Benavides et al v. EMC Mortgage Corporation et al
MEMORANDUM AND ORDER granting in part 10 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM Motion for Judgment, or in the alternative, Motion for More Definite Statement; denying as moot 15 MOTION for Hearing re: 10 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM. (Signed by Judge Gregg Costa) Parties notified.(arrivera, )
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
§ CIVIL ACTION NO. 3-12-46
EMC MORTGAGE CORPORATION, §
SANTOS BENAVIDES, et al,
MEMORANDUM AND ORDER
The foreclosure crisis that has plagued the nation for more than five
years has generated a large number of filings in the federal courts. The usual
procedural path of these cases is that the plaintiff files an action in state
court challenging a threatened or actual foreclosure, and the out-of-state
lender then removes the case to federal court. Diversity of citizenship is
obvious in these homeowner-versus-lender cases so long as the lender does
not share residence with the homeowner.
But increasingly over the last year or so, foreclosure-related lawsuits
filed in state courts located in this district have also named an in-state
defendant, often a local law firm involved in carrying out the foreclosure.
This has not dissuaded many defendants from continuing to remove the
cases using the argument that the in-state defendant was improperly joined.
Plaintiffs then typically file motions to remand defending the legitimacy of
the claims alleged against the in-state defendant.
The results of these
jurisdictional battles have been mixed, turning in large part on the precise
nature of the claim asserted against the in-state defendant. Compare West v.
Citimortgage, Inc., No. H-12-1409, 2012 WL 3129127, at *3 (S.D. Tex. July
31, 2012) (granting motion to remand), and Boyle v. Wells Fargo Bank,
N.A., No. 4:11-cv-4006, 2012 WL 289881, at *5 (S.D. Tex. Jan. 31, 2012)
(same), with Brooks v. Ocwen Loan Servicing, LLC, No. H-12-1410, 2012
WL 3069937, at *4 (S.D. Tex. July 27, 2012) (denying motion to remand in
a case removed on improper joinder grounds), Order Adopting Report and
Recommendations, Esperanzate v. Mortg. Elec. Registration Sys., Inc., No.
3:12-cv-00043, Docket Entry No. 25 (S.D. Tex. Aug. 7, 2012) (same), and
Order on Motion to Remand, Welch v. Wells Fargo Bank, N.A., No. 4:12-cv01468, Docket Entry No. 27 (S.D. Tex. July 22, 2012) (same, by summary
The procedural history of the lawsuit Plaintiffs Santos and Carmen
Benavides filed in state court largely followed this emerging pattern. In
addition to suing their home mortgage servicer, Defendant EMC Mortgage
Corporation, and the holder of the mortgage loan, Defendant U.S. Bank
National Association (“USBNA”), Plaintiffs also brought claims against
EMC’s foreclosure counsel, the Texas-based law firm of Brice, Vander
Linden & Wernick, P.C. (“BVL”). Defendants removed the case, in part on
the ground that BVL was improperly joined. BVL also filed a motion to
dismiss. But although Plaintiffs objected to federal jurisdiction in the Joint
Discovery/Case Management Plan, they never filed a motion to remand.
This Court nonetheless has an obligation to raise an issue of subject
matter jurisdiction sua sponte and ordered the parties to submit briefing on
the issue. After considering that briefing, the arguments of counsel, the
allegations in Plaintiffs’ state court petition, and the applicable law, the
Court concludes that BVL was improperly joined, that diversity jurisdiction
exists in this case, and that Plaintiffs have not stated a possible claim against
BVL. BVL’s motion to dismiss is therefore GRANTED and Plaintiffs’
claims against it are DISMISSED WITH PREJUDICE.
In August 2005, Plaintiffs purchased a home in La Marque, Texas,
and financed the purchase by taking out a home mortgage loan from JLM
Direct Funding, Ltd. The loan was eventually sold to USBNA and serviced
by EMC. According to Plaintiffs, all went well until Mr. Benavides was
injured at his workplace, at which point the couple became unable to make
their mortgage payments. Plaintiffs allegedly contacted EMC to discuss a
loan modification and other alternatives to foreclosure but were rebuffed.
On February 7, 2012, the date of the scheduled foreclosure sale,
Plaintiffs brought suit in state court in Galveston County and won a
temporary restraining order forbidding Defendants from proceeding with the
foreclosure. EMC and USBNA removed the case to this Court on February
16, 2012, and BVL consented to removal shortly thereafter. In their notice
of removal, EMC and USBNA argued that jurisdiction was proper on both
federal question and diversity grounds. Plaintiffs did not move to remand
but did note their objection to federal jurisdiction in the Joint
Discovery/Case Management plan.
See Docket Entry No. 6 ¶ 5.
Subsequently, BVL filed a motion to dismiss on May 17, 2012, one day
before the case was reassigned to this Court. 1
A. The Test for Improper Joinder
Defendants’ notice of removal asserts two grounds for federal
jurisdiction: first, that a federal question exists because Plaintiffs based their
state law claims on alleged violations of the requirements of several federal
housing law guidelines; 2 and, second, that there is complete diversity of
In addition, EMC and USBNA have filed a motion for summary judgment on all of
Plaintiffs’ claims. The Court will address that motion in a future order.
Another court in this District recently held that a plaintiff’s invocation of the federal
HAMP, HAFA, and MHA programs’ rules and guidelines as the basis for his state law
claims does not give rise to federal question jurisdiction. See Goffney v. Bank of Am.,
N.A., No. H-12-1868, 2012 WL 4127952, at *4–5 (S.D. Tex. Sept. 17, 2012).
parties because in-state Defendant BVL had been improperly joined. Of
course, Defendants need establish only one of these jurisdictional bases for
the case to proceed in federal court. For the reasons discussed below, the
Court finds that diversity of citizenship exists because BVL was improperly
Under the doctrine of improper joinder, removal is proper if the
removing defendant can show that the nondiverse defendant was
fraudulently or improperly joined to destroy complete diversity. See Salazar
v. Allstate Tex. Lloyd’s, Inc., 455 F.3d 571, 574 (5th Cir. 2006). This
doctrine is a narrow exception to the complete diversity rule. McDonal v.
Abbott Labs., 408 F.3d 177, 183 (5th Cir. 2005).
“The Party seeking
removal bears a heavy burden of proving that the joinder of the in-state party
was improper.” Smallwood v. Ill. Cent. R.R. Co., 385 F.3d 568, 574 (5th
Cir. 2004) (en banc) (citation omitted).
To establish improper joinder, the party seeking removal must show
either: “(1) actual fraud in the pleading of jurisdictional facts, or (2) inability
of the plaintiff to establish a cause of action against the non-diverse party in
state court.” Gasch v. Hartford Accident & Indem. Co., 491 F.3d 278, 281
(5th Cir. 2007) (quoting Crockett v. R.J. Reynolds Tobacco Co., 436 F.3d
529, 532 (5th Cir. 2006)). Only the second test is at issue here. Under that
test, the removing party must show that “that there is no possibility of
recovery by the plaintiff against an in-state defendant, which stated
differently means that there is no reasonable basis for the district court to
predict that the plaintiff might be able to recover against an in-state
defendant.” Smallwood, 385 F.3d at 573. The Court should assess whether
a plaintiff has a reasonable basis for recovery by conducting “a Rule
12(b)(6)-type analysis, looking initially at the allegations of the complaint to
determine whether the complaint states a claim under state law against the
in-state defendant.” Id. “A motion to remand is normally analyzed with
reference to the well-pleaded allegations of the complaint, which is read
leniently in favor of remand under a standard similar to Rule 12(b)(6).”
Boone v. Citigroup, Inc., 416 F.3d 382, 388 (5th Cir. 2005). Despite this
lenient standard, a plaintiff is stuck with the allegations in the state court
petition at the time of removal. See Cavallini v. State Farm Mut. Auto Ins.
Co., 44 F.3d 256, 259–60, 265 (5th Cir. 1995) (citation omitted) (holding
that a plaintiff cannot defeat removal by filing an amended complaint in
B. Plaintiffs’ Claims Against BVL
Although most of Plaintiffs’ petition is focused on EMC’s alleged
misdeeds, Plaintiffs do assert three claims against BVL. First, they claim
that BVL violated the Texas Debt Collection Act’s ban on “threatening to
take an action prohibited by law,” Tex. Fin. Code Ann. § 392.301(a)(8),
when it threatened to foreclose before EMC had satisfied the requirements of
the federal Making Home Affordable (“MHA”) Program’s guidelines,
known as the “Handbook.”
See Docket Entry No. 1-4, at ¶ 31–32. Next,
they claim that BVL violated a separate Texas Debt Collection Act
prohibition on attempting to collect a debt by “misrepresenting the character,
extent, or amount of a consumer debt . . . .”
Tex. Fin. Code Ann.
§ 392.304(a)(8). Finally, they sue to quiet title in the property against BVL.
Other courts have recently rejected the legal plausibility of Plaintiffs’
first claim alleging that an attempt to foreclose when the lender has failed to
satisfy MHA “Handbook” requirements amounts to taking an action
“prohibited by law.” See, e.g., Nolasco v. CitiMortgage, Inc., H-12-1875,
2012 WL 3648414, at *6 (S.D. Tex. Aug. 23, 2012) (dismissing for failure
to state a claim under Rule 12(b)(6)); Brooks, 2012 WL 3069937, at *4
(finding no possibility of recovery on such claim in the context of an
improper joinder analysis).
One of those courts noted that another
subsection of the Texas Debt Collection Act provision that is the basis for
Plaintiffs’ claim states that the statute does not make unlawful a threat to
foreclose, that is, “exercising or threatening to exercise a statutory or
contractual right of seizure, repossession, or sale that does not require court
proceedings.” Nolasco, 2012 WL 3648414, at *6 (citing Tex. Fin. Code
Ann. § 392.301(b)(3)). In addition to this statutory exemption, the Brooks
court explained that violations of the Handbook’s guidelines are not
“action[s] prohibited by law” because the Handbook is just that, guidance,
and does not give rise to legally enforceable requirements or rights. See
Brooks, 2012 WL 3069937, at *4. The Court agrees with these decisions
and thus concludes there is no reasonable basis for the Court to predict that
Plaintiffs can prevail on their first claim.
Plaintiffs’ second claim—that BVL misrepresented “the character,
extent, or amount of a consumer debt” when, “despite repeated demands by
the Plaintiffs, [it] would [not] account for the actual amounts due and the
payments that were to be made by providing a payoff quote,” see Docket
Entry No. 1-4 ¶ 33 (citing Tex. Fin. Code Ann. § 392.304(a)(8))—is
unusual. The more common claim under this Texas Debt Collection Act
provision in foreclosure cases is that the defendant provided the plaintiff
with a payoff amount, but that the amount was inaccurate. See, e.g., Brooks,
2012 WL 3069937, at *4.
Plaintiffs’ claim, based on a failure to provide a payoff amount, is at
odds with the general principle that for “a statement to constitute a
misrepresentation under the TDCA, Defendants must have made a false or
misleading assertion.” Narvaez v. Wilshire Credit Corp., 757 F. Supp. 2d
621, 632 (N.D. Tex. 2010) (citation omitted). No such assertion is alleged in
Plaintiffs’ petition. Narrowing the focus to the particular statutory section
“misrepresenting the character, extent or amount of a consumer debt”
presupposes that a representation was made concerning the debt. Tex. Fin.
Code Ann. § 392.304(a)(8)). Indeed, Plaintiffs have not identified any case
law, nor could the Court find any, even hinting that a failure to provide a
debtor with a payoff quote can amount to a misrepresentation for purposes
of section 392.304(a)(8). Cf. Brooks, 2012 WL 3069937, at *4 (noting with
respect to a different claim that the plaintiff’s inability to cite “any
authority” for the claim it asserted led to the conclusion that there was no
reasonable chance of recovery for improper joinder purposes). And while a
number of fraud-based causes of action allow claims to be brought based on
both misrepresentations and omissions, those claims have materiality and
reliance elements that are absent from the Texas Debt Collection Act. See,
e.g., Williams v. WMX Techs., Inc., 112 F.3d 175, 177 (5th Cir.1997) (listing
the elements of Texas common law fraud) (citation omitted). Finally, even
in the more common situation when a plaintiff alleges that a defendant
provided an inaccurate payoff amount, a court recently found that the
plaintiff had no reasonable chance of recovery because he did not allege that
the payoff quote was false, only that it would be false if the foreclosure
never occurred because the quote included foreclosure fees. See Brooks,
2012 WL 3069937, at *4. There is thus no reasonable basis for this Court to
predict that Plaintiffs can prevail on their second claim against BVL. 3
Plaintiffs’ third and last claim against BVL is to quiet title in the
They allege that BVL (and EMC) “sought to enforce the
foreclosure sale . . . without full consideration of whether the Benavides’
exhausted each of the available foreclosure prevention and alternative
options” and that as a result “the Benavides’ have been damaged in that they
have unjustly lost the title to their homestead, they have been penalized with
incorrect and derogatory credit reporting, and they have lost the opportunity
to earn the incentive money offered to borrowers under the HAMP and
HAFA programs.” Docket Entry No. 1-4, at ¶¶ 41–42.
To state a claim in a suit to quiet title, Plaintiffs must show “(1) an
interest in a specific property, (2) title to the property is affected by a claim
Plaintiffs’ second claim is distinguishable from a similar claim brought in Boyle, 2012
WL 289881, at *5. In Boyle, the plaintiffs alleged that a failure to provide a payoff quote
constituted a violation of the TDCA’s subsection 392.304(a)(19). Id. That subsection,
which prohibits “using any other false representation or deceptive means to collect a
debt” is potentially broader than subsection 392.304(a)(8), at issue in this case, which
requires a “false or misleading assertion.” Narvaez, 757 F. Supp. 2d at 632.
by the defendant, and (3) the claim, although facially valid, is invalid or
unenforceable.” Strange v. Flagstar Bank, FSB, No. 3:11-cv-2642-B, 2012
WL 987584, at *4 (N.D. Tex. Mar. 22, 2012). Moreover, Plaintiffs must
prove their case on the strength of their own title, not the weakness of BVL’s
title. Woods v. Bank of Am., N.A., No. 3:11-CV-1116-B, 2012 WL 1344343,
at *9 (S.D. Tex. Apr. 17, 2012) (citation omitted); see Bell v. Bank of Am.
Home Loan Servicing LP, No. 4:11-cv-2085, 2012 WL 568755, at *7 (S.D.
Tex. Feb. 21, 2012) (citation omitted).
Plaintiffs’ claim against BVL is legally insufficient for at least two
fundamental reasons. First, BVL has no claim to the property in its own
right, as it was merely acting as EMC’s foreclosure counsel.
Plaintiffs’ claim hinges on their allegation that BVL’s title is flawed; they do
not plead that their own title is superior. See Bell, 2012 WL 568755, at *7
(dismissing suit to quiet title because the plaintiff did not “assert a superior
title, and alleges no facts to support a superior claim”). Because of these
defects, there is no reasonable basis for this Court to conclude that Plaintiffs
can prevail on this last claim against BVL.
Defendants therefore have met their heavy burden to show that BVL
was improperly joined. With BVL out of the picture, complete diversity
exists between the in-state Plaintiffs and out-of-state EMC and USBNA.
MOTION TO DISMISS
Because Plaintiffs do not have any possible claim under the “Rule
12(b)(6)-type analysis” that governs the improper joinder standard,
Smallwood, 385 F.3d at 573, their claims also fail the actual 12(b)(6)
See Brooks, 2012 WL 3069937, at *4, *6 n.41 (summarily
dismissing the plaintiff’s claims against an in-state law firm defendant after
holding that the law firm was improperly joined). BVL’s motion to dismiss
will be granted accordingly.
For the reasons discussed above, this Court has subject matter
jurisdiction over this case because BVL was improperly joined. BVL’s
Motion to Dismiss, Motion for Judgment or in the Alternative, Motion for a
More Definite Statement (Docket Entry No. 10) is GRANTED with respect
to the motion to dismiss pursuant to Rule 12(b)(6) and DENIED AS MOOT
with respect to the motion to dismiss pursuant to Rule 12(c) and the motion
for a more definite statement. Accordingly, BVL’s motion for a hearing on
its motion to dismiss (Docket Entry No. 15) is DENIED AS MOOT and
Plaintiffs’ claims against BVL are DISMISSED WITH PREJUDICE.
IT IS SO ORDERED.
SIGNED this 4th day of January, 2013.
United States District Judge
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