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Hicks v. RH Lending Inc.

United States District Court, N.D. Texas, Dallas Division

April 10, 2019

R.H. LENDING, INC., d/b/a Residential Home Lending, et al., Defendants.



         In this action challenging an attempted foreclosure, defendants Ocwen Loan Servicing, LLC (“Ocwen”) and Wells Fargo Bank, National Association, As Trustee For Option One Mortgage Loan Trust 2007-4, Asset-Backed Certificates, Series 2007-4 (“Wells Fargo”) (collectively, “the Ocwen Defendants”), removed the case to this court based on diversity jurisdiction, contending that defendant R.H. Lending, Inc. d/b/a Residential Home Lending (“R.H. Lending”), whom they assume is a Texas citizen, was improperly joined. Plaintiff Anthony Hicks (“Hicks”) did not move to remand. Several months after the case was removed, the Ocwen Defendants moved for summary judgment, but the court ordered the parties to brief the issue of improper joinder before it would consider the motion. The parties' jurisdictional briefing is now complete. For the reasons that follow, the court sua sponte dismisses defendant R.H. Lending on the ground that it was improperly joined, and grants in part and denies in part the Ocwen Defendants' motion for summary judgment.

         In January 2007 plaintiff Hicks took out a mortgage loan from R.H. Lending in the amount of $143, 920.[1] The loan was secured by a deed of trust against Hicks's property located on Rawlins Drive in Lancaster, Texas. According to the Ocwen Defendants' evidence, R.H. Lending assigned the note and deed of trust to Option One Mortgage Corporation (“Option One”) that same month. The Ocwen Defendants' evidence further shows that in 2011 Sand Canyon Corporation-formerly known as Option One-conveyed the same note and deed of trust to Wells Fargo. Both assignments appear to have been duly recorded in the official Dallas County land records.

         Hicks has since defaulted on the loan. Ocwen-Hicks's current loan servicer-sent a notice of default to Hicks on October 5, 2017, informing him that the debt had been accelerated and the full amount was due no later than November 11, 2017. The Ocwen Defendants' foreclosure counsel sent a notice of acceleration of maturity-which included the scheduled date of the foreclosure sale, March 6, 2018-to Hicks on January 31, 2018. On February 9, 2018 the Ocwen Defendants' foreclosure counsel sent a notice of substitute trustee sale to Hicks, again informing him of the March 6, 2018 foreclosure sale.

         On March 5, 2018-the day before the scheduled foreclosure sale-Hicks filed the instant lawsuit in Texas county court. His original petition and application for temporary restraining order allege that the Dallas County land records do not reflect any assignment of his mortgage from Option One to Wells Fargo, that his mortgage note bears no endorsement or allonge, that the Ocwen Defendants did not send him the pre-foreclosure notices required by Texas law, that the Ocwen Defendants failed to credit him for payments he made through October 2017, and that the Ocwen Defendants failed to respond to a request for a loan modification. Hicks asserts that the Ocwen Defendants violated the Texas Debt Collection Practices Act (“TDCPA”), Tex. Fin. Code Ann. §§ 392.001-.404 (West 2016); that they failed to comply with Tex. Prop. Code Ann. § 51.002 (West 2014); and that they breached the contractual terms of the note and deed of trust. Hicks also alleges that, by assigning his mortgage to Option One, R.H. Lending breached its fiduciary duty to him because it knew about Option One's “pattern and practice of . . . disregard of applicable law in the servicing of mortgage loans.” Pet. ¶ 8. Hicks seeks injunctive and declaratory relief, compensatory and exemplary damages, and attorney's fees and costs.

         The Ocwen Defendants removed this case to this court based on diversity of citizenship, asserting that the one apparently non-diverse defendant-R.H. Lending-was improperly joined. The Ocwen Defendants now move for summary judgment on all claims. Hicks opposes the motion. At the court's request, the parties have also briefed the question whether the court has subject matter jurisdiction.


         Wells Fargo and Ocwen contend that R.H. Lending is improperly joined, and that the court therefore may exercise diversity jurisdiction over this case. The court agrees.


         For a case to be removed based on diversity jurisdiction, “all persons on one side of the controversy [must] be citizens of different states than all persons on the other side.” Harvey v. Grey Wolf Drilling Co., 542 F.3d 1077, 1079 (5th Cir. 2008) (quoting McLaughlin v. Miss. Power Co., 376 F.3d 344, 353 (5th Cir. 2004)). “The jurisdictional facts that support removal must be judged at the time of the removal.” Gebbia v. Wal-Mart Stores, Inc., 233 F.3d 880, 883 (5th Cir. 2000) (citations omitted). Moreover, under 28 U.S.C. § 1441(b), a case cannot be removed based on diversity jurisdiction if any properly joined defendant is a citizen of the state in which the action is brought (here, Texas).

         The doctrine of improper joinder is a narrow exception to the rule of complete diversity, and it “entitle[s] a defendant to remove to a federal forum unless an in-state defendant has been ‘properly joined.'” Smallwood v. Ill. Cent. R.R. Co., 385 F.3d 568, 573 (5th Cir. 2004) (en banc); see also Meritt Buffalo Events Ctr. LLC v. Cent. Mut. Ins. Co., 2016 WL 931217, at *2 (N.D. Tex. Mar. 11, 2016) (Fitzwater, J.). The doctrine allows federal courts to defend against attempts to manipulate their jurisdiction, such as by joining nondiverse parties solely to deprive federal courts of diversity jurisdiction. See Smallwood, 385 F.3d at 576. Because “the effect of removal is to deprive the state court of an action properly before it, removal raises significant federalism concerns.” Gasch v. Hartford Accident & Indem. Co., 491 F.3d 278, 281 (5th Cir. 2007) (quoting Carpenter v. Wichita Falls Indep. Sch. Dist., 44 F.3d 362, 365-66 (5th Cir. 1995)). Therefore, the removal statute is strictly construed, with “any doubt about the propriety of removal [being] resolved in favor of remand.” Id. at 281-82. In determining whether a party was improperly joined, the court “resolve[s] all contested factual issues and ambiguities of state law in favor of the plaintiff.” Id. at 281. The party seeking removal bears a heavy burden to prove improper joinder. Smallwood, 385 F.3d at 574.

         Improper joinder is established by showing that there was either actual fraud in the pleading of jurisdictional facts or that the plaintiff is unable to establish a cause of action against the nondiverse defendant in state court. Parsons v. Baylor Health Care Sys., 2012 WL 5844188, at *2 (N.D. Tex. Nov. 19, 2012) (Fitzwater, C.J.) (citing Smallwood, 385 F.3d at 573). Under the second alternative-the one at issue in this case-the test for improper joinder is “whether the defendant has demonstrated that there is no possibility of recovery by the plaintiff against an in-state defendant, which stated differently means that there is no reasonable basis for the district court to predict that the plaintiff might be able to recover against an in-state defendant.” Smallwood, 385 F.3d at 573; see also Travis v. Irby, 326 F.3d 644, 648 (5th Cir. 2003) (explaining that terms “no possibility” of recovery and “reasonable basis” for recovery have essentially identical meaning, and holding that pleadings must show more than “any mere theoretical possibility of recovery”). To assess “whether a plaintiff has a reasonable basis of recovery under state law, ”

[t]he court may conduct a [Fed. R. Civ. P.] 12(b)(6)-type analysis, looking initially at the allegations of the complaint to determine whether the complaint states a claim under state law against the in-state defendant. Ordinarily, if a plaintiff can survive a Rule 12(b)(6) challenge, there is no improper joinder. That said, there are cases, hopefully few in number, in which a plaintiff has stated a claim, but has misstated or omitted discrete facts that would determine the propriety of joinder. In such cases, the district court may, in its discretion, pierce the pleadings and conduct a summary inquiry.

Smallwood, 385 F.3d at 573 (footnotes omitted).

         The analysis does not end with the conclusion that there is no possibility of recovery against the non-diverse defendant. “When the only proffered justification for improper joinder is that there is no reasonable basis for predicting recovery against the in-state defendant, and that showing is equally dispositive of all defendants rather than to the in-state defendants alone, ” the removing party has failed to show improper joinder. Id. at 575. This principle is sometimes called the “common defense rule.” See 14C Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 3723.1, at 362-63 (4th ed. 2018). Under the common defense rule, the court must remand the case “[i]f, but only if, the showing which forecloses [plaintiff's] claims against the non-diverse defendants necessarily and equally compels foreclosure of all their claims against all the diverse defendants.” Boone v. Citigroup, Inc., 416 F.3d 382, 391 (5th Cir. 2005).

         When deciding whether a defendant has been improperly joined, a federal district court must apply the federal pleading standard. See Int'l Energy Ventures Mgmt., L.L.C. v. United Energy Grp. Ltd., 818 F.3d 193, 207-08 (5th Cir. 2016) (on rehearing). This standard requires the plaintiff to plead enough facts “to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “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). “The plausibility standard is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.; see also Twombly, 550 U.S. at 555 (“Factual allegations must be enough to raise a right to relief above the speculative level[.]”). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘shown'-‘that the pleader is entitled to relief.'” Iqbal, 566 U.S. at 679 (alteration omitted) (quoting Rule 8(a)(2)). Furthermore, under Rule 8(a)(2), a pleading must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Although “the pleading standard Rule 8 announces does not require ‘detailed factual allegations, '” it demands more than “labels and conclusions.” Iqbal, 566 U.S. at 678 (quoting Twombly, 550 U.S. at 555). And “a formulaic recitation of the elements of a cause of action will not do.” Id. (quoting Twombly, 550 U.S. at 555).


         Applying the controlling standard, the Ocwen Defendants have met their heavy burden of proving that R.H. Lending has been improperly joined. The only claim that Hicks brings against R.H. Lending is for breach of fiduciary duty. Hicks's petition appears, however, to contradict itself as to the nature of the relationship between Hicks and R.H.

         Lending. At some points, the petition seems to allege that R.H. Lending was itself a mortgagee. See, e.g., Pet. ¶ 4 (“Plaintiff executed a Note . . . and a Deed of Trust . . . for the benefit of RH [Lending] covering the Property.”). At others, the petition suggests that R.H. Lending was a mortgage broker, whose task was to secure financing on Hicks's behalf. See, e.g., Id. ¶ 8 (“As an entity steering the financing of its newly constructed homes to a mortgage banker, [R.H. Lending] had a fiduciary duty to bring a mortgage banker in to finance the transaction . . . on the best possible price and terms[.]”). Hicks cites authority suggesting that a mortgage broker owes a fiduciary duty to its client. See Kelly v. Gaines, 181 S.W.3d 394, 413-15 (Tex. App. 2005), rev'd on other grounds, 235 S.W.3d 179 (Tex. 2007). But this authority is inapposite.

         A limited, summary assessment of the evidence submitted by the parties in relation to the Ocwen Defendants' motion for summary judgment reveals that R.H. Lending was a mortgage lender, not a mortgage broker. See Smallwood, 385 F.3d at 573-74 (recognizing district court's discretion to pierce the pleadings where plaintiff has omitted or misstated discrete facts that would determine propriety of joinder). The Ocwen Defendants have submitted a note and deed of trust executed by Hicks in favor of R.H. Lending, as lender and mortgagee. The note and deed of trust are admissible evidence that the court may consider. See infra § IV. This evidence makes it clear that R.H. Lending was not Hicks's mortgage broker, but rather his lender.

         Because R.H. Lending was Hicks's mortgage lender, Hicks's breach of fiduciary duty claim fails as a matter of law. In Texas, there generally is no fiduciary relationship between a mortgagor and mortgagee. See Wakefield v. Bank of Am., N.A., 2018 WL 456721, at *5 (Tex. App. 2018, no pet.) (citing Lovell v. W. Nat'l Life Ins. Co., 754 S.W.2d 298, 303 (Tex. App. 1988, writ denied)). Nor is there such a relationship between a loan servicer and its client. Williams v. Fed. Nat'l Mortg. Ass'n, 2012 WL 443986, at *3 (N.D. Tex. Feb. 13, 2012) (Robinson, J.). Texas courts have found fiduciary relationships between borrowers and lenders before, but only based on “extraneous facts and conduct, such as excessive lender control or influence in the borrower's business activities.” Wakefield, 2018 WL 456721, at *5 (quoting Bank One, Tex., N.A. v. Stewart, 967 S.W.2d 419, 442 (Tex. App. 1998, pet. denied)). Hicks's petition contains nothing that plausibly alleges that there are special circumstances that gave rise to such a relationship. The Ocwen Defendants have therefore met their heavy burden of proving that Hicks cannot recover from R.H. Lending for breach of fiduciary duty.

         This showing is dispositive of Hicks's claim against R.H. Lending, but not of his claims against the Ocwen Defendants. R.H. Lending is the only party named in the breach of fiduciary duty portion of the petition. And R.H. Lending is not subject to any other claims: all of Hicks's other claims either explicitly name Wells Fargo and Ocwen as defendants, or arise from events that took place long after R.H. Lending assigned the loan. The common defense rule therefore does not apply. See Smallwood, 385 F.3d at 575. The court concludes that R.H. Lending is improperly joined.

         Because R.H. Lending is improperly joined, it is within the court's power to dismiss it from the case. See Flagg v. Stryker Corp., 819 F.3d 132, 136 (5th Cir. 2016) (en banc)

         (“[I]f the plaintiff improperly joins a non-diverse defendant, then the court may disregard the citizenship of that defendant, dismiss the non-diverse defendant from the case, and exercise subject matter jurisdiction over the remaining diverse defendant.”); see also, e.g., Allen v. Lowe's Home Ctrs., Inc., 2012 WL 1190255, at *1 (W.D. La. Mar. 1, 2012) (recommending, after sua sponte ordering jurisdictional briefing, that non-diverse defendant be dismissed as improperly joined), rec. adopted, 2012 ...

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