Scarlott v. Ocwen Loan Servicing, LLC et al
Filing
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MEMORANDUM AND ORDER DENIED 30 MOTION to Reinstate Case. It is furtherORDERED that the Courts Order [Doc. # 29] dismissing the case withoutprejudice is MODIFIED to add the condition that should Plaintiff file another actionin federal court based generally on the same set of operative facts alleged in this case,or should Plaintiff commence such an action in state court and that action issubsequently removed to federal court, the parties must designate the new case arelated case to the instant action and will be assigned to this Court.(Signed by Judge Nancy F. Atlas) Parties notified.(sashabranner, 4)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
APRIL SCARLOTT,
Plaintiff,
v.
OCWEN LOAN SERVICING, LLC,
et al.,
Defendants.
§
§
§
§
§
§
§
§
CIVIL ACTION NO. H-13-2742
MEMORANDUM AND ORDER
This foreclosure case is before the Court on the Motion to Reinstate and
Dismiss with Prejudice [Doc. # 30] (“Motion”) of Defendants Ocwen Loan Servicing,
LLC (“Ocwen”) and Deutsche Bank National Trust Company, as Trustee, in trust for
registered holders of ABFC 2005-AQ1 Trust, Asset-Backed Certificates, Series 2005AQ1 (“Deutsche Bank,” and together with Ocwen, “Defendants”). Plaintiff April
Scarlott (“Scarlott” or “Plaintiff”) has responded [Doc. # 32] and Defendants have
replied [Doc. # 33]. Having considered the parties’ briefing and the applicable legal
authorities, the Court denies Defendants’ Motion. The Court, however, modifies its
previous Order [Doc. # 29] to impose certain conditions on Plaintiff should she sue
Defendants again on the same set of operative facts.
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I.
PROCEDURAL BACKGROUND
On January 10, 2014, the Court issued a Memorandum and Order dismissing
Plaintiff’s claims against Defendant AVT Title Services, LLC and ordering Plaintiff
to file an amended complaint to “clarify the facts, legal theories, and causes of action
applicable to each remaining Defendant” so that the Court could “ascertain whether
Plaintiff can state a claim on which relief can be granted.” Memorandum and Order
[Doc. # 18], at 14. Plaintiff filed an Amended Complaint [Doc. # 19] on January 24,
2014. Five days later, Defendants moved to dismiss that Complaint for failure to
state a claim [Doc. # 21]. On March 5, 2014, instead of responding to Defendants’
motion to dismiss (after being granted an extension of time), Plaintiff moved to
voluntarily dismiss her claims against Defendants without prejudice [Doc. # 28].
Plaintiff did not indicate, as required by the Local Rules of the Southern District of
Texas, see S.D. TEX. R. 7.1.D, that her motion was opposed by Defendants. The
Court granted Plaintiff’s motion and dismissed the case without prejudice [Doc.
# 29]. Defendants now ask the Court to reinstate the case and dismiss the action with
prejudice.
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II.
LEGAL STANDARD
Rule 59(e) permits a litigant to file a motion to alter or amend a judgment.1
FED. R. CIV. P. 59(e). Reconsideration of a judgment is an “extraordinary remedy,”
and Rule 59(e) serves a “narrow purpose” of allowing a party to bring errors or newly
discovered evidence to the Court’s attention. Templet v. Hydrochem, Inc., 367 F.3d
473, 479 (5th Cir. 2004). A litigant seeking relief under Rule 59(e) “must clearly
establish either a manifest error of law or fact or must present newly discovered
evidence.” Balakrishnan v. Bd. of Supervisors of La. State Univ. & Agr. & Mech.
Coll., 452 F. App’x 495, 499 (5th Cir. 2011) (citing Ross v. Marshall, 426 F.3d 745,
763 (5th Cir. 2005) (quotation marks and citation omitted)). A Rule 59(e) motion
“cannot be used to argue a case under a new legal theory.” Id. (citing Ross, 426 F.3d
at 763). A Rule 59(e) motion is also not a “vehicle for rehashing evidence, legal
theories, or arguments that could have been offered or raised before the entry of
judgment” but instead has a “narrow purpose of allowing a party to correct manifest
errors of law or fact or to present newly discovered evidence.” Templet, 367 F.3d at
478-79. Moreover, “an unexcused failure to present evidence available at the time
1
Because Defendants’ filed their Motion the same day as the Court’s order dismissing
the case without prejudice, the Court treats the Motion as one for reconsideration of
that order under Rule 59(e), which “must be filed no later than 28 days after the entry
of the judgment.” F ED. R. C IV. P. 59(e).
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of summary judgment provides a valid basis for denying a subsequent motion for
reconsideration.” Templet, 367 F.3d at 479 (citing Russ v. Int’l Paper Co., 943 F.2d
589, 593 (5th Cir. 1991)).
III.
ANALYSIS
As noted, the Court construes Defendants’ Motion as a motion to reconsider
its prior Order [Doc. # 29] granting Plaintiff’s Motion to Dismiss and dismissing
Plaintiff’s claims without prejudice. Defendants assert two arguments on why
Plaintiff’s claims should be dismissed with prejudice. First, Defendants argue that
this is Scarlott’s second suit based on the same set of operative facts that she has
voluntarily dismissed, and that under Rule 41 of the Federal Rules of Civil Procedure
her second notice of dismissal “operates as an adjudication on the merits.” Motion,
¶¶ 1, 4. Second, Defendants contend that even if Rule 41’s “two-dismissal” provision
technically does not apply under present circumstances, the Court in its discretion
should dismiss the case with prejudice. Reply, ¶ 1. The Court addresses each
argument in turn.
A.
“Two Dismissal” Rule
Rule 41 provides two methods by which a plaintiff may voluntarily dismiss an
action. First, “[a] plaintiff may dismiss an action without court order by filing “(i) a
notice of dismissal before the opposing party serves either an answer or a motion for
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summary judgment; or (ii) a stipulation of dismissal signed by all parties who have
appeared.” FED. R. CIV. P. 41(a)(1)(A). “[T]he effect of a Rule 41(a)(1) dismissal is
to put the plaintiff in a legal position as if he had never brought the first suit. The
plaintiff suffers no impairment beyond his fee for filing.” Yesh Music v. Lakewood
Church, 727 F.3d 356, 359 (5th Cir. 2013) (quoting Harvey Specialty & Supply, Inc.
v. Anson Flowline Equip. Inc., 434 F.3d 320, 324 (5th Cir. 2005)). A voluntary
dismissal without court order is presumed to be without prejudice unless the notice
of dismissal states otherwise. FED. R. CIV. P. 41(a)(1)(B). If, however, “the plaintiff
previously dismissed any federal- or state-court action based on or including the same
claim, a notice of dismissal operates as an adjudication on the merits.” Id.
Second, if a case does not fit the circumstances of Rule 41(a)(1), “[it] may be
dismissed at the plaintiff’s request only by court order.” FED. R. CIV. P. 41(a)(2).
The Fifth Circuit has stated that “[t]he primary purpose of rule 41(a)(2) is to prevent
voluntary dismissals which unfairly affect the other side, and to permit the imposition
of curative conditions.” Elbaor v. Tripath Imaging, Inc., 279 F.3d 314, 317 (5th Cir.
2002). A dismissal under Rule 41(a)(2) is normally without prejudice, unless the
court states otherwise. FED. R. CIV. P. 41(a)(2).
Rule 41(a)(1)’s “two dismissal rule”—that is, that a second voluntary dismissal
without court order acts as a “adjudication on the merits”—does not apply to
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dismissals made under Rule 41(a)(2). American Cyanamid Co. v. McGhee, 317 F.2d
295, 298 (5th Cir. 1963) (“We can read no two dismissal rule into Rule 41(a)(2).”);2
see also, e.g., ASX Investment Corp. v. Newton, 183 F.3d 1265, 1268 (11th Cir. 1999)
(“There is no two dismissal rule set out in Rule 41(a)(2) and we see no basis for
reading the two dismissal rule to apply where the first dismissal is achieved by
motion and order of the court.”); Manning v. S.C. Dep’t of Highway and Public
Transp., 914 F.2d 44, 47 n.3 (4th Cir. 1990) (citing 9 C. WRIGHT & A. MILLER,
FEDERAL PRACTICE & PROCEDURE § 2368, at 188 (1971)) (“The two dismissal rule
applies when the second dismissal is by notice, but not when the defendant is
dismissed by motion or by stipulation.”); Sutton Place Dev. Co. v. Abacus Mortg. Inv.
Co., 826 F.2d 637, 640 (7th Cir. 1987) (“[The two dismissal rule] does not apply to
a dismissal by stipulation nor to an involuntary dismissal nor to dismissal by court
order under Rule 41(a)(2).”). Unlike Rule 41(a)(1), Rule 41(a)(2) permits a court to
order dismissal “on terms that the court considers proper.” FED. R. CIV. P. 41(a)(2);
see American Cyanamid, 317 F.2d at 298. There are no “automatic consequences”
for dismissals under Rule 41(a)(2) that warrant application of the two dismissal rule
to voluntary dismissals made by motion and court order. Id.
2
While Rule 41 has been amended slightly since American Cyanamid, the substance
of the rule is unchanged.
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Scarlott moved for dismissal without prejudice on March 5, 2014, and the
Court granted the motion the following day.3 Because dismissal of this case occurred
as a result of a motion and court order under Rule 41(a)(2), and not by the Plaintiff’s
unilateral notice, the two dismissal rule of Rule 41(a)(1)(B) is not implicated. Thus,
the Court declines to dismiss this case with prejudice pursuant to Rule 41(a)(1)(B).
B.
Alternative Argument
Defendants also ask the Court to use its discretion to dismiss Scarlott’s claims
with prejudice. Defendants argue that Scarlott’s “only motivation in bringing both
the state court lawsuit and this lawsuit is delay,” noting that Scarlott has not paid her
mortgage in more than three years. Reply, ¶ 3. Defendants also note that Scarlott
“has provided no explanation of the need to dismiss her case.” Id., ¶ 4.
1.
Various Lawsuits and Allegations
On September 30, 2011, Scarlott sued Deutsche Bank and American Home
Mortgage Servicing, Inc. (collectively, the “State Court Defendants”) in Texas state
court, to prevent those parties from foreclosing on her property located at 4738
Caverm Dr., Friendswood, Texas, 77546 (the “Property”). See Original State Court
Petition [Doc. # 30-1], at 2. In that lawsuit, Scarlott asserted that the State Court
Defendants lacked standing to foreclose, that the loan on the Property was never
3
The Court erroneously believed the requested dismissal was unopposed.
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“perfected,” that Scarlott was not in default, and that the State Court Defendants
violated the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2601 et
seq., and sought a declaratory judgment that she owned the Property and that the State
Court Defendants had no standing to foreclose. See generally Original State Court
Petition, at 5-12. On March 1, 2013, after the State Court Defendants filed a motion
for summary judgment, Scarlott voluntarily dismissed that suit without prejudice by
notice of dismissal. See Plaintiff’s Notice of Non-Suit Without Prejudice [Doc. # 302]; Motion, at 2.
Scarlott filed this action on August 30, 2013, in the 11th Judicial District Court
of Harris County, Texas. Defendants removed the case to this Court on September
18, 2013. On January 10, 2014, the Court issued a Memorandum and Order denying
Scarlott’s Motion to Remand and granting former Defendant AVT Title Services
LLC’s Motion to Dismiss. The Court also denied Defendants’ Motion to Dismiss
without prejudice and ordered Scarlott to file an amended complaint “in order to
ascertain whether Plaintiff can state a claim on which relief can be granted as to the
remaining Defendants.” Memorandum and Order [Doc. # 18], at 14.
In her First Amended Complaint [Doc. # 19], Scarlott asserts five causes of
action against Defendants. First, Scarlott contends that Defendants lack standing to
foreclose on the Property because the note was improperly assigned to them and
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Defendants are not holders in due course. First Amended Complaint, ¶ 45. Scarlott
seeks a declaratory judgment that Defendants do not have the right to foreclose, that
the note underlying her mortgage “has been discharged and paid in fill,” and that the
note and deed of trust “have been separated or bifurcated.” Id., ¶ 50. Second,
Scarlott asserts a cause of action “for trespass to try title and to remove cloud on title”
on the grounds that “a party who is not the original lender must prove successive
transfers of possession and endorsement” of a note in order to enforce the note as its
holder. Id., ¶¶ 52-55. Third, Scarlott asserts claims of fraud and fraud in real estate,
alleging that the assignment to Defendants was assigned after “the cutoff date for the
transfer of all such instruments to the [t]rust pursuant to the Pooling and Servicing
Agreement.” Id., ¶ 57, 62. Fourth, Scarlott claims the Defendants violated the Fair
Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq., by threatening
to foreclose when they had no standing to do so. Id., ¶¶ 66-67.
2.
Rule 41(a)(2)
The Fifth Circuit has stated that “motions for voluntary dismissal should be
freely granted unless the non-moving party will suffer some plain legal prejudice . . .”
Elbaor, 279 F.3d at 317. Legal prejudice typically occurs “when a party proposes to
dismiss the case at a late stage of pretrial proceedings, or seeks to avoid an imminent
adverse ruling, or may on refiling deprive the defendant of a limitations defense.” In
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re FEMA Trailer Formaldehyde Products Liability Litig., 628 F.3d 157, 162 (5th Cir.
2010). “The primary purpose of this rule is to avoid voluntary dismissals which
unfairly affect the other side.” Harris v. Devon Energy Prod. Co., 500 F. App’x 267,
268 (5th Cir. 2012) (internal quotations omitted).
The “mere prospect of a second lawsuit” is an insufficient reason to deny a
motion for voluntary dismissal. Elbaor, 279 F.3d at 317. The dismissal here raises
the prospect of a third, not merely a second, lawsuit. Nevertheless, the principle of
avoidance of another lawsuit does not support the Court denying Scarlott’s motion
to dismiss or dismissing the case with prejudice. See, e.g., 404 Bay Valley Family
Land Trust v. Hughes Watters Askanase, LLP, 2014 WL 772953, at *4 (N.D.. Tex.
Feb. 27, 2014) (granting motion to voluntarily dismiss foreclosure case and
concluding that “plain legal prejudice” does not result from possibility that plaintiff
may file a new suit); Villanueva v. Wells Fargo Bank, N.A., 2013 WL 1148643, at *3
(N.D. Tex. Mar. 5, 2013) (holding, in foreclosure context, that “Defendant’s
contention that the prospect of incurring more fees to defend a new [lawsuit] cannot
support a finding of plain legal prejudice”).
This case does not fall neatly into the Fifth Circuit’s narrow definition of “legal
prejudice.” The case was pending in this Court for only six months before Scarlott
moved to dismiss, and thus was not at a “late stage of trial proceedings.” Similarly,
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the Court cannot conclude as a matter of law that Defendants’ Second Motion to
Dismiss, pending at the time Scarlott moved to dismiss, would have generated a
“imminent adverse ruling.” This case is unlike other appellate and district court
decisions where, for example, a motion for summary judgment or magistrate’s
recommendation to dismiss the case was pending that was likely to result in dismissal
of the case. See, e.g., Davis v. Huskipower Outdoor Equip. Corp., 936 F.2d 193, 199
(5th Cir. 1991). Furthermore, it does not appear that the parties have conducted
significant discovery in this case. See United States ex rel. Doe v. Dow Chemical
Co., 343 F.3d 325, 330 (5th Cir. 2003) (affirming denial of plaintiff’s motion to
voluntarily dismiss because parties had conducted significant discovery and had filed
many motions as a result).
On the other hand, certain factors unique to this case distinguish it from
previous cases where plaintiffs successfully moved for voluntary dismissal without
prejudice under Rule 41(a)(2). In Elbaor, the plaintiff sought relief for past allegedly
wrongful conduct by the defendants. Here, in contrast, the sole purpose of Scarlott
filing this case is to delay Defendants’ efforts to foreclose under the deed of trust on
her Property. Plaintiff has filed two cases and at least three different complaints
asserting claims concerning the Property, all to avoid foreclosure. She has been
living in the Property for more than three years without making mortgage payments.
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Plaintiff also has failed to explain why she desires dismissal of this action. See
Witzman v. Gross, 148 F.3d 988, 992 (8th Cir. 1998) (listing plaintiff’s “insufficient
explanation of the need to take a dismissal” as a factor to consider in denying a Rule
41(a)(2) motion for voluntary dismissal). Furthermore, it appears (although the Court
does not definitively rule) that many of Scarlott’s claims are barred or undercut by
recent Fifth Circuit precedent.4 See, e.g., Farkas v. GMAC Mortg., L.L.C., 737 F.3d
338, 342 (5th Cir. 2013) (fraud claims); Reinagel v. Deutsche Bank Nat’l Trust Co.,
735 F.3d 220, 225-29 (5th Cir. 2013) (standing to foreclose and fraud claims); Miller
v. BAC Home Loans Servicing, L.P., 726 F.3d 717, 722-23 (5th Cir. 2013) (FDCPA
claim); Martins v. BAC Home Loans Servicing, L.P., 722 F.3d 249, 252-56 (5th Cir.
2013) (standing to foreclose claim); see also Singha v. BAC Home Loans Servicing,
L.P., __ F. App’x __, 2014 WL 1492301, at *5-6 (5th Cir. Apr. 17, 2014) (trespass
to try title claim).
Because the Fifth Circuit has determined that Rule 41(a)(2) motions for
voluntary dismissal should be “freely granted” absent certain limited circumstances,
the Court reaffirms its prior Order [Doc. # 29] granting dismissal without prejudice
and denies Defendant’s Motion. In order to mitigate any potential prejudice to
4
It is noted that Scarlott’s counsel has filed similar suits in or removed to this district
and is undoubtedly familiar with this area of the law.
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Defendants that might result from this ruling, however, the Court imposes the
following conditions and issues the following warnings. See FED. R. CIV. P. 41(a)(2)
(allowing a court to order dismissal “on the terms the court considers proper”). If
Scarlott files another case in federal court based generally on the same set of
operative facts, or if she files that case in state court and the case is subsequently
removed to federal court, the parties must designate the new case a “related case” to
the instant action. The new action will be assigned to this Court. Moreover, Plaintiff
must strictly adhere in any new complaint to the requirements of Rule 11 of the
Federal Rules of Civil Procedure. See FED. R. CIV. P. 11(b) (stating that a pleading
filed by an attorney must “not be presented for any improper purpose,” that the claims
presented are “warranted by existing law or by a nonfrivolous argument,” and that
“the factual contentions have evidentiary support”). Finally, to the extent that the
related new case is dismissed on the merits, the Court will assess against Plaintiff
reasonable attorney’s fees incurred by Defendants if warranted under applicable law.
IV.
CONCLUSION AND ORDER
For the reasons stated. it is hereby
ORDERED that Defendants Ocwen Loan Servicing, LLC and Deutsche Bank
National Trust Company, as Trustee, in trust for registered holders of ABFC 2005AQ1 Trust, Asset-Backed Certificates, Series 2005-AQ1’s Motion to Reinstate and
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Dismiss with Prejudice [Doc. # 30] is DENIED. It is further
ORDERED that the Court’s Order [Doc. # 29] dismissing the case without
prejudice is MODIFIED to add the condition that should Plaintiff file another action
in federal court based generally on the same set of operative facts alleged in this case,
or should Plaintiff commence such an action in state court and that action is
subsequently removed to federal court, the parties must designate the new case a
“related case” to the instant action and will be assigned to this Court.
6th
SIGNED at Houston, Texas, this _____ day of May, 2014.
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