Ryan Ex Rel. Ryan v. Nationstar Mortgage, LLC

MEMORANDUM ** Appellant Frances Ryan, through her guardian ad litem Geraldine Ryan, appeals the district court’s dismissal of her declaratory judgment action against Appellee Nationstar Mortgage, LLC (“Nationstar”), the loan servicer for a $500,000 note secured by a deed of trust (“DOT”) on Ryan’s home. We affirm. Under California law, a borrower cannot bring an action challenging the assignment of a loan or DOT from one lender or loan-servicer to another unless that assignment was void ab initio. See Turner v. Wells Fargo Bank N.A., 859 F.3d 1145, 1148-50 (9th Cir. 2017) (citing Yvanova v. New Century Mortg. Corp., 62 Cal. 4th 919, 935, 199 Cal.Rptr.3d 66, 365 P.3d 845 (2016)). Ryan alleged that the August 2011 assignment of the DOT on her home to a securi-tized trust (“Trust”) was void under the New York law because it violated provisions of the Internal Revenue Code that govern the Trust’s tax-preferred status as a Real Estate Mortgage Investment Conduit (“REMIC”). See 26 U.S.C. §§ 860A-860G; N.Y. Est. Powers & Trusts Law (“EPTL”) § 7-2.4 (McKinney). 1. Citing Glaski v. Bank of America, N.A., 218 Cal. App. 4th 1079, 1097, 160 Cal.Rptr.3d 449 (2013), Ryan first contends that the late assignment of the DOT was void ab initio because it contravened the Trust’s central purpose, namely, its tax-favored REMIC status. 1 This court has emphasized that “the weight of New York authority is contrary to plaintiffs’ contention that any failure to comply with the terms of the [trust’s governing document] rendered the defendants’ acquisition of plaintiffs’ loans and mortgages void as a matter of [New York] trust law.” Turner, 859 F.3d at 1148-50 (alteration omitted) (quoting Saterbak v. JPMorgan Chase Bank, N.A., 245 Cal. App. 4th 808, 815, 199 Cal.Rptr.3d 790 (2016), and Rajamin v. Deutsche Bank Nat’l Tr. Co., 757 F.3d 79, 88-89 (2d Cir. 2014); see also Wells Fargo Bank, N.A. v. Erobobo, 9 N.Y.S.3d 312, 314, 127 A.D.3d 1176 (2015)). Ryan points to no New York case law to distinguish her purpose argument from the general New York rule predicted by the Second Circuit in Rajamin and adopted by this court in Turner. She instead insists that Rajamin “failed to account for numerous New York decisions that construed [EPTL] § 7-2.4 literally.” Although Turner did not explicitly discuss EPTL § 7-2.4, it -made clear that New York courts have rejected “Glaski's interpretation of New York law” and the literal reading of the New York statute that Ryan proposes here. Turner, 859 F.3d at 1148-50 ; see also Glaski, 218 Cal. App. 4th at 1096-97, 160 Cal.Rptr.3d 449 (relying solely on a “literal interpretation” of EPTL § 7-2.4, as given in Wells Fargo Bank, N.A. v. Erobobo, 39 Misc. 3d 1220(A) at *8 (2013), rev’d, 9 N.Y.S.3d 312, 314, 127 *587 A.D.3d 1176 (App. Div. 2015)). Thus, assuming, without deciding, that the trustee’s acceptance of the late-assigned DOT on Ryan’s home contravened the Trust’s overall purpose, that assignment was nevertheless voidable by the Trust’s beneficiaries but not void ab initio under New York law. 2, Ryan additionally maintains that the late assignment of her DOT to the Trust was void because it contravened the federal tax code. Because her argument is based on the alleged illegality of a trustee’s act under governing law defined outside the terms of the Trust, Ryan asserts, it is not foreclosed by the holdings in Turner, 859 F.3d at 1147-50, or Rajamin, 757 F.3d at 87, which both concluded that assignments made in contravention of terms contained within a trust’s governing document were not void ab initio under New York law. We assume, without deciding, that Ryan’s argument is distinct and that, as Ryan maintains, New York law does not allow beneficiaries to ratify a trustee’s acts in violation of positive law or public policy, see Moss v. Cohen, 158 N.Y. 240, 53 N.E. 8, 10 (1899). So assuming, Ryan nonetheless fails to state a plausible claim for relief. See Fed. R. Civ. P. 12(b)(6). The Internal Revenue Code neither makes the late assignment of the DOT to the Trust illegal nor renders it void. Rather, the receipt of income from the late-transferred asset may be a “prohibited transaction” subject to a 100% tax penalty. 26 U.S.C. § 860F(a). If the late transfer of the DOT unnecessarily exposed the asset to a 100% tax penalty on income generated from the asset, the trustee might be liable to the Trust’s beneficiaries for wasting or mismanaging the Trust’s property. See In re Hubbell's Will, 302 N.Y. 246, 97 N.E.2d 888, 892 (1951). But because such waste or mismanagement affects only the Trust beneficiaries and does not directly contravene any positive law or offend public policy, the late assignment of the DOT was not void ab initio based on the application of the REMIC provisions. See Moss, 53 N.E. at 10. Similarly, even if the transaction led to a complete loss of the Trust’s tax-favored REMIC status, 2 that loss would be incurred by the beneficiaries of the Trust, not the public at large, and so does not offend public policy. 3 AFFIRMED. Footnotes [**] This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. [1] Ryan does not allege where this purpose is defined, but because the Trust is an express trust, we assume the purpose is included in, or otherwise emanates from, the Trust’s governing document. See generally, e.g., Mohonk Tr. v. Bd. of Assessors, 47 N.Y.2d 476, 418 N.Y.S.2d 763, 392 N.E.2d 876 (1979). [2] Contrary to her assertion, Ryan's allegations, taken as true, fail to establish that the transaction would have that effect. Although substantially all the assets held by a REMIC must be qualified mortgages or other permitted assets, see 26 U.S.C. §§ 860D(a)(4), 860G(d), a trust may retain REMIC status even if it holds some non-permitted assets, as long as those assets do not exceed a de min-imis amount. 26 C.F.R, § 1.860D — 1(b)(3). Additionally, even if a trust has more than a de minimis amount of non-permitted assets, the IRS will continue to treat the trust as a REM-IC if the trust takes certain prescribed steps to remedy the inadvertent loss of its REMIC qualifications, 26 U.S.C. § 860D(b)(2). [3] Ryan briefly asserts, for the first time in her reply brief, that the Trust has committed tax fraud since its inception. Although such an argument might implicate public policy, we decline to review Ryan’s argument, because "arguments not raised by a party in its opening brief are deemed waived,” Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999), and none of the exceptions to that general rule apply here. See Koerner v. Grigas, 328 F.3d 1039, 1048-49 (9th Cir. 2003).