Court Opinion

ID: 4666523
Source: CourtListenerOpinion
Date Created: 2021-03-10 19:00:21.997273+00
Date Added: 2024-06-11T09:11:10.820333
License: Public Domain

Case: 20-10394     Document: 00515772939         Page: 1     Date Filed: 03/10/2021

              United States Court of Appeals
                   for the Fifth Circuit                             United States Court of Appeals
                                                                              Fifth Circuit

                                                                            FILED
                                                                       March 10, 2021
                                  No. 20-10394
                                                                       Lyle W. Cayce
                                                                            Clerk
   Harry Colbert; Carla Taylor,

                                                           Plaintiffs—Appellants,

                                       versus

   Wells Fargo Bank, N.A.,

                                                           Defendant—Appellee.

                  Appeal from the United States District Court
                      for the Northern District of Texas
                            USDC No. 3:19-CV-1415

   Before Jolly, Stewart, and Oldham, Circuit Judges.
   Per Curiam:*
          Harry Colbert and Carla Taylor (“Plaintiffs”) had a home mortgage
   loan with Wells Fargo. They defaulted on their loan, and Wells Fargo
   foreclosed on their home and sold it in a non-judicial foreclosure sale. They
   filed suit against Wells Fargo, asserting Texas Debt Collection Act claims,
   tort claims, and breach of contract claims. The district court dismissed all

          *
            Pursuant to 5th Circuit Rule 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   opinion should not be published and is not precedent except under the limited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 Circuit Rule 47.5.4.
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                                     No. 20-10394

   claims under Federal Rule of Civil Procedure 12(b)(6). We AFFIRM IN
   PART and REVERSE AND REMAND IN PART.
                      I. FACTS AND PROCEDURAL HISTORY
          In December 2008, Plaintiffs purchased a home in Duncanville,
   Texas. They took out a mortgage on the home, which Wells Fargo serviced
   and eventually purchased. They made regular payments on the loan for
   several years until Taylor became sick with cancer and they fell behind.
          In May 2018, Wells Fargo sent Plaintiffs a notice of default and notice
   of intent to accelerate. They responded by making several payments on their
   account. In September 2018, Wells Fargo sent Plaintiffs an account
   statement explaining that the bank “ha[d] not made the first notice of filing
   required by applicable law for the foreclosure process.” Wells Fargo sent
   similar notices through December 2018, all representing that their loan was
   not yet in foreclosure.
          On January 11, 2019, Wells Fargo sent Plaintiffs a notice of
   acceleration. On January 16, 2019, Wells Fargo sent Plaintiffs an account
   statement indicating that it would accept payment for less than the full
   balance of the loan and noting that a failure to pay could result in acceleration
   of the loan. Wells Fargo foreclosed on their loan shortly thereafter.
          As of January 16, 2019, Plaintiffs owed Wells Fargo $152,486.63.
   Wells Fargo sold Plaintiffs’ home for $155,000, more than the amount
   Plaintiffs owed. Wells Fargo did not give Plaintiffs the surplus money or
   explain if Plaintiffs owed any additional fees.
          Plaintiffs sued Wells Fargo asserting various causes of action under
   the Texas Debt Collection Act and Texas common law. Wells Fargo moved
   to dismiss all claims under Rule 12(b)(6). The district court granted the

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Case: 20-10394      Document: 00515772939           Page: 3     Date Filed: 03/10/2021

                                     No. 20-10394

   motion to dismiss. The court also quashed Plaintiffs’ request to subpoena a
   Wells Fargo employee. This appeal follows.
                             II. STANDARD OF REVIEW
          This court reviews de novo a motion to dismiss for failure to state a
   claim under Rule 12(b)(6). In re Katrina Breaches Litig., 495 F.3d 191, 205 (5th
   Cir. 2007). In considering a motion to dismiss, courts accept facts as true but
   not legal conclusions. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555–56 (2007).
                                  III. DISCUSSION
          Plaintiffs appeal the district court’s dismissal of the following claims:
   misrepresentation under TDCA section 392.304(a)(8); false representation
   under TDCA section 392.304(a)(19); improper fee collection under TDCA
   section 392.303(a)(2); breach of contract; negligent misrepresentation;
   negligence; and fraud. Plaintiffs also appeal the district court’s order
   quashing their subpoena of a Wells Fargo employee.
         1. Misrepresentation and False Representation under TDCA sections
                          392.304(a)(8) and 392.304(a)(19)
          Plaintiffs argue that Wells Fargo’s monthly statements from May to
   December 2018 indicated that their home was not yet in foreclosure. Since
   that information was false, they argue that Wells Fargo misrepresented
   information about their loan in violation of the TDCA. They assert the same
   argument for Wells Fargo’s January 2019 statement indicating that their loan
   was not yet accelerated. 1 They argue that the district court erred in
   dismissing their complaint based on these allegations. We disagree.

          1
             Plaintiffs’ January 2019 monthly statement said that their loan would be
   accelerated unless they paid $8,288.26.

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          “[A] debt collector may not use a fraudulent, deceptive, or misleading
   representation that . . . misrepresent[s] the character, extent, or amount of a
   consumer debt.” TEX. FIN. CODE § 392.304(a)(8). Debt collectors are also
   prohibited from “using any other false representation or deceptive means to
   collect a debt or obtain information concerning a consumer.” Id.
   § 392.304(a)(19).
          Wells Fargo’s statements about Plaintiffs’ foreclosure and
   acceleration status were confusing, but none of the statements suffice to state
   a claim under section 392.304(a)(8) because the statements did not lead
   Plaintiffs “to be unaware (1) that [they] had a mortgage debt, (2) of the
   specific amount [they] owed, or (3) that [they] had defaulted.” Rucker v.
   Bank of America, N.A., 806 F.3d 828, 832 (5th Cir. 2015). Though Wells
   Fargo’s January 2019 statement requested payment for less than the full
   balance of Plaintiffs’ loan, Plaintiffs were not misled as to the overall balance
   they owed Wells Fargo.
          Plaintiffs also fail to state a claim under Texas Financial Code section
   392.304(a)(19). They marshal the same facts as above, arguing that even if
   Wells Fargo’s statements are not included under section 392.304(a)(8), the
   statements are actionable as false representations under section
   392.304(a)(19). However, misrepresentations that are actionable under the
   TDCA must be affirmative statements that are false or misleading. Chavez v.
   Wells Fargo Bank, N.A., 578 F. App’x 345, 348 (5th Cir. 2014). Plaintiffs’
   claim for misrepresentation under section 392.304(a)(19) hinges on a
   sentence in their January 2019 statement that reads “[f]ailure to bring your
   loan current may result in fees, the acceleration of your repayment terms (or
   request for repayment of your balance in full), or the possibility of loss of your
   home through foreclosure.” This sentence falls short of being an affirmative
   statement that their home was not foreclosed and that their debt was not

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   accelerated. 2 Statements that create misrepresentations only through
   inference or deduction are not affirmative misstatements. See Chavez, 578 F.
   App’x at 348 (dismissing claim under section 392.304(a)(19) based on
   statement from which the plaintiff could infer that he was qualified for loan
   modification). A statement about Wells Fargo’s possible future actions
   regarding Plaintiffs’ loan is not an affirmative representation about the
   current state of the loan, even though Plaintiffs could infer information from
   the statement.
           We therefore affirm the district court’s dismissal of Plaintiffs’ claims
   under       Texas   Financial     Code     section    392.304(a)(8)       and    section
   392.304(a)(19).
                  2. Improper Fees under TDCA section 392.303(a)(2)
           Plaintiffs next argue that the district court erred in dismissing their
   claim under Texas Financial Code section 392.303(a)(2). Wells Fargo sold
   Plaintiffs’ home and appears to have received more money from the sale than
   was owed by Plaintiffs. Wells Fargo did not turn over any excess funds nor
   explain what additional fees Plaintiffs owed. We disagree with the district
   court’s dismissal of Plaintiffs’ claim at this stage.
           “In debt collection, a debt collector may not use unfair or
   unconscionable means . . . [including] collecting or attempting to collect
   interest or a charge, fee, or expense incidental to the obligation unless
   expressly authorized by the agreement creating the obligation.” TEX. FIN.
   CODE § 392.303(a)(2).

           2
             The same statement told Plaintiffs that Wells Fargo had made the first filing in
   the foreclosure process.

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          When Wells Fargo sold Plaintiffs’ home, it received $155,000 at the
   foreclosure sale. According to the January 2019 statement, Plaintiffs owed
   Wells Fargo $152,486.63 in unpaid principal balance, unpaid advance
   balance, repayment of escrow, unpaid late charges, and unpaid interest. If the
   foreclosure sale happened on January 16, Wells Fargo would have owed
   Plaintiffs $2,513.37 from the foreclosure sale. 3 In reality, the foreclosure sale
   occurred on February 5, 2019. While Plaintiffs may have accrued more debt
   and fees through February 5, (thereby reducing the amount Wells Fargo
   owed them from the foreclosure sale), we cannot conclude that Wells Fargo
   owes Plaintiffs none of the proceeds from the sale. If Plaintiffs were owed
   even one dollar from the foreclosure sale, Wells Fargo may have violated
   section 392.303(a)(2) by collecting a charge, fee, or expense not authorized
   by their agreement.
          Wells Fargo’s only response is that Plaintiffs’ allegations on this claim
   are conclusory. Given that Plaintiffs’ Second Amended Complaint includes
   their January 2019 statement showing that they owe Wells Fargo less than
   $155,000, we disagree. Even though the January 2019 statement is an exhibit
   to the complaint, “a district court [reviewing a motion to dismiss] must
   consider the complaint in its entirety, as well as other sources courts
   ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in
   particular, documents incorporated into the complaint by reference.” Funk
   v. Stryker Corp., 631 F.3d 777, 783 (5th Cir. 2011) (internal quotation and
   citation omitted).
          We therefore reverse and remand so that the district court can
   determine if Wells Fargo owes Plaintiffs any money from the foreclosure sale.

          3
            This amount may be lower if the mortgage contract authorizes Wells Fargo to
   charge Plaintiffs additional fees related to foreclosure.

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                             3. Breach of Contract Claim
          Plaintiffs’ third argument is that the district court erred by dismissing
   their breach of contract claim. Plaintiffs assert that Wells Fargo breached the
   mortgage contract by giving improper notice of acceleration before
   foreclosing on their home or by abandoning its acceleration and then
   improperly foreclosing on their home. Assuming that improper acceleration
   is actionable as a breach of contract, we disagree with Plaintiffs’ arguments
   that Wells Fargo’s acceleration was improper.
          Plaintiffs first assert that Wells Fargo breached the mortgage contract
   by foreclosing on their home without providing proper notice of acceleration.
   Under Texas law, a lender may not foreclose on a debt without providing
   both a notice of intent to accelerate and a notice of acceleration. See Ogden v.
   Gibraltar Sav. Ass’n, 640 S.W.2d 232, 234 (Tex. 1982). Even if a lender
   accelerates a note with a “clear and unequivocal” notice, Shumway v.
   Horizon Credit Corp., 801 S.W.2d 890, 893 (Tex. 1991), acceleration can be
   abandoned by a party’s actions. Boren v. United States Nat’l Bank Ass’n, 807
   F.3d 99, 104 (5th Cir. 2015).
          Wells Fargo sent Plaintiffs all the required notices before foreclosing
   on their home. It sent the notice of default and notice of intent to accelerate
   on May 11, 2018. It sent notices of acceleration and notice of foreclosure sale
   on January 11, 2019. It foreclosed on Plaintiffs’ home on February 5, 2019.
          Plaintiffs argue that the notice was improper because it lacked certain
   features, including a title and a signature from Wells Fargo. However, the
   notice clearly stated that it was the notice of acceleration and that Wells
   Fargo had elected to accelerate Plaintiffs’ debt. It was “clear and
   unequivocal” under Shumway, so the notice was proper.
          Plaintiffs next argue that Wells Fargo breached the mortgage contract
   by abandoning acceleration and then foreclosing on their home. Wells Fargo

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   sent a notice of acceleration on January 11, but it sent a statement requesting
   payment for less than the full amount of the accelerated loan on January 16.
   Plaintiffs argue that the January monthly statement abandoned Wells Fargo’s
   right of acceleration because a lender may waive its earlier acceleration by
   “requesting payment on less than the full amount of the loan.” Boren, 807
   F.3d at 106.
          Abandonment is viewed through the lens of traditional principles of
   waiver. Id. at 105. Waiver of a right requires “actual intent to relinquish the
   right, or intentional conduct inconsistent with the right.” Ulico Cas. Co. v.
   Allied Pilots Ass’n, 262 S.W.3d 773, 778 (Tex. 2008). Waiver can be express
   or implied from “conduct inconsistent with a claim to the right.” G.T. Leach
   Builders, LLC v. Sapphire V.P, LP, 458 S.W.3d 502, 511 (Tex. 2015). “Waiver
   by implication only occurs when conclusive evidence shows the party
   unequivocally manifests its intention to no longer assert its right.” Verdin v.
   Fed. Nat’l Mortg. Ass’n, 540 F. App’x 253, 256 (5th Cir. 2013); see also G.H.
   Bass & Co. v. Dalsan Props.-Abilene, 885 S.W.2d 572, 577 (Tex. App. —Dallas
   1994, no writ) (“[I]t is the burden of the party who is to benefit by a showing
   of waiver to produce conclusive evidence that the opposite party
   [unequivocally] manifested its intent to no longer assert its claim.”
   (quotation omitted)).
          Plaintiffs argue that Wells Fargo’s January 2019 monthly statement
   abandoned acceleration by requesting payment for less than the full amount
   of the loan. But the request for payment must have demonstrated an
   “unequivocal manifestation” of Wells Fargo’s intent to no longer accelerate
   the loan. Wells Fargo’s request for a lesser amount was a reinstatement
   amount that Plaintiffs could pay to avoid acceleration, and it did not evidence
   a clear intent to abandon acceleration. See Lyons v. Select Portfolio Servicing,
   Inc., 748 F. App’x 610, 611–12 (5th Cir. 2019) (finding that a post-

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   acceleration notice informing a mortgagor of the amount owed to return a
   loan to good standing did not manifest intent to abandon acceleration).
            Wells Fargo’s notice of acceleration was proper, and no subsequent
   notice manifested intent to abandon acceleration, so we affirm the district
   court’s dismissal of Plaintiffs’ breach of contract claim.
                              4. Negligent Misrepresentation Claim
            Plaintiffs’ fourth argument is that the district court improperly
   dismissed their claim for negligent misrepresentation. We disagree.
            To demonstrate a case of negligent misrepresentation, a plaintiff must
   plead the following:
            (1) the representation is made by a defendant in the course of his
            business, or in a transaction in which he has a pecuniary interest; (2)
            the defendant supplies “false information” for the guidance of others
            in their business; (3) the defendant did not exercise reasonable care or
            competence in obtaining or communicating the information; and (4)
            the plaintiff suffers pecuniary loss by justifiably relying on the
            representation.
   Fed. Land Bank Assoc. of Tyler v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991).
            Plaintiffs failed to allege sufficient facts to meet the second prong of a
   negligent misrepresentation claim, that Wells Fargo supplied false
   information for guidance in their business. Texas courts require false
   information to be for guidance in another’s business. See id. Plaintiffs do not
   allege such facts, and their argument that negligent misrepresentation claims
   are permitted between lenders and mortgagors is inapposite. We therefore
   affirm the district court’s dismissal of Plaintiffs’ negligent misrepresentation
   claim.

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                                5. Negligence Claim
          Plaintiffs’ fifth argument is that the district court erred by dismissing
   their negligence claim on the ground that it was barred by the economic loss
   rule. We disagree.
          Plaintiffs asserted a negligence claim based on Wells Fargo’s alleged
   duties to correct its misleading statements about their loan and to use
   reasonable care when providing information to them. See Hurd v. BAC Home
   Loans Servicing, LP, 880 F.Supp.2d 747, 763 (N.D. Tex. 2012) (duty to
   correct prior misleading statements); Sloane, 825 S.W.2d at 442 (duty to use
   reasonable care in providing information).
          Even if we assume that Wells Fargo owed Plaintiffs these duties and
   breached them, Plaintiffs’ claims are still unsuccessful because they are
   barred by the economic loss rule. The economic loss rule “precludes
   recovery in tort when the loss complained of is the subject matter of a
   contract between the parties.” Ibe v. Jones, 836 F.3d 516, 526 (5th Cir. 2016).
   To determine whether the economic loss rule bars a tort claim, courts look to
   “the source of the defendant’s duty to act (whether it arose solely out of the
   contract or from some common-law duty) and the nature of the remedy
   sought by the plaintiff.” Id. (quoting Crawford v. Ace Sign, Inc., 917 S.W.2d
   12, 13 (Tex. 1996)).
          First, we consider the nature of the remedy Plaintiffs seek. Plaintiffs’
   Second Amended Complaint requests damages for the loss of their home
   equity, moving expenses, storage expenses, and mental anguish. Mental
   anguish damages are not recoverable in contract law, but merely pleading
   non-economic damages is generally insufficient to avoid the economic loss
   rule. See Johnson v. Wells Fargo Bank, N.A., 999 F.Supp.2d 919, 931 (N.D.
   Tex. 2014) (“Plaintiff alleges emotional distress and mental anguish damages
   for her negligence claim. But, in the absence of any pleaded special

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   relationship with Defendants or other extraordinary circumstances, Plaintiff
   has not pleaded a plausible basis to recover emotional distress or mental
   anguish damages.”). Instead, the analysis turns on whether Plaintiffs have
   alleged a basis to recover non-economic damages independent of the
   contract. Id.
          We next consider the source of Wells Fargo’s alleged duties to
   determine whether Plaintiffs have a non-contractual basis for seeking non-
   economic damages. The source of any duty owed by Wells Fargo is its
   mortgage contract with Plaintiffs. The duty to correct misleading statements
   and duty to use reasonable care in communicating information are directly
   related to the contract. These duties do not arise from a separate common-
   law duty and “would [not] give rise to liability independent of the fact that a
   contract exists between the parties.” Sw. Bell. Tel. Co. v. DeLanney, 809
   S.W.2d 493, 494 (Tex. 1991).
          Plaintiffs rely on Shellnut v. Wells Fargo Bank, N.A., for the
   proposition that the economic loss rule does not prevent borrowers from
   recovering mental anguish damages from lenders. 2017 WL 1538166 at *12
   (Tex. App.—Fort Worth Apr. 27, 2017, pet. denied). In Shellnut, the Texas
   Court of Appeals at Fort Worth reversed a grant of summary judgment in
   favor of the borrower, rejecting the trial court’s application of the economic
   loss rule to the borrower’s fraud and negligent misrepresentation claims. Id.
   But Shellnut too requires the alleged tort to be “independent of the
   contractual undertaking” to avoid the economic loss rule. Id. at *11.
          Plaintiffs’ claims are not independent of the contract and no separate
   common-law duty exists as a basis for their negligence claim and pursuit of
   non-economic damages. We therefore affirm the district court’s dismissal of
   Plaintiffs’ negligence claim.

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                                   6. Fraud Claim
          Plaintiffs’ sixth argument is that the district court erred in dismissing
   their fraud claim. We disagree.
          The district court dismissed Plaintiffs’ fraud claim under Rule
   12(b)(6), concluding that they failed to plead fraud with particularity as
   required by Rule 9(b). In Texas fraud cases, plaintiffs must plead that:
          (1) the defendant made a material representation, (2) the
          representation was false, (3) the speaker knew the representation was
          false or made it with reckless disregard for its truth, (4) the speaker
          made the representation with the intent to defraud, (5) the plaintiff
          relied on the representation, and (6) the reliance caused the plaintiff
          an injury.
   Hall v. Douglas, 380 S.W.3d 860, 870 (Tex. App.—Dallas 2012, no pet.).
          Plaintiffs failed to sufficiently allege that Wells Fargo made any
   material representations or that the representations were made with the
   intent to defraud. We therefore affirm the district court’s dismissal of
   Plaintiffs’ fraud claim.
               7. Quashing Plaintiffs’ Subpoena of Wells Fargo Employees
          Plaintiffs last argue that the district court erred in quashing a subpoena
   and preventing Plaintiffs from deposing various Wells Fargo employees. We
   disagree.
          Plaintiffs claim their subpoena and discovery requests were reasonable
   because they simply sought information from Wells Fargo employees
   assumed to have knowledge about their mortgage. But Plaintiffs’ justification
   for the subpoena and the discovery requests is speculative at best. And given
   the district court’s broad discretion over discovery matters, we affirm its
   reasonable order denying Plaintiffs’ request.

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                               IV. CONCLUSION
         For all of these reasons, we AFFIRM the district court’s dismissal of
   Plaintiffs’ claims under TDCA sections 392.304(a)(8) and 392.304(a)(19).
   We also AFFIRM the dismissal of their breach of contract, negligent
   misrepresentation, negligence, and fraud claims. We AFFIRM the district
   court’s discovery order. We REVERSE and REMAND the dismissal of
   Plaintiffs’ TDCA section 392.303(a)(2) claim.

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