Sam v. Wells Fargo Bank, N.A.

Willie J. Sam Plaintiff, v. Wells Fargo Bank, N.A., et al. Defendants.

Civil Action 4:15-cv-03194

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

July 15, 2016

REPORT AND RECOMMENDATION ON DEFENDANTS' MOTIONS TO DISMISS

On October 30, 2015, Defendant Wells Fargo, N.A. ("Wells Fargo" or "Lender") filed a Notice of Removal with the District Court (Doc. No. 1) ("Notice"). Pending before the Court are Wells Fargo's Motion to Dismiss (Doc. No. 6) ("WF Mot.") and Defendant Rex Kesler's ("Kesler" or "Trustee") Motion to Dismiss (Doc. No. 7) ("Kesler Mot."). Plaintiff filed Responses (Docs. No. 10, 13) and Memoranda of Support (Docs. No. 11, 14) in opposition to both Motions. On May 19, 2016, the District Court referred consideration of the two motions to dismiss to this Court for report and recommendation (Doc. No. 24). The Court RECOMMENDS that Wells Fargo's Motion to Dismiss be GRANTED in part and DENIED in part, that Kesler's Motion to Dismiss be GRANTED in part and DENIED in part, and that Plaintiff be given leave to amend his complaint.

I. Background

A. Plaintiff Alleges Defendant Improperly Foreclosed On His House

This case arises from the foreclosure of Plaintiff's house. On February 27, 2006, Plaintiff Willie Sam ("Plaintiff" or "Sam") purchased a house located at 2403 Freeman Street, Houston, Texas for $130,300.00. (Doc. No. 1, Ex. B.1 at 2-3) (hereinafter, "Pet."). Wells Fargo served as the lender of the purchase money for the property. Id. at 3. In exchange for the loaned money, Plaintiff provided Wells Fargo with a Deed of Trust for the property and an Adjustable Rate Promissory Note in the amount of $107,920.00 at an interest rate of 7.7500%. Id. The Deed of Trust provided that Plaintiff would retain the right to reinstate the loan even after acceleration.¹ Id. The Deed also provided that Plaintiff "would be given notice of change in the mortgage servicer."² Id. at 4.

Plaintiff alleges he "made payments as they came due for approximately eight years." Id. at 5. After this period, Plaintiff admits he fell behind in payments. Id. Plaintiff filed for bankruptcy at this time, and purportedly continued to pay "as required under the debt restructuring plan." Id. Following the bankruptcy, Plaintiff contacted America's Servicing Company, but claims he was unable "to get a statement of any unpaid balance, arrearage or a monthly payment amount." Id.

On August 4, 2015, the property was foreclosed on at a public auction.³ Id. at 9. Plaintiff claims that prior to this foreclosure sale, "the Lender did not send either the Notice of Default or the Notice of the Foreclosure sale to the proper address . . . ." Id. at 4. In addition, Plaintiff claims that "the Lender did not send the Borrower the notice of the new mortgage servicer." Id. At the foreclosure auction, the Trustee, Kesler, began the bidding at $85,000.00. Id. at 5. After a "bidding war," Kafi, Inc. ("Kafi") paid $121,000.00 and was the winning bidder.⁴ Id. Plaintiff claims that the Trustee and Lender failed to provide an accounting of the sales proceeds or remit excess proceeds to Plaintiff, "[d]espite the fact that there was a significant amount paid in excess of the balance due on the note . . . ." Id. Plaintiff remains in possession of the property. Id. at 4-5.

B. Plaintiff Filed Suit in State Court to Void the Foreclosure Sale

On October 2, 2015, Plaintiff filed an Original Petition⁵ (hereinafter, "Complaint") in the 157th Judicial District Court of Harris County, Texas against WMC Mortgage Corporation ("WMC"), Kesler, Wells Fargo, and Kafi. See Pet. at 1. Plaintiff claims that the Trustee's foreclosure sale is fatally defective because the Lender failed to send notice of default, notice of the foreclosure sale, and notice of the new loan servicer as the Deed and the Texas Property Code required. Id. at 6. Plaintiff asks the Court to set aside the foreclosure sale as void. Id. at 2, 4, 9. Plaintiff also asserts claims for breach of contract against "the Lender," which he has failed to define. Id. at 8. Plaintiff asks the Court to order an independent audit and accounting of the excess proceeds from the foreclosure auction to determine the amount due Plaintiff. Id. at 6. Plaintiff also asserts statutory and common law fraud against an unspecified "Defendant" concerning alleged behavior of "the Lender." Id. at 7. Plaintiff seeks declaratory judgment "[p]ursuant to Tex. Civ. P. & Rem. Code, chapter 37," clarifying "the rights, status or legal relations existing between the parties and the properties involved." Id. Plaintiff requests injunctive relief "enjoining Defendant, in conformity with the allegations of this petition, from the acts set forth herein during the pendency of this suit." Id. at 10. Finally, Plaintiff also seeks reasonable attorneys' fees for prosecuting this action. Id. at 7.

C. Defendant Wells Fargo Removed the Suit to Federal Court

On October 30, 2015, Wells Fargo removed this case to federal court, based on diversity jurisdiction. Following consideration of Plaintiff's Motion to Remand (Doc. No. 7) and accompanying filings, this Court found the case properly removed under federal diversity jurisdiction, and recommended that the Motion to Remand be denied. Sam v. Wells Fargo Bank,N.A. et al., 2016 WL 3002359 (S.D. Tex. May 20, 2016). The pending motions before this Court from Defendants Wells Fargo and Kesler seek dismissal of the claims against them for Plaintiff's failure to state a claim upon which relief can be granted. WF Mot. at 1; Kesler Mot. at 1.

II. Legal Standard for Rule 12(b)(6) Motion to Dismiss

A court may dismiss a complaint for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). "Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain a 'short and plain statement of the claim showing that the pleader is entitled to relief" Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009). However, "[m]otions to dismiss under Rule 12(b)(6) are viewed with disfavor and are rarely granted." Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 232 (5th Cir. 2009) (citation omitted); Duke Energy Intern., L.L.C. v. Napoli, 748 F. Supp. 2d 656 (S.D. Tex. 2010) (Atlas, J.). "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.'" Culliver v. Taylor, 503 F.3d 397, 401 (5th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The complaint must include more than mere "labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (internal quotation marks and citations omitted). That is, a complaint must "contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Iqbal, 556 U.S. at 678 (2009) (quoting Twombly, 550 U.S. at 570).

The ultimate question for the court to decide is whether the complaint states a valid claim when viewed in the light most favorable to the plaintiff. The court must accept well-pleaded facts as true, but legal conclusions are not entitled to the same assumption of truth. Id. at 678. Acourt can consider the contents of the pleadings, including attachments thereto, as well as documents attached to the motion, if they are referenced in the plaintiff's complaint and are central to the claims. Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 499 (5th Cir. 2000). "[C]ourts are required to dismiss, pursuant to [Rule 12(b)(6)], claims based on invalid legal theories, even though they may be otherwise well-pleaded." Farshchi v. Wells Fargo Bank, N.A., 2016 WL 2858903, at *2 (S.D. Tex. May 13, 2016) (Lake, J.) (citing Flynn v. State Farm Fire and Casualty Insurance Co. (Texas), 605 F. Supp. 2d 811, 820 (W.D. Tex. 2009)).

III. Plaintiff's Claims For Relief

Plaintiff's Complaint asserts claims for relief against Wells Fargo and Kesler. Concerning Wells Fargo, as the Lender, the Plaintiff asks the Court to (1) issue an order setting aside the foreclosure sale as void (Pet. at 4, 9); (2) find breach of contract (Pet. at 7); (3) require an accounting of the proceeds from the foreclosure sale (Pet. at 6); (4) find statutory and common law fraud (Pet. at 8); (5) issue declaratory judgment under Tex. Civ. P. & Rem. Code, Chapter 37 (Pet. at 7); (6) issue any necessary injunctive relief (Pet. at 9); and (7) award reasonable attorney's fees for pursuing this suit (Pet. at 9). Concerning Kesler, the Plaintiff alleges that the Trustee did not provide an accounting of the profit from the foreclosure sale.⁶

Wells Fargo argues that all of Plaintiff's causes of action fail to state a claim upon which relief can be granted. WF Mot. at 1. Kesler argues that the only claim alleged against him is for an accounting, and argues that Plaintiff has failed to state a claim upon which relief can be granted. Kesler Mot. at 1. Accordingly, both Wells Fargo and Kesler argue that all of Plaintiff'sclaims against them must be dismissed under Federal Rule of Civil Procedure 12(b)(6). WF Mot. at 1; Kesler Mot. at 1.

A. Plaintiff's Action to Set Aside the Foreclosure Sale

Plaintiff alleges that "[t]his action is a suit to set aside the foreclosure sale . . ." Pet. at 4. In support of his "suit to set aside [the] foreclosure sale," Pet. at 2, Plaintiff alleges that "the Lender did not send either the Notice of Default or the Notice of the Foreclosure sale to the proper address, designated by [Plaintiff], required both by the Deeds of Trust and the Texas Property Code [§51.002]." Pet. at 9.

1. Interpreted As Wrongful Foreclosure, Plaintiff's Claim Fails

"Courts generally construe claims alleging failure to properly notice under §51.002 as claims for wrongful foreclosure." James v. Wells Fargo Bank, N.A., 2014 WL 2123060, at...