Middaugh v. InterBank

• Decision Date: 23 March 2021
• Docket Number: No. 6:19-CV-052-H-BU,6:19-CV-052-H-BU
• Parties: Roger E. MIDDAUGH, et al., Plaintiffs, v. INTERBANK, Defendant.
• Court: U.S. District Court — Northern District of Texas

528 F.Supp.3d 509

Roger E. MIDDAUGH, et al., Plaintiffs,

v.INTERBANK, Defendant.

No. 6:19-CV-052-H-BU

United States District Court, N.D. Texas, San Angelo Division.

Signed March 23, 2021

John Cucci, Jr., Cucci Law Group, Houston, TX, Franklin Ogele, Pro Hac Vice, Hillside, NJ, Ikenna Obioha Emeruem, Anyanwu & Associates PC, Dallas, TX, Paul D. Stipanovic, Gossett Harrison Millican Stipanovic & Deadman PC, San Angelo, TX, for Plaintiffs.

William P. Huttenbach, Kristina L. Cunningham, Crain Caton & James, Yusuf S. Ansari, Hirsch & Westheimer, Houston, TX, for Defendant.

ORDER ACCEPTING FINDINGS, CONCLUSIONS, AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

JAMES WESLEY HENDRIX, UNITED STATES DISTRICT JUDGE

Roger E. Middaugh and Heather Nichole Moore Middaugh filed this lawsuit against InterBank pertaining to conduct stemming from various mortgage financing transactions between InterBank and Roger E. Middaugh. Dkt. No. 65. United States Magistrate Judge John R. Parker made Findings, Conclusions, and a Recommendation (FCR) in this case on February 5, 2021. See Dkt. No. 90. Judge Parker recommended that the Court grant in part InterBank's Second Motion to Dismiss. Id. at 63. The plaintiffs filed objections to this FCR. Dkt. No. 91. The plaintiffs objected to Judge Parker's recommendation that equitable tolling does not apply to their breach of contract, duress, fraud, theft and conversion, unjust enrichment, negligent misrepresentation, breach of trust, and intentional infliction of emotional distress claims. Id. at 2. Additionally, the plaintiffs objected to Judge Parker's recommendation that they failed to state claims for quantum meruit, quiet title, wrongful foreclosure, and violations of federal and state consumer collections law because they gave InterBank fair notice of the nature of their claims and the grounds upon which they rested. Id. at 4–5.

Because the plaintiffs’ own allegations indicate that they knew of InterBank's alleged wrongful conduct in 2007 and 2010, the Court overrules their objection as to Judge Parker's recommendation that equitable tolling does not apply. Additionally, because plaintiffs have failed to state claims for quantum meruit, quiet title, wrongful foreclosure, and violation of federal and state consumer collections law that are plausible on their face, the Court overrules the plaintiffs’ objection with respect to these claims. Finally, the Court finds no plain error in the in the unobjected-to portions of Judge Parker's FCR. Therefore, the Court accepts the findings, conclusions, and recommendation of the United States Magistrate Judge.

1. Factual and Procedural Background

A. Factual Allegations

Plaintiff Roger Middaugh, who was in the business of purchasing, remodeling, and selling houses, started banking with InterBank's predecessor institution, First Coleman National Bank, in 1997 and continued to bank there at all times relevant to this lawsuit. Dkt. No. 65 at 2. Middaugh financed these properties through mortgages provided by InterBank and had up to 86 properties mortgaged with InterBank at any given time. Id. At the start of this financing relationship, Middaugh financed each property with a separate mortgage. Id.

In 2007, a hailstorm damaged several of the plaintiffs’ rental properties. Id. at 3. The plaintiffs allege that they paid for all of the repair work but that InterBank received all of the insurance proceeds and did not account for its use of the insurance proceeds. Id.

In 2010, the parties renegotiated the individual mortgages, restructured the mortgages into a single note, cross-collateralized all the mortgages, and added balloon provisions. Id. at 2. The plaintiffs claim that InterBank wrongfully pressured Middaugh into this transaction by threatening to call the individual mortgage notes if he did not cooperate and that InterBank forced this transaction to seize all of the mortgaged properties.¹ Id. Shortly after this restructuring, InterBank informed Middaugh that the working capital of the 2010 transaction was above his lending limit and, as a result, had Middaugh sign several notes with a much smaller face value.² Id.

In March 2019, InterBank commenced foreclosure proceedings. Id. at 4. The plaintiffs allege that the defendant threatened tenants with evictions if they paid rents to the plaintiffs. Id. Additionally, the plaintiffs allege that InterBank engaged in forgery in the foreclosure. Id. Finally, the plaintiffs allege that when executing the foreclosure, InterBank failed to comply with notice requirements, issued competing notices, and relied on expired deeds of trust. Dkt. No. 65-1 at 8.

B. Procedural History

Roger Middaugh filed a lawsuit against InterBank in 2019. Dkt. No. 1-4. That lawsuit was later removed to the United States District Court for the Southern District of Texas and subsequently transferred to the San Angelo Division of the United States District Court for the Northern District of Texas. See Dkt. Nos. 1, 11. After the transfer to this Court, the plaintiffs attempted to amend the complaint four times. See Dkt. Nos. 17, 27, 35, 38. The plaintiffs filed all of these attempts to amend the complaint in violation of the local rules and Judge Parker's orders. See Dkt. No. 59. Therefore, in response to various motions pertaining to these attempts, Judge Parker ordered the plaintiffs to file their First Amended Complaint, Dkt. No. 59, and the plaintiffs followed that order and filed their First Amended Complaint, Dkt. No. 65. During the plaintiffs’ attempts to amend their complaint, InterBank filed a first motion to dismiss, Dkt. No. 37, which the parties fully briefed before Judge Parker denied the motion as moot after the plaintiffs filed their First Amended Complaint. Dkt. No. 79.

After the plaintiffs filed their First Amended Complaint as ordered by Judge Parker, InterBank filed its Second Motion to Dismiss. Dkt. No. 76. After the Second Motion to Dismiss became ripe, Judge Parker issued his FCR. Dkt. No. 90. Judge Parker recommended that the Court: (1) dismiss with prejudice the plaintiffs’ claims for breach of contract, duress, fraud, conversion, unjust enrichment, negligent misrepresentation, breach of trust, and intentional infliction of emotional distress pertaining to transactions or events occurring in 2007 and 2010; and (2) dismiss with prejudice the plaintiffs’ claims for quantum meruit, quiet title, wrongful foreclosure, and violations of federal and state consumer collections law. Id. at 63.

2. Legal Standard

1"Within 14 days after being served with a copy of the recommended disposition, a party may serve and file specific written objections to the proposed findings and recommendations[ ]" of a magistrate judge. Fed. R. Civ. P. 72(b)(2) ; see 28 U.S.C. § 636(b)(1). "The district judge must determine de novo any part of the magistrate judge's disposition that has been properly objected to." Fed. R. Civ. P. 72(b)(3) ; see 28 U.S.C. § 636(b)(1). In contrast, the district judge reviews any unobjected-to proposed findings, conclusions, and recommendations for plain error. Portwood v. Schneider & McKinney P.C., No. 3:20-CV-03344-X, 2020 WL 7056302, at *1 (N.D. Tex. Dec. 2, 2020) (Starr, J.).

3. Analysis

A. The Court overrules the plaintiffs’ objection to Judge Parker's recommendation that equitable tolling does not apply to the plaintiffs’ claims that arise out of transactions or events occurring in 2007 and 2010.

23 The plaintiffs assert that equitable tolling saves its claims stemming from the 2007 and 2010 events. But equitable tolling does not apply to those claims because the plaintiffs’ own allegations show that they knew or should have known of InterBank's alleged breach of contract, duress, fraud, theft and conversion, unjust enrichment, negligent misrepresentation, and intentional infliction of emotional distress when these events occurred in 2007 and 2010.³ 456 Equitable tolling applies to statutes of limitations because the statute of limitations "encourages the plaintiff to pursue his rights diligently" and does not have its purpose furthered "when an extraordinary circumstance prevents [a plaintiff] from bringing a timely action." CTS Corp. v. Waldburger, 573 U.S. 1, 10, 134 S.Ct. 2175, 189 L.Ed.2d 62 (2014). Therefore, the discovery rule does not apply unless "the nature of the injury incurred is inherently undiscoverable," Beavers v. Metro. Life Ins. Co., 566 F.3d 436, 439 (5th Cir. 2009). Similarly, equitable tolling might apply due to fraudulent concealment where "the defendants concealed the conduct complained of, and ... the plaintiff failed, despite the exercise of due diligence on his part, to discover the facts that form the basis of his claim." Texas v. Allan Const. Co., Inc., 851 F.2d 1526, 1528 (5th Cir. 1988). Finally, the continuing-violations doctrine, which most frequently applies in the employment-discrimination context, should not be invoked where the defendants took action that " ‘in fairness and logic,’ should have alerted [the plaintiff] to act years ago." Texas v. United States, 891 F.3d 553, 562 (5th Cir. 2018).

78 Here, the plaintiffs allege that they were alerted to and should have been aware of InterBank's breach of contract, duress, fraud, theft and conversion, unjust enrichment, negligent misrepresentation, breach of trust, and intentional infliction of emotional distress in 2007 and 2010. With respect to the 2007 events, the plaintiffs allege that InterBank took the insurance proceeds that they were entitled to from a hailstorm and never accounted for those proceeds. Dkt. No. 65 at 3. The plaintiffs do not allege that they could not discover the fact that InterBank took the funds and did not account for them. In fact, their allegations suggest the opposite—that the plaintiffs were aware that InterBank took the insurance proceeds and did not account for them. Additionally, with respect to the 2010 events, the plaintiffs allege that: (1) changing the terms of the mortgages "was a clear breach of...