Hughes v. J.P. Morgan Chase & Related Subsidiaries, Seterus, Inc. (In re Hughes)

IN THE MATTER OF: LESLIE D. HUGHES, Debtor.

LESLIE D. HUGHES, Plaintiff, v. J.P. MORGAN CHASE AND RELATED SUBSIDIARIES, SETERUS, INC.,

FEDERAL NATIONAL MORTGAGE ASSOCIATION, BROCK & SCOTT, PLLC (LLC),

and FIRST AMERICAN TITLE, Defendants.

BANKRUPTCY CASE 17-52260-LRC

ADVERSARY PROCEEDING NO. 17-5169-LRC

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION

September 27, 2018

IT IS ORDERED as set forth below:

IN PROCEEDINGS UNDER CHAPTER 13 OF THE BANKRUPTCY CODE

ORDER

Before the Court is a Motion for Leave to File Amended Complaint (Doc. 61) (the "Motion") pursuant to Federal Rule of Civil Procedure 15(a)(2), made applicable to this adversary proceeding by Federal Rule of Bankruptcy Procedure 7015. The Motion seeks leave to amend a sixteen-count complaint (the "Complaint") filed by Leslie D. Hughes ("Plaintiff") against Brock & Scott ("B&S"), First American Title Insurance Company ("First American Title"), Federal National Mortgage Association ("Fannie Mae"), Seterus, Inc. ("Seterus"), and JPMorgan Chase Bank, N.A. ("JPMC") (collectively, the "Defendants"). The allegations in the Complaint involve real property located at 2270 Charleston Place, Lithia Springs, Georgia (the "Property") and mortgage loan transactions (the "Loans") between Plaintiff and Washington Mutual ("WaMu") in 2006, which resulted in the execution of a deed to secure debt on the Property (the "DSD"). Defendant First American Title opposes the Motion.¹

Defendants previously filed motions to dismiss the Complaint (Docs. 16, 17, 24, 26) (the "Motions to Dismiss"). On April 13, 2018, the Court entered an Order granting in part and denying in part the Motions to Dismiss (the "Prior Order"). As the bulk of the factual and procedural background for this action is contained in the Prior Order, the Court now provides only the necessary additional details.

The Prior Order dismissed Counts 1, 3, 4, 5, 8, 9, 10, 11, 12, 13, 14, 15, 16 17, and 18 of the Complaint as to all Defendants; dismissed Count 2 of the Complaint as to First American Title, Fannie Mae, JPMC, and B&S and dismissed Counts 6 and 7 of the Complaint as to First American Title, Fannie Mae, JPMC, and Seterus. The Prior Order left as the only potentially viable claims: (1) Counts 6 and 7 against B&S for violations of subsections 1692g(a)-(b) of the Fair Debt Collections Practices Act (the "FDCPA") and the Georgia Fair Business Practices Act; and (2) Count 2 against Seterus for violations of the Real Estate Settlement Procedures Act (the"Surviving Counts"). The Prior Order allowed Plaintiff the opportunity to amend the Surviving Counts within twenty-one days and to amend the Complaint to comply with the requirements for a private citizen filing a claim under the False Claims Act. The Prior Order also made clear that failure to do so would result in the dismissal of the remainder of the Complaint.

On April 26, 2018, Plaintiff filed an Emergency Motion for Reconsideration. (Doc. 54). While the Court denied Plaintiff's request to reconsider the dismissal of the various counts of the Complaint, the Court did grant Plaintiff an extension of time to file the amendments to the Surviving Counts (the "May 22^nd Order"). Specifically, the Court gave Plaintiff fourteen days from the date of the entry of the order to file the amendments. The additional fourteen-day period expired on June 5, 2018.

On June 1, 2018, Plaintiff filed the Motion, to which she attached a proposed amended complaint (the "PAC"). Through the Motion, Plaintiff seeks permission to amend counts of the Complaint that the Court dismissed on April 13, 2018, and to add two additional counts for damages due to Defendants' failure to terminate the DSD and the negligent conduct of all Defendants.

I. Rule 15

As Plaintiff's right to amend the Complaint as a matter of course has expired, see Fed. R. Civ. P. 15(a)(1), Plaintiff may amend the Complaint only with Defendants' consent or with leave of the Court, which, "Federal Rule of Civil Procedure 15(a) dictates . . . shall be freely given 'when justice so requires.'" Foster v. DeLuca, 545 F.3d 582, 583-84 (7^th Cir. 2008). "In the absence of any apparent or declared reason—such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility ofamendment, etc.—the leave sought should, as the rules require, be 'freely given.'" Rosen v. TRW, Inc., 979 F.2d 191, 194 (11th Cir. 1992) (quoting Foman v. Davis, 371 U.S. 178, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962)).

However, the Court properly denies a motion for leave to file an amended complaint "where the new claims asserted would be subject to dismissal as a matter of law." Hall v. United Ins. Co. of America, 367 F.3d 1255, 1263 (11th Cir. 2004) (citing Burger King Corp. v. Weaver, 169 F.3d 1310, 1320 (11th Cir.1999)); see also Halliburton & Assocs., Inc. v. Henderson, Few & Co., 774 F.2d 441, 444 (11th Cir. 1985) ("If a complaint as amended is still subject to dismissal, leave to amend need not be given."); No Straw, LLC v. Stout St. Funding, LLC, 2013 WL 2951064, at *7 (N.D. Ga. June 14, 2013) ("Since 'justice does not require district courts to waste their time on hopeless cases, leave may be denied if a proposed amendment fails to correct the deficiencies in the original complaint or otherwise fails to state a claim.'" (quoting Mizzaro v. Home Depot, Inc., 544 F.3d 1230, 1255 (11th Cir. 2008)). Accordingly, the Court will consider whether the amended counts of the PAC would survive a motion to dismiss for failure to state a claim.²

In this analysis, the Court must "'test the formal sufficiency of the statement of the claim for relief'" rather than attempt to resolve "'a contest between the parties about the facts or the substantive merits of the plaintiff's case.'" Bihn v. Fifth Third Mortg. Co., 980 F. Supp. 2d 892, 897 (S.D. Ohio 2013) (citing 5B Charles Alan Wright and Arthur R. Miller, Federal Practice and Procedure § 1356 (3d ed. 2004)). "Further, for purposes of a motion to dismiss, the complaintmust be construed in the light most favorable to the plaintiff and its allegations taken as true." Id. "The court should not 'strain to find inferences favorable to the plaintiffs' or 'accept conclusory allegations, unwarranted deductions, or legal conclusions.'" Bancroft Life & Cas. ICC, Ltd. v. GRBR Ventures, L.P., 12 F. Supp. 3d 980, 988 (S.D. Tex. 2014) (quoting R2 Invs. LDC v. Phillips, 401 F.3d 638, 642 (5th Cir. 2005); Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353, 361 (5th Cir. 2004)).

A. Count 12 - Declaratory Relief

In Count 16 of the Complaint, Plaintiff sought a declaration that she had rescinded the Loans in November 2006 and that, consequently, no party could have received after that date a valid security interest in the Property, leaving the Property unencumbered. In the Prior Order, the Court determined that Plaintiff failed to demonstrate that the Loans had been rescinded under TILA because the transaction was exempt from TILA's right of rescission as a "residential mortgage transaction." See Cooper v. Countrywide Home Loans Bank of Am., 2016 U.S. Dist. LEXIS 130363, at *8-9 (N.D. Ga. July 15, 2016), adopted by 2016 U.S. Dist. LEXIS 130362 (N.D. Ga., Aug. 25, 2016); Morton v. Suntrust Mortg., Inc., 2010 U.S. Dist. LEXIS 128839, at *20 (N.D. Ga. Nov. 5, 2010), adopted by 2010 U.S. Dist. LEXIS 128840 (N.D. Ga. Dec. 3, 2010); 15 U.S.C. §§ 1635(a), (e).³ The Court further found that Plaintiff failed to demonstrate that the Loans had `been rescinded under Georgia law because: (1) federal law has preempted the Georgia Fair Lending Act, O.C.G.A. §§ 7-6A-1 et seq. ("GAFLA"); and (2) assuming Plaintiff had a right to rescind the Loan due to the fact that she was fraudulently induced to enter the contract with WaMu, the facts alleged failed to demonstrate that Plaintiff "promptly, upondiscovery of the fraud, restore[d] or offer[ed] to restore to the other party whatever [s]he has received by virtue of the contract if it is of any value," as required by O.C.G.A. § 13-4-60; see also Brown v. Techdata Corp., 238 Ga. 622, 626 (1977).

In the PAC, Plaintiff would again request declaratory relief that the contracts between Plaintiff and WaMu, identified as Loan Nos. XXXXXX8896 ("Loan 8896") and XXXXXX5575 ("Loan 5575") are unenforceable and, therefore, there is no longer a security interest outstanding against the Property. In support of this request, Plaintiff asserts that the additional contract, identified as Loan No. XXXX5273 ("Loan 5273") is also unenforceable. To the extent that the unenforceability of Loan 5575 and Loan 5273 is based on the argument that the Loans were rescinded, the Court finds no additional facts in the PAC that would alter the Court's earlier conclusion that the Loans were not rescinded. Similarly, to the extent that the unenforceability of Loan 5273 is based on Plaintiff's contentions, rejected in the Prior Order, that Loan 5273 is a "new loan" to which Plaintiff was not a party, the Court finds no additional facts in the PAC that would alter the Court's original conclusion that changing the loan numbers did not impact the validity of the DSD.

Through the PAC, Plaintiff would clarify her position that Defendants lack standing to oppose her contention that she rescinded the Loans because Defendants lack an interest in the Loans and the DSD. As to JPMC, Plaintiff alleges that JPMC did not receive an ownership interest in the Loans or the DSD when it purchased WaMu's assets on September 25, 2008, and instead was the servicer of the Loans after Fannie Mae acquired the Loans and the DSD from WaMu in 2006. See PAC ¶¶ 27, 31(j). Second, the PAC alleges that, at least as of January 27, 2017, Fannie Mae no longer owns the DSD. PAC, ¶¶ 40-41 ("On January 27, 2017 Royce [aFannie Mae representative] stated that Fannie no longer...