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Priester v. Long Beach Mortgage Co.

United States District Court, E.D. Texas, Sherman Division

February 28, 2018


          Johnson Judge.



         Came on for consideration the report of the United States Magistrate Judge in this action, this matter having been heretofore referred to the United States Magistrate Judge pursuant to 28 U.S.C. § 636. On January 23, 2018, the report of the Magistrate Judge was entered containing proposed findings of fact and recommendations (see Dkt. #168) that Plaintiffs John Priester, Jr. and Bettie Priester's (“Plaintiffs”) Motion to Dismiss (the “Motion to Dismiss”) (Dkt. #123) be denied and Defendants Deutsche Bank National Trust Company (“Deutsche Bank”) and Select Portfolio Servicing, Inc. (“SPS”) (collectively “Defendants”) Motion for Summary Judgment (the “Motion for Summary Judgment”) (Dkt. #143) be granted in part and denied in part. Plaintiffs filed objections to the report (Dkt. #185), [1] to which Defendants filed a response (Dkt. #187). Defendants likewise filed objections (Dkt. #183), to which Plaintiffs filed a response (Dkt. #186). Plaintiffs also object to the Magistrate Judge's Order (see Dkt. #168) denying Plaintiffs' Motion to Strike Defendant's affirmative defenses (the “Motion to Strike”) (Dkt. #122).

         The Court has made a de novo review of the objections raised by both Plaintiffs and Defendants and is of the opinion that the findings and conclusions of the Magistrate Judge are correct and the objections are without merit as to the ultimate findings of the Magistrate Judge. The Court hereby adopts the findings and conclusions of the Magistrate Judge as the findings and conclusions of the Court.

         I. BACKGROUND

         This case involves an attempted foreclosure of Plaintiffs' real property located at 1406 Oakwood Drive, Allen, Texas, 75013 (the “Property”). In November 2005, Plaintiffs obtained from Long Beach Mortgage Company (“Long Beach Mortgage”) a Home Equity Loan (the “Loan”) encumbering the Property in the amount of $180, 000.00. Defendant Deutsche Bank asserts it is the beneficiary of the Security Instrument and Defendant SPS is the current mortgage servicer. See Dkts. #119 and #121-3. Defendants allege Plaintiffs have not made scheduled monthly payments since January 1, 2010, and thus, are in default. See Dkt. #143 at 22-23. Defendants further allege the amount required to cure the default through January 5, 2017, is at least $116, 897.56, and the amount to pay off the Loan is at least $309, 679.74, as of November 3, 2016, with interest and other amounts continuing to accrue. Id. Plaintiffs argue, as they have since 2010, that the Loan is invalid.

         The case has a long procedural history in this Court, including a lawsuit initiated in October 2010, against the prior lien holder, JP Morgan Chase Bank, NA, and its loan servicer, JP Morgan Chase & Co. (collectively, “Chase”). See Priester v. Long Beach Mortgage Company, et al. (Priester I), No. 4;10-cv-641. As explained in the Magistrate Judge's report (the “Report”), the present lawsuit and Priester I involve essentially the same allegations, to-wit: the Loan was closed in violation of the Texas Constitution, Defendants (and their predecessors) have not cured the violations, and as a result, the Loan and the lien on the Property are void, Defendants are prohibited from foreclosing on the Property, Defendants are required to forfeit all principal and interest on the Loan, and Plaintiffs are entitled to a declaratory judgment to that effect. See generally Dkt. #168.

         Plaintiffs' Motion to Dismiss challenges the facial sufficiency of Defendants' counterclaim seeking judicial foreclosure of the Property, or their claim in the alternative for equitable and/or contractual subrogation of the prior valid lien on the Property, as well as a counterclaim for attorneys' fees. See Dkt. #168; see also Dkt. #123.

         The main thrust of Defendants' Motion for Summary Judgment is that Plaintiffs' claims are barred by res judicata based on the final judgment in Priester I, and thus, Defendants are entitled as a matter of law to either an order of foreclosure or equitable subrogation. See id. Plaintiffs counter that res judicata is inapplicable here, primarily based on the Texas Supreme Court's holdings in Wood v. HSBC Bank USA, N.A., 505 S.W.3d 542 (Tex. 2016), and Garofolo v. Ocwen Loan Servicing, LLC, 497 S.W.3d 474, 477 (Tex. 2016).[2] The Motion for Summary Judgment also argues Plaintiffs' affirmative defenses to foreclosure are barred by estoppel and by the D'Oench, Duhme doctrine.



         1. Motion to Strike

         Plaintiffs take issue with the Magistrate Judge's Order denying the Motion to Strike, arguing that the Magistrate Judge disregarded the standard for a Rule 12(f) Motion to Strike. This is simply incorrect. The Magistrate Judge expressly sets out the standard for the application of a motion to strike in the Report, noting that motions to strike a defense are generally disfavored. See Dkt. #168 at 7 (citing Kaiser Aluminum & Chem. Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1057 (5th Cir. 1982)). The Report goes on to explain that although striking of allegations in a pleading “can be appropriate when they have no possible relation to the controversy and may cause prejudice to the one of the parties, ” that was not the case here. See Dkt. #168, p. 17 (citing Am. Southern Ins. Co. v. Buckley, 748 F.Supp.2d 610, 626 (E.D. Tex. 2010)). The Magistrate Judge determined that Defendants pleaded their affirmative defenses with enough factual particularity to give Plaintiffs “fair notice, ” which is all that is required. See Woodfield v. Bowman, 193 F.3d 354, 362 (5th Cir. 1999). Because the Court finds the Magistrate Judge's Order denying Plaintiffs' Motion to Strike is not clearly erroneous or contrary to law, Plaintiffs' objection is OVERRULED. See Fed. R. Civ. P. 72(a).

         2. Standing and Ownership of the Note

         Plaintiffs also object to the Magistrate Judge's conclusion regarding Defendants' standing to foreclose. See Dkt. #185. According to Plaintiffs, the Magistrate Judge should have understood Plaintiffs' jurisdictional challenge as a constitutional issue without “any further explanation.” Id. at 1. However, it is Plaintiffs' obligation to articulate and provide support for their arguments. The Court is not bound to divine a constitutional argument where none was articulated. To the extent that Plaintiffs now argue that their unsupported allegations regarding Defendants' standing to foreclose violates Article III of the Constitution, that argument is unpersuasive. Article III of the Constitution gives the federal courts jurisdiction only over cases and controversies. See Whitmore v. Arkansas, 495 U.S. 149, 155 (1990). The difference between an abstract question and a “case or controversy” is one of degree and is not discernible by any precise test. See Babbitt v. United Farm Workers Nat'l Union, 442 U.S. 289, 297-98 (1979). The basic inquiry is whether the conflicting contentions of the parties present a real, substantial controversy between parties having adverse legal interests, a dispute definite and ...

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