Law v. Ocwen Loan Servicing, LLC, 4:16-cv-02675

Background

Roger and Lucindra Law bought residential property in 2005; their mortgage was sold to U.S. Bank and serviced by Ocwen.
U.S. Bank purchased the property at a nonjudicial foreclosure sale in December 2013; an eviction suit followed in October 2014.
Plaintiffs allege Ocwen instructed foreclosure counsel (MWZM) to misrepresent to the state court that U.S. Bank still owned the property; Plaintiffs were evicted in March 2015.
Plaintiffs sued Ocwen (and originally MWZM) in Texas state court alleging negligent misrepresentation and statutory fraud; Ocwen removed to federal court and MWZM was later dismissed.
Ocwen moved to dismiss under Rule 12(b)(6); Plaintiffs did not respond. The court assumes, for purposes of the motion, the alleged misrepresentations are attributable to Ocwen.
The court granted Ocwen's motion to dismiss for negligent misrepresentation and sua sponte evaluated statutory fraud, giving Plaintiffs one final chance to respond before dismissal with prejudice.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Plaintiffs pleaded negligent misrepresentation	Ocwen (through counsel) misrepresented ownership to the court causing Plaintiffs' losses	Statements in litigation by an adverse party/counsel are not the sort of business-transaction representations that support negligent misrepresentation	Dismissed — alleged statements occurred in an adversarial litigation context and not in a business/transactional setting supporting negligent misrepresentation
Whether Plaintiffs pleaded statutory fraud under Tex. Civ. Prac. & Rem. Code § 12.002	Ocwen presented fraudulent claims of ownership to the court, causing injury	Ocwen did not address this claim in its motion; court examined the claim sua sponte and found the intent element lacking	Dismissed (court found Plaintiffs failed to plead intent to cause physical, financial injury, or mental anguish)
Whether sale of the property after eviction suit affects right to maintain eviction	Plaintiffs imply transfer undermines eviction claim and supports fraud	Defendant and precedent suggest a conveyance during a forcible-detainer action generally does not deprive the plaintiff of the right to maintain the action	Court noted sellers may maintain eviction; transfer did not establish statutory fraud as pleaded
Procedural: Whether dismissal should be with prejudice without Plaintiffs' response	Plaintiffs amended once but did not respond to the motion; court warned and allowed final chance	Ocwen sought dismissal; did not brief statutory fraud but sought dismissal overall	Court granted dismissal and warned it would dismiss with prejudice absent a response by deadline

Key Cases Cited

Ramming v. United States, 281 F.3d 158 (5th Cir.) (Rule 12(b)(6) tests pleading sufficiency)
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard)
Collins v. Morgan Stanley Dean Witter, 224 F.3d 496 (documents central to claims may be considered on a 12(b)(6) motion)
Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353 (courts need not accept conclusory allegations)
McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787 (Tex.) (elements and transactional context for negligent misrepresentation)
Ferguson v. Bank of New York Mellon Corp., 802 F.3d 777 (5th Cir.) (elements of statutory fraud under Texas law)