Hebb v. Green Tree Servicing, LLC et al

Filing 10

MEMORANDUM AND ORDER GRANTED as to the breach of contract claim and DENIED as to the fraud claim. 5 MOTION to Dismiss and Brief. The case remainsscheduled for an initial conference on August 13, 2014.(Signed by Judge Nancy F. Atlas) Parties notified.(sashabranner, 4)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
FREDERICK HEBB,
Plaintiff,
v.
GREEN TREE SERVICING LLC,
et al.,
Defendants.

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CIVIL ACTION NO. H-14-1267

MEMORANDUM AND ORDER
This case is before the Court on the Partial Motion to Dismiss [Doc. # 5] filed
by Defendants Green Tree Servicing LLC (“Green Tree”) and Federal National
Mortgage Association (“Fannie Mae”), to which Plaintiff Frederick Hebb filed a
Response [Doc. # 7]. Having reviewed the full record and applicable legal authorities,
the Court grants the Motion to Dismiss as to the breach of contract claim, and denies
the Motion as to the fraud claim.1
I.

BACKGROUND
Plaintiff in his Petition alleges the following matters. On May 23, 2002,

Plaintiff and his former wife purchased real property located at 15803 Boulder Oaks
Drive in Houston, Texas (the “Property”). In connection with this purchase, Plaintiff

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Defendants did not seek dismissal of Plaintiff’s promissory estoppel or trespass to try
title claims.

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executed a promissory note (“Note”) and Deed of Trust in favor of Countrywide
Home Loans, Inc. (“Countrywide”). Both the Note and the Deed of Trust were
subsequently transferred to Green Tree.
During the term of the loan, Plaintiff began to experience financial difficulties
and entered into debt restructuring negotiations with Green Tree to modify the terms
of the Note. See Petition [Doc. # 1-1], ¶ 10. Plaintiff alleges that Green Tree offered
him a loan modification and he began submitting financial documents and
information. Plaintiff alleges that Green Tree representatives told him to ignore any
foreclosure notices he received because Green Tree would not foreclose during the
loan modification process.

See id., ¶ 11.

Plaintiff alleges that Green Tree

representatives promised to confirm these instructions in writing, but “Plaintiff never
received written confirmation.” Id. Plaintiff alleges that the Property was sold to
Fannie Mae at a foreclosure sale on January 7, 2014.
Plaintiff filed this lawsuit in Texas state court, asserting causes of action for
breach of contract, common law fraud, promissory estoppel, and trespass to try title.
Defendants filed a timely Notice of Removal, and then moved to dismiss the breach
of contract and fraud claims. The Motion is now ripe for decision.

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II.

STANDARD FOR MOTION TO DISMISS
When considering a motion to dismiss, the complaint must be liberally

construed in favor of the plaintiff, and all facts pleaded in the complaint must be taken
as true. Harrington v. State Farm Fire & Cas. Co., 563 F.3d 141, 147 (5th Cir. 2009).
When there are well-pleaded factual allegations, a court should presume they are true,
even if doubtful, and then determine whether they plausibly give rise to an entitlement
to relief. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Although a motion to dismiss
under Rule 12(b)(6) of the Federal Rules of Civil Procedure is viewed with disfavor
and is rarely granted, Turner v. Pleasant, 663 F.3d 770, 775 (5th Cir. 2011) (citing
Harrington, 563 F.3d at 147), a complaint must contain sufficient factual allegations,
as opposed to legal conclusions, to state a claim for relief that is “plausible on its
face.” See Iqbal, 556 U.S. at 678; Patrick v. Wal-Mart, Inc., 681 F.3d 614, 617 (5th
Cir. 2012).
III.

ANALYSIS
A.

Breach of Contract Claim

Plaintiff alleges in the Petition that Green Tree breached an unidentified
contract. Under Texas law, the statute of frauds requires all loan agreements
involving more the $50,000.00 to be in writing and signed by the party to be bound
in order to be enforceable. See TEX. BUS. & COM. CODE § 26.02(b); see Martins v.

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BAC Home Loans Servicing, LP, 722 F.3d 249, 256 (5th Cir. 2013) (applying the
statute of frauds to a loan modification). A “loan agreement” for purposes of the
statute of frauds is defined to include promises by a financial institution to “delay
repayment of money . . . or make a financial accommodation.” See TEX. BUS. & COM.
CODE § 26.02(a)(2). Plaintiff’s claim that Green Tree promised not to foreclose
during the loan modification process is barred by the Texas statute of frauds. See
Burnette v. Wells Fargo Bank, N.A., 2010 WL 1026968, *5 (E.D. Tex. Feb. 16, 2010)
(quoting Krudop v. Bridge City State Bank, 2006 WL 3627078, *4 (Tex. App. –
Beaumont Dec. 14, 2006, pet. denied)).
Plaintiff, in his Response to the Motion to Dismiss, explains that he is not
alleging that Green Tree breached a new oral agreement not to foreclose but is,
instead, asserting that Green Tree cannot argue that he is in default under the original
Note because it was Green Tree that induced the default. See Response [Doc. # 7], pp.
1-2. Plaintiff relies on Montalvo v. Bank of Am. Corp., 864 F. Supp. 2d 567, 582
(W.D. Tex. 2012), to support his argument. Plaintiff’s reliance on the Western
District of Texas’s 2012 opinion in Montalvo is unavailing. In 2013, the Montalvo
court held unequivocally that any claim of “waiver fails because the claim would
solely rely on evidence of unenforceable oral representations allegedly made by
Defendants.” Montalvo v. Bank of Am. Corp., 2013 WL 870088, *8 (W.D. Tex. Mar.

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7, 2013). The Montalvo court in 2013 noted that allowing a borrower to avoid
foreclosure by arguing that he was induced to default based on an oral promise not to
foreclose during loan modification negotiations “would allow Plaintiff to circumvent
the statute of frauds by essentially enforcing an unenforceable modification
agreement.” Id. This Court agrees. Plaintiff’s breach of contract claim, even as
clarified in the Response, is barred by the Texas statute of frauds. As a result,
Defendants’ Motion to Dismiss the breach of contract claim is granted.
B.

Fraud Claim

Defendants argue that Plaintiff’s fraud claim should be dismissed because it is
barred by the economic loss rule. The economic loss rule provides that “[w]hen the
only loss or damage is to the subject matter of the contract, the plaintiff’s action is
ordinarily on the contract.” Southwestern Bell Tel. Co. v. DeLanney, 809 S.W.2d 493,
494-95 (Tex. 1991); see also Robinson v. Bank of Am., N.A., 2014 WL 940330, *3
(N.D. Tex. Mar. 11, 2014). In deciding whether the economic loss rule requires
dismissal of a fraud claim, the court considers: “(1) whether the claim is for breach of
duty created by contract, as opposed to a duty imposed by law; and (2) whether the
injury is only the economic loss to the subject of the contract itself.” Robinson, 2014
WL 940330 at *3 (citing Formosa Plastics Corp. USA v. Presidio Eng’rs and
Contractors, 960 S.W.2d 41, 45-47 (Tex. 1998)). A party may recover under a fraud

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theory “irrespective of whether the fraudulent representations are later subsumed in
a contract or whether the plaintiff only suffers an economic loss related to the subject
matter of the contract.” Id. (quoting Formosa Plastics, 960 S.W.2d at 46).
In this case, Plaintiff’s fraud claim is not based on the Note and Deed of Trust.
Instead, Plaintiff bases his fraud claim on Green Tree’s alleged representations that
he should ignore foreclosure notices while the matter was in loan modification status
“because Green Tree would not take any action to foreclose on his Property while in
loan modification status.” See Petition, ¶ 18. Because it appears that Plaintiff’s fraud
claim is not based on a breach of the Note, Deed of Trust or other contract, the fraud
claim is not barred by the economic loss rule. See Davis v. Wells Fargo Bank, N.A.,
976 F. Supp. 2d 870, 883-84 (S.D. Tex. 2013) (Costa, J.), and cases cited therein; see
also Robinson, 2014 WL 940330 at *4; Choe v. Bank of Am., N.A., 2013 WL
6159308, *6 (N.D. Tex. Nov. 25, 2013). Defendants’ Motion to Dismiss this claim
is denied.
IV.

CONCLUSION AND ORDER
Based on the foregoing, it is hereby
ORDERED that Defendants’ Motion to Dismiss [Doc. # 7] is GRANTED as

to the breach of contract claim and DENIED as to the fraud claim. The case remains
scheduled for an initial conference on August 13, 2014.

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SIGNED at Houston, Texas this 27th day of June, 2014.

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