John Priester, Jr. v. JP Morgan Chase Bank

Case: 12-40032 Document: 00512142421 Page: 1 Date Filed: 02/13/2013

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT United States Court of Appeals

Fifth Circuit

FILED

February 13, 2013

No. 12-40032

Lyle W. Cayce

Clerk

JOHN PRIESTER, JR.; BETTIE PRIESTER,

Plaintiffs-Appellants,

versus

JP MORGAN CHASE BANK, N.A.; JP MORGAN CHASE & COMPANY.;

LONG BEACH MORTGAGE COMPANY; ALAMO TITLE COMPANY;

CRISTOBAL M. GALINDO, P.C.; GALINDO LAW & TITLE;

GALINDO CRISTOBAL TITLE SERVICES; CRISTOBAL M. GALINDO;

KRISTEN L. TINSLEY,

Defendants-Appellees.

Appeal from the United States District Court

for the Eastern District of Texas

Before DAVIS, JONES, and SMITH, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

Appellants John and Bettie Priester obtained a loan backed by a lien on

their homestead from a bank eventually obtained by JP Morgan Chase Bank,

N.A. The mortgage agreement was signed at the Priesters’ house in violation of

the Texas Constitution. Almost five years later, the Priesters sued for a declara-

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No. 12-40032

tory judgment that the lien was void and that the mortgage holder was required

to forfeit all principal and interest. The Priesters also sought damages for

defamation. The defendants successfully moved to dismiss on the ground of limi-

tations. We affirm.

I.

In November 2005, the Priesters obtained from Long Beach Mortgage

Company (“Long Beach”) a home equity loan of $180,000 secured by a first lien

on their house. They allege that the closing of the loan occurred in their home

rather than at the office of an attorney, the lender, or a title company as

required by the Texas Constitution. They also contend that they did not receive

notice of their rights twelve days before closing as required by the state

constitution.

In July 2010, the Priesters sent a letter to Long Beach seeking “cure” of

those alleged constitutional deficiencies. No action was taken, because the loan

had been acquired by Chase. The Priesters therefore sent a letter to Chase in

August 2010, requesting cure and attaching the letter that had been sent to

Long Beach. Chase took no action to cure the perceived infirmities.

In October 2010, the Priesters sued various defendants (collectively,

“Chase”) in state court for a declaratory judgment that, under the Texas Consti-

tution, the loan and accompanying lien on their home were “void ab initio,” that

defendants had failed to cure constitutional violations, and that therefore Chase

was required to forfeit all principal and interest. The Priesters also sought

actual and exemplary damages and attorney’s fees for defamation, maintaining

that Chase had engaged in libel by asserting that they were past due on their

payments. Chase removed to federal court.

Chase then moved to dismiss the suit as time-barred under the four-year

statute of limitations. The Priesters, by order of the magistrate judge (“MJ”),

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filed an amended complaint, and the motion to dismiss was denied. They then

filed a second amended complaint and motion to remand and later a motion for

leave to file a second amended complaint. The suit was stayed during settlement

negotiations, and the MJ dismissed all pending motions as moot; when the par-

ties failed to settle, he allowed fourteen days for refiling, and Chase again filed

a motion to dismiss. The MJ recommended that the motion to dismiss be

granted, but the Priesters objected and filed a third amended complaint and a

second motion to remand.

The district court adopted the recommendation of the MJ, dismissed the

suit, and struck the second and third amended complaints because they would

have joined non-diverse parties, destroying jurisdiction. The Priesters timely

appealed.

II.

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

novo, “accepting all well-pleaded facts as true and viewing those facts in the light

most favorable to the plaintiff.” Bustos v. Martini Club Inc., 599 F.3d 458, 461

(5th Cir. 2010) (internal quotation marks omitted). “To survive a motion to dis-

miss, a complaint must contain sufficient factual matter, accepted as true, to

‘state a claim to relief that is plausible on its fact.’”1

We review a denial of leave to amend a complaint for abuse of discretion.

See Gentilello v. Rege, 627 F.3d 540, 546 (5th Cir. 2010). “A district court abuses

its discretion if it: (1) relies on clearly erroneous factual findings; (2) relies on

erroneous conclusions of law; or (3) misapplies the law to the facts.” In re Volks-

wagen of Am., Inc., 545 F.3d 304, 310 (5th Cir. 2008) (en banc).

1

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550

U.S. 544, 570 (2007)). See generally 2 JAMES W. MOORE ET AL., MOORE’S FEDERAL PRACTICE

§ 8.04[1][b] (3d ed. 2012).

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III.

Jurisdiction is based on diversity of citizenship, so we apply the laws of

Texas as interpreted by Texas authorities.2 We therefore first look to the text of

the Texas Constitution and any decisions of the Texas courts in interpreting

these provisions. Although not controlling, “decisions of Texas intermediate

appellate courts may provide guidance.” Packard v. OCA, Inc., 624 F.3d 726, 729

(5th Cir. 2010).

The Priesters claim that defendants violated two provisions of the Texas

Constitution. The first states that

[t]he homestead of a family, or of a single adult person, shall be, and

is hereby protected from forced sale, for the payment of all debts

except for

...

(6) an extension of credit that:

...

(M) is closed not before:

(i) the 12th day after the later of the date that the owner of the

homestead submits a loan application to the lender for the extension

of credit or the date that the lender provides the owner a copy of the

notice prescribed by Subsection (g) of this section.

TEX. CONST. ART. XVI § 50(a)(6)(M)(i). The notice under Subsection (g) includes

a list of rights of the homeowners in securing a loan guaranteed by a lien on

their homestead.

The second provision states that a lien on a homestead is valid only if it “is

closed [ ] at the office of the lender, an attorney at law, or a title company.” Id.

§ 50(a)(6)(N). No lien on a homestead “shall ever be valid unless it secures a

debt described by this section.” Id. § 50(c).

If a lien is made in contravention of these requirements, the constitution

2

Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78–79 (1938); Guaranty Trust Co. v. York, 326

U.S. 99, 111–12 (holding that a period of limitations is a matter of state law to be determined

pursuant to Erie).

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provides for “cure.” Under Section 50(a)(6)(Q)(x), a party may give notice of a

defect, and the other party has sixty days to cure. The Priesters allege that they

did not receive the twelve-day notice, that the lien agreement was closed in their

living room, and that defendants did not cure when served notice, so the lien is

invalid. Chase responds, and the MJ and district court agreed, that the

affirmative defense of limitations bars suit.

We first address whether a limitations period applies to the Priesters’

claims. Although the state constitution does not include a limitations period

related to claims under Section 50(a)(6), “[e]very action for which there is no

express limitations period, except an action for the recovery of real property,

must be brought not later than four years after the day the cause of action

accrues.” TEX. CIV. PRAC. & REM. CODE § 16.051.

The Texas Supreme Court has not addressed whether that residual limi-

tations period applies to defects in homestead liens, but the two Texas courts of

appeals that have addressed the issue have found that the residual statute

applies. Addressing a Section 50(a)(6) defect, the court in Rivera v. Countrywide

Home Loans, Inc., 262 S.W.3d 834, 839 (Tex. App.SSDallas 2008, no pet.), con-

cluded that the “four-year statute of limitations applies to the constitutional and

fraudulent lien causes of action” embodied in the Texas Constitution. The court

in Schanzle v. JPMC Specialty Mortg. LLC, No. 03-09-00639-CV, 2011 WL

832170, at *4 (Tex. App.SSAustin Mar. 11, 2011, no writ), adopted that position

as well, noting that the “four-year statute of limitations has been applied to vio-

lations of the constitutional requirements for home equity loans, calculated from

the date of closing on the loan.”

Those courts relied in part on appellate decisions that had applied the

residual limitations period to other types of constitutional claims. For example,

in Ho v. University of Texas at Arlington, 984 S.W.2d 672, 686 (Tex. App.SS

Amarillo 1998, pet. denied), the court held that a claim under the Equal Pro-

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tection Clause of the Texas Constitution was subject to the residual limitations

period, “because statutes of limitation bar the remedy and not the right, and

therefore, constitutional rights may be subjected to those time limitations

imposed by statute.” Constitutional claims, the court noted, are encumbered by

the same problems as are other types of claims—they “may become stale as do

other claims, and bring with them the associated problems with overdue law-

suits, such as faded memories, departed witnesses, and misplaced evidence.” Id.

The court in Ho relied on Calverley v. Gunstream, 497 S.W.2d 110, 115

(Tex. Civ. App.SSDallas 1973, writ ref’d n.r.e.), which similarly held that limita-

tions periods “apply to delay in pursuit of remedies for enforcement of constitu-

tional rights as well as to any other delay in pursuit of available remedies.”

Without a limitations period, a defendant would be forced to defend himself

“after memories have faded, witnesses have died or disappeared, and evidence

has been lost,” all of which would prejudice his defense. Id. at 114.

The decision in Doody v. Ameriquest Mortgage Co., 49 S.W.3d 342 (Tex.

2001), offers indirect support for the applicability of limitations. The court

responded to a question certified by this court on the issue of cure, explaining

that a lien cured under Section 50(a)(6)(Q) became valid even if it was “invalid”

before the cure. Id. at 347. Discussing forfeiture, the court stated that “if a lien

that secures such a loan is voided,” the lender loses all rights to recovery. Id. at

346. That language suggests that the Texas Supreme Court considers liens cre-

ated in violation of Section 50(a)(6) to be voidable rather than void—a “void” lien

could not be “voided” by future action.

We have not before analyzed in any depth whether the statute of limita-

tions applies to the constitutional provisions at issue here. In Boutari v. JP Mor-

gan Chase Bank N.A., 429 F. App’x 407 (5th Cir. 2011) (per curiam), however,

we affirmed a judgment that limitations applies to claims under Section 50(a)(6).

In a two-sentence opinion, we said that we had “determined that the judgment

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of the district court should be affirmed for essentially the reasons set forth by the

district court.” Id. The opinion we affirmed had applied the four-year statute

of limitations. See Boutari v. JP Morgan Chase Bank, N.A., 2010 U.S. Dist.

LEXIS 144094 (W.D. Tex. June 10, 2010).

Therefore, we have arguably already acknowledged that a limitations per-

iod applies. Numerous district and bankruptcy courts3 have also applied the

four-year limitations period.4 We thus conclude that a limitations period applies

to constitutional infirmities under Section 50(a)(6).

Having determined that limitations applies, we must address when the

claim accrues. Generally, under Texas law, “[c]auses of action accrue and stat-

utes of limitations begin to run when facts come into existence that authorize a

claimant to seek a judicial remedy.” Exxon Corp. v. Emerald Oil & Gas Co.,

L.C., 348 S.W.3d 194, 202 (Tex. 2011). “In most cases, a cause of action accrues

3

See Reagan v. U.S. Bank Nat’l Ass’n, 2011 WL 4729845 (S.D. Tex. Oct. 6, 2011);

Johnson v. Deutsche Bank Nat’l Trust Co., 2010 WL 4962897 (S.D. Tex. Dec. 1, 2010); In re

Ortegon, 398 B.R. 431, 439–40 (Bankr. W.D. Tex. 2008); Hannaway v. Deutsche Bank Nat’l

Trust Co., 2011 WL 891669 (W.D. Tex. Mar. 11, 2011); Williams v. Deutsche Bank Nat’l Trust

Co., 2011 WL 891645 (W.D. Tex. Mar. 11, 2011); In re Chambers, 419 B.R. 652 (Bankr. E.D.

Tex. 2009).

4

The Priesters note that not all district courts to address this question have agreed.

In Smith v. JPMorgan Chase Bank, Nat’l Ass’n, 825 F. Supp. 2d 859, 861 (S.D. Tex. 2011)

adhered to on reconsideration sub nom. Smith v. JPMorgan Chase Bank Nat’l Ass’n, 2012 WL

43627 (S.D. Tex. Jan. 9, 2012), the court held that under the Texas Constitution, a “noncom-

pliant mortgage lien against a homestead is [ ] void ab initio” and that therefore the limita-

tions period does not apply. In Santos v. CitiMortgage, Inc., 2012 WL 1065464 (N.D. Tex.

Mar. 29, 2012), the court, relying on Smith, held that the limitations period did not apply and

that a constitutionally infirm lien was invalid. It did, however, apply the limitations period

to the resulting claim for forfeiture of principal and interest due four years before the suit was

brought. Id.

The key in Smith was the finding that constitutional noncompliance renders liens void

rather than voidable. The Priesters argue that this reasoning should be applied here and that

because the lien was void ab initio, no statute of limitations applies. That conclusion, how-

ever, is contrary to the constitutional scheme. Because a cure provision exists in Sec-

tion 50(a)(6)(Q), liens that are contrary to the requirements of § 50(a) are voidable rather than

void from the start. See Doody, 49 S.W. 3d at 342.

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when a wrongful act causes a legal injury, regardless of when the plaintiff learns

of that injury or if all resulting damages have yet to occur.” Provident Life &

Acc. Ins. Co. v. Knott, 128 S.W.3d 211, 221 (Tex. 2003). This accrual rule is

referred to as the “injury rule.”

An alternative is the “discovery rule.” “The discovery rule exception oper-

ates to defer accrual of a cause of action until the plaintiff knows or, by exercis-

ing reasonable diligence, should know of the facts giving rise to the claim.” Wag-

ner & Brown, Ltd. v. Horwood, 58 S.W.3d 732, 734 (Tex. 2001). The discovery

rule is a “very limited” exception and will be applied only “when the nature of

the plaintiff's injury is both inherently undiscoverable and objectively verifiable.”

Id. The Texas courts have set the “inherently undiscoverable” bar high, to the

extent that the discovery rule will apply only where it is nearly impossible for

the plaintiff to be aware of his injury at the time he is injured. See S.V. v. R.V.,

933 S.W.2d 1, 6–7 (Tex. 1996).

The Priesters argue that some version of the discovery rule, rather than

the injury rule, should apply here. They contend that the period runs at the

notice of demand for cure of the constitutional deficiencies or failure to cure.

The Texas courts that have addressed this issue have applied the injury

rule rather than the discovery rule and have held that limitations begins to run

at the closing of a lien. In Rivera, the court concluded that “the legal injury

occurred when [the lender] made a loan” violating the Texas Constitution.

Rivera, 262 S.W.3d at 840. Similarly, the court in Schanzle, 2011 WL 832170,

at *4, held that the period of limitations is “calculated from the date of closing

on the loan.”

The district court in Boutari, which this court upheld, adopted the finding

and recommendation of the MJ that the “four-year limitation period [ ] com-

menced when the home equity loan in question closed.” Boutari, 2010 U.S.

DIST. LEXIS 144094, at *27. The district courts have applied the injury rule

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rather than the discovery rule in every case in which they have applied limi-

tations to Section 50(a)(6) violations.5

We therefore conclude that the legal injury rule applies to the creation of

unconstitutional liens.6 Insofar as the period of limitations exists to preserve

evidence and create settled expectations, it would essentially be nullified by

allowing parties to wait many years to demand cure. The injury occurred when

the Priesters created the lien, and there was nothing that made the injury undis-

coverable. The Priesters knew that the closing documents were signed in their

living room and that they were not given notice of their rights. A lack of knowl-

5

See, e.g., Reagan, 2011 WL 4729845, at *4 (holding that, because the injury was “not

inherently undiscoverable,” the injury rule applies).

6

The Priesters argue that the cure provision and sixty-day period for cure are where

the injury occurs. They are unable to find any direct support for that novel argument. They

do cite Cummins & Walker Oil Co. v. Smith, 814 S.W.2d 884, 887 (Tex. App.SSSan Antonio

1991, no writ), which held, in a contract case, that “where the parties so frame their contract

as to make prior demand an integral part of a cause of action or a condition precedent to a

right to sue, the statute of limitations does not begin to run until demand is made.”

The demand provision in a contract, however, is distinguishable. There is no injury at

the creation of the contract, and the parties agreed that they would attempt to cure rather

than litigate what was already a valid contract. The lien, on the other hand, is voidable from

the day of creation; the legal injury occurs at a definite point in time. Additionally, there is

nothing in the Texas Constitution that suggests that the borrower must seek cure before filing

suit.

Further, courts that have applied Cummins have held that if there is a breach of con-

tract, a demand requirement does not indefinitely toll limitations. For example, in Aetna Cas.

& Sur. Co. v. State, 86 S.W.2d 826, 831 (Tex. Civ. App.SSFort Worth 1935, writ dism’d), the

court held that, “[w]here a demand is a condition precedent to suit, the plaintiff may not, by

failing or refusing to perform the condition, toll the running of the statute and reserve for

himself the right to sue within the statutory period from such time as he decides to make a

demand.” The court explained that “it is the general rule that in such a case a demand must

be made within a reasonable time after it may lawfully be made.” Id. This court has found

that “reasonable” period of time to relate to the statute of limitations. See United States v.

First City Capital Corp., 53 F.3d 112, 115 (5th Cir. 1995). Cummins therefore is inapposite

here; accrual occurs at injury.

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edge that that was a violation of the law is insufficient to toll limitations.7 This

is not one of the “rare” instances in which the discovery rule applies—the injury

is certain to be “discovered within the prescribed limitations period.”

The Priesters argue that, even if a limitations period applies and accrued

at the creation of the lien, Chase is estopped from asserting a limitations

defense, because the originators of the loan “fraudulently concealed their illegal

conduct . . . , tolling the statute of limitations.” They base this argument on

Section 50(a)(6)(M)’s requirement that notice of constitutional rights be given to

homeowners twelve days before closing. They aver that defendants’ lack of

disclosure functioned as fraudulent concealment.

The doctrine of fraudulent concealment estops defendants from raising

limitations as a defense. Where a defendant has hidden evidence of harm from

a plaintiff, he will not “be permitted to avoid liability for his actions by deceit-

fully concealing wrongdoing until limitations has run.” S.V., 933 S.W.2d at 6.

Fraudulent concealment tolls limitations “until the claimant, using reasonable

diligence, discovered or should have discovered the injury.” KPMG Peat Mar-

wick v. Harrison Cnty. Hous. Fin. Corp., 988 S.W.2d 746, 750 (Tex. 1999).

Fraudulent concealment has four elements: “(1) the existence of the underlying

tort; (2) the defendant’s knowledge of the tort; (3) the defendant’s use of decep-

tion to conceal the tort; and (4) the plaintiff’s reasonable reliance on the decep-

tion.” Holland v. Thompson, 338 S.W.3d 586, 596 (Tex. App.SSEl Paso 2010, pet.

denied).8

7

See Colonial Penn Ins. v. Mkt. Planners Ins. Agency Inc., 157 F.3d 1032, 1034 (5th Cir.

1998) (“The rule delays the statute of limitations only until the claimant knows or should

know the facts that could support a cause of action, not until she realizes that the facts do sup-

port a cause of action.”).

8

See also Glover v. Union Pac. R.R. Co., 187 S.W.3d 201, 217 (Tex. App.SSTexarkana

2006, pet. denied); Mitchell Energy Corp. v. Bartlett, 958 S.W.2d 430, 439 (Tex. App.SSFort

Worth 1997, pet. denied).

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The first two elements are certainly met here. The constitutional violation

is not challenged, and insofar as constructive knowledge or a “should have

discovered” standard can be imposed on the Priesters, knowledge should be

imputed to the defendants as well.

There is no evidence, however, that the defendants used “deception” to con-

ceal any constitutional violations. First, it would be impossible to conceal the

fact that the closing occurred in the Priesters’ living room. Second, the defen-

dants did not “conceal” the fact that they did not provide the required constitu-

tional notices. It is difficult to imagine how a party would conceal a lack of

disclosure.

The Priesters argue, in their second and third amended complaints (which

were struck by the district court), that because the defendants had an attorney

sign the closing documents, they effectively represented that all legal disclosures

had been made and that the entire process comported with the constitutional

requirements. That argument, however, is meritless. The identity of the title

company signer does not represent anything. Moreover, it does not “conceal” the

Priesters’ legal rights. They could have hired their own attorney or discovered

their legal rights in any number of places. In both cases, the facts were known

and not able to be concealed.

The Priesters contend that because the defendants had a “duty to disclose”

information pursuant to Section 50(a)(6)(M), their failure to do so acted as con-

cealment and deception; they cite no authority to support that proposition. More-

over, the disclosure did not amount to concealment, because the lenders only had

a duty to provide information regarding legal rights rather than factual informa-

tion. The Texas courts have held that this does not rise to the level of fraudulent

concealment.

“Mere failure to disclose a cause of action or mere concealment of a cause

of action, when the defendant owes no duty to disclose, is not fraudulent conceal-

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ment.” DiGrazia v. Old, 900 S.W.2d 499, 503 (Tex. App.SSTexarkana 1995, no

writ). There is no duty to disclose here, and no special relationship. The Texas

Supreme Court has not found a mortgagor-mortgagee relationship to include

fiduciary duties.9 Because there was no evidence or allegation of the defendants’

attempting to conceal information, and because the facts that gave rise to any

claims were obvious and not hidden, the doctrine of fraudulent concealment does

not apply here to estop the lenders’ assertion of the limitations defense.

The Priesters also claim they suffered defamation at the hands of the

defendants, because they “report[ed] delinquent payments on the Priesters’

credit reports.” The Priesters argue that this is defamatory for two reasons, first

because “home-equity loans are non-recourse,”10 and second because the “the

underlying lien is void and unenforceable.”

The district court adopted the MJ’s conclusion that the Priesters’ defama-

tion claim was “completely dependent on a determination of the validity of the

loan” and that therefore, because the loan was valid, the derivative claim for

defamation should be dismissed. The court cited Boutari, in which we similarly

dismissed derivative defamation claims. The Priesters argue that the district

court’s conclusion was flawed: Their claim was independent and would not be

time-barred, because the alleged defamation occurred recently.

Libel in Texas is “a defamation expressed in written [form] . . . that tends

to injure a living person’s reputation and thereby expose the person to public

hatred, contempt or ridicule, or financial injury or to impeach any person’s

honesty, integrity, virtue, or reputation.” TEX. CIV. PRAC. & REM. CODE § 73.001.

9

See Fed. Deposit Ins. Corp. v. Coleman, 795 S.W.2d 706, 709 (Tex. 1990) (“The rela-

tionship of mortgagor and mortgagee ordinarily does not involve a duty of good faith.”).

10

This argument is nonsensical. The defendants reported that the Priesters were delin-

quent in payments. Even though the Priesters are correct that the loan was non-recourse, that

does not have any bearing on whether they were delinquent.

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“In both libel and slander the issues are whether the utterance was made, if it

was false, if it damaged the complainant and if the speaker had any privilege.”

Peshak v. Greer, 13 S.W.3d 421, 426 (Tex. App.SSCorpus Christi 2000, no pet.).

The truth of a statement is “a complete defense to defamation.” Randall’s Food

Mkts., Inc. v. Johnson, 891 S.W.2d 640, 646 (Tex. 1995).

The key issue here is the truth of defendants’ statements. The alleged

defamatory statements were contained in a report to credit agencies that stated

that the Priesters were delinquent on their loan payments. Because the loan

was valid, and the Priesters were delinquent, the statements to these effects

were true, and so no defamation occurred.

The Priesters interpret the district court’s decision as dismissing the

defamation claim as time-barred itself. In support of their position, the Priesters

cite only Chevalier v. Animal Rehabilitation Center, Inc., 839 F. Supp. 1224,

1233 (N.D. Tex. 1993), in which the court held that “[a]s long as Plaintiff timely

filed his [derivative] claim, the remedy for it is unscathed and the extant liability

of an underlying defamation claim supports it regardless of the fate of a remedy

for that underlying claim.” The Priesters argue that the underlying constitu-

tional claims are still “extant” and that the statute of limitations bars only rem-

edies.

That position is incorrect. To the extent that a constitutional claim under

Section 50(a)(6) renders a lien voidable rather than void, once the period of limi-

tations has passed, the lien is no longer voidable and is valid. Thus, the Pries-

ters’ underlying claim for liability is no longer “extant.” Unlike a claim for fraud

or conspiracy, as in Chevalier, in the present case the lien becomes valid after

the period of limitations passes, so the “harm” is, in effect, erased. There was

thus no defamation, and the claim was rightly dismissed.

Finally, the Priesters appeal the decision to strike their second and third

amended complaints that sought to join additional parties that would have

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destroyed diversity jurisdiction. The Priesters argue that the amended com-

plaints were filed in accordance with the court’s scheduling order and that they

were necessary to join outside parties and introduce additional claims.

Parties have an amendment of right under Federal Rule of Civil Procedure

15(a). Additionally, under Federal Rule of Civil Procedure 16(b), a scheduling

order must set the time in which parties are permitted to amend pleadings and

join other parties.

“[L]eave to amend under Rule 15(a) is to be freely given.” Schiller v. Phy-

sicians Resource Group Inc., 342 F.3d 563, 566 (5th Cir. 2003). “[T]hat generous

standard is tempered by the necessary power of a district court to manage a

case.” Id. In deciding whether to grant leave to amend, the court may consider

factors such as “undue delay, bad faith or dilatory motive on the part of the mov-

ant, repeated failure to cure deficiencies by amendments previously allowed,

undue prejudice to the opposing party by virtue of the allowance of the amend-

ment, [and] futility of the amendment.”11

The Priesters argue that they were not trying to amend under Rule 15(a)

but instead were relying on the Rule 16(b) scheduling order, which they claim

allowed them to amend essentially as many times as they wanted within the

period afforded by the MJ for amendment. They do not cite any authorities to

support that proposition; instead, they refer to the local rules of the Eastern Dis-

trict of Texas. The citation, however, is as unpersuasive at it is disingenuous.

The Priesters cite Appendix L of the local rules, which offers a sample

scheduling order. They then argue that the sample is a “local rule.” Although

the sample does state that it “is not necessary to file a motion for leave to amend

before the deadline to amend pleadings,” as set by the scheduling order, that is

not a rule. See E.D. TEX, LOCAL R. APP’X L. Indeed, the actual scheduling order

11

Foman v. Davis, 371 U.S. 178, 182 (1962). See also Rosenzweig v. Azurix Corp., 332

F.3d 854, 864 (5th Cir. 2003).

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No. 12-40032

issued in this case does not include that language at all but only states that the

deadline to amend the pleadings is October 28, 2011.

Having not provided any waiver of the presumptive requirement of leave

to amend, the district court was well within its right to require such leave. And,

in fact, the language in the sample scheduling order shows that the default pre-

sumption is that leave to amend is required. There are no cases that support the

Priesters’ broad reading of Rule 16(b), which would allow unlimited amendments

so long as a scheduling order did not explicitly require leave to amend. The

court was justified in striking the amended complaints.

Moreover, the court correctly struck the amended complaints because they

sought to join non-diverse parties. The district court “must scrutinize an amend-

ment [to a pleading] that would add a non-diverse party more closely than an

ordinary amendment.” Short v. Ford Motor Co., 21 F.3d 1107 (5th Cir. 1994).

This is because “the court’s decision will determine the continuance of jurisdic-

tion.” Id.

“If after removal the plaintiff seeks to join additional defendants whose

joinder would destroy subject matter jurisdiction, the court may deny joinder, or

permit joinder and remand the action to the State court.” 28 U.S.C. § 1447(e).

The court should “use its discretion in deciding whether to allow that party to

be added.” Hensgens v. Deere & Co., 833 F.2d 1179, 1182 (5th Cir. 1987). This

court in Hensgens pointed out factors to consider in determining whether to

permit joinder of non-diverse parties, including “the extent to which the purpose

of the amendment is to defeat federal jurisdiction, whether plaintiff has been

dilatory in asking for amendment, whether plaintiff will be significantly injured

if amendment is not allowed, and any other factors bearing on the equities.” Id.

The district court weighed each of the Hensgens factors and found that the

balance was in favor of denying amendment. It concluded that the Priesters

were adding the additional defendants to defeat jurisdiction, that they were

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No. 12-40032

slightly dilatory, that they would not be injured by denial, and that the balance

of the equities weighed in favor of denial. The court thus applied the correct

legal standard, and its findings of fact were not clearly erroneous. It did not

abuse its discretion in striking the amended complaints.

The judgment of dismissal is AFFIRMED.

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