Campo v. Bank of Am., N.A.

LEONARDO A. CAMPO, Plaintiff, v. BANK OF AMERICA, N.A., AND MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., Defendants.

CIVIL ACTION NO. H-15-1091

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

March 24, 2016

MEMORANDUM AND OPINION

I. Background

Lenardo Campo sued when his home was posted for nonjudicial foreclosure after he defaulted on the mortgage obligations. On October 4, 2007, Campo signed a $102,387.00 Texas Home Equity Note in favor of Countrywide Bank, FSB. (Docket Entry No. 1, Ex. 1 at ¶ 7). Campo also signed a Texas Home Equity Security Instrument, the Deed of Trust, in favor of Mortgage Electronic Registration Systems, Inc. (MERS) as nominee for Countrywide and its successors and assigns. (Id. at ¶ 2). On November 5, 2010, MERS assigned its interest in the Deed of Trust to BAC Home Loans Servicing, LP, Bank of America's predecessor-in-interest. (Docket Entry No. 5, Ex. C). Bank of America, N.A. currently services the note.

Bank of America initiated foreclosure procedures under Texas law based on Campo's default. (Docket Entry No. 1, Ex. 1 at ¶ 8; Docket Entry No. 5 at 1). Campo sued in the District Court of Montgomery County, Texas, seeking an injunction, a quiet-title judgment, and damages. Bank of America and MERS timely removed based on diversity jurisdiction.

Besides an injunction and declaratory judgment, Campo seeks damages for breach of contract. He alleges that MERS's assignment of its interest in the Deed of Trust to Bank of America was invalid because the individual whose signature appears on the assignment for MERS, Stephen C. Porter, was not a MERS employee when he signed, was not authorized to sign on MERS's behalf, did not sign before a notary public, and did not himself sign the document. (Docket Entry No. 1, Ex. 1 at ¶¶ 10-13).

Campo also argues that the language in the Deed of Trust did not allow Bank of America to foreclose. (Id. at ¶¶ 15-16). The Deed of Trust granted the "Lender" the power to foreclose. (Docket Entry No. 5, Ex. B). Campo argues that Bank of America was not the "Lender," making its foreclosure attempt wrongful and a breach of the Deed of Trust. (Docket Entry No. 1, Ex. 1 at ¶¶ 15-16). Campo also alleges that the Deed of Trust required the Note and Deed of Trust to be transferred together in order for the lender to foreclose, but that Bank of America received only the Deed of Trust. (Docket Entry No. 1, Ex. 1 at ¶ 28).

Campo additionally alleges that Bank of America and MERS violated § 50(a)(6) of the Texas Constitution by issuing a loan in excess of 80 percent of the property's market value and by failing to provide all applicable loan documents and acknowledgments. (Id. at ¶¶ 32-36).

Finally, Campo seeks a declaratory judgment that: 1) he is the prevailing party; 2) the Deed of Trust is null and void; 3) Bank of America has no enforceable lien; 4) no other defendant has an enforceable claim against the property; 5) there are no adverse claims to the property; 6) he is entitled to exclusive possession; 7) he owns the property in fee simple and is entitled to quiet and peaceful possession; and 8) Bank of America and MERS have no interest in the property. (Id. at ¶¶ 32-36).

Bank of America and MERS moved to dismiss, Campo responded, and Bank of America and MERS replied. (Docket Entries No. 5, 9, 10). While the motion to dismiss was pending, the court granted a joint motion to stay to allow the parties to pursue a loan modification. (Docket Entry No. 20). The parties have since told the court that they cannot agree on a loan modification and the motion to dismiss is ripe for decision. The court grants Campo leave to file a surreply. (Docket Entries No. 28, 29).

Based on the motion, the response and replies, the record, the pleadings, and the arguments of counsel, the court grants the motion to dismiss. Because amendment would be futile, the dismissal is with prejudice. Final judgment is entered separately.

The reasons are explained below.

II. The Legal Standard for a Motion to Dismiss

A pleading is deficient and may be dismissed under Rule 12(b)(6) if a plaintiff fails "to state a claim upon which relief can be granted." FED. R. CIV. P. 12(b)(6). Rule 12(b)(6) is read in conjunction with Rule 8(a), which requires "a short and plain statement of the claim showing that the pleader is entitled to relief." FED. R. CIV. P. 8(a)(2). A complaint must contain "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007); Ashcroft v. Iqbal, 556 U.S. 662 (2009). Rule 8 "does not require 'detailed factual allegations,' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 555). "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. (citing Twombly, 550 U.S. at 556). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more thana sheer possibility that a defendant has acted unlawfully." Id. (citing Twombly, 550 U.S. at 556).

To withstand a Rule 12(b)(6) motion, a "complaint must allege 'more than labels and conclusions,'" and "'a formulaic recitation of the elements of a cause of action will not do.'" Norris v. Hearst Trust, 500 F.3d 454, 464 (5th Cir. 2007) (quoting Twombly, 550 U.S. at 555). "Nor does a complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Iqbal, 556 U.S. at 678 (alteration in original) (quoting Twombly, 550 U.S. at 557). "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) (footnote omitted) (quoting Twombly, 550 U.S. at 555). "Conversely, 'when the allegations in a complaint, however true, could not raise a claim of entitlement to relief, this basic deficiency should . . . be exposed at the point of minimum expenditure of time and money by the parties and the court.'" Id. (quoting Twombly, 550 U.S. at 558).

"On a Rule 12(b)(6) motion, a district court generally 'must limit itself to the contents of the pleadings, including attachments thereto.' The court may also consider documents attached to either a motion to dismiss or an opposition to that motion when the documents are referred to in the pleadings and are central to a plaintiff's claims." Brand Coupon Network, L.L.C. v. Catalina Mktg. Corp., 748 F.3d 631, 635 (5th Cir. 2014) (quoting Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498-99 (5th Cir. 2000)). Other courts approve the same practice. See Venture Assocs. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th Cir. 1993) ("Documents that a defendant attaches to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to her claim." (citations omitted)); see also Field v. Trump, 850 F.2d 938,949 (2d Cir. 1988) (citation omitted); Branch v. Tunnell, 14 F.3d 449, 453-54 (9th Cir. 1994), overruled on other grounds by Galbraith v. County of Santa Clara, 307 F.3d 1119 (9th Cir. 2002).

Federal Rule of Civil Procedure 15(a) provides that "[a] party may amend its pleading once as a matter of course within: (A) 21 days after serving it, or (B) if the pleading is one to which a responsive pleading is required, 21 days after service of a responsive pleading . . . ." FED. R. CIV. P. 15(a)(1). A party may also amend its pleadings by leave of court or by written consent of the adverse party. FED. R. CIV. P. 15(a)(2). The purpose of this rule is to "enable a party to assert matters that were overlooked or were unknown at the time the party interposed the original complaint or answer." 6 WRIGHT & MILLER, FEDERAL PRACTICE & PROCEDURE § 1473 (3d ed. 2015). A party may make a Rule 15(a) amendment to add a party to an action. Id. § 1474.

A district court "should freely give leave [to amend] when justice so requires." FED. R. CIV. P. 15(a)(2). "[T]he language of this rule evinces a bias in favor of granting leave to amend." Jones v. Robinson Prop. Grp., L.P., 427 F.3d 987, 994 (5th Cir. 2005) (quotation marks omitted). "A district court must possess a substantial reason to deny a request for leave to amend, but leave to amend is by no means automatic." Id. (citation omitted) (quotation marks omitted). "Denial of leave to amend may be warranted for undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies, undue prejudice to the opposing party, or futility of a proposed amendment." United States ex rel. Steury v. Cardinal Health, Inc., 625 F.3d 262, 270 (5th Cir. 2010). A proposed amendment is futile if "the amended complaint would fail to state a claim upon which relief could be granted." Stripling v. Jordan Prod. Co., LLC, 234 F.3d 863, 873 (5th Cir. 2000). "[T]he same standard of legal sufficiency as applies under Rule 12(b)(6)" applies to determining futility under Rule 15. Id. (quotation marks omitted).

III. Analysis

A. The Issue of Standing to Challenge the Assignment

Campo argues that MERS's assignment of the Deed of Trust is invalid. Bank of America and MERS respond that Campo lacks standing to challenge the assignment.

Under Texas law, "assignments are contracts that are only enforceable by parties to the contract." Hazzard v. Bank of Am. NA, No. C-12-127, 2012 WL 2339313, at *3 (S.D. Tex. June 19, 2012) (citing Stine v. Stewart, 80 S.W.3d 586, 589 (Tex. 2002) (per curiam)). In Tri-Cities Constr. Inc. v. Am. Nat'l Ins. Co., 523 S.W.2d 426 (Tex. Civ. App.—Houston [1st Dist.] 1975, no writ.), the court distinguished between assignments that are void and those...