Smart v. Prime Mortgage & Escrow, LLC. et al
Filing
86
ORDER ADOPTING IN PART REJECTING IN PART REPORT AND RECOMMENDATIONS for GRANTING 53 Motion to Dismiss, filed by Prime Escrow, LLC., RWE Family Trust, LLC, EDCO Properties, Inc., Prime Mortgage & Escrow, LLC., Prime Mortgage, LLC., Ramse y M. Esper, Does 1-50, RWE Family Trust, Cimarron Pointe Owner's Association, Inc.,DENYING 83 Motion for Leave to File Document filed by Michael C. Smart, GRANINT 82 Motion for Leave to File Document filed by Michael C. Smart, 79 Report and Recommendations,. Signed by Judge Kathleen Cardone. (mv)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
EL PASO DIVISION
MICHAEL C. SMART,
Plaintiff,
v.
EDCO PROPERTIES, INC. et al.,
Defendants.
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CAUSE NO. EP-22-CV-23-KC
ORDER ADOPTING IN PART AND REJECTING IN PART REPORT AND
RECOMMENDATION
On this day, the Court considered the case. On February 24, 2022, the Court referred this
case to United States Magistrate Judge Leon Schydlower pursuant to 28 U.S.C. § 636(b) to hear
all pre-trial matters. Feb. 24, 2022, Order, ECF No. 18. Plaintiff filed his Second Amended
Complaint (“SAC”), ECF No. 49, on February 15, 2023, to which Defendants filed a Motion to
Dismiss (“Motion”), ECF No. 53. On February 29, 2024, the Magistrate Judge filed a Report
and Recommendation (“R&R”), ECF No. 79, on Defendants’ Motion, recommending dismissal
of all of Plaintiff’s claims without leave to amend. Id. at 6. Plaintiff filed a Motion for Leave to
File Objections, ECF No. 82, to the R&R, and Defendants filed a Response in Opposition
(“Response”), ECF No. 85. For the reasons below, the R&R is ADOPTED IN PART and
REJECTED IN PART.
I.
DISCUSSION
A.
Standard
1.
Report and Recommendation
When reviewing portions of a report and recommendation the parties did not object to,
courts apply a “clearly erroneous, abuse of discretion and contrary to law” standard of review.
United States v. Wilson, 864 F.2d 1219, 1221 (5th Cir. 1989). However, federal district courts
conduct de novo review of those portions of a report and recommendation to which a party has
objected. See 28 U.S.C. § 636(b)(1)(C) (“A judge . . . shall make a de novo determination of
those portions of the report . . . to which objection is made . . . .”).
2.
Rule 12(b)(6)
A motion to dismiss pursuant to Rule 12(b)(6) challenges a complaint on the basis that it
fails to state a claim upon which relief may be granted. Fed. R. Civ. P. 12(b)(6). In ruling on a
Rule 12(b)(6) motion, “the court must accept all well-pleaded facts as true and view them in the
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). Though a complaint
need not contain “detailed” factual allegations, a plaintiff’s complaint must allege sufficient facts
“to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007); Colony Ins. Co. v. Peachtree Constr., Ltd., 647 F.3d 248, 252 (5th Cir. 2011). “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.” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009).
“[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.” Twombly, 550 U.S. at 555 (citation and internal quotation marks omitted); Colony
Ins. Co., 647 F.3d at 252. Ultimately, the “[f]actual allegations [in the complaint] must be
enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555 (citation
omitted). Nevertheless, “a well-pleaded complaint may proceed even if it strikes a savvy judge
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that actual proof of those facts is improbable, and ‘that a recovery is very remote and unlikely.’”
Id. at 556 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).
The Court must hold a pro se complaint “to less stringent standards than formal pleadings
drafted by lawyers.” Erickson v. Pardus, 551 U.S. 89, 94 (2007) (quoting Estelle v. Gamble, 429
U.S. 97, 106 (1976)); see also Fed. R. Civ. P. 8(e) (“Pleadings must be construed so as to do
justice.”). And “it is appropriate to treat a pro se [complaint] as one seeking the appropriate
remedy,” however inartfully pleaded. Clymore v. United States, 217 F.3d 370, 373 (5th Cir.
2000); United States v. Robinson, 78 F.3d 172, 174 (5th Cir. 1996). But pro se litigants are still
required to provide sufficient facts in support of their claims; “mere conclusory allegations . . .
are insufficient.” See United States v. Pineda, 988 F.2d 22, 23 (5th Cir. 1993) (quoting United
States v. Wood, 870 F.2d 285, 288 n.3 (5th Cir. 1989)).
B.
Analysis
A recitation of the pertinent facts may be found in the R&R. R&R 2. Plaintiff asserts
claims for retaliation under 42 U.S.C. § 1981; retaliation under 42 U.S.C. § 12203; and fraud
under Texas common law. SAC ¶¶ 30–44.
1.
Section 1981 retaliation
The Magistrate Judge recommended dismissal of Plaintiff’s retaliation claim under
§ 1981. R&R 4. The Magistrate Judge concluded that the § 1981 retaliation claim failed
because, although Plaintiff alleged that he was engaged in a protected activity and that an
adverse action followed, Plaintiff failed to allege a causal connection between his protected
activity and the adverse action. R&R 3–4. Plaintiff objects to this finding. Objs. ¶ 14, ECF No.
82-1.
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“The elements of a § 1981 retaliation claim are (1) that the plaintiff engaged in activities
protected by § 1981; (2) that an adverse action followed; and (3) a causal connection between the
protected activities and the adverse action.” Body by Cook, Inc. v. State Farm Mut. Auto. Ins.,
869 F.3d 381, 390 (5th Cir. 2017) (citing Foley v. Univ. of Hous. Sys., 355 F.3d 333, 339, 340
n.8 (5th Cir. 2003)).
Because no party objects to the Magistrate Judge’s finding that Plaintiff adequately
alleged the first and second elements of his § 1981 retaliation claim, the Court reviews those
findings for clear error. See Wilson, 864 F.2d at 1221. Concluding that the Magistrate Judge’s
findings as to the first and second elements of the § 1981 retaliation claim are not clearly
erroneous nor contrary to law, the Court adopts those unobjected-to findings.1 See Wilson, 864
F.2d at 1221. But because Plaintiff objects to the Magistrate Judge’s finding as to the third
element, the Court considers de novo whether Plaintiff has sufficiently pleaded that element. See
28 U.S.C. § 636(b)(1)(C).
The Magistrate Judge concluded that Plaintiff failed to satisfy the third element—the
“causal connection between his state lawsuit and the misapplication of his mortgage
payments”—because Plaintiff merely asserted that “‘Defendant Esper and Defendants’ applied
his monthly mortgage payments to the disputed $1,513.83 disputed mortgage fee, instead of the
mortgage principal, ‘in retaliation for the plaintiff racial and ADA discrimination complaining to
the [state mortgage regulators]’ and because of his state lawsuit.” R&R at 3–4. Accordingly,
the Magistrate Judge recommended dismissal of Plaintiff’s § 1981 retaliation claim. R&R at 4.
“A ‘causal link’ is established when the evidence demonstrates that the [defendant’s]
adverse [action] was based in part on knowledge of the [plaintiff’s] protected activity.” Eberle v.
1
See R&R 3 (citing Body by Cook, 869 F.3d at 390).
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Gonzalez, 240 F. App’x 622, 629 (5th Cir. 2007) (citing Medina v. Ramsey Steel Co., 238 F.3d
674, 684 (5th Cir. 2001)); see Ackel v. Nat’l Commc’ns, Inc., 339 F.3d 376, 385–86 (5th Cir.
2003); see also White Glove Staffing, Inc. v. Methodist Hosps. of Dall., 947 F.3d 301, 308 (5th
Cir. 2020) (assuming that Title VII standards apply “in the § 1981 nonemployment context”);
Body by Cook, 869 F.3d at 390 (applying standards for Title VII retaliation claims to § 1981
retaliation claim); Foley, 355 F.3d at 340 n.8 (explaining that Title VII and § 1981 are “parallel
causes of action” requiring “proof of the same elements in order to establish liability”).
In his Objections, Plaintiff argues that the Magistrate Judge overlooked his allegation that
“Defendant Zimprich in filing in state court specifically told the plaintiff . . . how the Lender,
Defendant Esper of the Defendant RWE Family Trust[] was going to take the $1,513.83 if the
plaintiff did not drop the lawsuit.” Objs. ¶ 14. Plaintiff did not drop the lawsuit, and within six
months, Esper took the $1,513.83 from Plaintiff’s monthly mortgage payment. Id.; SAC ¶¶ 24,
28 (stating that Plaintiff discovered in December 2021 that payments had been misapplied).
Indeed, in the SAC, Plaintiff alleges that Zimprich told Plaintiff and the state court that “the
lender, Defendant Esper, for RWE Family Trust, was going to take the $1,513.83 from the
plaintiff if the plaintiff did not drop the lawsuit,” and instruct “Defendant Prime Escrow LLC
which Defendant Esper owns, not to put plaintiff[’s] monthly loan payments towards the
principal and interest on plaintiff loan, but put funds towards the $1,513.83 until it was paid off.”
SAC ¶ 28 n.2.
Plaintiff alleges that the $1,513.83 Defendants collected from his monthly mortgage
payments was money that he did not owe. He attaches letters from Esper to the SML and
screenshots of his account summary to show that he did not owe this balance and that Defendants
unlawfully took the money out of his monthly mortgage payments in retaliation for his filing a
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complaint with the SML and filing a lawsuit against them in state court. SAC ¶ 35. Plaintiff
explains that “there is nothing in the mortgage contract document[s] [showing] that . . . plaintiff
agreed to pay these funds.” SAC ¶ 25; see also SAC ¶ 44 (“There is absolutely nothing in the
mortgage contract and any document that the plaintiff signed . . . showing that the plaintiff
agreed to pay these funds, especially when it was not in the cure of mortgage default.”).
Defendants argue that Plaintiff already owed the $1,513.83 before he engaged in
protected activity, and they attach various documents to their Motion showing that Plaintiff
incurred the challenged fees pursuant to the Account Servicing Fees agreement that he executed
in connection with his mortgage. See Mot. ¶¶ 2, 5; Attach. 1, Ex. B, at 23, ECF No. 53-1;
Attach. 2, at 15, ECF No. 53-2.
Typically, “‘in deciding a motion to dismiss for failure to state a claim, if ‘matters outside
the pleading are presented to and not excluded by the court, the motion shall be treated as one for
summary judgment.’” In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007)
(quoting Fed. R. Civ. P. 12(d)). But “[w]hen a defendant attaches documents to its motion that
are referenced in the complaint and are central to the plaintiff’s claims, the court may also
properly consider those documents.” Spears v. Nanaki, L.L.C., No. 22-30460, 2023 WL
2493741, at *1 (5th Cir. Mar. 14, 2023) (first citing Causey v. Sewell Cadillac-Chevrolet, Inc.,
394 F.3d 285, 288 (5th Cir. 2004); and then citing In re Katrina Canal Breaches Litig., 495 F.3d
at 205); see Walch v. Adjutant Gen.’s Dep’t of Tex., 533 F.3d 289, 294 (5th Cir. 2008); Fin.
Acquisition Partners LP v. Blackwell, 440 F.3d 278, 286 (5th Cir. 2006).
Plaintiff refers to the mortgage documents throughout the SAC, and Plaintiff’s § 1981
retaliation claim necessarily turns on the contents of those mortgage documents. See SAC ¶¶ 25,
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34–35, 40–41, 44; Mot. ¶¶ 26–27. Accordingly, the Court considers the mortgage documents in
deciding the Motion. See Spears, 2023 WL 2493741, at *1 (citations omitted).
The loan documents attached to Defendants’ Motion indicate that Plaintiff incurred the
challenged fees pursuant to the Account Servicing Fees agreement he signed in connection with
his mortgage loan. See Mot. ¶¶ 2, 5; Attach. 1, Ex. B, at 23; Attach. 2, at 15. Plaintiff incurred
these fees, totaling the $1,513.83 that was deducted from his monthly mortgage payments,
between August 31, 2018, and February 28, 2020—long before he engaged in any protected
activity. See Mot. ¶ 5; Attach. 1, Ex. B, at 23; Attach. 2, at 15. Because the challenged fees
were assessed against Plaintiff long before he filed his complaint with the SML or filed his
lawsuit in state court, Plaintiff has not plausibly alleged that Defendants’ collection of these fees
“was based in part on knowledge of [Plaintiff’s] protected activity.” See Eberle, 240 F. App’x at
629 (citing Medina, 238 F.3d at 684).
Accordingly, the Court rejects the Magistrate Judge’s finding as to the third element of
Plaintiff’s § 1981 retaliation claim but dismisses the claim for the reasons stated above.
2.
Americans with Disabilities Act retaliation
The Magistrate Judge recommended dismissal of Plaintiff’s retaliation claim under the
Americans with Disabilities Act (“ADA”), 42 U.S.C. § 12203, to which Plaintiff does not object.
R&R 4–5. Because no party objects to the Magistrate Judge’s finding that Plaintiff’s retaliation
claim arising under the ADA should be dismissed, the Court reviews those findings for clear
error. See Wilson, 864 F.2d at 1221. Finding no clear error, the Court adopts that unobjected-to
finding. Defendants’ Motion is thus granted as to Plaintiff’s ADA retaliation claim, and
Plaintiff’s ADA retaliation claim is dismissed.
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3.
Fraud
The Magistrate Judge recommended dismissal of Plaintiff’s fraud claim arising under
Texas common law, to which Plaintiff objects. R&R 5–6; SAC ¶¶ 15–19.
To state a claim for fraud under Texas law, a plaintiff must show:
(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.
Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 337 (Tex. 2011)
(quoting Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768, 774 (Tex. 2009)).
The Magistrate Judge concluded that Plaintiff failed “to allege that he relied on or was
deceived by any alleged misrepresentation,” and failed “to allege that a misrepresentation on
which he personally relied injured or damaged him,” thus precluding his fraud claim. R&R 5–6.
Plaintiff objects but does not point to any factual assertions or sources of authority that the
Magistrate Judge misinterpreted or omitted. See Objs. ¶¶ 15–19.
To the extent that Plaintiff has alleged that any party relied on an alleged
misrepresentation by Defendants, that party is the SML. See SAC ¶ 44 (“The SML relied upon
Defendant Esper[’s] false statement.”). Plaintiff claims that the SML concluded its investigation
after Esper told the SML that Defendants had “not made a demand for the[] fees even though
they [we]re still owed to Prime Escrow LLC as agreed to by Mr. Smart.” Attach. 2, at 1. As for
the injury element, Plaintiff alleges that “Esper had a duty to correct what was represented to the
SML”—namely, that “Plaintiff did not know about nor agreed to pay $1,513.83.” SAC ¶ 44.
A misrepresentation made to a third party may suffice to state a claim for fraud “if the
defendant makes the misrepresentation with the intent or knowledge the plaintiff will learn of it,
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with the intent to deceive the plaintiff, if in fact the plaintiff was so deceived to his injury.”
R&R 5 (citing Ernst & Young, L.L.P. v. Pac. Mut. Life. Ins. Co., 51 S.W.3d 573, 578 (Tex.
2001)). Plaintiff has not alleged that Defendants made the alleged misrepresentation to the SML
with the intent or knowledge that Plaintiff would learn of it, that Defendants intended to deceive
Plaintiff, or that Plaintiff was deceived and injured. So Plaintiff has not stated a claim for fraud
by misrepresentation to a third party, nor has Plaintiff stated a claim for fraud by
misrepresentation to Plaintiff himself.
Accordingly, the Court adopts the Magistrate Judge’s findings and conclusions as to
Plaintiff’s fraud claim and dismisses that claim.
4.
Leave to amend
The Magistrate Judge recommended denying Plaintiff leave to amend, to which Plaintiff
objects. R&R 6; Objs. 6.
Courts “should freely give leave [to amend] when justice so requires.” Fed. R. Civ. P.
15(a)(2). But courts may properly deny leave to amend “for a substantial reason, such as undue
delay, repeated failures to cure deficiencies, undue prejudice, or futility.” United States ex rel.
Spicer v. Westbrook, 751 F.3d 354, 367 (5th Cir. 2014) (citing United States ex rel. Steury v.
Cardinal Health, Inc., 625 F.3d 262, 270–71 (5th Cir. 2010)). Amendment is futile when “the
amended complaint would fail to state a claim upon which relief could be granted.” Stripling v.
Jordan Prod. Co., 234 F.3d 863, 873 (5th Cir. 2000) (collecting cases). That is, “to determine
futility, [courts] apply the same standard of legal sufficiency as applies under Rule 12(b)(6).” Id.
(collecting cases) (internal quotation marks omitted).
The Magistrate Judge recommends against granting leave to amend because Plaintiff’s
SAC “is the third complaint that the court has analyzed,” and the R&R “is the Magistrate Judge’s
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Third Report and Recommendation.” R&R 6. Concluding that Plaintiff “has been given ample
opportunity to plead his best case,” the Magistrate Judge “recommend[s] that no further leave to
amend be granted.” R&R 6. Plaintiff objects, arguing that he should be granted leave to amend
“because justice requests it, especially considering the defendants’ actions were a contributing
factor in the defective amended complaint because of the plaintiff was in the state of mental
health fear of losing home, and being homeless.” Objs. 6.
Here, the Court dismisses all of Plaintiff’s claims because Plaintiff’s claims are
contradicted by the loan documents or otherwise lack merit. Because the crux of each of
Plaintiff’s claims is that Plaintiff did not owe the $1,513.83 that Defendants collected from
him—a contention rendered implausible by the loan documents—it is not plausible that Plaintiff
could amend his Complaint to state a claim, and amendment would be futile.2 Therefore, the
Court adopts the Magistrate Judge’s findings and conclusions as to Plaintiff’s request for leave to
amend and denies leave to amend.
II.
CONCLUSION
Accordingly, the Court ADOPTS the R&R in part and REJECTS it in part. The Court
ORDERS that Defendants’ Motion to Dismiss, ECF No. 53, is GRANTED. All of Plaintiff’s
claims are DISMISSED with prejudice.
IT IS FURTHER ORDERED that Plaintiff’s Motion for Leave to File Amended
Complaint, ECF No. 83, is DENIED.
IT IS FURTHER ORDERED that Plaintiff’s Motion for Leave to File Objections, ECF
Plaintiff also appears to object to the Magistrate Judge’s purported failure to acknowledge Michael J.
Zimprich as a Defendant in this matter. Objs. 4. Assuming that Plaintiff’s fleeting references to Zimprich
in the SAC suffice to assert a claim against him, Plaintiff offers no argument as to how his claims against
Zimprich would not fail for the same fundamental reason as his claims against the other Defendants. See
id. Therefore, Plaintiff’s claims against Zimprich—to the extent they have been pleaded—are also
dismissed.
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No. 82, is GRANTED.
The Clerk shall close the case.
SO ORDERED.
SIGNED this 25th day of March, 2024.
KATHLEEN CARDONE
UNITED STATES DISTRICT JUDGE
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