De LA Cruz v. The Bank of New York, et al

Motion to Dismiss for Failure to State a Claim

W.D. Tex.March 29, 2017

1 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS AUSTIN DIVISION DAN SERGIO DE LA CRUZ, § Plaintiff, § § v. § Civil Action No. 1:17-cv-00163 § THE BANK OF NEW YORK AS TRUSTEE FOR THE CERTIFICATEHOLDERS CWABS, INC. ASSET-BACKED CERTIFICATES SERIES 2005-9 and DITECH FINANCIAL, LLC, Defendants, § § § § § § § PLAINTIFF’S MOTION TO DISMISS COUNTERCLAIM FOR FAILURE TO STATE A CLAIM Plaintiff, as Counter-Defendant, files this motion to dismiss Counter-Plaintiff The Bank of New York’s counterclaim owing to a failure to state a claim upon which relief can be granted. Rule 12(b)(6). BONY’s counterclaim on its face has expired under the four-year statute of limitations applicable to suits for judicial foreclosure. Tex. Civ. Prac. & Rem. Code § 16.035(a). I. FACTS ALLEGED IN THE COUNTERCLAIM This case concerns a Texas home equity loan, which under the Texas Constitution’s strictures can only be foreclosed by court order. Tex. Const. art. XVI, § 50(a)(6)(D). BONY alleges that it noticed default of Plaintiff’s home equity loan on January 14, 2011 and then filed an expedited foreclosure proceeding under Tex. R. Civ. P. 736 on February 24, 2016. More than five years separates those dates, raising the obvious question whether that is too much time. Furthermore, BONY Case 1:17-cv-00163-SS Document 18 Filed 03/29/17 Page 1 of 6 2 does not allege any notice of acceleration between those dates, raising the obvious question of when such acceleration occurred. II. ARGUMENT A. Home equity loans require a court order of some kind, whether for judicial foreclosure or nonjudicial sale A home equity lender can obtain, on an expedited basis, a court order allowing the lender itself to sell a property – that is, nonjudicially – instead of having to seek a judgment for foreclosure requiring a sheriff’s or constable’s sale – that is, judicially. See Tex. R. Civ. P. 735-736 (“Rule 736”); compare Tex. R. Civ. P. 309 (judicial foreclosure requires constable sale). Here, BONY alleges that it sought a Rule 736 order in February 2016 so that it could sell the property itself, nonjudicially. However, the order it obtained was then dismissed by operation of law when Plaintiff filed this suit. See Rule 736.11. Now, BONY has filed a counterclaim for judicial foreclosure, which would require a judgment conforming to Tex. R. Civ. P. 309 and mandate a constable sale instead of sale conducted by BONY.1 B. Default is squarely alleged The property code provides that before a lender may post a notice of sale of 1 It bears nothing that by filing a counterclaim for judicial foreclosure and seeking a judgment reciting that a sheriff or constable will sell the property, BONY has elected to forego a nonjudicial sale under the Rule 736 expedited procedures. Once a lender elects one foreclosure alternative, such as judicial foreclosure, the unelected alternative of nonjudicial foreclosure "cannot be resorted to until after a definite abandonment of the judicial proceeding." Gandy v. Cameron State Bank, 2 S.W.2d 971, 973 (Tex. Civ. App. - Austin 1927, writ ref'd). Pursuing the one alternative waives the other. City of Glenn Heights v. Sheffield Dev. Co., 55 S.W.3d 158, 165 (Tex. App. - Dallas 2001, pet. denied). All that said, a lender can change its election from one kind of foreclosure to another up until the time it actually obtains a remedy, at which time resort to the unelected remedy is barred. See In re Phillips, 124 B.R. 712, 719 (Bankr. W.D. Tex. 1991) (relying on Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848, 851 (Tex.1980). Case 1:17-cv-00163-SS Document 18 Filed 03/29/17 Page 2 of 6 3 real property under a contract lien, it must provide a notice of default and give the borrower at least twenty days to cure the default. Tex. Prop. Code Ann. § 51.002(d). Here, BONY squarely alleges it gave notice of default on January 14, 2011. C. Acceleration, however, has not been squarely alleged If a note or deed of trust secured by real property contains an acceleration clause, default does not in and of itself start limitations running on the note. Tex. Prop. Code § 51.002(d); Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562, 566–67 (Tex. 2001). The action accrues only when the holder actually exercises its option to accelerate. Id. Effective acceleration requires: (1) notice of default and intent to accelerate, and (2) notice of acceleration. Id. “Both notices must be “clear and unequivocal.” Id. Here, BONY has not facially alleged that an acceleration occurred. However, it has alleged that it filed a Rule 736 proceeding. That has been held to constitute an acceleration if it meets the formal requisites. See Cantu v. Deutsche Bank Nat'l Trust Co., No. 7:15-CV-87, 2016 WL 6820930, at *4 (S.D. Tex. June 3, 2016) (citing Texas case authority). For the sake of argument only, Plaintiff will assume that the counterclaim relies on acceleration having occurred on the date BONY filed its Rule 736 proceeding, February 24, 2016. Accordingly, BONY is necessarily asserting that it satisfies the pleading requirements of Holy Cross Church by alleging (1) notice of default on January 14, 2011 and (2) notice of acceleration on February 24, 2016. Case 1:17-cv-00163-SS Document 18 Filed 03/29/17 Page 3 of 6 4 D. A five year delay between notice of default and acceleration is unreasonable as a matter of law Under Texas law, when a demand is a condition precedent to suit, the demand must be made within the limitations period for the underlying suit itself, unless mitigating circumstances are shown. Moran v. Ocwen Loan Servicing, L.L.C., 560 F. App'x 277, 280 (5th Cir. 2014); DeRoeck v. DHM Ventures, LLC, No. 03-15- 00713-CV, 2016 WL 4270000, at *4 (Tex. App. – Austin Aug. 9, 2016, pet. filed); Stevens v. State Farm Fire & Cas. Co., 929 S.W.2d 665, 671 (Tex. App. – Texarkana 1996, writ denied). Said the Stevens court: Where demand is a condition precedent to a suit, the injured party may not, by failing to make demand, postpone the running of the statute until he decides to make a demand. See Aetna Casualty & Sur. Co. v. State ex rel. City of Dallas, 86 S.W.2d 826, 831 (Tex.Civ.App.— Fort Worth 1935, writ dism'd); Nolan County v. Yarbrough, 34 S.W.2d 302, 304 (Tex.Civ.App.—El Paso 1930, no writ). Where demand is a prerequisite to a right of action, the injured party must make the demand within a reasonable time after it may lawfully be made. The reasonableness of the delay is normally a fact question, but in the absence of mitigating circumstances, the law will ordinarily consider a reasonable time as being coincident with the running of the statute, and an action will be barred if a demand is not made within that period. Mitchell v. McLemore, 9 Tex. 151 (1852); Clements v. Lee, supra; Foreman v. Graham, supra; Aetna Casualty & Sur. Co. v. State ex rel. City of Dallas, supra; 50 Tex.Jur.3d Limitation of Actions § 62 (1986). Stevens, 929 S.W.2d at 671. Acceleration is, precisely, a demand for the full payment due on the note instead of merely the past-due sums required by a default. Here, where the lender was required to bring its judicial foreclosure lawsuit within four years after acceleration pursuant to Tex. Civ. Prac. & Rem. Code § 16.035(a), the complaint alleges that more than five years elapsed between the notice of default and the Case 1:17-cv-00163-SS Document 18 Filed 03/29/17 Page 4 of 6 5 acceleration demand for full payment. BONY has not alleged any “mitigating circumstances.” Stevens, 929 S.W.2d at 671; Moran, 560 F. App’x at 280. That delay and lack of mitigating circumstances is unreasonable as a matter of law under the decided cases. Accordingly, the demand for the accelerated full payment due presumptively had to be made by January 14, 2015, four years following the notice of default. E. Dismissal under Rule 12(b)(6) is appropriate A complaint is subject to dismissal under Rule 12(b)(6) when its allegations indicate the existence of an affirmative defense that would bar the award of any remedy. Moran, 560 F. App’x at 280. Dismissal is warranted on the face of BONY’s counterclaim because of the conspicuous five-year delay in noticing acceleration for which no mitigating circumstance have been alleged. Id. (plaintiff’s allegations on their face indicated that limitations had expired owing to failure to make demand within a reasonable time, with no mitigating circumstances alleged, so dismissal under Rule 12(b)(6) was appropriate). III. CONCLUSION Because BONY has alleged that notice of default and acceleration occurred more than four years apart, without mitigating circumstances that would extend the reasonable time for it to make its demand for full payment on the note, its counterclaim for judicial foreclosure should be dismissed for failure to state a claim. Case 1:17-cv-00163-SS Document 18 Filed 03/29/17 Page 5 of 6 6 Respectfully submitted, /s/ J. Patrick Sutton J. Patrick Sutton Texas Bar No. 24058143 1706 W. 10th Street Austin, Texas 78703 Tel. (512) 417-5903 Fax (512) 355-4155 jpatricksutton@jpatricksuttonlaw.com CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of Plaintiffs' Motion to Dismiss was served as indicated on March 29, 2017, to the following: via ECF and email Marc D. Cabrera mcabrera@lockelord.com Daniel Durell daniel.durell@lockelord.com /s/ JPS J. Patrick Sutton Texas Bar No. 24058143 1706 W. 10th Street Austin, TX 78703 ph (512) 417-5903 f (512) 355-4155 jpatricksutton@jpatricksuttonlaw.com Case 1:17-cv-00163-SS Document 18 Filed 03/29/17 Page 6 of 6 1 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS AUSTIN DIVISION DAN SERGIO DE LA CRUZ, § Plaintiff, § § v. § Civil Action No. 1:17-cv-00163 § THE BANK OF NEW YORK AS TRUSTEE FOR THE CERTIFICATEHOLDERS CWABS, INC. ASSET-BACKED CERTIFICATES SERIES 2005-9 and DITECH FINANCIAL, LLC, Defendants, § § § § § § § ORDER BE IT REMEMBERED on this day the Court reviewed the file in the above- styled cause, and specifically Plaintiff Dan Sergio de la Cruz’s Rule 12(b)(6) motion to dismiss the counterclaim of Defendant Bank Of New York As Trustee For The Certificateholders Cwabs, Inc. Asset-Backed Certificates Series 2005-9, for failure to state a claim. Having reviewed the documents, the governing law, and the file as a whole, the Court GRANTS the motion and DISMISSES WITHOUT PREJUDICE the aforementioned counterclaim [Doc. 17]. IS ORDERED, ADJUDGED, and DECREED that the above-styled cause is DISMISSED WITHOUT PREJUDICE. All costs are taxed against Defendants, for which let execution issue. SIGNED this _________ day of ___________, 2017. Case 1:17-cv-00163-SS Document 18-1 Filed 03/29/17 Page 1 of 1