ROBERT L. JONES, Bankruptcy Judge.
The Court addresses the motion to dismiss of the defendants, Ocwen Loan Servicing, LLC (Ocwen), U.S. Bank, N.A. (U.S. Bank), and Citigroup Mortgage Loan Trust, Inc. Series 2005-9 (Citigroup) (collectively, Defendants). The plaintiff (and debtor), David Crymes, filed his complaint on January 2, 2018, alleging multiple causes of action and requesting a determination of the validity, priority, or extent of U.S. Bank's lien and a declaratory judgment.
The Court has jurisdiction over this proceeding under 28 U.S.C § 1334(b), and the matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(B), (G), and (K).
Crymes filed chapter 13 bankruptcy on September 2, 2016.
Crymes filed his chapter 13 plan and motion for valuation on September 16, 2016.
Six months after confirmation of Crymes's chapter 13 plan, on June 23, 2017, U.S. Bank filed its motions for relief from stay.
Crymes's original complaint generally describes the 2001 Amendments to Article 9 of the Uniform Commercial Code and the "robo-signing" scandal that impacted the Mortgage Electronic Registration System (MERS) that, in turn, resulted in an extensive investigation of such conduct in 2010.
Crymes then filed an amended complaint.
Defendants' motion to dismiss alleges that Crymes fails to state a claim upon which relief may be granted, and thus dismissal is appropriate under Rule 12(b)(6) of the Federal Rules of Civil Procedure.
Attached as exhibits to the motion to dismiss are Defendants' motion for relief from stay (and its related attachments—the note, deed of trust, and assignments) and the affidavit of Shilundra Lidell in support of the motion.
For a Rule 12(b)(6) motion to dismiss, the court typically considers the pleadings alone and thus not extrinsic material. See Fed. R. Civ. P. 12(d). But when items are attached to the motion to dismiss that are central to the plaintiff's claim, the court may properly consider such documents. See Causey v. Sewell Cadillac-Chevrolet, Inc., 394 F.3d 285, 288 (5th Cir. 2004) ("Documents that a defendant attaches to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to her claim."); see also Vanderbrook v. Unitrin Preferred Ins. Co. (In re Katrina Canal Breaches Litig.), 495 F.3d 191, 205 (5th Cir. 2007) ("But because the defendants attached the contracts to their motions to dismiss, the contracts were referred to in the complaints, and the contracts are central to the plaintiffs' claims, we may consider the terms of the contracts in assessing the motions to dismiss."). Here, Defendants attached the relevant deed of trust and assignment documents to its motion to dismiss.
A motion to dismiss under Rule 12(b)(6) for failure to state a claim upon which relief can be granted tests the formal sufficiency of the plaintiff's statement of its claim for relief. A Rule 12(b)(6) motion is appropriate if the plaintiff has not provided fair notice of his claim with factual allegations that, when accepted as true, are plausible and not merely speculative. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007). Motions to dismiss for failure to state a claim are generally viewed with disfavor. Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498 (5th Cir. 2000).
"RICO creates a civil cause of action for `[a]ny person injured in his business or property by reason of a violation of section 1962.'" St. Paul Mercury Ins. Co. v. Williamson, 224 F.3d 425, 439 (5th Cir. 2000) (quoting Beck v. Prupis, 529 U.S. 494, 495 (2000)). To state a claim under 18 U.S.C. § 1962, there must be: "(1) a person who engages in (2) a pattern of racketeering activity (3) connected to the acquisition, establishment, conduct, or control of an enterprise." Id. (quoting Delta Truck & Tractor, Inc. v. J.I. Case Co., 855 F.2d 241, 242 (5th Cir. 1988)) (emphasis in original). Crymes asserts that Defendants have violated 18 U.S.C. § 1962(c).
By the amended complaint, Crymes alleges that Defendants "comprise an `enterprise' or `enterprises' as defined in 18 U.S.C. §1961(4)."
Notably absent, however, is any allegation that a specific person engaged in conduct that constitutes racketeering activity or that such person has an existence apart from the enterprise. See Parker & Parsley Petroleum Co. v. Dresser Indus., 972 F.2d 580, 583-84 (5th Cir. 1992) (affirming dismissal of the plaintiff's RICO claim where, in part, no allegation was made that an identifiable person engaged in the alleged predicate acts).
Nor will the Court decide that Defendants are the RICO person(s), despite Crymes's conclusory allegation that "the enterprise or enterprises have an existence apart from and beyond the racketeering activity complained of in this action."
Also, for the alleged acts of racketeering, Crymes asserts that the conduct of Defendants constituted mail and wire fraud under 18 U.S.C. §§ 1341, 1343.
Rule 9(b) provides that the party alleging fraud must "state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). This requires a showing of the "who, what, when, where, and how of the alleged fraud." United States ex rel. Spicer v. Westbrook, 751 F.3d 354, 365 (5th Cir. 2014) (quoting United States ex rel. Steury v. Cardinal Health, Inc. (Steury I), 625 F.3d 262, 266 (5th Cir. 2010)) (internal quotations omitted). The defendant's state of mind, however, may be alleged generally. Haber Oil Co. v. Swinehart (In re Haber Oil Co.), 12 F.3d 426, 439 (5th Cir. 1994); Fed. R. Civ. P. 9(b) ("Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.").
"The amount of particularity required for pleading fraud differs from case to case." Chau v. Aviva Life & Annuity Co., No. 3:09-CV-2305-B, 2011 WL 1990446, at *3 (N.D. Tex. May 20, 2011) (citations omitted). When suing multiple defendants, the "plaintiff is obligated to distinguish among those they sue and enlighten each defendant as to his or her part in the alleged fraud." Coates v. Heartland Wireless Commc'ns, Inc., 26 F.Supp.2d 910, 915 (N.D. Tex. 1998) (quoting In re Silicon Graphics, Inc. Secs. Litig., 970 F.Supp. 746, 752 (N.D. Cal. 1997)) (internal quotations omitted).
Crymes, in a conclusory way, identifies the required predicate acts as instances of mail and wire fraud which, as correctly briefed by Defendants, raises the heightened pleading standard of Rule 9(b). See generally Miller v. CitiMortg., Inc., 970 F.Supp.2d 568, 582 (N.D. Tex. 2013) (indicating that fraud claims must be stated with particularity so as to comply with Rule 9(b)). The Court agrees with Defendants that Crymes has not met this burden. The complaint simply recites the language of the statutes relied on to suggest the existence of a predicate act. This is not enough. Crymes fails to identify who engaged in mail or wire fraud, which statements made by the unidentified entity were fraudulent, when and where such statements were allegedly made, and why the statements were fraudulent. The bare assertions that "surrogate signed endorsements"
Crymes has failed to sufficiently plead a cause of action under 18 U.S.C. § 1962(c). This claim will be dismissed.
Crymes asserts that "[t]he documents offered in support of the Respondents' Motion for Relief From Stay fail to establish standing of the Respondent OCWEN and Respondent U.S. Bank, N.A. in this federal court."
Real-party-in-interest issues arise by application of Rule 17 of the Federal Rules of Civil Procedure, made applicable in bankruptcy by Bankruptcy Rule 7017, save for one exception not relevant here. Rule 17(a)(1)(F) states, "An action must be prosecuted in the name of the real party in interest. The following may sue in their own names without joining the person for whose benefit the action is brought: a party with whom or in whose name a contract has been made for another's benefit." The concept of a real party in interest is narrower than the concept of standing. Collier on Bankruptcy ¶ 7017.02 (Richard Levin & Henry J. Sommer eds., 16th ed.) ("A real party in interest has standing, but not everyone with standing is a real party in interest."). Real party in interest issues are a "prudential limitation" on the justiciability of the action before the court. See School Bd. Of Avoyelles Par. v. U.S. Dep't of Interior, 647 F.3d 570, 577 (5th Cir. 2011). A real party in interest is the one that holds a substantive right sought to be enforced. Spicer, 751 F.3d at 362. Whether a person is the real party in interest, with respect to a particular claim, is determined by state and federal substantive law. BAC Home Loans Servicing, LP v. Tex. Realty Holdings, LLC, 901 F.Supp.2d 884, 907 (S.D. Tex. 2012). A plain reading of the rule requires the conclusion that challenges to the real party in interest are held by the party defending the action. Fed. R. Civ. P. 17(a) ("An action must be prosecuted . . .") (emphasis added); see Prosecute, Black's Law Dictionary (10th ed. 2014) ("To commence and carry out (a legal action)").
Here, Crymes's challenge to Defendants' standing to seek stay relief is misguided. As the plaintiff here, Crymes cannot argue that Defendants are not the real parties in interest when they are the parties being sued. Crymes's charge makes no sense in this context. And Crymes does not contend that he raised standing as an issue in response to Defendants' motion for relief from stay. See Fed. R. Bankr. P. 9014(c) (stating that Bankruptcy Rule 7017 applies in contested matters such as motions for relief from the automatic stay). Crymes does not identify another entity as the real party in interest, and the documents attached to the pleadings reflect that Defendants are the last assignees. Based on the pleadings alone, Crymes's allegation that Defendants are not the real parties in interest must be dismissed.
Crymes also challenges Defendants' constitutional standing to seek relief from the automatic stay in his bankruptcy. Constitutional standing is satisfied by (1) an "injury in fact"; (2) causation; and (3) redressability. See generally Summers v. Earth Island Inst., 555 U.S. 488, 493 (2009) (describing the doctrine of constitutional standing and its requirements). These requirements ensure that the plaintiff has a sufficient stake in the outcome of the case to be adverse to the defending party. See Susan B. Anthony List v. Driehaus, 134 S.Ct. 2334, 2341 (2014). Defendants contend that Crymes lacks standing to challenge the assignments at issue because he was not a party to those assignments. See Crowe v. Henry, 43 F.3d 198, 203 (5th Cir. 1995) ("A motion to dismiss an action for failure to state a claim admits the facts alleged in the complaint, but challenges plaintiff's right to relief based upon those facts.") (internal quotation and citation omitted).
Defendants submit that Crymes, as the mortgagor, lacks standing to challenge assignments, to which he was not a party, of the deed of trust lien that secures the debt. The Court agrees that, under Texas law and in this circuit, Crymes's standing is limited. See, e.g., Ferguson v. Bank of N.Y. Mellon Corp., 802 F.3d 777, 780-81 (5th Cir. 2015) ("Borrowers have limited standing to challenge their lenders' assignments of their promissory notes and DOTs. . . . (obligors) have standing to challenge . . . (assignee) efforts to foreclose if the . . . claim would render the assignment void rather than voidable."); Ericson v. Resurgent Capital Servs., L.P., 622 F. App'x 342, 344 (5th Cir. 2015) ("[U]nder Texas law, challenges to facially valid assignments `for want of authority' may only be brought by the defrauded assignor."); Whittier v. Ocwen Loan Servicing, L.L.C., 594 F. App'x 833, 835 (5th Cir. 2014) ("Under Texas law, a bank in possession of a note indorsed in blank is entitled to collect on it. The Texas statutory definition of `holder' includes someone who is in possession of a note payable to bearer."). The alleged facts here are strikingly similar to those in the cases just cited: borrowers execute notes and deeds of trust in favor of original lenders; original lenders assign the deeds of trust to third party entities; borrowers subsequently complain that the assignments are invalid when foreclosure proceedings are initiated. Ameriquest Mortgage Company, the original lender in this transaction, could assign the note and the deed of trust. A fabricated or forged endorsement affixed to an assignment renders the assignment voidable, but the cause of action to set aside the assignment on such grounds belongs to the grantor, not a third party who lacks standing to challenge the voidable defect. Lamell v. OneWest Bank, FSB, 485 S.W.3d 53, 61-62 (Tex. App.-Houston [14th Dist.] 2015, pet. denied). But see Sevilla v. Fed. Nat'l Mortg. Ass'n, No. 3:15-CV-3594-B, 2017 WL 565180, at *3 (N.D. Tex. Feb. 13, 2017) ("An allegation of forgery, on the other hand, is an argument that would render the assignment void.") (citing Vazquez v. Deutsche Bank Nat'l Tr. Co., 441 S.W.3d 783, 787 (Tex. App.-Houston [1st Dist.] 2014, no pet.)).
Crymes alleges that the signatures on the assignments of deed of trust were done in anticipation of litigation and not at the time the transactions actually occurred. He says that the corporate seal affixed to the first assignment of July 1, 2005 is fake, and that the second assignment of October 26, 2011 was signed by a "robo-signer."
Crymes seeks a declaratory judgment that the lien securing Defendants' claim is void under § 506(d).
Defendants argue that Crymes cannot void the mortgage simply by Defendants' failure to file a proof of claim because the exception found in § 506(d)(2) applies.
In Dewsnup v. Timm, the Supreme Court decided that a secured creditor's lien could be voided to the extent the claim itself was not allowed. 502 U.S. 410, 415-16 (1992) (writing in agreement with the position as argued by the respondents that this reading of § 506(d)(2) "gives the provision the simple and sensible function of voiding a lien whenever a claim secured by the lien itself has not been allowed."). Otherwise, absent application of another provision in the Code, liens in bankruptcy pass through the proceeding unaffected. Id. at 418 (citing Farrey v. Sanderfoot, 500 U.S. 291, 297 (1991); Johnson v. Home State Bank, 501 U.S. 78, 84 (1991)). Here, Crymes's reliance on § 506(d) to void Defendants' lien is misguided.
The Dewsnup holding is ostensibly limited to cases filed under chapter 7. See id. at 416-17 ("Hypothetical applications that come to mind and those advanced at oral argument illustrate the difficulty of interpreting the statute in a single opinion that would apply to all possible fact situations. We therefore focus upon the case before us and allow other facts to await their legal resolution on another day."); Collier ¶ 506.06[1][c]. This is because the Supreme Court in Dewsnup limited its analysis to the facts before it on review and because lien adjustment is made available by other provisions in the Code that apply to reorganization. See §§ 1322(b)(2), 1325(a)(5), and 1327(c).
Rather, the Court addresses Crymes's contention that the enumerated exceptions in § 506(d) do not apply to preserve Defendants' lien. The first exception, contained in § 506(d)(1), addresses claims disallowed under § 502(b)(5) or (e), which relate to unmatured domestic support obligations and contingent co-debtor claims, neither of which applies here. The second exception, found in § 506(d)(2), applies to a secured claim that has not been affirmatively allowed because proof of such claim has not been filed under § 501. Defendants invoke the (d)(2) exception as they have not filed a proof of claim.
Defendants are correct that Crymes cannot void their lien solely on the basis that they did not file a proof of claim in his bankruptcy. Section 506(d)(2) codifies the previously mentioned holding of Dewsnup that liens pass through bankruptcy unaffected unless the claim or a portion of the claim is disallowed. See Dewsnup, 502 U.S. at 418; see also Acceptance Loan Co. v. S. White Transp., Inc. (In re S. White Transp., Inc.), 725 F.3d 494, 496 (5th Cir. 2013) ("It is a longstanding rule in bankruptcy that a secured creditor with a loan secured by a lien on the assets of a debtor who becomes bankrupt before the loan is repaid may ignore the bankruptcy proceeding and look to the lien for satisfaction of the debt.") (quoting Sun Fin. Co. v. Howard (In re Howard), 972 F.2d 639, 641 (5th Cir. 1992) (internal quotations omitted). Defendants are under no requirement to participate in the bankruptcy and may simply look to the lien on Crymes's real property to satisfy the debt. See Quintana v. Am. Gen. Home Equity, Inc. (In re Quintana), 247 F. App'x 564, 565 (5th Cir. 2007); IRS v. Taylor (In re Taylor), 132 F.3d 256, 260-61 (5th Cir. 1998). Citigroup's claim (through U.S. Bank as trustee) has not been affirmatively allowed or disallowed under § 506. As no claim has been filed, it has not been addressed. Thus the only basis for voiding the deed of trust lien would be Citigroup's failure to file a proof of claim. The exception of (d)(2) prevents avoidance.
The Court dismisses Crymes's cause that Defendants' lien must be avoided under § 506(d).
Last, Crymes requests that the Court impose monetary sanctions against Defendants for their repeated "filing of false documents in a court of law for the purpose of deceiving the Debtor, the Chapter 13 Trustee, the Creditors, and the Federal Bankruptcy Court."
Turning first to the Court's authority to impose sanctions against Defendants, the Court recognizes that § 105 and a bankruptcy court's inherent power permit sanctions against the parties for bad faith conduct "not effectively sanctionable pursuant to an existing rule or statute." In re Saldana, 531 B.R. 141, 166 (Bankr. N.D. Tex. 2015) (referencing Fed. R. Civ. P. 11 and 28 U.S.C. § 1927). Such inherent power, however, is not unlimited and should be applied when necessary to protect and control court proceedings. See Citizens Bank & Tr. Co. v. Case (In re Case), 937 F.2d 1014, 1023 (5th Cir. 1991); NASCO, Inc. v. Calcasieu Television & Radio, Inc., 894 F.2d 696, 702 (5th Cir. 1990). An award of sanctions may include:
Fed. R. Bankr. P. 9011(c)(2). The sanction imposed is limited to that which will coerce compliance with the court's orders or will "deter repetition" of the sanctionable conduct in the future. Id.; see Carroll v. Abide (In re Carroll), 850 F.3d 811, 815 (5th Cir. 2017).
Here, Crymes requests the Court impose sanctions against Defendants "as a result of the Respondent's [sic] egregious conduct and filing of false fabricated documents with this court."
Crymes's request for damages is more threadbare than his request for sanctions. As correctly stated by Defendants, an award of damages requires the plaintiff to prove a "compensable injury." 2525 Capital Grp. v. Dallas Home for Jewish Aged, Inc., No. 3:08-CV-1673-L, 2010 WL 2402892, at *7 (N.D. Tex. June 11, 2010) (quoting Intercontinental Grp. v. KB Home Lone Star L.P., 295 S.W.3d 650, 652 (Tex. 2009)). The amended complaint provides no reference to any injury whatsoever. Interestingly, Defendants' response to the motion to dismiss appears to infer that Crymes is requesting, as damages, his attorney's fees.
The Court will dismiss Crymes's claim that the Court should impose sanctions against Defendants and award him damages. Crymes has failed to plausibly allege his entitlement to damages or that Defendants engaged in sanctionable conduct. This claim will be dismissed.
The Court grants Defendants' motion to dismiss. Such dismissal disposes of all pending causes of action alleged by Crymes's amended complaint. The adversary proceeding will, therefore, be dismissed.
18 U.S.C. § 1341.
18 U.S.C. § 1343.
§ 506(d).
§ 105(a).