United States District Court, S.D. Texas, Houston Division
MEMORANDUM OPINION AND ORDER
LAKE, SENIOR UNITED STATES DISTRICT JUDGE
Godfrey Hyde ("Mr. Hyde") and Martanya Blair-Hyde
("Mrs. Hyde") (collectively, "Plaintiffs"
or "the Hydes") sued defendants HSBC Bank USA,
National Association as Trustee for Wells Fargo Home Equity
Asset-Backed Securities 2004-2 Trust (the
"Trustee") and Wells Fargo Bank,
N.A. ("Wells Fargo")
(collectively, "Defendants") in the 458th District
Court of Fort Bend County, Texas (the "State
Court"), alleging that Defendants are improperly
attempting to foreclose on their real property located at
8203 Cicada Drive, Missouri City, Texas 77459 (the
"Property"). The Trustee timely removed the action
on July 2, 2018. Pending before the court is
Defendants' Motion to Dismiss
Entry No. 22). For the reasons explained below,
Defendants' Motion to Dismiss will be granted.
Factual and Procedural Background
12, 2004, Mr. Hyde and Wells Fargo executed a Texas Hore
Equity Note (the "Note") in the amount of $384,
000.00 secured by a Texas Hore Equity Security Instrument
(the "Security Instrument") giving Wells Fargo a
first lien on the Property.Plaintiffs also executed a Texas
Hore Equity Affidavit and Agreement (the
"Affidavit"), which is recorded in the real
property records of Fort Bend County, Texas.
5, 2012, Mr. Hyde filed for bankruptcy protection under
Chapter 13 of the Bankruptcy Code (the "2012 Bankruptcy
Proceeding"), but failed to include any claims related
to the Loan in his schedules. Wells Fargo was one of Mr.
Hyde's secured creditors in the 2012 Bankruptcy
Proceeding and his bankruptcy plan contemplated making
payments to Wells Fargo to pay down the Loan
balance. The bankruptcy court confirmed Mr.
Hyde's bankruptcy plan on December 21,
2012. The 2012 Bankruptcy Proceeding was
dismissed on September 25, 2013.Mr. Hyde filed a second
Chapter 13 bankruptcy petition on August 10, 2014 (the
"2014 Bankruptcy Proceeding"). Mr. Hyde again
neglected to include any claims challenging the validity of
the Loan in his schedules.Mr. Hyde's bankruptcy plan in the 2
O 14 Bankruptcy Proceeding accounted for payments on the Loan
to be made to Wells Fargo. The bankruptcy court confirmed
Mr. Hyde's Chapter 13 plan on November 20,
2014. The 2014 Bankruptcy Proceeding was
dismissed on August 3, 2015.
January 2, 2018, the Trustee filed an application seeking an
expedited foreclosure order under Rule 736 of the Texas Rules
of Civil Procedure. Plaintiffs filed this action on June 4,
2018, arguing that the Loan is invalid because its provisions
violate the Texas Constitution. The State Court vacated
its order authorizing a Rule 736 foreclosure on June 15,
2018. Defendants removed to this court on July
2, 2018. Defendants filed their Motion to Dismiss
on February 5, 2019 . Plaintiffs responded on February 26,
2019 . Defendants replied to Plaintiffs'
Response on March 8, 2019.
Standard of Review
Federal Rules of Civil Procedure permit dismissal when a
plaintiff fails to state a claim upon which relief can be
granted. Fed.R.Civ.P. 12(b) (6). A Rule 12(b) (6) motion
tests the formal sufficiency of the pleadings and is
"appropriate when a defendant attacks the complaint
because it fails to state a legally cognizable claim."
Ramming v. United States, 281 F.3d 158, 161 (5th
Cir. 2001), cert. denied sub nom. Cloud v. United
States, 122 S.Ct. 2665 (2002). To defeat a motion to
dismiss, a plaintiff must plead "enough facts to state a
claim to relief that is plausible on its face." Bell
Atlantic Corp. v. Twombly. 127 S.Ct. 1955, 1974 (2007).
In ruling on a Rule 12(b) (6) motion the court must
"accept the plaintiff's well-pleaded facts as true
and view them in the light most favorable to the
plaintiff." Chauvin v. State Farm Fire
& Casualty Co., 495 F.3d 232, 237 (5th Cir.
plead a quiet title claim and accompanying claims for
declaratory and injunctive relief. Plaintiffs allege that the
Loan is invalid because it violates several provisions of the
Texas Cons ti tut ion. Defendants argue that this action
should be dismissed because Plaintiffs are judicially
estopped from pursuing their quiet title claim.
Plaintiffs' Response did not address Defendants'
judicial estoppel argument.
[W] here a party assumes a certain position in a legal
proceeding, and succeeds in maintaining that position, he may
not thereafter, simply because his interests have changed,
assume a contrary position. ..." New Hampshire v.
Maine, 121 S.Ct. 1808, 1814 (2 001) (quoting Davis
v. Wakelee, 15 S.Ct. 555, 558 (1895)) (internal
quotation marks omitted). The doctrine of judicial estoppel
prevents a party from asserting a claim in a legal proceeding
that is inconsistent with a position taken by that party in a
prior court proceeding. Id. "Judicial 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). "Section 541 of the
Bankruptcy Code provides that virtually all of a debtor's
assets, including causes of action belonging to the debtor at
the commencement of the bankruptcy case, vest in the
bankruptcy estate upon the filing of a bankruptcy
petition." Kane v. National Union Fire Insurance
Co., 535 F.3d 380, 385 (5th Cir. 2008) (citing 18 U.S.C.
§ 541(a) (1)). Courts agree that a debtor in bankruptcy
who fails to disclose an asset, including a cause of action
or other legal claim, "cannot realize on that concealed
asset after the bankruptcy ends." Cannon-Stokes v.
Potter, 453 F.3d 446, 448 (7th Cir. 2006); see also
Jethroe, 412 F.3d at 600-01. "A court should apply
judicial estoppel if (1) the position of the party against
which estoppel is sought is plainly inconsistent with its
prior legal position; (2) the party against which estoppel is
sought convinced a court to accept the prior position; and
(3) the party did not act inadvertently."
Jethroe, 412 F.3d at 600.
Hyde is asserting a position in this action that is
inconsistent with his position in the 2012 and 2014
Bankruptcy Proceedings. Mr. Hyde did not disclose the
existence of his quiet title claim against Defendants during
either the 2012 or 2014 Bankruptcy Proceeding. Mr.
Hyde's bankruptcy plans recognized the validity of the
Loan and specifically contemplated making payments to Wells
Fargo. The Fifth Circuit has held that because bankruptcy
petitioners are under an affirmative obligation to disclose
claims and potential claims to the bankruptcy court, failure
to disclose such claims is an implicit representation that
the petitioner has no claims. See In re Flugence,738 F.3d 126, 230 (5th Cir. 2013). Because Mr. Hyde