DTND Sierra Investments, L.L.C. v. CitiMortgage, Inc.

Case: 14-51141 Document: 00513182758 Page: 1 Date Filed: 09/04/2015

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

No. 14-51141 United States Court of Appeals
Fifth Circuit

FILED
September 4, 2015
Lyle W. Cayce
DTND SIERRA INVESTMENTS, L.L.C., Clerk

Plaintiff–Appellant,
versus
CITIMORTGAGE, INCORPORATED;
MARK MORALES, As Trustee; DEBORAH MARTIN, As Trustee,
Defendants–Appellees.

Appeals from the United States District Court
for the Western District of Texas
USDC No. 5:13-CV-420

Before JONES, SMITH, and SOUTHWICK, Circuit Judges.
PER CURIAM:*

DTND Sierra Investments, LLC (“DTND”), appeals a sanction award
against it in favor of CitiMortgage, Incorporated (“Citi”). We find no error and
affirm.

* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
 Case: 14-51141 Document: 00513182758 Page: 2 Date Filed: 09/04/2015

No. 14-51141
I.
DTND purchased property subject to Citi’s lien at a homeowners’ associ-
ation foreclosure sale. After Citi initiated foreclosure proceedings, DTND sued
it in Texas state court, alleging that it was “depriving [DTND] of the right to
cure any default on the property prior to initiating foreclosure proceedings” in
violation of the Texas Deceptive Trade Practices Act (“DTPA”) and the Texas
Debt Collection Act (“TDCA”). DTND obtained a temporary restraining order
and sought unspecified actual damages, multiple damages under the DTPA,
exemplary damages, attorney’s fees, “a validation of debt,” “a payoff amount
for the property,” and an order quieting title.

Citi removed the case to federal court and moved to dismiss and for sanc-
tions. 1 DTND did not respond in a timely manner, so the district court ordered
DTND to show cause why the case should not be dismissed and sanctions
imposed. DTND explained that it had “failed to respond . . . because [DTND]
intended to dismiss this case with prejudice” but that it “did not bring this
action in bad faith or for purposes of harassment or delay.”

The court dismissed with prejudice after concluding that DTND’s claims
were meritless. The court described DTND as “a frequent litigator in Texas
federal and state courts” whose “business model appears to consist entirely of
purchasing deeply discounted homes at homeowners association foreclosure
sales, collecting rental income from the properties, and then, when superior
purchase-money mortgage lien holders attempt to foreclose, filing civil actions

1 Mark Morales and Deborah Martin were also named defendants, but Citi averred
that they were improperly joined such that their citizenship did not defeat diversity jurisdic-
tion. See Smallwood v. Illinois Cent. R. Co., 385 F.3d 568, 573 (5th Cir. 2004) (en banc).
Morales was the borrower on the Citi loan, and DTND’s petition did not identify any theory
of recovery against him; the petition completely failed to explain Martin’s relationship to the
lawsuit.
2
 Case: 14-51141 Document: 00513182758 Page: 3 Date Filed: 09/04/2015

No. 14-51141
in state court attempting to halt the foreclosure.” Reviewing DTND’s litigation
history in federal court since 2011—which included seventeen cases that “have
been dismissed with prejudice pursuant to a motion to dismiss” and thirty that
“have been voluntary dismissed or dismissed without prejudice with [DTND’s]
consent”—the court observed that “four of the lawsuits that were dismissed on
the merits included claims under the DTPA and TDCA arising out of a bank’s
failure to notify [DTND] of a right to cure.” 2 The court concluded that
“[DTND’s] apparent wish to avoid a determination on the merits is less than
surprising because its legal theories are frivolous.”

The district court determined that sanctions were warranted based on
DTND’s litigation history and its conduct in this case. DTND’s counsel had
offered to “release [DTND’s] claims to the property for $20,000” and told Citi
that “even if our lawsuit is dismissed fully and finally, we can more than likely
create a bar to the selling of the home. We have been paid off by Title Compan-
ies because they are very wary of issuing a title insurance policy when we have
a recorded deed.”

Based in part on that statement, the court found “that this action was
filed with knowledge of its groundlessness and for the purposes of harassment
and delay” in violation of Texas Rule of Civil Procedure 13 and Chapter 10 of
the Texas Civil Practice and Remedies Code. The court imposed a $20,000
sanction against DTND and its law firm “to deter DTND and its counsel from
continuing to file groundless, harassing lawsuits.” DTND maintains that the
court lacked jurisdiction to impose sanctions and alternatively that the sanc-
tions are an abuse of discretion.

2 See Citi’s Motion for Sanctions at 1 n.1 (listing DTND’s previous cases).
3
 Case: 14-51141 Document: 00513182758 Page: 4 Date Filed: 09/04/2015

No. 14-51141
II.
DTND does not dispute the district court’s authority to issue sanctions
pursuant to Texas Rule of Civil Procedure 13 but challenges the sanctions
imposed under Chapter 10 of the Texas Civil Practice and Remedies Code. In
Tompkins v. Cyr, 202 F.3d 770, 787 (5th Cir. 2000), we held that “[t]he district
court was correct, in this case removed from state court, to consider the appli-
cability of sanctions under Texas Rule of Civil Procedure 13 for the filing made
in the Texas court,” because “state sanctions rules [apply] to pleadings filed in
state court before removal.” Though sanctions under Chapter 10 were not at
issue in Tompkins, nothing in our reasoning was limited to Rule 13, and DTND
offers no arguments in support of its constricted interpretation of that case.
The court had authority to sanction DTND. 3

“[W]e review the district court’s decision to assess sanctions for abuse of
discretion and its underlying findings of fact for clear error.” 4 The court con-
cluded that DTND’s claims were meritless because only “a debtor in default”

3 DTND also contends that the court lacked authority to sanction its law firm, but we
need not decide that issue because the firm has not appealed. See Corroon v. Reeve, 258 F.3d
86, 91 (2d Cir. 2001) (“[B]ecause more than one entity was sanctioned, [the sanctioned law
firm] surely could not be viewed as an appellant, for it is not ‘a party whose intent to appeal
is otherwise clear from the notice.’” (quoting FED. R. APP. P. 3(c)(4))). Similar to Corroon, the
notice of appeal in this case states only that “Notice is hereby given that Plaintiff, DTND . . .
hereby appeals.” Compare Finlay v. Olive, 77 S.W.3d 520, 527 (Tex. App.—Houston [1st
Dist.] 2002, no pet.) (“[A] law firm may be sanctioned for groundless pleadings filed on its
behalf by an attorney employed with the firm.”), with Yuen v. Gerson, 342 S.W.3d 824, 828–
29 (Tex. App.—Houston [14th Dist.] 2011, pet. denied) (holding that a law firm may not be
sanctioned under Rule 13 or § 10.004). Likewise, we do not address DTND’s argument that
sanctions are unavailable after a Federal Rule of Civil Procedure 41(a)(1) voluntary dismis-
sal, because this case was dismissed under Rule 12(b)(6). DTND repeatedly asserts that it
“voluntarily dismissed the case,” but the record does not contain a notice of dismissal, a stip-
ulation of dismissal, or a motion by DTND for court-ordered dismissal as required by Rule
41(a).
4 Ortega v. Young Again Prods., Inc., 548 F. App’x 108, 110 (5th Cir. 2013) (reviewing
sanctions issued pursuant to Rule 13); see also Tompkins, 202 F.3d at 787 (reviewing the
denial of sanctions under Rule 13 for abuse of discretion).
4
 Case: 14-51141 Document: 00513182758 Page: 5 Date Filed: 09/04/2015

No. 14-51141
has a right to cure pursuant to § 51.002(d) of the Texas Property Code, and
“[a]s th[e] Court discussed in a previous order dismissing a substantially iden-
tical lawsuit filed by the same Plaintiff, DTND is not a debtor in default and is
not entitled to any of the protections enumerated in Section 51.002.” Without
any citation to authority, DTND asserts that it “was entitled to a ‘pay-off’
amount so that it could service the note and maintain its ownership interest”
in the property. Such “‘[c]onclusory briefing’ that ‘fails to address the . . . sub-
stantive reasons articulated by the [district court]’ is inadequate.” 5 Likewise,
DTND’s brief does not even mention the DTPA or the TDCA, much less explain
how Citi violated them. The court did not err by finding that DTND’s claims
were groundless.

DTND’s maintains that its prior cases did not involves the precise claim
at issue in this suit, but putting DTND’s litigation history aside, its actions
here provide ample support for the finding that it filed a groundless action for
the purposes of harassment and delay. DTND does not even attempt to explain
how the DTPA or the TDCA entitle it to a “pay-off amount,” and it sought to
avoid a ruling on the merits. Most importantly, DTND’s counsel threatened to
cloud title “even if [the] lawsuit is dismissed fully and finally” unless Citi paid
$20,000. 6

There is likewise no error with the size of the $20,000 sanctions award.
The sanction was to cover Citi’s attorney’s fees and the rental value of the prop-
erty from the date of the scheduled foreclosure to the date of judgment, with

5 Legrand v. Gillman, 576 F. App’x 334, 337 (5th Cir. 2014) (omission in original)
(quoting Stevens v. Hayes, 535 F. App’x 358, 359 (5th Cir. 2013) (per curiam)).
6 DTND’s argument that the district court improperly imposed “death-penalty” sanc-
tions is meritless. Such sanctions apply only to abuses of the discovery process, see Cire v.
Cummings, 134 S.W.3d 835, 839 (Tex. 2004); they are irrelevant to a case that was dismissed
under Rule 12(b)(6).
5
 Case: 14-51141 Document: 00513182758 Page: 6 Date Filed: 09/04/2015

No. 14-51141
any remainder to be paid into the court’s registry. The court found that Citi
incurred attorney’s fees of $11,535 and that the rental value was $12,270.
DTND maintains that Citi’s “sole loss . . . was the incursion of fees and costs of
approximately $5,685” and that, “[f]or some unclear reason, Appellee’s attor-
ney’s fee almost doubled following the Sanctions Order.” But the reason for
the increase is clear: Citi’s lawyers continued to work on the case for nearly a
year.

DTND also contends that the rental value of the property should be cal-
culated for only fourteen days—the duration of the temporary restraining
order—because “there was no future bar to [Citi’s] foreclosure” after the order
expired. But the expiration of the order did not prevent DTND from threating
to cloud title unless it was paid $20,000—what the district court characterized
as “the nuisance value of its frivolous lawsuit.”

The judgment is AFFIRMED.

6