Margolis v. James B. Nutter & Company
1:18-cv-00162
S.D. Tex.Jul 24, 2019Background
- Margolis became sole owner of a home subject to a HUD-insured HECM (reverse mortgage) after her husband (a borrower) died in 2016; the lender (JBNC) notified her the loan was due under the deed of trust.
- The HECM was originated in 2008 and assigned to James B. Nutter & Company (JBNC) in 2008; Margolis sought protection under HUD’s Mortgagee Optional Election (MOE) Program for pre-2014 HECMs.
- Margolis (through counsel) requested JBNC submit an MOE application on her behalf; JBNC sent letters saying she was “eligible to participate” but HUD approval was required; JBNC later issued a Notice of Intent to Foreclose and apparently did not complete assignment to HUD.
- Margolis sued JBNC and others in state court and then in federal court, asserting ~15 claims (including DTPA, wrongful foreclosure, fraud, breach of contract based on HUD regulations, negligent misrepresentation, promissory estoppel, breach of fiduciary duty, negligence, discrimination, and requests for declaratory relief and fees).
- JBNC moved to dismiss all claims under Rule 12(b)(6); the magistrate judge recommended granting the motion and dismissing all claims against JBNC with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| DTPA standing (consumer status) | Margolis alleged deceptive acts by JBNC in communications and MOE handling | JBNC: Margolis is not a DTPA "consumer" because she did not purchase or lease goods/services from JBNC; MOE application work was gratuitous/ not purchased | Dismissed — Margolis failed to plead consumer status; DTPA claims dismissed |
| Wrongful foreclosure | JBNC improperly initiated foreclosure/forfeiture against Margolis | JBNC: no completed foreclosure sale; attempted/initiated foreclosure alone is not actionable | Dismissed — no foreclosure sale alleged; attempted wrongful foreclosure not recognized |
| Breach of contract based on HUD regulations | HUD rules (and MOE obligations) were incorporated into the mortgage, so JBNC breached contract by failing to comply | JBNC: HUD regulations govern lender–HUD relation and are not privately enforceable unless expressly incorporated into the contract; Margolis did not identify any clause incorporating HUD regs | Dismissed — plaintiff did not plausibly allege express incorporation; HUD regs do not create private contract rights absent express incorporation |
| Fraud / Negligent misrepresentation / Promissory estoppel | JBNC represented Margolis was eligible for MOE and induced reliance (e.g., paid taxes); statements were false/misleading and caused loss | JBNC: letters were qualified, repeatedly stated HUD final approval required; plaintiff fails Rule 9(b) particularity and cannot show false statements or justifiable reliance | Dismissed — letters were qualified; fraud and related claims inadequately pleaded and lack justifiable reliance |
| Breach of fiduciary duty / Negligence / Gross negligence | Margolis alleges special fiduciary relationship and duties owed by JBNC and negligent conduct causing harm | JBNC: no fiduciary relationship with non-borrowing spouse; no duty identified; negligence allegations conclusory | Dismissed — no plausible fiduciary relationship and no cognizable duty; negligence/gross negligence fail |
| Miscellaneous claims (age/gender discrimination, Section 50 counseling, declaratory relief, attorneys' fees) | Various statutory and constitutional claims; seeks fees and declaratory relief | JBNC: claims unsupported by facts or law; some remedies not available in federal court removal context | Dismissed / abandoned — plaintiff did not defend these claims; magistrate recommends dismissal |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: factual allegations must plausibly state a claim)
- Turner v. Pleasant, 663 F.3d 770 (5th Cir. 2011) (Rule 12(b)(6) dismissal standard and view of complaint)
- Johnson v. World Alliance Fin. Corp., 830 F.3d 192 (5th Cir. 2016) (HUD regulations do not create private causes of action absent express contractual incorporation)
- Villarreal v. Wells Fargo Bank, N.A., 814 F.3d 763 (5th Cir. 2016) (wrongful-foreclosure principles and requirement of a foreclosure sale for action)
- Law v. Ocwen Loan Servicing, LLC, [citation="587 F. App'x 790"] (5th Cir. 2014) (a deed’s mere reference to federal law insufficient to create private rights under federal regulation)