IRMA CARRILLO RAMIREZ, Magistrate Judge
Before the Court for recommendation is Defendant's Motion for Judgment on the Pleadings and Brief in Support, filed July 10, 2019 (doc. 16), and Defendant's Motion for Summary Judgment, filed December 10, 2019 (doc. 25). Based upon the relevant filings and applicable law, the motion for judgment on the pleadings should be
This case involves the foreclosure of real property located at 321 Tranquility Lane, Cedar Hill, Texas 75104 (the Property). (See doc. 1-4.)
(Id. at 4) (brackets and punctuation original)).
Husband and his wife, Syntheia Coleman-Allen (Wife), contemporaneously executed a Deed of Trust that granted a security interest in the Property to Long Beach to secure repayment under the Note. (Id. at 3.) The petition alleges that the Deed of Trust identifies Husband and Wife as "grantors," collectively refers to them as "Borrower," and provides in relevant part as follows:
(Id.)
Husband and Wife separated in 2010, and he allegedly moved out, telling her "he wanted nothing more to do with the [P]roperty." (Id. at 6.) Wife "continued to make payment and honor the Note," but eventually "fell behind on payments." (Id.) The servicer of the Note, Select Portfolio Servicing, Inc. (Defendant), allegedly refused to provide her "access to the information concerning the account" because only Husband was the accountholder. (Id.) Wife began "using the account information to make payments and communication" until Husband filed an identity-theft claim disputing ownership of the Note. (Id.) The Property was eventually awarded to Wife under a final divorce decree. (Id.) On September 27, 2017, Wife requested a loan modification from Defendant, but it was denied. (Id. at 7.)
On January 7, 2019, Wife and Eugene Allen (collectively Plaintiffs) filed this lawsuit against Defendant in the 192nd District Court of Dallas County, Texas, for wrongful repossession and conversion, as well as an application for temporary injunction. (See doc. 1-4.) They allege that Defendant refused to recognize Wife as "a borrower, guarantor, note maker, or obligator," even though there are "numerous instances" in the "Contract" "where her name and signature are contained within and where she was acknowledged as such." (Id. at 7.) It argues that Wife's "rights to fulfill the promises of [the Note] [and to] due process were denied when she was denied access to the account information and . . . not presented with the rights of presentment and notice of dishonor, that is to be given notice that amounts due have not been paid." (Id.) Liberally construed, the petition asserts claims for breach of contract, conversion, and wrongful foreclosure. It requests the Property be returned to Plaintiffs, exemplary damages of $1.5 million, and declaratory and injunctive relief.
On February 13, 2019, Defendant removed this action to federal court on the basis of diversity jurisdiction under 28 U.S.C. § 1332. (See doc. 1.) It moved for judgment on the pleadings on July 10, 2019 (doc. 16), and for summary judgment on December 10, 2019 (doc. 25). With timely-filed responsive briefs, both motions are ripe for consideration.
Parties may move for judgment on the pleadings "[a]fter the pleadings are closed—but early enough not to delay trial." Fed. R. Civ. P. 12(c). Rule 12(c) motions are "designed to dispose of cases where the material facts are not in dispute and a judgment on the merits can be rendered by looking to the substance of the pleadings and any judicially noticed facts." Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 312 (5th Cir. 2002) (quoting Hebert Abstract Co. v. Touchstone Props., Ltd., 914 F.2d 74, 76 (5th Cir. 1990)). The standard for deciding a motion under Rule 12(c) is the same as the one for deciding a motion to dismiss under Rule 12(b)(6). See Guidry v. Am. Pub. Life Ins. Co., 512 F.3d 177, 180 (5th Cir. 2007); see also Shaunfield v. Experian Info. Sols., Inc., 991 F.Supp.2d 786, 793-94 (N.D. Tex. 2013) (citing id.) ("As with a Rule 12(b)(6) motion, the question under Rule 12(c) is whether the plaintiff is entitled to offer evidence to support his claim, not whether he will ultimately prevail on the merits.").
Rule 12(b)(6) allows motions to dismiss for failure to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). Under the 12(b)(6) standard, a court cannot look beyond the face of the pleadings. Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996); see also Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir. 1999), cert. denied, 530 U.S. 1229 (2000). Pleadings must show specific, well-pleaded facts, not mere conclusory allegations to avoid dismissal. Guidry v. Bank of LaPlace, 954 F.2d 278, 281 (5th Cir. 1992). The court must accept those well-pleaded facts as true and view them in the light most favorable to the plaintiff. Baker, 75 F.3d at 196. "[A] well-pleaded complaint may proceed even if its strikes a savvy judge that actual proof of [the alleged] facts is improbable, and `that a recovery is very remote and unlikely.'" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007) (citation omitted). Nevertheless, a plaintiff must provide "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 555; accord Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (emphasizing that "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions"). The alleged facts must "raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. In short, a complaint fails to state a claim upon which relief may be granted when it fails to plead "enough facts to state a claim to relief that is plausible on its face." Id. at 570.
Iqbal, 556 U.S. at 678 (citations omitted). When plaintiffs "have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed." Twombly, 550 U.S. at 570; accord Iqbal, 556 U.S. at 678.
Defendant argues that its Rule 12(c) motion should be granted because Plaintiffs fail to assert a plausible claim for relief. (doc. 16 at 8.)
Defendant argues that Plaintiffs' conversion claim fails and should be dismissed because real property cannot be converted under Texas law. (doc. 16 at 12.)
To establish a claim for conversion under Texas law,
Here, the petition generally asserts a claim for conversion, and argues that Defendant is guilty of converting the Property. (doc. 1-4 at 1, 9.) Because real property cannot be converted under Texas law, the claim for conversion of the Property fails as a matter of law and should be dismissed. See Lucio, 298 S.W.3d at 672; see also Yoon v. Yoo, No. 3:15-CV-303-P, 2016 WL 4801314, at *4 (N.D. Tex. Feb. 24, 2016) (finding conversion of real property claim failed as a matter of law).
The petition claims that Defendant violated the Texas Property Code because it denied Plaintiffs "due process and the right to be heard from a rightful grantor, obligator, borrower, and successor." (doc. 1-4 at 9.)
Because § 51.002 does not provide for a private right of action, courts have construed claims based on violations of the Texas Property Code as claims for wrongful foreclosure. See Nelson v. Wells Fargo Bank, N.A., No. 4:17-CV-298-A, 2017 WL 3405525, at *2 (N.D. Tex. Aug. 7, 2017) (citing Palomino v. Wells Fargo Bank, N.A., No. 6:15-CV-00375-RWS-KNM, 2017 WL 989300, at *3 (E.D. Tex. Feb. 17, 2017)); see also Ashton v. BAC Home Loan Servicing, L.P., No. 4:13-cv-810, 2013 WL 3807756, at *4 (S.D. Tex. Jul. 19, 2013) ("This Court has not found any cases that interpret section 51.002 to establish an independent right of action for damages. The section also does not contain its own enforcement mechanism."). Plaintiffs' response to the motion for judgment on the pleadings clarifies that they are pursing a wrongful foreclosure claim. (See doc. 18 at 5.) Their allegations are therefore construed as a claim for wrongful foreclosure.
The purpose of a wrongful foreclosure action is to protect mortgagors against mistake, fraud, and unfairness in foreclosure proceedings. See In re Keener, 268 B.R. 912, 921 (Bankr. N.D. Tex. 2001) (citing 30 Tex. Jur. 3d Deeds of Trusts and Mortgages § 177 (1998)). In Texas, "a debtor may recover for wrongful foreclosure when an irregularity in the foreclosure sale contributes to recovery of an inadequate price of the property." Matthews v. JPMorgan Chase Bank, N.A., No. 3:11-CV-00972-M, 2011 WL 3347920, at *2 (N.D. Tex. Aug. 1, 2011). The plaintiff must prove: "(1) a defect in the foreclosure sale proceedings; (2) a grossly inadequate selling price; and (3) a causal connection between the defect and the grossly inadequate selling price." Hurd v. BAC Home Loans Servicing, LP, 880 F.Supp.2d 747, 766 (N.D. Tex. 2012) (citing Sauceda v. GMAC Mortg. Corp., 268 S.W.3d 135, 139 (Tex. App.-Corpus Christi 2008, no pet.)).
A procedural defect may occur when the foreclosing party either "fails to comply with statutory or contractual terms," or "complies with such terms, yet takes affirmative action that detrimentally affects the fairness of the foreclosure proceedings." Matthews, 2011 WL 3347920 at *2. Recovery is not available merely upon the showing of a defect in the foreclosure process; "it is also necessary that there be [a] [grossly] inadequate selling price resulting from the defect." Biggers v. BAC Home Loans Servicing, LP, 767 F.Supp.2d 725, 729 (N.D. Tex. 2011). In Texas, "a grossly inadequate price would have to be so little as `to shock a correct mind.'" Martins v. BAC Home Loans Servicing, L.P., 722 F.3d 249, 256 (5th Cir. 2013) (citation omitted).
Plaintiffs allege that Defendant refused to grant Wife access to account information regarding the Note, and failed to provide "notice that amounts due ha[d] not been paid." (doc. 1-4 at 7.) The allegations in Plaintiffs' petition are insufficient to state a claim for wrongful foreclosure.
In their response to the motion for judgment on the pleadings, Plaintiffs allege that the Property was sold at foreclosure auction for "an inadequate selling price" because the final bid price was $206,465 when the Property's "appraised cap value [in] 2018 was $228,217." (doc. 18 at 5.) Even if these allegations are liberally construed as having been raised in an amendment to the petition,
Moreover, Plaintiffs' allegations that they remain in possession of the Property is fatal to any wrongful foreclosure action because recovery for wrongful foreclosure "is based on the mortgagor's [lost] possession."
Defendant argues that Plaintiffs' breach of contract claim fails because they lack standing
"As a general rule [in Texas], only parties to a contract and their successors-in-interest have standing to assert defects in the contract or seek its enforcement through breach claims." Priester v. Long Beach Mortg. Co., No. 416CV00449ALMCAN, 2016 WL 9504324, at *7 (E.D. Tex. Dec. 16, 2016), adopted by No. 4:16-CV-449, 2017 WL 510350 (E.D. Tex. Feb. 8, 2017) (citing S. Tex. Water Auth. v. Lomas, 223 S.W.3d 304, 306 (Tex. 2007)); see also Kirby Lumber Corp. v. Williams, 230 F.2d 330, 332-33 (5th Cir. 1956) ("The only proper parties to a suit to foreclose a mortgage are the mortgagor and mortgagee and those whose interests have been acquired subsequently to the date of the mortgage.").
The petition alleges that Husband executed the Note; Plaintiffs did not sign the Note. (doc. 1-4 at 4, 7.) Plaintiffs argue that Wife has standing under the Note because the Property was awarded to her under a divorce decree, (id. at 7), and Defendant had approved her status as "successor in interest" to the Note, (doc. 18 at 6, 31).
The petition does not allege facts showing Eugene's standing under the Note. Moreover, Plaintiffs do not respond to Defendant's argument that Eugene's breach of contract claim should be dismissed for lack of standing. See Arias v. Wells Fargo Bank, N.A., No. 3:18-CV-00418-L, 2019 WL 2514998, at *7 (N.D. Tex. June 18, 2019) ("When a plaintiff fails to defend a claim in response to a motion to dismiss or summary judgment motion, the claim is deemed abandoned.") (citing Black v. Panola Sch. Dist., 461 F.3d 584, 588 n.1 (5th Cir. 2006)). Accordingly, Defendant's motion to dismiss Eugene's breach of contract claim for lack of standing should be granted.
Even assuming that Wife has standing to assert claims under the Note, the petition fails to identify a provision in the Note that was allegedly breached.
Here, the petition alleges that Wife was denied due process under the Note because she was not presented with the rights of presentment and notice of dishonor. (doc. 1-4 at 7.) It argues that Defendant breached the Note because it failed to provide her "notice that amounts due have not been paid." (Id.) In support, it references a provision in the Note titled "Waivers," which provides:
(Id. at 4 (quotations original)).
This provision does not establish the "rights" of presentment and notice dishonor that Defendant allegedly breached; these "rights" were expressly were waived under the Note. Because the petition fails to identify a promise or contractual provision that Defendant purportedly breached, Wife's breach of contract claim fails and should be dismissed. See Williams v. Wells Fargo Bank, N.A., 560 F. App'x 233, 238 (5th Cir. 2014) (finding plaintiffs' allegation that defendants "breached the deed of trust by deliberately or negligently accelerating the note and foreclosing on their property" failed to state a claim for breach where they failed to identify which provision of the deed of trust defendants allegedly breached); Coleman v. Bank of America, N.A., No. 3:11-CV-0430-G, 2011 WL 2516169, at *1 (N.D. Tex. May 27, 2011), adopted by 2011 WL 2516668 (N.D. Tex. June 22, 2011) (finding breach of contract claim failed where "plaintiff point[ed] to no specific provision in the Deed of Trust that was breached by defendant").
Defendant moves to dismiss Plaintiffs' request for declaratory judgment on the ground that they have failed to bring any viable claims against it. (doc. 16 at 16.)
The federal Declaratory Judgment Act (Act) provides that "[i]n a case of actual controversy within its jurisdiction, . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." 28 U.S.C. § 2201. The Act "does not create a substantive cause of action" and "is merely a vehicle that allows a party to obtain an early adjudication of an actual controversy arising under other substantive law." Metropcs Wireless, Inc. v. Virgin Mobile USA, L.P., 3:08-CV-165-D, 2009 WL 3075205, at *19 (N.D. Tex. Sept. 25, 2009) (citations and internal quotation marks omitted). The Act is an authorization and not a command, and allows federal courts broad, but not unfettered, discretion to grant or refuse declaratory judgment. Id.
Here, the petition requests that Defendant be ordered to (1) recognize Wife as the borrower and grantor under the Note, (2) stop all proceedings against the Property, and (3) enter into a loan modification naming Wife as the obligator with monthly payments of $1,500 for a six-month period. (doc. 1-4 at 8.) As discussed, Plaintiffs fail to state a plausible substantive claim for relief or show that a present genuine controversy exists between the parties. See Bell v. Bank of Am. Home Loan Servicing LP, No. 4:11-CV-02085, 2012 WL 568755, at *8 (S.D. Tex. Feb. 21, 2012) (denying plaintiff's request for declaratory judgment where she had alleged no facts leading to a conclusion that a present controversy existed between her and defendant); Turner v. AmericaHomeKey, Inc., No. 3:11-CV-0860-D, 2011 WL 3606688, at *5-6 (N.D. Tex. Aug. 16, 2011), aff'd by 514 F. App'x 513, 2013 WL 657772 (5th Cir. 2013) (declining to entertain plaintiff's request for declaratory judgment where he had not pleaded a plausible substantive claim). The petition therefore fails to state a claim in support of declaratory relief, and it should be dismissed.
Defendant seeks to dismiss any request for injunctive relief on grounds that it cannot survive without a viable cause of action. (doc. 16 at 16.)
"To obtain injunctive relief, a plaintiff is required to plead and prove, inter alia, `a substantial likelihood of success on the merits.'" Jackson v. Fed. Home Loan Mortg. Corp., 4:11-CV-507-A, 2011 WL 3874860, at *3 (N.D. Tex. Sept. 1, 2011) (citing DSC Commc'ns Corp. v. DGI Techs., Inc., 81 F.3d 597, 600 (5th Cir. 1996)). Here, the petition alleges that "[Wife] has been denied due process of a contractual agreement" and an injunction is necessary to "stop the threat or loss of liberty and property." (doc. 1-4 at 9.) It requests that Defendant be "temporarily enjoined and restrained from using in any manner whatsoever for commercial or personal use, damaging, destroying, losing, leasing, selling, transferring, or otherwise deposing[sic] of [the Property]." (Id. at 8-9.) Because Plaintiffs' substantive claims are subject to dismissal on the merits, they cannot establish any likelihood of success on the merits. See Jackson, 2011 WL 3874860, at *3. Plaintiffs' request for injunctive relief should be denied.
Defendant's motion for judgment on the pleadings should be
A copy of these findings, conclusions and recommendation shall be served on the parties in the manner provided by law. Any party who objects to any part of these findings, conclusions and recommendation must file specific written objections within 14 days after being served with a copy. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b). In order to be specific, an objection must identify the specific findings or recommendation to which objection is made, state the basis for the objection, and specify the place in the magistrate judge's findings, conclusions and recommendation where the disputed determination is found. An objection that merely incorporates by reference or refers to the briefing before the magistrate judge is not specific. Failure to file specific written objections will bar the aggrieved party from appealing the factual findings and legal conclusions of the magistrate judge that are accepted or adopted by the district court, except upon grounds of plain error. See Douglas v. United Servs. Automobile Ass'n, 79 F.3d 1415, 1417 (5th Cir. 1996).
