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Cutler v. U.S. Bank National Association

United States District Court, D. Oregon

January 9, 2019

STEPHEN CUTLER, an individual, Plaintiff,
v.
U.S. BANK NATIONAL ASSOCIATION, a nationally registered banking association, Defendant.

          ORDER

          MARCO A. HERNANDEZ UNITED STATES DISTRICT JUDGE.

         Magistrate Judge You issued a Findings & Recommendation (#18) on December 3, 2018, in which she recommends the Court grant Defendant's Request for Judicial Notice and grant in part and deny in part Defendant's motion to dismiss. Defendant has timely filed objections to the Findings & Recommendation. The matter is now before me pursuant to 28 U.S.C. § 636(b)(1) and Federal Rule of Civil Procedure 72(b).

         When any party objects to any portion of the Magistrate Judge's Findings & Recommendation, the district court must make a de novo determination of that portion of the Magistrate Judge's report. 28 U.S.C. § 636(b)(1); Dawson v. Marshall, 561 F.3d 930, 932 (9th Cir. 2009); United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003) (en banc).

         I have carefully considered Defendant's objections which are limited to the portion of the Findings & Recommendation addressing the breach of contract claim. There are no objections by either party to the other portions of the Findings & Recommendation. For the reasons explained below, I agree with Defendant that the breach of contract claim should be dismissed. Otherwise, I conclude there is no basis to modify the Findings & Recommendation. I have also reviewed the pertinent portions of the record de novo and find no other errors in the Magistrate Judge's Findings & Recommendation.

         Plaintiff's breach of contract claim appears to be based on five separate theories: (1) breach of express contractual provisions; (2) breach of the implied duty of good faith and fair dealing; (3) modification; (4) waiver; and (5) estoppel. As Judge You did, I address each theory separately.[1]

         I. Breach of Contract - Material Breach of Express Contract

         Judge You concluded that it was reasonable for Plaintiff to construe an October 10, 2017 mortgage statement[2] as providing the correct amount to reinstate his loan and avoid foreclosure. By making payment in that amount more than five days before the scheduled foreclosure sale, she found that Plaintiff performed his obligations under the Trust Deed and Defendant thus violated the terms of the Trust Deed by continuing with the foreclosure sale on November 9, 2017. Judge You correctly cited elements of a breach of contract claim under Oregon law. Findings & Rec. (F&R) 9. She also appropriately cited to Oregon statutes regarding non-judicial foreclosures. As I read the Trust Deed's several paragraphs under § 15 related to Defendant's remedies on default, the Trust Deed incorporates applicable Oregon law regarding trust deeds and non-judicial foreclosures. Trust Deed[3] at § 15 (stating that federal and state law might require the lender to provide a notice of the right to cure, that a notice of acceleration of the debt may be required by law, and requiring the trustee to give notice of sale as required by applicable law in effect at the time of the proposed sale). See Woods v. Wells Fargo Bank, N.A., No. 6:13-cv-00457-AA, 2014 WL 334253, at *5 (D. Or. Jan. 28, 2014) (parties can incorporate statutes into a contract); Garrett v. State Farm Mutual Ins. Co., 112 Or.App. 539, 542-44, 829 P.2d 713, 715 (1992) (holding that insurance policy which defined "Personal Injury Protection Act" to mean certain sections of the Oregon statutes, incorporated those statutes by reference).

         Under the express terms of the Trust Deed, Plaintiff was obligated to make timely loan payments. He failed to do so. Thus, he was in breach of the terms of the Trust Deed. Under the express terms of the Trust Deed, Defendant then exercised its right to accelerate the debt and initiate foreclosure proceedings. Trust Deed § 15. The terms of the Trust Deed itself do not address the right to cure the default or reinstate the loan, but that is clearly what Plaintiff attempted to do with his $13, 189.70 payment. Under Oregon Revised Statute § (O.R.S.) 86.778, a debtor may cure the default and dismiss the foreclosure proceedings if, any time before five days before the date set for sale, the debtor pays the entire amount due at the time of cure, plus all costs and expenses incurred in enforcing the obligation and trust deed, and trustee's and attorney's fees in the amount of $1, 000 for both trustee's and attorney's fees, or the amount actually charged by the trustee and attorney, whichever is less. O.R.S. 86.778(1); Staffordshire Invs., Inc. v. Cal-W. Reconveyance Corp., 209 Or.App. 528, 542, 149 P.3d 150, 158 (2009) (noting that Oregon statutes "provide[] a mechanism by which the grantor can, at anytime prior to five days before the date set for sale, cure the default and dismiss the proceedings. In that case, the trust deed is reinstated and has the same force as if no acceleration had occurred").

         Thus, with applicable Oregon law incorporated into the Trust Deed, Defendant complied with the Trust Deed terms in the face of Plaintiff's breach by accelerating the total debt, demanding payment of that amount, and initiating foreclosure subject to the Oregon statute giving Plaintiff the right to cure and dismissal of the foreclosure proceedings by paying the total amount due plus costs incurred in enforcing the obligation and actual trustee's fees and attorney's fees or $1, 000, whichever is less. That is, unless Plaintiff complied with O.R.S. 86.778, all obligations secured by the Trust Deed were due and payable and the foreclosure sale scheduled for November 9, 2017 was consistent with the terms of the Trust Deed.

         Plaintiff refers to his "good faith performance[.]" Compl. ¶ 6, ECF 1-1. Although this reference is in the background factual section of his Complaint, he incorporated those paragraphs by reference into his breach of contract claim, Compl. ¶ 16, and for the purposes of this Order, I accept that Plaintiff alleges that he fully performed his obligations under the Trust Deed. However, while Plaintiff makes this general assertion of performance, he does not allege that he paid "all obligations secured by the Trust Deed" and does not cite to O.R.S. 86.778 in his Complaint. He does not allege that he paid the costs and trustee's/attorney's fees, or the $1, 000 alternative. Thus, his conclusory assertion that he performed in good faith is not supported by relevant factual allegations in the Complaint.

         The Trust Deed is the contract. Under its unambiguous terms, Plaintiff breached the Trust Deed by defaulting on his payment obligations. Under its unambiguous terms, Defendant elected to accelerate the amount due and initiate foreclosure. Under its unambiguous terms, Oregon law regarding non-judicial foreclosures applied. Under Oregon law, in order for Plaintiff to fully perform under the Trust Deed, and tender a performance consistent with Oregon law statutes which are incorporated into the Trust Deed, Plaintiff had to pay the full amount owed unless, pursuant to O.R.S. 86.778 he made a payment five days before the November 9, 2017 sale date, or earlier, of the payment/reinstatement amount plus costs and attorney's fees/trustee's fees in their actual amount or $1, 000, whichever is less.

         Plaintiff fails to allege facts establishing a plausible claim for breach of express contract because he fails to allege sufficient facts showing that he performed the contract as outlined in the prior paragraph. I respectfully decline to adopt the F&R on this point for three reasons: (1) the F&R analysis relies on statements and conduct outside of the terms of the Trust Deed, which, while possibly supporting a different theory of recovery based on, for example, modification, does not support a claim based on the breach of the actual terms of the Trust Deed; (2) the October 10, 2017 mortgage statement clearly states that the $13, 189.70 noted as the total amount due, is not a payoff or reinstatement amount and it directs the borrower to call a particular number to obtain a up-to-date reinstatement amount; and (3) the Trust Deed language regarding the lender's option to not collect fees does not apply to cure/reinstatement under O.R.S. 86.778 because that paragraph speaks only to the amounts that are immediately due and payable should the lender opt to accelerate payment of the loan. For the reasons explained here, Plaintiff did not state a plausible claim for breach of express contract. Nonetheless, I allow Plaintiff the opportunity to replead the claim with specific, nonconclusory factual allegations in support of any full performance of his obligations.

         II. Breach of Implied Duty of Good Faith & Fair Dealing

         As Judge You recognized, Oregon recognizes an implied contractual duty of good faith and fair dealing. F&R 12-3; e.g. Best v. U.S. Nat'l Bank. of Or., 303 Or. 557, 561, 739 P.2d 554, 557 (1987). The contractual good faith doctrine is designed to "effectuate the reasonable contractual expectations of the parties." Id. at 563, 739 P.2d at 558; see also Klamath Off-Project Water Users, Inc. v. Pacificorp, 237 Or.App. 434, 445, 240 P.3d 94, 101 (2010) (the implied duty of good faith and fair dealing "serves to effectuate the objectively reasonable expectations of the parties"). "[S]o long as it is not inconsistent with the express terms of a contract, the duty of good faith and fair dealing is a contractual term that is implied by law into every contract." Eggiman v. Mid-Century Ins. Co., 134 Or.App. 381, 386, 895 P.2d 333, 335 (1995) (internal quotation marks omitted). The duty "does not operate in a vacuum[;]" rather it "focuses on the agreed common purpose and the justified expectations of the parties, both of which are intimately related to the parties' manifestation of their purposes and expectations in the express provisions of the contract." Or. Univ. Sys. v. Or. Pub. Emp. Un, 185 Or.App. 506, 515-16, 60 P.3d 567, 572 (2002) (internal quotation marks omitted). Because the duty cannot contradict an express contractual ...


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