Jolem, LLC v. U.S. Bank National Association
Filing
22
ORDER GRANTING 21 MOTION for Leave to File a Sur-Reply to Defendants' Reply to Plaintiff's Response to Defendants' Second Motion to Dismiss, GRANTING 15 MOTION to Dismiss Original Complaint, DENYING motion for leave to amend.(Signed by Judge Gray H. Miller) Parties notified.(rkonieczny, 4)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
JOLEM , LLC,
Plaintiff,
v.
SELECT PORTFOLIO SERVICING , INC., et al.,
Defendants.
§
§
§
§
§
§
§
§
§
CIVIL ACTION H-14-3301
O RDER
Pending before the court are (1) a motion to file a sur-reply filed by plaintiff Jolem, LLC
(“Jolem”) (Dkt. 21); (2) a motion to dismiss filed by defendants U.S. Bank National Association,
as trustee for J.P. Morgan Acquisition Trust 2006-WMC4, Mortgage Electronic Registration
Systems, Inc., and Select Portfolio Servicing, Inc. (collectively, “Defendants”) (Dkt. 15); and (3)
a motion for leave to amend by Jolem (Dkt. 19).
With regard to the motion to file a sur-reply, Jolem filed this motion on May 1, 2015, and
Defendants have not filed a response. Under the Local Rules of the Southern District of Texas,
Jolem’s motion will therefore be treated as unopposed. S.D. Tex. Loc. R. 7.4. Having reviewed the
motion and the applicable law, the court finds that the motion should be GRANTED.
With regard to the motion to dismiss and motion to amend, having reviewed the motions,
related filings, and the applicable law, the court is of the opinion that the motion to dismiss should
be GRANTED and the motion to amend should be DENIED.
I. BACKGROUND
Jolem is the current mortgagor of real property located at 1435 Crescent Oak Drive, Missouri
City, Texas 77439 (the “Property”). Dkt. 14. Defendant U.S. Bank (“USB”) is assignee of the deed
of trust on the Property, seeking to foreclose. Dkt. 14. Defendant Mortgage Electronic Registration
Systems, Inc. (“MERS”) is named beneficiary and nominee for the original lender, WMC Mortgage
Corp. (“WMC”), and its successors and assigns. Dkt. 14, Ex. 1. Defendant Select Portfolio
Services, Inc. is the servicer for USB. Dkt. 15 at 3.
On about September 20, 2006, the original purchaser, Eddie L. Watson, executed a note (the
“Watson Note”) and a deed of trust (the “Watson Deed”) securing an interest in the Property from
original lender WMC. Dkt. 14, Ex. 1. The Watson Deed identifies MERS, a book-entry system
commonly used by lenders to track mortgages, as “nominee for Lender and Lender’s successors and
assigns,” and also recognizes MERS as a beneficiary. Id. at 2. Under the Watson Deed, MERS is
given broad authority to exercise the interests of WMC, including the right to foreclose and sell the
Property, and to release or cancel the security instrument. Dkt. 14, Ex. 1. The Watson Deed was
also subject to the Planned Unit Development Rider, which made the Property subject to dues and
assessments by the homeowner’s association. Dkt. 14, Ex. 1.
The assignment of the deed of trust occurred on June 25, 2012, from MERS to U.S. Bank
National Association (“USB”). Dkt. 14, Ex. 2. The assignment states that MERS, as nominee for
the original lender, WMC, “does convey, grant, sell, assign, transfer and set over the described Deed
of Trust with all interests secured thereby, all liens, and any rights due or to become due thereon, to
U.S. Bank National Association. . . ,” as Trustee for the J.P. Morgan Mortgage Acquisition Trust
2006-WMC4. Dkt. 14, Ex. 2.
On August 6, 2013, the Lake Olympia Civic Association (“the Association”) foreclosed on
the property due to the Watson’s default in payments due to the Association. Dkt. 14, Ex. 3. Jolem
was the highest bidder at the foreclosure sale, receiving the Property “for the sum of $10.00 and
other valuable consideration. . . ‘as is’. . . taken subject to taxes and any superior lien. . . . ” Id. There
2
are no allegations regarding if or when Jolem made any payments on the Watson Note. About a year
after Jolem purchased the Property, on September 25, 2014, SPS as “appointed substitute Trustee”
for USB posted a Notice of Substitute Trustee’s Sale of the Property for Jolem’s default on the
Watson Note. Dkt. 14, Ex. 4.
Around November 3, 2014, Jolem filed its original petition in the 400th Judicial District
Court of Fort Bend County, Texas. Dkt. 14 at 6. A temporary restraining order was granted. Id.
Defendants removed the case to this court on or about November 18, 2014. Dkt. 14 at 7.
Jolem challenges the foreclosure on the grounds that the June 25, 2012 assignment by MERS
to USB is invalid, or void, because USB was never properly assigned ownership of the Watson Note
or Watson Deed. Dkt. 14 at 2. Jolem further contends that foreclosure by SPS on behalf of USB
is wrongful because the assignment is invalid. Id. Finally, Jolem contends that both USB and
MERS violated § 12.003 of the Texas Civil Practice and Remedies Code, entitling Jolem to remedies
under the code. Id. Jolem asks for relief including: a permanent injunction, a declaration that the
transfer assignment is void, and that both USB and MERS violated of § 12.002 of the Texas Civil
Practice and Remedies Code. Dkts. 14, 27-29. Jolem also seeks damages, court costs, attorneys’
fees, and other appropriate relief. Dkts. 14, 31.
II. LEGAL STANDARD
“ Federal Rule of Civil Procedure 8(a)(2) requires only ‘a short and plain statement of the
claim showing that the pleader is entitled to relief,’ in order to ‘give the defendant fair notice of what
the . . . claim is and the grounds upon which it rests.’” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127
S. Ct. 1955, 1964–65 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99 (1957)). In
considering a rule 12(b)(6) motion to dismiss a complaint, courts generally must accept the factual
allegations contained in the complaint as true. Kaiser Aluminum & Chem. Sales, Inc. v. Avondale
3
Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir. 1982). The court does not look beyond the face of
the pleadings in determining whether the plaintiff has stated a claim under Rule 12(b)(6). Spivey v.
Robertson, 197 F.3d 772, 774 (5th Cir. 1999). “[A] complaint attacked by a Rule 12(b)(6) motion
to dismiss does not need detailed factual allegations, [but] a plaintiff's obligation to provide the
‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do.” Twombly, 127 S. Ct. at 1964–65 (citing
Sanjuan v. Am. Bd. of Psychiatry and Neurology, Inc., 40 F.3d 247, 251 (7th Cir. 1994)) (internal
citations omitted). And, “[f]actual allegations must be enough to raise a right to relief above the
speculative level.” Twombly, 127 S. Ct. at 1965. The supporting facts must be plausible—enough
to raise a reasonable expectation that discovery will reveal further supporting evidence. Id. at 1959.
III. ANALYSIS
A. Count I: Removing a Cloud Upon Title
Count I of the Jolem’s first amended complaint alleges a wrongful cloud on title created by
an invalid assignment through failed delivery of the Watson Note and the Watson Deed to USB.
Dkt. 14. To make this allegation, Jolem depends upon showing the invalidity of the assignment of
the Watson Deed, which occurred on June 25, 2012, from MERS to USB. Dkt. 14, Ex. 21. Jolem
alleges improper assignment by MERS to USB, asserting that this defect in assignment establishes
no right for USB to foreclose, couching its challenge as a challenge to chain of title. Dkt. 14 at 4.
“A suit to clear title or quiet title - also known as a suit to remove cloud from title - relies on
the invalidity of the defendant’s claim to the property.” Sigaran v. U.S. Bank Nat’l Ass’n, No. H-123588, 2013 WL 2368336 at *2 (S.D. Tex. May 29, 2013), aff’d 560 F. App’x 410 (5th Cir. 2014)
1
The assignment states that MERS, as nominee for the original lender, W MC, “does convey, grant, sell,
assign, transfer and set over the described Deed of Trust with all interests secured thereby, all liens, and any rights
due or to become due thereon, to U.S. Bank National Association. . . .” Dkt. 14 at 20.
4
(quoting Essex Crane Rental Corp. v. Carter, 371 S.W.3d 366, 388 (Tex. App.—Houston [1st Dist.]
2012, no pet .)). A cloud on title exists when “an outstanding claim or encumbrance is shown, which
on its face, if valid, would affect or impair the title of the owner of the property.” Hahn v. Love, 321
S.W.3d 517, 531 (Tex. App.—Houston [1st Dist.] 2009, pet. denied). The plaintiff has the burden
of supplying the proof necessary to establish “superior equity and a right to relief” and must establish
as a matter of law that the “adverse claim is a cloud on the title that equity will remove .” Sigaran,
2013 WL 2368336, at *2.
Jolem argues that it has standing under Texas law to challenge the assignment on any ground
that renders the assignment void or invalid. Dkt. 14. Jolem asserts a number of claims that it argues
would make the assignment void:1) that MERS did not have authority under Texas law to execute
the assignment (Dkt. 14 at 13); 2) that the assignment by MERS is void because the signature is a
forgery (Dkt. 14 at 16); 3) that the assignment violates the trust’s Pooling Services agreement
(“PSA”) because it occurred more than ninety days after the closing date (Dkt. 14, ¶37); and 4) that
the Watson Note was never assigned to the Trustee under the terms of the assignment because the
assignment’s language transfers only the Watson Deed (Dkt. 14 at 20). Jolem contends New York
trust law controls its claim that the assignment violates the PSA. Dkt. 14.
Jolem is correct in alleging that under Texas law, an obligor has standing to defend against
an assignment on grounds that would render that assignment void. Dkt. 14 at 2; see, e.g., Reinagel
v. Deutsche Bank, 735 F.3d 220, 225 (5th Cir. 2013) (citing Tri-Cities Constr., Inc. v. Am. Nat’l Ins.
Co., 523 S.W.3d 426, 430 (Tex. Civ. App.—Houston [1st Dist.] 1975, no writ); Glass v. Carpenter,
330 S.W.2d 530, 537 (Tex. Civ. App.—San Antonio 1959, writ ref’d n.r.e.)). However, standing
is not supported on grounds that would only render an assignment voidable at the election of the
assignor. Reinagel, 735 F.3d at 225; see also Vazquez v. Deutsche Bank Nat’l Trust Co., 441 S.W.3d
5
783, 787 (Tex. App.—Houston [1st Dist.] 2014, no pet. h.) (affirming that standing by a mortgagor
against an assignee exists if the petition includes allegations which, if true, would render the
assignment void). Jolem’s claims can thus survive only if the alleged defects would render the
assignment void.
1. MERS’s Authority to Execute the Assignment
First, Jolem alleges that MERS did not have authority to execute the assignment because the
assignment purports to assign the beneficial interest of the Watson Deed to USB in its own name.
Dkt. 14 at 16-17. Essentially the allegation is that MERS is merely a third party to the Watson Deed,
and as such lacks authority to assign the Watson Deed on behalf of the lender, WMC. Dkt. 14 at 1314. However, Jolem admits that the Watson Deed names MERS as a beneficiary to the Watson
Deed. Dkt. 14 at 13. Notwithstanding MERS’s status under the deed, Jolem alleges that nothing in
the laws of Texas permits MERS to assert a beneficial interest in the Watson Note or Deed. Dkt. 14
at 14.
This argument is foreclosed by Fifth Circuit precedent and Texas law. As a mortgage
servicer, MERS has authority under the Texas Property Code to administer the foreclosure of
property on behalf of a mortgagee. Tex. Prop. Code Ann. § 51.0025 (West 2007); Martins v. BAC
Home Loans Servicing, L.P., 722 F.3d 249, 255 (5th Cir. 2013). Further, under § 51.0001(4), MERS
qualifies as a mortgagee because of its status as a book entry system, and SPS on behalf of USB,
qualifies as a mortgagee with the right to foreclose as long as the assignment is valid.2 Tex. Prop.
Code § 51.0001(4) (West 2007). Under the Fifth Circuit’s reasoning, the Texas Property Code
2
Tex. Prop. Code Ann. § 51.0001(4) states: “Mortgagee means:
(A) the grantee, beneficiary, owner, or holder of a security instruments;
(B) a book entry system; or
(C) if the security interest has been assigned of record, the last person to whom the security interest
has been assigned of record”
6
permits MERS as a valid mortgagee to either: 1) grant a mortgage servicer the authority to foreclose,
or 2) to foreclose itself. Martins, 722 F.3d at 255; see also Farkas v. GMAC Mortg., L.L.C., 737
F.3d 338, 342 (5th Cir. 2013) (“Our holding in Martins permits MERS and its assigns to bring
foreclosure actions under the Texas Property Code.”).
Notwithstanding this reasoning, Jolem contends that MERS had no authority because it
designated itself as beneficiary, grantor, grantee, lender, and holder or owner of promissory deeds
and notes. Dkt. 14 at 15. Jolem relies on Nueces County, Texas v. MERSCORP Holdings, Inc., a
case interpreting § 12.002 of the Texas Civil Practices and Remedies Code. Dkt. 14 at 14.
However, as noted by the Northern District of Texas, “the Nueces County decision was issued prior
to the Fifth Circuit’s statements in Reinagel.” Dallas County, Texas v. MERSCORP, Inc., 2 F. Supp.
3d 938, 951 (N.D. Tex. 2014). Moreover, it is distinguishable. In Nueces, Nueces County
complained of a scheme by MERS to avoid recording fees through clever use of the county’s
tracking system. Nueces, 2013 WL 335948, at *1. The county provided substantial allegations to
raise its claim to a level of plausibility, including: explaining the way the recording system worked
and alleging in detail how MERS’s actions affected the county’s system adversely. The court in
Nueces concluded that under Texas law it was “not fraudulent for lenders to designate MERS as the
mortgagee in a deed of trust for the purpose of MERS serving as an agent or nominee of the lender
and its successors and assigns.” Nueces, 2013 WL 3353948, at *4. However, the court determined
that if MERS goes beyond designating itself as mortgagee and files deeds naming itself as
beneficiary “for the purpose of being designated the grantee/grantor on thousands of mortgages in
the County’s real property records,” then that is at least a plausible claim under § 12.002. Id. Here,
MERS did not insert itself into the deed of trust, it was designated as beneficiary in an instrument
7
approved by WMC and Watson, who signed the Deed. Dkt. 14, Ex. 1. The deed was filed by
Fidelity National Trust, not MERS. Id. Thus, Nueces does not support Jolem’s argument.
2. Forgery
Jolem asserts that the signature of Shequita Knox—MERS’s officer executing the
assignment—is a forgery, restating the text from the Texas Penal Code3 in order to make the
assertion. Dkt. 14 at 16. Jolem’s conclusory allegations against Shequita Knox’s authority to
execute the assignment on behalf of MERS are insufficient to “allow the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). Jolem has produced a facially valid assignment signed by Shequita Knox as
Vice President of MERS as nominee for WMC, its successors and assigns. Dkt. 14, Ex. 2. Jolem
acknowledges the assignment is facially valid. Dkt. 14 at 7. The assignment was recorded in the
Official Public Records of Fort Bend County, Texas, on July 13, 2012. Dkt. 14, Ex. 2. Jolem’s
assertions about forgery amount to little more than a “threadbare recital. . .supported by mere
conclusory statements” which the Supreme Court has rejected as failing to show more than a “mere
possibility of misconduct.” Iqbal, 556 U.S. at 678.
Further, under Texas law and Fifth Circuit precedent, Jolem has no standing to assert a
challenge to Knox’s authorization as agent of MERS on behalf of WMC. Reinagel, 735 F.3d at 226
(citing Nobles v. Marcus, 533 S.W.2d 923, 926-27 (Tex. 1976) (“a deed [executed by a person
fraudulently misrepresenting his agency] is valid and represents prima facie evidence of title until
3
Tex. Penal Code §32.21(a)(1) states, in part;
For purposes of this section:
(1) “Forge” means:
(A) to alter, make, complete, execute, or authenticate any writing so that it
purports:
(i) to be the act of another who did not authorize that act.
8
there has been a successful suit to set it aside. . . [which] can only be maintained by the defrauded
[principal].”)) Such an act merely renders the assignment voidable at the election of the defrauded
principal—in this case—WMC. Id. As such, Jolem’s conclusory allegation is not sufficient to
challenge the assignment, and it has no standing to assert the claim.
3. Violation of the PSA and the Allegedly Improper Transfer Under the PSA
Jolem claims that the assignment of the Watson Deed to USB violated the PSA. Dkt. 14. It
points out that the PSA specified that the Trust’s closing date would be December 20, 2006, but that
the Deed was not assigned to USB until June 25, 2012. Id. Jolem urges this court to apply New
York law to the question of standing and hold that it has standing to challenge the assignment of its
loan because the assignment was void under New York law. Dkt. 14. However, under either New
York or Texas law, Jolem does not have standing to challenge violations of the terms of the PSA.
The Fifth Circuit, in a recent decision, discussed whether mortgagors like Jolem have
standing under Texas law to challenge assignments that violate a trust’s PSA. Reinagel v. Deutsche
Bank Nat’l Trust Co., 735 F.3d 220 (5th Cir. 2013). The borrowers in Reinagel argued that both of
the assignments of their mortgage to Deutsche Bank occurred after the closing date specified by the
PSA. Id. at 223. The Fifth Circuit reasoned that under Texas law, the borrowers—who were not
parties to the PSA—had “no right to enforce its terms unless they [we]re its intended third-party
beneficiaries.” Id. at 228; see also Basic Capital Mgmt., Inc. v. Dynex Commercial, Inc., 348 S.W.3d
894 (Tex. 2011) (discussing the law governing third party beneficiaries in Texas). The borrowers
failed to state any facts that showed the parties to the PSA intended to benefit them, and further, even
if they were intended third-party beneficiaries, that status would “merely entitle the [mortgagors] to
sue for breach of the PSA,” not render the assignments void. Reinagel, 735 F.3d at 228; see also
9
Khan v. Wells Fargo Bank, N.A., No. H-12-1116, 2014 WL 200492 at *9 (S.D. Tex. Jan. 17, 2014)
(citing Farkas v. GMAC Mortg., L.L.C., 737 F.3d 338, 342 (5th Cir. 2013)).
Jolem makes a nearly identical assertion to the Reinagel plaintiffs—arguing that the
assignment occurred after the closing date, in violation of the PSA. Dkt. 14. As alleged in the
amended complaint, the PSA provides that no loans could be transferred into the trust after
December 20, 2006. Dkt. 14 at 11. However, like the borrowers in Reinagel, Jolem fails to allege
it is an intended third-party beneficiary to the PSA. Further, under the Fifth Circuit’s interpretation
of Texas law, Jolem is not a third-party beneficiary to the PSA, and even if it were, this status would
not render the assignment void, but merely give Jolem status to sue for breach of the PSA, a claim
it does not make. See Reinagel, 735 F.3d at 228. Thus, as a matter of Texas law, Jolem lacks
standing to challenge the assignment for violation of the terms of the PSA. See also Nobles v.
Marcus, 533 S.W.2d 923, 926 (Tex. 1976) (holding that a contract executed by a person falsely
claiming to be a corporate officer is voidable by the defrauded corporation).
Even if one were to apply New York law, Jolem would not have standing to challenge the
assignment of the Watson Deed. New York trust law provides that “every sale, conveyance or other
act of the trustee in contravention of the trust, except as authorized by this article and any other
provision of law, is void.” N.Y. Est. Powers & Ttrusts Law § 7-2.4 (McKinney 2015). Regardless
of the use of the term “void,” New York courts have treated ultra vires actions by trustees as
voidable, rather than void. Mooney v. Madden, 597 N.Y.S.2d 775 (N.Y. App. Div. 1993) (“A trustee
may bind the trust to an otherwise invalid act or agreement which is outside the scope of the trustee’s
power when the beneficiary or beneficiaries consent or ratify the trustee’s ultra vires act or
agreement.”). Jolem cites a recent New York decision to support its argument that improper trust
transfers are void; however the opinion has recently been reversed. Wells Fargo Bank, N.A. v.
10
Erobobo, No. 31648/2009, 2013 WL 1831799, at *8 (N.Y. Sup. Ct. Apr. 29, 2013), rev’d, 127
A.D.3d 1176 (N.Y. App. Div. 2015) (finding mortgagor had no standing to challenge assignee status
based on purported noncompliance with PSA provisions) (citing Bank of N.Y. Mellon v. Gales, 982
N.Y.S.2d (N.Y. App. Div. 2014); Rajamin v. Deutsche Bank Nat’l Trust Co., 757 F.3d 79 (2nd Cir.
2014).
Additionally, courts have generally criticized Erobobo’s reasoning, including courts in this
district. See, e.g., Davis v. Countrywide Home Loans, Inc., 1 F. Supp. 3d 638, 647 n.8 (S.D. Tex.
2014) (finding that Erobobo’s holding “does not accurately reflect New York trust law as would be
interpreted by the state’s court of last resort. . . . ”). Thus, even under New York law, Jolem’s
allegations regarding PSA violations address voidable acts that plaintiff has no standing to contest.
Rajamin, 757 F.3d 79, 88 (2nd Cir. 2014) (“[A]n unauthorized act by the trustee is not void but
merely voidable by the beneficiary.”)
4. The Challenge to the Note
Jolem contends that because the assignment transferred by its language only the Watson
Deed, without mentioning the Watson Note, the Watson Note was never assigned to the trustee, and
therefore the trustee has no power to foreclose. Dkt. 14 at 20. Jolem claims that MERS’s
assignment of the deed is void under the common-law rule that the “assignment of the [mortgage]
alone is a nullity.” Dkt. 14 at 20 (quoting Carpenter v. Longan, 83 U.S. (16 Wall.) 271, 274
(1872)). However, Carpenter relies on sources outside Texas law, and the Fifth Circuit has rejected
both the “split the note” and “show me the note” theories. Martins v. BAC Homes Loans Servicing,
L.P., 722 F.3d 249, 256 (5th Cir. 2013).
In Martins, the Fifth Circuit cleared up a split in authority concerning mortgage assignments
through the MERS system. Martins, 722 F.3d at 253. Like Jolem, the plaintiff in Martins asserted
11
that the bank could not foreclose because it was assigned only the mortgage, and not the note,
suggesting that the assignment split the note and the deed of trust. Id. The Fifth Circuit found that
the “weight of Texas authority” suggests that “a mortgage servicer need not own the note and yet
would be authorized to administer a foreclosure.” Id. at 255. MERS’s authority to assign the deed
also gave it the authority to assign the note under the Texas Property Code. See Tex. Prop. Code
Ann. §§ 51.0001, 51.0025. (West 2005); Martins, 722 F.3d at 255; see also Carter v. Gray, 125
Tex. 219, 81 S.W.2d 647, 648 (Tex. 1935); Morlock, L.L.C. v. Bank of N.Y., 448 S.W.3d 514, 51819 (Tex. App.—Houston [1st Dist.], 2014 pet. filed.) (applying Carter and finding that the
defendant, by virtue of the chain of assignment of the deed of trust, established its authority as owner
of the deed of trust, and thus had authority to foreclose regardless of whether it was also a holder or
the owner of the note).
Therefore, the allegation that USB does not possess the note does not prevent it from
foreclosing. Martins, 722 F.3d at 255. The Watson Deed granted MERS broad authority, including
but not limited to, the authority to conduct a foreclosure sale on behalf of the lender and “exercise
any or all. . . interests . . . ” of the lender. Dkt. 14, Ex 1. Jolem’s allegations show that MERS then
assigned its rights in the Watson Deed to USB. Dkts. 14, Ex. 1, and Ex. 2. The assignment was
recorded in the county’s records around July 13, 2012. Dkt. 14, Ex. 2. Thus, USB—as mortgagee
through virtue of assignment4—was authorized to conduct a foreclosure sale, and under Texas law
does not need to possess the note to foreclose. Morlock, 448 S.W.3d at 518 (“there is no requirement
that the mortgagee possess or produce the note that the deed of trust secures in order to conduct a
4
Tex. Prop. Code Ann. § 51.0001(4)(C) defines “Mortgagee” as “the last person to whom the security
interest has been assigned of record.”
12
nonjudicial foreclos[ure].”); see generally Sigaran v. U.S. Bank Nat’l Ass’n, No. H-12-3588, 2013
WL 2368336 (S.D. Tex. May 29, 2013).
Finally, Jolem contends that neither the Watson Note nor the Watson Deed were delivered
to U.S. Bank in accordance with the law of New York, which governs the terms of the PSA. Dkts.
14 at 19, 21. Jolem alleges that the Watson Note was not assigned under the language of the
Corporate Assignment of Deed of Trust. Dkt. 14 at 20. Jolem contends that the trustee “can only
take delivery in strict compliance with the terms of the PSA/Trust document.” Id. This assertion
amounts to little more than a claim that the method of delivery violates the PSA, which the plaintiff,
under Texas or New York law, has no standing to assert. Reinagel, 735 F.3d at 228; see also
Rajamin v. Deutsche Bank, 757 F.3d 79, 87-88 (2nd Cir. 2014); Mooney v. Madden, 597 N.Y.S.2d
775 (N.Y. App. Div. 1993). For the same reasons discussed above, Jolem has no standing to
challenge the PSA, as Jolem is not a third party beneficiary to the PSA.
Defendants’ motion to dismiss Jolem’s quiet-title claim and request for declaratory relief is
GRANTED. Because Jolem lacks standing to challenge the assignment of the note and deed of trust
by MERS to U.S. Bank, and because its challenge to MER’s authority fails as a matter of law,
Jolem’s quiet title claim is DISMISSED WITH PREJUDICE.
B. Count II: Wrongful Foreclosure
In Count II of its first amended complaint, Jolem alleges a claim for wrongful foreclosure
based upon allegations of a faulty assignment by MERS to USB. Dkt. 14 at 22. However, Jolem
fails to adequately plead wrongful foreclosure, and thus, as a matter of law, its claim fails to be
plausible. Three elements are required to plead wrongful foreclosure under Texas law: 1) a defect
in the foreclosure sale proceedings; 2) a grossly inadequate selling price; and 3) a causal connection
between the two. Martins, 722 F.3d at 256 (citing Charter Nat’l Bank - Hous. v. Stevens, 781
13
S.W.2d 368, 371 (Tex. Civ. App.—Houston [14th Dist.] 1989, writ denied)). With a narrow
exception, not applicable here,5 all three elements are required to adequately state a cause of action
for wrongful foreclosure. Miller v. BAC Home Loans, Servicing, L.P., 726 F.3d 717, 726 (5th Cir.
2013).
The court construes Jolem’s arguments to revolve around the ability of MERS to assign the
Watson Note and Deed. Dkt. 14 at 23. Jolem states in its first amended complaint that SPS posted
a Notice of Substitute Trustee’s Sale (“Notice”) on or about September 25, 2014. Dkt. 14 at 6, Ex.
4. However, Jolem fails to allege anywhere in the complaint that there is a causal connection
between the price and the alleged defect in the sale. Dkt. 14. Instead, Jolem’s allegations indicate
that there was no foreclosure sale based on the September 25, 2014 Notice. Jolem’s application for
a temporary restraining order in the 400th District Court of Fort Bend County was granted in
November of 2014. Id at 6-7. Taking the pleaded facts as true, Jolem has not alleged wrongful
foreclosure, but attempted wrongful foreclosure. Jolem’s claim fails at the outset because an
attempted wrongful foreclosure claim is not recognized under Texas law, and a traditional wrongful
foreclosure claim is not ripe because Jolem remains in possession of the Property. See Port City
State Bank v. Leyco Constr. Co., 561 S.W.2d 546, 547 (Tex. Civ. App.—Beaumont 1977, no writ)
(finding no supporting authority for an attempted wrongful foreclosure claim under Texas law);
Ayers v. Aurora Loan Servs., 787 F. Supp. 2d 451, 454 (E.D. Tex. 2011) (“Plaintiff has not alleged
an actual violation of the Texas Property Code because no foreclosure sale has occurred.”).
5
See Miller v. BAC Home Loans, Servicing, L.P., 726 F.3d 717, 726 (5th Cir. 2013) (recognizing a
particularized exception where plaintiff may avoid showing a grossly inadequate selling price if he alleges mortgagor
deliberately “chilled” the bidding at the sale).
14
As a result, Jolem has not alleged facts showing that this claim is plausible. Defendants’
motion to dismiss the wrongful foreclosure claim is GRANTED, and Jolem’s claim of wrongful
foreclosure is DISMISSED without prejudice.
C. Count III: § 12.002 Violation - The Fraudulent Lien Claim
In its final count, Jolem alleges a fraudulent lien claim under Tex. Civ. Prac. & Rem. Code
§ 12.0026 against Defendants. Dkts. 14, at 2, 24. Two allegations are asserted. First, Jolem alleges
that MERS made, presented, or used the Watson Deed with knowledge that the document was a
fraudulent lien or claim against real property or an interest in real property. Dkt. 14 at 25. Second,
Jolem alleges that USB made, presented, or used the assignment of deed of trust with knowledge that
the document was a fraudulent lien or claim against real property. Dkt. 14 at 25.
Defendants assert in their reply that § 12.002 does not apply to assignments and as such, the
claim should be dismissed. Dkt. 15. The court acknowledges there is a split in authority regarding
6
Tex. Civ. Prac. & Rem. Code Ann. § 12.002 (W est 2009) states:
(a) A person may not make, present, or use a document or other record with:
(1) knowledge that the document or other record is a fraudulent court record or a
fraudulent lien or claim against real or personal property;
(2) intent that the document or other record be given the same legal effect as a court
record or other document of a court created by or established under the constitution or
laws of this state or the United States or another entity listed in Section 37.01, Penal
Code, evidencing a valid lien or claim against real or personal property or an interest in
real or personal property; and
(3) intent to cause another person to suffer:
(A) physical injury;
(B) financial injury; or
(C) mental anguish or emotional distress.
15
whether assignments constitute a “lien or claim” under § 12.002, but does not address it, as Jolem’s
claims should be dismissed on other grounds.7
Jolem conclusorily alleges that MERS intended to cause Plaintiffs to suffer financial injury,
mental anguish, or emotional distress. Dkt. 14 at 26. This is a restatement of the language of
§ 12.002 and does not meet the pleading standard. See Twombly, 550 U.S. at 555 (“[A] formulaic
recitation of the elements of a cause of action will not do.”). Jolem fails to allege any facts tending
to show intent on the part of Defendants such that its claim could rise above the level of plausibility.
Where a plaintiff alleges no facts to show that defendant acted with “intent to cause [plaintiff]
‘financial injury’ or ‘mental anguish,’ rather than just for ‘business purposes,’” the Fifth Circuit has
found such allegations are insufficient to allege intent to injure. See Trang v. Bean, 600 F. App’x
191, 193 (5th Cir. 2015) (citing Golden v. Wells Fargo Bank, N.A., 557 F. App’x 323, 327 (5th Cir.
2014); Nguyen v. Nat’l Mortg. Ass’n, 958 F. Supp. 2d 781, 794 (S.D. Tex. 2013) (granting summary
judgment where evidence failed to support the allegation of defendants’ intent to cause injury)).
Through Jolem’s own presentation of the facts, the assignment occurred before Jolem ever
purchased the property. Dkt. 14 at 6. Based on this representation, it is implausible that Defendants’
execution of the assignment evinces intent to harm Jolem. Therefore, the complaint fails to establish
a right to relief that rises “above the speculative level.” Twombly, 550 U.S. at 555. Defendant’s
motion to dismiss the § 12.002 claim is GRANTED. Jolem’s claim for violation of § 12.002 is
DISMISSED WITH PREJUDICE.
7
Compare Marsh v. J.P. Morgan Chase Bank, N.A., 888 F. Supp. 2d 805, 813 (W .D. Tex. 2012)
(interpreting § 12.002 and finding an assignment does not “purport to create a lien or claim” but rather transfers an
existing lien from one entity to another); and Garcia v. Bank of New York Mellon, No. 3:12-CV-0062-D, 2013 W L
692099 (N.D. Tex. Mar. 5, 2012), with Bernard v. Bank of Am., N.A., 2013 W L 441749 (Tex. App.— San Antonio
Feb. 6, 2013, no pet.) (allowing a § 12.002 claim by the bank, challenging mortgagors’ substitution of trustee under
the deed), and Kingman Holdings, LLC v. Citimortgage, Inc., No. 4:10-CV-619, 2011 W L 1883829 at *5-6 (E.D.
Tex. Apr. 21, 2011).
16
IV. MOTION TO AMEND
Jolem moves, in the alternative, to amend. However, under the facts alleged in the complaint
and the law outlined above, amendment would be futile. Accordingly, Jolem’s motion for leave to
amend is DENIED.
V. CONCLUSION
Jolem’s motion to file a sur-reply is GRANTED. Jolem’s motion to amend is DENIED.
Defendants’ motion to dismiss on all counts is GRANTED.
Counts I and III of Jolem’s amended complaint are DISMISSED WITH PREJUDICE. Count
II is DISMISSED WITHOUT PREJUDICE. A final judgment will issue concurrently with this
order.
Signed at Houston, Texas on June 18, 2015.
___________________________________
Gray H. Miller
United States District Judge
17
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?