Arthur Massey v. EMC Mortgage Corporation

Case: 12-10993 Document: 00512431028 Page: 1 Date Filed: 11/05/2013

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT United States Court of Appeals

Fifth Circuit

____________ FILED

November 5, 2013

No. 12-10993

____________ Lyle W. Cayce

Clerk

ARTHUR MASSEY; TERRI MASSEY,

Plaintiffs–Appellants,

versus

EMC MORTGAGE CORPORATION, Also Known as JP Morgan Chase;

JP MORGAN CHASE BANK, N.A.,

Defendants–Appellees.

_________________________

Appeal from the United States District Court

for the Northern District of Texas

USDC No. 4:12-CV-154

_________________________

Before SMITH, PRADO, and ELROD, Circuit Judges.

PER CURIAM:*

Arthur and Terri Massey sued EMC Mortgage Corporation and JP Mor-

gan Chase Bank, N.A. (jointly “EMC”), alleging various causes of action relat-

*

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: 12-10993 Document: 00512431028 Page: 2 Date Filed: 11/05/2013

No. 12-10993

ing to their attempts to secure modifications of their mortgage loan agree-

ments. The district court granted EMC’s motion to dismiss, and we affirm.

I.

In 2004, the Masseys purchased their house with a mortgage serviced

by EMC. In 2008, they applied for a modification and were approved by EMC

with a lowered monthly payment of $1786; they made their payments under

those modified terms. In March 2009, Terri Massey again requested a lower

monthly payment and sent requested documentation. The Masseys were de-

nied a modification in August 2009 because their account was not sixty days

past due.

That same month, EMC sent the Masseys a document stating, “You

may qualify for a Home Affordable Modification Trial Period Plan.” The docu-

ment stated, “If you qualify under the federal government’s Home Affordable

Modification program [“HAMP”] and comply with the terms of the Trial Pe-

riod Plan [“TPP”], we will modify your mortgage loan and you can avoid fore-

closure.” It cautioned, however, that depending on the income documentation

provided, the monthly TPP payment might change, and the Masseys “may not

qualify for this loan modification program.” The document stated, “The Trial

Payment Plan is the first step. Once we are able to confirm your income and

eligibility for the program, we will finalize your modified loan.” The TPP es-

tablished three monthly trial period payments of $1,317.50 on the first loan

and $111 on the second, to be due in September, October, and November

2009. The Masseys made the payments.

In November 2009, EMC wrote the Masseys to inform them that based

on information obtained “in whole or in part” from a report from a consumer-

reporting agency, it had determined they did not qualify for a loan modifica-

tion because their hardship was “not of a permanent nature.” In December

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2009, EMC sent the Masseys two letters informing them of a default on the

second loan and noting that they may be eligible for a loan modification. The

first letter stated the default as $479.65, and the second as $331.94. In Janu-

ary 2010, EMC again wrote to the Masseys, referencing a “recent conversa-

tion” pursuant to which EMC had established a “repayment plan” for the first

loan. The letter requested income-related information to determine their eli-

gibility for a loan modification “once the repayment plan has been success-

fully completed.” In response, the Masseys faxed a completed modification

packet to EMC.

An EMC manager informed Arthur Massey by phone in February 2010

that a modified monthly payment of $1100 on the first loan was feasible, and

the Masseys sent in requested additional paperwork. The next month, during

another phone conversation, EMC told the Masseys to send additional finan-

cial information.

In April 2010, EMC sent a letter to the Masseys stating, “We are unable

to offer you a Home Affordable Modification because your Loan with us is not

a first lien mortgage.” A little over a week later, Terri Massey spoke with an

EMC employee, who stated that “the necessary documentation had been

received and an appraisal had been done” and advised her to call back in two

weeks. During that conversation, Massey stated she wanted to make a pay-

ment toward the first loan and to bring the second loan current, but the

employee advised that if she could not pay the full payment on the first loan,

she should not pay any amount at all because it would not be applied until a

full payment was made. The employee stated the modification would be com-

plete in thirty days and that the Masseys would be back on track with their

loan.

Terri Massey spoke with EMC employees on two occasions in late May

2010. The first employee told her he “couldn’t accept the amounts she was

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trying to pay” and suggested she “contact the modification department during

business hours.” The second employee stated she was “not allowed to refuse a

payment” and that Massey “should have never been told not to make a pay-

ment in April”; this second employee advised Massey that the modification

was still pending and to call back weekly.

In June 2010, EMC sent the Masseys a letter stating that “we have not

received all documents necessary to complete your request for a modification”

of the first loan and that if they did not provide a “most recent quarterly or

year-to-date profit/loss statement” by July 18, EMC would terminate the TPP.

Later that month, during a telephone conversation, an EMC employee said

that EMC was “still awaiting a modification” and that the first loan was

“$11,000 (approximately) delinquent.”

The Masseys faxed the profit/loss statement to EMC on July 12. On

July 14, EMC confirmed receipt of the document but verbally informed Terri

Massey that “all documents have now expired and new all [sic] documents are

required” and that EMC needed “new documents every 90 days, but cannot

guarantee that a modification would be completed within another 90 days.”

On July 19, EMC sent a letter to the Masseys stating that the TPP Offer for

the first loan “has expired . . . because you did not provide us with the docu-

ments we requested.”

Within a week, EMC sent the Masseys letters with terms of a proposed

loan modification agreement with a monthly payment of $1,455.54, a reduced

interest rate, and a large balloon payment. The Masseys decided not to agree

to that modification because they could not afford the payment and were

“doomed to fail.” The Masseys “remain in a state of uncertainty and fear over

the threatened foreclosure of their home.” They do not allege that defendants

have begun foreclosure proceedings.

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II.

We review a dismissal under Federal Rule of Civil Procedure 12(b)(6) de

novo and may affirm on any basis supported by the record. Torch Liquidat-

ing Trust ex rel. Bridge Assocs. L.L.C. v. Stockstill, 561 F.3d 377, 384 (5th Cir.

2009). “To survive a motion to dismiss, a complaint must contain sufficient

factual matter, accepted as true, to state a claim for relief that is plausible on

its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation and internal

quotation marks omitted). “Because this case was resolved on motion to dis-

miss, the allegations in the complaint must be liberally construed in favor of

the plaintiff, and all facts pleaded in the complaint must be taken as true.”

EPCO Carbon Dioxide Prods., Inc. v. JP Morgan Chase Bank, NA, 467 F.3d

466, 467 (5th Cir. 2006).

“A dismissal for failure to state fraud with particularity as required by

Rule 9(b) is a dismissal on the pleadings for failure to state a claim, and is

also reviewed de novo.” Flaherty & Crumrine Preferred Income Fund, Inc. v.

TXU Corp., 565 F.3d 200, 206 (5th Cir. 2009) (citation omitted). To avoid dis-

missal under Rule 9(b), a complaint must “specify the statements contended

to be fraudulent, identify the speaker, state when and where the statements

were made, and explain why the statements were fraudulent.” Id. at 207

(citation and internal quotation marks omitted).

III.

The Masseys appeal dismissal of five claims: violation of the Texas Fair

Debt Collection Practices Act (“TFDCPA”), common-law fraud, statutory

fraud, negligent misrepresentation, and unreasonable debt collection.1 We

1

We do not address any alleged HAMP violations under a private right of action or

third-party beneficiary theory because those claims were not brought in the district court. Like-

wise, we need not consider whether the TPP is a valid contract because the Masseys have not

brought a breach-of-contract claim. In addition, the Masseys do not brief their claim of fraud

(continued...)

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examine each in turn.

A.

On appeal, the Masseys allege only that EMC violated § 392.304(a)(8) of

the Texas Finance Code,2 which prohibits a debt collector from using “a fraud-

ulent, deceptive, or misleading representation that . . . misrepresent[s] the

character, extent, or amount of a consumer debt.” To constitute a misrepre-

sentation under this provision, the defendant must have made a “false or mis-

leading assertion.”3 The Masseys cite the following facts in support of their

TFDCPA claim: (1) EMC’s August 2009 TPP offer stating that fulfillment of

the letter’s requirements would result in EMC’s waiving “ALL unpaid late

charges at the end of the trial period”; (2) representing the terms of the 2010

modification as being HAMP-compliant; (3) including a different cure amount

in separate letters sent in December 2009; (4) representing to the Masseys

that they were being considered for a HAMP modification; (5) stating a loan

modification should be complete in thirty days; (6) requesting a specific docu-

ment or threatening termination of the TPP, then stating that all documents

had expired and were insufficient.

These facts do not constitute affirmative statements that misrepresent

the character, extent, or amount of the debt. The Masseys have not pleaded

facts sufficient to show that the August 2009 statement regarding waiver of

(...continued)

by misrepresentation, so they have waived that claim. Brinkmann v. Dall. Cnty. Deputy Sher-

iff Abner, 813 F.2d 744, 748 (5th Cir. 1987) (“We will not raise and discuss legal issues that

[appellant] has failed to assert.” (citation omitted)).

2

The Masseys have waived consideration of their claims under §§ 392.301(a)(8),

392.303, and 392.304(a)(19) of the Texas Finance Code by failing to brief them on appeal.

Brinkmann, 813 F.2d at 748.

3

Narvaez v. Wilshire Credit Corp., 757 F. Supp. 2d 621, 632 (N.D. Tex. 2010) (citing

Reynolds v. Sw. Bell. Tel., L.P., No. 2-05-356-CV, 2006 WL 1791606, at *7 (Tex. App.—Fort

Worth June 29, 2006, pet. denied)).

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late fees was false or misleading because they have not alleged that they have

been assessed late fees. The varying default amounts in the two December

2009 letters were based on different default dates, and the accuracy of their

amounts has not been disputed. The remaining facts describe “[d]iscussions

regarding loan modification or a trial payment plan,” which “are not represen-

tations, or misrepresentations, of the amount or character of [a] debt.”4

B.

Under Texas law, the elements of common-law fraud are “(1) that a

material misrepresentation was made; (2) the representation was false;

(3) when the representation was made, the speaker knew it was false or made

it recklessly without any knowledge of the truth and as a positive assertion;

(4) the speaker made the representation with the intent that the other party

should act upon it; (5) the party acted in reliance on the representation; and

(6) the party thereby suffered injury.” Aquaplex, Inc. v. Rancho La Valencia,

Inc., 297 S.W.3d 768, 774 (Tex. 2009) (citation omitted). The district court

held, and we agree, that plaintiffs’ claim for fraud failed to meet the strictures

of Federal Rule of Civil Procedure 9(b). In their brief on appeal, the Masseys

do not dispute this finding but argue that Rule 9(b)’s heightened pleading

standard is “context-specific,” citing United States ex rel. Grubbs v. Kanne-

ganti, 565 F.3d 180, 188 (5th Cir. 2009).

In Grubbs, we distinguished an allegation of common law fraud—which

“demands the specifics of the false representation”—from fraud under the

False Claims Act, which, on account of its remedial nature, is “not on the

same plane [as common law fraud] in meeting the requirement of ‘stat[ing]

with particularity’ the contents of the fraudulent misrepresentation.” Id. at

4

Thomas v. EMC Mortg. Corp., 499 F. App’x 337, 343 (5th Cir. 2012) (alterations in

original) (quoting Watson v. Citimortgage, Inc., 4:10-CV-707, 2012 WL 381205, at *7 (E.D. Tex.

Feb. 3, 2012)).

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188–89. The Masseys do not, however, similarly supply support that the con-

text of the present claim of common-law fraud requires deviation from this

court’s generally applicable interpretation of Rule 9(b): “This Court interprets

Rule 9(b) strictly, requiring a plaintiff pleading fraud to specify the state-

ments contended to be fraudulent, identify the speaker, state when and

where the statements were made, and explain why the statements were

fraudulent.” Herrmann Holdings Ltd. v. Lucent Techs., Inc., 302 F.3d 552,

564–65 (5th Cir. 2002) (citation and internal quotation marks omitted).

Under this standard, and because the Masseys did not cure this deficiency

after having been granted leave to amend their complaint to comply with the

requirements of Rule 9, dismissal was appropriate. See United States ex rel.

Hebert v. Dizney, 295 F. App’x 717, 724–25 (5th Cir. 2008).

C.

“The elements of statutory fraud under section 27.01 of the Texas Busi-

ness and Commerce Code are essentially identical to the elements of common

law fraud except that section 27.01 does not require proof of knowledge or

recklessness as a prerequisite to the recovery of actual damages.” Trinity

Indus., Inc. v. Ashland, Inc., 53 S.W.3d 852, 867 (Tex. App.—Austin 2001,

pet. denied). The district court correctly dismissed the Masseys’ statutory-

fraud claim because § 27.01 “applies only to fraud in real estate or stock

transactions,” Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 343 (5th Cir.

2008), and “[a] loan transaction, even if secured by land, is not considered to

come under the statute,” id. (quoting Burleson State Bank v. Plunkett, 27

S.W.3d 605, 611 (Tex. App.—Waco 2000, pet. denied).

D.

To demonstrate a negligent misrepresentation claim under Texas law, a

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plaintiff must establish each of the following: “(1) [T]he 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 informa-

tion’ 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.” Horizon Shipbuilding, Inc. v. BLyn II Holding, LLC,

324 S.W.3d 840, 850 (Tex. App.—Hous. [14th Dist.] 2010, no pet.) (citation

omitted).

EMC’s statements that the Masseys might be eligible for loan

modification do not qualify as negligent misrepresentations because, “under

Texas law, promises of future action are not actionable as a negligent-

misrepresentation tort.”5 The same analysis applies to the statement con-

tained in the TPP packet and referenced in the Masseys’ brief: “If you fulfill

the terms of the trial period including, but not limited to, making the trial

period payments, we will waive ALL unpaid late charges at the end of the

trial period.” See De Franchesci, 477 F. App’x at 205. The Masseys’ brief also

contrasts EMC’s statement that plaintiffs were being denied a modification

because they were not sixty days past due with their subsequent action in

sending the Masseys HAMP loan-modification paperwork. The Masseys do

not explain how those representations constitute false information or how any

reliance on the original modification denial caused pecuniary harm. See Hori-

zon Shipbuilding, 324 S.W.3d at 850.

5

De Franceschi v. BAC Home Loans Servicing, L.P., 477 F. App’x 200, 205 (5th Cir.

2012) (citing Scherer v. Angell, 253 S.W.3d 777, 781 (Tex. App.–Amarillo 2007, no pet.)); see

also Edwards v. Ocwen Loan Servicing, LLC, No. 9:10-CV-89, 2012 WL 844396, at *6 (E.D. Tex.

Mar. 12, 2012) (holding that plaintiff did not state a viable claim for negligent representation

because the alleged misrepresentation—the mortgage servicer would not foreclose on the prop-

erty while plaintiff’s loan modification application was pending—was a promise of future

conduct).

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E.

Unreasonable collection is an intentional tort under Texas common law.

EMC Mortg. Corp. v. Jones, 252 S.W.3d 857, 868 (Tex. App.—Dall. 2008, no

pet.). Although the elements are not clearly defined and may vary from case

to case, “[o]ne of the more precise legal descriptions delineates the conduct

giving rise to the tort as ‘efforts that amount to a course of harassment that

was wilful, wanton, malicious, and intended to inflict mental anguish and

bodily harm.’” Id. (citation omitted).6 The district court held, and we agree,

that the Masseys have not alleged facts sufficient to constitute wilful, wanton,

and malicious behavior.7

Because the Masseys’ request for injunctive relief depends on the suc-

cess of their other claims, we find that it was properly dismissed.8 The judg-

ment of dismissal is AFFIRMED.

6

See also Thomas, 499 F. App’x at 341–42 (noting that unreasonable collection in Texas

“is intended to deter ‘outrageous collection techniques,’ particularly those involving harassment

or physical intimidation.”) (footnote omitted).

7

See, e.g., Custer v. Wells Fargo Bank, N.A., No. A-12-CV-056 LY, 2013 WL 1926412,

at *12 (W.D. Tex. Apr. 1, 2013) (stating that engaging in legal activities related to collecting

a past due debt, including discussions regarding loan modification, does not constitute conduct

required for a claim of unreasonable collection).

8

See Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002); Marsh v. Wells Fargo

Bank, N.A., 760 F. Supp. 2d 701, 708 (N.D. Tex. 2011) (“Under Texas law, a request for injunc-

tive relief is not itself a cause of action but depends on an underlying cause of action.”) (citation

and internal quotation marks omitted).

10