SGK Properties, L.L.C. v. U.S. Bank National Ass'n

Case: 17-20130 Document: 00514344334 Page: 1 Date Filed: 02/09/2018
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
No. 17-20130
Fifth Circuit
FILED
February 9, 2018
SGK PROPERTIES, L.L.C.; GARY P. KATZ, Lyle W. Cayce
Clerk
Plaintiffs - Appellants
v.
U.S. BANK NATIONAL ASSOCIATION, as Trustee for Lehman Brothers
Small Balance Commercial Mortgage Pass-Through Certificates, Series 2007-
3,
Defendant-Counter Plaintiff - Appellee
OCWEN LOAN SERVICING, L.L.C.,
Defendant - Appellee
v.
STEVEN WEINREB,
Counter Defendant - Appellant
**********************************************************************
SGK PROPERTIES, L.L.C.; GARY KATZ,
Plaintiffs-Appellants
v.
OCWEN LOAN SERVICING, L.L.C.; U.S. BANK NATIONAL
ASSOCIATION,
Defendants-Appellees
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No. 17-20130
Appeals from the United States District Court
for the Southern District of Texas
Before STEWART, Chief Judge, and CLEMENT and SOUTHWICK, Circuit
Judges.
CARL E. STEWART, Chief Judge:
SGK Properties, LLC (“SGK”), 1 Gary Katz (“Katz”), and Steven Weinreb
(“Weinreb”) (collectively “Appellants”) appeal the district court’s dismissal of
their respective claims against U.S. Bank National Association, as Trustee for
Lehman Brothers Small Balance Commercial Mortgage Pass-Through
Certificates, Series 2007-3 (“U.S. Bank”) and Ocwen Loan Servicing, L.L.C.
(“Ocwen”) (collectively “Appellees”). Weinreb also appeals the district court’s
denial of his motion to dismiss U.S. Bank for lack of standing, and SGK and
Katz appeal several of the district court’s other rulings, including its orders
denying their motion to remand and motion to amend their complaint, as well
as its order striking causes of action asserted in a responsive pleading. For the
following reasons, we affirm.
I. Factual Background and Procedural History
On April 18, 2007, SGK received a loan from Greenpoint Mortgage
Funding, Inc. (“Greenpoint”) for the purchase of commercial real estate in the
amount of $1,725,000, which was secured by a lien on the property. The
transaction and resulting obligation was memorialized by two documents.
First, SGK executed a promissory note (“the Note”) in the principal amount of
the loan, with an interest rate of 7.5% per annum. Katz and Weinreb, who were
1 On March 19, 2014, SGK filed a certificate with the district court evidencing the
entity’s name change from SG Properties, LLC to SGK Properties, LLC.
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SGK’s sole members at the time, personally guaranteed repayment of the loan.
SGK also executed a Deed of Trust, by which SGK conveyed the property to
Greenpoint as consideration for and to secure payment of the Note.
U.S. Bank came to possess the Note and Deed of Trust through a series
of assignments of endorsements. Specifically, on April 26, 2007, Greenpoint
allegedly assigned the Deed to “Aurora Bank, FSB f/k/a Lehman Brothers
Bank, FSB,” which thereafter assigned the Deed to “U.S. Bank National
Association, as Trustee for Lehman Brothers Small Balance Commercial
Mortgage Pass-Through Certificates, Series 2007-3,” with an effective date of
November 19, 2007. 2 Likewise, on a date unknown, Greenpoint endorsed the
Note to “Aurora Bank, FSB f/k/a Lehman Brothers Bank, FSB,” and Aurora
endorsed the Note to U.S. Bank on April 18, 2007.
SGK raised concerns about the identity and existence of the true holder
and owner of the Note and Deed and ceased making payments on the Note
around October 2010. Specifically, SGK and Katz became skeptical of the
endorsements and assignments in favor of Aurora and U.S. Bank, primarily
because, at the time the purported endorsements and assignments were made
to and from Aurora, Aurora did not exist as an entity. 3 After several
delinquency notices, U.S. Bank authorized Ocwen, as its loan servicer, to
administer a non-judicial foreclosure sale of the property, which was scheduled
for December 2013. SGK and Katz made several attempts to cancel the
2 The assignment from Aurora to U.S. Bank was signed by Aurora’s Vice President
Jack Jacob on April 12, 2010, and was notarized on April 21, 2010, upon acknowledgement
of the signature by Jacob, which is authorized under Texas law. See TEX. CIV. PRAC. & REM.
CODE ANN. § 121.004 (West 2011). Any argument about the discrepancy between the date
the assignment was signed and the date same was notarized is unavailing.
3 SGK and Katz submitted a certification from the Office of the Comptroller of
Currency indicating that on April 27, 2009, the date on which SGK and Katz assert Aurora’s
existence as a legal entity began, “Lehman Brothers Bank, FSB” changed its title to “Aurora
Bank FSB.”
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foreclosure but to no avail. SGK and Katz then sought and received a
temporary restraining order in Texas state court on the grounds that the
foreclosure was wrongful.
On January 9, 2014, U.S. Bank and Ocwen removed the case to federal
court. SGK and Katz filed their First Amended Complaint, which included
claims for trespass to try title, quiet title, breach of contract, tortious
interference with an existing contract, violations of the Texas Deceptive Trade
Practices Act, violations of the Texas Debt Collection Act, and statutory fraud.
The factual allegations in their complaint essentially challenged U.S. Bank’s
status as a valid holder of the Note and its incidental right to foreclose on the
property in light of SGK and Katz’s concerns about the validity of the
assignments of the Deed. The complaint also questioned the district court’s
jurisdiction over the case, alleging that U.S. Bank, which SGK and Katz
asserted was an unincorporated association, failed to demonstrate complete
diversity of citizenship between the plaintiffs and U.S. Bank’s members and
shareholders. The district court sua sponte dismissed SGK and Katz’s
jurisdictional challenge. SGK and Katz thereafter filed a motion to remand for
lack of diversity jurisdiction, offering the same arguments about U.S. Bank’s
status as an unincorporated association. Appellees did not respond to SGK and
Katz’s motion to remand, and the district court denied it, holding that U.S.
Bank was a trustee and its citizenship in Ohio was determinative, which
created complete diversity. U.S. Bank thereafter sought summary judgment
on all of SGK and Katz’s claims. The district court granted summary judgment
against Katz after he failed to respond within the time period set by the court,
but denied summary judgment against SGK because it was involved in
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bankruptcy proceedings. 4 U.S. Bank then foreclosed on the property and sold
it for $2.5 million. Because there was a deficiency balance, U.S. Bank filed a
counterclaim against Katz, SGK and Weinreb to recover the difference.
SGK and Katz answered U.S. Bank’s counterclaim and asserted three
additional causes of action related to U.S. Bank’s authority to enforce the Note
and foreclose on the property. U.S. Bank moved to strike these additional
claims, which the court granted that same day without allowing Katz or SGK
an opportunity to respond. The parties then filed several pleadings, including:
(1) a motion for leave to amend their complaint to re-assert the stricken claims
by SGK and Katz, (2) a motion to dismiss for lack of standing by Weinreb, (3)
a counterclaim against U.S. Bank for fraudulent misrepresentation and breach
of duty by Weinreb, to which U.S. Bank responded with a motion to dismiss
under Federal Rule of Civil Procedure 12(b)(6); and (4) a motion for summary
judgment by U.S. Bank on its counterclaim against Appellants. At a hearing,
the court orally denied Katz and SGK’s motion to amend, denied Weinreb’s
motion to dismiss, and granted U.S. Bank’s motions to dismiss and for
summary judgment. The district court rendered final judgment in favor of U.S.
Bank in the amount of $374,548.34 for the deficiency, as well as attorneys’ fees
and costs.
II. Discussion
On appeal, SGK, Katz and Weinreb challenge all of the district court’s
adverse rulings and the final judgment. Specifically, Appellants raise the
following issues: (1) whether the district court erred in denying SGK and Katz’s
motion to remand; (2) whether the district court erred in granting U.S. Bank’s
motion for summary judgment for its counterclaim; (3) whether the district
4 SGK’s bankruptcy action was dismissed on March 28, 2014, after which U.S. Bank
renewed its motion for summary judgment to dismiss SGK’s claims. The district court
granted U.S. Bank’s motion.
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court erred by holding that U.S. Bank had standing to pursue Weinreb to
recover the deficiency judgment; (4) whether the district court erred in denying
Weinreb’s fraudulent misrepresentation and breach of duty claims; (5) whether
the district court abused its discretion in granting U.S. Bank’s motion to strike
SGK and Katz’s additional causes of action; and (6) whether the district court
erred in denying SGK and Katz leave to amend their complaint. We discuss
each issue in turn.
A. SGK and Katz’s Motion to Remand
SGK and Katz argue that the district court erred by denying their motion
to remand because U.S. Bank never established complete diversity of
citizenship. We review denial of a motion to remand de novo. Int’l Energy
Ventures Mgmt., L.L.C. v. United Energy Grp., Ltd., 818 F.3d 193, 199 (5th Cir.
2016) (citing Scarlott v. Nissan N. Am., Inc., 771 F.3d 883, 887 (5th Cir. 2014)).
“Under 28 U.S.C. § 1332(a), diversity jurisdiction exists where there is
complete diversity of citizenship among the parties and the amount in
controversy exceeds $75,000.” Bynane v. Bank of New York Mellon for CWMBS,
Inc. Asset-Backed Certificates Series 2006-24, 866 F.3d 351, 355 (5th Cir. 2017).
“[C]omplete diversity requires that all persons on one side of the controversy
be citizens of different states than all persons on the other side.” Settlement
Funding, L.L.C. v. Rapid Settlements, Ltd., 851 F.3d 530, 536 (5th Cir. 2017)
(alteration in original) (quoting McLaughlin v. Miss. Power Co., 376 F.3d 344,
353 (5th Cir. 2004) (per curiam)). The party seeking the federal forum, here
U.S. Bank, has the burden of establishing diversity jurisdiction. Id.
SGK and Katz specifically challenge the district court’s citizenship
finding with respect to U.S. Bank. The district court found that there was
complete diversity of citizenship, holding in relevant part that “U.S. Bank need
not disclose the citizenship of the beneficiaries of the trust” because “[a]s
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trustee, its citizenship is determinative.” 5 They contend that the district court
erred by considering only the citizenship of U.S. Bank as the trustee. Instead,
they argue, the district court should have considered the citizenship of each of
the trust’s shareholders and members. In so arguing, SGK and Katz aver that
U.S. Bank is only a nominal or formal party present in the lawsuit on behalf of
the trust.
It is true that “[i]n determining diversity jurisdiction, a federal court
must disregard nominal or formal parties and rest jurisdiction only upon the
citizenship of the real parties to the controversy.” Bynane, 866 F.3d at 356
(quoting Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 461 (1980)) (internal
quotation marks omitted). In Navarro, the Supreme Court addressed whether
the trustees or the trust’s beneficial shareholders are the real parties to a
controversy when the trustees are named as the parties to the lawsuit.
Navarro, 446 U.S. at 462. The Court held that when a trustee is named as a
defendant in a lawsuit, “[the] trustee is a real party to the controversy for
purposes of diversity jurisdiction when he possesses certain customary powers
to hold, manage, and dispose of assets for the benefit of others.” Id. at 464.
Because U.S. Bank was named as a defendant in this lawsuit, its citizenship
is determinative for purposes of diversity jurisdiction if its control over the
trust’s assets is real and substantial. See Bynane, 866 F.3d at 356.
SGK and Katz argue that the facts of this case require us to apply the
Supreme Court’s recent decision in Americold Realty Trust v. Conagra Foods,
Inc., 136 S. Ct. 1012 (2016). In Americold, the Supreme Court considered whose
citizenship—the trustee’s or the trust’s shareholders’—matters in determining
diversity jurisdiction for a real estate investment trust organized under
5 It is undisputed that, at the time of removal, SGK and Katz were citizens of New
Jersey, and that Ocwen was a citizen of the U.S. Virgin Islands.
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Maryland law. Americold, 136 S. Ct. at 1015–17. The Supreme Court treated
the trust as a non-corporate artificial entity and applied the “oft-repeated rule
that diversity jurisdiction in a suit by or against the entity depends on the
citizenship of all [its] members.” Id. at 1015. On this basis, the Supreme Court
held that the real estate investment trust’s shareholders’ citizenships must be
considered. See id. (quoting Carden v. Arkoma Assocs., 494 U.S. 185, 195–96
(1990)) (alteration in original) (quotation marks omitted). Significantly,
because the real estate investment trust was sued in its own name, the
Supreme Court declined to apply the rule from Navarro that a federal court
looks only at the trustee’s citizenship. Id. at 1017. Because SGK and Katz sued
the U.S. Bank in its capacity as trustee, their reliance on Americold is
unavailing. Further, this court has previously held that the Navarro rule still
controls when the trustee is a national banking association. See Bynane, 866
F.3d at 357 (discussing Justice v. Wells Fargo Bank Nat’l Ass’n, 674 F. App’x
330 (5th Cir. 2016) (per curiam) (unpublished)).
Again, here, because U.S. Bank was sued in its capacity as trustee,
Navarro controls, leaving us to determine only whether U.S. Bank possesses
the sort of “real and substantial” control over the trust’s assets to make it more
than just a nominal party. We hold that it does. U.S. Bank, as assignee of the
trust’s assets—including the Note and Deed of Trust—is the holder of the Note
and all rights due under it, and consequently has the right to enforce the Note
and defend itself in this lawsuit. We therefore hold that there is complete
diversity of citizenship among the parties and affirm the district court’s denial
of SGK and Katz’s motion to remand.
B. Motion for Summary Judgment
SGK and Katz also challenge the district court’s summary judgment
dismissal of their claims. In its summary judgment motion, U.S. Bank argued
that because it is the legal holder of the Note, all of SGK and Katz’s claims—
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which were premised on allegations challenging the validity of the
endorsements and assignments of the Note and Deed of Trust, respectively—
should be dismissed. In support of their motion, Appellees submitted a certified
copy of the original Note and an affidavit attesting to its authenticity. SGK and
Katz maintain on appeal that Appellees were required to establish an
unbroken chain of title for both the Note and Deed of Trust, and that because
Appellees did not—and could not—offer proof to dispel with the mystery
surrounding Aurora’s existence at the time of the transfers, genuine issues of
material fact remain and summary judgment dismissal was in appropriate.
“We review a grant of summary judgment de novo, applying the same
standard as the district court.” Haverda v. Hays Cty., 723 F.3d 586, 591 (5th
Cir. 2013). Summary judgment is proper “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a).
For U.S. Bank to recover on the Note, Texas law requires that it establish
the following: (1) the note exists; (2) the obligor signed the note; (3) the obligee
is entitled to enforce the note; and (4) a certain balance is due and owing under
the note. Martin v. New Century Mortg. Co., 377 S.W.3d 79, 84 (Tex. App. 2012)
(citing Wells Fargo Bank, N.A. v. Ballestas, 355 S.W.3d 187, 191 (Tex. App.
2011)). SGK and Katz challenge whether the third requirement is satisfied,
that is, whether U.S. Bank was entitled to enforce the Note. Under the Texas
Property Code, a party has standing to initiate a non-judicial foreclosure sale
if the party is a mortgagee. See TEX. PROP. CODE ANN. §§ 51.002, 51.0025
(2017). A mortgagee includes, among others, the owner or holder of a security
instrument, such as a deed of trust, or, “if the security interest has been
assigned of record, the last person to whom the security interest has been
assigned of record.” Id. § 51.0001(4), (6). Even if a party does not have a
recorded interest in a security instrument, the party may still have standing
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to foreclose if the party is the holder or owner of a note secured by the
instrument. This rule derives from the common law maxim, now codified in
Texas, that “the mortgage follows the note.” See TEX. BUS. & COM. CODE ANN.
§ 9.203(g) (2005) (“The attachment of a security interest in a right to payment
or performance secured by a security interest or other lien on personal or real
property is also attachment of a security interest in the security interest,
mortgage, or other lien.”); Campbell v. Mortg. Elec. Registration Sys., Inc., No.
03–11–00429–CV, 2012 WL 1839357, at *4 (Tex. App. May 18, 2012, pet.
denied) (mem.op.).
U.S. Bank maintains that it is a holder of the Note and is therefore
legally entitled to enforce the mortgage. A holder is defined as “the person in
possession of a negotiable instrument that is payable either to bearer or to an
identified person that is the person in possession.” TEX. BUS. & COM. CODE
ANN. § 1.201(b)(21)(A) (2015). In other words, “[a] person can become the
holder of an instrument when the instrument is issued to that person; or he
can become a holder by negotiation.” Leavings v. Mills, 175 S.W.3d 301, 309
(Tex. App. 2004) (citing TEX. BUS. & COM. CODE ANN. § 3.201 cmt. 1 (2002)).
For instruments made “payable to an identified person,” that person becomes
a “holder by negotiation” through a “transfer of possession of the instrument
and its indorsement by the holder.” TEX. BUS. & COM. CODE ANN. § 3.201(b)
(2013). For the indorsement to be legally acceptable, it “must be written by or
on behalf of the holder and on the instrument or on a paper so firmly affixed to
it as to become part of it,” such as a firmly affixed allonge. Leavings, 175 S.W.3d
at 309 (citing Jernigan v. Bank One, Tex., N.A., 803 S.W.2d 774, 776 (Tex. App.
1991)).
The evidence submitted by U.S. Bank in support of its motion for
summary judgment demonstrates that it is a legal holder of the Note under
Texas law. Appended to the Note, of which U.S. Bank has possession, is an
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allonge that contains a special endorsement in favor of U.S. Bank. U.S. Bank
is therefore a holder of the Note.
This logic and conclusion treats as legally insignificant whether Aurora
existed at the time of the transfers and therefore had legal capacity to either
endorse the Note or assign the Deed to U.S. Bank. Assuming without holding
that any of the Deed assignments from Greenpoint to Aurora to U.S. Bank
were forgeries under Texas law, see TEX. PENAL CODE ANN. § 32.21(a)(1)(A)
(defining “forge” as altering, making, completing, or executing any writing so
that it purports to be the act of another who did not authorize that act), and
acknowledging that a forgery makes a Deed assignment void, see, e.g., Garcia
v. Garza, 311 S.W.3d 28, 44 (Tex. App. 2010), when the foreclosing party is the
holder of the promissory note, any defects in the Deed assignment are
irrelevant. See Antony v. United Midwest Sav. Bank, No. H-15-1062, 2016 WL
914975, at *3 (S.D. Tex. Mar. 10, 2016) (“Even if the assignment of the Deed of
Trust from MERS to Flagstar was void, the record shows that Flagstar was the
holder of the Note at foreclosure and had standing to foreclose on that basis.”).
That is, because Texas follows the common-law maxim that the mortgage
follows the note, see Lawson v. Gibbs, 591 S.W.2d 292, 294 (Tex. App. 1979),
U.S. Bank was, as holder, entitled to foreclose on the property as holder of the
note even if the assignment of the Deed of Trust was void. See Kiggundu v.
Mortg. Elec. Registration Sys. Inc., 469 F. App’x 330, 331–32 (5th Cir. 2012)
(“It was sufficient for the Bank of New York to establish that it was in
possession of the note; it was not required to show that the deed of trust had
been assigned to it.”).
Thus, U.S. Bank was authorized to foreclose on the property when SGK
defaulted on the loan, and Appellants’ attacks on the validity of the transfers
of the Note and Deed of Trust from Greenpoint to U.S. Bank are irrelevant.
See, e.g., EverBank, N.A. v. Seedergy Ventures, Inc., 499 S.W.3d 534, 541 (Tex.
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App. 2016) (rejecting the argument that the assignee of an allegedly fraudulent
deed of trust precludes the holder of the promissory note from foreclosing on
the property). Because there remains no genuine dispute of material fact
concerning U.S. Bank’s authority to collect on the Note and enforce the Deed
of Trust, we affirm the district court’s grant of U.S. Bank’s motion for summary
judgment.
C. Weinreb’s Standing Challenge
On appeal, Weinreb argues that U.S. Bank lacked standing to recover
any deficiency against him because it was not legally entitled to foreclose on
the property to begin with. Weinreb’s arguments mirror challenges asserted
against U.S. Bank’s attempts to initially foreclose on the property by SGK and
Katz. That is, the crux of Weinreb’s challenge concerns whether U.S. Bank is
a valid holder and owner of the note. For the reasons supporting summary
judgment dismissal of SGK and Katz’s claims, we hold that the district court
correctly concluded U.S. Bank is legally entitled to pursue a deficiency
judgment against Weinreb as guarantor. Specifically, U.S. Bank’s status as the
holder of the Note authorizes it to foreclose on the collateral listed in the Deed
of Trust and to exercise other incidental rights, including to recoup any
outstanding balance on the Note. See TEX. PROP. CODE ANN. §§ 51.002, 51.0025
(2017). We therefore affirm the district court’s denial of Weinreb’s standing
challenge.
D. Dismissal of Weinreb’s Fraudulent Misrepresentation Claim
Next, Weinreb challenges the district court’s dismissal of his fraudulent
misrepresentation claim. In response to U.S. Bank’s third-party demand
seeking a deficiency judgment, Weireb asserted, inter alia, that lawyers for
U.S. Bank represented to him on a telephone call that they had found a buyer
willing to purchase the foreclosed property for $2.8 million, which exceeded the
outstanding loan balance. At the foreclosure sale, however, U.S. Bank sold the
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property for less than the stated amount, resulting in a deficiency that Weinreb
was jointly and severally liable for as a guarantor. On this basis, Weinreb
asserted a fraudulent misrepresentation claim against U.S. Bank, arguing that
he relied on U.S. Bank’s representations about a potential purchaser to his
detriment. The district court dismissed Weinreb’s claim on U.S. Bank’s Rule
12(b)(6) motion. On appeal, Weinreb argues that his counterclaim pleaded
adequate facts that he relied on and acted upon U.S. Bank’s representation
that there would be no deficiency owed on the loan after the foreclosure sale.
We review de novo a district court’s grant of a Rule 12(b)(6) motion,
“accepting all well-pleaded facts as true and viewing those facts in the light
most favorable to the plaintiff.” Stokes v. Gann, 498 F.3d 483, 484 (5th Cir.
2007). However, “[t]hreadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). “To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’” Id. (citation omitted).
“A plaintiff asserting a claim for fraudulent misrepresentation must
[allege] the following elements of the tort: (1) a material representation was
made; (2) the representation was false; (3) when the representation was made,
the speaker knew it was false or made it recklessly without any knowledge of
the truth and as a positive assertion; (4) the speaker made the representation
with the intent that the plaintiff act upon it; (5) the plaintiff acted in reliance
on the representation; and (6) the plaintiff thereby suffered injury.” Cent.
Petroleum Ltd. v. Geoscience Resource Recovery, LLC, No. 14-16-00933-cv, 2017
WL 6374694, at *13 (Tex. App. Dec. 14, 2017) (citing Italian Cowboy Partners,
Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 337 (Tex. 2011)).
We note that throughout his brief, Weinreb maintains that he
adequately alleged a negligent misrepresentation claim, although his original
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counterclaim asserts that U.S. Bank’s attorneys fraudulently misrepresented
the status of a potential third-party purchaser of the property. To the extent
Weinreb’s briefing exclusively asserts the viability of a negligent
misrepresentation claim based on U.S. Bank’s alleged breach of the duty to
disclose, we will not consider that assertion for the first time on appeal. See,
e.g., Martco Ltd. P’ship v. Wellons, Inc., 588 F.3d 864, 877 (5th Cir. 2009)
(“[A]rguments not raised before the district court are waived and cannot be
raised for the first time on appeal.”) (citation omitted). However, because the
element disputed on appeal—whether Weinreb sustained any injury due to
U.S. Bank’s alleged misrepresentations—is present in both negligent and
fraudulent misrepresentation claims, we will discuss the viability of Weinreb’s
claim.
Weinreb’s counterclaim primarily contains conclusory allegations in
support of his fraudulent misrepresentation claim, including that “U.S. Bank
intended that Weinreb should act upon these representations” and “Weinreb
acted in reliance on these representations.” Such conclusory statements are
insufficient to withstand a Rule 12(b)(6) motion. Ashcroft, 556 U.S. at 678.
Weinreb’s assertion that he suffered a loss because he did not attend the
foreclosure sale or bid on the property does not satisfy the injury element.
Weinreb did not allege that he initially intended to bid on the property before
learning of a potential buyer and changed his position after speaking with U.S.
Bank’s representatives. Having failed to show that he was injured because of
U.S. Bank’s alleged representations, Weinreb’s fraudulent representation
claim was properly dismissed.
E. U.S. Bank’s Motion to Strike and SGK and Katz’s Motion for Leave to
Amend
We finally turn to arguments related to SGK and Katz’s attempts to
assert new claims. In response to U.S. Bank’s counterclaim seeking a
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deficiency judgment, SGK and Katz filed an answer and included three
“additional claims” against U.S. Bank and Ocwen. Specifically, SGK and Katz
asserted claims alleging (1) that U.S. Bank lacked standing because the
original assignment of the Deed of Trust was void ab initio, (2) that U.S. Bank
fraudulently foreclosed on the property and was “fraudulently attempting to
collect a debt,” and (3) that U.S. Bank committed common law fraud by
misrepresenting to SGK and Katz that it had a buyer who would purchase the
property for a price sufficient to satisfy the outstanding debt. Approximately
two years later, U.S. Bank filed a motion to strike these claims from SGK and
Katz’s answer, which the district court granted without written reasons that
same day. Notwithstanding, we hold that the district court properly struck
SGK and Katz’s claims. Federal Rule of Civil Procedure 15(a)(1) authorizes
amendment of a pleading as of right within 21 days of serving it. Outside of
that window, a party may amend a complaint with leave of court or the
opposing party’s consent. Fed. R. Civ. Pro. 15(a)(2). Although SGK and Katz
asserted their additional claims in response to U.S. Bank’s counterclaim, the
claims effectively served as an attempt to amend their complaint. Because SGK
and Katz did not follow the procedure set out in Rule 15 to amend their
complaint, their additional claims were properly stricken on U.S. Bank’s
motion.
After the district court struck the additional claims from their answer,
SGK and Katz filed a motion to amend their complaint to add the stricken
claims. The district court orally denied this motion without reasons. “We
review the district court’s denial of leave to amend the complaint for abuse of
discretion.” United States ex rel. Willard v. Humana Health Plan of Tex. Inc.,
336 F.3d 375, 379 (5th Cir. 2003) (citing Hypes v. First Commerce Corp., 134
F.3d 721, 727–28 (5th Cir. 1998)). Federal Rule of Civil Procedure 15(a)(2)
states that the district “court should freely give leave [to amend] when justice
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No. 17-20130
so requires.” “[T]he language of this rule ‘evinces a bias in favor of granting
leave to amend,’” and “[a] district court must possess a ‘substantial reason’ to
deny a request.” Smith v. EMC Corp., 393 F.3d 590, 595 (5th Cir. 2004)
(citation omitted). A district court should “examine [ ] five considerations to
determine whether to grant a party leave to amend a complaint: 1) undue
delay, 2) bad faith or dilatory motive, 3) repeated failure to cure deficiencies by
previous amendments, 4) undue prejudice to the opposing party, and 5) futility
of the amendment.” Id. (citations omitted). An amendment is considered futile
if “the amended complaint would fail to state a claim upon which relief could
be granted.” Stripling v. Jordan Prod. Co., 234 F.3d 863, 872–73 (5th Cir.
2000). Moreover, “[g]iven the policy of liberality behind Rule 15(a), it is
apparent that when a motion to amend is not even considered, much less not
granted, an abuse of discretion has occurred.” Lowrey v. Tex. A & M Univ. Sys.,
117 F.3d 242, 245–46 (5th Cir. 1997) (quoting Marks v. Shell Oil Co., 830 F.2d
68, 69 (6th Cir. 1987)).
The district court did not offer reasons for denying SGK and Katz’s
motion to amend their complaint. Notwithstanding our strong preference for
explicit reasoning for denial of a motion to amend, “when the justification for
the denial is ‘readily apparent,’ a failure to explain ‘is unfortunate but not fatal
to affirmance if the record reflects ample and obvious grounds for denying leave
to amend.’” Marucci Sports, L.L.C. v. Nat’l Collegiate Athletic Ass’n, 751 F.3d
368, 378 (5th Cir. 2014) (quoting Mayeaux v. La. Health Serv. & Indem. Co.,
376 F.3d 420, 426 (5th Cir. 2004)). We hold that, because SGK and Katz’s
amendment would have been futile, the district court properly denied their
motion to amend. SGK and Katz’s additional claims rested on the premise that
U.S. Bank was not legally entitled to enforce the Deed of Trust because of
alleged defects in the assignments, and that U.S. Bank’s representative
fraudulently represented that a potential buyer would purchase the property
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for a price that would leave no deficiency. For the same reasons we affirmed
the summary judgment dismissal of SGK and Katz’s original claims and the
dismissal of Weinreb’s fraudulent misrepresentation claim, we hold that SGK
and Katz’s attempts to pursue these claims would have been futile, see
Stripling, 234 F.3d at 872–73, and the district court did not abuse its discretion
by disallowing the amendment.
III. Conclusion
For the foregoing reasons, we AFFIRM the district court’s judgment.
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