Saenz v. JP Morgan Chase Bank, N.A.
Filing
23
ORDER re: 14 Motion to Dismiss for Failure to State a Claim.(Signed by Judge Micaela Alvarez) Parties notified.(bgarces, )
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
MCALLEN DIVISION
SERGIO SAENZ,
Plaintiff,
VS.
JP MORGAN CHASE BANK, N.A.,
Defendant.
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CIVIL ACTION NO. 7:13-CV-156
OPINION AND ORDER
Pending before the Court is JP Morgan Chase Bank, N.A., successor by merger to Chase
Home Finance LLC’s (“Defendant”) motion to dismiss.1 After considering the motion, response,
reply, record and governing authorities, the Court GRANTS the motion in part and DENIES it
in part.
I.
Background
This real estate case was removed on March 8, 2013.2 On April 4, 2013, the case was
transferred from the Brownsville Division to this Court.3
The day the Court received this case it notified Sergio Saenz (“Plaintiff”) that it was
considering dismissing this case for failure to state a claim.4 The Court gave Plaintiff an
opportunity to amend his complaint or otherwise respond on or before April 25, 2013.5 But the
Court warned Plaintiff that if he filed “an amended complaint that fails to state a claim, the Court
1
Dkt. No. 14.
Dkt. No. 1.
3
Dkt. No. 6.
4
Dkt. No. 8.
5
Id.
2
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will likely dismiss this case with prejudice.”6
On April 24, 2013, Plaintiff filed an amended
complaint.7
In the amended complaint Plaintiff asserts that he and Defendant entered into a loan
transaction in which Plaintiff signed a note and deed of trust.8 In Plaintiff’s amended complaint
he alleges that Defendant foreclosed on his property without providing him notice as required by
the deed of trust and the Texas Property Code.9
Plaintiff states the following theories of
recovery in the amended complaint: wrongful foreclosure; negligence; fraud; breach of contract;
and breach of fiduciary duty.10 Also Plaintiff seeks an accounting.11
On May 6, 2013, Defendant filed a motion to dismiss.12 After the Court granted Plaintiff
an extension of time to respond, Plaintiff responded on June 3, 2013,13 and Defendant replied.14
II.
Analysis
In this case Defendant answered in state court, and Plaintiff filed an amended complaint
in federal court. Generally after an answer has been filed, a 12(c) motion should be filed instead
of a 12(b)(6) motion. Here where the answer was followed by an amended petition it is unclear
which was the appropriate motion. Because “[t]he standard for dismissal under Rule 12(c) is the
same as that for dismissal for failure to state a claim under Rule 12(b)(6)[,]”15 the Court need not
determine whether the motion to dismiss should be construed as a 12(b)(6) or a 12(c) motion.16
6
Id.
Dkt. No. 11.
8
Dkt. No. 11 at p. 2.
9
Dkt. No. 11 at pp. 2-4.
10
Dkt. No. 11 at pp. 4-6.
11
Dkt. No. 11 at p. 6.
12
Dkt. No. 14.
13
Dkt. Nos. 18-19.
14
Dkt. No. 20.
15
Johnson v. Johnson, 385 F.3d 503, 529 (5th Cir. 2004).
16
See Al Rushaid v. Nat'l Oilwell Varco, Inc., Civ. No. H-11-3390, 2012 WL 1981990, at *4 (S.D. Tex. June 1,
2012).
7
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“The ultimate question in a Rule 12(b)(6) motion is whether the complaint states a valid
claim when all well-pleaded facts are assumed true and are viewed in the light most favorable to
the plaintiff.”17 “A pleading that states a claim for relief must contain: . . . (2) a short and plain
statement of the claim showing that the pleader is entitled to relief . . . .”18 “To survive a motion
to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim
to relief that is plausible on its face.’”19 “A claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.”20 “[T]he tenet that a court must accept as true all of the allegations
contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements
of a cause of action, supported by mere conclusory statements, do not suffice.”21 Furthermore,
Plaintiff’s fraud allegation is subject to the heightened pleading standard of Rule 9(b).22
This case is before the Court on diversity jurisdiction. “Federal diversity jurisdiction
provides an alternative forum for the adjudication of state-created rights, but it does not carry
with it generation of rules of substantive law . . . Under the Erie doctrine, federal courts sitting
in diversity apply state substantive law and federal procedural law.”23
A.
Wrongful Foreclosure
First, the Court considers whether Plaintiff has stated a claim for wrongful foreclosure.
Defendant moved to dismiss this claim, and Plaintiff responded.24
17
Shandong Yinguang Chem. Indus. Joint Stock Co., Ltd. v. Potter, 607 F.3d 1029, 1032 (5th Cir. 2010) (citation
omitted).
18
FED. R. CIV. P. 8(a).
19
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
20
Id. (citing Twombly, 550 U.S. at 556).
21
Id. (citing Twombly, 550 U.S. at 555).
22
FED. R. CIV. P. 9(b).
23
Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 426-427 (1996) (citing Erie R. Co. v. Tompkins, 304 U.S.
64, 78 (1938)).
24
Dkt. No. 14 at pp. 3-5; Dkt. No. 19 at pp. 2-5.
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“The elements of a wrongful foreclosure claim are: (1) a defect in the foreclosure sale
proceedings; (2) a grossly inadequate selling price; and (3) a causal connection between the
defect and the grossly inadequate selling price.”25 But in some situations an allegation of a
grossly inadequate sales price has been found to be unnecessary:
“[W]here there is a deliberate chilling of the bidding process, the situation is
entirely different. Legal authorities now recognize that a mortgagor, even though
in default, has a right to an orderly disposition of the property in which the
creditor has a security interest, and if a defect deters third party bidding, then an
action for damages should lie.26
In its motion to dismiss, Defendant highlights Plaintiff’s failure to allege a grossly
inadequate sale price, and Plaintiff responds that such an allegation is not always necessary and
argues that, for example, allegations of deliberate chilling of the bidding process may render it
unnecessary to allege a grossly inadequate selling price. But this argument, while interesting, is
not relevant in this case because Plaintiff has failed, in both the amended petition and the
response, to allege that Defendant deliberately chilled the bidding process.
Plaintiff also cites Burnett v. Manufacturer’s Hanover Trust Co.27 and Tamplen v.
Bryeans,28 but does an incredibly poor job of explaining the significance of these cases. It
appears that these cases are cited (at least in part) for the proposition that there are many types of
errors, including lack of notice, which may satisfy the “defect” prong of a wrongful foreclosure
action. But here, even if the Court assumes (for the limited purpose of evaluating Plaintiff’s
wrongful foreclosure claim) that Plaintiff’s allegations that Defendant did not provide proper
notices satisfy the “defect” prong, this claim is still subject to dismissal because Plaintiff has not
25
Sauceda v. GMAC Mortg. Corp., 268 S.W.3d 135, 139 (Tex. App.—Corpus Christi 2008, no pet.).
Charter Nat. Bank—Houston v. Stevens, 781 S.W.2d 368, 374 (Tex. App.—Houston [14th Dist.] 1989, writ
denied) (citation omitted).
27
593 S.W.2d 755 (Tex. Civ. App.—Dallas 1979, writ ref’d n.r.e.).
28
640 S.W.2d 421 (Tex. App.—Waco 1982, writ ref’d n.r.e.).
26
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properly alleged that he is entitled to relief under a theory of wrongful foreclosure. As one court
explained:
[F]ollowing a wrongful foreclosure sale conducted pursuant to a power of sale
contained within a deed of trust, the mortgagor may seek
two alternative remedies. The mortgagor may elect to: (1) set aside the void
trustee’s deed; or (2) recover damages in the amount of the value of the property
less indebtedness.29
In this case, Plaintiff appears to be seeking both to set aside the foreclosure sale under a
theory of wrongful foreclosure and to recover damages under a theory of wrongful foreclosure.
While damages may be pled in the alternative, Plaintiff would not be entitled to both forms of
relief as pled for here. But more problematic for Plaintiff is the reality that he has failed to allege
facts which would support either type of relief available in a wrongful foreclosure action.
First, Plaintiff’s amended complaint and response fail to allege that there was any
discrepancy between the value of the property and the indebtedness. Without such an allegation,
Plaintiff’s claim for damages which is based on a theory of wrongful foreclosure must be
dismissed.
Turning to Plaintiff’s request to set aside the foreclosure sale, a Texas Court of Appeals
has explained: “In order to set aside the foreclosure sale, however, the mortgagor must tender
the amount owed on the mortgage. Setting aside a trustee sale is an equitable remedy which
requires the mortgagor to make a valid tender of the amount due to receive equity.”30 Here,
Plaintiff’s amended complaint and response fail to allege that Plaintiff has made a valid tender of
the money due or is now making a valid tender of the money due.
29
Diversified, Inc. v. Gibraltar Sav. Ass’n, 762 S.W.2d 620, 623 (Tex. App.—Houston [14th Dist.] 1988, writ
denied); see also UMLIC VP LLC v. T & M Sales & Envtl. Sys., Inc., 176 S.W.3d 595, 609-10 (Tex. App.—Corpus
Christi 2005, pet. denied) (citations omitted).
30
Galvan v. Centex Home Equity Co., L.L.C., No. 04-06-00820-CV, 2008 WL 441773, at *4 (Tex. App.—San
Antonio Feb. 20, 2008, no pet.) (citing Lambert v. First Nat’l Bank of Bowie, 993 S.W.2d 833, 835 (Tex.App.—
Fort Worth 1999, pet. denied); Fillion v. David Silvers Co., 709 S.W.2d 240, 246 (Tex.App.—Houston [14th Dist.]
1986, writ ref’d n.r.e.)) (mem. op.).
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In summary, Plaintiff has not set forth allegations that, if proven, would entitle him to
relief in the form of damages or setting aside the foreclosure sale (the only two forms of relief
available in a wrongful foreclosure action).
Because Plaintiff has not stated a wrongful
foreclosure claim upon which relief can be granted, the Court DISMISSES Plaintiff’s wrongful
foreclosure claim with prejudice.
B.
Negligence
Next, the Court considers whether Plaintiff has stated a negligence claim. Defendant
explicitly moved to dismiss Plaintiff’s negligence claim,31 and Plaintiff completely failed to
address his negligence claim in his response.
The elements of a negligence claim are familiar, but they bear repeating: “To establish
negligence, a party must establish a duty, a breach of that duty, and damages proximately caused
by the breach.”32 “A duty represents a legally enforceable obligation to conform to a particular
standard of conduct.”33 When a negligence claim is asserted, “[w]hether a duty exists is a
threshold inquiry and a question of law; liability cannot be imposed if no duty exists.”34
Furthermore, “Texas law generally imposes no duty to take action to prevent harm to others
absent certain special relationships or circumstances.”35 Sometimes, a defendant owes no duty to
a plaintiff.36
The Court notes that disputes over foreclosures are generally contractual disputes.
Furthermore, the Texas Supreme Court has stated that when a contract spells out the parties’
31
Dkt. No. 14 at p. 5.
Kroger Co. v. Elwood, 197 S.W.3d 793, 794 (Tex. 2006) (emphasis added).
33
Way v. Boy Scouts of Am., 856 S.W.2d 230, 233 (Tex. App.—Dallas 1993, writ denied) (citation omitted).
34
Kroger, 197 S.W.3d at 794 (citation omitted).
35
Torrington Co. v. Stutzman, 46 S.W.3d 829, 837 (Tex. 2000).
36
Cf. Nabors Drilling, U.S.A., Inc. v. Escoto, 288 S.W.3d 401, 404-13 (Tex. 2009); Gen. Elec. Co. v. Moritz, 257
S.W.3d 211, 218 (Tex. 2008).
32
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respective rights about a particular transaction, the contract and not common-law negligence
governs any dispute about that transaction.37
After reviewing the amended petition and Plaintiff’s response, the Court finds that
Plaintiff has failed to sufficiently allege that Defendant had a common law duty to him which
would support a negligence claim. Consequently, Plaintiff’s negligence claim is DISMISSED
with prejudice.
C.
Breach of Fiduciary Duty
Defendant moves to dismiss Plaintiff’s breach of fiduciary duty claim,38 and Plaintiff
failed to address this issue in his response.
“The elements of a breach of fiduciary duty claim are: (1) a fiduciary relationship
must exist between the plaintiff and defendant; (2) the defendant must have
breached his fiduciary duty to the plaintiff; and (3) the defendant’s breach must
result in injury to the plaintiff or benefit to the defendant.”39
Judge Rosenthal explained the following in Williams v. Countrywide Home Loans, Inc.:
A cause of action for breach of fiduciary duty requires a fiduciary
relationship between the parties. ‘In certain formal relationships, such as an
attorney-client or trustee relationships, a fiduciary duty arises as a matter of law.’
However, ‘not every relationship involving a high degree of trust and confidence
rises to the stature of a fiduciary relationship.’ ‘To impose an informal fiduciary
duty in a business transaction, the special relationship of trust and confidence
must exist prior to, and apart from, the agreement made the basis of the suit.’40
She further observed that “Texas courts have held that the relationship between a borrower and
lender is not a fiduciary one.”41
37
DeWitt Cnty. Elec. Co-op., Inc. v. Parks, 1 S.W.3d 96, 105 (Tex. 1999).
Dkt. No. 14 at p. 8.
39
Graham Mortg. Corp. v. Hall, 307 S.W.3d 472, 479 (Tex. App.—Dallas 2010, no pet.) (citations omitted).
40
504 F. Supp. 2d 176, 192 (S.D. Tex. 2007) (quoting Meyer v. Cathey, 167 S.W.3d 327, 330 (Tex.2005);
Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 176–77 (Tex.1997); Associated Indem. Corp. v. CAT
Contracting, Inc., 964 S.W.2d 276, 287 (Tex.1998)).
41
Id. at 192 (citing 1001 McKinney Ltd. v. Credit Suisse First Boston Mortg. Capital, 192 S.W.3d 20,
36 (Tex.App.—Houston [14th Dist.] 2005, pet. denied); Mfrs. Hanover Trust Co. v. Kingston Inv. Corp., 819
S.W.2d 607, 610 (Tex.App.—Houston [1st Dist.] 1991, no writ)).
38
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Here, the Court notes that Plaintiff’s complaint contains no factual allegations that tend to
suggest that Defendant owed a fiduciary duty to Plaintiff. There are no allegations that suggest
that Plaintiff and Defendant had a special relationship of trust and confidence that existed prior
to and apart from the note and the deed of trust which are the only two agreements mentioned in
the complaint. Additionally, Plaintiff’s allegation regarding the duty of the trustee under the
deed of trust is misplaced because the trustee is not a party to this suit. Therefore, the Court
DISMISSES Plaintiff’s breach of fiduciary duty claim with prejudice.
D.
Fraud
Now the Court considers whether Plaintiff has stated a claim for fraud. Defendant
explicitly moved to dismiss this claim,42 and Plaintiff did not respond on this issue. As noted
above, a claim for fraud is subject to Federal Rule of Civil Procedure 9(b)’s heightened pleading
standard.
Rule 9(b) “requires that [a plaintiff] ‘state with particularity the circumstances
constituting the fraud.’ ‘Put simply, Rule 9(b) requires the who, what, when, where, and how to
be laid out.’”43 The Texas Supreme Court has explained the following regarding fraud:
The elements of fraud are: (1) that a material representation was made; (2) the
representation was false; (3) when the representation was made, the speaker knew
it was false or made it recklessly without any knowledge of the truth and as a
positive assertion; (4) the speaker made the representation with the intent that the
other party should act upon it; (5) the party acted in reliance on the representation;
and (6) the party thereby suffered injury.44
Here, Plaintiff’s complaint falls far short of alleging fraud with particularity as required
by the federal rules.
Plaintiff does not allege that Defendant made any affirmative
misrepresentations. At best, Plaintiff is attempting to allege that Defendant committed fraud by
42
Dkt. No. 14 at pp. 5-7.
Shandong Yinguang Chem. Indus. Joint Stock Co., Ltd. v. Potter, 607 F.3d 1029, 1032 (5th Cir. 2010) (quoting
Fed. R. Civ. P. 9(b); Benchmark Elec., Inc. v. J.M. Huber Corp., 343 F.3d 719, 724 (5th Cir. 2003)).
44
In re FirstMerit Bank, N.A., 52 S.W.3d 749, 758 (Tex. 2001).
43
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sending the notices to an incorrect address. In short, Plaintiff’s allegations fall far short of
alleging a fraud claim. Therefore, the Court DISMISSES Plaintiff’s fraud claim with prejudice.
E.
An Accounting
The Court now considers Plaintiff’s request for an accounting.
Defendant moved to
dismiss the claim for accounting,45 and Plaintiff did not address this issue in his response.
“An action for accounting may be a suit in equity, or it may be a particular remedy sought
in conjunction with another cause of action.”46 “An equitable accounting is proper when the facts
and accounts presented are so complex that adequate relief may not be obtained at law.”47
Here, Plaintiff’s amended complaint does not include allegations that even suggest that
the facts and accounts presented are so complex that adequate relief may not be obtained at law.
Therefore, the Court DISMISSES Plaintiff’s request for accounting (to the extent it is stated as a
separate cause of action) with prejudice.
F.
Breach of Contract
The Court now considers whether Plaintiff has stated a claim for breach of contract. “To
prevail on a claim for breach of contract, the plaintiff must establish the following elements: (1)
the existence of a valid contract; (2) performance or tendered performance by the plaintiff; (3)
breach of the contract by the defendant; and (4) damages sustained by the plaintiff as a result of
the breach.”48 Defendant argues that Plaintiff’s breach of contract claim should be dismissed
because Plaintiff has not alleged the last three elements,49 and Plaintiff responded.50
45
Dkt. No. 14 at pp. 8-9.
Michael v. Dyke, 41 S.W.3d 746, 754 (Tex. App.—Corpus Christi 2001, no pet.) (citations omitted) abrogated on
other grounds as recognized by Hoodye v. Wells Fargo Bank, NA, Civ. No. 2:12-cv-402, 2013 WL 672567, at *2
(S.D. Tex. Feb. 25, 2013).
47
Hutchings v. Chevron U.S.A., Inc., 862 S.W.2d 752, 762 (Tex. App.—El Paso 1993, writ denied) (citing
Richardson v. First Nat’l Life Ins. Co., 419 S.W.2d 836, 838 (Tex. 1967).
48
S. Elec. Servs., Inc. v. City of Hous., 355 S.W.3d 319, 323-24 (Tex. App.—Houston [1st Dist.] 2011, pet. denied).
49
Dkt. No. 14 at pp. 7-8.
50
Dkt. No. 19 at pp. 5-6.
46
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Defendant argues that Plaintiff has not alleged that he performed or tendered
performance. Generally the failure to make such an allegation would warrant dismissal, but
Plaintiff here alleges breach of a deed of trust.
Texas courts have long held that strict
compliance with the notice provision contained in a deed of trust “is a prerequisite to the right of
the trustee to make [a] sale.”51 Plaintiff alleges in the amended complaint that Defendant did not
provide proper written notice of foreclosure as required by the Deed of Trust.52 The notice
requirements regarding foreclosure must necessarily survive some failures to perform under a
contract. If not, those requirements would simply be illusory because no borrower in default
could ever enforce them. Therefore, the Court rejects the Defendant’s argument that Plaintiff’s
failure to allege performance is fatal to his breach of contract claim.
Defendant also argues that Plaintiff has not alleged that there was a breach and appears to
suggest that the record demonstrates that there was no breach.53 Specifically, Defendant claims
that it sent notices in compliance with Paragraph 15 of the Deed of Trust.54 In support of this
argument, Defendant highlights Plaintiff’s allegation that he notified Defendant of a change of
address telephonically, when the Deed of Trust required notification in writing. Next, Defendant
argues that it can be reasonably inferred that the notices were sent to and received at the property
address because the tenant was aware of the foreclosure.
In the amended complaint, Plaintiff alleges that Defendant failed to comply with the
requirements of the deed of trust and foreclosed on the property in breach of the agreement.55
Furthermore, in Plaintiff’s response, he explains that the tenant received notice after the
51
Hous. First Am. Sav. v. Musick, 650 S.W.2d 764, 768 (Tex. 1983); see also Jasper Fed. Sav. & Loan Ass’n v.
Reddell, 730 S.W.2d 672, 674 (Tex. 1987).
52
Dkt. No. 11. at p. 5.
53
Dkt. No. 14 at pp. 4 & 7.
54
Id.
55
Dkt. No. 11 at p. 2.
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foreclosure occurred when the notices were physically posted on the property.56 Here, when
Plaintiff’s allegations are viewed in the light most favorable to Plaintiff, the Court finds that
Plaintiff has alleged that Defendant breached the contract. Furthermore, Plaintiff’s allegations
do not demonstrate that Defendant met its contractual obligations.
Next, Defendant argues that Plaintiff did not allege any damages that were caused by the
breach of contract. Turning to the amended complaint, Plaintiff alleges that “[d]ue to the above
specified facts and causes of action, Plaintiff has been irreparably harmed, including but not
limited to losing his homestead, which is a unique piece of property . . . .”57 Admittedly, this
passage is confusing because Plaintiff placed it under the “Wrongful Foreclosure” heading.
Nevertheless, when this allegation is viewed in the light might favorable to Plaintiff, the Court
finds that Plaintiff has sufficiently alleged that he was harmed by Defendant’s breach of contract.
After reviewing the amended petition and the response, the Court finds that Plaintiff has
stated a claim for breach of contract. Accordingly, the Court DENIES Defendant’s motion to
dismiss Plaintiff’s breach of contract claim.
56
57
Dkt. No. 19 at pp. 4-5.
Dkt. No. 11 at p. 5.
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III.
Conclusion
After considering the motion to dismiss, response, reply, record, and relevant authorities,
the Court GRANTS the motion to dismiss in part and DENIES it in part. Specifically, the Court
GRANTS Defendant’s motion as to Plaintiff’s wrongful foreclosure, negligence, breach of
fiduciary duty, fraud, and accounting claims. Accordingly, the wrongful foreclosure, negligence,
breach of fiduciary duty, fraud, and accounting claims are DISMISSED with prejudice. The
Court DENIES Defendant’s motion as to Plaintiff’s breach of contract claim. Therefore, the
breach of contract claim remains.
IT IS SO ORDERED.
DONE this 27th day of June, 2013, in McAllen, Texas.
_______________________________
Micaela Alvarez
UNITED STATES DISTRICT JUDGE
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