Turnbow et al v. PNC Mortgage et al

Filing 18

OPINION AND ORDER granting 6 Motion to Dismiss for Failure to State a Claim. Case terminated. (Signed by Judge Melinda Harmon) Parties notified.(rvazquez)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
JEFFREY TURNBOW, et al,
Plaintiffs,
VS.
PNC MORTGAGE, et al,
Defendants.

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CIVIL ACTION NO. 4:12-CV-2835

OPINION AND ORDER

Pending before the Court is the Motion to Dismiss (Doc. 6) filed by Defendants
PNC Mortgage (“PNC”) and Deutsche Bank Trust Company Americas (“DBT”)
(collectively “Defendants”), Plaintiffs Jeffrey and Anita Turnbow’s (“Plaintiffs” or “the
Turnbows”) Response (Doc. 11), and Defendants’ Reply (Doc. 14). Having considered
Defendants’ motion, Plaintiffs’ response, and the reply thereto, the facts of this case,
and the relevant legal authority, the Court grants Defendants’ motion to dismiss.

I.

Background
In 2006, the Turnbows financed their purchase of the real property located at

9803 Deer Path Lane, Magnolia, Texas 77354, by executing a Note in favor of PNC and
a Deed of Trust to secure payment of the Note. Pl.’s Original Pet. Doc. 1-1, Ex. A (Loan
Modification Agreement) at 2. In December 2011, the Turnbows requested and were
approved for a loan modification that lowered their monthly payments. Doc. 1-1 at 3;
Doc. 1-1, Ex. A. The Turnbows’ original petition states that they “submitt[ed] all required
documents . . . in strict compliance with the loan modification agreement (the
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“Modification”).” Doc. 1-1 at 3 (emphasis supplied). However, the exhibits that the
Turnbows attached to their petition clearly demonstrate that is not the case.
The letter attached to the Modification instructed the Turnbows to return the
Modification by December 31, 2011 with an initial payment of $3,460.53, using certified
funds, which reflected the amount of the first payment under the modification
($2,753.53) as well as the modification closing costs ($725.00). Doc. 1-1, Ex. A at 1.
The Turnbows signed the Modification on January 12, 2012, and purchased a cashier’s
check for the initial payment on February 2, 2012. Doc. 1-1, Ex. B (Proofs of Payment)
at 1.

The Modification itself provided, “[The Turnbows] promise[] to pay monthly

payments of principal and interest in the amount of $2,735.53 beginning on the 1st day
of January, 2012. [The Turnbows] will continue to make monthly payments on the same
day each succeeding month until principal and interest are paid in full.” Doc. 1-1, Ex. A
at 3. The Turnbows did not submit their next monthly payment until February 2, 2012 in
the amount of $2,735.53. Doc. 1-1, Ex. B at 2. Their next payment was submitted on
March 4, 2012, and their last payment was submitted on April 12, 2012, which included
a late fee. Doc. 1-1, Ex. B at 3-5. On April 20, the April payment was returned to the
Turnbows with a letter stating that the amount was “not sufficient to reinstate your loan
from default.”

Doc. 1-1, Ex. B at 4-5.

The Turnbows argue that, “[i]n essence,

Defendants are attempting to foreclose after Plaintiffs’ loan has been modified and
Plaintiffs have performed under the terms of such modification.” Doc. 1-1 at 4.
Although Defendants were not required to accept the Turnbows’ overdue
submission of the Modification1, the record supports Defendants’ assertion that they did,

1

Paragraph 5 of the Loan Modification Agreements states, “[i]f the signed and notarized agreements are
not received by December 31, 2011, the offer to enter into a Loan Modification Agreement may be

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and accepted payments thereunder. Def.’s Mot. to Dismiss Doc. 6 at 2; Doc. 1-1, Ex. B.
Under the terms of the Modification, “[a]ll rights and remedies, stipulations, and
conditions contained in the Security Instrument relating to default in the making of
Payments under the Security Instrument shall also apply to default in the making of
modified payments hereunder.”

Defendants’ remedies for default under the Note

included foreclosure. Doc. 6-1, Ex. A (Note) ¶ 10.
On August 7, 2012, Defendants proceeded to foreclose the Property. Doc. 1-1 at
10. On August 8, 2012, the Turnbows filed their original petition against Defendants in
the 9th Judicial District Court of Montgomery County in order to forestall the foreclosure
sale. Doc. 1-1. In Plaintiffs’ original petition, they assert causes of action for breach of
contract,

fraud/intentional

misrepresentation,

constructive

fraud/negligent

misrepresentation, violations of the Texas Debt Collection Practices Act, and
declaratory and injunctive relief. Doc 1-1. On September 9, 2012, Defendants removed
that case to this Court under the Court’s diversity jurisdiction, and on November 9,
2012, Defendants filed their motion to dismiss under Rule 12(b)(6).

II.

Legal Standard
In order to survive a Rule 12(b)(6) motion to dismiss, a complaint, viewed in the

light most favorable to the plaintiff, must be “plausible on its face.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007))
(internal quotation marks omitted). “A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the reasonable inference that the

rescinded, and foreclosure may be initiated in accordance with the terms of your original agreement and
to the extent permitted by applicable law.”

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defendant is liable for the misconduct alleged.” Id. Determining the reasonableness of
such an inference is “a context-specific task that requires the … court to draw on its
judicial experience and common sense.” Id. at 679. While a court must accept all of
Plaintiff’s allegations as true, it is not bound to accept as true “a legal conclusion
couched as a factual allegation.” Twombly, 550 U.S. at 555 (quoting Papasan v. Allain,
478 U.S. 265, 286 (1986)).
Fraud claims must satisfy the heightened pleading standard set out in Federal
Rule of Civil Procedure 9(b): that “a party must state with particularity the circumstances
constituting fraud.” The Fifth Circuit interprets Rule 9(b) to require “specificity as to the
statements (or omissions) considered to be fraudulent, the speaker, when and why the
statements were made, and an explanation of why they were fraudulent.” Plotkin v. IP
Axess, Inc., 407 F.3d 690, 696 (5th Cir. 2005).
On a Rule 12(b)(6) review, the court may consider “documents attached to or
incorporated in the complaint and matters of which judicial notice may be taken.” U.S.
ex rel. Willard v. Humana Health Plan of Texas Inc., 336 F.3d 375, 379 (5th Cir. 2003)
(citing Lovelace v. Software Spectrum Inc., 78 F.3d 1015, 1017–18 (5th Cir. 1996)).
Matters of public record that appear in the record of the case may also be considered.
See Funk v. Stryker Corp., 631 F.3d 777, 780 (5th Cir. 2011). “A judicially noticed fact
must be one not subject to reasonable dispute in that it is either (1) generally known
within the territorial jurisdiction of the trial court or (2) capable of accurate and ready
determination by resort to sources whose accuracy cannot reasonably be questioned.”
FED. R. EVID. 201(b). Taking judicial notice of public records directly relevant to the

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issue in dispute is proper in a Rule 12(b)(6) review and does not transform the motion
into one for summary judgment. Funk, 631 F.3d at 780.

III.

Discussion
In their original petition, Plaintiffs attempt to assert the following claims: (1)

breach

of

contract;

(2)

fraud/intentional

misrepresentation;

(3)

constructive

fraud/negligent misrepresentation; (4) violations of the Texas Debt Collection Practices
Act; and (5) injunctive and declaratory relief. For the reasons stated below, Plaintiffs’
claims against PNC and DBT are subject to dismissal for failure to state a claim.
A.

Breach of Contract

Under Texas law, the essential elements of a breach of contract are: (1) the
existence of a valid contract; (2) performance or tendered performance by the plaintiff;
(3) breach of the contract by the Defendant; and (4) damages sustained by the plaintiff
as a result of the breach. Smith Int’l., Inc. v. Eagle Group, LLC, 490 F.3d 380, 386 (5th
Cir. 2007) (quoting Valero Mktg. & Supply Co. v. Kalama Int’l, LLC, 51 S.W.3d 345, 351
(Tex. App. 2001)). In the original petition, the Turnbows allege that Defendants are in
breach of the parties’ loan modification agreement (the “Modification”) based on
Defendants’ attempted foreclosure of their home despite the Turnbows “strict
compliance” with the Modification and Defendants’ accepting payments thereunder.
Doc. 1-1 at 5. Also, the Turnbows claim that Defendants have breached their contract
by failing to comply with the Housing and Urban Development (HUD) regulations
regarding loss mitigation strategies prior to acceleration and foreclosure. Doc. 1-1 at 45.
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In Defendants’ motion to dismiss, they argue that the Turnbows have not
complied with the terms of the Modification, and that the HUD regulations do not
support their breach of contract claim. Doc. 6 at 5-6. HUD regulations apply only to
FHA loans, and the Turnbows have not offered any facts to show that their loan is an
FHA loan. Doc. 6 at 5-6. Further, violations of HUD regulations cannot be used to
assert a breach of contract claim unless the regulations have been expressly
incorporated into the Note and Deed of Trust. Doc. 6 at 5-6. In their response, the
Turnbows do not assert any additional facts to support this claim, and, to the contrary
do not even mention the HUD regulations. Doc. 14.
The specifics of the Turnbows’ breach of contract claim are scant. What is clear
from the face of the original petition and the attached exhibits is that the Turnbows have
not performed or tendered performance. The exhibits show that the initial payment
under the Modification was due December 31 and was not received until sometime after
February 2.

Each subsequent payment was more than 30 days late (January 1

payment received February 2; February 1 payment received March 4; March 1 payment
received April 12). The Turnbows have not submitted evidence of any payments made
after the April 12 payment.

Since the Turnbows have not performed or tendered

performance under the terms of the Modification, they are unable to establish one of the
essential elements of their claim for breach of contract.
In the Turnbows’ response to Defendants’ motion to dismiss, they ignore
Defendants’ argument that they have failed to perform under the agreement, and
attempt to restyle the claim as one for breach of oral contract or promissory estoppel.
Pl’s Resp. Doc. 11 ¶ 15-26. These claims are likewise insufficient to state a plausible
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claim as any alleged oral promises fail to satisfy the statute of frauds. See Tex. Bus. &
Com. Code Ann. § 26.02(2)(b) (“a loan agreement in which the amount involved in the
loan agreement exceeds $50,000 in value is not enforceable unless the agreement is in
writing and signed by the party to be bound or by that party’s authorized
representative”); Bank v. Tex., N.A. v. Gaubert, 286 S.W.3d 546, 556 (Tex.App.-Dallas
2009, pet. dismissed) (holding that any modification of a contract within the statute of
frauds must itself satisfy the statute of frauds). At the time of the Modification, the
Turnbows’ unpaid principal balance was $498,251.97, clearly brining the Modification
within the statute of frauds. Additionally, page 8 of the Modification includes a “Notice of
No Oral Agreements” signed by the Turnbows. The Turnbows point out that the statute
of frauds is an affirmative defense that must be stated in a defendant’s pleading and
cannot be the basis of a motion to dismiss a plaintiff’s complaint.

Doc. 11 ¶ 16.

However, where, as here, the affirmative defense appears clearly on the face of the
pleadings, a court may dismiss a breach of contract claim under Texas law for failure to
state a claim. Conceal City, LLC. v. Looper Law Enforcement, LLC, 917 F. Supp. 2d
611, 620 (N.D. Tex. 2013).
Defendants’ alleged violations of the HUD regulations are likewise insufficient to
form the basis of the Turnbows’ breach of contract claim since the Turnbows have not
offered any facts to suggest that theirs is an FHA loan subject to the regulations, or that
the regulations have been expressly incorporated into their Note or Modification. See
Baker v. Countrywide Home Loans, Inc., 308-CV-0916-B, 2009 WL 1810336, at *5
(N.D. Tex. June 24, 2009) (citing Hernandez v. Home Savings Assoc. of Dallas, 606
F.2d 596, 601 (5th Cir. 1979) (“. . . . HUD regulations incorporated into mortgage
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documents become part of the contract”). For these reasons, the Turnbows’ breach of
contract claim fails as a matter of law.
B.

Fraud/Intentional Misrepresentation

To state a claim for fraud, a plaintiff must plead with factual particularity
under Rule 9(b) that (1) a material representation was made; (2) that the representation
was false when it was made; (3) the speaker knew it was false or made it recklessly
without any knowledge of the truth and as a positive assertion; (4) that the speaker
made the misrepresentation with the intent that the other party should act upon it; (5)
the party acted in reliance on the misrepresentation; and (6) the party thereby suffered
injury. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 758 (Tex. 2001). Plaintiffs must
plead the “who, what, when, and where” of the allegedly fraudulent misrepresentation or
conduct.
With regard to their fraud/intentional misrepresentation claim, the Turnbows
assert that Defendants “knowingly and/or recklessly misrepresented or failed to disclose
material facts relating to Defendants’ loan modification and foreclosure processes . . .
including but not limited to that (1) Defendants had properly processed modification
documents; (2) that Defendants would make their decision on [the Turnbows’]
modification within a specified time frame, although Defendants kept [them] waiting
months longer than promised; (3) that Defendants would not foreclose upon [the
Turnbows’] home despite payments make pursuant to the modification agreement; (4)
that Defendants had approved [the Turnbows’] loan modification, when it had not;
and/or (5) that Defendants had no intention to permanently approve [the] modification.”
Doc. 1-1 at 6. The Turnbows claim that they relied on these facts, and had they been
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aware of the true nature of Defendants’ business practices, they would have pursued
other options to prevent delinquency on their mortgage payments to avoid foreclosure.
Doc. 1-1 at 6.
These vague fraud allegations fail to satisfy the particularity required by Rule
9(b).

First, the allegedly fraudulent statements fail to meet the required elements

because Plaintiffs have not shown that they were false. Since the Turnbows defaulted
even under the modified payment schedule, the Court may assume that Defendants did
approve the Turnbows’ Modification, as they claim. Doc. 6 at 2.

Therefore, the

statements that Defendants had processed the Modification, would make a decision
regarding it, intended to approve it, did approve it, and would not foreclose upon the
Turnbows’ home if payments were made pursuant to the Modification were not false,
and the Turnbows are unable to prove an essential element of their claim.
The Turnbows’ allegations of fraud/intentional misrepresentation fail under the
economic loss rule as well.

Texas courts have an established state policy against

twisting breach of contract claims into tort claims, i.e., the economic loss rule bars tort
claims when the parties’ relationship and their attendant duties arise from a contract.
See, e.g., Arlington Home, Inc. v. Peak Envtl. Consultants, Inc., 361 S.W.3d 773 (Tex.
App. 2012) (The economic loss rule “generally precludes recovery in tort when the
only economic loss to the plaintiff is the subject matter of a contract.”); Sharyland Water
Supply Corp. v. City of Alton, 354 S.W.3d 407, 417 (Tex. 2011) (“When the injury is only
the economic loss to the subject of a contract itself the action sounds in contract
alone.”). Under the rule, the court examines two factors: the source of the duty and the
nature of the remedy. The Turnbows’ fraud/intentional misrepresentation claim derives
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from the default and enforcement of the indebtedness at issue.

Their alleged tort

damages are economic and arise from claims dependent upon the existence of a
contract. See, e.g., Wiley v. U.S. Bank, N.A., No. 3:11–CV–1241–B, 2012 WL
1945614, at *12 (N.D. Tex. May 30, 2012). Therefore, under the economic loss rule,
the Turnbows are limited to recover under the contract only and may not assert a claim
in tort.
C.

Constructive Fraud/Negligent Misrepresentation

In order to state a claim for negligent misrepresentation, a plaintiff must show
that (1) the representation was made by a defendant in the course of his business; or in
a transaction in which he had a pecuniary interest; (2) the defendant supplied ‘false
information’ for the guidance of another; (3) the defendant did not exercise reasonable
care or competence in obtaining or communicating the information; and (4) the plaintiff
suffered pecuniary loss by justifiably relying on the representation. LHC Nashua P’ship,
Ltd. v. PDNED Sagamore Nashua, LLC, 659 F.3d 450, 458 (5th Cir. 2011).
Additionally, the misrepresentation must be in regard to an existing fact. Allied Vista,
Inc. v. Holt, 987 S.W. 2d 138, 141 (Tex.App.-Houston [14th Dist.] 1999, pet. denied).
The Turnbows claim constructive fraud/negligent misrepresentation based on the
same representations alleged in their fraud/intentional misrepresentation claim, except
they added two additional purported misrepresentations: (1) that the Turnbows must be
delinquent in their mortgage payments in order to be considered for loan modifications;
and (2) Defendants would convert the Turnbows to a permanent modification when they
made the payments required by the trial modification agreements. Doc. 1-1 at 7-8. The
Turnbows constructive fraud/negligent misrepresentation claims also fail for multiple
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reasons.
First, the representations that Defendants “would make decisions in a specified
time frame,” “would not foreclose,” and “would convert consumers to permanent
modifications” are not actionable because they do not constitute a representation of
existing fact, but rather contain allegations as to future conduct. A promise to refrain
from doing an act in the future is not actionable in a negligent misrepresentation claim.
Ellis v. PNC Bank, N.A., No. 4:11-CV-03990, 2012 U.S. Dist. LEXIS 100384, at *11-12
(S.D. Tex. Jul. 19, 2012) (citing Ezennia v. Wells Fargo Bank, N.A., No. 4:10-CV-05004,
2012 U.S. Dist. LEXIS 60086, 2012 WL 1556170, at *6 (S.D. Tex Apr. 27, 2012).
The only remaining allegations of negligent misrepresentation that might
plausibly state a claim, that the Turnbows must be delinquent to be considered for the
loan modification, that Defendants had properly processed the loan modification
documents, and that the Turnbows had been approved for the Modification, are also
insufficient to state a claim. The Turnbows offer no facts as to the “who, what, when,
and where” of the statements, and again, they fail to allege how these
misrepresentations were false or material since they were ultimately approved for the
Modification. Finally, like the Turnbows’ claims for intentional misrepresentation, these
claims sounds in contract and fall under the economic loss rule. As such, the Turnbows
have failed to plead all the essential elements of a negligent misrepresentation action
and their claim must be dismissed.
D.

Texas Debt Collection Practices Act

The Turnbows allege that Defendants have violated the Texas Debt Collection
Practices Act (TDCPA) by (1) falsely representing the status or nature of the services
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rendered in violation of section 392.304(19); and (2) using false representations and
deceptive means to collect a debt or obtain information concerning a consumer in
violation of section 392.304(10). Doc. 1-1 at 8-9. The Turnbows allege that these
unspecified false representations caused them injury. The petition’s allegations are
conclusory. See e.g., Franklin v. BAC Home Loans Servicing, L.P., No. 3:10-CV-1174M, 2011 WK 248445, at *3 (N.D. Tex Jan 26, 2001) (“Merely stating Defendant violated
the [TDCPA], without more factual allegations, is a legal conclusion couched as a
factual assertion, which does not survive a motion to dismiss under the federal rules
and applicable law”). As such, the Turnbows’ allegations for violations of the TDCPA
must be dismissed.
E.

Injunctive and Declaratory Relief

Finally, the Turnbows request a temporary restraining order and preliminary
injunction preventing Defendants from selling or attempting to sell the Property under
the power of sale contained in the deed of trust. Doc. 1-1 at 10. The Turnbows also
seek a declaration that they are not in default under the terms of the Note and Deed of
Trust. Under Texas law, “[i]njunctive relief is simply a form of equitable remedy.” Cook
v. Wells Fargo Bank, N.A., No. 3:10–CV–0592–D, 2010 WL 2772445, at *4 (N.D. Tex.
2010) (citing Brown v. Ke-Ping Xie, 260 S.W.3d 118, 122 (Tex. App. 2008)). To sustain
a claim for injunctive relief, a plaintiff must first plead a viable underlying cause of
action.

Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002). Similarly, a

declaratory judgment claim cannot stand alone because it “is merely a procedural
device; it does not create any substantive rights or causes of action.” Sid Richardson
Carbon & Gasoline Co. v. Interenergy Res., Ltd., 99 F.3d 746, 752 n.3 (5th Cir. 1996).
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Where all the substantive, underlying claims have been dismissed, a claim for
declaratory judgment cannot survive. See Ayers v. Aurora Loan Servs., L.L.C., 787 F.
Supp. 2d 451, 457 (E.D. Tex. 2011) (dismissing claim for declaratory judgment where
all underlying substantive claims had been dismissed); Valdez v. Fed. Home Loan
Mortg. Corp., No. 3:11–CV–1363, 2011 WL 7068386, at *3 (N.D. Tex. 2011) (dismissing
claims for declaratory and injunctive relief under Rule 12(b)(6) where plaintiff failed to
state his underlying claims for trespass and to quiet title); James v. Wells Fargo Bank,
N.A., No. 3:11–CV–2228–B, 2012 WL 778510, at *4 (N.D. Tex. 2012) (dismissing claim
for declaratory relief where the “arguments for declaratory relief are unsupported by the
facts alleged”). Because Plaintiffs have not stated a single substantive claim for which
relief may be granted, their requests for injunctive and declaratory relief must also be
dismissed.

IV.

Conclusion
For the foregoing reasons, it is hereby
ORDERED that the Motion to Dismiss (Doc. 6) filed by Defendants PNC

Mortgage and Deutsche Bank Trust Company Americas is GRANTED, and Plaintiffs
Jeffrey and Anita Turnbow’s case is DISMISSED.
SIGNED at Houston, Texas, this 25th day of September, 2013.

___________________________________
MELINDA HARMON
UNITED STATES DISTRICT JUDGE

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