Sam A. Lindsay

MEMORANDUM OPINION AND ORDER

Before the court is Defendant's Motion to Dismiss, filed March 8, 2012, and Plaintiff's Alternative Motion for Leave to Amend Pleadings, filed March 29, 2012. After carefully reviewing the motions, briefing, pleadings, and applicable law, the court grants Defendant's Motion to Dismiss. Although the court concludes that the motion to dismiss should be granted, dismissal of the action at this time is premature, because there still remains a claim for wrongful foreclosure that was not addressed in the motion to dismiss. As explained herein, the wrongful foreclosure claim as currently pled is deficient; however, the court will allow Plaintiff to replead this claim. Accordingly, the grants Plaintiff's Alternative Motion for Leave to Amend Pleadings with regard to his wrongful foreclosure claim but otherwise denies the motion.

I. Factual and Procedural Background

Plaintiff James Lamb ("Plaintiff" or "Lamb") brought this lawsuit against Defendant Wells Fargo, NA ("Wells Fargo"), seeking a declaratory judgment pursuant to section 37.003 of the Texas Civil Practice and Remedies Code. The action was originally filed on February 1, 2012, in the 44th Judicial District Court of Dallas County, Texas, and removed to federal court on March 6, 2012. Lamb's declaratory judgment action and allegations pertain to the alleged wrongful foreclosure by Wells Fargo of real property located at 1818 N. Yale Drive, Garland, Texas 75042. Lamb executed a Deed of Trust to secure payment on a promissory note as part of the purchase of the property in February 2005. The Deed of Trust identifies WMC Mortgage Corporation as the lender and Mortgage Electronic Registrate Systems, Incorporate ("MERS") as the "nominee for the Lender and Lender's successors and assigns" and "beneficiary under th[e] Security Instrument" with the power to sell and foreclose the property and take any other action required by the lender. Pl.'s Compl. 3, ¶ 8; Deed of Trust 2 ¶ E and 3 ¶ R. On July 14, 2009, MERS, in its capacity as trustee for the MLMI Trust Series 2005-WMC2 ("MLMI Trust"), assigned all of its "beneficial interest" in the Deed of Trust to Wells Fargo and recorded the assignment. Pl.'s Compl. 3-4, ¶ 9. Based on authority granted to it under the Deed of Trust via the assignment from MERS, Wells Fargo foreclosed on the property on January 3, 2012.

The MLMI Trust at issue was created by a Pooling and Servicing Agreement executed on May 1, 2005 between Merrill Lynch Mortgage Investors, Incorporated, as depositor, and Wilshire Credit Corporation, as servicer, and Wells Fargo as trustee. On the same date, a Mortgage Loan Sale and Assignment Agreement relating to the MLMI Trust was executed by Merrill Lynch Mortgage Capital Incorporated, as seller, and Merrill Lynch Mortgage Investors Incorporated, as purchaser. Lamb notes in his pleadings that the Pooling and Servicing Agreement provides for a closing date of May 31, 2005, for the trust.

Lamb contends that because of the intervening Pooling and Service Agreement and Mortgage Loan Sale and Assignment Agreement, MERS could not have assigned or was incapable of assigning the Note or Deed of Trust to Wells Fargo. Lamb therefore contends that the Deed of Trust at issue is invalid, and Wells Fargo did not have authority to foreclose under the Deed of Trust. It is not entirely clear from Lamb's pleadings or briefing on the motion to dismiss why he believes that the Pooling and Service Agreement and Mortgage Loan Sale and Assignment Agreement invalidate the assignment from MERS to Wells Fargo. Lamb also contends that the foreclosure was improper, because Wells Fargo did not strictly adhere to the terms of the Deed of Trust in foreclosing on the property and the foreclosure notice contained inaccuracies. Lamb seeks a declaration stating that he is the owner of the property and the Deed of Trust is void. He also requests that the Deed of Trust be removed from the title of the property.

Wells Fargo moved for dismissal of Lamb's declaratory judgment action to the extent it is based on theories of improper assignment of the Deed of Trust and split-the-note-theory. After Lamb clarified that his declaratory judgment action is actually based on a request to quiet title, Wells Fargo urged that it was entitled to dismissal based on this theory as well. Wells Fargo did not move to dismiss what appears to be an alternate claim or theory by Lamb for wrongful foreclosure based on Wells Fargo's alleged failure to adhere strictly to the terms of Deed of Trust in foreclosing on the property and alleged inaccuracies in the foreclosure notice. For the reasons herein explained, the court concludes that Wells Fargo's motion should be granted with regard to Lamb's declaratory judgment claim based on invalid assignment, as well as trespass to try title and quiet title; however, since the parties do not address Lamb's contentions regarding Wells Fargo's alleged failure to strictly adhere to the terms of Deed of Trust in foreclosing on the property and alleged inaccuracies in the foreclosure notice, dismissal of the action at this time is premature.

II. Standard for Rule 12(b)(6)—Failure to State a Claim

To defeat a motion to dismiss filed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, a plaintiff must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007); Reliable Consultants, Inc. v. Earle, 517 F.3d 738, 742 (5th Cir. 2008); Guidry v. American Pub. Life Ins. Co., 512 F.3d 177, 180 (5th Cir. 2007). A claim meets the plausibility test "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (internal citations omitted). While a complaint need not contain detailed factual allegations, it must set forth "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (citation omitted). The "[f]actual allegations of [a complaint] must be enough to raise a right to relief above the speculative level . . . on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. (quotation marks, citations, and footnote omitted).

In reviewing a Rule 12(b)(6) motion, the court must accept all well-pleaded facts in the complaint as true and view them in the light most favorable to the plaintiff. Sonnier v. State Farm Mutual Auto. Ins. Co., 509 F. 3d 673, 675 (5th Cir. 2007); Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F. 3d 464, 467 (5th Cir. 2004); Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996). In ruling on such a motion, the court cannot look beyond the pleadings. Id.; Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir. 1999), cert. denied, 530 U.S. 1229 (2000). The pleadings include the complaint and any documents attached to it. Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498-99 (5th Cir. 2000). Likewise, "'[d]ocuments that a defendant attaches to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to [the plaintiff's] claims.'" Id. (quoting Venture Assocs. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th Cir. 1993)).

The ultimate question in a Rule 12(b)(6) motion is whether the complaint states a valid claim when it is viewed in the light most favorable to the plaintiff. Great Plains Trust Co. v. Morgan Stanley Dean Witter, 313 F.3d 305, 312 (5th Cir. 2002). While well-pleaded facts of a complaint are to be accepted as true, legal conclusions are not "entitled to the assumption of truth." Iqbal, 129 S.Ct. at 1950 (citation omitted). Further, a court is not to strain to find inferences favorable to the plaintiff and is not to accept conclusory allegations, unwarranted deductions, or legal conclusions. R2 Invs. LDC v. Phillips, 401 F.3d 638, 642 (5th Cir. 2005) (citations omitted). The court does not evaluate the plaintiff's likelihood of success; instead, it only determines whether the plaintiff has pleaded a legally cognizable claim. United States ex rel. Riley v. St. Luke's Episcopal Hosp., 355 F.3d 370, 376 (5th Cir. 2004).

III. Analysis

A. The Parties' Contentions

Wells Fargo contends that Texas law does not require possession or production of the original note for purposes of a nonjudicial foreclosure and that a mortgage servicer can foreclose under a deed of trust regardless of whether it is the note holder as long as notice of the foreclosure is provided. Wells Fargo therefore maintains that Lamb's contention that it had no authority to foreclose without proving ownership of the original Note and Deed of Trust is contrary to Texas law and without merit. Additionally, Wells Fargo contends that Lamb does not have standing to challenge the assignment from MERS to Wells Fargo because he is not a party to the assignment.

Wells Fargo further contends that dismissal of Lamb's declaratory judgment action is appropriate because he has failed to plead an underlying cause of action to support his request for declaratory relief. Wells Fargo relies on Fifth Circuit authority for the proposition that the Texas Declaratory Judgment Act is remedial only and does not create substantive rights or a cause of action. Wells Fargo further contends that several federal courts in Texas have dismissed similar suits by plaintiffs seeking declaratory relief related to foreclosure proceedings.

Lamb counters that even though he has pled a claim for declaratory relief, his claim is actually a request to quiet title in which he seeks to remove the encumbrances on his title by establishing that the encumbrances are invalid. He contends that Wells Fargo has mischaracterized his pleadings and that, contrary to Wells Fargo's assertion, he has not pleaded a "Show-Me-The-Note" claim and is not attempting to challenge the assignment to Wells Fargo. Instead, he contends that his "argument is that Defendant, by its own Pooling and Servicing Agreement, was incapable of being assigned any note or deed of trust." Pl.'s Resp. 5, ¶ 9.

B. Declaratory Judgment Action

Even assuming as Lamb contends that he has standing to challenge Wells Fargo's title vis-à-vis the assignment, his declaratory judgment action based on this theory and his request to quiet title still fails as a matter of law. Trespass to try title suits are governed by Chapter 22 of the Texas Property Code and "is the method of determining title to lands, tenement, or other real property," whereas as a suit to quiet title "is an equitable action that involves clearing a title of an invalid charge against the title." Longoria v. Lasater, 292 S.W.3d 156, 165 n.7 (Tex. App. San Antonio 2009, pet denied) (quoting Tex. Prop. Code Ann. § 22.001(a) and A.I.C. Mgt. v. Crews, No. 01 03 01178 CV, 2005 WL 267667, at *3 n.8 (Tex. App. Houston [1st Dist.] Feb. 3, 2005), rev'd on other grounds, 246 S.W.3d 640 (Tex. 2008)) (emphasis in original). Lamb seeks a declaration pronouncing him as "the owner of the property," in addition to a declaration that Wells Fargo's title based on the Deed of Trust is void or invalid and removed from the title of the property. Thus, in effect, his declaratory judgment action is based on trespass to try title and quiet title.

To prevail on a trespass to title claim, the plaintiff usually must: "(1) prove a regular chain of conveyances from the sovereign, (2) establish superior title out of a common source, (3) prove title by limitations, or (4) prove title by prior possession coupled with proof that possession was not abandoned." Martin v. Amerman, 133 S.W.3d 262, 265 (Tex. 2004). The plaintiff must also "recover on the strength of his own title" and cannot rely on the weaknesses of the defendant's title. Id. The elements of the cause of action to quiet title are: (1) an interest in a specific property; (2) title to the property is affected by a claim by the defendant; and (3) the claim, although facially valid, is invalid or unenforceable. Sadler v. Duvall, 815 S.W.2d 285, 293 n. 2 (Tex. App. Texarkana 1991, writ denied). In an action to quiet title, the plaintiff has the burden of establishing his "superior equity and right to relief," and like a suit for trespass to try title, the plaintiff must rely on the strength of his or her own title, not the weaknesses of the defendant's title. See Hahn v. Love, 321 S.W.3d 517, 532 (Tex. App. Houston [1st Dist.] 2009, pet denied). In other words, the plaintiff must prove his "right, title, or ownership in himself with sufficient certainty to enable the court to see that he has a right of ownership and that the alleged adverse claim is a cloud on the title that equity will remove." Id.

Lamb contends that he "was and is the rightful owner of the property" at issue, and as previously noted, he alleges that he purchased the property and executed a Deed of Trust in February 2005, for the benefit of MERS as the nominee and beneficiary of the lender to secure payment of the Note. Pls.' Compl. 2, ¶¶ 7-8. He does not allege, however, that he was current on his mortgage payments when Wells Fargo foreclosed on the property in January 2012. Instead, he impermissibly relies on the alleged weaknesses of Wells Fargo's title.

Lamb also misunderstands the function of the Pooling and Servicing Agreement and closing date provision under that agreement. The Pooling and Servicing Agreement and the Mortgage Loan Sale and Assignment Agreement, referred to and relied on by Lamb in his Complaint, both relate to the selection of mortgage loans for inclusion in the trust and the assignment of mortgage loans, not mortgages. As a result, they do not affect MERS's authority as nominee and beneficiary of the lender under the Deed of Trust to sell, transfer, assign or foreclose on the property at issue. See Smith v. Litton Loan Servicing, LP, No. 10-14700. 2012 WL 1444636, at *1 (E.D. Mich. Apr. 26, 2012). In arguing that the Pooling and Servicing Agreement prevented assignment of his mortgage, Lamb fails to recognize that the mortgage and the mortgage loan are not interchangeable, that is, "[t]he mortgage is a security interest in real property which secures the repayment of the mortgage loan." Id. Lamb's argument based on the Pooling and Servicing Agreement is therefore without merit.

Moreover, the Deed of Trust, on its face, grants MERS the right to sell and foreclose the property. Thus, contrary to Lamb's contention, MERS had the authority to transfer or assign the Note and Deed of Trust to Wells Fargo, and Wells Fargo would have acquired the same right upon MERS's transfer of its interest. See Wigginton v. Bank of New York Mellon, No. 3:10-CV-2128-G, 2011 WL 2669071, at *3 (N.D. Tex. July 7, 2011). Having determined that Lamb's declaratory judgment action based on his assignment and trespass to try and quiet title theories fail as a matter of law, the court need not consider the parties' arguments regarding the split-the-note-theory, particularly in light of Lamb's concession that he is not proceeding on this theory; nor is it necessary for the court to address whether Lamb has standing to challenge Wells Fargo's title vis- à-vis the assignment. The court does, however, address below Lamb's alternative ground for contending that the foreclosure was improper since this claim as pled is deficient on its face and appears to have been overlooked by Wells Fargo.

C. Wrongful Foreclosure

The elements to a wrongful foreclosure suit under Texas law include: "(1) a defect in the foreclosure sale proceedings; (2) a grossly inadequate selling price; and (3) a causal connection between the defect and the grossly inadequate selling price." Sauceda v. GMAC Mortg. Corp., 268 S.W.3d 135, 139 (Tex. App. Corpus Christi 2008, no pet.); see Savers Fed. Savings & Loan Ass'n v. Reetz, 888 F.2d 1497, 1503 (5th Cir. 1989). Lamb alleges merely that Wells Fargo did not strictly adhere to the terms of the Deed of Trust in foreclosing on the property and that the foreclosure notice contained inaccuracies but fails to allege any facts to support his assertion in this regard. In addition, he does not allege that the unspecified inaccuracies or the failure to adhere to the Deed of Trust in foreclosing on the property resulted in a grossly inadequate selling price. Although Wells Fargo did not move to dismiss this claim or argue that Lamb should be required to plead the claim more definitively, the court determines that the claim is deficient as currently pled. Accordingly, if Plaintiff intends on pursuing a cause of action for wrongful foreclosure, he must set forth sufficient factual allegations of which the court can conclude that he would be entitled to relief based on the elements for wrongful foreclosure. The court therefore orders Lamb to file an amended pleading that alleges sufficient facts to show that he is entitled to relief on this claim.

IV. Amendment of Pleadings

Lamb requested to amend his pleadings in the event the court determines that he has failed to state a claim. Amendment will not be permitted with regard to the claims or theories that the court has determined fail as a matter of law, because any attempts at repleading these would be futile and unnecessarily delay this aspect of the case. For the reasons stated, however, the court will allow Lamb to replead his wrongful foreclosure claim.

V. Conclusion

For the reasons herein stated, the court concludes that Lamb has failed to a state claim for declaratory relief, based on the alleged invalidity of Wells Fargo's assignment and Lamb's trespass to try title and quiet title theories, upon which relief can be granted. The court therefore grants Defendant's Motion to Dismiss, and dismisses with prejudice Lamb's declaratory judgment claim based on the alleged invalidity of Wells Fargo's assignment and Lamb's trespass to try title and quiet title theories, and denies Plaintiff's Alternative Motion for Leave to Amend Pleadings as to these claims. The court, however, grants Plaintiff's Alternative Motion for Leave to Amend Pleadings with regard to his wrongful foreclosure claim and directs Lamb to file an amended pleading by June 7, 2012, as to this claim that addresses the deficiencies herein noted. Failure to file an amended pleading as directed will result in the court dismissing this action pursuant to Rule 12(b)(6) or Rule 41(b) of the Federal Rules of Civil Procedure.

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Sam A. Lindsay

United States District Judge