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Daniel v. Ocwen Loan Servicing LLC

United States District Court, N.D. Texas, Fort Worth Division

June 13, 2019

JIMMY DANIEL, et al., Plaintiffs,
OCWEN LOAN SERVICING LLC, et al., Defendants.



         Before the Court are U.S. Bank National Association, as Trustee for TBW Mortgage-Backed Trust Series 2006-5, TBW Mortgage Pass-Through Certificates, Series 2006-5 (“U.S. Bank”), and Ocwen Loan Servicing, LLC's (“Ocwen”) (collectively “Defendants”) Motion to Dismiss Amended Complaint and Brief in Support (ECF No. 10) filed January 7, 2019; Jimmy Daniel and Christy Daniel's (collectively “Plaintiffs”) Response and Brief in Support (ECF No. 24) filed February 4, 2019; and Defendants' Reply (ECF No. 26) filed February 19, 2019. United States District Judge Reed O'Connor referred this Motion and all related responses, replies, briefs in support, appendices, etc., to the undersigned for determination or recommendation on January 8, 2019. (ECF No. 21). After considering the pleadings and applicable legal authorities, the undersigned RECOMMENDS that Judge O'Connor GRANT Defendants' Motion to Dismiss and DISMISS Plaintiffs' claims WITH PREJUDICE.


         Plaintiffs originally sued Defendants in state court to remove cloud on title and for declaratory judgment, breach of a Rule 11 settlement agreement (“Rule 11 agreement”), and violation of 12 C.F.R § 1024.41. Plaintiffs also sought injunctive relief to stop a foreclosure sale of the real property located at 6921 Hazeltine Drive, Fort Worth, Texas 76132 (the “Property”). (ECF No. 1-3). On October 12, 2018, Defendants removed the case to this Court based on diversity jurisdiction. (ECF No. 1).

         The following allegations, taken as true, are derived from Plaintiffs' First Amended Complaint (ECF No. 17) (“FAC”). Plaintiffs initially purchased the Property in August 2006. (Id. at 2). In connection with the purchase, Plaintiffs executed a note in the principal amount of $346, 750.00 and a Deed of Trust that granted a security interest in the Property to secure repayment of the note. (Id. at 10-22). Initially, Mortgage Electronic Registration Systems, Inc. (“MERS”), as beneficiary, held the Deed of Trust as nominee for Taylor Bean & Whitaker Mortgage Corp. (“TBW”), the lender. (Id. at 10). The Deed of Trust was recorded on September 1, 2006 in the Real Property Records of Tarrant County, Texas, as Instrument Number D206272957. (Id. at 26). MERS assigned the Deed of Trust as Instrument Number D211150470 to U.S. Bank, care of American Home Mortgage Servicing, Inc. (“AHMSI”), on June 21, 2011. (Id. at 27). A Transfer of Lien and a Corporate Assignment of Deed of Trust were subsequently executed on July 16, 2014 and February 17, 2016, respectively. (Id. at 28-29). Plaintiffs contest the validity of all these assignments and transfers. (ECF No. 17 at 6).

         Plaintiffs made all principal and interests payments due under the note from August 2006 until August 24, 2009 when TBW filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code. (Id. at 2-3). The bankruptcy trustee in TBW's case did not authorize any of the above-mentioned assignments. (Id.). For reasons not stated in the FAC, Plaintiffs filed for Chapter 7 bankruptcy protection in December 2009 and received a discharge on March 10, 2010. (Id. at 3). Prior to Plaintiffs receiving the discharge, AHMSI obtained an order from the bankruptcy court conditioning the automatic stay allowing it to foreclose on the Deed of Trust. (Id.). U.S. Bank and MERS sent to Plaintiffs on July 7, 2011 a notice of acceleration and a notice of foreclosure sale scheduled for August 2, 2011. (Id.). Plaintiffs filed suit and obtained a temporary restraining order (“TRO”) on August 1, 2011, restraining the foreclosure sale. (Id.). The TRO subsequently expired without a replacement temporary injunction. (Id. at 4). During the pendency of that suit, Ocwen was substituted as mortgage servicer. (Id.). On April 21, 2014, U.S. Bank and Ocwen obtained summary judgment on Plaintiffs' claims that (1) TBW had not properly assigned its rights under the Deed of Trust to U.S. Bank and Ocwen or that U.S. Bank and Ocwen lacked standing to enforce the Deed of Trust; (2) Plaintiffs had suffered damages for defamation and slander of their credit reputation; and (3) that U.S. Bank and Ocwen had not breached a contract with Plaintiffs. (Id. & n.2).

         On June 5, 2014, Plaintiffs filed another bankruptcy case under Chapter 13 of the United States Bankruptcy Code. (Id.). The automatic stay as to the Property ended on August 25, 2014 when Plaintiffs' Amended Chapter 13 Plan (the “Plan”) was filed. (Id.). The Plan was confirmed on October 13, 2014. (Id.). During Plaintiffs' second bankruptcy, Defendants attempted to foreclose on the Property. (Id. at 5). Plaintiffs again filed suit in state court and obtained a TRO on February 6, 2017 restraining Defendants from foreclosing on the Property. (Id.). In connection with the suit, the parties mediated the case, and a Rule 11 agreement was executed on March 26, 2018. (Id. at 33-35). Plaintiffs nonsuited their claims against Defendants, and the case was dismissed in April 2018. (Id. at 5). Plaintiffs subsequently requested a loan modification from Ocwen and completed the application on August 31, 2018. (Id.).

         Defendants again initiated foreclosure proceedings and scheduled a foreclosure sale of the Property for October 2, 2018. (ECF No. 1-3 at 11). Plaintiffs filed suit in state court to forestall the foreclosure sale on October 1, 2018. (ECF No. 1). The case was removed to this Court on October 12, 2018. (Id.). Plaintiffs amended their original petition on December 10, 2018, and attached the Deed of Trust, the above-mentioned transfer and assignments, the Rule 11 agreement, and TBW's notice of bankruptcy filing. (ECF No. 17). The parties have fully briefed Defendants' Motion, and it is now ripe for recommendation.


         Rule 12(b)(6) of the Federal Rules of Civil Procedure permits a party to move for dismissal of a complaint for failure to state a claim upon which relief can be granted. The Rules require that each complaint contain “a short and plain statement of the claim showing that the pleader is entitled to relief . . . .” Fed.R.Civ.P. 8(a). A complaint must include sufficient factual allegations “to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). In considering a Rule 12(b)(6) motion, courts “take all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff . . . and ask whether the pleadings contain ‘enough facts to state a claim to relief that is plausible on its face.'” Yumilicious Franchise, L.L.C. v. Barrie, 819 F.3d 170, 174 (5th Cir. 2016) (citing Twombly, 550 U.S. at 547). “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.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550 U.S. at 555).

         In ruling on a motion to dismiss, a court may consider documents outside the complaint when they are: (1) attached to the motion to dismiss; (2) referenced in the complaint; and (3) central to the plaintiff's claims. In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007). Additionally, a court may take judicial notice of matters of public record without converting a motion to dismiss into a motion for summary judgment. See Randall D. Wolcott, M.D., P.A. v. Sebelius, 635 F.3d 757, 763 (5th Cir. 2011) (“Generally, a court ruling on a 12(b)(6) motion may rely on the complaint, its proper attachments, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.”) (citation and quotation marks omitted). “The court may judicially notice a fact that is not subject to reasonable dispute because it: (1) is generally known within the trial court's territorial jurisdiction; or (2) can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” Fed.R.Evid. 201(b). Documents in these categories may properly be considered without converting the motion to dismiss into a motion for summary judgment. In re Katrina, 495 F.3d at 205 (contracts that were attached to the motion to dismiss, referred to in the complaint, and central to the plaintiff's claims were properly considered); Judy Chou Chiung-Yu Wang v. Prudential Ins. Co. of Am., 439 Fed.Appx. 359, 363 (5th Cir. 2011) (per curiam) (citing Cinel v. Connick, 15 F.3d 1338, 1343 n.6 (5th Cir. 1994) (court may consider matters of public record in deciding a Rule 12(b)(6) motion)).


         Plaintiffs' FAC asserts (1) a claim to quiet title based on allegedly invalid lien assignments; (2) breach of the Rule 11 settlement agreement; and (3) violation of 12 C.F.R. § 1024.41. Although not asserted in a separate claim, Plaintiffs allege Defendants are barred by limitations from enforcing the Deed of Trust. (ECF No. 17 at 4). Defendants contend that Plaintiffs' (1) assertion of limitations and claim the assignments are unauthorized are barred by judicial estoppel and res judicata; (2) claim to quiet title fails to state a claim because MERS was authorized to assign the Deed of Trust, and Plaintiffs are not asserting the claim on the strength of their own title; (3) breach of Rule 11 agreement claim fails for failure to adequately plead damages; and (4) claims under 12 C.F.R. § 1024.41 are insufficient to state a claim.

         I. Plaintiffs are judicially estopped from claiming Defendants are not entitled to foreclose on the Deed of Trust.

         “The doctrine of judicial estoppel prevents a party from asserting a claim in a legal proceeding that is inconsistent with a claim taken by that party in a previous proceeding.” Reed v. City of Arlington, 650 F.3d 571, 573-74 (5th Cir. 2011) (en banc). In the bankruptcy context, “judicial estoppel must be applied in such a way as to deter dishonest debtors, whose failure to fully and honestly disclose all their assets undermines the integrity of the bankruptcy system, while protecting the rights of creditors to an equitable distribution of the assets of the debtor's estate.” Id. at 574. Judicial estoppel applies when “(1) the party against whom judicial estoppel is sought has asserted a legal position which is plainly inconsistent with a prior position; (2) a court accepted the prior position; and (3) the party did not act inadvertently.” Id. The Fifth Circuit has held that “[j]udicial estoppel is particularly appropriate where . . . a party fails to disclose an asset to a bankruptcy court, but then pursues a claim in a separate tribunal based on that undisclosed asset.” Jethroe v. Omnova Solutions, Inc., 412 F.3d 598, 600 (5th Cir. 2005).

         Judicial estoppel is an affirmative defense. See Reed, 650 F.3d at 576. Dismissal under Rule 12(b)(6) is normally not appropriate on an affirmative defense, but “[i]f, based on the facts pleaded and judicially noticed, a successful affirmative defense appears, then dismissal under Rule 12(b)(6) is proper.” Hall v. Hodgkins, 305 Fed.Appx. 224, 227-28 (5th Cir. 2008) (per curiam) (citing Kansa Reinsurance Co., Ltd. v. Cong. Mortgage Corp. of Tex., 20 F.3d 1362, 1366 (5th Cir. 1994)).

         Plaintiffs' inconsistent position relates to whether Defendants are entitled to foreclose on the Deed of Trust. Plaintiffs claim that Defendants cannot enforce the Deed of Trust because four years have passed since the loan was accelerated, and the assignment from MERS for TBW to U.S. Bank was not authorized and is therefore invalid. (ECF No. 17 at 4, 6). “It goes without saying that the Bankruptcy Code and Rules impose upon bankruptcy debtors an express, affirmative duty to disclose all assets, including contingent and unliquidated claims.” In re Coastal Plains, Inc., 179 F.3d 197, 207-08 (5th Cir. 1999) (emphasis in original). And a debtor has a continuing obligation to disclose all potential causes of action during the pendency of a bankruptcy proceeding. E.E.O.C. v. Rock-Tenn Servs. Co., 901 F.Supp.2d 810, 830 (N.D. Tex. 2012) (citing In re Coastal Plains, Inc., 179 F.3d at 207-08). Thus, a debtor takes an inconsistent position when after filing a bankruptcy case a claim accrues triggering a duty to disclose the claim to ...

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