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Hyde v. HSBC Bank USA, National Association

United States District Court, S.D. Texas, Houston Division

July 10, 2019




         Plaintiffs 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.[1] Pending before the court is Defendants' Motion to Dismiss

         (Docket Entry No. 22). For the reasons explained below, Defendants' Motion to Dismiss will be granted.

         I. Factual and Procedural Background

         On May 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.[2]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.[3]

         On May 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. [4]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.[5] The bankruptcy court confirmed Mr. Hyde's bankruptcy plan on December 21, 2012.[6] The 2012 Bankruptcy Proceeding was dismissed on September 25, 2013.[7]Mr. Hyde filed a second Chapter 13 bankruptcy petition on August 10, 2014 (the "2014 Bankruptcy Proceeding").[8] Mr. Hyde again neglected to include any claims challenging the validity of the Loan in his schedules.[9]Mr. Hyde's bankruptcy plan in the 2 O 14 Bankruptcy Proceeding accounted for payments on the Loan to be made to Wells Fargo.[10] The bankruptcy court confirmed Mr. Hyde's Chapter 13 plan on November 20, 2014.[11] The 2014 Bankruptcy Proceeding was dismissed on August 3, 2015.[12]

         On January 2, 2018, the Trustee filed an application seeking an expedited foreclosure order under Rule 736 of the Texas Rules of Civil Procedure.[13] Plaintiffs filed this action on June 4, 2018, arguing that the Loan is invalid because its provisions violate the Texas Constitution.[14] The State Court vacated its order authorizing a Rule 736 foreclosure on June 15, 2018.[15] Defendants removed to this court on July 2, 2018.[16] Defendants filed their Motion to Dismiss on February 5, 2019 .[17] Plaintiffs responded on February 26, 2019 .[18] Defendants replied to Plaintiffs' Response on March 8, 2019.[19]

         II. Standard of Review

         The 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. 2007).

         III. Analysis

         Plaintiffs 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.[20] 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.

         A. Judicial Estoppel

         " [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.

         Mr. 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.[21] 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 ...

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