Court Opinion

ID: 3006846
Source: CourtListenerOpinion
Date Created: 2015-10-02 18:00:57.886772+00
Date Added: 2024-06-11T18:03:13.770625
License: Public Domain

Case: 15-60179      Document: 00513216493         Page: 1    Date Filed: 10/02/2015

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                         United States Court of Appeals
                                                                                  Fifth Circuit

                                    No. 15-60179                                FILED
                                  Summary Calendar                        October 2, 2015
                                                                           Lyle W. Cayce
                                                                                Clerk
KYRT M. WENTZELL; RHONDA E. WENTZELL,

              Plaintiffs - Appellants

v.

JPMORGAN CHASE BANK, NATIONAL ASSOCIATION, successor by
merger to Chase Home Finance, LLC, successor by merger to Chase
Manhattan Mortgage Corporation,

              Defendant - Appellee

                   Appeal from the United States District Court
                     for the Southern District of Mississippi
                             USDC No. 1:14-CV-182

Before STEWART, Chief Judge, and OWEN and COSTA, Circuit Judges.
PER CURIAM:*
       This appeal arises from the district court’s grant of Defendant-Appellee’s
motion to dismiss the Plaintiffs-Appellants’ complaint for failure to state a
claim. Because the complaint fails to state a plausible claim for relief, we
AFFIRM.

       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
    Case: 15-60179    Document: 00513216493    Page: 2   Date Filed: 10/02/2015

                                No. 15-60179
                                      I.
      On October 19, 2001, Plaintiffs-Appellants Kyrt Wentzell and Rhonda E.
Wentzell (“the Wentzells”) entered into a loan agreement with Bridges
Mortgage Company (“Bridges”), in the principal amount of $128,118.00 with a
6.875% yearly interest rate. The required monthly payment was $841.65.
Under the terms of the loan, the Wentzells would be in default “by failing to
pay in full any monthly payment.” The loan was secured by a Deed of Trust,
which granted Bridges and its successors a security interest in the Wentzells’
real property located at 2248 Club Moss Circle, Biloxi, Mississippi (the
“Property”). Under the Deed of Trust, the mortgagee could invoke the power of
sale and begin foreclosure proceedings on the Property following any default
by the Wentzells. In November 2001, Bridges assigned the loan to Defendant-
Appellee JPMorgan Chase Bank (“Chase”).
      Following Hurricane Katrina in August 2005, the Wentzells fell behind
in making timely payments on the original loan. On June 1, 2006, they entered
into a Loan Modification Agreement with Chase, resulting in a principal
balance of $131,018.72, a yearly interest rate of 6.875%, and a new monthly
payment of $909.97. The Wentzells “believed that they had secured the [2006]
modification at the rate of 5.5%, but [were] told by representatives of Chase
that the interest rate would be adjusted to the 5.5% sometime later after the
modification had been executed.”
      The Wentzells allege that Chase never made the required modification
and that Chase refused to address perceived discrepancies in their account
activity history. The Wentzells further allege that, sometime before May 1,
2009, they entered into another modification agreement with Chase that
changed their yearly interest rate to 5.25%. The Wentzells attached the alleged
modification to their Petition, but the document was not executed by Chase.

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The unexecuted modification agreement provided for a 5.25% yearly interest
rate, a principal balance of $148,318.14, and monthly payments of $935.47.
      The Wentzells’ June 1, 2009, Mortgage Loan Statement reflected a
principal balance of $148,232.41 with a 6.875% yearly interest rate, resulting
in a due payment of $935.47. Chase’s November 23, 2009, Mortgage Loan
Statement to the Wentzells also listed a 6.875% yearly interest rate and a due
monthly payment of $935.47. The November 2009 Statement further indicated
that the Wentzells’ past due payments totaled $5,326.02. The Wentzells allege
that when they questioned the accuracy of the interest rate, Chase insisted
that the rate remained at 6.875%. Though they “continued to seek assistance
from Chase . . . in correcting the interest rate,” it was “to no avail.” The
Wentzells made their last mortgage payment on or about July 22, 2009, and
allege that they operated under the mistaken impression that their interest
rate was 6.875%; they did not discover until after foreclosure that the
statements listed “the apparent correct principal and interest amount” from
the modification that lowered the rate to 5.25%.
      Chase initiated foreclosure proceedings several times, but the Wentzells
successfully postponed the sales. Chase finally foreclosed the Property on May
16, 2013, after the Wentzells “inadvertently” failed to recognize Chase’s notice
of foreclosure. At the sale, Chase purchased the Property as the highest bidder.
On July 1, 2013, Chase filed a complaint for unlawful entry and detainer in
state court in Harrison County, Mississippi. The record does not indicate the
disposition of the state court action.
      On April 14, 2014, the Wentzells filed a “Petition to Set Aside
Foreclosure and for Other Appropriate Relief” (the “Petition”) in the Chancery
Court of Harrison County, Mississippi, naming Chase as the defendant. In
their Petition, the Wentzells asked the district court to exercise its “equitable
powers” to “set[] aside the foreclosure sale . . . and reinstate the loan.” Chase
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                                      No. 15-60179
properly removed the action to federal district court based on diversity of
citizenship. Chase then moved to dismiss the Petition for failure to state a
claim under Federal Rule of Civil Procedure 12(b)(6). The district court
concluded that the Wentzells failed to state a plausible claim for equitable
relief and dismissed the action with prejudice. The Wentzells timely appealed.
                                             II.
                                             A.
       This court reviews a district court’s grant of a motion to dismiss under
Rule 12(b)(6) de novo, “accepting all well-pleaded facts as true and viewing
those facts in the light most favorable to the plaintiff.” Toy v. Holder, 714 F.3d
881, 883 (5th Cir. 2013) (quoting Bustos v. Martini Club, Inc., 599 F.3d 458,
461 (5th Cir. 2010)), cert. denied, 134 S. Ct. 650 (2013). “To survive a motion to
dismiss, a complaint must contain sufficient factual matter, accepted as true,
to state a claim to relief that is plausible on its face.” Id. (internal quotation
marks omitted). “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.” Hale v. King, 642 F.3d 492, 499
(5th Cir. 2011) (per curiam) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009)). “The well-pleaded facts must permit the court to infer ‘more than the
mere possibility of misconduct.’” 1 Id.

       1 The Wentzells’ argument that Mississippi’s more lenient pleading standards apply
in this diversity case is foreclosed by precedent. “[F]ederal courts sitting in diversity
apply state substantive law and federal procedural law.” Nat’l Liab. & Fire Ins. Co. v. R & R
Marine, Inc., 756 F.3d 825, 834 (5th Cir. 2014) (quoting Gasperini v. Ctr. for Humanities,
Inc., 518 U.S. 415, 427 (1996)); see also Wigginton v. Bank of New York Mellon, 488 F. App’x
868, 870 (5th Cir. 2012) (per curiam) (rejecting an appellant’s argument “that the district
court erred by analyzing her complaint under the Federal Rules of Civil Procedure, rather
than the less-demanding [state] pleading standards” and noting that there is “no right in
federal court to retain more lenient state court procedural rules.”).
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                                 No. 15-60179
                                       B.
      In their Petition, the Wentzells seek equitable relief to “set[] aside the
foreclosure sale . . . and reinstate the loan [with Chase].” Because federal
jurisdiction in this case is based on diversity of citizenship, Mississippi
substantive law applies. Nat’l Liab. & Fire Ins. Co., 756 F.3d at 834. Under
Mississippi law, a court “has the power to relieve a mortgagor from the effect
of an operative acceleration clause in a mortgage where the default of the
mortgagor was the result of some unconscionable or inequitable conduct of the
mortgagee.” Johnson v. Gore, 80 So. 2d 731, 736 (Miss. 1955). That is, “[e]quity
will not relieve the mortgagor from the consequence of a default unless the
mortgagee has done some act which makes it unconscionable for him to take
advantage of it.” Id.; see also Nat’l Mortg. Co. v. Williams, 357 So. 2d 934, 937
(Miss. 1978).
      Equity, however, is available only to those who “come with clean hands.”
In re Estate of Richardson, 903 So. 2d 51, 55 (Miss. 2005) (quotation omitted);
see also R.K. v. J.K., 946 So. 2d 764, 774 (Miss. 2007) (“It is one of the oldest
and well known maxims that one seeking relief in equity must come with clean
hands or face refusal by the court to aid in securing any right or granting any
remedy.”). “[W]hen a successful affirmative defense appears on the face of the
pleadings, dismissal under Rule 12(b)(6) may be appropriate.” Kansa
Reinsurance Co., Ltd. v. Cong. Mortg. Corp. of Tex., 20 F.3d 1362, 1366 (5th
Cir. 1994).
      The Wentzells’ Petition contains no factual allegations that plausibly
suggest that their default was caused by any conduct by Chase. Instead, the
Wentzells allege that their “mistaken belief that [Chase] was charging them at
the higher interest rate . . . resulted in the property being foreclosed.” Under
the terms of the loan and the Deed of Trust, a failure to make timely monthly
payments constitutes default and raises the potential of foreclosure. The
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                                       No. 15-60179
Wentzells essentially acknowledge their default, admitting in their Petition
that they made their last loan payment “on or about July 22, 2009.” They do
not allege that Chase’s conduct made them unable to make monthly payments.
We thus agree with the district court that the Wentzells failed to plead
“sufficient facts to demonstrate any unconscionable or inequitable conduct on
the part of Chase which would rise to the level of excusing Plaintiffs from their
default.”
       Even if the Wentzells’ allegations were sufficient to state a plausible
claim for equitable relief, the Petition itself makes clear that the Wentzells’
claim is barred. The Wentzells made no mortgage payments during the nearly
forty-six months between the July 22, 2009, mortgage payment and the
eventual foreclosure sale. They do not allege any excuse for this failure or that
their monthly payment obligations ever ceased. Because the Wentzells
breached their obligations under the loan agreement, they do not come with
clean hands and are unable to obtain equitable relief. See, e.g., Scruggs v.
Wyatt, 60 So. 3d 758, 772 (Miss. 2011) (“[T]he clean hands doctrine prevents a
complaining party from obtaining equitable relief in court when he is guilty of
willful misconduct in the transaction at issue.”) (emphasis, quotation, and
alteration omitted); see also Kansa Reinsurance, 20 F.3d at 1366.
       Based on the allegations in their Petition and on the incorporated
documents, the Wentzells failed to state a plausible claim for equitable relief.
                                             C.
       The Wentzells’ wrongful foreclosure claim is also precluded. 2 Under
Mississippi law, “[a] foreclosure under the power of sale is properly conducted

       2  It is unclear whether the Wentzells presented a wrongful foreclosure claim in the
district court. Neither the claim nor facts suggesting the claim appear in the Petition or in
the Wentzells’ Response to Chase’s Motion to Dismiss. The district court, however, concluded
that the Wentzells “fail[ed] to state a plausible wrongful foreclosure claim.” Thus, we choose
to address the argument.
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                                       No. 15-60179
if the constitutional, statutory, and contractual requirements entered into by
the parties are met.” Lake Hillsdale Estates, Inc. v. Galloway, 473 So. 2d 461,
465 (Miss. 1985) (citing Peoples Bank & Tr. Co. v. L. & T. Developers, 434 So.
2d 699 (Miss. 1983)). A mortgagor may also recover for wrongful foreclosure
“where an unlawful foreclosure is attempted solely from a malicious desire to
injure the mortgagor . . . [or] where the foreclosure is conducted negligently or
in bad faith.” Nat’l Mortg. Co., 357 So. 2d at 935–36 (quotation omitted).
       The Wentzells’ Petition does not allege that Chase violated the
constitutional, statutory, or contractual requirements for foreclosure. The
Wentzells similarly do not allege that Chase’s foreclosure was unlawful,
motivated by bad faith, or conducted negligently. The Petition thus states no
claim for wrongful foreclosure. See Lake Hillsdale Estates, Inc., 473 So. 2d at
465; Nat’l Mortg. Co., 357 So. 2d at 935–36.
       Further, in the district court, the Wentzells did not argue that Chase’s
alleged “dual tracking” procedure 3—or indeed any of Chase’s conduct—
amounted to a wrongful foreclosure. This new argument is thus waived. See
Fruge v. Amerisure Mut. Ins. Co., 663 F.3d 743, 747 (5th Cir. 2011) (“Failure
to raise an argument before the district court waives that argument . . . .”) (per
curiam). Even if the Wentzells were now allowed to raise this new theory, they
acknowledge that Mississippi law contains no statutory prohibition of dual
tracking. 4 The Deed of Trust also explicitly provides that any “forbearance by

       3  Dual tracking occurs “where a servicer moves forward with foreclosure while
simultaneously working with the borrower to avoid foreclosure.” See Press Release,
Consumer Financial Protection Bureau, CFPB Rules Establish Strong Protections for
Homeowners         Facing      Foreclosure      (Jan.      17,      2013),      available     at
http://www.consumerfinance.gov/newsroom/consumer-financial-protection-bureau-rules-
establish-strong-protections-for-homeowners-facing-foreclosure/.
        4 Federal regulations restrict a mortgage servicer’s ability to engage in dual tracking.

See 12 C.F.R. § 1024.41. Courts have recognized a federal cause of action against a servicer
for “dual tracking” under this provision. See, e.g., Houle v. Green Tree Servicing, No. 14-CV-
14654, 2015 WL 1867526, at *3 (E.D. Mich. Apr. 23, 2015) (“Borrowers have a private right
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                                        No. 15-60179
[Chase] in exercising any right or remedy shall not be a waiver of or preclude
the exercise of any right or remedy.” The Wentzells fail to allege any conduct
by Chase that was contrary to law or to the terms of the Deed of Trust. Thus,
the factual allegations in the Petition do not support a claim of wrongful
foreclosure.
                                               D.
       The Wentzells also assert additional claims of promissory estoppel and
detrimental reliance; they further contend that Chase is equitably estopped
from enforcing the loan agreement. These arguments were not presented to the
district court and are thus waived. 5 Fruge, 663 F.3d at 747.
                                              III.
       Finally, the Wentzells request leave to amend the Petition to include new
factual allegations. Under Rule 15(a), the “court should freely give leave [to
amend a complaint] when justice so requires.” Fed. R. Civ. P. 15(a)(2).
However, a party must “expressly request” leave to amend. See United States
ex rel. Willard v. Humana Health Plan of Tex. Inc., 336 F.3d 375, 387 (5th Cir.
2003). “A party who neglects to ask the district court for leave to amend cannot
expect to receive such a dispensation from the court of appeals.” Id. The
Wentzells never requested leave to amend at the district court. They are thus
not entitled to such relief from this court. See Willard, 336 F.3d at 387.

of action against lenders who evaluate a loss mitigation application while at the same time
pursuing foreclosure.”). The federal restrictions, however, apply only to a borrower’s first loss
mitigation application. See 12 C.F.R. § 1024.41(i). Since the Wentzells’ claims relate to later
alleged loan modifications, they have not stated a claim even under the federal regulation.
        5 Even if we were to consider these new arguments, the Wentzells’ Petition would

remain deficient. The Petition alleges only that the Wentzells “detrimentally relied on
[Chase’s] incorrect reporting of the interest rate.” The Wentzells did not allege that Chase
represented that it (1) would not foreclose on the Property, (2) would elect not to exercise its
contractual remedies for the Wentzells’ default, or (3) would excuse the Wentzells’ late
payments during the time of the alleged loan modifications or interest rate disputes. Thus,
even accepting the Petition’s factual allegations as true, we conclude that it fails “to state a
claim to relief that is plausible on its face.” Toy, 714 F.3d at 883.
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                             No. 15-60179
                                  IV.
    For the foregoing reasons, the judgment of the district court is
AFFIRMED.

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