Opinion
A-13-CV-711 LY
01-27-2014
PHILLIP SWANK AND JENNICE SWANK, Plaintiffs, v. CITIMORTGAGE, INC., AND BARRETT DAFFIN FRAPPIER TURNER & ENGEL, LLP, Defendants.
REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE TO: THE HONORABLE LEE YEAKEL UNITED STATES DISTRICT JUDGE
Before the Court are Defendant Barrett Daffin Frappier Turner & Engel, LP's Rule 12(b)(6) Motion to Dismiss Plaintiffs' Amended Complaint, filed January 3, 2014 (Clerk's Dkt. #51); and Plaintiffs' Response to the Motion to Dismiss of Barrett Daffin Frappier Turner & Engel, filed January 17, 2014 (Clerk's Dkt. #53). The motion was referred by United States District Judge Lee Yeakel to the undersigned for a Report and Recommendation as to the merits pursuant to 28 U.S.C. § 636(b), Rule 72 of the Federal Rules of Civil Procedure, and Rule 1(d) of Appendix C of the Local Rules of the United States District Court for the Western District of Texas. After reviewing the pleadings, relevant case law, as well as the entire case file, the undersigned issues the following Report and Recommendation to the District Court.
I. BACKGROUND
On July 26, 2013 Plaintiffs Phillip Swank and Jennice Swank filed this action in the 335th Judicial District Court of Bastrop County, Texas. They named as defendants CitiMortgage, Inc. ("CitiMortgage"), and Barrett Daffin Flapper Turner & Engel, LP. ("Barrett Daffin"). The action was removed to this court on August 16, 2013. Plaintiffs filed an amended complaint on October 15, 2013.
Plaintiffs allege on December 17, 2007 Phillip Swank entered into an equity loan refinancing the original mortgage loan used to purchase real property located at 118 Saddle Court, Bastrop, Texas ("the Property"). The loan was in the principal amount of $277,900 with an interest rate of 7.375% per annum. The lender was CitiMortgage. According to Plaintiffs, they timely made all payments until June 2011. (Plf. Am Compl. ¶ 5).
Plaintiffs state they began discussions with CitiMortgage in 2009 about refinancing their loan again to obtain a better interest rate. They further state they also discussed placing taxes and insurance into an escrow account so CitiMortgage would collect those amounts and make payments in lieu of Plaintiffs. According to Plaintiffs, although no contracts were signed making those changes, CitiMortgage accepted the payments at the lower interest rate and began to escrow money for taxes and insurance. Plaintiffs allege they believed those changes had been made and their loan modified under the Home Affordable Modification Program ("HAMP"). Plaintiffs further allege they made the reduced payments, and CitiMortgage paid the taxes and insurance out of escrow, from April 2009 until June 2011. (Id. ¶ 6).
According to Plaintiffs, in June 2011 they were told they had not been approved for a loan modification and the only way they would qualify was if they were in default. Plaintiffs allege they were told to withhold some payments. They state they did so beginning in July 2011 in order to qualify for a new loan under HAMP. Plaintiffs allege, "[d]espite assurances to the contrary and two years of the approved changes in practices, CitiMortgage eventually denied the new loan application anyway." (Id. ¶ 7). In the meantime, Plaintiffs' house burned to the ground on September 4, 2011. (Id.).
Plaintiffs allege a separate branch of CitiMortgage sent notice of default to each of them. The notices purported to notify them of a failure to pay their mortgage payments timely from as far back as October 2010. According to Plaintiffs, neither of the notices was received by them. Rather, they received telephone communications, as described above, "asking them to withhold payments to make themselves eligible for HAMP-a program they already believed had been implemented." (Id. ¶ 8).
Plaintiffs next allege:
Moreover, in August 2011 CitiMortgage's attorneys, Barrett Daffin Flapper Turner & Engel, LP, sent a notice to the Swanks advising them that Barrett Daffin were now attempting to collect the loan, that it had been accelerated, and that the Swanks owed, as of August 29, 2011, $297,425.70. This notice and action were in contravention of the oral communications from CitiMortgage's loan department. The amount was apparently based upon the original terms of the loan (7.375%/$1919/month/Swanks pay taxes and insurance), but it was not based upon the terms as modified in 2008 (4%/$1760/month/Citi pays taxes and insurance). Accordingly, Barrett Daffin's notice of default was itself a misrepresentation of the terms of the mortgage, and it contradicted what CitiMortgage itself had represented to the Swanks.(Id. ¶ 9).
Plaintiffs state they received a check from their insurance company to pay for the loss of their home in the fire. According to Plaintiffs, they tendered the check to CitiMortgage. CitiMortgage refused to accept it, instead insisting Plaintiffs rebuild their home "despite Barrett Daffin's extant threat to foreclose-upon the premise that the loan would be refinanced at then-lower market interest rates of less than 4%." (Id. ¶ 10). Plaintiffs allege they rebuilt their home and CitiMortgage paid the builder out of the insurance proceeds. However, they state refinancing of their loan was repeatedly denied, despite the statements of various representatives of CitiMortgage that the loan would be refinanced. Plaintiffs further allege, during the rebuilding period, they were told not to make payments to CitiMortgage while the loan modification was being processed. (Id.).
According to Plaintiffs, they received communications from the Collection Department at CitiMortgage suggesting HAMP refinancing or some other program was in progress. However, at the same time, Barrett Daffin was giving notice of acceleration based on an alleged default. Plaintiffs allege there has been no default until the one "fabricated" in June 2011. (Id. ¶ 11). Plaintiffs further allege CitiMortgage, through Barrett Daffin, initiated a lawsuit to foreclose on the Property in May 2013. They state, at the same time, a representative of CitiMortgage contacted them, encouraged them to refinance their mortgage and sent them new documents to initiate the process of refinance. (Id. ¶ 12).
Plaintiffs seek equitable relief reinstating and reforming their loan agreement and preventing CitiMortgage from foreclosing on the Property, based on the misrepresentations of CitiMortgage. (Id. ¶¶ 14-18). Plaintiffs assert a cause of action against Barrett Daffin under the Texas Debt Collection Act based on misrepresentations in the course of collecting a debt. (Id. ¶ 19).
On October 31, 2013 CitiMortgage filed a motion to dismiss Plaintiffs' claims against it. On December 30, 3013, the undersigned recommended the motion be granted. Barrett Daffin has now filed a motion to dismiss Plaintiffs' claims against it. Plaintiffs have filed a responsive pleading and the matter is now ripe for review.
III. STANDARD OF REVIEW
When evaluating a motion to dismiss for failure to state a claim under Rule 12(b)(6) the complaint must be liberally construed in favor of the plaintiff and all facts pleaded therein must be taken as true. Leatherman v. Tarrant Cnty. Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 164, 113 S. Ct. 1160, 1161 (1993); Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996). Although Federal Rule of Civil Procedure 8 mandates only that a pleading contain a "short and plain statement of the claim showing that the pleader is entitled to relief," this standard demands more than unadorned accusations, "labels and conclusions," "a formulaic recitation of the elements of a cause of action," or "naked assertion[s]" devoid of "further factual enhancement." Bell Atl. v. Twombly, 550 U.S. 544, 555-57, 127 S. Ct. 1955, 1965-66 (2007). Rather, a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Id., 550 U.S. at 570, 127 S. Ct. at 1974. The Supreme Court has made clear this plausibility standard is not simply a "probability requirement," but imposes a standard higher than "a sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal, 456 U.S. 662, 678, 129 S. Ct. 1937, 1949 (2009). The standard is properly guided by "[t]wo working principles." Id. First, although "a court must accept as true all of the allegations contained in a complaint," that tenet is inapplicable to legal conclusions and "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id., 556 U.S. at 678, 129 S. Ct. at 1949-50. Second, "[d]etermining whether a complaint states a plausible claim for relief will ... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id., 556 U.S. at 679, 129 S. Ct. at 1950. Thus, in considering a motion to dismiss, the court must initially identify pleadings that are no more than legal conclusions not entitled to the assumption of truth, then assume the veracity of well-pleaded factual allegations and determine whether those allegations plausibly give rise to an entitlement to relief. If not, "the complaint has alleged-but it has not 'show[n]'-'that the pleader is entitled to relief.'" Id., 556 U.S. at 679, 129 S. Ct. at 1950 (quoting FED. R. CIV. P. 8(a)(2)).
III. ANALYSIS
Barrett Daffin contends Plaintiffs' claims against it should be dismissed on the ground it is immune from suit. Barrett Daffin maintains it is not liable as it was acting as legal counsel and representing a client in undertaking the actions on which this suit rests. Under Texas law, attorneys are generally not liable to a third party for actions taken in connection with representing a client. See FinServ Cas. Corp. v. Settlement Funding, LLC, 724 F. Supp. 2d 662, 671 (S.D. Tex. 2010) (so long as attorney is engaged in conduct as part of discharge of duties in representing client, conduct not independently actionable); Reagan Nat'l Adver. of Austin, Inc. v. Hazen, 2008 WL 2938823, at *2 (Tex. App.-Austin July 29, 2008, no pet.) ("Texas courts have long held that attorneys cannot be held civilly liable for damages to non-clients, under any theory of recovery, for actions taken in connection with representing a client"); Alpert v. Crain, Caton & James, P.C., 178 S.W.3d 398, 406 (Tex. App.-Houston [1st Dist.] 2005, pet. denied) (attorneys not generally liable to non-client third party for statements made or actions taken in course of representing client); Toles v. Toles, 113 S.W.3d 899, 910 (Tex. App.-Dallas 2003, no pet.) (attorneys generally not liable to opposing party for conduct in representing client); Mendoza v. Fleming, 41 S.W.3d 781, 787 (Tex. App.-Corpus Christi 2001, no pet.) ("A lawyer is generally authorized to practice law to perform his duties as a lawyer without making himself liable for damages"); Renfroe v. Jones & Assoc., 947 S.W.2d 285, 288 (Tex. App.-Fort Worth 1997, writ denied) (under Texas law, attorneys cannot be held liable to non-client for wrongful litigation conduct). The purpose of this grant of qualified immunity is to protect the social interest in the duty of attorneys to provide their clients zealous legal representation, Alpert, 178 S.W.3d at 405; Chapman Children's Trust v. Porter & Hedges, L.L.P., 32 S.W.3d 429, 441 (Tex. App.-Houston [14th Dist.] 2000, pet. denied); Renfroe, 947 S.W.2d at 288.
As set forth above, Plaintiffs' sole claim against Barrett Daffin is under the Texas Debt Collection Act ("TDCA") for making misrepresentations in the course of collecting a debt. Specifically, Plaintiffs maintain Barrett Daffin incorrectly represented in the acceleration letter of August 2011 that they were in default of their mortgage obligation and also misrepresented the amount of the default. Plaintiffs also allege Barrett Daffin misrepresented they were in default in filing an application for foreclosure in Texas state court. (Plf. Am Compl. ¶ 19).
However, Barrett Daffin does not cite, and the undersigned is not aware of, any cases in which a claim under the TDCA was dismissed on the ground that the party sued was a law firm entitled to immunity. See McDaniel v. JPMorgan Chase Bank, N.A., 2012 WL 6114944, at *6 (E.D. Tex. Dec. 10, 2012) (noting court was unable to unearth any cases in which a claim under the TDCA was dismissed on ground of attorney immunity). Rather, at least three federal courts have concluded attorneys can be held liable under the TDCA if the evidence shows that they satisfy the definition of "debt collectors." See Hunt v. BAC Home Loans Servicing, LP, 2012 WL 219330, at *9 (S.D. Tex. Jan.24, 2012) (denying dismissal of attorney defendants based on litigation immunity for claims brought under TDCA); Eads v. Wolpoff & Abramson, LP, 538 F. Supp. 2d 981, 988 n.1 (W.D. Tex. 2008) (rejecting application of litigation immunity to claim under TDCA); Gibson v. Grupo de Ariel, LLC, 2006 WL 42369, at *4 (N.D. Tex. Jan. 9, 2006) (declining to dismiss claim under TDCA against law firm, noting definition of third-party debt collector includes attorneys who collect debt on behalf of client if attorney has non-attorney employees regularly engaged in collection activities).
As Plaintiffs point out, Barrett Daffin specifically identified itself as a debt collector in the August 2011 acceleration letter. (Plf. Resp. Ex. A). Whether a defendant is a debt collector is a fact-based determination. See Catherman v. First State Bank of Smithville, 796 S.W.2d 299, 303 (Tex. App.-Austin 1990, no pet.) (finding question of status as debt collector to be evidentiary issue, and concluding evidence was insufficient to find attorneys to be "debt collectors" as matter of law). Because Barrett Daffin has failed to point to authority which establishes attorneys are exempt from liability under the TDCA as a matter of law, and because Barrett Daffin specifically identified itself as a debt collector, the undersigned declines to find the motion to dismiss should be granted on the basis of attorney immunity.
Barrett Daffin also moves to dismiss on the ground that Plaintiffs have not stated a claim under the TDCA. In pertinent part, the TDCA prohibits a debt collector from "misrepresenting the character, extent, or amount of a consumer debt, or misrepresenting the consumer debt's status in a judicial or governmental proceeding." TEX. FIN. CODE § 392.304(a)(8). To violate the TDCA using a misrepresentation, "the debt collector must have made an affirmative statement that was false or misleading." Verdin v. Federal Nat'l Mortg. Ass'n, ___ F. App'x ___, 2013 WL 4126785, at *3 (5th Cir. Aug. 15, 2013) (internal quotation omitted).
Plaintiffs allege Barrett Daffin misrepresented the extent or amount of their debt in the acceleration letter of August 2011. Specifically, they contend the amount of the mortgage debt owed is incorrect, as well as the assertion that they were in default. As set forth above, Plaintiffs' conclusion that their debt was misrepresented is based on their contention that the terms of their mortgage obligation were orally modified by CitiMortgage, and the debt amount asserted in the acceleration letter was incorrectly based on the written agreement, rather than the oral modification. ((Plf. Am Compl. ¶ 9).
However, as Barrett Daffin points out, in a recommendation issued December 30, 2013, the undersigned rejected Plaintiffs' claim that their mortgage obligation had been orally modified by CitiMortgage. The basis of the rejection was twofold. First, the undersigned concluded Plaintiffs' contention of an oral modification subsequent to a written agreement was not a sufficient basis for equitable reformation under Texas law. See Comiskey v. FH Partners, LLC, 373 S.W.3d 620, 633 (Tex. App. Houston [14th Dist.] 2012, pet. denied) ("court is without power to make a contract that the parties did not make; an actual agreement reached prior to the drafting of the instrument involved is a prerequisite to an action for reformation"); See also Sw. Sav. Ass'n v. Dunagan, 392 S.W.2d 761, 768 (Tex. Civ. App.-Dallas 1965, writ ref'd n.r.e.) (if instrument expresses intention of parties at time agreement is reduced to writing there is no occasion to reform it).
Second, the undersigned found Plaintiffs' claim of a binding oral modification fails because it is barred by the statute of frauds. See Castillo v. Ocwen Loan Servicing, L.L.C., ___ F. App'x ___, 2013 WL 4840494, at *3 (5th Cir. Sep. 12, 2013) (material modification to loan agreement that exceeds $50,000 is subject to statute of frauds; putative oral contract to modify mortgage loan reducing payments barred by statute of frauds). The undersigned also rejected Plaintiffs' contention that their partial performance or claim of promissory estoppel were sufficient to provide an exception to the statute of frauds. See Castillo, 2013 WL 4840494, at *3 (district court properly concluded payments were not unequivocally referable to terms of oral agreement, noting payments could have been made to satisfy original mortgage contract); See Miller v. BAC Home Loans Servicing, L.P., 726 F.3d 717, 726 (5th Cir. 2013) (plaintiffs' failure to allege mortgage holder promised to sign document that comports with statute of frauds, which would have memorialized promises to modify mortgage, was fatal to reliance on promissory estoppel); Martins v. BAC Home Loans Servicing, L.P., 722 F.3d 249, 257 (5th Cir. 2013) (promissory estoppel does not overcome statute of frauds, where plaintiff alleges only oral agreement, not promise on part of mortgage holder or its agents to sign agreement validating oral agreement that would satisfy statute of frauds); Hern Family Ltd. P'ship v. Compass Bank, 863 F. Supp. 2d 613, 625 (S.D. Tex. 2012) (rejecting partial performance exception to statute of frauds where plaintiffs' actions could have been intended to pay already existing debt owed defendant). Accordingly, as Plaintiffs' claim of a misrepresentation of the amount of their mortgage debt, and default thereof, are rebutted by the written mortgage documents, they have not alleged facts which show Barrett Daffin violated the TDCA in the August 2011 acceleration letter.
Plaintiffs also contend Barrett Daffin violated the TDCA by filing a foreclosure action in Texas state court. They maintain in so doing Barrett Daffin misrepresented that they were in default. To the degree this claim is based on Plaintiffs' contentions regarding the oral modification of their mortgage, it fails for the reasons set forth above and in the undersigned's December 2013 recommendation. Moreover, as set forth above, Plaintiffs themselves admit they ceased paying even the reduced payments in approximately June 2011. Although they maintain their default was induced, their admission that they were in default forecloses their claim that Barrett Daffin violated the TDCA by representing they were in default. See Miller, 726 F.3d at 723 (TDCA claim based on alleged misrepresentation of debt fails where plaintiffs were aware they had mortgage debt and had defaulted). Accordingly, Barrett Daffin's motion to dismiss should be granted.
IV. RECOMMENDATION
The undersigned RECOMMENDS that District Court GRANT Defendant Barrett Daffin Flapper Turner & Engel, LP's Rule 12(b)(6) Motion to Dismiss Plaintiffs' Amended Complaint (Clerk's Dkt. #51). Plaintiffs' claims against Defendant Barrett Daffin Flapper Turner & Engel, LP should be dismissed with prejudice.
V. OBJECTIONS
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, 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 and Recommendation electronically, pursuant to the CM/ECF procedures of this District, the Clerk is ORDERED to mail such party a copy of this Report and Recommendation by certified mail, return receipt requested.
SIGNED on January 27, 2014.
/s/_________
MARK LANE
UNITED STATES MAGISTRATE JUDGE