John THOMPSON; Ivy Thompson, Plaintiffs-Appellants v. DEUTSCHE BANK NATIONAL TRUST COMPANY, Defendant-Appellee.
No. 14-10084.
United States Court of Appeals, Fifth Circuit.
Dec. 29, 2014.
William Scott Hastings, Esq., Thomas F. Loose, Esq., Senior Litigation Attorney, Jeffrey B. Mead, Robert Thompson Mowrey, Jason Levi Sanders, Esq., Attorney, Locke Lord, L.L.P., Dallas, TX, for Defendant-Appellee.
Before JOLLY and COSTA, Circuit Judges, and ROSENTHAL *, District Judge.
E. GRADY JOLLY, Circuit Judge:
John and Ivy Thompson appeal the district court‘s judgment in favor of Bank National Trust Company. The Thompsons brought this action in Texas state court under
To resolve this appeal, we must first determine whether the district court correctly vacated the state court judgment upon concluding that removal to federal court was proper and, relatedly, that the state court judgment was void. If we agree with the district court, we must then assess whether the district court correctly dismissed the complaint because the statute of limitations had run. Based on our review of the record and our consideration of the arguments of the parties, we AFFIRM the district court in all respects.
I.
The Thompsons purchased a piece of real property in August 1996, and they executed a promissory note and deed of trust in favor of Option One Mortgage Company. In 2002, they executed a renewal and extension agreement and executed a promissory note and deed of trust in favor of Fremont Investment and Loan.
According to the Thompsons, the renewal was closed using conventional loan documentation, which was inappropriate because this loan paid off the Bank of America home equity loan, thereby making the New Century loan a home equity loan as well. Due to this error, the Thompsons claim that they can no longer refinance this renewal at the market rate, and the loan does not satisfy the requirements of Section 50.
The Thompsons notified New Century and ASC about these problems on November 8, 2011. They subsequently learned that their loan had been transferred to Deutsche. Jonathan Finke, counsel for the Thompsons, sent Deutsche a copy of the letter to New Century identifying their issues with the loan, on January 19, 2012.2 Notably, Finke mailed the letter to Deutsche‘s address at “1761 East Saint Andrew Place, Santa Ana, California, 92705-4934.” The record now establishes
Thus, the Thompsons initiated this lawsuit in state court in Tarrant County, Texas, on April 9, 2012. Their petition alleged that both Deutsche and ASC violated Section 50. After filing the petition, they served ASC, but they never served Deutsche. Instead, they embarked on several unsuccessful attempts.
In their petition, the Thompsons alleged that Deutsche was a foreign corporation that could be served by the Texas Secretary of State. They provided the Secretary of State with a North Carolina address, however, and they received notice on April 24, 2012, that the petition was not deliverable to that address. Next, the Thompsons’ counsel sought to serve Deutsche through CT Corporation System, claiming that CT was Deutsche‘s agent in Texas. CT sent a letter to the Thompsons’ counsel indicating that it was not Deutsche‘s agent.3 Thus, the Thompsons’ counsel was aware that he had not actually served Deutsche.
Nonetheless, the Thompsons moved for a default judgment against Deutsche in state court on June 11, 2012.4 As Deutsche points out, the Thompsons included an exhibit indicating that the petition had been mailed to CT, thus suggesting that Deutsche was properly served. The state court entered a default judgment against Deutsche on June 22, 2012. The clerk of court submitted a notice of default to CT, which it returned to the court. At that time, the default was a partial judgment, as ASC remained in the action.
On August 31, 2012, the Thompsons filed a notice of non-suit as to ASC that was stamped as filed in the state court on September 4, 2012. The state court judge granted the nonsuit as to ASC on September 4, 2012, and ordered “that the interlocutory default judgment entered against [Deutsche] on June 22, 2012, became final upon the filing of Plaintiffs’ notice of non-suit on August 31, 2012.”
Deutsche apparently learned of the judgment for the first time on December 27, 2012, when an attorney forwarded correspondence regarding the judgment to Deutsche. On January 17, 2013, Deutsche removed the action to federal court. In federal court, the Thompsons filed a motion to remand, and Deutsche filed a motion for relief from the default judgment under
II.
We review each of the issues presented in this appeal de novo. First, we review whether the district court had subject matter jurisdiction over the action and, relatedly, whether it properly vacated the default judgment against Deutsche under
Upon concluding that the district court had jurisdiction and that it properly set aside the default judgment, we then review the district court‘s grant of Deutsche‘s
III.
The Thompsons argue that the district court erred in denying their motion to remand and vacating the judgment against Deutsche because, the Thompsons urge, the case was not properly removable. We begin with a discussion of the relevant law, apply the law of removal to this case, and conclude by holding that the default judgment was properly vacated.
A.
1.
The federal courts’ removal jurisdiction flows from Congress‘s statutory grant, which provides:
Except as otherwise expressly provided by Act of Congress, any civil action brought in a State court of which the
district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.
[t]he notice of removal of a civil action or proceeding shall be filed within 30 days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based, or within 30 days after the service of summons upon the defendant if such initial pleading has then been filed in court and is not required to be served on the defendant, whichever period is shorter.
These statutes clearly provide that a defendant‘s right to removal runs from the date on which it is formally served with process. Murphy Bros., Inc. v. Michetti Pipe Stringing, Inc., 526 U.S. 344, 347-48 (1999). Put another way, “one becomes a party officially, and is required to take action in that capacity, only upon service of a summons or other authority-asserting measure stating the time within which the party served must appear and defend.” Id. at 350. A defendant has no obligation to appear in court or defend an action before it is formally served with process directing it to appear before that forum. Id. Only after a party is subject to the powers of a court, must it seek to effect removal. To the point, the defendant in Murphy Brothers was aware of the pending litigation when it received a courtesy copy of the complaint from the plaintiff, but the defendant was not required to remove the action until it was formally served. See id. at 347-48.
This general rule applies even in cases where the state court litigation proceeds to a default judgment. Various courts recognize that an unserved defendant retains the right to remove an action once it learns of the litigation. See, e.g., Price v. Wyeth Holdings Corp., 505 F.3d 624, 628-30 (7th Cir. 2007) (rejecting the plaintiff‘s argument for remand when the plaintiff‘s counsel “reopened” litigation that it had dismissed years earlier to obtain a default judgment without serving the defendants and the defendants promptly removed upon learning of the default judgment); Munsey v. Testworth Labs., Inc., 227 F.2d 902, 903 (6th Cir. 1955) (per curiam) (permitting removal of an action following entry of a default judgment four months after the defendant received a summons but only four days after the plaintiff had filed a declaration in the state court, which was the necessary pleading); Ware v. FleetBoston Fin. Corp., 180 Fed. Appx. 59, 62-63 (11th Cir. 2006) (per curiam) (finding that a defendant could remove an action that was on appeal to the state‘s highest court because it had never been properly served with process). To be sure, holding otherwise would be inconsistent with the Supreme Court‘s de-
2.
a.
Turning to this appeal, we first consider whether Deutsche was properly served with the Thompsons’ petition. “[T]he term ‘service of process’ is defined by state law,” and thus we must evaluate propriety of service under Texas law. City of Clarksdale v. BellSouth Telecomms., Inc., 428 F.3d 206, 210 (5th Cir. 2005). The district court evaluated the service attempts under Texas law and concluded that “[a]fter review of all of the parties’ briefs regarding these motions, the Court agrees with Deutsche that the Thompsons’ service attempts were ineffective.” The Thompsons have failed to challenge this finding on appeal. Indeed, they appear deliberately to evade the issue in their briefing. For example, the Thompsons state in their “Statement of Facts” that “[s]ervice of the Petition was accomplished on ASC by serving its registered agent, CSC-Lawyers Inc.” They then omit any discussion as to service on Deutsche, and only go on to note that the state court “rendered a judgment in the Thompsons[‘] favor against [Deutsche].” By failing to defend their service efforts on Deutsche, they have abandoned any argument that Deutsche was properly served. See Cinel v. Connick, 15 F.3d 1338, 1345 (5th Cir. 1994) (“An appellant abandons all issues not raised and argued in its initial brief on appeal.“).5
Because Deutsche was never served, its thirty-day period of removal under
b.
The Thompsons point us to this Court‘s decision in Oviedo v. Hallbauer, 655 F.3d 419 (5th Cir. 2011), and argue that
The Oviedo Court held that the case was not removable at that point because “[r]emoval is simply not possible after a final judgment and the time for direct appellate review has run.” Id. at 424. The Court reasoned that “by the time the government filed its notice of removal in this case, there was no pending case to remove, inasmuch as nothing remained for the state courts to do but execute the judgment.” Id. at 423-24. The Thompsons rely on this language and argue that the case here was not removable because there was no “action” to remove.
Our decision in Oviedo involved significantly different and consequential facts from those presented in this appeal. Unlike the United States in Oviedo, Deutsche neither appeared nor participated in the state court litigation, in any respect, until it filed its notice of removal after it learned of the default judgment. Critically, Deutsche has both asserted throughout the litigation that it was not properly served, and presented undisputed record evidence demonstrating this assertion. In Oviedo, the Court confronted a facially valid judgment entered against two individual defendants in which the United States had attempted to intervene even though the judgment was not facially enforceable against it. Id. at 424. In this case, however, the Thompsons clearly obtained a judgment that is enforceable against Deutsche without properly serving it. Thus, we conclude that Oviedo is no authority to bar removal in this case.
Moreover, insofar as Oviedo might apply, it does not preclude removal here because the time for direct appellate review had not run. Because Deutsche never appeared in this action, it was entitled to file a restricted appeal in the state court within six months of entry of the judgment. See
Here, the state court granted the Thompsons’ motion for nonsuit as to ASC on September 4, 2012, and it stated that “the interlocutory default judgment entered against Deutsche National Trust Company on June 22, 2012, became final upon the filing of Plaintiffs’ notice of non-suit on August 31, 2012.” Deutsche removed this action on January 17, 2013, well within six months after the judgment became final.8 Although the Thompsons point out that Deutsche did not actually appeal the judgment, whether Deutsche appealed is irrelevant under Oviedo. The Oviedo Court focused on whether “the case is final for purposes of direct review in the state court system” and not on whether a defendant actually exercised such appellate remedies. 655 F.3d at 425.
In sum, we conclude that Deutsche‘s removal period did not begin to run under
B.
Our holdings as to jurisdiction further lead us to conclude that the district court properly vacated the state court‘s default judgment. A district court must set aside a void judgment.
IV.
Now that we have established our jurisdiction and held that the initial default judgment was void, we consider whether the district court properly dismissed this action under
A.
The Thompsons allege that the 2006 loan failed to comply with various aspects of Section 50. For example, they allege that they never received a copy of the final application and all executed documents under
Although the Texas Constitution is silent as to the limitations period for claims based on constitutional violations, the Texas Code provides that “[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.”
We can unmistakably discern that the limitations period has run by consulting the face of the petition. The Thompsons alleged that they entered into the loan with New Century on March 14, 2006. The petition was stamped as filed in the state court on April 9, 2012, over six years after the closing of the loan. Thus, on its face, the limitations period has run, and the Thompsons are barred from pursuing this action.
B.
The Thompsons argue, however, that Deutsche is estopped from raising the limitations issue because Deutsche fraudulently concealed its wrongful conduct. “Fraudulent concealment tolls limitations ‘until the claimant, using reasonable diligence, discovered or should have discovered the injury.‘” Priester, 708 F.3d at 676 (quoting KPMG Peat Marwick v. Harrison Cnty. Hous. Fin. Corp., 988 S.W.2d 746, 750 (Tex. 1999)). This Court applies a four-prong test for fraudulent concealment under Texas law, under which the plaintiff must demonstrate: “(1) the existence of the underlying tort; (2) the defendant‘s knowledge of the tort; (3) the defendant‘s use of deception to conceal the tort; and (4) the plaintiff‘s reasonable reliance on the deception.” Id. (quoting Holland v. Thompson, 338 S.W.3d 586, 596 (Tex. App.—El Paso 2010)). At the pleading stage, the Thompsons need only allege sufficient facts that, when taken as true, state a plausible claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
We agree with Deutsche that the Thompsons failed to allege any facts suggesting that they could satisfy the deception element of fraudulent concealment. In their briefs, the Thompsons rely on their general descriptions of the loan‘s constitutional defects coupled with their allegations that Deutsche and its predecessors refused to acknowledge that the loan failed to comply with Section 50. We found a lack of deception on similar facts in Priester. In Priester, the plaintiffs argued that the loan documents were signed in an improper place and that the lender failed to make appropriate disclosures. We explained:
There is no evidence, however, that the defendants used “deception” to conceal any constitutional violations. First, it would be impossible to conceal the fact that the closing occurred in the Priesters’ living room. Second, the defendants did not “conceal” the fact that they did not provide the required constitutional notices. It is difficult to imag-
ine how a party would conceal a lack of disclosure.
708 F.3d at 677. As in Priester, the Thompsons raise a number of insufficient disclosures and point to incorrect paperwork. When the Thompsons closed the loan with New Century in 2006, they were aware it was on conventional paperwork and they were aware of the disclosures they did or did not receive at that time. At most, they were unaware that any of these actions violated the law. They have not plausibly claimed that Deutsche or its predecessors deceived them as to the essential facts of the transaction.
The Thompsons cite USPPS, Ltd. v. Avery Dennison Corp., 326 Fed. Appx. 842 (5th Cir. 2009), in support of their position. In that unpublished decision, USPPS alleged that its chief executive received assurances from a potential business partner that its recommended law firm would help USPPS obtain a patent on its invention. 326 Fed. Appx. at 844-45. USPPS then alleged that, in reality, the business partner and law firm collaborated to sabotage the patent application process, ultimately abandoning the process in 2003. Id. As a result, the company was then able to manufacture the product itself without a licensing agreement with USPPS. Id. A panel of this Court concluded that “while we can say that USPPS knew in May 2003 that it had suffered a loss [when the patent application had been abandoned], we cannot now say that USPPS knew or should have known in May 2003 that it had been wrongfully injured.” Id. at 850.
USPPS, as an unpublished opinion, is non-binding precedent, but even so, it is distinguishable in several respects that have consequences here. In USPPS, the defendants plausibly deceived the plaintiff as to the critical facts explaining why the patent application failed. Although USPPS knew that its patent application had been abandoned, it was not aware that the process failed because the defendants sabotaged the process. By contrast, the Thompsons were aware of the facts surrounding this loan. They were aware that they did not receive appropriate disclosures and aware that the loan was on improper forms. At most, they were unaware that this conduct violated the law. Thus, fraudulent concealment does not toll the statute of limitations in this case.
V.
In sum, we hold that Deutsche could remove this case to federal court, and the district court committed no error in denying the Thompsons’ motion to remand. Furthermore, the district court properly vacated the default judgment in favor of Deutsche and properly granted Deutsche‘s motion to dismiss the Thompsons’ petition under
E. GRADY JOLLY
UNITED STATES CIRCUIT JUDGE