736828, at *3–4 (D. Minn. Aug.
13, 2010) (explaining that the “show me the note” theory is that “only the holder of an original
wet-ink signature note has the lawful power to initiate a non judicial foreclosure.”) (quotation
omitted).
This is not the law in Minnesota — the holder of a security instrument may foreclose
without possession of the promissory note. Minnesota courts, in keeping with the rest of the
nation, have consistently rejected the “show me the note” argument. See Jackson v. Mortg. Elec.
Reg. Sys., Inc., 770 N.W.2d 487, 498–501 (Minn. 2009) (holding that Minnesota statutes and
common law do not require possession of a promissory note for foreclosure by advertisement
and that “a party can hold legal title to the security instrument without holding an interest in the
promissory note”); Butler v. Bank of America, N.A., Civ. No. 11-461, 2011 WL 2728321 (D.
Minn. July 13, 2011) (“a reading of the opinion can leave no doubt that Jackson holds that a
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mortgagee is not required to have any interest in the promissory note in order to foreclose.”);
Larsen v. Bank of America, Civ. No. 11-1775, 2011 WL 6065426, at *7 (D. Minn. July 21,
2011) (“This [show me the note] theory has been rejected by courts in this district, as well as
other jurisdictions.”); Iverson v. Wells Fargo Bank, N.A., No. 11-cv-2225, 2011 WL 6065358, at
*3 (D. Minn. Oct. 25, 2011) (“the ‘show me the note’ defense against foreclosure has been
soundly rejected by the Minnesota Supreme Court.”). The U.S. Court of Appeals for the Eighth
Circuit has also rejected the “show me the note” theory. See Stein v. Chase Home Fin., LLC,
662 F.3d 976, 980 (8th Cir. 2011) (“the right to enforce a mortgage through foreclosure by
advertisement lies with the legal, rather than equitable, holder of the mortgage.”).
Plaintiffs’ entire claim in this case is based on a legal fallacy that Plaintiffs’ counsel
William Butler, Esq., has doggedly refused to acknowledge. See Iverson, 2011 WL 6065358, at
*3 (“[Butler’s] claim . . . is predicated on the legal fiction that only the holder of a promissory
note may foreclose on a mortgage.”); Larsen, 2011 WL 6065426, at *8 (“[T]he allegations . . .
depend on [Butler’s] misunderstanding or refusal to acknowledge the holding of Jackson – that a
mortgagee does not need to have an interest in a promissory note to foreclose on a mortgage.”).
Plaintiffs rely solely on In re Banks, 457 B.R. 9 (B.A.P. 8th Cir. 2011), for their assertion that
foreclosure by advertisement is unlawful without possession of the promissory note. See Mem.
in Opp’n to Defs.’ Mot. to Dismiss 6 (“[T]he 8th Circuit Court of Appeals in In Re Banks . . .
resoundingly disposes of the notion that a mortgagee who does not hold the note but only the
mortgage has a valid lien on real property.”). Plaintiffs seriously misconstrue the court’s holding
in In re Banks, given that the case does not address a foreclosure by advertisement but rather the
right of a creditor to enforce a promissory note in a bankruptcy proceeding. 457 B.R. 9, 11–12.
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Plaintiffs also misread Jackson as standing for the “proposition that the mortgage holder needs
more than just the recorded mortgage document or assignment to have the right to foreclose
under Minnesota law.” Mem. in Opp’n to Defs.’ Mot. to Dismiss 11. This is simply not true.
Jackson, 770 N.W.2d at 501 (“[A] party can hold legal title to the security instrument without
holding an interest in the promissory note.”). Accordingly, Plaintiffs’ claims are dismissed.
2. Failure to State Cognizable Claims
Two of Plaintiffs’ counts – that “Defendants Are Not Real Parties in Interest” and that
“Defendants Do Not Have Legal Standing to Foreclose Mortgages” – are not causes of action in
the state of Minnesota. Because these causes of action fail to state a cognizable claim, they are
dismissed on this basis also.
C. W&G’s Motion to Dismiss
Plaintiffs assert six causes of action against W&G, five of which include the Bank
Defendants and are premised on the “show me the note” legal theory. The only cause of action
Plaintiffs allege against W&G individually is fraud. W&G argues that to the extent Plaintiffs’
claims against it are predicated on the “show me the note” theory requiring physical possession
of the promissory note for foreclosure by advertisement, those claims warrant dismissal because
they are contrary to Minnesota law. See Jackson, 770 N.W.2d 487. Moreover, W&G argues
that it is entitled to immunity for its actions within the scope of employment as legal counsel.
The Court agrees.
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As discussed previously, the “show me the note” legal theory at the center of this case
has been expressly rejected by Minnesota courts. Therefore, the six causes of action against
W&G fail because the underlying theory for the Bank Defendants’ liability fails. Furthermore,
Plaintiffs’ fraud claim against W&G fails because it is not pled with the heightened specificity
required. Claims of fraud must be pled with particularity. See Fed. R. Civ. P. 9(b) (“[A] party
must state with particularity the circumstances constituting fraud or mistake.”). This heightened
pleading standard requires complaints to specifically allege the “who, what, when, where, and
how” of the fraud. United States ex. rel. Joshi v. St. Luke’s Hosp., Inc., 441 F.3d 552, 556 (8th
Cir. 2006). Plaintiffs’ fraud claim here does not include the required specificities, alleging only
that W&G “induced the Plaintiffs . . . to forbear from pursuing their legal right to challenge the
legal standing of [Bank Defendants] . . . .” Am. Compl. ¶ 119. This claim, therefore, fails to
sufficiently plead a fraud claim and is dismissed on this basis as well.
Lastly, an attorney has immunity for conduct engaged in as “part of the discharge of his
duties in representing a party in a lawsuit.” Iverson, 201l WL 6065358, at * 3 (quotation
omitted); see generally, McDonald v. Stewart, 182 N.W.2d 437, 440 (Minn. 1970) (“an attorney
acting withing the scope of his employment . . . is immune from liability to third persons for
actions arising out of that professional relationship . . . . [unless the attorney] is dominated by his
own personal interest or knowingly participates with his client in the perpetration of a fraudulent
or unlawful act.”). This attorney immunity does not cover affirmative misrepresentations.
Iverson, 201l WL 6065358, at * 3 (citing L&H Airco, Inc. v. Rapistan Corp., 446 N.W.2d 372,
380 (Minn. 1989)). Plaintiffs have failed to allege facts sufficient to establish that W&G made
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affirmative misrepresentations or knowingly participated in fraud or unlawful acts, and therefore
Plaintiffs’ claims against W&G must be dismissed.
D. Motion to Remand
Plaintiffs urge this Court to reconsider the jurisdictional issues of this case, contending
that diversity jurisdiction is inappropriate here because W&G is not fraudulently joined. Bank
Defendants and W&G counter that Plaintiffs fraudulently joined W&G, a Minnesota law firm, in
order to defeat diversity jurisdiction and removal to federal courts, although there was no valid
claim against W&G.
While a federal court may remand a case to state court “[i]f at any time before final
judgment it appears that the district court lacks subject matter jurisdiction,” 28 U.S.C. § 1447(c),
an out-of-state defendant’s right to remove a suit to federal court on diversity jurisdiction
“cannot be defeated by a fraudulent joinder of a resident defendant.” Simpson v. Thomure, 484
F.3d 1081, 1083 (8th Cir. 2007) (quoting Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 97
(1921)). Fraudulent joinder is defined as “the filing of a frivolous or otherwise illegitimate claim
against a non-diverse defendant solely to prevent removal.” Filla v. Norfolk S. Ry. Co., 336
F.3d 806, 809 (8th Cir. 2003). The citizenship of the non-diverse defendant is ignored if
fraudulent joinder is found. Id.
Here, W&G was fraudulently joined in an effort to defeat diversity jurisdiction and
preclude removal to federal court. As discussed previously, the claims against W&G are
dismissed because they are barred by attorney immunity, they are insufficiently pled, and they
are premised on a flawed legal theory. Mr. Butler has a pattern of including fraudulently joined
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parties to his “show me the note” suits, apparently hoping to evade federal court where his nearly
identical claims were summarily dismissed three times in 2011. See Iverson, 2011 WL 6065358,
at *3; Larsen, 2011 WL 6065426, at *6–8; Butler, 2011 WL 2728321, at *3. This lawsuit is no
different. Because Plaintiffs’ filing was frivolous and clearly, facially illegitimate, joinder was
fraudulent and the motion to remand is denied.
While the staggering number of foreclosures amidst the ongoing housing crisis suggests
that more than a few banks may have violated homeowners’ rights, baseless cases like this one
brought by Mr. Butler detract and distract from serious, legitimate claims. The filings in these
recent motions, as well as Mr. Butler’s pattern of previous and pending cases based on the
meritless “show me the note” theory, should be considered in the upcoming hearing on Bank
Defendants’ Motion for Sanctions [Docket No. 39].
IV. CONCLUSION
Based upon all the files, records, and proceedings herein, IT IS HEREBY ORDERED:
1. Bank Defendants’ Motion to Dismiss Amended Complaint [Docket No.
7] is GRANTED;
2. W&G’s Motion to Dismiss Amended Complaint [Docket No. 10] is
GRANTED;
3. Plaintiffs’ Amended Complaint [Docket No. 6] is DISMISSED with
prejudice; and
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4. Plaintiffs’ Motion to Remand [Docket No. 23] and Amended Motion to
Remand [Docket No. 33] are DENIED.
LET JUDGMENT BE ENTERED ACCORDINGLY.
BY THE COURT:
s/Ann D. Montgomery
ANN D. MONTGOMERY
U.S. DISTRICT JUDGE
Dated: January 12, 2012.
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