El Paso Employees Federal Credit Union v. Rodriguez et al
Filing
19
ORDER Taking Motion Under Advisement and Denying with regard to Plaintiff's reques for a permanent injunction re 12 MOTION for Entry of Default Plaintiff's Request for Clerk's Entry of Default against All Defendants, 17 MOTION for Default Judgment against All Defendants, ORDER for Plaintiff to file before 1/27/12. Signed by Judge Kathleen Cardone. (dl1, )
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
EL PASO DIVISION
EVOLVE FEDERAL CREDIT
UNION,
Plaintiff,
v.
MARIA CONSUELO DOMINGUEZ
RODRIGUEZ, SERGIO R.
RODRIGUEZ, MIGUEL
DOMINGUEZ and MARIA G.
DOMINGUEZ,
Defendants.
§
§
§
§
§
§
§
§
§
§
§
§
§
§
EP-11-CV-367-KC
ORDER
On this day, the Court considered Plaintiff Evolve Federal Credit Union’s Motion for
Default Judgment (“Motion”), ECF No. 17. For the reasons set forth herein, the Motion is
DENIED in part and TAKEN UNDER ADVISEMENT in part. The Court finds that additional
briefing is necessary before the Court can rule on the remaining claim.
I.
BACKGROUND
The following facts are considered admissions and are therefore taken as true, as is proper
when defendants default. See Nishimatsu Constr. Co. v. Hous. Nat’l Bank, 515 F.2d 1200, 1206
(5th Cir. 1975). In 2005, Defendants Sergio Rodriguez and Maria Rodriguez, husband and wife,
purchased property located at Lot 12, Block B, Patterson Subdivision, and Addition to the City of
El Paso, El Paso County, Texas, according to the plat thereof on File in Volume 14, Page 12,
1
Real Property Records of El Paso County, Texas (“Lot 12” or “the Property”). Pl.’s First Am.
Original Compl. and Req. for Declaratory J. (“Complaint”) ¶ 11, ECF No. 18. Maria and Sergio
Rodriguez subsequently conveyed Lot 12 via warranty deed to themselves and Maria
Rodriguez’s mother, Maria Dominguez. Compl. ¶ 11. In June of 2008, Maria and Sergio
Rodriguez applied to Plaintiff for a $98,000 home equity loan (the “loan”) to be secured by a
deed of trust on Lot 12. Compl. ¶ 12.
Maria and Sergio Rodriguez appeared at Plaintiff’s office to sign the deed of trust without
Maria Dominguez. Compl. ¶ 14. When Plaintiff’s representative, Lilia Flores, inquired about
Maria Dominguez’s absence, Maria Rodriguez falsely stated that Maria Dominguez was her
maiden name and that Maria Dominguez and Maria Rodriguez were one and the same. Compl. ¶
14. Maria Rodriguez presented a certificate of naturalization with the name Maria Dominguez as
proof of identity. Compl. ¶ 14; Aff. of Lilia Flores Ex. 3, ECF No. 14-3. Maria Rodriguez then
signed the deed of trust “Maria Consuelo Rodriguez, a/k/a Maria Dominguez.” Compl. ¶14; Aff.
of Lilia Flores Ex. 4, at 8, ECF No, 14-4. Sergio Rodriguez did not correct his wife’s
misrepresentation. See Compl. ¶¶ 14-15.
Maria and Sergio Rodriguez stopped making payments on the loan approximately one
year after it was issued. Compl. ¶ 16. Plaintiff filed an Application for Foreclosure
(“Application”) in the 210th District Court, El Paso County, Texas. Aff. of Lane Reedman ¶ 4,
ECF No. 15. In response, Defendants Maria Rodriguez, Sergio Rodriguez, and Maria
Dominguez filed a lawsuit challenging the validity of the loan, which was later consolidated with
the Application. Id. On December 8, 2010, the state court granted the Application and entered
judgment against Defendants Maria Rodriguez, Sergio Rodriguez, and Maria Dominguez in the
2
amount of $100,425.41 plus $20,197.47 in attorney’s fees and expenses. See Aff. of Lane
Reedman Ex. 10, ECF No. 15-5.
On July 15, 2011, Defendants provided Plaintiff with notice that Defendants were
rescinding the loan transaction pursuant to the Truth in Lending Act (“TILA”), 15 U.S.C. § 1601
et seq. See Aff. of Lane Reedman Ex. 11 (“Notice of Rescission”), ECF No. 15-6. The Notice of
Rescission also stated that Defendants planned to file a lawsuit against Plaintiff for violations of
TILA. Id. In response, Plaintiff filed the instant lawsuit seeking a declaratory judgment that the
“conduct of Defendant Maria Consuelo Dominguez Rodriguez constitutes fraud and bars
exercise of the right of rescission by any of Defendants” and a permanent injunction restraining
Defendants “from commencing any action to rescind the loan transaction giving rise to this suit,”
as well as costs and any further relief to which Plaintiff is entitled. Compl. ¶ 21.
Plaintiff served Defendants with summons and a copy of the Complaint. Twenty-one
days have passed since service of process, and Defendants have failed to appear. See Fed. R.
Civ. P. 12(a)(1)(A)(i). Plaintiff now seeks default judgment pursuant to Federal Rule of Civil
Procedure 55. See Mot.; Fed. R. Civ. P. 55.
II.
DISCUSSION
A.
Jurisdiction
The Court must first address its jurisdiction to hear this case “since the court must find
jurisdiction before determining the validity of a claim.” Moran v. Kingdom of Saudi Arabia, 27
F.3d 169, 172 (5th Cir. 1994) (quoting Gould, Inc. v. Pechiney Ugine Kuhlmann, 853 F.2d 445,
449 (6th Cir. 1988), abrogated on other grounds by Am. Telecom Co., L.L.C. v. Republic of
Lebanon, 501 F.3d 534, 540 n.8 (6th Cir. 2007)). Subject matter jurisdiction is the “authority of
3
the court to adjudicate the type of controversy involved in the action.” Carlisle v. United States,
517 U.S. 416, 434-35 (1996) (Ginsburg, J., concurring) (quoting Restatement (Second) of
Judgments § 11 (1982)). “The district courts of the United States . . . are courts of limited
jurisdiction. They possess only that power authorized by Constitution and statute.” Exxon Mobil
Corp. v. Allapattah Servs., 545 U.S. 546, 552 (2005) (internal quotation omitted). Because
jurisdiction “is mandatory for the maintenance of an action in federal court,” a case must be
dismissed if jurisdiction is lacking. Avitts v. Amoco Prod. Co., 53 F.3d 690, 693 (5th Cir. 1995);
see also Fed. R. Civ. P. 12(h)(3).
Plaintiff seeks a declaratory judgment and injunction, and claims the Court has federal
question jurisdiction under 28 U.S.C. § 1331 and pursuant to the Declaratory Judgment Act, 28
U.S.C. §§ 2201-02. Compl. ¶ 6. Plaintiff asserts that the underlying controversy arises under
TILA and requests a declaration of its right to assert a defense against a claim for rescission, as
well as an injunction barring Defendants from seeking rescission. Compl. ¶¶ 6, 18-19.
Sections 2201 and 2202 create a declaratory judgment remedy, but do not expand the
Court’s jurisdiction. Pub. Serv. Comm. of Utah v. Wycoff Co., Inc., 344 U.S. 237, 242 (1952).
Thus, an action for declaratory judgment must still meet traditional jurisdictional requirements.
See Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671-72 (1950). When a plaintiff in a
declaratory judgment actions seeks a declaration of his right to assert a defense, as is the case
here, “it is the character of the threatened action, and not of the defense, which will determine
whether there is federal-question jurisdiction.” Wycoff, 344 U.S. at 248; see also Franchise Tax
Bd. of State of Cal. v. Constr. Laborers Vacation Trust for S. Cal., 463 U.S. 1, 19 (1983) (in
establishing jurisdiction, courts ask “if the declaratory judgment defendant brought a coercive
4
action to enforce its rights, [whether] that suit would necessarily present a federal question”).
Here, Defendants have threatened to sue Plaintiff for violations of TILA. Notice of
Rescission at 1. Because TILA is a federal law, the threatened suit would present a federal
question. See Lowe v. Ingalls Shipbuilding, A Div. of Litton Sys., Inc., 723 F.2d 1173, 1181 (5th
Cir. 1984). Thus, the Court has federal question jurisdiction over Plaintiff’s action.
B.
Standard
A default shall be entered if a party fails to plead or otherwise defend, and that failure is
shown by affidavit or otherwise. Fed. R. Civ. P. 55(a). After default is entered, a party may
move for a default judgment.1 See Fed. R. Civ. P. 55(b)(2); N. Y. Life Ins. Co. v. Brown, 84 F.3d
137, 141 (5th Cir. 1996). A “party is not entitled to a default judgment as a matter of right, even
where the defendant is technically in default.” Lewis v. Lynn, 236 F.3d 766, 767 (5th Cir. 2001)
(quoting Ganther v. Ingle, 75 F.3d 207, 212 (5th Cir. 1996)). Indeed, “[d]efault judgments are a
drastic remedy, not favored by the Federal Rules and resorted to by courts only in extreme
situations.” Id. (quoting Sun Bank of Ocala v. Pelican Homestead and Sav. Ass’n, 874 F.2d 274,
276 (5th Cir. 1989)).
Moreover, a default judgment will only be rendered if there is “a sufficient basis in the
pleadings for the judgment entered.” Nishimatsu, 515 F.2d at 1206. Thus, when a plaintiff fails
1
The Fifth Circuit provides a useful review of the terms related to defaults:
A default occurs when a defendant has failed to plead or
otherwise respond to the complaint within the time required by
the Federal Rules. An entry of default is what the clerk enters
when the default is established by affidavit or otherwise. After
defendant’s default has been entered, plaintiff may apply for a
judgment based on such default. This is a default judgment.
N. Y. Life Ins. Co. v. Brown, 84 F.3d 137, 141 (5th Cir. 1996) (internal citations
omitted).
5
to state a claim upon which relief could be granted, a court may deny a request for default
judgment. Lewis, 236 F.3d at 767-68 (holding denial of default judgment is appropriate in
situations where factual allegations, even if found true, do not establish liability).
In deciding whether a plaintiff has stated a claim upon which relief could be granted, the
Court must accept well-pleaded facts as true and view them in a light most favorable to the
plaintiff. Calhoun v. Hargrove, 312 F.3d 730, 733 (5th Cir. 2002); Collins v. Morgan Stanley
Dean Witter, 224 F.3d 496, 498 (5th Cir. 2000). Still, “a plaintiff’s obligation to provide the
grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555 (2007) (internal quotation marks omitted) (quoting Papasan v. Allain, 478 U.S. 265,
286 (1986)); Colony Ins. Co. v. Peachtree Constr., Ltd., 647 F.3d 248, 252 (5th Cir. 2011).
Thus, in order for the Court to find that Plaintiff has stated a legally viable claim, the
Complaint’s “[f]actual allegations must be enough to raise a right to relief above the speculative
level, on the assumption that all the allegations in the complaint are true.” Twombly, 550 U.S. at
555 (internal citation omitted).
C.
Analysis
Plaintiff requests (1) a declaratory judgment that Maria Rodriguez’s fraud in obtaining the
loan bars her right to rescind the loan; and (2) a permanent injunction preventing Defendants
from seeking to rescind the loan. The Court considers each request in turn.
1.
Declaratory judgment on fraud barring the right to rescission.
The Declaratory Judgement Act permits courts to declare “the rights and other legal
relations” of adverse parties in an actual case or controversy. 28 U.S.C. § 2201. Courts have
6
substantial discretion in deciding whether to declare the rights of litigants. Williams v. Liberty
Mut. Ins. Co., No. 04-30768, 2005 WL 776170, at *3 (5th Cir. Apr. 7, 2005).
Notably, the Declaratory Judgment Act is procedural in nature only, and does not create
substantive rights. Skelly Oil, 339 U.S. at 671-72; see also Clark v. Memolo, 174 F.2d 978, 980
(D.C. Cir. 1949) (“[T]he Declaratory Judgment Act does not confer or extend jurisdiction over an
area not already covered, nor can it be used to give relief indirectly which could not be given
directly.”). Instead, actions for declaratory judgment are “procedure[s] for adjudicating existing
rights.” Western Cas. & Sur. Co. v. Herman, 405 F.2d 121, 124 (8th Cir. 1968); see also Reiter
v. Ill. Nat. Cas. Co., 213 F.2d 946, 949 (7th Cir. 1954) (holding that the Declaratory Judgment
Act “did not increase in anywise the jurisdiction of the United States District Court over the
substantive rights of litigants or create new causes of action.”); 5 Charles Alan Wright & Arthur
Miller, Fed. Prac. & Proc. §1238 (3d ed. 2004) (“The Declaratory Judgment Act neither extends
the jurisdiction of the federal courts nor enlarges substantive rights.”).
Plaintiff’s Motion seeks a declaration “that fraud on the part of Maria Consuelo
Dominguez Rodriguez vitiates the right of rescission under the Fair Debt Collection Practices
Act [(“FDCPA”)].” Mot. 5. Additionally, Plaintiff’s proposed order for default judgment
requests that the Court declare “[m]isrepresentations of [Maria and Sergio Rodriguez] bars [sic]
Defendants from any right of rescission they might otherwise have under the [FDCPA].” Mot.
Attach. 1, ¶ 11, ECF No. 17-1. Plaintiff’s Motion for Entry of Default also mentions the
FDCPA, 15 U.S.C. § 1692 et seq. Mot. for Entry of Default ¶ 2, ECF No. 12.
The FDCPA’s purpose is to “eliminate abusive debt collection practice by debt
collectors.” See 15 U.S.C. § 1692(e). However, Plaintiff’s Complaint nowhere mentions the
7
FDCPA, nor does it mention debt-collection attempts or seek relief related to debt collection
practices. See generally Compl. Debt collection practices are simply not at issue in this case.
Even if debt collection practices were involved, Plaintiff, as originator of the loan at issue, is not
a debt collector, and thus the FDCPA is inapplicable. See 15 U.S.C. § 1692a (6) (F) (“any person
collecting or attempting to collect any debt owed or due or asserted to be owed or due another to
the extent such activity . . . concerns a debt which was originated by such person” is not a debt
collector); see also Perry v. Stewart Title Co., 756 F.2d 1197, 1208 (5th Cir. 1985). Further
rendering Plaintiff’s Motion inexplicable, the FDCPA does not provide the right of rescission
Plaintiff refers to. See 15 U.S.C. § 1692 et seq.
Plaintiff’s Complaint does, however, refer to Defendants’ right of rescission pursuant to
TILA. Compl. ¶¶ 18-19. The Court therefore believes that the references to the FDCPA in
Plaintiff’s Motion are in error, and that Plaintiff intended to refer to TILA. Accordingly, the
Court construes the Motion as requesting the relief sought in the Complaint: a declaratory
judgment that fraud bars the right to rescind under TILA, not under the FDCPA.
Congress enacted TILA to support the informed use of credit by requiring that lenders
disclose certain credit terms so that consumers could comprehend and compare various credit
term options. 15 U.S.C. § 1601. In doing so, TILA protects consumers from “inaccurate and
unfair credit practices.” Fairley v. Turan-Foley Imps., Inc., 65 F.3d 475, 477 (5th Cir. 1995). In
certain credit transactions, TILA provides consumers with a three-year window, commencing on
the consummation of the transaction or sale of the property, in which the consumer can rescind a
loan. 15 U.S.C. § 1635(f). Here, Plaintiff admits that Defendants timely provided notice of
rescission. See Compl. ¶ 17; Notice of Rescission; Aff. of Lilia Flores ¶ 6. However, Plaintiff
8
claims that Maria Rodriguez’s fraud in obtaining the loan prevents Defendants from exercising
the TILA rescission right, and seeks a declaration to that effect. See generally Compl.
TILA provides a defense against rescission for creditors who issued loans based on a
borrower’s fraudulent misrepresentations. In 2010, Congress passed the Dodd-Frank Act, which
provides creditors with new affirmative defenses to TILA claims. See Dodd-Frank Wall Street
Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010) (“Dodd-Frank
Act”); see also John L. Ropiequet et al., The Dodd-Frank Act Changes the Consumer Finance
Landscape, 64 Consumer Fin. L. Q. Rep. 284, 291 (2010). One such defense is that “no creditor
or assignee shall be liable to an obligor under this section, if such obligor, or co-obligor has been
convicted of obtaining by actual fraud such residential mortgage loan.” Dodd-Frank Wall Street
Reform and Consumer Protection Act, Pub. L. No. 111-203, § 1417, 124 Stat. 1376, 2153 (2010)
(to be codified at 15 U.S.C. § 1640 (l)) (“Dodd-Frank defense”) (emphasis added). However,
Plaintiff does not invoke the Dodd-Frank defense in its Complaint or its Motion, although the
Motion briefly refers to the penalties for those convicted of bank fraud. Mot. ¶ 9. Even if
Plaintiff had, Plaintiff has neither alleged nor provided facts showing that Defendants have been
convicted of fraud. Therefore, Plaintiff has failed to fulfill the required elements of the DoddFrank defense.
Although Plaintiff’s Complaint requests a declaration that it has a defense to a TILA
rescission claim, Plaintiff’s Motion has failed to demonstrate how the facts established in the
Complaint entitle Plaintiff to any type of relief under the law. The Court believes further citation
to legal authority is needed regarding how the established facts demonstrate a basis for relief.
See Hollis v. Itawamba Cnty. Loans, 657 F.2d 746, 750 (5th Cir. 1981) (citing Pub. Affairs
9
Assocs., Inc. v. Rickover, 369 U.S. 111, 112 (1962)) (“In the exercise of their sound discretion to
entertain declaratory actions the district courts . . . may take into consideration the
speculativeness of the situation before them and the adequacy of the record for the determination
they are called upon to make.”). Therefore, the Court orders Plaintiff to further brief the issue of
how the Complaint states a claim for relief in the form of a declaratory judgment that the
borrowers’ actions in this case bars the right to a rescission under TILA.
2.
Permanent injunction
Plaintiff also seeks a permanent injunction restraining Defendants “from commencing any
action to rescind the loan transaction giving rise to this suit.” Compl. ¶ 21; see also Mot. 5
(requesting the Court to “enjoin[] all Defendants against further attempts to rescind the loan
agreement or Plaintiff’s security interest.”); but see Mot. Attach. 1 (Plaintiff’s Proposed Order
omitting request for injunctive relief). To obtain a permanent injunction, a plaintiff must show
“(1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary
damages, are inadequate to compensate for that injury; (3) that, considering the balance of
hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the
public interest would not be disserved by a permanent injunction.” Monsanto Co. v. Geertson
Seed Farms, 130 S. Ct. 2743, 2756 (2010). Plaintiff’s Complaint utterly fails to provide any
facts supporting a single one of these factors. Therefore, Court finds that Plaintiff has failed to
state a claim that would entitle it to an injunction.
III.
CONCLUSION
For the foregoing reasons, Plaintiff’s Motion for Default Judgment (“Motion”), ECF No.
17, is DENIED in part and TAKEN UNDER ADVISEMENT in part.
10
Plaintiff’s Motion is DENIED with regard to Plaintiff’s request for a permanent
injunction and is TAKEN UNDER ADVISEMENT with regard to the request for a declaratory
judgment.
Further, it is ORDERED that Plaintiff brief the issue, with citation to legal authority, of
how the Complaint states a claim for relief in the form of a declaratory judgment that the
borrowers’ actions in this case bar the right to a rescission under the Truth in Lending Act by
January 27, 2012. Failure to do so may result in dismissal of the case.
SO ORDERED
.
SIGNED on this 12th day of January, 2012.
______________________________________
KATHLEEN CARDONE
UNITED STATES DISTRICT JUDGE
11
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?