Opinion
1:23-CV-00228-RP
07-05-2023
LYNN SCUDDER, ACTING UNDER POWER OF ATTORNEY, GIVEN BY RUBY JO SCUDDER Plaintiff v. MCLP ASSET COMPANY, INC. Defendant
TO: THE HONORABLE ROBERT PITMAN UNITED STATES DISTRICT JUDGE
REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
DUSTIN M. HOWELL UNITED STATES MAGISTRATE JUDGE
Before the Court is MCLP Asset Company, Inc's 12(b)(6) Motion to Dismiss, Dkt. 3; and all related briefing. After reviewing these filings and the relevant case law, the undersigned issues the following report and recommendation recommending granting MCLP's motion.
I. BACKGROUND
This is a foreclosure case. In November 2010, Plaintiff Lynn Scudder executed a Note in the amount of $150,000.00 in favor of MCLP, in order to purchase a property located at 450 Shady Bluff Drive in Wimberley, Texas. Dkt. 1-1, at 7. Concurrently with the execution of the Note, the parties executed a Deed of Trust. Id. Presumably due to lack of payment on the Note, MCLP began foreclosure proceedings. Id. at 6. Related to MCLP's initiation of foreclosure proceedings, Scudder brings claims for breach of contract, negligence, and violation of chapter 51 of the Texas Property Code. Dkt. 1-1, at 7-10.
As to her breach of contract claim, Scudder states MCLP “failed to comply with the HUD regulations outlining procedures that must be followed prior to accelerating and foreclosing a loan subject to the [Federal Housing Act]” Id. at 10. Scudder also states that that MCLP breached “paragraphs 15, 16, 29, 22 ... under the Deed of Trust and Note.” Id. She states that as a result of MCLP's breach and the “wrongful [application of] . charges over and above Plaintiff's principal loan balance. she has suffered harm.” Id. at 10.
As to negligence, Scudder alleges that MCLP failed to fulfill its duties under the Deed of Trust when it failed to provide notice of changes in management of the loan note and failed to comply with notice provisions before foreclosing on her property. Id. at 7. Scudder states that MCLP's duties under the Deed of Trust “can be found in the regulation of the Department of Housing and Urban Development [“HUD”] which is incorporated with the Deed of Trust.” Id. at 8. Scudder claims that as a result of MCLP's negligence, “she has incurred additional charges to her loan balance and escrow account.” Id. Further, Scudder claims that MCLP made false and negligent representations to her, wrongfully attempted to foreclose upon the Property, and caused damages to her including slander of title, harm to credit, actual damages, and time lost. Id. at 8.
Scudder also claims that MCLP violated chapter 51 of the Texas Property Code which states that a mortgagee must notify the mortgagor that the Deed of Trust is in default and give the mortgagor 20 days to cure or protest. Id. at 9. Scudder states that “she did receive notice of accelerations ... and did in fact raise issues regarding her loan and payment history,” but does not explain how MCLP is alleged to have violated its duties under chapter 51. Id.
MCLP moves to dismiss Scudder's claims pursuant to Rule 12(b)(6) for failure to state a claim. Dkt. 3, at 1. MCLP states Scudder's breach of contract claims are conclusory and fail to describe how MCLP allegedly violated HUD regulations. Id. at 4. MCLP also argues Scudder's negligence claim is barred by the economic loss doctrine. Id. Lastly, MCLP contends that Scudders claim pursuant to the Texas Property Code fails because Texas law does not recognize a cause of action for attempted wrongful foreclosure, and the pleaded date of foreclosure has passed without Scudder's home being foreclosed on, so Scudder's claim is moot. Id. at 3.
II. LEGAL STANDARD
A. 12(b)(6)
Pursuant to Rule 12(b)(6), a court may dismiss a complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). In deciding a 12(b)(6) motion, a “court accepts ‘all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.'” In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (quoting Martin K. Eby Constr. Co. v. Dall. Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004)). “To survive a Rule 12(b)(6) motion to dismiss, a complaint ‘does not need detailed factual allegations,' but must provide the plaintiff's grounds for entitlement to relief-including factual allegations that when assumed to be true ‘raise a right to relief above the speculative level.'” Cuvillier v. Taylor, 503 F.3d 397, 401 (5th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). That is, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570).
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.” Id. “The 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.” Id. A court ruling on a 12(b)(6) motion may rely on the complaint, its proper attachments, “documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.” Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 338 (5th Cir. 2008) (citations and internal quotation marks omitted). A court may also consider documents that a defendant attaches to a motion to dismiss “if they are referred to in the plaintiff's complaint and are central to her claim.” Causey v. Sewell Cadillac-Chevrolet, Inc., 394 F.3d 285, 288 (5th Cir. 2004). But because the court reviews only the well-pleaded facts in the complaint, it may not consider new factual allegations made outside the complaint. Dorsey, 540 F.3d at 338. “[A] motion to dismiss under 12(b)(6) ‘is viewed with disfavor and is rarely granted.'” Turner v. Pleasant, 663 F.3d 770, 775 (5th Cir. 2011) (quoting Harrington v. State Farm Fire & Cas. Co., 563 F.3d 141, 147 (5th Cir. 2009)).
III. DISCUSSION
A. Breach of Contract Claim
To succeed on a breach of contract claim under Texas law, a plaintiff must show (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 to the plaintiff as a result of the defendant's breach. Williams v. Wells Fargo Bank, N.A. 884 F.3d 239, 244 (5th Cir. 2018)
Here, Scudder's Petition states that “Defendants failed to comply with HUD regulations outlining procedures that must be followed prior to accelerating and foreclosing a loan subject to the” Fair Housing Act. Dkt. 1-1, at 10. However, Scudder then states, “[t]he paragraphs which [MCLP] breached are paragraphs 15, 16, 19, 20, 22.” Id. Confusingly, these paragraph citations correspond and refer to the Deed of Trust Document attached to Scudder's complaint, not HUD regulations. Id. at 30-32. Elsewhere in her complaint, Scudder states that “regulation[s] of the Department of Housing and Urban Development (‘HUD') ... [are] incorporated with the Deed of Trust.” Id. at 8. While Scudder does not allege facts underlying the alleged incorporation of the HUD regulations into the Deed of Trust, viewing her pleadings in the light most favorable to her, she appears to allege a violation of the Deed of Trust as evidenced by her citation to sections of the Deed. MCLP does not dispute the validity of the Deed.
However, Scudder does not plead the other elements of her breach of contract claim. She does not state that she performed under the contract, nor does her Petition contain detailed factual allegations concerning how MCLP breached the Deed of Trust and how MCLP's breach caused her alleged damages (“charges” on her loan balance). She simply states, “Defendants have failed to perform these actions and others under the Deed of Trust and Note . and failed to follow the forgoing steps and thus, breached the contract with Plaintiff ... as a result, Plaintiff has suffered harm as she has incurred additional charges to her loan balance and escrow account.” Id. at 10. Scudder's conclusory statements are not sufficient to plead a breach of contract on the basis of the Deed of Trust.
If, instead, Scudder's breach of contract claims are brought pursuant to a failure to “comply with HUD regulations outlining procedures that must be followed prior to accelerating and foreclosing a loan subject to the,” she has not stated a claim that is plausible on its face. Dkt. 1-1, at 10. This is because, “[e]ven when ... HUD regulations are supposedly incorporated into a deed of trust, courts have still found alleged violation of these regulations does not amount to a private cause of action.” Klein v. Wells Fargo Bank, N.A., No. A-14-CA-861-SS, 2014 WL 5685113, at *6 (W.D. Tex. Nov. 4, 2014), affd, 613 Fed.Appx. 428 (5th Cir. 2015) (citing Legette v. Wash. Mut. Bank, FA, No. 3:03-CV-2909-D, 2005 WL 2679699, at *5 (N.D. Tex. Oct. 19, 2005) (finding no private right of action notwithstanding referenced HUD regulations in note and deed of trust). Such regulations “govern relations between the mortgagee and the government and give the mortgagor no claim for duty owed or for the failure to follow said regulations.” Klein, 2014 WL 5685113, at *5. Scudder's breach of contract claim based on her unsupported theory that the HUD regulations were incorporated into the Deed of Trust and her claim that MCLP breached the incorporated HUD regulations fails to state a plausible claim to relief.
Scudder's breach of contract claim, on the basis of sections of the Deed of Trust, should be dismissed without prejudice, and Scudder's breach of contract claim on the basis of HUD regulations as incorporated into the Deed of Trust should be dismissed with prejudice.
B. Negligence Claim
MCLP argues that Scudder's negligence claim is barred by the economic loss doctrine, because her losses as a result of alleged negligence are also the subject of her breach of contract claim. Dkt. 3, at 2. MCLP further argues that Scudder's negligence claim arises out of the purported duties that MCLP owed Scudder, that no other relationship exists that would create duties outside of the Deed of Trust, and therefore, Scudder's claim is barred by the economic loss doctrine. Id. at 3. The undersigned agrees.
The economic loss doctrine “generally precludes recovery in tort for economic losses resulting from a party's failure to perform under a contract when the harm consists only of the economic loss of a contractual expectancy.” In re Wheeler, 612 Fed.Appx. 763, 767 (5th Cir. 2015) (per curiam) (quoting Chapman Custom Homes, Inc. v. Dallas Plumbing Co. 445 S.W.3d 716, 718 (Tex. 2014)). When applying this doctrine, courts consider whether a defendant's conduct “would give rise to liability independent of the fact that a contract exists between the parties.” SW. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494 (Tex. 1991). When no independent basis of liability exists, the economic loss doctrine applies. Id.
Here, Scudder has failed to allege an independent basis for liability, arguing instead that the MCLP's duties arise solely through the alleged incorporation of HUD regulations in the Deed of Trust. Dkt. 1-1, at 7 (Petition, stating “the duty of the of the Defendant can be found in the regulation of [HUD] which is incorporated in the Deed of Trust”). Since Scudder has not pleaded any other basis for MCLP's alleged liability, the economic loss doctrine applies, precluding her negligence claims. Therefore, Scudder's negligence claim should be dismissed with prejudice. See Scott, 2013 WL 5450600, at *9 (dismissing negligent misrepresentation claim under economic loss doctrine); see also Williams v. Fed. Nat'l Mortg. Ass'n, No. 2:11-cv-157-J, 2012 WL 443986, at *4 (N.D. Tex. Feb. 13, 2012) (concluding that the plaintiffs' negligence claims, based on allegations that the defendants negligently performed their side of the agreement, negligently misrepresented the terms of the loan modification, and misrepresented to the plaintiffs that they would not foreclose on the property, arose out of alleged breaches of the loan modification or the defendants' negligence in their performance of the loan agreement, but, under Texas law, the failure to perform the terms of a contract is a breach of contract, not a tort).
C. Violation of Texas Property Code Ch. 51
Scudder does not respond to MCLP's argument for dismissal of her claim for violation of § 51.002 of the Texas Property Code. Failure to respond to an argument in a motion to dismiss constitutes a waiver of that issue at the district court. See Medina v. Parkside Lending LLC, No. A-19-CV-109-RP, 2020 WL 4274587, at *3 (W.D. Tex. July 23, 2020); Black v. Panola Sch. Dist.,461 F.3d 584, 588 n.1 (5th Cir. 2006); Kellam v. Metrocare Servs., 560 Fed.Appx. 360 (5th Cir. 2014). Scudder's claim under chapter 51 of the Texas Property Code, should therefore be dismissed with prejudice.
D. Scudder's Request for Injunctive Relief
MCLP seeks to dismiss Scudder's request for injunctive relief for failure to state any of her substantive claims arguing that, because Scudder's substantive claims should be dismissed, she cannot establish likelihood of success on the merits warranting injunctive relief. Dkt. 3, at 5. The undersigned agrees. To obtain injunctive relief, a plaintiff “is required to plead and prove, inter alia, ‘a substantial likelihood of success on the merits.'” Jackson v. Fed. Home Loan Mortg. Corp., No. 4:11-cv-507-A, 2011 WL 3874860, at *3 (N.D. Tex. Sept. 1, 2011) (citing DSC Commc'ns Corp. v. DGI Techs., Inc., 81 F.3d 597, 600 (5th Cir. 1996)).
Here, Scudder seeks to enjoin MCLP from foreclosing on her home and moves for a temporary injunction to enjoin the transfer of her property. Dkt. 1-1, at 11-13. Because dismissal of all Scudder's claims is warranted on the merits, Scudder cannot establish a likelihood of success. See Jackson, 2011 WL 3874860, at 3. MCLP's motion to dismiss Scudder's request for injunctive relief should be granted without prejudice.
E. Leave to Amend
In the event her claims are dismissed, Scudder requests leave to amend her complaint pursuant to Rule 15(a)(2). Dkt. 8, at 5-6. Generally, courts should give leave to amend a complaint when justice so requires. Foman v. Davis, 371 U.S. 178, 182 (1962). It is within the discretion of the court to deny the opportunity to amend, so long as there is a justifying reason. Id. Such a justification includes the futility of an amendment. Id.
Here, Scudder's request to amend her claims should be granted in part and denied in part. Scudder should be granted leave to amend her complaint as to her breach of contract claim based on sections of the Deed of Trust. However, her request to amend her complaint as to her breach of contract on the basis of HUD regulations, her negligence claim, and her claim for violation of chapter 51 of the Texas Property Code should be denied. Since the undersigned has recommended dismissal of those claims because they are legally insufficient on their face, and Scudder has not identified any facts or legally plausible theories under which her claims could proceed, leave to amend would be futile. Stripling v. Jordan Prod. Co., 234 F.3d 863, 873 (5th Cir. 2000) (stating amendment is futile if “the amended complaint would fail to state a claim upon which relief could be granted”).
IV. RECOMMENDATION
In accordance with the foregoing discussion, the undersigned RECOMMENDS that the District Court GRANT MCLP's Motion to Dismiss, Dkt. 3.
Specifically, the undersigned recommends that Scudder's breach of contract claim on the basis of HUD regulations, her negligence claim, and her claim for violation of the Texas Property Code should be DISMISSED WITH PREJUDICE. Scudder's claim for breach of contract on the basis of breach of the Deed of Trust should be DISMISSED WITHOUT PREJUDICE.
Scudder should be GRANTED leave to amend her complaint as to her claim for breach of contract on the basis of breach of the Deed of Trust. Scudder's request for leave to amend her petition should be DENIED as to all other claims. The referral of this case should now be CANCELED.
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 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 (1985); Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc).
SIGNED July 5, 2023.