Hayes et al v. PHH Mortgage Corporation et al

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IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
GAZELLE HAYES, et al.,
Plaintiffs,
v.
PHH MORTGAGE CORPORATION,
et al.,
Defendants.
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Case No. 3:25-cv-01056-E-BT
FINDINGS, CONCLUSIONS, AND RECOMMENDATION
OF THE UNITED STATES MAGISTRATE JUDGE
Before the Court is Defendant PHH Mortgage Corporation’s (PHH) Motion
to Dismiss under Federal Rules of Civil Procedure 12(b)(4), 12(b)(5), and 12(b)(6).
ECF No. 8. For the reasons stated, the undersigned RECOMMENDS the District
Judge GRANT in part Defendant’s Motion but allow Plaintiffs leave to amend
their pleadings. The undersigned further RECOMMENDS the District Judge
DISMISS the claims against the in-state defendants as improperly joined.
Background
This lawsuit arises out of the foreclosure of pro se Plaintiffs Curtis, Jr., and
Gazelle Hayes’s home (the “Property”). See Not. Removal 1 (ECF No. 1); 2d Am.
Pet. (ECF No. 1-6). On April 1, 2025, at 12:00 a.m., Plaintiffs filed an “Emergency
Petition and Application for Temporary Restraining Order and Temporary
Injunction” in state court seeking to prevent the foreclosure sale of the Property
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set for 1:00 p.m. that same day. See Emerg. Pet. and App., at 2 (ECF No. 1-3).
Despite Plaintiffs’ attempt to prevent foreclosure—the sale went forward as
scheduled. Not. Removal 1 (ECF No. 1). Plaintiffs then filed two more pleadings in
state court. In the live pleading—Plaintiffs’ “Emergency Petition and Application
for Permanent Injunction,” Plaintiffs assert eight claims against PHH, AVT Title
Services, LLC, Power Default Services, and Mark Bombick.
The state court set Plaintiffs’ application for Permanent Injunction for a
hearing on April 30, 2025. The record does not reflect whether any Defendant,
including PHH, was served in state court. Nevertheless, Defendant PHH received
notice of this action and removed this case to federal court on April 29, 2025. See
Not. Removal. PHH asserts that removal to this Court was proper based on 28
U.S.C. § 1331, federal question jurisdiction, and 28 U.S.C. 1332, diversity
jurisdiction. PHH further argues that, although Plaintiffs assert claims against
Texas citizens, those parties are improperly joined. Id.
Following removal, Defendant AVT Title Service appeared and filed an
“Original Answer and Verified Denial.” See AVT Answer (ECF No. 6). AVT’s
verified denial asserts that “it was named as a party solely in its capacity as a
substitute trustee,” and that AVT’s “sole involvement was as the trustee that
performed the foreclosure sale.”
Defendant PHH filed a Rule 12 Motion to Dismiss for insufficient process,
service of process, and failure to state any claim upon which relief can be granted.
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Mot. Dismiss ECF No. 8. That Motion has been fully briefed and is ripe for
determination.
Discussion
I. Motion to Dismiss under Rules 12(b)(4) and 12(b)(5)
Legal Standards
Under Federal Rules of Civil Procedure 12(b)(4) and (5), a complaint may be
dismissed for either insufficient process or insufficient service of process. “An
objection under Rule 12(b)(4) concerns the form of the process” rather than the
manner or method of its service and “is proper only to challenge noncompliance
with the provisions of Rule 4(b) or any applicable provision incorporated by Rule
4(b) that deals specifically with the content of the summons.” See Johnson v.
Crosby Elementary Sch., No. 3:23-CV-2010-B, 2024 WL 3641752, at *7 (N.D. Tex.
Aug. 2, 2024) (Boyle, J.) (quoting Shivers v. Akima Intra-Data, No. 2:07 CV 55KS
MTP, 2008 WL 3992669, at *3 (S.D. Miss. Aug. 21, 2008)). “Thus, Rule 12(b)(4)
is the proper challenge, for instance, when it is alleged that the Summons and
Complaint do not properly name the party on whom the Summons and Complaint
is served.” Shivers 2008 WL 3992669, at *3 (noting also that a motion under
12(b)(4) is “fairly rare” other than those cases in which it is confused with a motion
under Rule 12(b)(5)).
An objection under Rule 12(b)(5), on the other hand, challenges the
plaintiff’s method of service or the lack of delivery of the summons and complaint.
See Fed. R. Civ. P. 12(b)(5). See Fed. R. Civ. P. 12(b)(5); Coleman v. Bank of N.Y.
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Mellon, 969 F. Supp. 2d 736, 745 (N.D. Tex. 2013) (citations omitted). “A motion
to dismiss pursuant to Rule 12(b)(5) turns on the legal sufficiency of the service of
process.” Quinn v. Miller, 470 F. App'x. 321, 323 (5th Cir. 2012). Pro se litigants
are not relieved of 12(b)(5)’s requirements and are expected to comply with the
rules of service. See Birl v. Estelle, 660 F.2d 592, 593 (5th Cir. 1981). “When service
of process is challenged [under 12(b)(5)], the serving party bears the burden of
proving its validity or good cause for failure to effect timely service.” Sys. Signs
Supplies v. U.S. Dep't of Just., 903 F.2d 1011, 1013 (5th Cir. 1990) (per curiam).
Ultimately, “[t]he district court enjoys a broad discretion in determining
whether to dismiss an action for ineffective service of process.” George v. U.S.
Dep't of Lab., Occupational Safety & Health Admin., 788 F.2d 1115, 1116 (5th Cir.
1986) (per curiam).1
ANALYSIS
A. Insufficient Process – Fed. R. Civ. P. 12(b)(4)
PHH’s moves to dismiss Plaintiffs’ complaint under Rule 12(b)(4). But
PHH’s motion contains no evidence or argument related to the form or content of
the process. See Fed. R. Civ. P. 12(b)(4). Instead, Defendant’s Motion concerns the
1 See also 5B Wright and Miller’s Federal Practice and Procedure § 1354 (4th ed.)
(collecting cases) (“Motions under Federal Rules of Civil Procedure 12(b)(4) and 12(b)(5)
differ from the other motions permitted by Rule 12(b) somewhat in that they offer the
district court a course of action—quashing the process without dismissing the action—
other than simply dismissing the case when the defendant’s defense or objection is
sustained.”).
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alleged defects with Plaintiffs’ method of service. See Mot. Dismiss. Accordingly,
the District Judge should deny PHH’s motion to dismiss under Rule 12(b)(4).
B. Insufficient Service of Process – Fed. R. Civ. P. 12(b)(5)
PHH also argues Plaintiffs’ complaint should be dismissed under Rule
12(b)(5) for ineffective service of process. See Br. Mot. Dismiss. 4–8 (ECF No. 9).
Under Rule 12(b)(5), a district court has “broad discretion to dismiss an action for
ineffective service of process.” Kreimerman v. Casa Veerkamp, S.A. de C.V., 22
F.3d 634, 635 (5th Cir. 1994). And, where—as here—service of process is
challenged, “the serving party bears the burden of proving its validity or good cause
for failure to effect timely service.” Systems Signs Supplies, 903 F.2d at 1013 (per
curiam) (citations omitted).
Under Federal Rule of Civil Procedure 4, Plaintiffs are responsible for
properly serving PHH with a summons and complaint. PHH is a New Jersey
corporation, and Rule 4 provides that a corporation must be served by:
(1) delivering a copy of the summons and of the complaint to an
officer, a managing or general agent, or any other agent
authorized by appointment or by law to receive service of
process; OR
(2) following the requirements of applicable state law on service of
an individual.
See Fed. R. Civ. P. 4(h)(1)(B), (e)(1), 12(b)(5); See Not. Removal 5 (“PHH is
incorporated in New Jersey and has its principal place of business in New Jersey.”).
Under applicable state law, a corporation may be served by mailing a copy
of the citation and petition to the corporation’s registered agent via registered or
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certified mail, return receipt requested. Tex. R. Civ. P. 106; Tex. Bus. Org. Code §
5.201(b). But, under both the Federal Rules of Civil Procedure and the Texas Rules
of Civil Procedure, a party cannot serve process, even by mail. See Fed. R. Civ. P.
4(c)(2) (“Any person who is at least 18 years old and not a party may serve a
summons and complaint.” (emphasis added)); Tex. R. Civ. P. 103 (“[N]o person
who is a party to or interested in the outcome of a suit may serve any process in
that suit....” (emphasis added)). There is no exception for pro se litigants. See
Avdeef v. Royal Bank of Scotland, P.L.C., 616 F. App’x 665 (5th Cir. 2015).
Additionally, Rule 4(d) permits a plaintiff to request a “waiver of service”
from a defendant corporation. See Fed. R. Civ. P. 4(d)(1) (also noting that a
corporation “has a duty to avoid unnecessary expenses of serving the summons.”).
If the defendant does not waive service of process, the plaintiff must then serve
defendant—although a plaintiff may recoup costs incurred in effecting service and,
if necessary, any expenses incurred in moving to collect those service costs. See id.
Plaintiffs’ live pleading contains a certificate of service certifying that
Plaintiffs mailed a copy of the petition via certified mail, return receipt requested
to a PO box in Florida, and by email to ConsumerOmbudsman@onitygroup.com.
PHH argues, however, that Plaintiffs’ method of “service by e-mail and by certified
mail to a PO Box” is insufficient under Rule 4. See Mot. Dismiss. Plaintiffs respond
that their “adult son who is not a party to the suit nor has any interest in the
outcome” served PHH via express mail on April 14, 2025, and by priority mail on
April 23, 2025. See Resp. Mot. Dismiss. 5 (ECF No. 10).
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The Court agrees that Plaintiffs have failed to carry their burden of
establishing that PHH was properly served. First, Plaintiffs have submitted no
evidence, affidavit, or return of service proving that service was completed. Nor
have Plaintiffs shown that PHH was served through its registered agent at the
correct address. Second, it is unclear whether Plaintiffs’ adult son, although not a
party, is “interested in the outcome of this suit”—which involves the foreclosure of
his parents’ home. See Tex. R. Civ. P. 103 (“[N]o person who is a party to or
interested in the outcome of a suit may serve any process in that suit.”). Finally,
service by email is not allowed under Texas law unless it is first authorized by the
Court, and no such authorization appears in the record. See Tex. R. Civ. P. 106(b).
That said, “[t]he Court rarely dismisses a case due to the failure to properly
serve a defendant” and “[o]n occasions where the Court has granted dismissal for
improper service, it was only after multiple chances were given.” Coleman v.
Carrington Mortg. Servs., LLC, No. 4:19-CV-00231-ALM-CAN, 2020 WL
4723174, at *5 (E.D. Tex. July 27, 2020), rec. adopted, No. 4:19-CV-231, 2020 WL
4698099 (emphasis in original) (internal quotation marks omitted); see also
Styles v. McDonalds Rest., No. 4:17-cv-791 (E.D. Tex. July 24, 2019), ECF No. 56
(Mazzant, J.) (declining to dismiss the case under Rule 12(b)(5) until “Plaintiff
failed to properly serve Defendant after multiple opportunities and failed to
demonstrate good cause for such failure”) (emphasis added); Bowling v.
Childress-Herres, No. 4:18-CV-610-ALM-CAN, 2019 WL 4463450, at *6 (E.D.
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Tex. Aug. 7, 2019) (providing plaintiff multiple opportunities to serve defendant),
rec. adopted, 2019 WL 4451122 (E.D. Tex. Sept. 17, 2019).
Further, although Plaintiffs’ pro se status does not excuse a failure to serve,
the record reflects that they have, in fact, attempted to serve PHH. And, based on
PHH’s removal of this action to federal court, PHH had actual notice of this
lawsuit. See Systems Signs Supplies, 903 F.2d at 1013–1014 (recognizing that
defendants’ actual notice and plaintiff’s repeated efforts to serve, when coupled
with his pro se status, “arguably provide grounds for leniency in considering the
technical imperfections of service.”). What’s more, Plaintiffs have not had
“multiple chances to properly effect service.” This is the first time the Court has
had occasion to address the propriety of Plaintiffs’ service on PHH.
Thus, in view of Plaintiffs’ pro se status, their prior efforts to serve, and
PHH’s actual notice of this case, the District Judge should grant leniency rather
than dismissal. Indeed, dismissal is generally not appropriate unless “there is no
reasonably conceivable means of acquiring jurisdiction over the person of a
defendant.” See Currington v. XTO Energy, Inc., No. 1:12-CV-589, 2013 WL
12155258, at *1 (E.D. Tex. July 2, 2013) (citation omitted).
For these reasons, the undersigned recommends the District Judge deny
PHH’s motion under Fed. R. Civ. P. 12(b)(5).
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II. PHH’s Motion to Dismiss under Rule 12(b)(6)
LEGAL STANDARDS
Fed. R. Civ. P. 12(b)(6)
To survive a Rule 12(b)(6) motion, a plaintiff's complaint must contain
sufficient factual matter to state a plausible claim for relief. Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007). “To be plausible, the complaint's ‘[f]actual
allegations must be enough to raise a right to relief above the speculative level.’” In
re Great Lakes Dredge & Dock Co. LLC, 624 F.3d 201, 210 (5th Cir. 2010) (quoting
Twombly, 550 U.S. at 555).
This pleading standard does not require “detailed factual allegations,” but it
does demand more than an unadorned accusation devoid of factual support.
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555).
“A claim has facial plausibility when the plaintiff pleads factual content that allows
the court to draw a reasonable inference that the defendant is liable for the
misconduct alleged.” Id. at 678 (citing Twombly, 550 U.S. at 556). “[A] formulaic
recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at
555 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). “While legal conclusions
can provide the framework of a complaint, they must be supported by factual
allegations.” Iqbal, 556 U.S. at 679. When the facts do not permit the Court to infer
more than the mere possibility of misconduct, the complaint has stopped short of
showing that the plaintiff is plausibly entitled to relief. Id. at 678 (citing Twombly,
550 U.S. at 557).
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When applying the plausibility standard, the Court “accepts all well-pleaded
facts as true, viewing them in the light most favorable to the plaintiff.” In re
Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (internal
quotation marks and citations omitted). But a court may not look beyond the
pleadings. Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir. 1999). Review is
“limited to the complaint, any documents attached to the complaint, and any
documents attached to the [motion to dismiss] that are central to the claim and
referenced by the complaint.” Smith v. Buffalo Wild Wings, No. 3:20-CV-2875-D,
2021 WL 4265849, at *2 (N.D. Tex. Sept. 20, 2021) (Fitzwater, J.) (citing Lone Star
Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010)); see
also Inclusive Communities Project, Inc. v. Heartland Cmty. Ass'n, Inc., 399 F.
Supp. 3d 657, 665 (N.D. Tex. 2019), aff'd, 824 F. App'x 210 (5th Cir. 2020) (“In
ruling on [a Rule 12(b)(6)] motion, the court cannot look beyond the pleadings.”)
Courts considering Rule 12(b)(6) motions generally hold pro se complaints
to less stringent standards than formal pleadings drafted by lawyers. Taylor v.
Books A Million, Inc., 296 F.3d 376, 378 (5th Cir. 2002) (quoting Miller v.
Stanmore, 636 F.2d 986, 988 (5th Cir. 1981)). But “despite [the] general
willingness to construe pro se filings liberally,” courts “still require pro se parties
to fundamentally abide by the rules that govern the federal courts.” E.E.O.C. v.
Simbaki, Ltd., 767 F.3d 475, 484 (5th Cir. 2014), as revised (Sept. 18, 2014)
(cleaned up). Thus, a pro se plaintiff is not excused from the requirements to
“properly plead sufficient facts that, when liberally construed, state a plausible
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claim to relief[.]” Id. (citations omitted). The undersigned liberally construes
Plaintiffs’ Amended Complaint with all possible deference due
a pro se litigant. See Erickson v. Pardus, 551 U.S. 89, 94 (2007) (pro se pleadings
are “to be liberally construed,” and “a pro se complaint, however inartfully
pleaded, must be held to less stringent standards than formal pleadings drafted by
lawyers.”). But such liberal treatment does not require a court to “create causes of
action where there are none.” Smith v. CVS Caremark Corp., No. 3:12-CV-2465-
B, 2013 WL 2291886, at *8 (N.D. Tex. May 23, 2013). And pro se status does not
provide an “impenetrable shield,” “for one acting pro se has no license to harass
others, clog the judicial machinery with meritless litigation and abuse already
overloaded court dockets.” Farguson v. MBank Houston, N.A., 808 F.2d 358, 359
(5th Cir. 1986).
Even so, generally, a district court may not dismiss a pro se complaint for
failure to state a claim under 12(b)(6) without giving the plaintiff a chance to
amend. Bazrowx v. Scott, 136 F.3d 1053, 1054 (5th Cir. 1998).
Removal and Remand
Federal courts are courts of limited jurisdiction. “They possess only that
power authorized by Constitution and statute[.]” Kokkonen v. Guardian Life Ins.
Co. of Am., 511 U.S. 375, 377 (1994) (citations omitted). Thus, a court must
presume a suit lies outside its limited grant of jurisdiction, and the burden of
establishing jurisdiction lies with the party seeking to invoke the federal forum.
Howery v. Allstate Ins. Co., 243 F.3d 912, 916 (5th Cir. 2001). A defendant seeking
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to remove a case to federal court satisfies his burden by showing a basis for federal
jurisdiction and that removal was proper. Manguno v. Prudential Prop. & Cas. Ins.
Co., 276 F.3d 720, 723 (5th Cir. 2002); Miller v. Diamond Shamrock Co., 275 F.3d
414, 417 (5th Cir. 2001). “If at any time before final judgment it appears that the
district court lacks subject matter jurisdiction [of a removed case], the case shall
be remanded.” 28 U.S.C. § 1447(c); see also Exxon Mobil Corp. v. Starr Indem. &
Liab. Ins. Co., 716 F. App'x 349, 350–51 (5th Cir. 2018) (per curiam). Moreover,
any doubts about removal must be resolved against removal and in favor of
remand. Baylor Univ. Med. Ctr. v. Arkansas Blue Cross Blue Shield, 331 F. Supp.
2d 502, 508 (N.D. Tex. 2004) (quotation marks and citations omitted).
Improper Joinder
A federal court has diversity jurisdiction if the amount in controversy
exceeds $75,000 and all parties in the matter are completely diverse. 28 U.S.C. §
1332; Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 (1996). Complete diversity requires
that each plaintiff is completely diverse from each defendant. Id. In other words,
complete diversity means “all persons on one side of the controversy must be
citizens of different states than all persons on the other side.” MidCap Media Fin.,
L.L.C. v. Pathway Data, Inc., 929 F.3d 310, 313 (5th Cir. 2019) (internal brackets
and citation omitted).
“The improper joinder doctrine constitutes a narrow exception to the rule of
complete diversity.” Cuevas v. BAC Home Loans Servicing, LP, 648 F.3d 242, 249
(5th Cir. 2011) (citing McDonal v. Abbott Lab'ys, 408 F.3d 177, 183 (5th Cir.
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2005)). “To establish improper joinder, the removing party must demonstrate
either: ‘(1) actual fraud in the pleading of jurisdictional facts, or (2) [the] inability
of the plaintiff to establish a cause of action against the non-diverse party in state
court.’” Id. (quoting Smallwood v. Illinois Cent. R. Co., 385 F.3d 568, 573 (5th Cir.
2004) (en banc)). The removing party's “burden of demonstrating improper
joinder is a heavy one.” Id. (citing Griggs v. State Farm Lloyds, 181 F.3d 694, 699
(5th Cir. 1999)).
The test under the second prong is “whether the defendant has
demonstrated that there is no possibility of recovery by the plaintiff against an in-
state defendant,” meaning “there is no reasonable basis for the district court to
predict that the plaintiff might be able to recover against an in-state defendant.”
Smallwood, 385 F.3d at 573 (citations omitted); accord Int'l Energy Ventures
Mgmt., L.L.C. v. United Energy Grp., Ltd., 818 F.3d 193, 200 (5th Cir. 2016). The
“holistic approach to removal mandates that the existence of even a single valid
cause of action against in-state defendants (despite the pleading of several
unavailing claims) requires remand of the entire case to state court.” Gray ex rel.
Rudd v. Beverly Enters.-Mississippi, Inc., 390 F.3d 400, 412 (5th Cir. 2004).
To determine whether the defendant has shown the plaintiff's inability to
recover against the nondiverse defendant, courts conduct “a Rule 12(b)(6)-type
analysis, looking initially at the allegations of the complaint to determine whether,
under state law, the complaint states a claim against the in-state defendant.” Int’l
Energy Ventures Mgmt., L.L.C., 818 F.3d at 207–208. In this context, though, the
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Court's “Rule 12(b)(6)-type analysis . . . is used to resolve the issue of jurisdiction,
not merits,” and “the federal court decides only that it has jurisdiction over the
plaintiff's claims against the diverse defendants—not that the plaintiff does not
have a claim at all against the nondiverse defendant.” Id. “This is because the
federal court never has diversity jurisdiction over the nondiverse defendant.” Id.
“Ordinarily, if a plaintiff can survive a Rule 12(b)(6) challenge, there is no improper
joinder.” Smallwood, 385 F.3d at 573. But when a court finds a party is improperly
joined, dismissal without prejudice is appropriate. Id. at 210.
A federal court must apply the federal pleading standard in an improper
joinder analysis. Int'l Energy Ventures, 818 F.3d at 208; Van Tiem v. First Am.
Title Co., No. 20-40707, 2021 WL 4537689, at *3 n.3 (5th Cir. 2021) (per curiam)
(rejecting an argument that Texas pleading standards apply to an evaluation of
improper joinder and noting that “[t]his Court’s precedent establishes the opposite
is true”).
ANALYSIS
PHH moves to dismiss Plaintiffs’ claims under Rule 12(b)(6) and 9(b). See
Br. Mot. Dismiss (ECF No. 9). PHH asserts that Plaintiffs’ petition is an “improper
shotgun pleading” and that each of Plaintiffs’ claims fails for various reasons. Id.
Plaintiffs responded to PHH’s motion, asserting new facts and theories not alleged
in its live pleading. Any new factual assertions and legal theories raised for the first
time in a response brief but not the complaint will not be considered. See, e.g.,
Vandelay Hosp. Grp. LP v. Cincinnati Ins. Co., No. 3:20-CV-1348-D, 2020 U.S.
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Dist. LEXIS 185581 at *2 n.3 (N.D. Tex. Oct. 7, 2020) (Fitzwater, C.J.). As
discussed below, the undersigned recommends the Court grant leave to amend as
to some of Plaintiffs’ claims. Thus, those additional factual assertions may be
included in any amendment, should Plaintiffs wish to file one.
The Court addresses each claim in turn, beginning with the Real Estate
Settlement Procedures Act (“RESPA”) claim. Plaintiffs’ RESPA claim is the only
claim which invokes this Court’s federal question jurisdiction. The Court has
jurisdiction over the remaining claims based on diversity only if the non-diverse
defendants are improperly joined. See United Mine Workers v. Gibbs, 383 U.S. 715
(1966). So, if the RESPA claim fails, PHH will need to show that the in-state
defendants were improperly joined.
(i) RESPA
Defendant argues that Plaintiffs failed to plausibly allege a claim under
RESPA. In their live pleading, Plaintiffs allege:
12. Defendants failed to apply accepted payments to principal,
interest, escrow, or other charges under the terms of the
mortgage loan and 12 CFR1024.35(b)(2).
13. Defendants failed to credit payments to Plaintiffs[’] mortgage
loan account as of the date of receipt in violation of 12 CFR
1026.36(c)(1).
14. Defendants failed to provide an accurate payoff balance amount
upon borrower’s request in Violation of 12 CFR 1026.36(c)(3).
See Not. Removal, Ex. C-6, 2d. Am. Pet. (ECF No. 1-6). But these allegations are
conclusory and devoid of factual support. Iqbal, 556 U.S. at 678–79 (also noting
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that “while legal conclusions can provide the framework of a complaint, they must
be supported by factual allegations.”).
Additionally, a plaintiff asserting a RESPA claim must allege actual damages
resulting from the violation. Whittier v. Ocwen Loan Servicing, L.L.C., 594 F.
App’x 833, 836 (5th Cir. 2014). To plead actual damages under RESPA, a
complaint must contain more than "only a conclusory statement." Allen v. Wells
Fargo Bank, Nat'l Ass'n, No. 3:16-CV-0249-D, 2017 WL 3421067, at *4 (N.D. Tex.
Aug. 9, 2017) (Fitzwater, J.). Here, Plaintiffs fail to allege or describe any “actual
damages” resulting from the RESPA violations and do not explain how these
violations caused them to incur such damages. See id. To be sure, Plaintiffs argue
that their live pleading “alleges that Ocwen’s actions have caused Plaintiffs to be
denied credit and that they have suffered emotional distress in the form of stress
and anxiety . . . [a]ll of those may result in actual damages recovered under
RESPA.” Resp. Mot. Dismiss 9 (ECF No. 10). But “Ocwen” is not a defendant in
this case and, despite Plaintiffs’ assertion, no such allegations appear in the
petition. In any event, such allegations would be conclusory and therefore
insufficient to plausibly allege actual damages under RESPA. See Allen, 2017 WL
3421067, at *4.
Accordingly, the District Judge should dismiss Plaintiffs’ RESPA claim
because it fails under Rule 12(b)(6).
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Because this claim is the only claim invoking this Court’s federal question
jurisdiction, the undersigned turns to PHH’s assertion that Defendants AVT Title
Services, LLC, Power Default Services, and Mark Bombick were improperly joined.
(ii) The in-state defendants are improperly joined
Here, it is undisputed that Plaintiffs and Defendants AVT Title Services,
LLC, Power Default Services, and Mark Bombick are all citizens of Texas (the “in-
state defendants”). Because there is not complete diversity, the Court lacks
jurisdiction under 28 U.S.C. § 1332, unless PHH can show that the in-state
defendants were improperly joined to this action. See Miciotto v. Hobby Lobby
Stores, Inc., No. 21-30456, 2022 WL 3210686, at *2 (5th Cir. Aug. 9, 2022) (citing
Hicks v. Martinrea Auto. Structures (USA), Inc., 12 F.4th 511, 514–15 (5th Cir.
2021)). If PHH cannot meet this burden, however, the remaining claims must be
dismissed for lack of jurisdiction. See Gibbs, 383 U.S. 715.
In determining whether a defendant was improperly joined, the “focus of the
inquiry must be on the joinder, not the merits of the plaintiff’s case.” Int'l Energy
Ventures Mgmt., L.L.C. v. United Energy Grp., Ltd., 818 F.3d 193, 200 (5th Cir.
2016).
Claims must be specifically asserted against an individual non-diverse
defendant for that defendant to be properly joined, Gutierrez v. Allstate Fire &
Cas. Ins. Co., No. 3:17-CV-0636-D, 2017 WL 2378298, at *4 (N.D. Tex. June 1,
2017), and “[m]erely lumping diverse and non-diverse defendants together in
undifferentiated liability averments of a petition does not satisfy the requirement
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to state specific actionable conduct against the non-diverse defendant.” Studer v.
State Farm Lloyds, No. 4:13CV413, 2014 WL 234352, at *4 (E.D. Tex. Jan. 21,
2014) (citing Griggs, 181 F.3d at 699).
Plaintiffs’ live pleading, ECF No. 1-6, lumps all defendants together so that
it fails to state specific actionable conduct against the in-state defendants. In fact,
the in-state defendants are specifically mentioned only 3 times in Plaintiffs’
pleading—(1) in the caption; (2) under the “Parties” section; and (3) in the
“certificate of service” at the end of the petition. See 2d Am. Pet. (ECF No. 1-6).
Thus, the District Judge should find that PHH has carried its burden to show that
there is no reasonable basis for the Court to predict that Plaintiffs may be able to
recover against the in-state defendants. And—because Plaintiffs lump all
Defendants together in their petition—Plaintiffs have failed to state any claim upon
which relief can be granted against the non-diverse defendants for the same
reasons as the claims against PHH, discussed below. Accordingly, the District
Judge should find that the non-diverse defendants have been improperly joined
and dismiss the claims against those Defendants without prejudice.
Next, the undersigned proceeds to analyze PHH’s 12(b)(6) motion as to the
remaining claims.2
2 PHH, in their reply brief, argue that Plaintiffs have “abandoned” several of their
causes of action by not defending them in their response. While Plaintiffs’ response
does not refer to some causes of action, Plaintiffs do assert that their pleading
“states eight claims for which relief can be granted.” So the undersigned will
consider each cause of action asserted in the petition. See Resp. Mot. Dismiss at 4
(ECF No. 10).
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(iii) Rule 8
First, PHH argues that Plaintiffs’ petition is deficient under Federal Rule of
Civil Procedure 8 because it is an improper “shotgun pleading.” See Mot. Dismiss
at 10. A “shotgun pleading” is defined as a pleading that fails “to give the
defendants adequate notice of the claims against them and the grounds upon
which they rest.” Rule 8 mandates that a claim for relief must contain “a short and
plain statement of the claim showing that the pleader is entitled to relief.” Fed. R.
Civ. P. 8(a)(2). “That statement needs to be sufficient to ‘give the defendant fair
notice of what the [Plaintiffs] claim is and the grounds upon which it
rests[.]’” Shepherd v. City of Shreveport, 920 F.3d 278, 287 (5th Cir. 2009)
(quoting Twombly, 550 U.S. at 555). Rule 8 requires a complaint to “do more than
name laws that may have been violated by the defendant; it must also allege facts
regarding what conduct violated those laws.” Anderson v. U.S. Dep't of Hous. &
Urb. Dev., 554 F.3d 525, 528 (5th Cir. 2008). A complaint “must put the defendant
on notice as to what conduct is being called for defense in a court of law.” Id. at
528-29.
Contrary to Defendant’s assertion, however, Plaintiffs’ petition does not
constitute a “shotgun pleading.” That the petition may include claims under which
Plaintiffs are not entitled to relief under Rule 12(b)(6) is not dispositive of the
separate question of whether the claims in the petition are so poorly pleaded that
they warrant dismissal under Rule 8. See Weiland v. Palm Beach Cty., 792 F.3d
1313, 1325 (11th Cir.). A dismissal under Rule 8 is appropriate where “it is virtually
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impossible to know which allegations of fact are intended to support which claims
for relief.” No such virtual impossibility exists here. Accordingly, the District Judge
should decline to dismiss the complaint on this basis.
(iv) Texas Property Code Violations
PHH argues that Plaintiffs failed to plausibly allege a claim for unspecified
“Texas Property Code Violations.” See Mot. Dismiss (citing Not. Removal, Ex. C-6,
2d Am. Pet. (ECF No. 1-6). In their live pleading, Plaintiffs allege the following
about this claim:
15. Defendants failed to give proper notice because all transfers of
the lien and Deed of Trust were not recorded timely as required
by Texas law prior to the acceleration and collection action on
the Note and Deed of Trust.
16. Plaintiff has reason to believe that the mortgagee listed on the
above Notice of Foreclosure Sale is not the current Holder in
Due Course and Holder of the Original Note, and Deed of Trust.
Not. Removal, Ex. C-6, 2d Am. Pet. at 7 (ECF No. 1-6). These allegations are
insufficient to plead a plausible claim for relief. “Texas courts have consistently
held that recordation is not necessary for liens, deeds, or deeds of trust to be
enforceable against the parties to those instruments.” See Islamic Ass’n Desoto,
Tex., Inc. v. Mortg. Elec. Reg. Sys., No. 3:12-CV-06130-D, 2012 U.S. Dist. LEXIS
83274 (N.D. Tex. Jun. 15, 2012) (Fitzwater, C.J.) (quoting Broyles v. Chase Home
Fin., 2011 U.S. Dist. LEXIS 40536, 2011 WL 1428904, at *2 (N.D. Tex. Apr. 13,
2011) (Fish, J)). Additionally, “[t]he ability to foreclose on a deed of trust is
transferred when the note is transferred, not when an assignment of deed of trust
is either prepared or recorded.” Id. (collecting cases). Thus, PHH was not required
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to “have recorded an assignment” of the lien or deed of trust before the substitute
trustee’s foreclosure sale could be conducted. See id.
Finally, the mere assertion that “Plaintiff has reason to believe that PHH is
not the current Holder in Due Course and Holder of the Original Note, and Deed
of Trust,” does not permit the Court to infer any misconduct by PHH. Plaintiffs do
not explain how their belief imposes liability.
Because Plaintiffs have failed to state a plausible claim for relief the District
Judge should dismiss this claim.
(v) Texas Business and Commercial Code Violations
PHH argues that Plaintiffs’ claim for “Texas Business and Commerce Code
Violations” should be dismissed because it is based on legal theory which has been
“repeatedly rejected by federal courts evaluating Texas law.” See Mot. Dismiss 17–
18 (citing Clark v. PHH Mortg. Corp., SA-24-CV-00996-XR, 2024 WL 4849083,
at *6 (W.D. Tex. Nov. 18, 2024) (Rodriguez, J.)). Plaintiffs’ live pleading alleges
that PHH violated the Texas Business & Commerce Code by failing to “produce the
Original Note with all allonges, transfers and assignments.” ECF No. 1-6 ¶ 19. “This
legal theory is known as the ‘show-me-the-note’ theory. Its supporters argue that
‘only the holder of the original wet-ink signature note has the lawful power to
initiate a non-judicial foreclosure.” Clark, SA-24-CV-00996-XR, 2024 WL
4849083, at *6. Courts in this circuit have repeatedly rejected the show-me-the-
note theory and dismissed such claims under 12(b)(6). Id. (collecting cases).
Because there is no requirement in Texas that a foreclosing party produce the
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original, ink-signed note, Plaintiffs’ claim under the Texas Business and Commerce
code should be dismissed. Id.
(vi) Texas Finance Code Violation and Texas Debt Collection Act
PHH next argues that Plaintiffs’ claims under the Texas Finance Code and
the Texas Debt Collection Act must be dismissed. Plaintiffs’ Finance Code and
Texas Debt Collection Act claim appear to be premised on the “show-me-the-note”
theory discussed above. But there is no requirement in Texas that a foreclosing
party produce the original, ink-signed note. Clark, 2024 WL 4849083, at *6.
Second, both claims allege fraudulent conduct by “Defendants” but fail to
plead fraud with the requisite specificity demanded by Federal Rule of Civil
Procedure 9(b). Under Rule 9(b), “allegations of fraud must meet a higher, or more
strict, standard than the basic notice pleading required by Rule 8.” Patel v. Holiday
Hosp. Franchising, Inc., 172 F. Supp. 2d 821, 824 (N.D. Tex. 2001). The Fifth
Circuit “interprets Rule 9(b) strictly, requiring a plaintiff pleading fraud to 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.” Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 339 (5th Cir. 2008)
(internal quotations omitted). General allegations lumping all defendants together
that fail to segregate the alleged wrongdoing of one from those of another fail to
meet the requirements of Rule 9(b). Id. Here, Plaintiffs’ allegations improperly
lump all Defendants together and fail to identify the “who, what, where, when, and
why,” of any alleged fraudulent conduct.
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Accordingly, Plaintiffs’ claims under the Texas Finance Code and the Texas
Debt Collection Act should be dismissed because they rely on an invalid legal
theory and because they fail to satisfy the requirements of Rule 9(b).
(vii) Fraudulent Inducement
Plaintiffs’ fraudulent inducement claim, too, should be dismissed. Plaintiffs
allege:
24. Defendants Fraudulently Induced Plaintiff into signing
multipl[e] loan modifications, by misapplying payments to
account, and misrepresenting accounting records, to deceive the
Plaintiff into thinking the account is in default.
2d Am. Pet. ¶ 24 (ECF No. 1-6). This single allegation is conclusory and lacks the
factual support necessary to state a claim. Additionally, because this claim alleges
fraud, it must meet the heightened pleading standard under 9(b). But Plaintiffs’
allegation lacks the specificity necessary for a fraud claim. Plaintiffs do not provide
the “who, what, where, when, and why” for alleged fraudulent statements and
improperly lump all defendants together in a single allegation. As a result,
Plaintiffs’ fraudulent inducement claims should be dismissed.
(viii) Texas Property Code § 51.016
Plaintiffs, by their lawsuit, seek to “rescind the Substitute Trustee’s sale that
occurred on April 1, 2025, at 1:00pm, and [prevent PHH] from otherwise selling
or taking possession of the property.” See 2d. Am. Pet. 2 (ECF No. 1-6). The
allegations supporting Plaintiffs’ Section 51.016 claim, however, relate to an
alleged foreclosure sale from over a decade ago. In support of this claim, Plaintiffs
allege that after a foreclosure in 2013, “Defendants rescinded” the sale and that
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Defendants violated “Texas Property Code 51.016(c)(1)(A)(B)(2)” because they
failed to “serve[] the required notice on [Plaintiffs] describing the reason the sale
was rescinded, as is required by law.” See id. ¶¶ 22, 23.
Yet Plaintiffs’ petition makes continual reference to an April 1, 2025, trustee
sale. And the documents attached to Plaintiffs’ petition also refer to a sale on April
1, 2025. It is unclear whether Plaintiffs’ allegations about this claim were included
in error or if they were intentionally asserted. As pleaded, though, it is unclear
whether this claim is plausible. Indeed, PHH could not have failed to “serve the
required notice” under § 51.016 a decade before initiating a trustee sale. Thus, the
District Judge should dismiss this claim.3
(ix) Unjust Enrichment
PHH argues that Plaintiffs’ claim for Unjust Enrichment fails because that
claim is “unavailable where a contract addresses the disputed matter”4 and because
Plaintiff fails to properly assert this claim in the alternative. Mot. Dismiss 19–20.
3 In its Reply, PHH asserts that Texas Property Code § 51.016 does not apply to
foreclosure sales before its effective date: September 1, 2015. Because Plaintiffs’
petition discusses a foreclosure sale in 2013, PHH argues that this statute does not
apply. But this argument was raised for the first time in the Reply, and the Court
declines to consider it in its analysis. See, e.g., Depree v. Saunders, 588 F.3d 282,
290 (5th Cir. 2009) (arguments raised for the first time in a reply cannot be
considered by the Court).
4 In its argument related to unjust enrichment, PHH asserts that “Texas law is clear
that [a claim for fraudulent inducement] is unavailable where a contract addresses
the disputed matter.” See Mot. Dismiss 19 (emphasis added) (citing Van Duzer v.
U.S. Bank Nat. Ass'n, 995 F. Supp. 2d 673, 698–99 (S.D. Tex.), aff'd, 582 F. App'x
279 (5th Cir. 2014). This appears to be a typo. And, in this case, it is clear PHH
meant to write “unjust enrichment” and not “fraudulent inducement,” based on
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“Unjust enrichment is an equitable principle holding that one who receives
benefits unjustly should make restitution for those benefits.” Villarreal v. Grant
Geophysical, Inc., 136 S.W.3d 265, 270 (Tex. App.—San Antonio 2004, pet.
denied). A party is unjustly enriched when it obtains a “benefit from another by
fraud, duress, or the taking of an undue advantage.” Heldenfels Bros. v. City of
Corpus Christi, 832 S.W.2d 39, 41 (Tex. 1992).
Plaintiff alleges:
25. Defendants[’] misrepresentation of material fact of accounting
records caused the Plaintiff to enter into several loan
modifications adding an additional $330,000.00 to the
principal amount of $218,000.00 bringing the total principal
amount due to $548,385.82 when the property was purchased
for $283,765.00. The loan modification depleted any equity the
Plaintiff had in the property preventing the Plaintiff from
refinancing the loan.
See 2d Am. Pet. ¶ 25 (ECF No. 1-6). These allegations are insufficient to state a
claim for unjust enrichment.
First, to the extent Plaintiffs allege fraud, they have failed to satisfy the
pleading standard under 9(b), discussed above. Plaintiffs do not provide the who,
what, where, when, or why for the misrepresentations made and improperly lump
all Defendants together.
Second, unjust enrichment “is unavailable where a contract addresses the
disputed matter.” Miga v. Jensen, 299 S.W.3d 98, 102 (Tex. 2009). Plaintiffs allege
that “Defendants[’]” misrepresentations caused Plaintiffs to enter “several loan
the substance of the cited authorities directly following this sentence and its
inclusion under the subheading “Plaintiffs’ claim for unjust enrichment fails . . . .”
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modifications” (contracts) which “depleted any equity” Plaintiffs had in the
property. See 2d Am. Pet. ¶ 25 (ECF No. 1-6). Because these loan modifications are
contracts, quasi-contractual remedies, such as unjust enrichment, are unavailable.
See Frasier v. Wells Fargo Bank, N.A., 541 F. App’x 419 (5th Cir. 2013)
(unpublished).
To be sure, even where a valid contract exists, a plaintiff may plead a claim
for unjust enrichment in the alternative. But to plead unjust enrichment in the
alternative, Plaintiffs must dispute the existence of a contract—they have not done
so here. See Johnson v. Wells Fargo Bank, N.A., 999 F. Supp. 2d 919, 929 (N.D.
Tex. 2014).
Because unjust enrichment is not available where a contract governs the
parties dispute, and because Plaintiffs have not sufficiently pleaded this claim in
the alternative, the District Judge should dismiss Plaintiffs’ unjust enrichment
claim.
(x) Declaratory Judgment and Permanent Injunction
Plaintiffs seek a declaration “that any attempt to foreclose pursuant to the
Texas Property Code § 51.001 et seq. is an action to collect a debt and therefore the
Defendant must provide the one and only Original Promissory Note and Deed of
Trust.” 2d Am. Pet. at 9 (ECF no. 1-6). Plaintiffs’ declaratory judgment theory
appears to be based on “show-me-the-note,” which is not viable under Texas law.
Clark, SA-24-CV-00996-XR, 2024 WL 4849083, at *6. Accordingly, the District
Judge should dismiss the Declaratory Judgment claim on this basis.
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Plaintiffs also seek a permanent injunction forcing PHH “to Rescind the
Substitute Trustee’s Sale or otherwise [prevent PHH from] taking possession of
the subject property during the pendency of this cause, or from otherwise
disturbing Plaintiff’s peaceable possession and enjoyment of the property.” Id. 10.
Plaintiffs assert they will “suffer immediate and irreparable injury, for which there
is no adequate remedy at law” and the “harm to [Plaintiffs] is imminent because
[Plaintiffs] will lose [their] property.” Id.
To obtain permanent injunctive relief, a plaintiff must plead and prove “(1)
a wrongful act; (2) imminent harm; (3) irreparable injury; and (4) no adequate
remedy at law.” Radiant Fin., Inc. v. Bagby, 2017 WL 2927825, at *6 (Tex. App.—
Dallas July 10, 2017, pet. denied) (emphasis added). A permanent injunction,
however, is obviously not proper at this early stage, since it would amount to a final
determination of the action. Permanent injunctions are generally only granted
where there has been “a full trial on the merits.” See ITT Educ. Svs., Inc. v. Arce,
533 F.3d 342, 347 (5th Cir. 2008).
Additionally, injunctive relief is an equitable remedy based on underlying
claims. See Cook v. Wells Fargo Bank, N.A., No. 3:10-cv-592-D, 2010 U.S. Dist.
LEXIS 69239, 2010 WL 2772445, at *4 (N. D. Tex. July 12, 2010). When a court
dismisses all of a plaintiff's substantive claims, as the undersigned recommends
that the Court do here, a plaintiff cannot maintain a claim for injunctive relief. See
Thomas v. EMC Mortg. Corp., 499 F. App'x 337, 343 n.15 (5th Cir. 2012) (“[A]
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request for injunctive relief absent an underlying cause of action is fatally
defective.”).
Absent any other underlying substantive claim that should survive
dismissal, and because such a request is premature, Plaintiffs’ request for a
permanent injunction should be dismissed without prejudice.
III. Leave to Amend
Leave to amend is “entrusted to the sound discretion of the district court[,]”
Quintanilla v. Texas Television Inc., 139 F.3d 494, 499 (5th Cir. 1998)), and
Federal Rule of Civil Procedure 15(a) requires that courts freely grant leave to
amend “when justice so requires.” Fed. R. Civ. P. 15(a)(2)); see also Lyn-Lea Travel
Corp. v. Am. Airlines, 283 F.3d 282, 286 (5th Cir. 2002) (motions for “leave to
amend [should be granted] ‘freely,’ and the language of this rule ‘evinces a bias in
favor of granting leave to amend.’”). The Court considers five factors in
determining whether to grant leave to amend: “undue delay, bad faith or dilatory
motive on the part of the movant, repeated failure to cure deficiencies by
amendments previously allowed, undue prejudice to the opposing party by virtue
of allowance of the amendment, [and] futility of amendment.” Rosenzweig v.
Azurix Corp., 332 F.3d 854, 864 (5th Cir.2003) (citing Foman v. Davis, 371 U.S.
178, 182 (1962)).
The Fifth Circuit is inclined to give pro se plaintiffs several opportunities to
state a claim upon which relief can be granted. See Scott v. Byrnes, No. 3:07-CV-
1975-D, 2008 WL 398314, at *1 (N.D. Tex. Feb. 13, 2008); Sims v. Tester, 2001
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WL 627600, at *2 (N.D. Tex. Feb. 13, 2001). Courts therefore typically allow pro se
plaintiffs to amend their complaints when the action is to be dismissed by a court
order. See Robinette v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 2004 WL
789870, at *2 (N.D. Tex. Apr. 12, 2004); Sims, 2001 WL 627600, at *2.
But leave to amend is not automatic and may be refused where it would be
futile. See Morgan v. Chapman, 969 F.3d 238, 248 (5th Cir. 2020) (citing Smith
v. EMC Corp., 393 F.3d 590, 595 (5th Cir. 2004)). “The court may deny leave to
amend ... if the defects are incurable or the plaintiff[ ] ha[s] already alleged [his]
best case.” Pierce v. Hearne Indep. Sch. Dist., 600 F. App'x 194, 200 (5th Cir. 2015)
(per curiam) (citing Great Plains Tr. Co. v. Morgan Stanley Dean Witter & Co.,
313 F.3d 305, 329 (5th Cir. 2002); Bazrowx v. Scott, 136 F.3d 1053, 1054 (5th Cir.
1998) (per curiam)).
Here, the District Judge should deny Plaintiffs leave to amend their
unspecified Texas Property Code, Texas Business & Commerce Code, Texas
Finance Code, Texas Debt Collection Act, and Declaratory Judgment claims
because any amendment would be futile. These claims depend on legal theories
which have been repeatedly rejected by Texas courts.
But as to Plaintiffs’ remaining claims, the District Judge should grant
Plaintiffs leave to replead, add additional factual support, and clarify those
claims—especially considering their pro se status and the less rigorous pleading
requirements in state court.
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RECOMMENDATION
The District Judge should GRANT in part PHH’s Motion to Dismiss and
DISMISS Plaintiffs’ claims against PHH with prejudice unless Plaintiff amends
her complaint within 30 days of receiving notice of this recommendation.
Additionally, the District Judge should DISMISS all claims against the non-
diverse Defendants without prejudice unless Plaintiffs’ amendment provides a
basis for this Court to exercise jurisdiction over those defendants and this case.
SO RECOMMENDED.
February 11, 2026.
____________________________
REBECCA RUTHERFORD
UNITED STATES MAGISTRATE JUDGE
INSTRUCTIONS FOR SERVICE AND
NOTICE OF RIGHT TO APPEAL/OBJECT
A copy of this report and recommendation will be served on all parties in the
manner provided by law. Any party who objects to any part of this report 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. Civ. P. 72(b). 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 report 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.
Ass’n, 79 F.3d 1415, 1417 (5th Cir. 1996), modified by statute on other grounds, 28
U.S.C. § 636(b)(1) (extending the time to file objections to 14 days).
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