John Priester, Jr. v. JP Morgan Chase Bank

Citations: 708 F.3d 667; 84 Fed. R. Serv. 3d 1519; 2013 U.S. App. LEXIS 3097; 2013 WL 539048Docket: 12-40032

Court: Court of Appeals for the Fifth Circuit; February 13, 2013; Federal Appellate Court

Original Court Document: View Document

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John and Bettie Priester obtained a $180,000 home equity loan from Long Beach Mortgage Company, secured by a lien on their homestead, which they allege was improperly closed at their home rather than at a required location as mandated by the Texas Constitution. They claim they also did not receive proper notice of their rights before closing. In July 2010, the Priesters sought to remedy these constitutional issues by contacting Long Beach and subsequently JP Morgan Chase Bank, which had acquired Long Beach. After receiving no response, they filed a lawsuit in October 2010 seeking a declaratory judgment to declare the lien void and to compel Chase to forfeit all principal and interest due to the alleged constitutional violations. They also claimed damages for defamation, arguing that Chase libeled them by stating they were overdue on payments. Chase moved to dismiss the case, citing the four-year statute of limitations. The magistrate judge initially denied the motion after the Priesters filed an amended complaint, but following further amendments and a stay during settlement negotiations, the motion to dismiss was reconsidered and ultimately granted. The district court dismissed the suit, striking two later amended complaints for attempting to join non-diverse parties that would affect jurisdiction. The Priesters appealed the dismissal.

A dismissal under Federal Rule of Civil Procedure 12(b)(6) is reviewed de novo, where all well-pleaded facts are accepted as true and viewed favorably to the plaintiff. A complaint must present sufficient factual matter to state a plausible claim for relief. Denials of leave to amend complaints are reviewed for abuse of discretion, which occurs if the district court relies on clearly erroneous facts, erroneous legal conclusions, or misapplies the law. 

In this case, jurisdiction is based on diversity of citizenship, necessitating the application of Texas law. The Priesters allege violations of two provisions of the Texas Constitution concerning homestead protections. The first provision protects a homestead from forced sale for debts unless specific notice requirements are met, while the second stipulates that a lien on a homestead is valid only if closed at designated locations. The Priesters claim they did not receive the required notice, had the lien closed improperly in their living room, and that the defendants failed to cure the defect after notice, rendering the lien invalid.

Chase contends that the affirmative defense of limitations bars the Priesters' claims. Although the Texas Constitution does not specify a limitations period for Section 50(a)(6) claims, Texas law generally requires actions without an express limitations period to be filed within four years. Two Texas appellate courts have ruled that this four-year residual limitations period applies to defects in homestead liens, concluding that such claims must be brought within four years from the loan closing date.

In Ho v. University of Texas at Arlington, the court concluded that claims under the Equal Protection Clause of the Texas Constitution are subject to statutes of limitation, as these limitations bar remedies rather than rights. The court highlighted that constitutional claims, like other claims, can become stale, leading to issues such as faded memories and lost evidence. This principle was supported by Calverley v. Gunstream, which similarly affirmed that limitations periods apply to constitutional rights enforcement. The court noted that without such limitations, defendants could face undue prejudice in their defense. Indirect support for the applicability of limitations was found in Doody v. Ameriquest Mortgage Co., which addressed the validity of liens and suggested that certain void liens are voidable. The court had not previously analyzed the application of statutes of limitation to the constitutional issues at hand but acknowledged in Boutari v. JP Morgan Chase Bank N.A. that these limitations apply, with a corresponding four-year statute of limitations affirmed. Various district and bankruptcy courts have also recognized this four-year period for constitutional claims under Section 50(a)(6). 

The determination of when a claim accrues under Texas law indicates that causes of action generally accrue when the facts allowing a claimant to seek judicial remedy arise. This is known as the "injury rule," which states that accrual occurs upon a wrongful act causing a legal injury, irrespective of the plaintiff's awareness of the injury or ongoing damages. Conversely, the "discovery rule" allows for deferral of accrual until the plaintiff is aware, or should be aware, of the injury's facts. Texas courts have set a high standard for the application of the discovery rule, asserting that it applies only when it is nearly impossible for a plaintiff to recognize their injury at the time it occurs. The Priesters argue that the discovery rule should apply in their case, suggesting that the limitations period should start upon notice of demand for rectifying constitutional deficiencies.

Texas courts have consistently applied the injury rule over the discovery rule in cases involving limitations related to Section 50(a)(6) violations, determining that the limitation period begins at the closing of a lien. In relevant cases such as Rivera and Schanzle, it was established that legal injury occurs at the loan closing, with the Boutari district court also affirming that the four-year limitation period starts when the home equity loan closes. This approach emphasizes the importance of preserving evidence and maintaining settled expectations, suggesting that allowing prolonged delays in seeking remedy would undermine these principles.

The Priesters contended that Chase should be estopped from raising a limitations defense due to alleged fraudulent concealment of their rights, based on the requirement for notice of constitutional rights prior to closing. They argued that the defendants' lack of disclosure amounted to fraudulent concealment, which could toll the statute of limitations. The doctrine of fraudulent concealment requires the presence of four elements: an underlying tort, the defendant’s knowledge of the tort, use of deception to conceal the tort, and the plaintiff’s reasonable reliance on that deception. 

While the first two elements were uncontested, the court found no evidence that the defendants used deception to conceal any constitutional violations. The fact that the closing occurred in the Priesters' home and the absence of provided disclosures could not be hidden. Therefore, the claim of fraudulent concealment was not applicable, as it was implausible for the defendants to conceal a lack of disclosure.

The Priesters' claims in their amended complaints were dismissed by the district court on the grounds that the defendants did not conceal any legal rights by having an attorney sign closing documents. The court found that the Priesters could have taken steps to understand their legal rights independently. The Priesters argued that the defendants had a duty to disclose information under Section 50(a)(6)(M), but the court noted that they provided no supporting authority for this claim and emphasized that the duty was limited to legal rights, not factual information. Texas law, specifically a ruling from DiGrazia v. Old, establishes that merely failing to disclose a cause of action does not equate to fraudulent concealment unless there is a duty to disclose, which was absent in this case.

Additionally, the Priesters claimed defamation due to the defendants reporting delinquent payments on their credit reports, asserting that this was defamatory because home-equity loans are non-recourse and the underlying lien was void. The district court concluded that the defamation claim was wholly contingent on the validity of the loan, which was valid, leading to the dismissal of the defamation claim. The Priesters contended that their defamation claim was independent and timely as the alleged defamatory acts occurred recently. However, Texas law defines libel as a false written statement that damages reputation, with truth serving as a complete defense. The court found that statements regarding the Priesters' delinquency were true given the valid loan, negating any defamation. The Priesters misinterpreted the district court’s ruling as dismissing their claim as time-barred, citing Chevalier v. Animal Rehabilitation Center, which did not support their argument regarding the dismissal of their independent defamation claim.

The Priesters contend that their constitutional claims remain valid and that the statute of limitations only restricts remedies, but this assertion is incorrect. If a constitutional claim under Section 50(a)(6) makes a lien voidable instead of void, the lien becomes valid once the limitations period expires, rendering the Priesters' liability claim non-existent. Unlike claims for fraud or conspiracy, the validity of the lien after the limitations period negates any alleged harm, resulting in no defamation and justifying the dismissal of the claim. 

The Priesters also appeal the court's decision to strike their second and third amended complaints, which sought to add parties that would disrupt diversity jurisdiction. They argue that these amendments were timely under the court's scheduling order and necessary for including additional claims. While Federal Rule of Civil Procedure 15(a) allows for amendments as a matter of right, Rule 16(b) establishes that a scheduling order dictates the timeline for such amendments. The court may deny leave to amend based on factors such as undue delay, bad faith, or potential prejudice to opposing parties.

The Priesters erroneously interpret local rules to claim unlimited amendments are permitted under the scheduling order. The actual order set a clear deadline without waiving the requirement for leave to amend. The court was justified in striking the amendments, particularly since they attempted to join non-diverse parties, which necessitates closer scrutiny to maintain jurisdiction. The district court must evaluate factors such as the intention behind the amendment, any delay in the request, and potential injury to the plaintiff if the amendment is denied. The district court concluded that the Priesters aimed to defeat jurisdiction, had been slightly dilatory, would not suffer significant harm from denial, and that the equities favored denial. Consequently, the district court applied the correct legal standard without clear error, affirming its decision to strike the amended complaints and upholding the judgment of dismissal.