Amaya-Aldaba v. Fifth Third Bank

IN THE UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

SERGIO AMAYA-ALDABA, §

§

Plaintiff/Counter-Defendant, §

§

V. §

§

FIFTH THIRD BANK, BRITTANY §

ROBERTS as Legal Guardian for C.A. a § No. 3:23-cv-2715-L-BN

minor, E.L.M. a minor, and THE §

ESTATE OF RODNEY MAYS by and §

Through Its Personal Representative, §

§

Defendant/Counter-Plaintiff/Third- §

Party Plaintiff, §

§

V. §

§

ESMY A. MARQUEZ GONZALEZ, §

§

Third-Party Defendant. §

FINDINGS, CONCLUSIONS, AND RECOMMENDATION OF THE

UNITED STATES MAGISTRATE JUDGE

This case has been referred to the undersigned United States magistrate

judge for pretrial management under 28 U.S.C. ' 636(b) and a standing order of

reference from the presiding judge. See Dkt. No. 3.

Defendant/Counter-Plaintiff/Third-Party Plaintiff Fifth Third Bank filed a

Motion for Default Judgment against Third-Party Defendant Esmy A. Marquez

Gonzalez. See Dkt. No. 35.

For the following reasons, the Court should grant Fifth Third Bank’s motion.

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Background

This case concerns a mortgage and a foreclosure. Fifth Third Bank alleges

that Plaintiff Sergio Amaya-Aldaba and Third-Party Defendant Esmy A. Marquez

Gonzalez (collectively, “Borrowers”) executed a Loan Agreement, consisting of a Note

and Security Interest, in the property 507 Staffordshire Drive, Irving, Texas 75061

(the “Property”). See Dkt. No. 35 at 3.

Under the Loan Agreement’s original terms, Borrowers promised to pay

periodic payments of the original principal sum of $188,000.00 bearing an interest

rate of 5.000%. See Dkt. No. 21 at 2-3 & 13-14. Everett Financial, Inc. d/b/a Supreme

Lending, a Texas Corporation and the original security interest holder, transferred

and assigned it to Fifth Third Bank. See id. at 2-3.

Fifth Third Bank asserts that Borrowers defaulted under the terms of the

Loan Agreement, see id. at 3-4, and then sent notice of default and of loan

acceleration via certified mail to the Property address. See id. at 4.

Plaintiff Sergio Amaya-Aldaba filed an Original Petition and Application for

Temporary Restraining Order in Texas state court seeking to enjoin Fifth Third

Bank from foreclosing on the Property. See Dkt. No. 21 at 1-2; Dkt. No. 1-1 at 6-40.

And, Fifth Third Bank properly removed to this Court. See Dkt. No. 1.

Fifth Third Bank filed its original counterclaim against Plaintiff and

third-party complaint against Third-Party Defendant Esmy A. Marquez Gonzalez

seeking an order for foreclosure. See Dkt. No. 21.

Fifth Third Bank served Gonzalez on February 24, 2024. See Dkt. No. 25.

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The Clerk of Court made entry of default as to Gonzalez on April 17, 2024. See

Dkt. No. 29.

Fifth Third Bank now moves for a default judgment against Gonzalez. See

Dkt. No. 35.

Legal Standards

Federal Rule of Civil Procedure 55(b)(2) governs applications to the Court for

default judgment. See FED. R. CIV. P. 55(b)(2). A plaintiff seeking a default judgment

must establish: (1) that the defendant has been served with the summons and

complaint and that default was entered for its failure to appear; (2) that the

defendant is neither a minor nor an incompetent person; (3) that the defendant is

not in military service or not otherwise subject to the Soldiers and Sailors Relief Act

of 1940; and (4) that, if the defendant has appeared in the action, the defendant was

provided with notice of the application for default judgment at least three days prior

to the hearing. See Arch Ins. Co. v. WM Masters & Assocs., Inc., No. 3:12-cv-2092-M,

2013 WL 145502, at *2-*3 (N.D. Tex. Jan. 14, 2013). The plaintiff must also make a

prima facie showing there is “jurisdiction both over the subject matter and the

parties.” Sys. Pipe & Supply, Inc. v. M/V Viktor Kurnatovskiy, 242 F.3d 322, 324

(5th Cir. 2001).

In the Fifth Circuit, three steps are required to obtain a default judgment: (1)

default by the defendant; (2) entry of default by the Clerk's office; and (3) entry of a

default judgment by the district court. See New York Life Ins. Co. v. Brown, 84 F.3d

137, 141 (5th Cir. 1996). A default occurs when a defendant has failed to plead or

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otherwise respond to the complaint within the time required by the Federal Rules of

Civil Procedure. See id. The clerk will enter default when default is established by

an affidavit or otherwise. See id. After the clerk's entry of default, a plaintiff may

apply to the district court for a judgment based on such default. See id.

The Fifth Circuit favors resolving cases on their merits and generally

disfavors default judgments. See Rogers v. Hartford Life & Accident Ins. Co., 167

F.3d 933, 936 (5th Cir. 1999); see also Sun Bank of Ocala v. Pelican Homestead &

Sav. Ass'n, 874 F.2d 274, 276 (5th Cir. 1989) (“Default judgments are a drastic

remedy, not favored by the federal rules and resorted to by the courts only in

extreme situations.”). But this policy is “counterbalanced by considerations of social

goals, justice, and expediency, a weighing process [that] lies largely within the

domain of the trial judge's discretion.” Rogers, 167 F.3d at 936 (quoting Pelican Prod.

Corp. v. Marino, 893 F.2d 1143, 1146 (10th Cir. 1990) (internal quotations omitted));

see also Merrill Lynch Mortg. Corp. v. Narayan, 908 F.2d 246, 253 (7th Cir. 1990)

(noting that default judgments allow courts to manage their dockets “efficiently and

effectively”).

Before entering a default judgment, a court should consider any relevant

factors. Those factors may include “(1) whether material issues of fact are at issue;

(2) whether there has been substantial prejudice; (3) whether grounds for default are

clearly established; (4) whether default was caused by good faith mistake or

excusable neglect; (5) harshness of default judgment; and (6) whether the court

would feel obligated to set aside a default on the defendant's motion.” Arch, 2013 WL

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145502, at *3 (citing Lindsey v. Prive Corp., 161 F.3d 886, 893 (5th Cir. 1998)). The

Court should also consider whether the defendant has a meritorious defense to the

complaint. See id.

An entry of default “does not establish the amount of damages. After a default

judgment, the plaintiff's well-pleaded factual allegations are taken as true, except

regarding damages.” United States of Am. for Use of M-Co Constr., Inc. v. Shipco

Gen., Inc., 814 F.2d 1011, 1014 (5th Cir. 1987) (cleaned up); cf. Jackson v. FIE Corp.,

302 F.3d 515, 524-31 (5th Cir. 2002) (holding that jurisdictional allegations and

findings supporting a default judgment are not entitled to preclusive effect in the

personal-jurisdiction context of Federal Rule of Civil Procedure 60(b)(4)). A court

may enter default judgment against a party and determine damages without the

benefit of an evidentiary hearing “where the amount claimed is a liquidated sum or

one capable of mathematical calculation.” Leedo Cabinetry v. James Sales & Distrib.,

Inc., 157 F.3d 410, 414 (5th Cir. 1998) (cleaned up).

Analysis

I. The Court has subject matter jurisdiction and personal jurisdiction.

Fifth Third Bank has shown there is jurisdiction over the parties. This Court

has jurisdiction under 28 U.S.C. § 1332(a) because there is diversity of citizenship

and the amount in controversy exceeds $75,000, exclusive of interest and attorneys’

fees.

Fifth Third Bank is a federally chartered savings association with its main

office in Ohio. See Dkt No. 1 at 2. So, Fifth Third Bank is a citizen of Ohio. Fifth

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Third Bank alleges that Third-Party Defendant Esmy A. Marquez Gonzalez is a

citizen of Texas, see Dkt No. 1 at 2, establishing complete diversity as required for

diversity jurisdiction.

“In actions seeking declaratory or injunctive relief, it is well established that

the amount in controversy is measured by the value of the object of the litigation.

Farkas v. GMAC Mortg., L.L.C., 737 F.3d 338, 341 (5th Cir. 2013).

Here, the “object” of the litigation is the Property.

Fifth Third Bank alleges that the Dallas County Central Appraisal District

values the Property at $94,190.00, which exceeds the $75,000 threshold

jurisdictional requirement. See Dkt No. 1 at 3; Dkt. No. 1-1 at 42-47. And, so, the

amount in controversy requirement is met.

A judgment “without personal jurisdiction is void,” and a “district court has

the duty to ensure it has the power to enter a valid default judgment.” Sys. Pipe &

Supply, 242 F.3d at 324.

This Court has personal jurisdiction over Gonzalez. “[T]he Texas long-arm

statute extends to the limits of federal due process.” Bulkley & Associates, L.L.C. v.

Dep't of Indus. Relations, Div. of Occupational Safety & Health of the State of

California, 1 F.4th 346, 351 (5th Cir. 2021). Federal due process requires that “the

suit aris[es] out of or relate[s] to the defendant[s’] contacts with” Texas. Daimler AG

v. Bauman, 571 U.S. 117, 127 (2014).

The lawsuit concerns real property located in the Northern District of Texas.

See Dkt. No. 21 at 2.

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And, so, this Court has personal jurisdiction over the Third-Party Defendant.

II. The procedural requirements for default judgment have been met.

Fifth Third Bank has satisfied the prerequisites for entry of default judgment

against Third-Party Defendant Esmy A. Marquez Gonzalez.

Fifth Third Bank served Gonzalez on February 24, 2024. See Dkt. No. 25. And

the Clerk of Court entered Default against Gonzalez on April 17, 2024. See Dkt. No.

29.

Fifth Third Bank alleges that Gonzalez is not a minor or incompetent person,

see Dkt. No. 35-1 at 3, and submitted evidence that Gonzalez is not in active military

service. See id. at 3-8.

And, so, Fifth Third Bank meets the procedural requirements for entry of

default against Gonzalez.

III. Fifth Third Bank’s pleading supports default judgment.

A. Fifth Third Bank meets the elements required for non-judicial

foreclosure.

Fifth Third Bank seeks to enforce its lien through non-judicial foreclosure

under Section 51.002 of the Texas Property Code. Dkt. No. 21 at 4.

“In Texas, to foreclose under a security instrument with a power of sale, the

lender is required to show that: (1) a debt exists; (2) the debt is secured by a lien

created under Texas law; (3) the borrower is in default under the note and security

instrument; and (4) the borrower has been properly served with notice of default and

acceleration.” See Singleton v. U. S. Bank Nat'l Ass'n, No. 4:15-cv-100-A, 2016 WL

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1611378, at *7 (N.D. Tex. Apr. 20, 2016) (cleaned up).

Fifth Third Bank has shown a debt exists. Under the terms of the Loan

Agreement, Borrowers promised to repay the original principal sum of $188,000 plus

interest. See Dkt. No. 21 at 2-3 & 13-14.

The debt is secured by a lien on the Property under Article 16, Section 50(a)(6)

of the Texas Constitution because Borrowers executed a Deed of Trust, which was

recorded in the Official Public Records of Dallas County as Document No.

201900182607. See Dkt. No. 21 at 3. Fifth Third Bank provided a copy of the Deed of

Trust reflecting the same. See Dkt. No. 21 at 11-28.

There is a default on the loan. Fifth Third Bank alleges that the Loan

Agreement is due for the July 1, 2020 payment. See Dkt. No. 21 at 3. And, as of

January 8, 2024, $253,019.35 was due and owed. See id. at 4.

Fifth Third Bank sent notice of default and of loan acceleration via certified

mail to the Property address. See Dkt. No. 21 at 4.

“Service of notice is complete when the notice is sent via certified mail.”

Martins v. BAC Home Loans Servicing, L.P., 722 F.3d 249, 256 (5th Cir. 2013).

And, so, Fifth Third Bank has met the elements for non-judicial foreclosure.

While some courts have found that non-judicial foreclosure is not a viable

claim, “a majority of courts … appear to cut in favor of reading a breach of contract

claim into a judicial foreclosure claim, where only the latter is pleaded.” Ocwen Loan

Servicing, LLC v. Kingman Holdings, LLC, No. 3:18-CV-1197-S, 2019 WL 3802167,

at *5 (N.D. Tex. May 31, 2019). While Fifth Third Bank does not plead a breach of

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contract claim in its third-party complaint, it refers to the Loan Agreement as a

“contract.” See Dkt. No. 21 at 4. And it states this suit arises, in part, out of

Borrowers’ failure to “substantially perform material obligations required under [the

Loan Agreement’s] terms.” See id.

And, so, the Court should treat the request for non-judicial foreclosure as

containing a breach of contract claim, and the undersigned analyzes it under that

framework as well.

B. Fifth Third Bank meets the elements required for a breach of

contract claim.

In Texas, the essential elements of a breach of contract claim are: “(1) the

existence of a valid contract; (2) performance or tendered performance by the

plaintiff; (3) breach of the contract by the defendant; and (4) damages sustained by

the plaintiff as a result of the breach.” Smith Int'l, Inc. v. Egle Grp., LLC, 490 F.3d

380, 387 (5th Cir. 2007). “A breach occurs when a party fails to perform a duty

required by the contract.” Id.

Here, Fifth Third Bank is the owner of the Loan Agreement. Under the

original terms, Borrowers promised to pay periodic payments of the original

principal sum of $188,000.00 bearing an interest rate of 5.000%. See Dkt. No. 21 at

2-3 & 13-14. Everett Financial, Inc. d/b/a Supreme Lending, a Texas Corporation

and the original security interest holder, transferred and assigned it to Fifth Third

Bank. See Dkt. No. 21 at 2-3. Fifth Third Bank alleges all conditions have been

performed to enforce its security interest against the Property. See id. at 5.

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Borrowers failed to make the July 1, 2020 payment, which resulted in loan

acceleration. Id. at 3. And, Fifth Third Bank shows quantifiable damages by alleging

that “at least $253,019.35” was due and owing under the terms of the Loan

Agreement.” Dkt. No. 21 at 4.

Taking Fifth Third Bank’s claims to be true, it has satisfied the elements of a

breach of contract claim in showing (1) a valid contract existed in the form of a Loan

Agreement, (2) that Fifth Third Bank fully performed under the Loan Agreement, (3)

Borrowers failed to perform in paying under the Loan Agreement, and (4) Fifth

Third Bank sustained damages for the unpaid payments as a result of the breach.

And, so, Fifth Third Bank adequately pleaded a breach of contract claim.

C. Fifth Third Bank has standing to initiate a non-judicial foreclosure.

Fifth Third Bank is the proper party to enforce the remedies afforded to the

lender under the terms of the Loan Agreement.

Under the Texas Property Code, a party has standing to

initiate a nonjudicial foreclosure sale if the party is a

mortgagee. See TEX. PROP. CODE §§ 51.002, 51.0025. A

mortgagee includes the grantee, beneficiary, owner, or

holder of a security instrument, such as a deed of trust, or

“if the security interest has been assigned of record, the

last person to whom the security interest has been

assigned of record.” Id. § 51.0001(4), (6).

Even if a party does not have a recorded interest in a

security instrument, the party may still have standing to

foreclose if the party is the holder or owner of a note

secured by the instrument. This rule derives from the

common law maxim, now codified in Texas, that “the

mortgage follows the note.” See TEX. BUS. & COM. CODE §

9.203(g) (“The attachment of a security interest in a right

to payment or performance secured by a security interest

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or other lien on personal or real property is also

attachment of a security interest in the security interest,

mortgage, or other lien.”); Campbell v. Mortg. Elec.

Registration Sys., Inc., No. 03-11-00429-CV, 2012 WL

1839357, at *4 (Tex. App.––Austin May 18, 2012, pet.

denied) (mem.op.).

EverBank, N.A. v. Seedergy Ventures, Inc., 499 S.W.3d 534, 538 (Tex. App.––Houston

[14th Dist.] 2016, no pet.); TEX. PROP. CODE §§ 51.002, 51.0025.

Fifth Third Bank qualifies as a “mortgagee” under Chapter 51 of the Texas

Property Code. See TEX. PROP. CODE § 51.0025; Dkt. No. 35 at 4. It was the last

assigned entity of record of the Deed of Trust. See Dkt. No. 21 at 3. And, so, Fifth

Third Bank can properly bring this claim.

D. Fifth Third Bank is entitled to its reasonable attorneys’ fees.

Fifth Third Bank requests attorneys’ fees in its Third-Party Complaint, see

Dkt. No. 21 at 5, and Motion for Default Judgment. See Dkt. No. 35 at 5. The Court

should grant Fifth Third Bank its reasonable attorneys’ fees in accordance with the

Loan Agreement, and Section 38.001 of the Texas Civil Practice and Remedies Code.

Texas law applies to an award of attorneys’ fees in diversity cases such as this

one. See Mathis v. Exxon Corp., 302 F.3d 448, 461 (5th Cir. 2002). Under Texas law,

attorneys’ fees may be recovered pursuant to mortgage contracts. See Richardson v.

Wells Fargo Bank, Nat. Ass'n, 740 F.3d 1035, 1040 (5th Cir. 2014); Santry v. Ocwen

Loan Servicing LLC, No. 3:23-CV-649-K-BN, 2024 WL 4229990, at *9 (N.D. Tex.

Sept. 3, 2024).

Here, the Loan Agreement states that, “Lender shall be entitled to collect all

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expenses incurred in pursuing the remedies provided in this [Acceleration; Remedies

Section], including, but not limited to, reasonable attorneys’ fees and costs of title

evidence.” Dkt. No. 21 at 24.

Because it is permitted in the relevant loan documents, Fifth Third Bank is

entitled to its reasonable attorneys’ fees for pursuing its non-judicial foreclosure

claim under the Loan Agreement. See Santry, 2024 WL 4229990, at *9.

The Court should order Fifth Third Bank to file a separate application for

attorneys’ fees, no later than 14 days after entry of a judgment in this case, that

establishes the amount of the reasonable and necessary attorneys’ fees and costs

that it has incurred, with supporting evidence, based on an acceptable method for

calculating attorneys’ fees under the Loan Agreement at issue in this case.

IV. Consideration of other factors supports default judgment.

Although default judgment is a harsh remedy, Gonzalez’s failure to answer

Fifth Third Bank’s third-party complaint supports default judgment. There has not

been substantial prejudice against Gonzalez. There are clearly established grounds

for default: Gonzalez failed to answer Fifth Third Bank’s third-party complaint.

There is no indication that Gonzalez’s default was caused by good faith mistake or

excusable neglect.

And, so, the Court would not necessarily feel obligated to set aside a default

(should a motion to do so be filed). See Lindsey, 161 F.3d at 893.

Recommendation

The Court should grant Fifth Third Bank’s Motion for Default Judgment [Dkt.

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No. 35] and enter default judgment against Third-Party Defendant Esmy A.

Marquez Gonzalez. The Court should also issue an order awarding Fifth Third Bank

its attorneys’ fees to be determined by subsequent motion practice.

A copy of these findings, conclusions, and recommendation shall be served on

all parties in the manner provided by law. Any party who objects to any part of these

findings, conclusions, and recommendation must file specific written objections

within 14 days after being served with a copy. See 28 U.S.C. § 636(b)(1); FED. R. □□□□

P. 72(b). In order to be specific, an objection must identify the specific finding or

recommendation to which objection is made, state the basis for the objection, and

specify the place in the magistrate judge’s findings, conclusions, and

recommendation where the disputed determination is found. An objection that

merely incorporates by reference or refers to the briefing before the magistrate judge

is not specific. Failure to file specific written objections will bar the aggrieved party

from appealing the factual findings and legal conclusions of the magistrate judge

that are accepted or adopted by the district court, except upon grounds of plain error.

See Douglass v. United Services Auto. Assn, 79 F.3d 1415, 1417 (5th Cir. 1996).

DATED: October 10, 2024

pels

DAVIDL.HORAN

UNITED STATES MAGISTRATE JUDGE

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