Opinion
CIVIL ACTION NO. 2:19-CV-314
2020-10-21
Robert DEES, et al., Plaintiffs, v. NATIONSTAR MORTGAGE, LLC; dba Mr. Cooper, Defendant
Elizabeth Ann Ryan, Bailey Glasser LLP, Boston, MA, James Lawrence Kauffman, Bailey & Glasser LLP, Washington, DC, Randall Keith Pulliam, Edwin Lee Lowther, III, Joseph Henry Bates, III, Carney Bates & Pulliam, PLLC, Little Rock, AR, Abraham Moss, Attorney at Law, Corpus Christi, TX, for Plaintiffs. Thomas George Yoxall, Madeleine Elise Brunner, Locke Lord LLP, Dallas, TX, Benjamin David Lee Foster, Daniel Glenn Durell, Locke Lord LLP, Austin, TX, for Defendant.
Elizabeth Ann Ryan, Bailey Glasser LLP, Boston, MA, James Lawrence Kauffman, Bailey & Glasser LLP, Washington, DC, Randall Keith Pulliam, Edwin Lee Lowther, III, Joseph Henry Bates, III, Carney Bates & Pulliam, PLLC, Little Rock, AR, Abraham Moss, Attorney at Law, Corpus Christi, TX, for Plaintiffs.
Thomas George Yoxall, Madeleine Elise Brunner, Locke Lord LLP, Dallas, TX, Benjamin David Lee Foster, Daniel Glenn Durell, Locke Lord LLP, Austin, TX, for Defendant.
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS
DAVID S. MORALES, UNITED STATES DISTRICT JUDGE
Before the Court is Defendant Nationstar Mortgage, LLC's motion to dismiss (D.E. 19), Plaintiffs Robert and Angela Dees' response (D.E. 31), and Defendant's reply (D.E. 34). For the reasons stated below, Defendant's motion to dismiss is GRANTED in part and DENIED in part. (D.E. 19).
I. Background
Plaintiffs have a deed of trust insured by the Federal Housing Administration ("FHA") and serviced by Defendant. (D.E. 1, p. 2). To make their mortgage payments, Plaintiffs may choose from multiple payment options, including paying by mail, autopay, online, or over the phone. (D.E. 19, p. 1–2). Plaintiffs assert that Defendant charges users a "convenience fee" of roughly $ 10 for online payments and between $ 14 to $ 19 for phone payments. (D.E. 1, p. 2). These convenience fees—or "pay-to-pay" fees—are the heart of the parties' dispute. See id. Defendant provides other payment options free of charge. (D.E. 19, p. 1–2).
Plaintiffs bring a two-claim, class action complaint against Defendant because of the pay-to-pay fees. (D.E. 1). In claim one, Plaintiffs contend that Defendant charges these pay-to-pay fees in violation of the Texas Fair Debt Collection Practices Act ("TDCA") because the fees are incidental to their debt obligation and are not expressly authorized by the agreement creating the obligation. Id. at 11–12. In claim two, Plaintiffs bring a breach of contract claim by asserting that Defendant, as a servicer of FHA-insured loans, is bound by the regulations of the Secretary of Housing and Urban Development ("HUD"), and those regulations are incorporated by reference into all FHA-insured mortgages. See id. at 12–13. According to Plaintiffs, under FHA servicing regulations a mortgage servicer may not charge a borrower any fee not authorized by the FHA, and the FHA has not authorized pay-to-pay fees. See id. Thus, Plaintiffs allege that Defendant has breached the mortgage agreement by charging pay-to-pay fees. Id.
Defendant moved to dismiss both claims under Federal Rule of Civil Procedure 12(b)(6). (D.E. 19).
II. Legal Standard
To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), "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, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A claim is facially plausible "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. (citing Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ). The facial plausibility standard is not a probability standard, but it requires the plaintiff's factual allegations "to raise a right to relief above the speculative level." Twombly , 550 U.S. at 555, 127 S.Ct. 1955. While a court must take all factual allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor, a court is not bound "to accept as true a legal conclusion couched as a factual allegation." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ). A complaint that "pleads facts that are merely consistent with a defendant's liability ... stops short of the line between possibility and plausibility of entitlement to relief." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (internal quotation marks omitted) (citing Twombly , 550 U.S. at 557, 127 S.Ct. 1955 ).
In ruling on a motion to dismiss under Rule 12(b)(6), a court generally "must limit itself to the contents of the pleadings, including attachments thereto." Brand Coupon Network, L.L.C. v. Catalina Mktg. Corp. , 748 F.3d 631, 635 (5th Cir. 2014). A court may also consider documents attached to "a motion to dismiss or an opposition to that motion when the documents are referred to in the pleadings and are central to [the] plaintiff's claims." Id.
III. Analysis
A. Plaintiffs have stated a TDCA claim
The Court holds that Plaintiffs have plausibly stated a section 392.303(a)(2) violation under the TDCA. Under section 392.303, "a debt collector may not use unfair or unconscionable means" in the collection of debt, including "collecting or attempting to collect interest or a charge, fee, or expense incidental to the obligation unless the interest or incidental charge, fee, or expense is expressly authorized by the agreement creating the obligation or legally chargeable to the consumer." TEX. FIN. CODE § 392.303(a)(2). Plaintiffs contend in their complaint that Defendant violated the TDCA by "charg[ing] Plaintiffs pay-to-pay fees that were incidental to their debt obligation and were not expressly authorized by the agreement creating the obligation." (D.E. 1, p. 12). Thus, according to Plaintiffs, Defendant "employed unfair and unconscionable means in the collection of a consumer debt, in violation of the TDCA." Id.
In its motion to dismiss, Defendant argues that Plaintiffs' TDCA claim fails because: (1) a fee-based payment method cannot be "incidental" to the debt when it is optional and borrowers are given other, free options; (2) Plaintiffs allege no facts to show that a charge for an optional service—that Plaintiffs voluntarily purchased and agreed to pay for—is not "legally chargeable to the[m]," as required by section 392.303(a)(2) ; and (3) Plaintiffs fail to describe the unfair or unconscionable means by which the fees were collected or attempted to be collected. (D.E. 19, p. 9–12). Defendants also assert that the voluntary-payment doctrine bars Plaintiffs' TDCA claim. Id. at 12–13. The Court will address each of these arguments in turn.
a. Incidental relationship of the fees & express authorization
The Court first determines whether the pay-to-pay fees were "incidental" to the underlying debt when Plaintiffs were given other alternative methods to make their mortgage payments that did not require a fee. See TEX. FIN. CODE § 392.303(a)(2). Because the Fifth Circuit has yet to rule on this issue, the Court turns to other courts for guidance. District courts that have examined pay-to-pay fees in the related context of the Federal Debt Collection Practices Act ("FDCPA") are split on whether payment-based convenience fees are "incidental" to the contractual debt when borrowers have other, fee-free payment options. See Lindblom v. Santander Consumer USA, Inc. , No. 1:15-CV-990-LJO-BAM, 2016 WL 2841495, at *4–7 (E.D. Cal. May 9, 2016) (analyzing district court split). After consideration of the record, the parties' briefing, and persuasive caselaw, this Court finds that the pay-to-pay fees in this case are "incidental" to the underlying debt. See, e.g., Caldwell v. Freedom Mortg. Corp. , No. 3:19-CV-2193-N, 2020 WL 4747497, *3 (N.D. Tex. Aug. 14, 2020) ("This Court is persuaded, like the majority of courts that have opined on the issue, that convenience fees derived from debt-payment methods are ‘incidental’ to the debt being paid."); Wittman v. CB1, Inc. , 2016 WL 1411348, at *1, 5 (D. Mont. 2016) (following "the majority of courts [that] have found that similar transaction fees are incidental"); Weast v. Rockport Fin. , 115 F. Supp. 3d 1018, 1023 (E.D. Mo. 2015) ("Offering a payment option that does not violate the statute does not save offering a payment option that would violate the statute, as the latter is still an attempt to collect a fee which is prohibited."); Quinteros v. MBI Assocs., Inc. , 999 F. Supp. 2d 434, 437–39 (E.D.N.Y. 2014) ("What matters is § 1692(f)(1)'s plain instruction that the collection of any amount incidental to the principal obligation ... violates the FDCPA."); Shami v. Nat'l Enter. Sys. , 2010 WL 3824151, at *3–4 (E.D.N.Y. 2010) (holding that convenience fees charged for some payment methods were "incidental to Plaintiff's purported actual debt," even though other payment methods existed). But see Flores v. Collection Consultants of Ca. , 2015 WL 4254032, at *10 (C.D. Cal. 2015) (holding an optional convenience fee legally insufficient to support a FDCPA claim). Having established that the pay-to-pay fees are incidental to the underlying debt, the Court must next determine whether the fees were "expressly authorized" by the parties' loan documents. See TEX. FIN. CODE § 392.303(a)(2) (providing that even if a fee is "incidental to the obligation," there is no TDCA violation if the incidental fee "is expressly authorized by the agreement creating the obligation or legally chargeable to the consumer"). Although Defendant does not argue that the pay-to-pay fees were "expressly authorized" by Plaintiffs' mortgage agreement, see (D.E. 19, p. 9–13), the Court observes that nowhere in the parties' loan documents are the pay-to-pay fees even mentioned, much less expressly authorized. See (D.E. 1-2; D.E. 19-1). As such, the Court finds that the TDCA's express authorization exception is not met in this case. See TEX. FIN. CODE § 392.303(a)(2).
"Texas district courts often interpret the TDCA in accordance with the FDCPA, which has a similar provision to section 392.303(a)(2) of the TDCA." Caldwell v. Freedom Mortg. Corp. , No. 3:19-CV-2193-N, 2020 WL 4747497, *3 n.4 (N.D. Tex. Aug. 14, 2020).
The district court in the Northern District of Texas that analyzed this issue noted that "Flores arrived at this conclusion by relying on the legislative history underlying the FDCPA and argued that it would not be ‘unfair and unconscionable’ to permit collection of a fee for an optional debt-payment method." Caldwell , 2020 WL 4747497, *3 n.6 (quoting Flores , 2015 WL 4254032, at *9–10 ). Like the Caldwell court, see id. , this Court finds Flores ' reasoning unpersuasive in view of the express prohibition that the TDCA, like the FDCPA, imposes on unauthorized, debt-related fee collections without exception. See Quinteros , 999 F. Supp. 2d at 438 (rejecting the argument that convenience fees were not unfair or unconscionable as "cut[ting] against the plain language of 1629(f)(1)").
b. Not legally chargeable
Defendant does argue that Plaintiffs fail to allege that the pay-to-pay fees are not otherwise "legally chargeable" to Plaintiffs in the absence of any state law prohibiting such fees. (D.E. 19, p. 10 n.9); see TEX. FIN. CODE § 392.303(a)(2) (providing that there is no TDCA violation if the fee is "legally chargeable to the consumer," even if the fee is not "expressly authorized by the agreement creating the obligation"). Stated differently, Defendant asserts that there are no allegations that Plaintiffs did not authorize Defendant—through a separate agreement from the loan documents—to charge the pay-to-pay fees in exchange for processing Plaintiffs' alleged payments made over the phone or online. (D.E. 34, p. 1–2; D.E. 36, p. 2). This argument, however, presents questions of fact that are better suited in a motion for summary judgment. See, e.g., Mahmoud v. De Moss Owners Ass'n , No. 4:13-CV-1758, 2015 WL 12551078, at *5 (S.D. Tex. Sept. 30, 2015).
c. Unfair or unconscionable means
Defendant next argues that Plaintiffs have failed to describe the "unfair or unconscionable means" by which the pay-to-pay fees were collected or attempted to be collected. (D.E. 19, p. 11). However, section 392.303 defines "unfair or unconscionable means" by listing specific practices that violate the statute. TEX. FIN. CODE § 392.303(a) ; see McCaig v. Wells Fargo Bank (Texas), N.A. , 788 F.3d 463, 479 n.7 (5th Cir. 2015) ("[ Section 392.303 ] is best read to define ‘unfair or unconscionable’ practices as those listed in its various subsections, including (a)(2)."); Carey v. Wells Fargo , No. H-15-1666, 2016 WL 4246997, at *6 (S.D. Tex. Aug. 11, 2016) (" Section 392.303(a)(2) prohibits using unfair or unconscionable means in debt collection such as ‘collecting or attempting to collect interest or a charge, fee, or expense incidental to the obligation unless [the fee] is expressly authorized by the agreement creating the obligation or legally chargeable to the consumer.’ " (alteration in original)). Thus, Plaintiffs satisfactorily describe the "unfair or unconscionable" means by alleging facts sufficient to raise a reasonable inference that Defendant "collect[ed] or attempt[ed] to collect interest ... fee[s] ... incidental to the obligation," without express authorization as required by the TDCA. See TEX. FIN. CODE § 392.303(a)(2).
d. Voluntary payment doctrine
Defendant argues that the voluntary-payment doctrine bars Plaintiff's TDCA claims. (D.E. 19, p. 12–13). The voluntary-payment doctrine is a common law defense under which " ‘[m]oney voluntarily paid on a claim of right, with full knowledge of all the facts, in the absence of fraud, deception, duress, or compulsion, cannot be recovered back merely because the party at the time of payment was ignorant of or mistook the law as to his liability.’ " BMG Direct Mktg., Inc. v. Peake , 178 S.W.3d 763, 768 (Tex. 2005) (quoting Pennell v. United Ins. Co. , 150 Tex. 541, 243 S.W.2d 572, 576 (1951) ). In order to warrant dismissal under Rule 12(b)(6), affirmative defenses such as the voluntary payment doctrine, must "appear[s] on the face of the complaint." See EPCO Carbon Dioxide Prods., Inc. v. JP Morgan Chase Bank, NA , 467 F.3d 466, 470 (5th Cir. 2006). "The rule is a defense to claims asserting unjust enrichment; that is, when a plaintiff sues for restitution claiming a payment constitutes unjust enrichment, a defendant may respond with the voluntary payment rule as a defense." Peake , 178 S.W.3d at 768. Defendant argues that because Plaintiffs voluntarily paid the pay-to-pay fees, the voluntary-payment doctrine bars their TDCA claim. (D.E. 19, p. 12–13).
The Court finds that the voluntary-payment doctrine is inapplicable to Plaintiffs' TDCA claim because the statute creates a private right of action even if payment is made voluntarily. The Texas Supreme Court has stated that "the voluntary-payment rule would not apply to situations in which the Legislature or commonlaw has provided a right of recovery even though payment is voluntary." Peake , 178 S.W.3d at 776 n.9. As an example of such a right of recovery, the court listed section 305.001 of the Texas Financial Code. Id. Section 305.001 states that "a creditor who contracts for, charges, or receives interest that is greater than the amount authorized by this subtitle in connection with a transaction for personal, family, or household use is liable to the obligor ...." TEX. FIN. CODE § 305.001(a). Like section 305.001, section 392.303(a)(2) is attached to a specific right of recovery in the instance the creditor committed a violation. Compare § 392.303(a)(2) and § 392.403(a)(2), with § 305.001. As such, whether an alleged violation resulted in a voluntary payment is immaterial to the right of recovery in either section. See § 392.303(a)(2) ; Peake , 178 S.W.3d at 776 n.9. Accordingly, the voluntary-payment doctrine is no defense to Plaintiffs' TDCA claim.
B. Plaintiffs have not stated a breach of contract claim
Plaintiffs allege that Defendant breached its contract with Plaintiffs by improperly charging them pay-to-pay fees for their decision to make mortgage payments online and over the phone "contrary to the express terms of their contract." (D.E. 1, p. 12). Specifically, Plaintiffs argue that the HUD regulations and handbook, which they argue were incorporated into the agreement by paragraph eight, prohibit Defendant from charging fees like the pay-to-pay fees. See id. at 7, ¶ 33; (D.E. 31, p. 15–21). Plaintiffs also, in their complaint, reference paragraph fourteen as further support that the HUD regulations and handbook were incorporated into the deed of trust. (D.E. 1, p. 7, ¶ 34). Thus, according to Plaintiffs, "[b]y alleging [Defendant] collected pay-to-pay fees that HUD has never authorized, Plaintiffs have stated a claim for breach of contract and are entitled to damages and a declaratory judgment." (D.E. 31, p. 15). In its motion to dismiss, Defendant argues that neither paragraph eight nor paragraph fourteen prohibit pay-to-pay fees, and therefore there is no breach of contract. (D.E. 19, p. 5–6).
The elements of a breach of contract claim in Texas are "(1) a valid contract exists; (2) the plaintiff performed or tendered performance as contractually required; (3) the defendant breached the contract by failing to perform or tender performance as contractually required; and (4) the plaintiff sustained damages due to the breach." Pathfinder Oil & Gas, Inc. v. Great W. Drilling, Ltd. , 574 S.W.3d 882, 890 (Tex. 2019).
Paragraph fourteen of the Plaintiffs' deed of trust states: "This Security Instrument shall be governed by Federal law and the law of the jurisdiction in which the property is located." (D.E. 1-2, p. 7, ¶ 14). The Fifth Circuit has made clear that "HUD regulations do not give the borrower a private cause of action unless the regulations are expressly incorporated into the lender-borrower agreement." Johnson v. World All. Fin. Corp. , 830 F.3d 192, 196 (5th Cir. 2016) ; see also Anderson v. Compass Bank , No. H-14-0410, 2014 WL 5468132, at *5 (S.D. Tex. Oct. 28, 2014) (determining that a "general reference to ‘federal laws’ in a Deed of Trust, on which Plaintiffs rely, is insufficient to support their breach of contract claim"). Here, Paragraph fourteen makes a general reference to "federal law" but fails to expressly incorporate HUD regulations. See (D.E. 1-2, p. 7, ¶ 14). This provision therefore does not incorporate HUD regulations into the deed of trust.
Plaintiffs argue that Johnson does not support this outcome and urge the Court to instead follow In re Mandeville , 596 B.R. 750 (Bankr. N.D. Ala. 2019), an Alabama bankruptcy court opinion. (D.E. 31, p. 15–18). The Court disagrees. Mandeville involved the question of whether the phrase "Lender may collect fees and charges authorized by [HUD]" permitted the lender to charge certain fees, not whether that phrase restricts a lender from charging certain fees. Id. at 756, 759–60. The question before this Court involves the latter issue—whether a contractual phrase restricts a lender from charging certain fees—and presents it through a breach of contract challenge, like that raised in Johnson , not a bankruptcy dispute.
Plaintiffs also argue that paragraph eight of their deed of trust prohibits Defendant from charging pay-to-pay fees. (D.E. 1, p. 7, ¶ 33; D.E. 31, p. 15–21). Paragraph eight states: "Lender may collect fees and charges authorized by the Secretary [of HUD]." (D.E. 1-2, p. 6, ¶ 8). Plaintiffs claim that this provision restricts Defendant to collecting only those "fees and charges authorized by the Secretary [of HUD]." (D.E. 31, p. 5) (emphasis in original). The problem with this assertion is that the clause refers to fees and charges that the lender may collect; it is a clause which authorizes, not a clause which prohibits. As such, that language is permissive rather than restrictive and does not expressly limit additional fees that may be charged to the borrower. See Johnson , 830 F.3d at 196 (holding that HUD regulations were not incorporated into a contract where there was no "evidence that the parties intended to incorporate into the HECM the specific HUD term at issue " (emphasis added); cf. Baker v. Countrywide Home Loans, Inc. , 2009 WL 1810336, *3 n.2 (N.D. Tex. 2009) (ruling that HUD regulations were expressly incorporated under the following language: "This note does not authorize acceleration when not permitted by HUD regulations."); Bates v. JPMorgan Chase Bank, N.A. , 768 F.3d 1126, 1132–33 (11th Cir. 2014) (determining that a deed "clearly makes compliance with HUD regulations a condition" of the contract where it stated: "This [deed] does not authorize acceleration or foreclosure if not permitted by regulations of the Secretary " (emphasis added)). Because Plaintiffs have not identified any language referencing HUD regulations generally or specifically, much less any mandatory language, the Court holds that the deed here likewise fails to expressly incorporate HUD regulations.
Without a contractual prohibition against the assessment of these optional pay-to-pay fees, Plaintiffs do not assert a viable breach of contract claim. See Pathfinder Oil , 574 S.W.3d at 890 (noting that one of the elements for a breach of contract claim is that the defendant breached a contractual provision). Because Plaintiffs have failed to state a plausible breach of contract claim, the Court dismisses it from this action. Accordingly, the Court need not reach Defendant's argument that Plaintiffs' breach of contract claim is barred from recovery under the voluntary-payment doctrine. See (D.E. 19, p. 12–13).
IV. Conclusion
For the reasons set forth above, Defendant's motion to dismiss (D.E. 19) is GRANTED in part and DENIED in part as follows. Plaintiffs' TDCA claim(s) survives Defendant's Rule 12(b)(6) motion. Plaintiffs' breach of contract claim(s), however, does not and is DISMISSED with prejudice. The Court ORDERS the Clerk of Court to lift the stay in this case and orders the parties to submit a proposed amended scheduling order on this case's docket by October 30, 2020.
SO ORDERED.