Jackson v Quality Loan Servicing Corp.

Statement of Grounds for Review I. NATURE OF THE CASE AND DECISION

Petitioner Sandra Shelley Jackson (Jackson) filed suit in King County Superior Court (the Superior Court) seeking to enjoin the sale of her home by Respondent McCarthy & Holthus, LLP (M&H)(a law firm), and Quality Loan Services Corporation (QLSC)(M&Hs legal services company) who are acting together as a trustee within the meaning of Washingtons Deed of Trust Act, RCW 61.24, et. seq. (the DTA). Jackson argued, among other things, that neither defendant could be a neutral judicial substitute and thus could not invoke the power of sale under the DTA. See RCW 61.24.010(3)&(4), .020, .030; see also, RPC 5.7 (a), (b), cmmts. 1-11. The complaint also alleged pre-sale violations of the DTA, declaratory relief (that the DTA was facially unconstitutional or was being applied in an unconstitutional manner through the MERS assignment); injunctive relief (under the inherent power of the superior court and not pursuant to RCW 61.24.130); quiet title; and, damages (including wrongful foreclosure injuries created by pre-sale violations of the DTA). See App. 1 The Superior Court issued four orders. The first order, dated June 14, 2013, dismissed M&H with prejudice. App. 2. The second order, dated

July 26, 2013, dismissed all claims against U.S. Bank, MERS, and JPMorgan Chase, with prejudice. App. 3. The third order and fourth orders clarified that all remaining defendants were dismissed. Apps. 4 & 5. The fourth order also clarified that the superior court relied upon a hypothetical set forth during oral argument by Jacksons attorney regarding how M&H and QLSC commingled employees and personnel to mutually perform the role a trustee. App. 5. II. ISSUES PRESENTED FOR DIRECT REVIEW

1.) Whether the Trial Court erred in finding no possible claims for relief under CR 12(b)(6) where the complaint alleged injury from the wrongful initiation of a nonjudicial foreclosure under the DTA where the home had not yet sold? 2.) Whether the Trial Court erred in finding no possible claims for relief under CR 12(b)(6) where the complaint alleged QLSC and M&H were acting together as a biased trustee under the DTA? 3.) Whether the Trial Court erred in finding no possible claims for relief under CR 12(b)(6) where the complaint alleged both facial and applied constitutional challenges to the DTA? III. GROUNDS FOR DIRECT REVIEW

A petitioner may seek direct review in the Supreme Court of a decision of a superior court on four possible grounds. As explained below,

Jackson seeks direct review pursuant pursuant to RAP 4.2 (a)(3)-(4), because this is a case involving issues where there is: a.) a conflict among decisions of the Court of Appeals or b.) an inconsistency in decisions of the Supreme Court; and, (further) fundamental and urgent issues of broad public importance, requiring prompt and ultimate determination of the application of law. A. Statement of The Case Below The superior court dismissed Jacksons amended complaint for failure to state a claim under CR 12(b)(6). See Apps. 2-5. Jacksons complaint sought damages, declaratory, injunctive, and quiet title relief based upon the initiation and continuation of nonjudicial foreclosure proceedings under the DTA which had not yet culminated in a sale. See App. 1. Jacksons complaint also challenged defendants use of the DTA to bring a nonjudicial foreclosure based on Jackson agreeing to a MERS four party deed of trust boilerplate form, which permitted foreclosures to occur without compliance with Washingtons DTA. 1 Id. Jackson alleged

See e.g., Amended Complaint, (Appendix 1) 7:19-22: [o]n or about March 20, 2006 Petitioner signed a boilerplate MERS four party deed of trust between herself (as borrower), Cameron Financial Group, Inc. DBA 1st Choice Mortgage (as lender), MERS (as beneficiary), and Fidelity National Title (as trustee). Id., at 7:19-22. Further, [t]he MERS four party deed of trust contemplates four parties. Id., at 24-25. Moreover, [t]he DTA does not apply to a four party deed of trust. Id., at 25. Additionally, [o]n information and belief MERS never held Jacksons debt obligation (the note). Id., at 8:7. Finally, [p]laintiff Jackson did not and does not authorize any private sale of her home that does not comply with the DTA. Appendix 1, at 9:12-13. Petitioner alleged:

all defendants had not complied with the DTA by utilization of M&H & QLSC as a trustee, when they knew that as a trustee M&H and QLSC would attempt to illegally take Jacksons home. (App. 1) at 18-19. Jackson specifically claimed the trustee (QLSC and M&H acting together) was not acting as a neutral judicial substitute and therefore had violated the duty of good faith owed Jackson. 2 M&H moved for dismissal; arguing that technically (by statute) QLSC and M&H were separate companies and the court could not treat them as one. See App. 7, see also, App. 2. Jackson responded the court should treat QLSC and M&H as one entity acting as a trustee under several court decisions interpreting the DTA and Constitutional Law. See App 8 & 9. The superior court decided the longstanding corporate issues
defendant trustee breached the Deed of Trust along with the Deeds of Trust Act by failing to strictly follow the requisite procedures of the DTA. Id., at 18-19.
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Petitioner specifically alleged in her complaint that: [d]efendant QLSC is owned, managed, controlled, or cooperatively owned managed or controlled by [the law firm] McCarthy & Holthus. Id. at 4:5-6. Further: 2 McCarthy & Holthus, law firm, owns, operates, or has a substantial interest in the operations and workings of QLSC, and specializes in representing banks, which claim to be beneficiaries, services, or trustees for investors who commonly participate in private sales of homes, like plaintiffs, in the state of Washington. 2 Id at 7-11. Additionally: 2 QLSC performs law related services for the clients of McCarthy & Holthus while acting as a biased trustee. McCarthy & Holthus and QLSC commingle employees, clients, customers, and business interests so that McCarthy & Holthus owes a fiduciary duty to QLSC and the purported beneficiary of the note. 2 Id., at 11-14. Moreover, petitioner pled that, the commingling creates a situation where QLSC and McCarthy & Holthus are acting as a single entity. Id., at 14-17.
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controlled and dismissed Jacksons complaint under CR 12(b)(6). App. 2. QLSC and U.S. Bank (the purported beneficiary) then moved to dismiss the complaint against them under CR 12(b)(6). App. 10. Jackson again responded the trustee failed to act as a neutral judicial substitute by delegating legal decision-making authority to M&H and the trustee had not complied sufficiently with the DTA to invoke the statutory power of sale. App. 11. At oral argument, Jacksons counsel asked the court to consider the a hypothetical which had actually occurred. First, when Jacksons lawyer called QLSC Washington phone number, it was answered by QLSC in San Diego. Jacksons lawyer eventually spoke to Dan Goulding who indicated he worked for M&H, but was assigned to QLSC as inside counsel. An email exchange ensued between the lawyers. App. 6. At the bottom of each QLSC email was a disclaimer, which stated: LEGAL DISCLAIMER: Please be advised that while the opinions expressed herein are provided by an attorney employed by Quality Loan Service Corp., Quality Loan Service Corp. is not a law office. The legal analysis of any situation depends on a variety of factors and the opinions expressed herein could change based on the specific facts of any given situation. The information and opinions set forth herein are intended as general information only, and are not intended to serve as legal advice or as a substitute for legal counsel. If you have a question about a specific factual situation, you should contact an attorney directly. Should you desire to obtain a full legal opinion we would

be happy to submit your inquiry to McCarthy & Holthus, LLP for handling. Id. An inference from this disclaimer is that QLSC uses M&H to decide legal issues regarding the application of Washingtons DTA to the facts of those nonjudicial foreclosures for which it has been named trustee by MERS affiliated entities. B. Criteria for Direct Review is met under RAP 4.2(a)(3)-(4).

1. RAP 4.2(a)(3) Is Met Because There Is Inconsistent Authority and A Conflict of Decisions. a. There Is Inconsistent Supreme Court Authority As Between Miesel, Cox and Klem. 8 In the first motion to dismiss, M&H claimed it was not liable for QLSCs acts and omissions because of QLSCs separate corporate identity. M&H relied exclusively on the Supreme Courts decision in Meisel v. M&N Modern Hydraulic Press Company, 97 Wn.2d 403, 410 (1982). See App. 7. The superior court adopted this rationale as the basis for dismissing Jacksons claims against M&H. See Apps. 2-4. Under this courts decision in Klem, whoever is the DTA trustee of Jacksons Deed of Trust (QLSC or M&H or both) owes Jackson a duty of good faith 3 with regard to the initiation and performance of nonjudicial foreclosures under the DTA. Klem v. Washington Mut. Bank, 176 Wn.2d 771, 295 P.3d 1179 (2013); Cox v. Helenius, 103 Wn.2d 383, 387, 693 P.
3

RCW 61.24.010(4).

683 (1985). RCW 61.24.010 (3)-(4)(prohibits fiduciary duty with interested parties, imposes duty of good faith to both borrower and beneficiary); see also, RCW 61.24.020 (beneficiary and trustee cannot be same party); cf., RCW 61.24.163 (8), (10). This includes acting as a neutral judicial substitute. Klem, 295 P.3d at 1188; see, Wash. Const. Art. 1 10. While QLSC claimed in this lawsuit to be the trustee, Jacksons complaint stated facts that QLSC and M&H acted together as the trustee performing illegal private sales under Washingtons DTA for the benefit of their clients. App. 1. Under this scenario QLSC is not merely a corporate person acting as a trustee, it is a partner (tantamount to a legal assistant or limited license practitioner) with M&H (attorneys representing remaining defendants seeking to take title and possession of Jacksons property) in presiding as a judge in state sanctioned proceedings intended to deprive Jackson of her home. 4 M&H (a law firm, which represents lenders, servicers, and purported beneficiaries) cannot be a neutral judicial substitute (under the facts alleged by Jackson). App. 1. M&H commingled their employees and activities with QLSC in performing QLSCs role as a trustee under the DTA in a manner necessary to performance of M&H fiduciary duties to its
4

See Short v. Demopolis, 103 Wn.2d 52, 62, 691 P.2d 163 (1984) (Supreme Court has exclusive, inherent power to admit, enroll, discipline, and disbar attorneys); Graham v. State Bar Ass'n, 86 Wn.2d 624, 631, 548 P.2d 310 (1976) (power to regulate practice of law lies within sole jurisdiction of Supreme Court).

MERS affiliated clients. App. 1. i.e., Jackson contends both QLSC and M&H: (1) are subject to the Rules of Professional Conduct (RPCs)(including those regarding conflicts of interest) 5(specifically those contemplated by RPC 5.7) and/or, (2) have entered into a client-lawyer relationship among themselves and with a purported beneficiary; 6 and, (3) therefore cannot act (as a matter of law) under the DTA, act as an impartial judicial substitute (given their loyalties and contractual duties to all parties, except borrower, in this nonjudicial process). App. 1 If Jackson is correct, this creates a conflict of interest situation in these DTA sale procedures. See Cox, at 390 (Trustee should resign where conflict exists). Jackson urges the judiciary is constitutionally bound to stop the trustees illegal and inequitable exercise of judicial power; notwithstanding any corporate shield defense. The judiciarys obligations in this regard are based on Separation of Powers principles, including but not limited to those set forth in Art. 4, 1 and 6 and Jacksons right to due process, which includes the right to a fair hearing where she has a meaningful opportunity to prevent evidence. 7

A lawyer not admitted in this jurisdiction is also subject to the disciplinary authority of this jurisdiction if the lawyer provides or offers to provide any legal services in this jurisdiction. RPC 8.5 (a). 6 See RCW 61.24.010 (3) & (4); RPC 5.7 & Cmt.1. 7 See e.g. State v. Davis, 10 141 Wn.2d 798, P.3d 977, 994 (2000) (The failure to accord an accused a fair hearing violates the minimal standards of due process.). See also, In re

Thus, in the decisions below, the statutory corporate principles of Meisel collided with those constitutional principles enunciated in Cox and Klem. The inconsistencies in authority relate to the rights, duties, legal status, and overall acceptable neutral role of a post-Cox foreclosure mill (e.g., doing litigation, evictions, legal counsel, debt collecting, trustee services, mediations, recording documents, power of attorney and acting as a law firm under two business closely related and affiliated business entities), acting as a judicial substitute. Direct review is needed to determine if applying Miesel serves as a proper basis for the superior courts dismissal of Jacksons Complaint in light of this Courts holdings in Klem, Cox (and now the Court of Appeals holdings in Walker (see infra. III.B.1.b)). The superior courts dismissal of Jacksons complaint should be reversed by the Supreme Court to show that Cox and Klem control over Miesel. b. There Is A Conflict Amongst the Decisions Washington Courts of Appeal and Federal District Courts (Interpreting Washington Law) In Walker the Court of Appeals held a trustee who fails to adequately inform itself of its authority to foreclose has violated the duty of good faith owed to the borrower and that borrowers may bring suit for wrongful foreclosure, which the court indicates is more accurately

Reismiller, 101 Wn.2d 291, 296-297, 678 P.2d 323 (1984) (Even in a prison setting, with limited evidentiary requirements, there must be some basis for findings).

described as a claim for damages arising from DTA violations, even where no sale has yet occurred or the sale has been abandoned. Walker v. Quality Loan Service Corp. of Washington, No. 65975-8-I, Slip Op., Wash. Ct. App. (Div. 1, Aug. 5, 2013). The fact pattern in this case mirrors that of Walker but with opposite results reached by the superior court here and the Court of Appeals in Walker. Compare, generally, App. 2-5; with, Walker, supra. Here (as in Walker) QLSC relied, inappropriately, on an assignment by MERS to determine that the assignee was a lawful beneficiary. App. 1. QLSC looked no further. Id. In both Walker and this case a cursory investigation would engender doubt as to (if not show outright) the falsity of: the putative beneficiarys claim to be the: holder of the instrument or document evidencing the obligations secured by the deed of trust, excluding persons holding the same as security for a different obligation. RCW 61.24.005(2) (definition of beneficiary); see also, Bain v. Metro. Mort. Grp., 175 Wn.2d 83, 285 P.3d 84 (2012)(MERS is not a beneficiary within meaning of DTA). The notice of trustees sale in this case, which was recorded months after Bain was decided, (App. 1) illustrates not only that QLSC relied on MERS assignment (notwithstanding Bain), but also, QLSCs disdain for this court's concern that an assignment from MERS would fail to convey any real interest.

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Walker represents progress on the pre-sale question, which is either a split or reversal of previous decisions (mostly unpublished) between or within the Division One Court of Appeals and the federal district court for the Western District of Washington. In Walker: We recognize our disagreement with Vawter v. Quality Loan Service Corp. of Washington, where the United States District Court for the Western District of Washington reached a contrary result, holding that "the DTA does not authorize a cause of action for damages for the wrongful institution of nonjudicial foreclosure proceedings where no trustee's sale occurs." To reach this conclusion, the court relied upon Pfau v. Washington Mutual, Inc. and Krienke v. Chase Home Finance, LLC, which were decided before the legislature enacted RCW 61.24.127. Further, the court decided Vawter before our Supreme Court decided Bain. We also disagree with the reasons that the court identified to support its decision. Walker, Supra. Just a year prior, division one (in an unpublished opinion) decided Grant v. First Horizon Home Loans, No. 66721-1-I, Slip Op., Wash. Ct. App. Div. 1 (Div. 1, May 29, 2012) (unpublished). Therein Division One distinguished its decision from W.D. Wash.s Vawter v. Quality Loan Service Corp. of Washington, 707 F.Supp.2d 1115 (W.D. Wash. 2010). Prior to 2012s Grants unpublished opinion (as well as, Bain, supra., Klem, supra. and Walker, supra.) Washingtons Courts of Appeal issued unpublished opinions holding in some part that no cause of action existed without a sale; while these decisions were not supposed to

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be part of Washingtons common law, lower courts and W.D. Wash. reasoned they were evidence of how the DTA must be interpreted. 2. RAP 4.2(a)(4) Is Met Because There Are Several Fundamental and Urgent Issues of Broad Public Import Necessitating Immediate and Direct Review. In Bain and Klem the Supreme Court announced the issue of taking private homes from their owners is one of broad public import and interest. Indeed, even where the impact on Washington property owners has been applicable only with regard to a particular piece of land, Washington courts have firmly stated their concern that the judiciary will protect property from being stolen. See Klem, at note 10. If, as alleged here (App. 1), the DTA is unconstitutional, then hundreds of thousands of Washington homes will have been taken from their owners illegally and the legal effect may be that such sales will be void or voidable. Moreover, if the issue is not promptly resolved many more homes will be taken and legal impact aggravated. The holdings of Cox (supra.) and Klem (supra.) stem from a deep rooted conviction that neutral judges or neutral judicial substitutes must exercise their judicial power on behalf of the State of Washington. While both Cox and Klem 8 discuss the constitutional and equitable considerations by which the DTA must be construed, neither case gets to
8

In Klem, this court admits as much with respect to certain State Constitutional considerations. See Klem, at FN 10 & 11.

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the heart of proper allocation of judicial authority; namely, whether the legislature can, under the provisions of Washingtons Constitution, create such judicial substitutes to decide issues involving the title and possession of Washington land. See e.g., Article 4, 1; see also, Article 4, 6. (...The superior court shall have original jurisdiction in all cases at law which involve the title or possession of real property...). Petitioner maintained below that the DTA violates Washington's Constitution by: (1) usurping the original enumerated jurisdiction of the Superior Courts in regard to real property disputes in favor of private trustees; (2) denying borrowers due process rights to a fair process before being deprived of their property via state authority; and (3) permitting trustees to summarily decide real property disputes without a record of grounds for the decision requiring Superior Courts to the exercise appellate jurisdiction which cannot be performed in the absence of a record. See App. 1. Jackson seeks, among other things, a declaration that the

legislative and executive branches cannot interfere with enumerated constitutional grants of original jurisdiction to the Superior Court. App. 1. Petitioner had the right to make such a request to the superior court and this Court because constitutional division of government is for, among other things, the protection of individuals against centralized authority

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and abuses of power by the State government. App. 1. Washington Law recognizes such misuse of power can occur through an abuse of statutory power; especially where, as here, the statute is facially unconstitutional. See Klem, at note 11. Jackson asked the court below, and seeks to have this Court declare that she enjoys a Constitutional right to have her case involving the title and possession of her real real property decided by a Washington superior court and not a trustee, who unconstitutionally, was given judicial power by the legislative and executive branches of government. The Supreme Courts resolution of the conflicting authority regarding whether claims can be made for damages where a sale has not been consummated is also an urgent and important issue, which requires prompt resolution. Currently, trustees have every incentive to file sales which do not comply with the DTA because they have not been held liable for damages so long as they do not complete the illegal sales process. There are also other good and urgent reasons for this Court to invoke its recent holdings in Bain, Klem, and Schroeder to let the MERS affiliated industry and this States judges know trustees can and will be held liable if its pre-sale conduct causes damages to home owners which are otherwise actionable under Washington law. See Schroeder v. Excelsior Mgmt. Grp. LLC, 177 Wn.2d 94, 297 P.3d 677 (2013); Bain,

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supra., Kelm, supra. Further, prompt resolution of the issues surrounding trustee foreclosure mills is necessary to protect the legal profession, the integrity of the judicial system, and curb abuse of power granted under the DTA and therefore is of broad public importance. The sheer volume, contentious nature of of this litigation and import of the underlying issues requires immediate resolution. C. Conclusion For the aforementioned reasons, this court should grant direct review of this appeal. RESPECTFULLY SUBMITTED this 26th day of August, 2013.

_________________________________ Scott E. Stafne, WSBA 6964

_________________________________

Joshua B. Trumbull, WSBA 40992 Attorney for Petitioners Stafne Trumbull, LLC 239 North Olympic Avenue Arlington, WA 98223-1336 PH: 360-403-8700 FAX: 360-396-4005

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