Priester v. JP Morgan Chase Bank, N.A.

• Decision Date: 13 February 2013
• Docket Number: No. 12–40032.,12–40032.
• Citation: 708 F.3d 667
• Court: U.S. Court of Appeals — Fifth Circuit
• Parties: John PRIESTER, Jr.; Bettie Priester, Plaintiffs–Appellants, v. 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.

708 F.3d 667

John PRIESTER, Jr.; Bettie Priester, Plaintiffs–Appellants,

v.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.

No. 12–40032.

United States Court of Appeals, Fifth Circuit.

Feb. 13, 2013.

James C. Mosser, Alexis Faye Steinberg, Mosser Law, P.L.L.C., Dallas, TX, for Plaintiffs–Appellants.

Marcie Lynn Schout, William Lance Lewis, Quilling, Selander, Lownds, Winslett & Moser, P.C., Dallas, TX, Jude Thaddeus Barreneche, Irving, TX, for 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 declaratory 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 limitations. 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 Constitution, 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”), 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 parties 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 dismiss, 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 Volkswagen of Am., Inc., 545 F.3d 304, 310 (5th Cir.2008) (en banc).

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 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 limitations 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.-Dallas 2008, no pet.), concluded 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.-Austin Mar. 11, 2011, no writ), adopted that position as well, noting that the “four-year statute of limitations has been applied to violations 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.-Amarillo 1998, pet. denied), the court held that a claim under the Equal Protection 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 lawsuits, 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.-Dallas 1973, writ ref'd n.r.e.), which similarly held that limitations periods “apply to delay in pursuit of remedies for enforcement of constitutional 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 created in violation of Section 50(a)(6) to be voidable rather than void—a “void” lien could not be “voided” by...