DHI Holdings, LP v. Sebring Capital Partners, Limited Partnership et al

Filing 21

ORDER entered DENYING 17 MOTION to Amend 15 Order, (Signed by Chief Judge Lee H Rosenthal) Parties notified.(leddins, 4)

United States District Court
Southern District of Texas

ENTERED
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
DHI HOLDINGS, LP,
Plaintiff,
v.

SEBRING CAPITAL PARTNERS,
LIMITED PARTNERSHIP, et al.,
Defendants.

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June 05, 2018
David J. Bradley, Clerk

CIVIL ACTION NO. H-17-2930

ORDER DENYING MOTION TO AMEND
DHI Holdings filed this foreclosure action in state court. (Docket Entry No. 1-4). The
defendants, U.S. Bank, N.A., successor trustee to Lasalle Bank National Association on behalf of
the holders of Bear Stearns Asset Backed Securities I Trust 2005-HE7, Asset-Backed Certificates
Series 2005-HE7, Bear Stearns Asset Backed Securities I Trust 2005-HE7, Select Portfolio
Servicing, Inc., and Mortgage Electronic Registration Systems, Inc., removed to federal court.
(Docket Entry No. 1). At an initial conference, the court denied DHI’s motion to abate or stay the
case, granted the defendants’ motion to dismiss, and dismissed DHI’s claims with prejudice and
without leave to amend. (Docket Entry Nos. 14, 15).
DHI moves to amend the court’s dismissal order. (Docket Entry No. 17). The defendants
oppose amendment. (Docket Entry No. 18). Based on the parties’ arguments, the record, and the
applicable law, the court denies DHI’s motion to amend. The reasons for this decision are explained
below.
On March 28, 2012, MERS assigned the note and deed of trust to U.S. Bank. (Docket Entry

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No. 10-9). The assignment stated that MERS was acting “as Nominee for Sebring Capital Partners,
Limited Partnership, its Successors and Assigns.” Id. Sebring forfeited its registered foreign limited
partnership after failing to pay taxes and fees. (Docket Entry No. 10-12). DHI pled that U.S. Bank
was not a valid assignee and did not have standing to foreclose because MERS could not act as a
nominee for a nonexistent entity. (Docket Entry No. 1-4).
The court granted the defendants’ motion to dismiss because DHI’s argument was precluded
by the Fifth Circuit’s Deutsche Bank National Trust Company v. Burke, 655 F. App’x 251, 254 (5th
Cir. 2016) decision. (Docket Entry No. 14). In Burke, Joanna and John Burke challenged MERS’
assignment of a deed of trust to Deutsche Bank. Burke, 655 F.App’x at 253. The assignment stated
that MERS was acting “AS NOMINEE FOR, INDYMAC BANK, F.S.B., ITS SUCCESSORS AND
ASSIGNS.” Deutsche Bank Nat’l Tr. Co. v. Burke, 286 F. Supp. 3d 802, 809 (S.D. Tex. 2017). The
Fifth Circuit vacated the final judgment, which found that MERS’ assignment was void, and held:
[T]he original deed of trust named MERS as a beneficiary, and Texas law and our
precedent make clear that MERS, acting on its own behalf as a book entry system
and the beneficiary of the Burkes’ deed of trust, can transfer its right to bring a
foreclosure action to a new mortgagee by a valid assignment of the deed of trust.
Here, MERS assigned its right to foreclose under the deed of trust to Deutsche Bank.
That the assignment did not state that MERS was acting in its capacity as beneficiary
does not change our analysis.
Id. at 254 (citation omitted). Because the facts in Deutsche Bank are nearly identical to the facts in
this case, the court found that dismissal was proper. (Docket Entry No. 14).
DHI moves to amend the court’s dismissal order on the ground that the Fifth Circuit’s Burke
decision is incorrect. (Docket Entry No. 17). DHI relies heavily on the magistrate judge’s opinion
in Burke that was decided on remand after the Fifth Circuit vacated the first final judgment.
Deutsche Bank Nat’l Trust Co. v. Burke, 286 F.Supp.3d 802, 818 (S. D. Tex. 2017) (Burke II). In

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Burke II, the magistrate judge concluded that “the panel’s Erie guess about the validity of the
assignment is clearly erroneous and, if followed, would work a manifest injustice.” Id. at 806. After
surveying principles of agency law and contracting parties, the magistrate judge stated:
The panel opinion simply cannot be reconciled with [Texas law]. Texas law
presumes that a self-described agent signing a contract for a disclosed principal does
not intend to make himself a party to the instrument. Yet the panel held that the
explicit declaration of agent capacity did not matter in construing the contract.
Deutsche Bank, 655 Fed.Appx. at 254-55 (“That the assignment did not state that
MERS was acting in its capacity as beneficiary does not change our analysis.”).
Id. at 816. In an attempt to square the panel’s opinion with Texas law, the magistrate judge opined:
[T]he panel may have believed that MERS enjoys a unique status under the law,
operating under a special dispensation from ordinary rules that bind other legal
actors. Under this view, MERS always acts simultaneously as both beneficiary and
nominee under the deed of trust. Like the two-headed fictional character Zaphod
Beeblebrox, MERS is a single integrated entity who happens to wear two opposing
hats, one labeled “Principal” and the other “Agent.” The difficulty with the dual
capacity theory as an Erie guess is that no Texas court at any level has ever adopted
it.
Id. at 817 (footnotes omitted).
DHI asks the court to adopt the rationale in Burke II and hold that DHI’s claim that the 2012
assignment is void ab initio should not be dismissed. (Docket Entry No. 17 at 6).1 Though the Fifth
Circuit’s opinion is unpublished, the court finds its holding persuasive and denies DHI’s motion to
amend. Ballard v. Burton, 444 F.3d 391, 401 & n.7 (5th Cir. 2006). The Fifth Circuit clearly held
that an assignment does not need to state that MERS is “acting in its capacity as beneficiary” in
order for it to exercise its authority to assign. Burke, 655 F.App’x at 254. The court appreciates the
thoroughness of the Burke II but defers to the Fifth Circuit’s Erie guess, particularly in light of

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Burke II is currently pending appeal. See DHI Holdings, L.P. v. Sebring Capital Partners, L.P., et
al., No. 18-20348.

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recent Texas case law suggesting that MERS’ assignment of a deed as the nominee or agent of an
entity that no longer exists does not render the assignment void ab initio. See Melendez v.
Citimortgage, Inc., 2015 WL 5781103, at *5 n.3 (Tex. App. Oct. 2, 2015) (the argument that
“MERS [was] incapable of assigning [a] deed as [an entity’s] nominee or agent” because the entity
“ceased to exist” before assignment “could render the assignment voidable at most”). Melendez
supports the argument that the Fifth Circuit, in the words of the magistrate judge, “may have
believed that MERS enjoys a unique status under the law, operating under a special dispensation
from ordinary rules that bind other legal actors. Under this view, MERS always acts simultaneously
as both beneficiary and nominee under the deed of trust.” Burke II, 286 F.Supp.3d at 817.
DHI’s arguments are precluded by Fifth Circuit precedent. Burke, 655 F.App’x at 254.
DHI’s motion to amend, (Docket Entry No. 17), is denied.
SIGNED on June 5, 2018, at Houston, Texas.
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Lee H. Rosenthal
Chief United States District Judge

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