Ekberg et al v. Wells Fargo Bank, N.A.

Filing 14

REPORT AND RECOMMENDATIONS that the Court DENY without Prejudice Defendant's 4 Motion to Dismiss and DENY Plaintiffs ' 6 Motion to Remand to State Court. Signed by Judge Andrew W. Austin. (klw, )

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
KERRY AND HENRY EKBERG
v.
WELLS FARGO BANK, N.A.

§
§
§
§
§

A-11-CA-573 LY

REPORT AND RECOMMENDATION
OF THE UNITED STATES MAGISTRATE JUDGE
TO:

THE HONORABLE LEE YEAKEL
UNITED STATES DISTRICT JUDGE
Before the Court are: Defendant’s Motion to Dismiss (Clerk’s Doc. No. 4), filed on July 15,

2011; Plaintiffs’ Objection to the Motion to Dismiss (Clerk’s Doc. No. 7), filed on July 21, 2011;
Defendant’s Reply to Plaintiffs’ Objection (Clerk’s Doc. # 10), filed on August 1, 2011; and
Plaintiffs’ Response to Defendant’s Reply, filed on September 8, 2011 (Clerk’s Doc. # 12). Also
before the Court are: Plaintiffs’ Motion to Remand to State Court (Clerk’s Doc. # 6), filed on July
21, 2011; and Defendant’s Response to Plaintiffs’ Motion to Remand (Clerk’s Doc. # 9), filed on
August 1, 2011. The District Court referred these Motions to the undersigned Magistrate Judge for
Report and Recommendation pursuant to 28 U.S.C. § 636(b)(1)(B), Federal Rule of Civil Procedure
72 and Rule 1(d) of Appendix C of the Local Rules of the United States District Court for the
Western District of Texas, as amended.
I. FACTUAL BACKGROUND
Kerry and Henry Ekberg (“Plaintiffs”) are the owners of certain real property1 subject to a
lien secured by a Deed of Trust which identifies Wells Fargo Bank, N.A. (“Defendant”) as the
lender. On June 9, 2011, Plaintiffs filed a lawsuit in state court against Defendant alleging that the

1

The property is located at 14604 Sandy Side Drive, Austin,Texas 78728 (“Property”).

Deed of Trust on the Property was invalid and requesting that the court “remove that Deed of Trust
and quiet title to the Plaintiffs.” See Original Petition in Ekberg v. Wells Fargo Bank, N.A., No. D-1GN-11-001732 (201st Dist. Ct., Travis County, Tex. June 9, 2011), at p.2. Plaintiffs further allege
that they “will show that the Defendant and/or the Lender’s assigns is not the holder of the original
real Estate Lien note that is secured by the Deed of Trust.” Petition at p. 3. On July 8, 2011,
Defendant removed the case to Federal Court based on diversity jurisdiction pursuant to 28 U.S.C.
§§ 1332, 1441 and 1446.
Defendant has now filed a Motion to Dismiss pursuant to Rule 12(b)(6) moving to dismiss
the lawsuit because it is based on an untenable legal theory. In addition, Plaintiffs have filed a
Motion to Remand this case to state court. The Court will first address the Motion to Remand.
II. PLAINTIFFS’ MOTION TO REMAND
Pursuant to 28 U.S.C. § 1441(a), a defendant is permitted to remove an action from a state
court to a federal court only if the action is one over which the federal court has original jurisdiction.
See 28 U.S.C. 1441(a). Defendant removed this case to federal court on the basis of diversity
jurisdiction pursuant to 28 U.S.C. § 1332(a). This statute provides that federal courts have original
jurisdiction over all civil actions where the matter in controversy exceeds $75,000, exclusive of costs
and interest, and diversity of citizenship exists. 28 U.S.C. § 1332(a). In its Notice of Removal,
Defendant argues that the amount in controversy exceeds $75,000, and complete diversity exists
between the parties since the Plaintiffs are citizens of Texas, while Defendant is a citizen of South
Dakota.
Although Plaintiffs do not dispute that the amount in controversy in this case exceeds
$75,000, they contend that complete diversity of citizenship does not exist. Specifically, Plaintiffs
argue that Defendant should be considered a citizen of Texas for diversity purposes since it has
2

extensive business contacts with the State of Texas. Plaintiffs are confusing personal jurisdiction
with subject matter jurisdiction. “The concepts of personal and subject matter jurisdiction are
separate and distinct.” Duplantier v. United States, 606 F.2d 654, 663 at n. 19 (5th Cir. 1979), cert.
denied, 449 U.S. 1076 (1981). While the validity of an order of a federal court “ depends upon the
court’s having jurisdiction over both the subject matter and the parties . . .[t]he concepts of subjectmatter and personal jurisdiction . . . serve different purposes, and these different purposes affect the
legal character of the two requirements.” Ins. Corp. of Ireland, Ltd. v. Compagnie des Bauxites de
Guinee, 456 U.S. 694, 701 (1982). Subject matter jurisdiction deals with whether the district court
has the authority to hear and decide the case before it, i.e., whether the case involves a federal
question or whether there is diversity of citizenship between the parties, and in a diversity of
citizenship case, whether the amount in controversy exceeds the required jurisdictional amount. 5B
CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1350 (3d
ed. 2004). In contrast, the question of personal jurisdiction focuses on whether the district court has
jurisdiction over the defendant’s person, i.e., whether the controversy or the defendant has sufficient
contacts, ties, or relationships with the forum to give the court the right to exercise judicial power
over the defendant. 5B CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND
PROCEDURE § 1351 (3d ed. 2004). Thus, Plaintiffs’ focus on Defendant’s business contacts with
Texas only pertains to the question of personal jurisdiction. See Hayward v, Chase Home Finance,
LLC, 2011 WL 2881298 at * 3 (N.D. Tex. July 18, 2011) (holding that business’s contacts with the
state were irrelevant to issue of subject matter jurisdiction noting that “specific and general
jurisdiction analysis is only relevant when considering personal jurisdiction.”); Pady v. Quala
Systems, Inc., 2006 WL 3541631 at * 1 (S.D. Tex. Dec. 7, 2006) (noting that plaintiff’s reliance on
defendant’s contacts with Texas “conflates the tests for personal and subject matter jurisdiction”).
3

Defendant does not dispute that the Court has personal jurisdiction over it in this lawsuit.
Accordingly, Defendant’s ties to Texas are irrelevant to the Court’s inquiry into whether it has
subject matter jurisdiction over the instant lawsuit under 28 U.S.C. § 1332.
As noted above, in order for the Court to have subject matter jurisdiction over this case, there
must be complete diversity of citizenship between the parties. 28 U.S.C. § 1332. “A controversy
is not ‘between citizens of different states,’ so as to give jurisdiction to the federal courts, unless all
the persons on one side of it are citizens of different states from all the persons on the other side.”
Strawbridge v. Curtiss, 3 Cranch 267, 7 U.S. 267, 2 L.Ed. 435 (1806), overruled on other grounds,
Louisville, C. & C.R. Co. v. Letson, 43 U.S. 497, 2 How. 497, 11 L.Ed. 353 (1844). Plaintiffs do not
dispute that they are citizens of Texas. Thus, for diversity jurisdiction to exist in this case,
Defendant cannot be considered a citizen of Texas.
Title 28 U.S.C. § 1348 provides that for purposes of diversity jurisdiction, “[a]ll national
banking associations shall. . .be deemed citizens of the States in which they are respectively located.”
28 U.S.C. § 1348 (emphasis added). Recognizing the need for establishing “jurisdictional parity”
between national and state banks, the Fifth Circuit found that “located” referred to “a national bank’s
principal place of business as well as the state specified in the bank’s articles of association.”
Horton v. Bank One, 387 F.3d 426, 431 (5th Cir. 2004), cert. denied, 546 U.S. 1149 (2006). In
Wachovia Bank v. Schmidt, 546 U.S. 303, 318 (2006), the Supreme Court concluded that for the
purposes of defining “located” in § 1348, citizenship of a national bank is “in the State designated
in [the bank’s] articles of association as its main office.” However, “because [the] issue [was] not
presented by the parties or necessary to [the] decision,” the Supreme Court declined to state whether
a national banking association is also a citizen of the state of its principal place of business as the
Fifth Circuit ruled in Horton, noting that the location of the bank’s “main office” and its principal
4

place of business will normally coincide. Id. at 315 n. 8. Applying Wachovia to the instant case,
Defendant is a citizen of South Dakota for diversity purposes since Defendant’s articles of
association have designated Sioux Falls, South Dakota as the location of its main offices. See Wells
Fargo Bank, N.A. v. Anderson, 2011 WL 1135121 at * 3 (N.D. Tex. Mar. 28, 2011) (holding that
Wells Fargo is a citizen of South Dakota for diversity purposes since its main offices are located
there, as designated in the articles of association); Salomon v. Wells Fargo Bank, N.A., 2010 WL
2545593 at * 1 (W.D. Tex. June 21, 2010) (same). Because Defendant is a citizen of South Dakota
and Plaintiffs are citizens of Texas, complete diversity exists in this case. Even if the Court applied
the broader standard used in Horton, complete diversity would still exist. Under Horton, Defendant
would be considered a citizen of both South Dakota and California – where it has its principal place
of business. See Goodman v. Wells Fargo Bank, NA, 2011 WL 2372044 at * 2 (C.D. Cal. June 1,
2011) (relying on Horton, to find that Wells Fargo is a citizen of both South Dakota and California).
Thus, diversity jurisdiction would also exist under Horton since Plaintiffs are residents of Texas.
Because complete diversity under 28 U.S.C. § 1332 exists between the parties in this case, Plaintiffs’
Motion to Remand should be denied.
III. DEFENDANT’S MOTION TO DISMISS
Defendant argues that this case should be dismissed pursuant to Rule 12(b)(6) because
Plaintiffs’ claims are based “on the fatally flawed ‘show-me-the-note’ theory of preventing
foreclosure.” Motion to Dismiss at p. 1. Defendant contends that Texas courts have repeatedly
rejected borrowers demands that lenders “show them the note.” In addition, Defendant argues that
Plaintiffs’ quiet title claim fails to meet the pleading standards under the Federal Rules of Civil
Procedure.

5

Regarding the “show me the note” argument, Plaintiffs deny that they have made any claims
“about enforcing a deed of trust to foreclose.” See Objection to the Motion to Dismiss at p. 1.
Rather, Plaintiffs contend that they have only alleged “that Wells Fargo is the registered lender on
the Deed of Trust and that is no longer true,” and thus request that the Court remove the Deed of
Trust and quiet title to the Plaintiffs. Id. Regardless, Defendant contends that Plaintiffs’ quiet title
claims fail to meet the pleading requirements of the Federal Rules of Civil Procedure and should
therefore be dismissed.
A.

Standard of Review
Federal Rule of Civil Procedure 12(b)(6) allows a party to move to dismiss an action for

failure to state a claim upon which relief can be granted. FED . R. CIV . P. 12(b)(6). In deciding a Rule
12(b)(6) motion to dismiss for failure to state a claim, “[t]he court accepts all well-pleaded facts as
true, viewing them in the light most favorable to the [nonmovant].” In re Katrina Canal Breaches
Litig., 495 F.3d 191, 205 (5th Cir. 2007) (internal quotation marks omitted), cert. denied, 552 U.S.
1182 (2008). To survive the motion, a nonmovant must plead “enough facts to state a claim to relief
that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). “The court’s
task is to determine whether the plaintiff has stated a legally cognizable claim that is plausible, not
to evaluate the plaintiff's likelihood of success.” Lone Star Fund V (U.S.), L.P. v. Barclays Bank
PLC, 594 F.3d 383, 387 (5th Cir. 2010). “A claim has facial plausibility when the [nonmovant]
pleads factual content that allows the court to draw the reasonable inference that the [movant] is
liable for the misconduct alleged.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). “The plausibility
standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that
a defendant has acted unlawfully.” Id.

6

Because the Plaintiffs are proceeding pro se in this case, the Court must construe the
Complaint liberally, and it should be mindful that “a pro se complaint, however inartfully pleaded,
must be held to less stringent standards than formal pleadings drafted by lawyers.” Erickson v.
Pardus, 551 U.S. 89 (2007) (per curiam) (internal quotation marks omitted).
B.

Should the lawsuit be dismissed?
Based upon Plaintiffs’ “Objection” to the Motion to Dismiss, it appears that Plaintiffs are

only pursuing a quiet title claim in this case. A suit to quiet title is an equitable action in which the
plaintiff seeks to recover possession of property wrongfully withheld. Ray v. CitiMortgage, Inc.,
2011 WL 3269326, at * 4 (W.D. Tex. July 25, 2011) (citing Porretto v. Patterson, 251 S.W.3d 701,
708 (Tex. App.– Houston [1st Dist.] 2007, no pet.). As one court has phrased it, the suit “enables
the holder of feeblest equity to remove from his way to legal title any unlawful hindrance having the
appearance of better right.” Thomson v. Locke, 66 Tex. 383, 389, 1 S.W. 112 (1886). In order to
state a viable quiet title claim, the plaintiff “must allege right, title, or ownership in himself or herself
with sufficient certainty to enable the court to see he or she has a right of ownership that will warrant
judicial interference.” Wright v. Matthews, 26 S.W.3d 575, 578 (Tex. App.– Beaumont 2000, pet.
denied). “In other words, the plaintiff must recover on the strength of his or her title, not the
weakness of his adversary’s.” Ray, 2011 WL 3269326 at * 4.
While Defendant is correct that Plaintiffs have failed to allege sufficient facts to support their
quiet title claim, the Court finds that Plaintiffs – who are proceeding pro se – should be given an
opportunity to file an amended complaint in this case before dismissing their lawsuit. “Generally
a district court errs in dismissing a pro se complaint for failure to state a claim under Rule 12(b)(6)
without giving the plaintiff an opportunity to amend.” Bazrowx v. Scott, 136 F.3d 1053, 1054 (5th
Cir.), cert. denied, 525 U.S. 865 (1998). See also, Reece v. Countrywide Home Loans, 2007 WL
7

2909575 (5th Cir. Oct. 8, 2007) (holding that plaintiff’s pro se status required the district court to
give him an opportunity to amend his complaint prior to dismissal). Based upon the foregoing, the
District Court should permit Plaintiffs to file an amended complaint in this case before dismissing
this lawsuit. Plaintiffs are directed to provide the Court with sufficient facts to raise their claim for
relief beyond the speculative or conclusory level.
IV. RECOMMENDATION
The undersigned Magistrate Judge RECOMMENDS that the District Court DENY
Plaintiffs’ Motion to Remand to State Court (Clerk’s Doc. # 6).

It is FURTHER

RECOMMENDED that the District Court DENY without prejudice Defendant’s Motion to
Dismiss (Clerk’s Doc. No. 4) and permit Plaintiffs to have an opportunity to file an Amended
Complaint in this case.
V. WARNINGS
The parties may file objections to this Report and Recommendation. A party filing
objections must specifically identify those findings or recommendations to which objections are
being made. The District Court need not consider frivolous, conclusive, or general objections. See
Battle v. United States Parole Comm’n, 834 F.2d 419, 421 (5th Cir. 1987).
A party's failure to file written objections to the proposed findings and recommendations
contained in this Report within fourteen (14) days after the party is served with a copy of the Report
shall bar that party from de novo review by the District Court of the proposed findings and
recommendations in the Report and, except upon grounds of plain error, shall bar the party from
appellate review of unobjected-to proposed factual findings and legal conclusions accepted by the
District Court. See 28 U.S.C. § 636(b)(1)(c); Thomas v. Arn, 474 U.S. 140, 150-53, 106 S. Ct. 466,

8

472-74 (1985); Douglass v. United Servs. Auto. Ass’n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en
banc).
To the extent that a party has not been served by the Clerk with this Report &
Recommendation electronically pursuant to the CM/ECF procedures of this District, the Clerk is
directed to mail such party a copy of this Report and Recommendation by certified mail, return
receipt requested.
SIGNED this 30th day of November, 2011.

_____________________________________
ANDREW W. AUSTIN
UNITED STATES MAGISTRATE JUDGE

9