Sevilla et al v. Federal National Mortgage Association et al
Filing
32
ORDER granting 14 Motion for Judgment (Ordered by Judge Jane J. Boyle on 2/22/2017) (Judge Jane J. Boyle)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
JORGE LUIS SEVILLA and REYNA
TELLO,
§
§
§
Plaintiffs,
§
§
v.
§
§
FEDERAL NATIONAL MORTGAGE §
ASSOCIATION, BANK OF AMERICA, §
N.A., and SETERUS, INC.,
§
§
Defendants.
§
CIVIL ACTION NO. 3:15-CV-3594-B
MEMORANDUM OPINION AND ORDER
Before the Court is Defendants Federal National Mortgage Association (Fannie Mae) and
Seterus, Inc.’s (collectively Defendants) Motion for Judgment on the Pleadings (Doc. 14). For the
reasons set forth below, the Motion is GRANTED.
I.
BACKGROUND1
This case arises out of a dispute regarding the foreclosure of Plaintiffs’ property. On April 5,
2007 Plaintiffs Jorge Luis Sevilla and Reyna Tello purchased property located at 2660 Windswept
Lane, Mesquite, Texas 75118 (Property). Doc. 1-1, Pls.’ Compl. ¶ 12; Doc. 1-1, Special Warranty
Deed, Ex. A. To make the purchase, Plaintiffs executed a promissory note (Note) with Bank of
1
The Court draws its factual account from the allegations contained in Plaintiffs’ Original Verified Petition
and Application for Temporary Restraining Order and Temporary Injunction and Request for Disclosure.
Doc. 1-1 [hereinafter Pls.’ Compl.]. The Court also draws from Defendants’ briefing on their Motion before
the Court. Any contested facts are noted as such.
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America, N.A. (BANA) with an original principal amount of $142,900.00. Id. ¶ 13. To secure the
Note, Plaintiffs executed a deed of trust (DOT) the next day. Id. ¶ 13; Doc. 1-1, Deed of Trust, Ex.
B.
Several years later a Corporation Assignment of Deed of Trust (Assignment of DOT) was
filed in the Dallas County records that indicates Countrywide Home Loans, Inc. (Countrywide)
assigned the DOT on Plaintiffs’ Property to Fannie Mae in October 2011. Doc. 1-1, Assignment of
DOT, Ex. C. This Assignment of DOT creates the basis for most of Plaintiffs’ claims. Plaintiffs argue
that it must be void because there is no record of BANA assigning the DOT to Countrywide, so
Countrywide could not have the authority to then assign it to Fannie Mae. Doc. 1-1, Pls.’ Compl.
¶ 17. Essentially, Plaintiffs point to a gap in the chain of assignment.2
Based on the Assignment of DOT, Plaintiffs allege that in May 2012 Seterus, acting as
mortgage servicer for Fannie Mae, executed an Appointment of Substitute Trustee instrument that
replaced the original trustee named in the DOT. Id. ¶ 21. Plaintiffs further claim that Seterus filed
the same instrument again in July 2013 presumably to replace the trustee named in the May 2012
instrument. Id. ¶ 21, 24.
2
The Court notes that the record in this case contains a Corrective Assignment of Deed of Trust, that bears
on Plaintiffs’ standing, which was submitted by Defendant BANA in its Motion for Summary Judgment. (Doc.
16). Plaintiffs did not respond to BANA’s Motion, so the evidence was undisputed and established that
BANA—not Countrywide—made the transfer to Fannie Mae. Doc. 31, Mem. Op. & Order 7. In deciding
a Rule 12(c) Motion, however, only the content in the pleadings, exhibits attached to the pleadings or
referenced by the pleadings, and facts that the district court takes judicial notice of may be considered. 5C
Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1367 (3d ed.). Here, Fannie Mae and
Seterus did not attach the Corrective Assignment of DOT to their pleadings or otherwise reference it. And
BANA did not ask the Court to take judicial notice of the Corrective Assignment of DOT. So it was not
mandatory for the Court to do so. See Fed. R. Evid. 201(c). When BANA’s Motion was before the Court, the
Court exercised its discretion and did not judicially notice the Corrective Assignment of DOT, and the Court
declines to do so here as well. Id. Therefore, as it is not attached or judicially noticed, the Court declines to
consider it in its analysis because of the limited nature of a Rule 12(c) Motion.
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Plaintiffs allegedly made timely payments on the Note until late 2013, when Plaintiffs
experienced financial hardship. Id. ¶ 14. Plaintiffs purportedly contacted Seterus to try to resolve
their delinquency. Id. ¶ 25. Plaintiffs eventually executed a Loan Modification Agreement with
Seterus in May 2015. Id. ¶ 26. Under this new Loan Modification Agreement, Plaintiffs assert that
they tendered several payments to Seterus until they experienced another financial hardship and had
to again contact Seterus to discuss ways to resolve their delinquency. Id. ¶ 27. After numerous
purported conversations, Plaintiffs submitted another loan modification application. Id. ¶ 28–29.
Seterus acknowledged that application, but allegedly noted that it was missing documents and
maintained that a foreclosure sale was still possible. Id. ¶ 30. Seterus, however, went ahead with the
foreclosure sale, asserts Plaintiff, and the Property was sold to Fannie Mae for $163,400 in July 2015.
Id. ¶¶ 30–32.
Fannie Mae then served Plaintiffs with a Complaint for Forcible Detainer with a trial date
in October 2015. Id. ¶ 34. Plaintiffs filed their Original Petition in state court just days before Fannie
Mae’s case was scheduled for trial. See generally id. There Plaintiffs alleged the following causes of
action against Fannie Mae and Seterus: (1) wrongful foreclosure; (2) common law fraud; (3)
violations of Regulation O of Chapter 12 in the Code of Federal Regulations; (4) violations of the
Fair Debt Collection Practices Act (FDCPA) and the Texas Debt Collection Practices Act
(TDCPA); and (5) filing a false lien or claim. Doc. 1-1, Pls.’ Compl. ¶¶ 38–61. Defendants timely
removed to this Court in November 2015. See Doc. 1, Notice of Removal.
Fannie Mae and Seterus filed their Motion for Judgment on the Pleadings in June 2016. See
Doc. 14. Plaintiffs did not file a Response. As such, the Motion is ripe for the Court’s review.
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II.
LEGAL STANDARD
Federal Rule of Civil Procedure 12(c) provides that “[a]fter the pleadings are closed—but
early enough not to delay trial—a party may move for judgment on the pleadings.” Fed. R. Civ. P.
12(c); see also Fed. R. Civ. P. 7(a); 5C Charles Alan Wright et al., Federal Practice & Procedure
§ 1367 (internal footnotes omitted) (“Rule 7(a) provides that the pleadings are closed upon the filing
of a complaint and an answer (absent a court-ordered reply), unless a counterclaim, cross-claim, or
third-party claim is interposed, in which event the filing of a reply to a counterclaim, cross-claim, or
third-party answer normally will mark the close of the pleadings.”). The pleadings in this case are
closed and Fannie Mae and Seterus timely moved for judgment on the pleadings. See Docs. 1-1, Pls.’
Compl.; 9, Fannie Mae and Seterus’s Original Answer; and 14, Defs.’ Mot. J. on Pleads. Thus, the
Court may properly consider Defendants’ Rule 12(c) challenge.
A motion for judgment on the pleadings “is 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.” Herbert Abstract Co. v. Touchstone Props., Ltd., 914
F.2d 74, 76 (5th Cir. 1990). The standard for evaluating a Rule 12(c) motion is the same as the
standard for evaluating a Rule 12(b)(6) motion to dismiss for failure to state a claim. Doe v. Myspace,
Inc., 528 F.3d 413, 418 (5th Cir. 2008). The Court may look to “allegations in the complaint and
to those documents attached to a defendant’s motion to dismiss to the extent that those documents
are referred to in the complaint and are central to the claims.” Cox v. Cent. Insurex Agency, Inc., No.
3:11-cv-2267-B, 2012 WL 253882, at *2 (N.D. Tex. Jan 26, 2012) (citing Causey v. Sewell Cadillac-
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Chevrolet, Inc., 394 F.3d 285, 288 (5th Cir. 2004)).
Under Rule 8(a)(2) of the Federal Rules of Civil Procedure, a complaint must contain “a
short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P.
8(a)(2). Rule 12(b)(6) authorizes a court to dismiss a plaintiff’s complaint for “failure to state a claim
upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). In considering a Rule 12(b)(6) motion
to dismiss, “[t]he court accepts all well-pleaded facts as true, viewing them in the light most favorable
to the plaintiff.” In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (quoting
Martin K. Eby Constr. Co. v. Dall. Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004)).
To survive a motion to dismiss, a plaintiff must plead “enough facts to state a claim to relief
that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “Threadbare
recitals of the elements of a cause of action, supported by mere conclusory statements, do not
suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Id. “The plausibility standard is not akin to a ‘probability
requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.
When well-pleaded facts fail to achieve this plausibility standard, “the complaint has alleged—but
it has not shown—that the pleader is entitled to relief.” Id. at 679 (internal quotation marks and
alterations omitted).
III.
ANALYSIS
The Court will first address Defendants’ two arguments that effect all of Plaintiffs’ claims, in
particular, that: (1) Plaintiffs lack standing, and (2) the recorded Assignment of DOT is not the
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operative document to be arguing over. Neither controls the outcome of this Motion. Thus, the
Court will then turn to Defendants’ attacks on the sufficiency of Plaintiffs’ pleadings. In light of these
attacks, the Court concludes that Plaintiffs failed to a claim on which relief may be granted.
A.
Plaintiffs’ Standing
Defendants first argue that Plaintiffs lack standing to challenge the assignment of their
mortgage because they are not parties to that assignment. Doc. 15, Defs.’ Br. in Supp. of Mot. J.
Pleads. ¶¶ 5–8 [hereinafter Defs.’ Mot. J. Pleads.]. Defendants request that the Court dismiss all of
Plaintiffs’ claims that stem from their challenge to the assignment. Id. ¶ 8. Plaintiffs did not file a
response.
Borrowers do have limited standing to challenge an assignment of their deed of trust even
if they are not parties to the assignment. Ferguson v. Bank of N.Y. Mellon Corp., 802 F.3d 777, 780–81
(5th Cir. 2015). Specifically, although “‘the law is settled’ in Texas that [a borrower] cannot defend
against an assignee’s efforts to enforce the obligation on a ground that merely renders the assignment
voidable at the election of the assignor, Texas courts follow the majority rule that the [borrower] may
defend ‘on any ground which renders the assignment void.’” Reinagel v. Deutsche Bank Nat. Trust Co.,
735 F.3d 220, 225 (5th Cir. 2013) (quoting Tri–Cities Const., Inc. v. Am. Nat. Ins. Col, 523 S.W.2d
426, 430 (Tex. Civ. App. 1975)). Only void assignments may be challenged by borrowers because
a void assignment would not pass title, and the borrower has an interest “to insure [sic] himself that
he will not have to pay the same claim twice.” Holloway v. Wells Fargo Bank, N.A., 3:12-cv-2184-GBH, 2013 WL 1187156, at *6 (N.D. Tex. Feb. 26, 2013) (quoting Tri-Cities Const., Inc., 523 S.W.2d
at 430).
One example of a challenge that would render the assignment merely voidable would be
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where the challenge is based on enforcing specific contractual terms in the assignment agreement.
Reinagel, 735 F.3d at 225; Deutsche Bank Nat’l Trust Co. v. Burke, 117 F. Supp. 3d 953, 959 (S.D.
Tex. 2015). And when an assignment is merely voidable, only the assignor, not the borrower, may
challenge it. Burke, 117 F. Supp. 3d at 959. A void assignment, by contrast, results in the event of
a forgery or a gap in the chain of title. Vazquez v. Deutsche Bank Nat’l Trust Co., 441 S.W.3d 783, 787
(Tex. App.—Houston [1st Dist.] 2014, no pet.); Miller v. Homecomings Financial, LLC, 881 F. Supp.
2d 825, 832 (S.D. Tex. 2012) (collecting cases). In that instance, the borrower himself can challenge
the assignment. See id.
In their Complaint, Plaintiffs challenge the assignment by calling it “void” and “fraudulent
on its face” because the initial Assignment of DOT listed Countrywide as the assignor, but
Countrywide lacked the authority to assign the DOT to Fannie Mae. Doc. 1-1, Pls.’ Compl. ¶ 17.
If Plaintiffs are correct, then the assignment would be void because “Texas courts routinely allow a
homeowner to challenge the chain of assignments by which a party claims the right to foreclose.”
Miller, 881 F. Supp. 2d at 832. This is because a gap in the chain of assignment indicates a failure to
pass title, and the borrower would then have an interest to ensure he would not have to pay the same
claim twice. See Holloway, 2013 WL 1187156, at *6.
Defendants argue that Plaintiffs’ challenge is not one that would render the assignment void
because Countrywide merged with BANA in 2009 and all of Countrywide’s assets became BANA’s
assets. See Doc. 15, Defs.’ Mot. J. Pleadings ¶¶ 7–15. Id. ¶ 7. Defendants reason that because of this
merger, it doesn’t matter if the Assignment of DOT bears Countrywide’s name or BANA’s because
in effect, it was the same entity. Id. And if it was the same entity, then BANA assigned the DOT
directly to Fannie Mae, and Plaintiffs’ challenge fails. Id.
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To support their position, Defendants cite to a case from the Southern District of Texas. Doc.
15, Defs.’ Mot. J. Pleads. ¶ 7; Wirsche v. Moncor, Inc., 7:12-cv-214, 2013 WL 127565, at *5 (S.D.
Tex. Jan. 9, 2013). The court was faced with the task of determining the date on which a note was
transferred from one entity to another. See Wirsche, 2013 WL 127565, at *5. The note was
transferred from Countrywide to BANA but it was undated. Id. The court determined that because
Countrywide merged into and was then operated as a part of BANA on April 27, 2009, at the very
latest, the note was transferred on April 27, 2009. Id. Defendants assert that this case supports their
position because it demonstrates that either BANA or Countrywide could have executed the
assignment to Fannie Mae in 2011, and it would have had the practical effect of being assigned from
BANA. See Doc. 15, Defs.’ Mot. J. Pleads. ¶ 7.
Another case from this district also addresses the Countrywide–BANA merger. There, the
court determined that the plaintiffs’ claims against Countrywide would be considered as if they were
also brought against BANA because of BANA’s status as Countrywide’s successor by merger.
Coleman v. Bank of N.Y. Mellon, 3:12-cv-4783-M-BH, 2016 WL 898860, at *1 n.2 (N.D. Tex. Mar.
9, 2016). The Texas Business Organizations Code addresses mergers and provides that “all rights,
title, and interests to all . . . property owned by each organization that is a party to the merger is
allocated to and vested . . . in one or more of the surviving or new organizations as provided in the
plan of the merger . . . .” Tex. Bus. Orgs. Code Ann. § 10.008(a)(2).
The cases and relevant statute indicate that any loans Countrywide came into the merger
with in 2009 likely became BANA’s Property. See Wirsche, 2013 WL 127565, at *5. But that is not
what happened here—this was a post-merger assignment executed in Countrywide’s name. And
Defendants provide no authority or other support as to whether an assignment executed after the
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merger, in Countrywide’s name, would nonetheless be treated as if BANA itself had assigned the
DOT. Resolving this dispute, then, will likely be more appropriate after the Court can consider
evidence beyond the pleadings.
In any event, the Court need not decide whether Plaintiffs have standing to challenge the
purportedly invalid assignment in order to consider the sufficiency of Plaintiffs’ pleadings. A
defendant’s argument that a plaintiff cannot challenge the validity of an assignment to which he was
not a party is a challenge to that plaintiff’s statutory standing, and not his Article III standing. Scott
v. Bank of America, N.A., SA-12-cv-00917-DAE, 2013 WL 1821874, at *4 n.2 (W.D. Tex. Apr. 29,
2013) (citing Blanchard 1986, Ltd. V. Park Plantation, LLC, 553 F.3d 405, 409 (5th Cir. 2008)). “A
federal court may not bypass the question of Article III standing—which goes to the court’s own
jurisdiction—but may assume statutory standing in order to reach the merits of a case.” Saucedo v.
Deutsche Bank Nat. Trust Co., SA-12-cv-00868-DAE, 2013 WL 656240, at *5 (W.D. Tex. Feb. 20,
2013) (citing Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 94, 97, 118 (1998) (rejecting the
practice of “assuming” standing for the purpose of deciding the merits, but distinguishing between
statutory standing and Article III standing); Taylor v. Acxiom Corp., 612 F.3d 325, 339–40 (5th Cir.
2010) (noting that the court need not address statutory standing after it affirmed the district court’s
dismissal under Federal Rule of Civil Procedure 12(b)(6)). Thus, assuming without deciding that
Plaintiffs have standing to challenge the assignment, the Court concludes, as discussed below, that
Plaintiffs have failed to state any claim upon which relief may be granted.
B.
Recorded Assignment
Defendants make a second argument with potential impact on all of Plaintiffs’ claims by
asserting that the recorded Assignment of DOT is not the operative document. Doc. 15, Defs.’ Mot.
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J. Pleads. ¶ 9. They reason that because the ability to foreclose on a deed of trust is transferred when
the note is transferred, any argument by Plaintiff as to a flaw in the recorded DOT does not speak
to the actual authority of Fannie Mae to foreclose. Id. Plaintiffs did not file a response. As Defendants
do not point out any argument made by Plaintiffs where they argue flaws in the recorded Assignment
of DOT, and because Plaintiffs fail to state a claim upon which relief may be granted as set forth
below, the Court need not consider whether the Assignment of DOT is the operative document.
C.
Wrongful Foreclosure
Plaintiffs bring a wrongful foreclosure claim against both Fannie Mae and Seterus. Doc. 1-1,
Pls.’ Compl. ¶¶ 38–42. Plaintiffs’ allegations rest on their theory that the DOT was wrongfully
assigned without authority by Countrywide. See id. ¶ 39. Plaintiffs reason that Fannie Mae’s
completion of a foreclosure sale without the proper authority and proceeding with the sale even after
Seterus had accepted Plaintiffs’ second loan modification application constituted a material defect
in the sale. Id. This resulted in a wrongful foreclosure, which allegedly led to a grossly inadequate
sales price and caused damages. Id.
In Texas, to prevail on a claim of wrongful foreclosure, Plaintiffs are required to 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.” Biggers v. BAC Home Loans
Servicing, LP, 767 F. Supp. 2d 725, 729 (N.D. Tex. 2011) (quoting Sauceda v. GMAC Mortg. Corp.,
268 S.W.3d 135, 139 (Tex. App.—Corpus Christi 2008, no pet.)). A grossly inadequate sales price
is one “so little as ‘to shock a correct mind, and thereby raise a presumption that fraud attended the
purchase.’” FDIC v. Blanton, 918 F.2d 524, 531 (5th Cir. 1990) (citing Richardson v. Kent, 47 S.W.2d
420, 425 (Tex. Civ. App. 1932)).
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Defendants argue that Plaintiffs failed to plead a claim on which relief can be granted because
they failed to allege an inadequate sales price resulting from the alleged defects. Doc. 15, Defs.’ Mot.
J. Pleads. ¶ 10. Defendants also allege that challenging the foreclosure is premature because Plaintiffs
have not yet been dispossessed of the Property. Id. ¶ 11. Plaintiffs did not file a response.
In Plaintiffs’ allegation of wrongful foreclosure, they simply state that Defendants’ actions
“resulted in a grossly inadequate and/or unfair sales price . . . .” Doc. 1-1, Pls.’ Compl. ¶ 39. Without
more, Plaintiffs have simply restated the element with no factual detail with which the Court could
reasonably infer that the sales price was inadequate. See Iqbal, 556 U.S. 678. Furthermore, in their
Complaint Plaintiffs state that the Property was purchased by a loan in the principal amount of
$ 142,900.00. Id. ¶ 13. Plaintiffs later state that at the foreclosure sale, the Property was sold for
$ 163,400.00. Id. ¶ 32. From the two numbers provided, it appears that Fannie Mae sold the Property
for more than the loan principal, and on the face of the Complaint, the Court cannot infer that the
sale price was so low as to shock a correct mind. See FDIC, 918 F.2d at 530–31. Therefore, Plaintiffs
failed to plead their wrongful foreclosure claim.
Even if Plaintiffs had adequately pled the elements of a wrongful foreclosure claim, they have
not established that they can bring the claim because it does not appear that they have been deprived
of possessing the Property. Recovery under wrongful foreclosure is premised on one’s dispossession
of real property, and individuals never losing possession of the property cannot recover on a theory
of wrongful foreclosure. Baker v. Countrywide Home Loans, Inc., 3:08-cv-0916-B, 2009 WL 1810336,
at *4 (citing Peterson v. Black, 980 S.W.3d 818, 823 (Tex. App.—San Antonio 1998, no pet.)). In
Baker, the Court found that even though foreclosure proceedings were commenced, the family
maintained possession of their homestead, without paying their mortgage, throughout the pendency
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of the lawsuit, and therefore could not bring a wrongful foreclosure claim. Id. at *4.
In their Complaint, Plaintiffs state that their present address is that of the Property at issue.
Doc. 1-1, Pls.’ Compl. ¶¶2–3. Therefore, as of the date of filing their Complaint, they continued to
reside at the foreclosed Property. Therefore, it appears from the Complaint that Plaintiffs maintain
their residence at the Property, and because Plaintiffs provide no argument to the contrary, the Court
cannot infer that they are entitled to bring a wrongful foreclosure claim. Therefore, the Court
GRANTS Defendants’ Motion as to the wrongful foreclosure claim and DISMISSES it without
prejudice.
D.
Regulation O
In their Complaint, Plaintiffs allege that Defendant Seterus violated Regulation O of
12 C.F.R. § 1015. Doc.1-1, Pls.’ Compl. ¶¶ 49–52. Plaintiffs argue that Seterus, acting as a “mortgage
assistance relief servicer,” violated Regulation O by making misrepresentations of material fact to
Plaintiffs. Id. ¶ 50. The misrepresentation allegedly stemmed from Seterus modifying Plaintiffs’
mortgage loan and accepting Plaintiffs’ payments under the modified loan when Seterus had no
lawful authority to take such actions. Id. ¶ 51. Plaintiffs reason that Seterus lacked authority because
it was acting on behalf of Fannie Mae, that never had an interest in Plaintiffs’ loan because the
Assignment of DOT to Fannie Mae was void. Id.
Defendants argue that Plaintiffs cannot bring a claim against Seterus under § 1015 because
Seterus is not a “mortgage assistance relief service provider” (MARS provider) as defined by the
regulation. Doc. 15, Defs.’ Mot. J. Pleads. ¶ 14. Defendants further argue that Fannie Mae and
Seterus are specifically excluded from the definition of a MARS provider. Id. ¶ 16. Defendants argue
in the alternative that there is no private right of action under § 1015.3. Id. ¶ 17. Plaintiffs did not
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file a response.
Section 1015.2 of the Code of Federal Regulation defines a MARS provider as follows:
any person that provides, offers to provide, or arranges for others to provide, any
mortgage assistance relief service. This term does not include:
(1) The dwelling loan holder, or any agent or contractor of such
individual entity.
(2) The servicer of a dwelling loan, or any agent or contractor of such
individual or entity.
12 C.F.R. § 1015.2. If the parties had agreed that Fannie Mae was the “dwelling loan holder” and
that Seterus was the “servicer,” then Defendants’ argument would be persuasive. There is, however,
a disagreement over which entity is the loan holder, so without deciding which entity holds the loan,
the Court cannot determine that Plaintiffs fail to state a claim using the definition of a MARS
provider.
In the alternative, Defendants argue that there is no private right of action provided under
§ 1015.3. The proper inquiry to determine whether there is a private right of action is to determine
whether the corresponding statute created a private cause of action or authorized the rule-making
agency to do so. Cases v. Am. Airlines, Inc., 304 F.3d 517, 520 (5th Cir. 2002) (citing Alexander v.
Sandoval, 532 U.S. 275, 291 (2001)). This is because “[l]anguage in a regulation may invoke a
private right of action that Congress through statutory text created, but it may not create a right that
Congress has not . . . .” Sandoval, 532 U.S. at 291. Defendants fail to cite to any case where a court
engaged in the analysis and concluded that there is no private right of action under Regulation O.
The Court need not conduct the analysis itself, however, because Plaintiffs nonetheless fail to
adequately plead a violation of it.
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Assuming that Seterus is a MARS provider and assuming that there is a private right of
action, Plaintiffs fail to allege facts from which the Court could infer a violation under Regulation
O. See Iqbal, 556 U.S. at 678. In their Complaint, Plaintiffs specifically allege that Defendants
violated four of Regulation O’s listed examples of prohibited misrepresentations made by MARS
providers. Doc. 1-1, Pls.’ Compl. ¶ 51. The first, § 1015.3(b)(2), prohibits misrepresentations
regarding the amount of time it will take for the MARS provider to accomplish any represented
service or result. Plaintiffs do not allege that Seterus made any representation regarding timing. The
second example listed, § 1015.3(b)(5), prohibits misrepresentations as to the terms or conditions of
the loan, including but not limited to the amount of debt owed. Plaintiffs fail to allege that Seterus
made any representation regarding the terms of the loan or the amount Plaintiffs owed. The third
example, § 1015.3(b)(6), prohibits misrepresentations regarding the terms or conditions of any
refund, cancellation, or repurchase policy for the MARS provider’s service. Plaintiffs do not allege
that they even retained Seterus’s service. Rather, Plaintiffs recognize that Seterus acted on behalf
of Fannie Mae. Doc. 1-1, Pls.’ Compl. ¶ 50. Therefore, the Court cannot infer that Seterus made a
misrepresentation about refunding a policy purchased by Plaintiffs when no such purchase was made.
The last misrepresentation Plaintiffs allege is under § 1015.3(b)(7), which prohibits
misrepresentations about whether a MARS provider’s services are complete and a provider’s right
to claim, demand, charge, collect, or receive payment or other consideration. As previously discussed,
Plaintiffs did not retain Seterus’s service, Fannie Mae did, so Plaintiffs’ allegations do not allow the
Court to reasonably infer that Seterus ever represented to Plaintiffs that it had completed a service
owed to Plaintiffs.
In light of the fact that Plaintiffs failed to allege facts from which the Court could reasonably
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infer Seterus violated Regulation O, the Court GRANTS Defendants’ Motion with regard to
Plaintiffs’ claims under Regulation O and DISMISSES them without prejudice.
E.
Texas Debt Collection Practices Act and Fair Debt Collection Practices Act
Plaintiffs bring a cause of action against Seterus under both the TDCPA and the FDCPA.
Doc. 1-1, Pls.’ Compl. ¶¶ 53–56. Plaintiffs argue that Seterus violated both statutes when it allegedly
held itself out as the loan servicer for Fannie Mae, accepted Plaintiffs’ application for another loan
modification but proceeded with a foreclosure sale instead of reviewing the new application, and
engaged in efforts to evict Plaintiffs. Id. ¶ 54. Plaintiffs reason that this list of actions constituted a
misrepresentation of the character, amount, or extent of the indebtedness to be collected. Id.
Furthermore, Plaintiffs allege that Seterus is a “third-party debt collector” and breached the duties
that go along with that title by “engaging in false, deceptive, and/or misleading acts or conduct when
communicating with Plaintiffs . . . .” Id. ¶ 55. The Court first addresses Plaintiffs’ allegations under
the TDCPA and then turns to the FDCPA.
1.
Texas Debt Collection Practices Act
As a preliminary matter, Plaintiffs fail to specify which sections of the TDCPA they bring
their claims under. In Plaintiffs’ Complaint, they cite to Texas Finance Code sections “392.001 et
seq.” and “392.301 et seq.” Doc. 1-1, Pls.’ Compl. ¶¶ 54–55. As it is unlikely that Plaintiffs intended
to bring claims under every section of the TDCPA, the Court construes their Complaint in the light
most favorable to them and considers their claims under § 392.301(a)(5) and § 392.301(a)(8). The
Court narrowed Plaintiff’s Complaint to these two sections by using Plaintiffs’ more specific reference
to § 392.301 as a guide. Section 392.301(a)(5) is relevant because of Plaintiffs’ reference to a “thirdparty debt collector” and § 392.301(a)(8) is relevant because Plaintiffs appear to paraphrase it in
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their Complaint.
Section 392.304(a)(5) addresses communications between third-party debt collectors and
borrowers. Specifically, it prohibits a “third-party debt collector” from “failing to disclose” (1) “that
the communication [with the borrower] is an attempt to collect a debt and that any information
obtained will be used for that purpose” if the communication is the initial written or oral
communication, or (2) “that the communication is from a debt collector” if the communication is
a subsequent written or oral communication. Tex. Fin. Code Ann. § 392.304(a)(5). A third-party
debt collector is a “debt collector” as defined under the FDCPA,3 but it does not include an attorney
collecting a debt as an attorney on behalf of and in the name of a client. Tex. Fin. Code Ann.
§ 392.001(7).
The Court concludes that Plaintiffs fail to allege facts sufficient for the Court to infer that
Seterus violated this provision. Plaintiffs simply state that Seterus is a third-party debt collector
without giving any support as to why. Furthermore, Plaintiffs fail to describe any communication
made by Seterus to Plaintiffs other than asserting that Seterus breached a duty by engaging in
misleading acts “when communicating with the Plaintiffs . . . .” Id. ¶ 55. Therefore, to the extent
Plaintiffs intended to bring a claim under § 392.301(a)(5), the Court DISMISSES it without
prejudice.
Section 392.304(a)(8) prohibits a “debt collector” from using “a fraudulent, deceptive, or
misleading representation that employs . . . misrepresenting the character, extent, or amount of a
3
A “debt collector” under the FDCPA is “any person . . . in any business the principal purpose of which is
the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed
or due or asserted to be owed or due another. 15 U.S.C. § 1692a.
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consumer debt . . . .” Tex. Fin. Code Ann. § 392.304(a)(8). A “debt collector” under the TDCPA
is “a person who directly or indirectly engages in debt collection and includes a person who sells or
offers to sell forms represented to be a collection system, device, or scheme intended to be used to
collect consumer debts.” Tex. Fin. Code Ann. § 392.001(6). “Debt collection” means an “action,
conduct, or practice in collecting, or in soliciting for collection, consumer debts that are due or
alleged to be due a creditor.” Tex. Fin. Code Ann. § 392.001(5).
From the Complaint, it appears that Plaintiffs stated that Seterus acted as a “debt collector”
as defined by the statute4 because they state Seterus engaged in “collecting and demanding
payments” with regard to Plaintiffs’ defaulted loan. Doc. 1-1, Pls.’ Compl. ¶ 54. Plaintiffs nonetheless
fail to plead this claim because they provide no facts indicating that Seterus ever gave Plaintiffs a
false impression of the amount of debt owed or the character of Plaintiffs’ debt. Indeed, all Plaintiffs
allege is that Seterus misrepresented the “character, amount or extent of the indebtedness to be
collected.” Doc. 1-1, Pls.’ Compl. ¶ 54. Plaintiffs provide merely a recitation of the elements without
any facts from which the Court could reasonably infer Seterus violated the statute. See Iqbal, 556
U.S. at 678. As such, the Court GRANTS Defendants’ Motion as to the TDCPA claims and
DISMISSES them without prejudice.
2.
Federal Fair Debt Collection Practices Act
Similar to their allegations under the TDCPA, Plaintiffs fail to point to a specific section of
the FDCPA that they allege Seterus violated. Defendants do not attempt to guess which section
4
Unlike under the FDCPA, as discussed below, mortgage servicers are considered debt collectors under the
TDCPA and are therefore subject to the provisions of the statute. Miller v. BAC Home Loans Servicing, L.P.,
726 F.3d 717, 723 (5th Cir. 2013).
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Plaintiffs intended to reference and instead argue that Plaintiffs cannot bring a claim under the
FDCPA because Seterus is not a “debt collector” as defined by the statute. Doc. 15, Defs.’ Mot. J.
Pleads. ¶ 25–26. Plaintiffs did not file a response.
The FDCPA defines a debt collector as “any person . . . in any business the principal purpose
of which is the collection of any debts, or who regularly collects or attempts to collect, directly or
indirectly, debts owed or due or asserted to be owed or due another.” 15 U.S.C. § 1692a(6). The
term “debt collector” does not include “any person collecting or attempting to collect any debt owed
or due or asserted to be owed or due another to the extent such activity . . . (iii) concerns a debt
which was not in default at the time it was obtained by such person.” 15 U.S.C. § 1692a(6)(F).
As discussed by the Fifth Circuit, “[t]he legislative history of section 1692a(6) indicates
conclusively that a debt collector does not include the consumer’s creditors, a mortgage servicing
company, or an assignee of a debt, as long as the debt was not in default at the time it was assigned.”
Perry v. Stewart Title Co., 756 F.2d 1197, 1208 (5th Cir. 1985) (citing S. Rep. No. 95-382, 95th
Cong., 1st Sess., at 3 (1977)). Defendants argue that Seterus conclusively falls outside the definition
of “debt collector” because it is a mortgage servicing company and because Fannie Mae acquired the
loan in 2013, before Plaintiffs were in default. Doc. 15, Defs.’ Mot. J. Pleads. ¶ 23. Defendants,
however, presuppose that the assignment to Fannie Mae was valid in 2013, a point that is still in
dispute. While Plaintiffs do not contest that they were in default beginning in 2013, they do dispute
that Fannie Mae actually acquired their loan. Therefore, there is an unresolved factual dispute over
when, if ever, the assignment was made to Fannie Mae. While it is likely that Seterus would not be
considered a debt collector if Fannie Mae acquired the loan in 2013 before Plaintiffs were in default,
the Court cannot conclude that Plaintiffs’ FDCPA claim fails for this reason because the transfer is
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in dispute and Seterus’s status as a debt collector is unclear.
Even if Seterus fell under the definition of “debt collector,” however, Plaintiffs still fail to state
a claim on which relief can be granted. Plaintiffs cite to the FDCPA as a whole in that they state
Seterus violated “§ 1601 et seq.” Plaintiffs’ allegations are so vague that the Court cannot guess
which section of the FDCPA Plaintiffs intend to bring their claims under. Furthermore, § 1601
cannot be used as a guide to determine what other sections Plaintiffs may refer to because it is the
Congressional Findings and Declaration of Purpose section of the subchapter on Consumer Credit
Cost Disclosure; the FDCPA is codified in a completely different subchapter. Compare 15 U.S.C. §
1601 with 15 U.S.C. § 1692. Without more, the Court cannot determine if Plaintiffs have alleged
enough facts from which the Court can infer a violation. See Iqbal, 556 U.S. at 678. Thus, the Court
GRANTS Defendants’ Motion as to the FDCPA claims and DISMISSES them without prejudice.
F.
Common Law Fraud and Misrepresentation
Plaintiffs bring a common law fraud and misrepresentation claim against both Fannie Mae
and Seterus. Doc. 1-1, Pls.’ Compl. ¶¶ 43–48. Under Texas law, the elements of common law fraud
are: “(1) a material misrepresentation; (2) that is false; (3) made with knowledge of its falsity or
recklessness as to its truth; (4) made with the intention that it should be acted upon by another
party; (5) relied upon by the other party, and (6) causing injury.” Flaherty & Crumrine Preferred
Income Fund, Inc. v. TXU Corp., 565 F.3d 200, 212 (5th Cir. 2009) (citing Ernst & Young, L.L.P. v.
Pac. Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001)).
Plaintiffs’ state-law fraud claims are subject to the heightened pleading standard of Federal
Rule of Civil Procedure 9(b). Sullivan v. Leor Energy, LLC, 600 F.3d 542, 550–51 (5th Cir. 2010).
Rule 9(b) requires that a plaintiff “state with particularity the circumstances constituting fraud or
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mistake.” Fed. R. Civ. P. 9(b). To satisfy Rule 9(b), the plaintiff must “specify the statements
contended to be fraudulent, identify the speaker, state when and where the statements were made,
and explain why the statements were fraudulent.” Sullivan, 600 F.3d at 551 (citing ABC Arbitrage
Plaintiffs Grp. v. Tchuruk, 291 F.3d 336, 350 (5th Cir. 2002)). Essentially, the plaintiff must set out
“the who, what, when, where, and how” of the fraud. Benchmark Elecs., Inc. v. J.M. Huber Corp., 343
F.3d 719, 724 (5th Cir. 2003) (quoting Williams v. WMX Techs., Inc., 112 F.3d 175, 179 (5th Cir.
1997)).
Plaintiffs are not clear on what they believe are fraudulent statements. In their Complaint,
Plaintiffs first recite several elements of a common law fraud claim. Doc. 1-1, Pls.’ Compl. ¶ 45.
Plaintiffs then turn to the Assignment of DOT as a basis for their fraud claim. Id. ¶ 46. Plaintiffs
repeat their contention that the Assignment of DOT is invalid because it bears Countrywide’s name.
Id. ¶ 46. From that contention, they determine that the Assignment was “fraudulent” and
Defendants’ actions based on that fraudulent Assignment constitute “false representations of
material fact which Plaintiffs relied upon to their detriment . . . .” Id. ¶ 46. Plaintiffs do not allege
that Seterus or Fannie Mae made any fraudulent statements to Plaintiffs. They then turn to the two
Appointments of Substitute Trustees. Id. ¶ 47. Plaintiffs argue that the Appointments were signed
by “robo-signors” and were therefore fraudulent or forged. Id. They reason that fraudulent or forged
Appointments constitute common law fraud and misrepresentation. Id.
Defendants reassert their standing argument because the fraud claim is based on an invalid
assignment, and in the alternative, Defendants argue that Plaintiffs failed to allege any facts that
could possibly establish that any representation made by Defendants in the assignment was false, that
Plaintiffs relied on any statements made by Defendants, or that Plaintiffs suffered any injuries. Doc.
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15, Defs.’ Mot. J. Pleads. ¶¶ 28–29. Plaintiffs did not file a response. As discussed above, the Court
need not resolve the standing issue, so the Court will consider Defendants’ argument that Plaintiffs
failed to allege facts from which the Court could infer Defendants’ engaged in common-law fraud.
Plaintiffs’ allegations that Defendants made misrepresentations by acting on an allegedly
invalid Assignment lack the necessary specificity to satisfy the Rule 9(b) heightened pleadings
standard. Such allegations fail to identify the contents, timing, or circumstances surrounding any
statement made by Seterus or Fannie Mae, and therefore do not set out those facts that the Fifth
Circuit has indicated are necessary to reach the level of particularity that is required under Rule 9(b).
See Sullivan, 600 F.3d at 551. Furthermore, Plaintiffs fail to point to a specific speaker. Besides failing
to adequately plead under the heightened standard, Plaintiffs fail to allege facts from which the Court
could infer Plaintiffs relied on any misrepresentation to their detriment, a required element under
the state law cause of action. See Flaherty, 565 F.3d at 212.
Plaintiffs’ allegations regarding the Appointments of Trustees have the same deficiencies as
discussed above; Plaintiffs fail to identify a speaker, they fail to identify a statement, they fail to
identify when or how any statement was made. And they fail to specify how they relied on any
alleged statement. As Plaintiffs have failed to include necessary facts for pleading a fraud claim, the
Court GRANTS Defendants’ Motion as to Plaintiffs’ fraud and misrepresentation claim and
DISMISSES it without prejudice.
G.
Civil Practice and Remedies Code § 12.002
Plaintiffs bring a claim against Fannie Mae and Seterus under Chapter 12 of the Texas Civil
Practices and Remedies Code. Doc. 1-1, Pls.’ Compl. ¶¶ 57–61. They argue that by filing the
Assignment of DOT with Countrywide’s name on it, and by later filing the Appointments of
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Substitute Trustees, Defendants filed a false lien or claim in violation of § 12.002.5 Id. ¶ 58. Plaintiffs
also call into question the authenticity and validity of the Assignment of DOT and both
Appointments of Substitute Trustees by deeming them forged, false, and fraudulent, and argue this,
too, constitutes filing a false claim or lien in violation of § 12.002. Id. ¶ 59.
To state a claim under § 12.002, a plaintiff must plead facts showing that the defendant:
(1) made, presented, or used a document with knowledge that it was a fraudulent lien
or claim against real or personal property or an interest in real or personal property,
(2) intended that the document be given legal effect, and (3) intended to cause the
plaintiff physical injury, financial injury, or mental anguish.
Ferguson v. Bank of N.Y. Mellon Corp., 802 F.3d 777, 783 (5th Cir. 2015) (citations omitted).
Defendants argue that the Court should dismiss Plaintiffs’ claim under § 12.002 because
assigning an interest in a deed of trust does not create a lien or claim as required by the statute’s
“fraudulent lien” language. Doc. 15, Defs.’ Mot. J. Pleads. ¶ 30. Defendants cite to a case from the
Eastern District of Texas and argue that the “[f]ederal district courts have found that, because an
assignment merely transfers an existing deed of trust, it does not create a lien or claim on real
property and, therefore, section 12.002 is inapplicable.” Id. ¶ 30. The case to which Defendants refer
relies on several opinions from the Eastern and Western Districts of Texas to conclude that
assignments do not fall under the statute because they do not create a lien. Scher v. Deutsche Bank
Trust Co. Americas, 4:13-cv-203, 2014 WL 11514689, at *5 (E.D. Tex. Feb. 25, 2014). The court
further determined that the plaintiffs failed to sufficiently state how the assignment at issue would
5
While Plaintiffs actually cite to “§ 12.001 et seq.” it appears to the Court that Plaintiffs intended to bring
a claim under § 12.002 specifically, so the Court will construe Plaintiffs’ Complaint as such. See Great Plains
Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 312 (5th Cir. 2002) (noting that pleadings
should be construed liberally when considering a Rule 12(c) motion).
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create a lien against the property. Id.
Defendants’ Eastern District case is not conclusive, however. The Fifth Circuit recently noted
that courts are not uniform in their application of § 12.002 because some hold that the statute
requires a plaintiff to plead facts showing the defendant used an instrument purporting to create a
fraudulent lien, but other courts do not require the creation of a lien. Ferguson, 802 F.3d at 783 n.11.
Due to the split in authority, the Fifth Circuit avoided weighing in on the split, and ruled on an
alternative ground instead. Id. The Southern District of Texas has followed its lead. Bonilla v. Wells
Fargo Bank, N.A., H-15-3412, 2016 WL 5661706, at *3 n.22 (S.D. Tex. Sept. 29, 2016). This Court
will do the same, and thus sets aside the issue of whether the “fraudulent lien” language encompasses
fraudulent assignments.
Here, regardless of whether the Assignment of DOT or the Appointments fall under the
statute, Plaintiffs have nonetheless failed to plead a claim on which relief may be granted. Most
strikingly absent is Plaintiffs’ failure to plead that Defendants’ actions intended to cause Plaintiffs
physical injury, financial injury, or mental anguish. Plaintiffs simply state that Defendants’ actions
caused them “actual damages” but they fail to specify what those damages are. See Doc.1-1, Pls.’
Compl. ¶ 60. Furthermore, Plaintiffs have pleaded no facts, beyond naked assertions to show that
Defendants knew the Assignment of DOT or the Appointments were fraudulent. As a result of this
insufficiency, the Court cannot infer that Defendants violated § 12.002. Therefore, the Court
GRANTS Defendants’ Motion as to the § 12.002 claim and DISMISSES it without prejudice.
H.
Equitable Relief
Plaintiffs request an accounting, injunctive relief, and a declaratory judgment. Doc. 1-1, Pls.’
Compl. ¶¶ 37, 40–41. The Court addresses each request separately below.
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1.
Accounting
Plaintiffs request an accounting from Defendant Rick Snoke. Doc. 1-1, Pls.’ Compl. ¶ 41.
Snoke was the Substitute Trustee appointed either by Seterus or Fannie Mae. See id. ¶¶ 7, 21, 23.
The Court dismissed Snoke from the case in August 2016. Doc. 19, Order. While Plaintiffs explicitly
request an accounting from Snoke alone, he is no longer a party in the case, so the Court will
consider Plaintiffs’ request in light of the remaining Defendants.
“An action for accounting may be a suit in equity, or it may be a particular remedy sought
in conjunction with another cause of action.” Brown v. Cooley Enters., Inc., No. 3:11-cv-0124-D,
2011 WL 2200605, at *1 (N.D. Tex. June 7, 2011). Plaintiffs have only asserted a right to an
accounting, so it is unclear whether Plaintiffs intend their request as a suit in equity or a remedy. If
Plaintiffs seek an accounting as a remedy rather than a cause of action, the Court cannot determine
whether it is an appropriate remedy until liability is determined. Peters v. JP Morgan Chase Bank,
N.A., 600 F. App’x 220, 225 (5th Cir. 2015).
If Plaintiffs seek an accounting as a separate, equitable cause of action, an accounting can be
appropriate when “the facts and accounts presented are so complex [that] adequate relief may not
be obtained at law.” Williams v. Wells Fargo Bank, N.A., 560 F. App’x 233, 243 (5th Cir. 2014)
(quoting T.F.W. Mgmt., Inc. v. Westwood Shores Prop. Owners Ass’n, 79 S.W.3d 712, 717 (Tex.
App.—Houston [14th Dist.] 2002, pet. denied)). But “[w]hen a party can obtain adequate relief at
law through the use of standard discovery procedures, such as requests for production and
interrogatories, a trial court does not err in not ordering an accounting.” T.F.W. Mgmt., 79 S.W.3d
at 717–18. Plaintiffs simply assert that they demand an accounting, but they fail to allege that they
are unable to obtain pertinent information through ordinary discovery procedures. See Doc. 1-1, Pls.’
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Compl. ¶ 41. Thus, their claim does not meet the standard of plausibility required. See Iqbal, 556 U.S.
at 678. The Court GRANTS Defendants’ Motion as to Plaintiffs’ accounting claim and DISMISSES
it without prejudice.
2.
Injunctive Relief
Plaintiffs also request a temporary injunction to stop Defendant Fannie Mae from evicting
Plaintiffs from the Property until all claims are fully adjudicated. Doc. 1-1, Pls.’ Compl. ¶¶ 36–37.
Defendants argue that the Court should deny Plaintiffs’ request for injunctive relief because Plaintiffs
have failed to demonstrate a likelihood of success on the merits of their claims. Doc. 15, Defs.’ Mot.
J. Pleads. ¶ 34.
To obtain a preliminary injunction, Plaintiffs must show: (1) a substantial likelihood of
success on the merits; (2) a substantial threat of immediate and irreparable harm for which they have
no adequate remedy at law; (3) that greater injury will result from denying the preliminary injunction
than from its being granted; and (4) that a preliminary injunction will not disserve the public
interest. Janvey v. Alguire, 647 F.3d 585, 595 (5th Cir. 2011). To establish a “substantial likelihood
of success on the merits,” Plaintiffs’ proof need not meet the standard required for summary
judgment. Id. at 595–96. Rather , the party need only present a prima facie case. Allied Home Mortg.
Corp. v. Donovan, 830 F. Supp. 2d 223, 227 (S.D. Tex. 2011) (citing 11A Charles Alan Wright,
Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 2948.3 (2d ed. 1995)).
Ordinarily, it will be enough if the plaintiff raises questions going to the merits “so serious,
substantial, difficult and doubtful, as to make them a fair ground for litigation and thus for more
deliberate investigation.” Id. (quoting Sebastian v. Texas Dep’t of Corrections, 541 F. Supp. 970, 975
(S.D. Tex. 1982)).
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Plaintiffs’ request for injunctive relief fails because they fail to demonstrate a substantial
likelihood of success on the merits. Because the Court has already disposed of all of Plaintiffs’ claims,
they cannot show any likelihood of success on the merits, much less a substantial one. The Court
therefore DENIES without prejudice the request for a preliminary injunction.6
3.
Declaratory Relief
Plaintiffs seek a declaratory judgment from the Court voiding the Substitute Trustee’s Deed,
which conveyed the Property to Fannie Mae following the foreclosure sale. Doc. 1-1, Pls.’ Compl.
¶ 40; see Doc. 1-1, Substitute Trustee’s Deed, Ex. J. Defendants seek to dismiss Plaintiffs’ request for
a declaratory judgment. Doc. 15, Defs.’ Mot. J. Pleads. ¶ 34. While they title a section of their brief
as “Plaintiffs’ Declaratory Judgment claim fails,” they argue only that injunctive relief would be
improper and fail to address declaratory relief at all. See id. Plaintiffs filed no response.
As an initial matter, Plaintiffs state in their Complaint that they seek declaratory relief under
the Texas Declaratory Judgment Act, but “[w]hen a declaratory judgment action filed in state court
is removed to federal court, that action is in effect converted into one brought under the federal
Declaratory Judgment Act.” Redwood Resort Props., LLC v. Homes Co., Ltd., No. 3:06-CV-1022-D,
2007 WL 1266060, at *4 (N.D. Tex. Apr. 30, 2007) (citing i2 Techs. US, Inc. v. Lanell, 3:02-CV0134-G, 2002 WL 1461929, at *7 n.5 (N.D. Tex. July 2, 2002)). The Court therefore analyzes
Plaintiffs’ claim under the federal Declaratory Judgment Act (DJA).
The DJA provides that “[i]n a case of actual controversy within its jurisdiction . . . any court
6
Plaintiffs’ Complaint also contains a request for a Temporary Restraining Order. Doc. 1-1, Pls.’ Compl.
¶ 36. The state court, however, issued a temporary restraining order in October 2015. Doc. 1-1, Temporary
Restraining Order, Ex. B-2. Therefore, the Court did not consider Plaintiffs’ request for one in deciding this
Motion.
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of the United States . . . 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(a).
The requirement of an “actual controversy” derives from the prohibition against federal courts issuing
advisory opinions. See Golden v. Zwickler, 394 U.S. 103, 108 (1969). “[T]he question in each case
is whether the facts alleged, under all the circumstances, show that there is a substantial controversy,
between parties having adverse legal interests of sufficient immediacy and reality to warrant the
issuance of a declaratory judgment.” Vantage Trailers, Inc. v. Beall Corp., 567 F.3d 745, 748 (5th Cir.
2009) (quoting MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007)).
The declaration Plaintiffs seek appears entirely derived from their other claims. Specifically,
the request for a declaratory judgment is within the same section in which Plaintiffs bring their
wrongful foreclosure claim. See Doc. 1-1, Pls.’ Compl. ¶¶ 38–42. Because the Court has already found
that Plaintiffs failed to state a wrongful foreclosure claim, there is no longer a “substantial controversy
. . . of sufficient immediacy” to warrant a declaratory judgment based on the same arguments. See
Vantage Trailers, 567 F.3d at 748. To the extent that Plaintiffs’ request relies on arguments besides
those connected with the wrongful foreclosure claim, the Court has dismissed all of Plaintiffs’ claims,
so regardless of what Plaintiffs base their request on, there does not appear to be a “substantial
controversy.” See id. Therefore, the Court GRANTS Defendants’ Motion as to the declaratory
judgment request and DISMISSES it without prejudice.
IV.
CONCLUSION
For the foregoing reasons, the Court GRANTS Defendants’ Motion for Judgment on the
Pleadings (Doc. 14). Plaintiffs’ claims are DISMISSED without prejudice, and the Court gives
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Plaintiffs an opportunity to replead.7 Their Amended Complaint is due by March 24, 2017.
SO ORDERED.
SIGNED: February 22, 2017.
_________________________________
JANE J. BOYLE
UNITED STATES DISTRICT JUDGE
7
Normally, courts will afford a plaintiff the opportunity to overcome pleading deficiencies, unless it appears
that the defects are incurable. See Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305,
329 (5th Cir. 2002) (“[D]istrict courts often afford plaintiffs at least one opportunity to cure pleading
deficiencies before dismissing a case, unless it is clear that the defects are incurable or the plaintiffs advise the
court that they are unwilling or unable to amend in a manner that will avoid dismissal.”) Here, Plaintiffs failed
to plead each of their claims with sufficient factual specificity. Given that this is the Court’s first review of
their pleadings, it is proper to grant Plaintiffs leave to amend their Complaint, if they can do so in a way that
overcomes the deficiencies identified in this Order.
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