Opinion
5-21-CV-00877-FB-RBF
03-24-2023
MICHAEL MCCOY, Plaintiff, v. JAMES STAVROPOULOS, SECURE ONE CAPITAL CORPORATION, NEWREZ, LLC D/B/A SHELLPOINT MORTGAGING SERVICING Defendants.
REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
Fred Biery Honorable United States District Judge
This Report and Recommendation concerns Defendants' Second Motion to Dismiss. See Dkt. No. 43. All pretrial matters in this action have been referred for resolution pursuant to Rules CV-72 and 1 of Appendix C to the Local Rules for the United States District Court for the Western District of Texas. See Dkt. No. 31. Authority to enter this recommendation stems from 28 U.S.C. § 636(b)(1)(B). For the reasons set forth below, the Motion to Dismiss, Dkt. No. 43, should be GRANTED.
Factual and Procedural Background
Plaintiff Michael McCoy is a disabled veteran who purchased a house in Schertz, Texas, in January of 2019. See Dkt. Nos. 1, 18. McCoy received a Veterans Administration loan for the purchase, and as a disabled veteran he is exempt from Bexar County property taxes. Sometime in late 2019 or early 2020, McCoy received a letter from Defendants offering to refinance his mortgage payments. According to McCoy, he spoke with Defendant James Stavropoulos on the phone and was informed that his monthly mortgage payments could be reduced from $2,300 to $2,100. On January 14, 2020, McCoy refinanced his mortgage with Defendant Secure One Capital Corporation, whose interest was subsequently assigned to Defendant Shellpoint Mortgaging Servicing. See Dkt. No. 43-1. Rather than reducing his monthly payments, McCoy alleges that the refinancing resulted in an increase to approximately $2,500 per month, due to an escrow account for taxes.
On August 11, 2021, McCoy sued Defendants Shellpoint and Stavropoulos in state court. See Dkt. No. 1-2. Construing his pro se complaint liberally, Defendants removed to federal court, arguing diversity and potential federal-question jurisdiction. See Dkt. No. 1. On January 7, 2022, Defendants then moved to dismiss, and shortly thereafter McCoy obtained counsel. See Dkt. Nos. 9, 10. The Court granted leave to amend, thereby mooting the motion to dismiss. See Dkt. No. 17.
McCoy's Amended Complaint, Dkt. No. 18, attempted to clarify his allegations and added Secure One as a Defendant. McCoy only asserts state-law claims, listing causes of action for breach of contract, fraud, negligent misrepresentation, and violations of the Texas Deceptive Trade Practices Act (“DTPA”). But the Amended Complaint does not completely state the addresses and citizenship of all Defendants. And although McCoy attempted to serve Secure One through its registered agent in Texas, see Dkt. No. 19, 30, no answer has been filed and Secure One has yet to make an appearance in this case.
Defendants again moved to dismiss, see Dkt. No. 22, and the Court set the case for an initial pretrial conference. See Dkt. No. 32. As a result of discussions at the conference held on July 6, 2022, the Court stayed the case and ordered the parties to engage in settlement talks. See Dkt. No. 34. Should those fail, McCoy was ordered to amend his complaint to “properly plead the citizenship of each named defendant.” Id. at 1-2. McCoy was additionally directed to clarify the parties' relationships and the claims against them, plead any fraud claims with particularity, and give fair notice to Defendants as to any breach-of-contract claim. See id. at 2.
In the middle of these settlement talks, McCoy indicated he would be terminating his attorney, who then filed a motion to withdraw on July 21, 2022. See Dkt. Nos. 35, 36. In response, the Court extended the stay to permit an opportunity to secure replacement counsel and ordered McCoy to amend his complaint within 60 days, pursuant to the Court's previous instructions. See Dkt. No. 37. The Court also pointed out that under Fifth Circuit precedent, McCoy's DTPA claim was not viable. Id. at 2. The Court mooted Defendants' motion to dismiss but allowed them to re-urge their motion within 14 days of McCoy's deadline to file an amended complaint. Id. at 3.
Receiving no response, the Court ordered McCoy on October 14, 2022, to either amend his complaint in 30 days or show cause why the case should not be dismissed. See Dkt. No. 41. Defendants subsequently filed their second motion to dismiss the amended complaint. Dkt. No. 43. McCoy requested more time to seek new counsel, and the Court granted an additional 60 days as of December 7, 2022. See Dkt. No. 49. But the Court cautioned McCoy that no further extensions would be entertained, and that failure to file an amended complaint by that deadline “with or without counsel” would result in dismissal for failure to prosecute or comply with court orders. Id. On February 6, 2023, McCoy responded to the Court's Show Cause Order, briefly summarizing his allegations, complaining about the settlement discussions, and “begging the court to deny Akerman's [sic] dismissal.” Dkt. No. 53 at 1. McCoy never amended his complaint.
Standard of Review
On a motion to dismiss for failure to state a claim, courts are limited to the contents of the pleadings, including any attachments or documents referenced in the pleadings. See Fed.R.Civ.P. 12(b)(6); Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498-99 (5th Cir. 2000) (holding documents attached to motion and referenced in complaint are properly considered). To survive a motion to dismiss, “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 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also Fed.R.Civ.P. 8(a). But courts are not required to accept as true any “legal conclusions” or “conclusory statements” contained in the complaint. Iqbal, 556 U.S. at 678. And whether a claim for relief is “plausible” poses a higher bar than “mere possibility,” which in turn “requires the reviewing court to draw on its judicial experience and common sense.” Id. at 679. In addition to accepting factual allegations as true, Courts must “draw all reasonable inferences in favor of the nonmoving party.” Kelson v. Clark, 1 F.4th 411, 416 (5th Cir. 2021) (quotation omitted).
Analysis
1. Dismissal of This Action Is an Appropriate Sanction for McCoy's Failure to Prosecute or Comply with Court Orders.
Dismissal without prejudice is an available, albeit harsh, sanction for failure to prosecute or comply with court orders. See Fed.R.Civ.P. 41(b) (dismissal by motion). Courts also possess “inherent authority to dismiss an action sua sponte” for failure to prosecute or comply with court orders. Martinez v. Johnson, 104 F.3d 769, 772 (5th Cir. 1997); accord McCullough v. Lynaugh, 835 F.2d 1126, 1127 (5th Cir. 1988). However, a “court's discretion is narrower when a Rule 41(b) dismissal is with prejudice or when a statute of limitations would bar re-prosecution.” Brown v. King, 250 Fed.Appx. 28, 29 (5th Cir. 2007); see also Rogers v. Kroger Co., 669 F.2d 317, 320 (5th Cir. 1982) (discussing heightened standards and relevant factors for dismissal with prejudice). Dismissal with prejudice under Rule 41(b) is appropriate where there is “a clear record of delay,” meaning “significant periods of total inactivity,” and that delay is attributable to the plaintiff rather than counsel. Morris v. Ocean Sys., Inc., 730 F.2d 248, 252 (5th Cir. 1984) (quotation omitted).
Defendants move for dismissal under Rule 41(b). See Dkt. No. 43 at 10. The Court first informed McCoy that his Amended Complaint was deficient under federal pleading standards at the initial pretrial conference on July 6, 2022. The Court ordered McCoy to amend his complaint to address those deficiencies. See Dkt. No. 34. Eight months have passed since McCoy's initial deadline, and still no amended complaint has been filed. The Court finds that McCoy's two short pro se responses over a period of eight months is roughly equivalent to “total inactivity,” and this delay is entirely attributable to McCoy terminating his attorney and failing to find replacement counsel. Nor does McCoy's long-delayed response to the Court's Show Cause Order indicate that any amendment is forthcoming or possible. See Dkt. No. 53. McCoy, once again proceeding pro se, has made no attempt to comply with the Court's instructions despite several extensions.
Assuming that McCoy's remaining claims are otherwise viable, dismissal under Rule 41(b) will not result in de facto dismissal with prejudice of all claims. McCoy asserts causes of action for breach of contract, fraud, negligent misrepresentation, and violation of the DTPA. See Dkt. No. 18. Texas employs a four-year statute of limitations for contract and fraud claims. See Tex. Civ. Prac. & Rem. Code § 16.004. But the limitations period for DTPA claims is two years. See Tex. Bus. & Com. Code § 17.565. And negligent misrepresentation claims are governed by the two-year statute of limitations for tort claims. See Tex. Civ. Prac. & Rem. Code § 16.003(a); Smith Intern., Inc. v. Egle Group, LLC, 490 F.3d 380, 386 (5th Cir. 2007). The refinancing agreement with Shellpoint is dated January 14, 2020, and McCoy alleges that he began consulting with Stavropoulos about refinancing sometime in late 2019. In other words, Rule 41(b) dismissal would be without prejudice as to any contract or fraud claims. Only McCoy's negligent misrepresentation and DTPA claims would be time-barred if dismissed at this juncture.
Accordingly, McCoy's breach-of-contract and fraud claims should be DISMISSED WITHOUT PREJUDICE for failure to prosecute or comply with court orders under Rule 41(b). McCoy's negligent misrepresentation and DTPA claims, however, should be DISMISSED WITH PREJUDICE for the same reasons, as McCoy would be time-barred from re-prosecution.
2. Dismissal of All Claims Is Equally Appropriate on Alternative Grounds.
As an alternative to dismissal under Rule 41(b), the Court will attempt to discuss the merits of McCoy's claims, despite the limited adversarial briefing. Dismissal for failure to state a claim for which relief may be granted is presumptively with prejudice, unless otherwise stated in the order. See Mandawala v. Ne. Baptist Hosp., 16 F.4th 1144, 1155 (5th Cir. 2021), cert. denied, 143 S.Ct. 89 (2022), reh'g denied, 143 S.Ct. 514 (2022). “A dismissal for failure to state fraud with particularity as required by Rule 9(b) is a dismissal on the pleadings for failure to state a claim.” Shushany v. Allwaste, Inc., 992 F.2d 517, 520 (5th Cir. 1993). It is generally reversible error to dismiss a pro se complaint for failure to state a claim without first affording an opportunity to amend. See Baxrowx v. Scott, 136 F.3d 1053, 1054 (5th Cir. 1998) (per curiam). However, “[w]hen a plaintiff is given an opportunity to amend a complaint that fails to state a claim upon which relief can be granted, but refuses to do so, then the district court is justified in dismissing the complaint with prejudice.” Rodriguez v. United States, 66 F.3d 95, 98 (5th Cir. 1995). McCoy has already amended his complaint once, see Dkt. No. 18, and he was given eight months to amend it again. See Dkt. Nos. 34, 37, 41, 49. Accordingly, should the District Court elect to reach McCoy's claims, any dismissal should be with prejudice.
A. McCoy Is Not a Consumer Under the DTPA.
The purpose of the DTPA is “to protect consumers” from deceptive acts. Tex. Bus. & Com. Code § 17.44; see also id. § 17.50 (relief for consumers). The term “consumer” is defined as “an individual . . . who seeks or acquires by purchase or lease, any goods or services.” Id. § 17.45(4). The term “goods” is then defined to include “tangible chattels or real property.” Id. § 17.45(2). But as far as mortgage refinancing is concerned, while a “purchase money loan” qualifies as a good or service, a refinance or loan modification seeks “to finance an existing loan on previously acquired property.” Miller v. BAC Home Loans Servicing, L.P., 726 F.3d 717, 725 (5th Cir. 2013). McCoy's DTPA claim is premised on his efforts to refinance his mortgage, and he describes his contract with Shellpoint as a “refinance loan.” Dkt. No. 18 ¶¶ 6-10; see also Dkt. No. 43-1 at 41 (box checked for loan “renewal and extension”).
Defendants renew their arguments for dismissal of McCoy's DTPA claim under Miller. See Dkt. No. 43 at 4-5. And when ordering McCoy to amend his complaint, the Court informed him that he is likely not a “consumer” for purposes of the DTPA. See Dkt. No. 37 at 3. The Court now clarifies and reiterates that McCoy's DTPA claim for loan refinancing is not viable under Miller. Moreover, McCoy's DTPA claim is premised on allegedly false or misleading statements by Defendants that induced him to refinance his mortgage. See Dkt. No. 18 ¶¶ 15-16. But as explained below, the predicate fraud claims likewise fail at this juncture.
B. McCoy Fails to Plead Fraud with Particularity.
Parties asserting fraud in federal court “must state with particularity the circumstances constituting fraud.” Fed.R.Civ.P. 9(b); see also Benchmark Elecs., Inc. v. J.M. Huber Corp., 343 F.3d 719, 724 (5th Cir. 2003), opinion modified on denial of reh'g, 355 F.3d 356 (5th Cir. 2003) (applying Rule 9(b) to negligent misrepresentation claims). “At a minimum, Rule 9(b) requires allegations of the particulars of ‘time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby.'” Tel-Phonic Servs., Inc. v. TBS Int'l, Inc., 975 F.2d 1134, 1139 (5th Cir. 1992) (quotation omitted). A complaint containing “the who, what, when, where, and how” for each alleged misrepresentation usually satisfies this heightened standard. Benchmark Elecs., 343 F.3d at 724 (5th Cir. 2003).
Defendants seek dismissal of McCoy's fraud and negligent misrepresentation claims for various reasons, including failure to plead with particularity. See Dkt. No. 43 at 5-8. McCoy alleges Stavropoulos said that refinancing “could reduce the interest rate of his loan and that his monthly payment would be much less.” Dkt. No. 18 ¶ 7. This phone conversation took place “in approximately Fall of 2019.” Id. ¶ 6. McCoy further alleges that he has written documentation showing the estimated payments would be “no more that [sic] $2,100.” Id. ¶ 8. McCoy has likely satisfied the “who” and “where,” but as the Court previously noted, the Amended Complaint still falls short on the “what,” “when,” and “how.” See Dkt. Nos. 34, 37.
Furthermore, McCoy's claims may be barred on the merits. In most situations, statements of opinion or “mere puffery” are immaterial and not actionable in fraud. GJP, Inc. v. Ghosh, 251 S.W.3d 854, 889 (Tex. App. 2008). And statements pertaining to future events can only support fraud if “the speaker purports to have special knowledge of facts that will occur or exist in the future.” Trenholm v. Ratcliff, 646 S.W.2d 927, 930 (Tex. 1983). Even assuming Stavropoulos told McCoy that refinancing could result in a lower monthly payment, such opinions on future events are not material representations. But due to McCoy's failure to satisfy federal pleading standards, the Court is unable to definitively determine whether the alleged representations are actionable in fraud. Defendants also correctly note that McCoy has failed to plead that Stavropoulos knew the statements were false or made them recklessly. See Dkt. No. 43 at 7. These pleading deficiencies likely require dismissal of McCoy's fraud, negligent misrepresentation, and DTPA claims.
C. McCoy Fails to Adequately Plead His Breach-of-Contract Claim Under Notice-Pleading Standards.
Federal notice-pleading standards are relatively lenient, requiring only “a short and plain statement of the claim.” Fed.R.Civ.P. 8(a)(2). But the Fifth Circuit has indicated “that a claim for breach of a note and deed of trust must identify the specific provision in the contract that was breached.” Williams v. Wells Fargo Bank, N.A., 560 Fed. App'x 233, 238 (5th Cir. 2014). Defendants thus argue that McCoy fails to adequately plead his breach-of-contract claim. Dkt. No. 43 at 9-10. McCoy's Amended Complaint alleges that “Defendants have collected funds which were not needed for escrow,” and that the “failure [sic] provide an accounting, proper credit, force payments for taxes and insurance in violation of the contract constitutes a material breach.” Dkt. No. 18 ¶ 21. The Amended Complaint does not identify any provisions that were breached, and the Court previously admonished McCoy to amend this oversight. See Dkt. Nos. 34, 37.
Although McCoy never substantively responded to the second motion to dismiss, the Court observes that McCoy, through counsel, did respond to similar arguments earlier. See Dkt. No. 27. In that response, McCoy states that his contract claim primarily “arises from the representations about what the payment would be setting up of an unnecessary escrow.” Id. at 10. McCoy identifies Section 3 (funds for escrow items) in the deed of trust as the source of this claim. See id. at 10; Dkt. No. 43-1 at 32-33. McCoy then argues that Shellpoint can only charge escrow for taxes, but since McCoy owes no taxes, then “[m]isrepresentations about these clauses are actionable.” Dkt. No. 27 at 10. But McCoy does not explain how any purported representations constitute a breach.
McCoy also references “the right to reinstate even after foreclosure,” Dkt. No. 27 at 10, which appears to be contained in Section 19 of the deed of trust. See Dkt. No. 43-1 at 38-39. But McCoy avers that he “is current on his mortgage at the time of this filing and is not facing foreclosure.” Dkt. No. 18 ¶ 14. The Court is thus at a loss how the deed of trust's right to reinstate is relevant when McCoy is not facing foreclosure or acceleration.
Moreover, McCoy's description of the deed of trust's provisions runs counter to the plain text. Section 3 states that escrow may be collected for (1) taxes, assessments, and other liens or encumbrances; (2) leasehold payments or ground rents; (3) property insurance premiums; and (4) mortgage insurance premiums. Dkt. No. 43-1 at 32-33. In other words, escrow under the deed of trust is not limited to only property taxes. Nor does Section 3 provide for “accounting” or “proper credit” on demand-instead, Shellpoint “shall account” for any “excess funds,” but only when “there is a surplus of Funds held in escrow, as defined under [the Real Estate Settlement Procedures Act].” Id. at 33. McCoy does not allege that such a surplus exists. And most importantly, nowhere does the deed of trust proclaim what McCoy's future monthly payments will be. Even for pro se litigants, the Court will not independently scour a contract to ferret out potential claims.
McCoy is justifiably disappointed that his loan payments have increased since refinancing. But that alone does not establish any wrongdoing; nor does merely stating it amount to stating an actionable claim. As the deed of trust indicates, escrow may be collected for reasons that have nothing to do with McCoy's alleged exemption from property taxes. And to the extent McCoy argues misrepresentations or bad faith by Defendants during post-signing discussions about his monthly payments, see Dkt. No. 27 at 10, such allegations are not included in his pleadings. Nor does Texas recognize an implied covenant of good faith and fair dealing in contracts. See English v. Fischer, 660 S.W.2d 521, 522 (Tex. 1983). Absent allegations that Defendants breached a specific provision of the deed of trust, the Court concludes that McCoy's pleadings likely fail to provide adequate notice of any breach-of-contract claims under Rule 8(a).
3. The Court Finally Notes Several Jurisdictional Flaws in the Pleadings That May Not Be Judicially Efficient to Investigate Further.
On a final note, the Court observes that several unanswered questions raise some concerns about subject-matter jurisdiction. Federal courts have limited jurisdiction and can usually only hear cases based on federal questions or diversity of citizenship. See 18 U.S.C. §§ 1331 (federal question), 1332 (diversity); Lincoln Prop. Co. v. Roche, 546 U.S. 81, 89 (2005) (noting that § 1332 requires “complete diversity” between the parties). “The party asserting diversity jurisdiction must distinctly and affirmatively allege the citizenship of the parties.” Smith v. Toyota Motor Corp., 978 F.3d 280, 282 (5th Cir. 2020) (cleaned up). As with other forms of partnerships, “the citizenship of a LLC is determined by the citizenship of all of its members.” Harvey v. Grey Wolf Drilling Co., 542 F.3d 1077, 1080 (5th Cir. 2008).
Defendants removed to federal court based on McCoy's pro se state-court petition raising potential-yet-unasserted federal claims as well as diversity. See Dkt. No. 1. But McCoy's Amended Complaint only asserts claims under state law. See Dkt. No. 18. Accordingly, jurisdiction is only proper upon a showing of complete diversity of citizenship. Who, precisely, bears the burden here is less clear. Although Defendants originally invoked diversity jurisdiction when removing to federal court, McCoy did not contest removal, and in his motion for leave to amend, he stated that the proposed Amended Complaint, and the addition of Secure One as a party, “will not effect [sic] diversity jurisdiction.” Dkt. No. 16 at 1. But rather than plead the citizenship of each party in the Amended Complaint, McCoy merely identifies the registered agents for Secure One and Shellpoint for purposes of service of process. See Dkt. No. 18 ¶ 1. And upon removing to federal court, Shellpoint came close but did not quite identify each of its members, and all members of any LLCs therein. See Dkt. Nos. 1, 2. The Court instructed the parties to work together to cure this deficiency, see Dkt. Nos. 34, 37, but with no second amended complaint filed or forthcoming, the Court's jurisdictional concerns remain.
Furthermore, McCoy appears to have attempted service of the Amended Complaint on Secure One's registered agent, and the summons was returned as executed. See Dkt. No. 30. But Secure One has filed no answer and entered no appearance. The Court remains uncertain whether Secure One has been properly served, and because McCoy never pleaded Secure One's citizenship, the Court must rely on the representations of McCoy's prior counsel that diversity jurisdiction is not destroyed by their addition.
Nonetheless, the Court does not recommend dismissal of any of McCoy's claims for lack of jurisdiction. Instead, the remaining jurisdictional ambiguities here merely serve to reinforce why the Court ordered McCoy to amend his complaint to clarify Defendants' citizenship. McCoy failed to comply with that directive, and that failure is enough to recommend dismissal. The Court does not believe that it would be worth expending any further judicial resources to resolve these doubts. See Munday/Elkins Auto. Partners Ltd. v. Smith, 201 Fed. App'x 265, 267 (5th Cir. 2006) (per curiam) (affirming dismissal for failure to prosecute or comply with court order to supply further information on subject-matter jurisdiction); cf. Link v. Wabash R. Co., 370 U.S. 626, 630-31 (1962) (describing federal courts' authority to dismiss for failure to prosecute as “an ‘inherent power,' governed not by rule or statute but by the control necessarily vested in courts to manage their own affairs so as to achieve the orderly and expeditious disposition of cases”).
Conclusion and Recommendation
For the reasons discussed above, it is recommended that Defendants' Second Motion to Dismiss, Dkt. No. 43, be GRANTED. McCoy's contract and fraud claims should be DISMISSED WITHOUT PREJUDICE for failure to prosecute or comply with court orders. But McCoy's DTPA and negligent misrepresentation claims should be DISMISSED WITH PREJUDICE as effectively time-barred from prosecution by the statute of limitations. Alternatively, McCoy's claims should all be DISMISSED WITH PREJUDICE for failure to satisfy federal pleading standards or state a claim for which relief can be granted.
Having considered and acted upon all matters for which this case was referred, it is ORDERED that this case is RETURNED to the District Court for all purposes.
Instructions for Service and Notice of Right to Object/Appeal
The United States District Clerk shall serve a copy of this report and recommendation on all parties by either (1) electronic transmittal to all parties represented by attorneys registered as a “filing user” with the clerk of court, or (2) by mailing a copy by certified mail, return receipt requested, to those not registered. Written objections to this report and recommendation must be filed within fourteen (14) days after being served with a copy of same, unless this time period is modified by the district court. 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(b). Objections, responses, and replies must comply with the same page limits as other filings, unless otherwise excused by the district court's standing orders. See Rule CV-7. The objecting party shall file the objections with the clerk of the court, and serve the objections on all other parties. A party filing objections must specifically identify those findings, conclusions, or recommendations to which objections are being made and the basis for such objections; the district court need not consider frivolous, conclusory, or general objections. A party's failure to file written objections to the proposed findings, conclusions, and recommendations contained in this report shall bar the party from a de novo determination by the district court. Thomas v. Arn, 474 U.S. 140, 149-52 (1985); Acuna v. Brown & Root, Inc., 200 F.3d 335, 340 (5th Cir. 2000). Additionally, failure to timely file written objections to the proposed findings, conclusions, and recommendations contained in this report and recommendation shall bar the aggrieved party, except upon grounds of plain error, from attacking on appeal the unobjected-to proposed factual findings and legal conclusions accepted by the district court. Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc).
IT IS SO ORDERED.