Newton v. New Century Mortgage Corporation et al
Filing
10
ORDER GRANTING 5 Motion to Dismiss. Signed by Judge Sam Sparks. (td)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS 28i DEC
AUSTIN DIVISION
I
I
AM
tO:
13
ZANE NEWTON,
Plaintiff,
Case No. A-14-CA-990-SS
-vs-
NEW CENTURY MORTGAGE CORPORATION
and JPMC SPECIALTY MORTGAGE LLC,
Defendants.
ORDER
BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause, and
specifically Defendant JPMC Specialty Mortgage LLC's Motion to Dismiss [#5], Plaintiff Zane
Newton's Response [#8] thereto, and Defendant's Reply [#9] thereto. Having considered the
documents, the governing law, and the file as a whole, the Court enters the following opinion and
order GRANTiNG the motion.
Background
Plaintiff Zane Newton brings this action challenging Defendant JPMC Specialty Mortgage
LLC's authority to foreclose on the property located at 2504 Loyola Lane, Austin, Texas 78723.
This is the second action Newton has filed in this Court concerning the Loyola Lane property. See
Newton et al.
v.
JPMorgan Chase Bank, NA. et al., No. A-13-CA-730-SS (W.D. Tex. 2013).
Newton financed the purchase of the property with a home equity loan and on August 25, 2006,
executed a note and Texas Home Equity Security Instrument (Deed of Trust) evidencing the
transaction in favor of New Century Mortgage Corporation, the original lender. See Notice of
/
Removal [#1-1], Ex. A-2, Ex.
1
(Deed of Trust) at 1. The Deed of Trust named as beneficiary
Mortgage Electronic Registration Systems, Inc. (MERS) "and the successors and assigns ofMERS."
Id.
at3.
New Century Mortgage Corporation filed for bankruptcy on April 2, 2007.
Ex. A-2, Ex.
3
Id.
[#1-1],
(MERS Motion) at ¶ 1. MERS filed a motion in the bankruptcy court to compel New
Century either to accept or reject their executory contract, see
motion, see id.
See
[#1-1],
Id.,
the bankruptcy court granted the
Ex. A-2, Ex. 4 (Order Granting MERS Motion), and on March 19, 2008, New
Century sent MERS its notice of rejection of the contract, see
Id.
[#1-1],
Ex. A-2, Ex. 5 (Notice of
Rejection).
Newton stopped making payments on his home equity loan in March 2012. In May 2012,
and apparently in contravention of the bankruptcy court's order,' MERS assigned the Deed of Trust
to JPMC by executing a Corporate Assignment of Deed of Trust and filing it in the Travis County
real property records.
See
Def.'s Mot. Dismiss [#5-1], Ex. A (Assignment). Newton continues to
occupy the property, despite being in default.
On October 9, 2014, Newton filed this action in the 98th Judicial District Court of Travis
County, Texas, naming New Century and JPMC as defendants. Newton's complaint states New
Century "is named nominally and will be served later." Notice of Removal [#1-1], Ex. A-2 (Orig.
Pet.) at ¶ 4. JPMC removed the action to this Court on October 31, 2014, invoking this Court's
diversity jurisdiction.
See
Id.
[#1]
at 1-2. The instant motion to dismiss followed.
No. H-13-283 1, 2014 WL 1024006 at * 1 (S.D. Tex. Mar. 17,2014)
(discussing the New Century bankruptcy and MERS' subsequent assignment of a deed of trust). The bankruptcy court's
final order is not in the record of this case.
1
See Applin
v.
Deutsche Bank Nat
'1
Trust,
-2-
Analysis
I.
Legal Standard
Federal Rule of Civil Procedure 8(a)(2) requires a complaint to contain "a short and plain
statement of the claim showing that the pleader is entitled to relief."
FED.
R. Civ. P. 8(a)(2). A
motion under Federal Rule of Civil Procedure 12(b)(6) asks a court to dismiss a complaint for
"failure to state a claim upon which relief can be granted."
FED.
R.
CIV. P.
12(b)(6). The plaintiff
must plead sufficient facts to state a claim for relief that is facially plausible. Ashcrofl v. Iqbal, 556
U.S. 662, 678 (2009); Be//At!. Corp.
v.
Twombly, 550 U.S. 544, 570 (2007). "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." Iqbal, 566 U.S. at 678. Although
a plaintiff's factual allegations need not establish that the defendant is probably liable, they must
establish more than a "sheer possibility" that a defendant has acted unlawfully. Id. Determining
plausibility is a "context-specific task," and must be performed in light of a court's "judicial
experience and common sense." Id. at 679.
In deciding a motion to dismiss under Rule 1 2(b)(6), a court generally accepts as true all
factual allegations contained within the complaint.
Leatherman
v.
Tarrant Cnty. Narcotics
Intelligence & Coordination Unit, 507 U.S. 163, 164 (1993). However, a court is not bound to
accept legal conclusions couched as factual allegations. Papasan
v.
A/lain, 478 U.S. 265, 286
(1986). Although all reasonable inferences will be resolved in favor of the plaintiff, the plaintiff
must plead "specific facts, not mere conclusory allegations." Tuchman v. DSC Commc 'ns Corp.,
14 F.3d 1061, 1067 (5th Cir. 1994). In deciding a motion to dismiss, courts may consider the
complaint, as well as other sources such as documents incorporated into the complaint by reference,
-3-
and matters of which a court may take judicial notice. Tellabs, Inc.
v.
Makor Issues & Rights, Ltd.,
551 U.S. 308, 322 (2007).
II.
Application
Newton's complaint alleges his loan was made in violation of the Texas Constitution because
(1) the Texas Office of Consumer Credit Commissioner (Texas OCCC) never licensed New Century
to do business at the specific address named in the Deed of Trust, in violation of Section
50(a)(6)(Q)(xi); and (2) the adjustable interest rate resulted in payments which were not relatively
equal across the life of the loan, in violation of Section 50(a)(6)(L). Additionally, Newton contests
the validity of MERS's 2012 assignment of the Deed of Trust to JPMC on grounds MERS lacked
the authority to make the assignment after New Century declared bankruptcy and rejected its contract
with MERS. On those theories, Newton brings claims for quiet title and violations of the Texas
Finance Code and Texas Deceptive Trade Practices Act, and requests a declaratory judgment,
accounting, temporary restraining order, and permanent injunction prohibiting JPMC from
foreclosing on the property. As both Newton's legal arguments lack merit, all of his claims against
JPMC must be dismissed.
A.
Alleged Violations of the Texas Constitution
Newton's claims concerning the alleged invalidity of his home equity loan under the Texas
Constitution are time-barred. A four-year limitations period governs claims, like Newton's, brought
under Section 50(a)(6) ofthe Texas Constitution. Priester v. JPMorgan Chase Bank, NA., 708 F.3d
667, 673-74 (5th Cir. 2013); see also Nunez v. CitiMortgage, Inc., No. A-14-CA-89-SS, 2014 WL
819463 at * 1 (W.D. Tex. Mar. 3, 2014) (slip op.) (collecting cases). For purposes of calculating the
El
date of accrual, the Fifth Circuit has held Section 50(a)(6) causes of action accrue on the date of
closing of the home equity loan in question, as the legal injury occurs on that date. Id. at 675.
Consequently, Newton's causes ofaction under Section 50(a)(6) accrued on August 25,2006,
the date he closed on his home equity loan. As Newton filed suit well after August 26, 2010, the
date the limitations period expired, his constitutional claims are untimely.
B.
Validity of MERS's Assignment of the Deed of Trust to JPMC
Newton's remaining claims fare no better, as Newton may not challenge the validity of
MERS's assignment of the Deed of Trust to JPMC. MERS executed a facially valid assignment of
the Deed of Trust to JPMS. See Assignment [#5-1], Ex. A. "[U]nder Texas law, facially valid
assignments cannot be challenged by want of authority except by the defrauded assignor." Reinagel
v.
Deutsche Bank Nat'l Trust Co., 735 F,3d 220, 228 (5th Cir. 2013); see also Applin v. Deutsche
Bank Nat'l Trust, No. H-13-2831, 2014 WL 1024006 at *8 (S.D. Tex. Mar. 17, 2014) (citing
Reinagel, 735 F.3d at 226; 29 WILLISTON ON CONTRACTS
§
74:50 (4th ed. 2012) ("it cannot be
assumed that the assignor is desirous of avoiding the assignment"). New Century has not challenged
the assignment, and Newton may not do so.
The Fifth Circuit recently came to a similar conclusion in Golden v. Wells Fargo Bank, NA.,
557 F. App'x 323 (5th Cir. 2014), which also involved New Century's 2007 bankruptcy. The
obligors in Golden refinanced their home in 2006, obtaining a new loan from New Century secured
by a deed of trust. Id. at 325, New Century, as noted, then went bankrupt. In 2010, a man
purporting to act on behalf of a mortgage servicer "as attorney-in-fact for New Century" executed
an assignment of the deed of trust to Wells Fargo. Id. The obligors later filed suit, arguing "that as
part of its bankruptcy filing, New Century repudiated its agreement with [MERS]
-5-
. . .
,
and that as
a result no one had authority to sign on behalf of New Century" thereafter. Id. The Fifth Circuit
rejected the obligors' argument, concluding it failed under Reinagel as the assignment of the deed
of trust was facially valid and New Century had not challenged it. Id. at 326.
Even if Newton could challenge the assignment, moreover, his argument concerning MERS 'S
lack of authority given New Century's subsequent bankruptcy would fail. The Southern District of
Texas has at least twice confronted circumstances like theseobligors whose original lender was
New Century challenging assignments made to other entities by MERS following New Century's
bankruptcyand in both cases concluded MERS had the authority to make the assignment in
question. InKhan v. Wells Fargo Bank, NA., No. H-12-1 116, 2014 WL 200492 (S.D. Tex. Jan. 17,
2014), the obligor argued MERS ' s assignment "was void because MERS no longer retains any rights
over the contract and because the assignment violated the automatic stay in bankruptcy." 2014 WL
200492 at *7 The Khan court rejected that argument, explaining because "MERS obtained its rights
under the Deed of Trust in 2006, well before New Century's bankruptcy.
.
.
,
MERS had the
authority, irrespective of New Century's legal status, to assign its interest in the mortgage to other
entities." Id. at *8 (citing Lindsay
v.
Wells
Fargo Bank, NA., 2013 WL 5010977, at *714 (D.
Mass. Sept. 11,2013)). CitingKhan and Reinagel, theApplin v. DeutscheBankNational Trust court
reached the same conclusion. See 2014 WL 1024006 at *8.
Here, as in Khan and Applin, the Deed of Trust expressly contemplates MERS '5 ability to
assign its rights to another entity, as the Deed ofTrust names MERS and its "successors and assigns"
as beneficiaries. Accordingly, MERS obtained its rights under the Deed
of Trust in August 2006,
and New Century's subsequent bankruptcy did not affect its authority to assign its interest to another
entity. Newton's argument to the contrary is rejected.
Finally, the Court notes while New Century is a "nominal" defendant in this action, it is a
defunct entity which was liquidated, or perhaps remains in the process of being liquidated, in
bankruptcy. It does not appear Newton has served New Century with process. It is, furthermore,
not clear from the record whether New Century remains a jural entity with the capacity to be sued.
Consequently, the Court will afford Newton fourteen days from date of entry of this order to show
cause why his claims against New Century which are not time-barred should not be dismissed for
failure to prosecute.
Conclusion
Accordingly,
IT IS ORDERED that Defendant JPMC Specialty Mortgage LLC's Motion to
Dismiss [#5] is GRANTED;
IT IS FURTHER ORDERED that Plaintiff Zane Newton's claims, insofar as they are
grounded in alleged violations of the Texas Constitution, are DISMISSED WITH
PREJUDICE as time-barred;
IT IS FURTHER ORDERED that Plaintiffs remaining claims against Defendant
JPMC Specialty Mortgage LLC are DISMISSED WITHOUT PREJUDICE for failure to state
a claim upon which relief may be granted; and
IT IS FINALLY ORDERED that Plaintiff shall, within FOURTEEN (14) DAYS
from date of entry of this order, show cause why his claims against Defendant New Century
Mortgage Corporation which are not time-barred should not be dismissed for failure to
prosecute.
-7-
SIGNED this the
J/day of December 2014.
SA!71P
UNITED STATES DISTRICT JUDGE
990
rntd ord ba.frm
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