Engelhardt et al v. JP Morgan Chase Bank, National Association et al

Filing 30

MEMORANDUM AND ORDER granting 21 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM (Signed by Magistrate Judge George C. Hanks, Jr) Parties notified.(jegonzalez, )

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
STEVEN ENGELHARDT and RITA
ENGELHARDT,

9
9

8
5

Plaintiffs,

$ CIVIL ACTION NO. H- 12-3655

VS.

§

JPMORGAN CHASE BANK, NATIONAL 5
ASSOCIATION and CHASE BANK USA, $
N.A. et al.,
Defendants.

MEMORANDUM AND ORDER
Plaintiffs Steven and Rita Engelhardt have filed a lawsuit against Defendants
JPMorgan Chase Bank, National Association

and Chase Bank, USA, N.A.

("Defendants"). The parties have consented to the jurisdiction of this Court pursuant to
28 U.S.C. $ 636(c). (Dkt. 20). Before the Court is Defendants' Motion to Dismiss
Plaintiffs' First Amended Original Complaint. (Dkt. 21) The Engelhardts have filed a
Response to this Motion to Dismiss (Dkt. 27), and a hearing has been held. Having
considered the parties' briefing, the applicable legal authorities, and all matters of record,
the Court GRANTS the Defendants' Motion to Dismiss.

I.

BACKGROUND
In November 2012, the Engelhardts were the holders of several credit cards issued

by Chase. The Engelhardts used one of those, a Mastercard, while vacationing in
Mexico to purchase an interest in timeshare real estate. These timeshares were offered by
a Mexican corporation, The Grand Mayan Resorts. The Engelhardts' petition allege that

they "charged $8,363.00 on their credit card with Chase" as a deposit for the timeshare.
However, the Engelhardts at some point became dissatisfied with their purchase-they
allege that The Grand Mayan "coinmitted fraud and fraud in the inducement . . . and then
breached the [purchase] Contract before it could be cancelled." The Engelhardts' petition
alleges that they were among a number of people who used Chase credit cards to
purchase these tiineshares from The Grand Mayan Resort.

They allege that Chase

benefitted from their timeshare purchase by receiving a fee,' that Chase was aware at the
time of their transaction that other Chase cardmembers were unhappy with their
timeshare purchase, and that Chase was "aware of The Grand Mayan's improper and
wrongful business practices."
The Engelhardts' petition next alleges that, after they returned from their vacation,
they attempted to rescind their purchase of the timeshare and they alerted Chase "of the
problems, misrepresentations, fraud and breach of contract by The Grand Mayan." They
asked that Chase "backcharge" the $8,363.00 charge to their MasterCard.

The

Engelhardts allege that Chase responded by sending them a letter stating that "[Chase]
will pursue all options available to us to assist you in a favorable outcome" and
representing that it would "research" the dispute.
The Engelhardts allege that Chase sent an e-mail to The Grand Mayan but did
nothing more. Instead, Chase continued to apply the charge to their credit card bill. The
Engelhardts refused to make payments on the account, leading Chase to add interest to
I

"Chase gets paid a premium on each charge made by any customer who uses their Chase VISA
or MasterCard to make a downpayment or payment on a Grand Mayan Timeshare." First
Amended Original Complaint, 1VI.4. (Dkt. 12) and Affidavit of Steven Engelhardt (Dkt.27-2).

the charges and eventually make a negative report on the account to the credit reporting
agencies.

The Engelhardts complain that this negative report has resulted in their

inability to refinance their house and receive loans at "reasonable credit fees."
The Engelhardts allege that their contract with Chase promised that Chase would
conduct a "reasonable investigation'' into any disputed charges. They therefore brought a
lawsuit in state court against Defendants. Defendants removed the case to federal court
and filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). (Dkt.
4).

The Engelhardts then filed an amended complaint. (Dkt. 1 I). The Engelhardts'

current amended complaint asserts causes of action for breach of contract, gross
negligence, negligence and violations of the Texas Deceptive Trade Practices Act
("DTPA").

(Dkt. 12). They seek actual damages of $8,363.00, plus coinpensatory

dainages of $250,000, damages for mental anguish in the amount of $50,000, treble
dainages under the DTPA, punitive damages and attorneys' fees. Defendants' second
motion to dismiss-the

Motion before this Court-argues

that the Engelhardts' amended

coinplaint still fails to state a claim and that dismissal is required by Federal Rule of Civil
Procedure 12(b)(6).

Along with their Response to the Motion to Dismiss, the

Engelhardts have submitted an affidavit froin Steven Engelhardt that swears to many of
the facts alleged in their First Amended Original Petition.

11.

STANDARD OF REVIEW
The Federal Rules of Civil Procedure require that a complaint contain "a short and

.
plain statement of the claim showing that the pleader is entitled to relief." FED.R. C I V P.
8(a)(2). To satisfy this requirement, the statement must provide the defendant with "fair
3

notice of what the plaintiffs claim is and the grounds upon which it rests." Swierkiewicz
v. Sorema, 534 U.S. 506, 5 11, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002) (internal citations

omitted); see also Christopher v. Harbury, 536 U.S. 403, 416, 122 S.Ct. 2179, 153
L.Ed.2d 413 (2002) (the elements of the plaintiffs claims "must be addressed by
allegations in the complaint sufficient to give fair notice to a defendant"). If a complaint
fails to satisfy this requirement, it may be subject to dismissal pursuant to Federal Rule of
Civil Procedure 12(b)(6) by a motion urging that the claim fails to "state a claiin upon
which relief can be granted." FED.R. CIV. 12(b)(6). To survive a inotion for dismissal
P.
for failure to state a claim, a complaint "must contain . . . a short and plain statement . . .
showing that the pleader is entitled to the relief," so that the defendant has "fair notice of
what the . . . claim is and the grounds upon which it rests." FED. R. CIV.P. 8(a)(2);
Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1951, 173 L.Ed.2d 868 (2009).
In conducting this analysis, the complaint should be read in the light most
favorable to the nonmoving party, and all factual allegations in the coinplaint must be
taken as true. Bell Atl. v. Twombly, 550 U.S. 544, 554-55, 127 S.Ct. 1955, 167 L.Ed.2d
929 (2007); Hughes v. Tobacco Inst., 278 F.3d 417, 420 (5th Cir. 2001). However, the
Court is not required to accept conclusory legal allegations cast in the form of factual
allegations if they cannot be reasonably drawn froin the facts alleged. Twombly, 550 U.S.
at 570. To survive a inotion to dismiss. a "complaint inust contain sufficient factual
matter, taken as true, to state a claim for relief that is plausible on its face." Id.; see also
Elsensohn v. St. Tammany Parish Sheriff's OfJice, 530 F.3d 368, 372 (5th Cir. 2008). A
complaint "must contain either direct or inferential allegations respecting all the material
4

elements necessary to sustain recovery under some viable legal theory." Twombly, 550
U.S. at 562. Further, a "complaint must allege more than labels and conclusions, and a
formulaic recitation of the elements of a cause of action will not do." Norris v. Hearst
Trust, 500 F.3d 454,464 (5th Cir. 2007).
The factual allegations within a complaint, whether direct or inferred, must "raise
a right to relief above the speculative level." Twombly, 550 U.S. at 555. To meet the
appropriate standard of plausibility there must be enough facts within a complaint "to
raise a reasonable expectation that discovery will reveal evidence of the necessary claims
or elements."

Morgan v. Hubert, 335 Fed. App'x 446, 469 (5th Cir. 2009). This

evaluation is a "context-specific task that requires the reviewing court to draw on its
judicial experience and common sense." Iqbal, 129 S.Ct. at 1950. When reviewing a
motion to dismiss, a district court "must consider the complaint in its entirety, as well as
other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss.
in particular, documents incorporated into the coinplaint by reference, and matters of
which a court inay take judicial notice.'' Tellabs, Inc. v. Makor Issues & Rights, Ltd., 55 1
U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) (citations omitted).
111.

ANALYSlS

Defendants first allege that the Engelhardts' negligence and gross negligence
claims should be dismissed because they are barred by the economic loss rule and
because the Engelhardts' complaint failed to identify any duty Defendants owed to them.
Next, Defendants argue that the Engelhardts' breach of contract claim is deficient
because it does not identify the provision of the contract that Defendants are alleged to
5

have breached. Finally, Defendants argue that the Engelhardts' DTPA claiin should be
dismissed because the Engelhardts are not consuiners under the DTPA, and because they
failed to specifically identify which of Defendants' actions are alleged to have violated
the DTPA.
I . The Economic Loss Rule.

The Court first turns to the Defendants' contention that the Engelhardts'
negligence and gross negligence claiins should be dismissed because they are barred by
the econoinic loss rule. Under Texas law, the "economic loss" rule provides that "[wlhen
the only loss or damage is to the subject matter of the contract, the plaintiffs action is
ordinarily on the contract.'' Southwestern Bell Telephone Co. v. DeLanney, 809 S.W.2d
493, 494 (Tex. 1991). The Texas Supreme Court recently cautioned, however, "[Wle
have applied the economic loss rule only in cases involving defective products or failure
to perform a contract." Sharyland Water Supply Corp. v. City ofAlton, 354 S.W.3d 407,
415, 418 (Tex. 201 1). Thus, a party to a contract who files a lawsuit seeking economic
damages for a tort is not necessarily barred from bringing that claim. Id. at 418-19 (even
when a contract exists, economic losses may be still recovered for claiins of "negligent
misrepresentation, legal or accounting malpractice, breach of fiduciary duty, fraud,
fraudulent inducement, tortious interference with contract, nuisance, wrongful death
claiins related to loss of support from the decedent, business disparagement, and some
statutory causes of action") (citations omitted).
To determine whether the economic loss rule bars a tort claim, courts must
consider "both the source of the defendant's duty to act (whether it arose solely out of the
6

contract or from some common-law duty) and the nature of the remedy sought by the
plaintiff." Formosa Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc., 960
S.W.2d 41, 45 (Tex. 1998) (quoting Crawford v. Ace Sign, Inc., 917 S.W.2d 12, 12 (Tex.
1996)). At oral argument, the Engelhardts could not point to any legal authority that
created a duty owed to them by Chase, other than the cardmember agreement.* The
Court therefore concludes that the economic loss rule bars the Engelhardts' claims for
negligence and gross negligence because the only source of Defendants' alleged duties to
the Engelhardts is the cardinember agreement between the Engelhardts and Chase.
Accordingly, the Court GRANTS Defendants' Motion to Dismiss the Engelhardts'
claiins for negligence and gross negligence pursuant to Federal Rule 12(b)(6).
2.

The Engelhardts' Claim for Breach of Contract.

Defendants further argue that the Engelhardts' claims for breach of contract
should also be dismissed. Defendants complain that the Engelhardts' pleading regarding
the alleged breaches is too general to withstand scrutiny. The Engelhardts failed to attach
a copy of their Cardmember Agreement to their pleadings. Defendants have instead
attached the relevant Agreement, and contend that a review of that agreement in light of
the alleged facts shows that the Engelhardts cannot plead a claim for breach of the
agreement under these facts.
Although the Court should not normally go outside the pleadings in considering a
motion to dismiss, an exception to this rule is allowed where a plaintiff sues on a contract
2

At the hearing, Steven Engelhardt appeared as counsel for himself and for his wife. Mr.
Engelhardt is a licensed attorney in the State of Texas and is listed among the counsel in this
case.
7

but fails to attach the contract and the Defendant then supplies the relevant contract in its
motion to dismiss. See, e.g., In re Heartland Payment Systems, Inc. Customer Data Sec.
Breach Litigation, 834 F.Supp.2d 566, 577 (S.D. Tex. 201 1). The Engelhardts raised no

objection to the Cardmember Agreement attached to Defendants' pleadings.

At the

hearing on the Motion to Dismiss, Steven Engelhardt alluded to a letter he received from
Chase as somehow becoming a binding contract between the Engelhardts and Chase, but
the pleadings that were actually filed by the Engelhardts make it clear that their breach of
contract claims are based upon the Cardmember Agreement alone.'
The essential elements of a breach of contract claim include: "(1) the existence of
a valid contract; (2) performance or tendered performance by the plaintiff; (3) breach of
the contract by the defendant; (4) damages sustained as a result of the breach." Winchek
v. Am. Express Travel Related Servs. Co., 232 S.W.3d 197, 202 (Tex. App.-Houston

[lst Dist.] 2007, no pet.). The agreement attached to Defendants' Motion to Dismiss
contains two provisions relevant to this dispute. The first provision is entitled "What to
Do if You Find a Mistake on Your Statement," and instructs cardmembers on what to do
"if you think there is an error on your statement."ht allows a cardmember to notify
Defendants that the cardinember believes that Defendants have made an alleged error on
For example, paragraph V1.9 states, "In the cardholder's agreement Chase promised upon
receipt of Engelhardt's documentation 'to investigate' Engelhardt's request." First Amended
Original Complaint, 7 VI.9. (Dkt. 12). Similarly, the affidavit of Steven Engelhardt states "The
contract clause in the cardmember agreement described in Plaintiffs' First Amended Original
Complaint establishes Chase's obligation to 'investigate' our request for the backcharge."
(Dkt.27-2, 7 8, 10). Although Mr. Engelhardt sought to imply that perhaps some other
documents created a binding contract between himself and Chase, the Engelhardts have had two
opportunities actually plead that contention and, and have failed to do so.
Cardmember Agreement, Dkt. 21 -2, pg. 5.

the credit card statement, sending written notice explaining "what you believe is wrong
This is the provision upon which the Engelhardts
and why you believe it is a mi~take."~
base their claiin for breach of contract, alleging that they alerted Defendants of their
dispute with The Grand Mayan Resort and complaining that Defendants did not properly
investigate their claim. However, even a cursory review of the Engelhardts' pleadings
reveals that this "error on your bill" provision does not govern this case.

The

Engelhardts' pleadings repeatedly admit that they did buy the timeshare interest at issue,
and that the $8,363.00 charge was authorized by them.

Thus, the Engelhardts do not

allege that Defendants made a mistake or error in the account statement. Instead, the
Engelhardts' pleadings only complain that they purchased the interest in the tiineshares
but then became unhappy with their purchase and wanted their money back.
Accordingly, it is the second provision in the Cardmember Agreement that
actually governs the factual scenario described by the Engelhardts in their pleadings.
This second provision-entitled
Card Purchases"-informs

"Your Rights if You are Dissatisfied with Your Credit

cardineinbers that particular procedures are to be followed if

they make a purchase with their card and later become dissatisfied with that transaction.
It states, "If you are dissatisfied with the goods or services that you have purchases with
your credit card, and you have tried in good faith to correct the problem with the
merchant, you may have the right not to pay the remaining amount due on the purchase."
However, this provision contains a limitation that contested purchases "must have been
made in your home state or within 100 miles of your current mailing address." The
Id.
9

Engelhardts plead that they are residents of Harris County, Texas, and that their purchase
from The Grand Mayan Resorts occurred in Nuevo Vallarta, Mexico. The Court takes
judicial notice of the fact that the purchase location of Nuevo Vallarta is neither in Texas
nor is it 100 iniles froin Harris County. Accordingly, under the plain terins of the
contract upon which they sue, the Engelhardts have failed to state a claim upon which
relief can be granted.
Where the plain terins of a contract show that plaintiffs cannot support their cause
of action, dismissal pursuant

12(b)(6) is appropriate.

to Rule

See, e.g.,

Mae v. U.S. Property Solutions, L.L. C., No. H-08-3588, 2009 WL 11727 11, 2 (S.D. Tex.

2009) (dismissing claim for breach of contract under Rule 12(b)(6) where plaintiffs failed
to plead which provision of contract had been breached, and court's review of contract
revealed that claim for breach was not viable). Accordingly, the Court hereby GRANTS
the Defendants' Motion to Dismiss the Engelhardts' claims for breach of contract.
3.

The Engelhardts ' Claimfor Violations of the DTPA.

The Court next turns to the Engelhardts' claims for violations of the DTPA.
Defendants argue that the DTPA claims must be dismissed because the Engelhardts are
not "consumers" who may recover under the DTPA.
To recover under the DTPA, a claimant must establish that: (1) he was a consuiner
of the defendant's goods and services; (2) the defendant committed false, misleading, or
deceptive acts in connection with the lease or sale of goods or services; and (3) such acts
were a producing cause of actual damages to the consuiner. Burroughs v. APS Int 'I, Ltd..
93 S.W.3d 155, 163 (Tex. App.-Houston

[14th Dist.] 2002, pet. denied). Whether a
10

plaintiff is a consumer under the DTPA is a question of law for the court to decide.

Rivera v. South Green Ltd. P'ship, 208 S.W.3d 12, 21 (Tex. App.-Houston

[14th Dist.]

2006, pet. denied). A consumer is an individual who seeks or acquires goods or services
by purchase or lease. Id. When the transaction at issue is merely a loan of money, a
plaintiff cannot establish consumer status and the DTPA does not apply. See Riverside

Nat'l Bank v. Lewis, 603 S.W.2d 169 (Tex. 1980). If, however, the loan is made for the
acquisition of a good or service, consumer status may be established. See, e.g., Flenniken

v. Longview Bank & Trust Co., 661 S.W.2d 705, 708 (Tex. 1983) (DTPA applied to
financing for purchase of a house because purchaser "did not seek to borrow money; they
sought to acquire a house."); Brown v. Bank of Galveston, 930 S.W.2d 140, 143 (Tex.
App.-Houston [14 Dist.] 1996) ("[Wlhere the extension of credit is incident to the sale of
goods or services and the conduct of the party extending the credit is intertwined in the
transaction, the borrower may be a consumer with respect to the creditor, as well as to the
seller, of the goods.").

On the other hand, "a bank's incidental acts in administering a

loan do not constitute an independent objective that takes the transaction out of

Riverside's denial of DTPA liability." McCaig v. Wells Fargo Bank (Texas), N. A., No.
C-11-351,2012 WL 3598256,4 (S.D. Tex Aug. 20,2012).
The Engelhardts argue that their contract with Chase contained a promise by
Chase to conduct a "reasonable investigation'' into any disputed charges. Accordingly,
they contend that their contract with Chase was for more than a mere loan of money and
they are consumers under the DTPA. The Court disagrees. First, as discussed above. the
Engelhardts' contention that Chase breached a contractual duty to investigate their
11

dispute with The Grand Mayan is not supported by the plain language of the Cardineinber
Agreement. Further, any duty that Chase may have had was incidental to the main
purpose of the Cardmember Agreement-an extension of credit for general purchases.
See, e.g., McCaig at *4. Accordingly, the Court GRANTS Defendants' Motion to

Dismiss the Engelhardts' DTPA claiin.
CONCLUSION
The Engelhardts have had ainple opportunity to plead their causes of action
against Defendants. A review of the Defendants' Motion to Dismiss shows that that the
9

Engelhardts' pleadings fail to state a claiin upon which relief may be granted and
Defendants' Motion to Dismiss should be GRANTED. Accordingly, the Court hereby
GRANTS Defendants' Motion and DISMISSES the Plaintiffs' claims in this case.

SIGNED at Houston, Texas on April

23

,2013.