Thomas v. Wells Fargo Bank, National Association, et al.

Filing 90

ORDER that Wells Fargo Bank, N.A.'s 68 Motion for Summary Judgment is granted in part and denied in part. IT IS FURTHER ORDERED that Plaintiff's 71 Motion for Partial Summary Judgment against Defendant Wells Fargo is DENIED. Signed by Judge G Murray Snow on 04/02/12. (ESL)

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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 10 11 12 13 14 ) ) ) Plaintiff, ) ) vs. ) ) Wells Fargo Bank, National Association) dba Wells Fargo Home Mortgage, et al., ) ) ) Defendants. ) Steve G. Thomas, No. CV-10-901-PHX-GMS ORDER 15 16 Pending before the Court are Defendant Wells Fargo Bank, N.A.’s Motion for 17 Summary Judgment (Doc. 68) and Plaintiff’s Motion for Partial Summary Judgment (Doc. 18 71). Wells Fargo’s summary judgment motion is granted in part and denied in part. Plaintiff’s 19 summary judgment motion is denied. 20 BACKGROUND 21 In September 2006, Plaintiff Steve G. Thomas purchased a home at 3644 East Maffeo 22 Road, Phoenix, Arizona (the “Property”) for $900,000. Plaintiff financed the purchase with 23 loans from Defendant Wells Fargo Bank, N.A. through an arrangement called an “80-10-10.” 24 (Doc. 69-1, Ex. 1 at ¶ 5). Through the 80-10-10 arrangement, 80 percent of the purchase 25 price was financed by Wells Fargo through a purchase money first mortgage loan, 10 percent 26 was financed by Wells Fargo through a purchase money second mortgage loan, and Plaintiff 27 paid the remaining 10 percent of the purchase price. (Id.). In other words, Plaintiff borrowed 28 1 $720,00 through the first mortgage loan and $90,000 through the second mortgage loan, for 2 a total of $810,000 in borrowed funds. Plaintiff then paid the remaining $90,000 of the 3 purchase price, plus $14,983 in closing costs. (Doc. 69-1, Ex. 1-G at lines 103, 201, 202, 205, 4 303, 506). 5 Plaintiff’s $720,000 first mortgage loan provided for a 30-year term of repayment at 6 a fixed rate of interest. (Doc. 69, ¶ 7; Doc. 86, ¶ 7). For the first ten years, Plaintiff’s 7 payments were interest only; thereafter, he was required to pay both principal and interest, 8 amortized over the remaining 20-year period. (Id.). In connection with the first mortgage 9 loan, Plaintiff signed a promissory note and a deed of trust. (Doc. 71, Exs. B, C). The 10 promissory note states that Plaintiff has “the right to make payments of Principal at any time 11 before they are due” and that upon making such a prepayment Plaintiff “will tell the Note 12 Holder in writing that [he is] doing so.” (Doc. 71, Ex. B). The deed of trust lays out an order 13 of priority under which Plaintiff’s payments are to be applied to his loans: [A]ll payments accepted and applied by Lender shall be applied in the following order of priority: (a) interest due under the Note; (b) principal due under the Note; (c) amounts due under Section 3. Such payments shall be applied to each Periodic Payment in the order in which it became due. Any remaining amounts shall be applied first to late charges, second to any other amounts due under this Security Instrument, and then to reduce the principal balance of the Note. 14 15 16 17 18 (Doc. 71, Ex. C). 19 When Plaintiff purchased the Property it was new, and various improvements, 20 including landscaping, decking, and installation of a barbeque grill and firepit, had not yet 21 been completed. Plaintiff wished to make such improvements himself rather than have the 22 seller make them. Wells Fargo and Plaintiff therefore agreed to place $85,000 of the first 23 mortgage loan1 into an escrow account with Defendant First American Title. (Doc. 69-1, Ex. 24 25 26 27 28 1 Wells Fargo has produced an affidavit of Jeff Borden, Plaintiff’s Home Mortgage Consultant, which states that the $85,000 was withheld from Plaintiff’s first loan. (Doc. 69-1, Ex. 1 at ¶ 7). Plaintiff contends that the second mortgage loan was the source of the $85,000. (Doc. 1). Plaintiff has not produced any evidence, however, that this is the case. The top left corner of the Escrow Agreement bears the numbers “12061.” (Doc. 69-1, Ex. 1-K). These -2- 1 1 at ¶ 12, Ex. 1-G at line 506, Ex. 1-K). Although the $85,000 was never given directly to 2 Plaintiff, under the terms of this Escrow Agreement the $85,000 was loaned to Plaintiff in 3 September along with the funds used to purchase the Property, and then immediately 4 deposited with First American. (Doc. 69-1, Ex. 1-K at 000138). Although Plaintiff seems to 5 have immediately started paying interest on the $85,000, (See Doc. 69-3, Ex. 6 at 000234), 6 his access to these funds was limited by the Escrow Agreement (See Doc. 69-1, Ex. 1-K). 7 The Escrow Agreement lists four interested parties: 1) the Lender, Wells Fargo; 2) the 8 Mortgagor; 3) the Closing Agent, First American Title; and 4) the “responsible party”—the 9 party responsible for making the improvements. (Id.). The agreement does not explicitly 10 identify this “responsible party,” but the parties agree that the party responsible for making 11 the improvements was the Mortgagor, Plaintiff Steve Thomas. (Doc. 69, ¶ 18; Doc. 72, ¶ 4). 12 In other words, under the Escrow Agreement, Plaintiff has the rights and responsibilities of 13 both the Mortgagor and the “responsible party.” Under the terms of the Escrow Agreement, 14 First American was to release the $85,000 to Plaintiff once he had completed the 15 improvements “to [Wells Fargo’s] satisfaction and in accordance with any plans and 16 specifications for the work.” (Doc. 69-1, Ex. 1-K at ¶ 2.a). The Escrow Agreement further 17 states that Plaintiff was to complete the improvements “on or before 12/4/06, or such later 18 date as may be approved by the Lender,” and that Plaintiff “must notify the Lender upon 19 completion of the work.” (Id.). 20 In the event Plaintiff did not satisfactorily complete the improvements by the date 21 specified or by later Lender-approved deadlines, the Escrow Agreement contemplates two 22 possible remedies. First,“the Lender is authorized to enter into a contract with any third party 23 for the completion of the work. The Closing Agent will pay the third party from the escrowed 24 funds. The remainder, if any, will be released to [Plaintiff].” (Doc. 69-1, Ex. 1-K at ¶ 3.b). 25 Second, where “the cost to [complete the improvements] is substantially more than the 26 27 28 are the last five digits of Plaintiff’s first mortgage loan. (See Doc. 69-3, Ex. 6; Doc. 69-1, Ex. 1-B at 000024). -3- 1 amount escrowed . . . the Lender, at its discretion, may cause the release of the escrowed 2 funds to [Plaintiff].” (Id. at ¶ 3.d). 3 Plaintiff did not complete the improvements by December 4, 2006. (See Doc. 69-1, 4 Ex. 1-K). Wells Fargo granted Plaintiff a 60-day extension and three additional 30-day 5 extensions to complete the improvements. (Doc. 69, ¶ 24; Doc. 86, ¶ 24). The last extension 6 expired on May 7, 2007 without Plaintiff having completed all of the improvements.2 (Doc. 7 69-1, Ex. 1 at ¶ 15). On June 5, 2007, Wells Fargo requested via email that First American 8 send the escrowed funds to Wells Fargo “for principal reduction” on Plaintiff’s loan. (Doc. 9 69-2, Ex. 4-18).That same day, a First American representative replied that she would send 10 the funds “as soon as possible,” but asked “[h]as Mr. Thomas been notified that the funds are 11 being requested to be sent to you!!![?]” (Id.). Wells Fargo responded that “Mr. Jeff Borden 12 [Plaintiff’s] Home Mortgage Consultant spoke with him and made him aware of what we are 13 doing.” (Id.). First American forwarded the $85,000 to Wells Fargo, and on June 14, 2007, 14 Wells Fargo credited the funds to the principal of Plaintiff’s purchase money first mortgage 15 loan.3 16 In October 2009, Plaintiff stopped making payments on his loans. (Doc. 69-3, Ex. 6 17 at 000236). In January 2010, Wells Fargo declared Plaintiff in default and noticed a trustee’s 18 sale on the property. On June 30, 2010, the Property was sold at a public auction. (Doc. 69-3, 19 20 21 22 23 24 25 26 27 28 2 Plaintiff contends that by June 2007 he had completed most of the agreed-upon improvements. (Doc. 86, ¶ 25). The Court has ordered, however, that “[a]s a sanction, Plaintiff will be unable to offer testimony or evidence as to the improvements he made upon the property, except those specific improvements as are identified in Exhibit M attached to Defendant’s Motion (Doc. 50).” (Doc. 59 at 1). To the extent Plaintiff wishes to argue at trial that he completed a portion of the improvements, he will therefore be limited to those improvements which he identified in Doc. 50, Exhibit M. 3 The $85,000 credit reduced Plaintiff’s principal balance on that loan from $717,677 to $632,677. (Doc. 69, ¶ 28; Doc. 86, ¶ 28). Accordingly, Plaintiff’s biweekly interest payment was reduced from $2,316 to $2,080. (Id.). This biweekly payment was deducted from Plaintiff’s bank account via automatic withdrawal and Plaintiff claims that he was not aware that his principal and payments had been reduced until months after the reduction. (Doc. 72 at ¶¶ 13–14). -4- 1 Ex. 7). 2 On March 23, 2010, Plaintiff filed the instant action in Maricopa County Superior 3 Court, bringing a breach of contract claim against First American and four claims against 4 Wells Fargo. (Doc. 1-1, Ex. A). Plaintiff’s claims against Wells Fargo were for breach of 5 contract, violation of the covenant of good faith and fair dealing, violation of the truth in 6 lending law, and fraud.4 On April 23, 2010, the action was removed to this Court. (Doc. 1). 7 On August 26, 2010, the Court dismissed Plaintiff’s truth in lending claim. (Doc. 18). Wells 8 Fargo now moves for summary judgment against Plaintiff on his remaining three claims. 9 (Doc. 68). Plaintiff, meanwhile, moves for summary judgment against Wells Fargo on his 10 breach of contract claim. (Doc. 71). DISCUSSION 11 12 I. Legal Standard 13 Summary judgment is appropriate if the evidence, viewed in the light most favorable 14 to the nonmoving party, demonstrates “that there is no genuine dispute as to any material fact 15 and the movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a). Substantive 16 law determines which facts are material and “[o]nly disputes over facts that might affect the 17 outcome of the suit under the governing law will properly preclude the entry of summary 18 judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “A fact issue is 19 genuine ‘if the evidence is such that a reasonable jury could return a verdict for the 20 nonmoving party.’” Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1061 (9th Cir. 2002) 21 (quoting Anderson, 477 U.S. at 248). Thus, the nonmoving party must show that the genuine 22 factual issues “‘can be resolved only by a finder of fact because they may reasonably be 23 resolved in favor of either party.’” Cal. Architectural Bldg. Prods., Inc. v. Franciscan 24 25 26 27 28 4 Plaintiff also attempted to bring a cause of action for an injunction against the trustee’s sale. (Doc. 1-1, Ex. A). As the Court held, however, in its August 26, 2010 Order, injunctions are remedies for underlying causes of action and not separate causes of action. (Doc. 18 at 8). The Court accordingly dismissed this claim to the extent it was pled as a separate cause of action. (Id.). -5- 1 Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir. 1987) (quoting Anderson, 477 U.S. at 250) 2 (emphasis in original). 3 II. Legal Analysis 4 A. 5 Plaintiff has outstanding claims against Wells Fargo for 1) breach of contract, 2) 6 violation of the covenant of good faith and fair dealing, and 3) fraud and misrepresentation. 7 Wells Fargo seeks summary judgment against Plaintiff on all three claims. The Court will 8 address each claim in turn. 9 Wells Fargo’s Motion for Summary Judgment 1. Breach of Contract 10 In its Complaint, Plaintiff claims that Wells Fargo breached the terms of the loan 11 agreement by requesting the $85,000 in escrowed funds from First American and applying 12 those funds to the principal of Plaintiff’s first mortgage loan. (Doc. 1, Ex. A). A valid claim 13 for breach of contract requires “the existence of a contract, breach of the contract, and 14 resulting damages.” Chartone, Inc. v. Bernini, 207 Ariz. 162, 170, 83 P.3d 1103, 1111 (App. 15 2004) (citing Thunderbird Metallurgical, Inc. v. Ariz. Testing Lab., 5 Ariz. App. 48, 423 P.2d 16 124 (1967)). 17 Wells Fargo contends that Plaintiff has failed to provide any evidence that Wells 18 Fargo breached the notes, deeds of trust, or Escrow Agreement that make up the contract 19 between them. (Doc. 68 at 6). Wells Fargo does not dispute that it requested the escrowed 20 funds from First American and applied them to principal. Wells Fargo nonetheless contends 21 that it is entitled to summary judgment against Plaintiff on this claim because the Escrow 22 Agreement “did not require Wells Fargo to tender the escrowed funds to Plaintiff unless and 23 until the improvements were completed to Wells Fargo’s satisfaction.” (Doc. 68 at 7). 24 To be sure, the Escrow Agreement stated that Plaintiff was to complete the 25 improvements by December 4, 2006, or by “such later date as may be approved by [Wells 26 Fargo].” (Doc. 69-1, Ex. 1-K at ¶ 2.a). Plaintiff failed to do so. (Doc. 16 at 9 n.4).The terms 27 of the Escrow Agreement do not, however, authorize Wells Fargo to apply the escrowed 28 funds back to principal upon such failure. To the contrary, the Escrow Agreement states that -6- 1 “[i]f the Lender determines that [Plaintiff] has failed to complete satisfactorily all or any part 2 of the [improvements] by the date specified . . . the Lender is authorized to enter into a 3 contract with any third party for the completion of the work. [First American] will pay the 4 third party from the escrowed funds. The remainder, if any, will be released to [Plaintiff].” 5 (Doc. 69-1, Ex. 1-K at ¶ 3.b). The only other remedy contemplated by the Agreement is for 6 Wells Fargo to “cause the release” of the escrowed funds to Plaintiff. (See id. at ¶¶ 3.c–3.d). 7 In short, Wells Fargo has failed to establish that the terms of the Escrow Agreement 8 permitted Wells Fargo to apply the $85,000 back to the principal of Plaintiff’s loan. Wells 9 Fargo is not, therefore, entitled to summary judgment against Plaintiff on the breach of 10 11 contract claim. 2. Breach of Covenant of Good Faith and Fair Dealing 12 Plaintiff has also brought a tort claim against Wells Fargo for breach of the covenant 13 of good faith and fair dealing. (Doc. 1, ¶¶ 31–36). There is a covenant of good faith and fair 14 dealing inherent in every contract which requires that “neither party [ ] act to impair the right 15 of the other to receive the benefits which flow from their agreement or contractual 16 relationship.” Rawlings v. Apodaca, 151 Ariz. 149, 153–54, 726 P.2d 565, 569–70 (1986). 17 Rawlings v. Apodaca is a case in which the Arizona Supreme Court dealt with the covenant 18 of good faith in the context of an insurance contract. Id. In Rawlings, the court held that “one 19 of the benefits that flow from [an] insurance contract is the insured’s expectation that his 20 insurance company will not wrongfully deprive him of the very security for which he 21 bargained.” Id. at 155. “Conduct by the insurer which does destroy the security . . . breaches 22 the implied covenant of good faith and fair dealing implied in the contract.” Id. 23 “[T]ort recovery for breach of the implied covenant is well established in actions 24 brought on insurance contracts but only reluctantly extended to other relationships.” 151 25 Ariz. at 158. Nonetheless, tort recovery is permitted in the context of a non-insurance 26 contract “where the contract creates a relationship in which the law implies special duties not 27 imposed on other contractual relationships. These relationships are characterized by elements 28 of public interest, adhesion, and fiduciary responsibility.” Id. (internal quotation omitted). -7- 1 In other words, Arizona permits the use of tort claims for breach of the implied covenant not 2 only in insurance contracts, but in all contracts in which the contracting parties have some 3 special relationship, such as one that is fiduciary in nature. See id. See also Flores v. ADT 4 Sec. Services, Inc., 2010 WL 6389598, at *4 (D. Ariz. June 28, 2010) (“[A] fiduciary type 5 duty . . . permits an aggrieved plaintiff to bring an action in tort for breach of the duty of 6 good faith.”) 7 Typically, a lender-borrower relationship is not fiduciary in nature. See, e.g., 8 McAlister v. Citibank (Arizona), a Subsidiary of Citicorp, 171 Ariz. 207, 212–13, 829 P.2d 9 1253, 1258–59 (App. 1992) (holding that the fact that a borrower was a long-time customer 10 of a lender did not, without more, create a fiduciary relationship between the two sufficient 11 to invoke the implied covenant of good faith); Urias v. PCS Health Sys., 211 Ariz. 81, 118 12 P.3d 29 (App. 2005) (holding that a debtor/creditor relationship did not create a fiduciary 13 duty); Valley Natl. Bank of Phoenix v. Elect. Dist. No. 4, 90 Ariz. 306, 316, 367 P.2d 655, 14 662 (1961) (“[T]he relationship between a Bank and an ordinary depositor, absent any 15 special agreement, is that of debtor and creditor.”) (emphasis added). In the instant case, 16 however, the Escrow Agreement to which Wells Fargo and Plaintiff were both parties created 17 a fiduciary type relationship between them regarding the escrowed funds. See Sveback v. 18 Clayton Homes, Inc., 2012 WL 465417, at *4 (Ariz. App. February 14, 2012) (“An express 19 agency relationship is created by an express agreement between the principal and agent.”) 20 The Escrow Agreement states that “[t]his Agreement is made to . . . cause the Lender 21 to disburse the mortgage loan to [Plaintiff] prior to the actual completion of the repairs.” 22 (Doc. 69-1, Ex. 1-K at ¶ 2.a). In other words, under the agreement, Wells Fargo disbursed 23 the entire loan proceeds to Plaintiff, including the $85,000 for improvements. Under the 24 terms of the agreement, however, Plaintiff then “deposited with [First American] . . . 25 $85,000” of the proceeds and authorized the Lender to obtain access to the funds and to use 26 them in certain ways should Plaintiff not satisfactorily complete the promised improvements. 27 (Doc. 69-1, Ex. 1-K at ¶¶ 2.a, 3.b, 3.d). For instance, Plaintiff agreed that if he failed to 28 complete the improvements, Wells Fargo was “authorized to enter into a contract with any -8- 1 third party for the completion of the work” and to have First American pay the third party 2 “from the escrowed funds.” (Id. at ¶ 3.b). Plaintiff further agreed that if the improvements 3 cost substantially more than the amount escrowed, Wells Fargo was authorized, at its 4 discretion, to have First American release the entire $85,000 to Plaintiff, thereby “caus[ing] 5 the automatic termination of the Agreement.” (Id. at ¶ 3.d). 6 Wells Fargo calls the $85,000 a “holdback.” Given, however, that these funds had 7 already been loaned to Plaintiff—who was apparently paying interest on them while they sat 8 in escrow—these funds were not held back from the loan transaction by Wells Fargo. Rather, 9 the funds were given to Plaintiff, who then placed them in escrow and gave Wells Fargo the 10 authorization to manage them for a particular purpose, namely the hiring of a third party to 11 complete the improvement should Plaintiff fail to complete the improvements himself. The 12 authorization Plaintiff gave Wells Fargo to use his $85,000 for a particular purpose created 13 a fiduciary type relationship between Plaintiff and Wells Fargo. See cf. Black’s Law 14 Dictionary (9th ed. 2009) (defining a “fiduciary” as “[o]ne who must exercise a high standard 15 of care in managing another’s money or property”). 16 This fiduciary type relationship creates tort liability for Wells Fargo if it breached the 17 Escrow Agreement’s implied covenant of good faith and fair dealing. See Rawlings, 151 18 Ariz. at 159; Flores, 2010 WL 6389598, at *4. Plaintiff claims that Wells Fargo breached 19 this covenant by a) failing to inform Plaintiff upon his failure to complete the improvements 20 that the escrowed funds were being applied to principal, b) suborning Plaintiff to expend 21 monies on improvements to the property which it knew it would not reimburse him for, 22 thereby enhancing its security in the loan, c) altering its underwriting requirements relating 23 to the funding of Plaintiff’s second mortgage loan, and d) changing Plaintiff’s interest only 24 loan into a principal reducing loan. 25 Plaintiff has not produced evidence that Wells Fargo knew it would not reimburse him 26 for any improvements he made, altered its underwriting requirements, or changed the 27 fundamental nature of his loan. The record does, however, contain evidence that Wells Fargo 28 failed to inform Plaintiff that the escrowed funds were being applied to principal, and that -9- 1 such failure impaired Plaintiff’s right to receive a portion of the escrowed funds. (See Doc. 2 69-2, Ex. 4-18). When Wells Fargo requested the escrowed funds from First American, a 3 First American representative asked “[h]as Mr. Thomas been notified that the funds are being 4 requested to be sent to you!!![?]” (Id.). A Wells Fargo representative responded that “Mr. Jeff 5 Borden his Home Mortgage Consultant spoke with him and made him aware of what we are 6 doing. To confirm that I just spoke with Jeff again and he stated, ‘Mr. Thomas is aware that 7 we are taking the $85,000.00 and applying it to “principal reduction.”’ (Id.). First American 8 then forwarded the funds, apparently relying on Wells Fargo’s representation that Plaintiff 9 was aware of the purpose for which the funds were being used. (See id.). 10 Plaintiff contends, however, that neither Borden nor any other Wells Fargo 11 representative informed him that the funds were being removed from the escrow account, and 12 that he did not discover that the funds had been removed until after the fact. (Doc. 69-2, Ex. 13 4 at 96:2–97:2, 157:3–14; see also Doc. 72, ¶ 13; Doc. 73). Mr. Borden’s affidavit does not 14 contend otherwise. (Doc. 69-1, Ex.1). Nor does Wells Fargo provide any other admissible 15 evidence showing that it contacted Plaintiff regarding its plans to apply the escrowed funds 16 to principal or that it was entitled to use Plaintiff’s funds in this manner. It appears, therefore, 17 that Wells Fargo destroyed benefits to which Plaintiff was entitled under the Escrow 18 Agreement. See Rawlings, 151 Ariz. at 153–54 (“Conduct by the insurer which does destroy 19 the security or impair the protection purchased breaches the implied covenant of good faith 20 and fair dealing implied in the contract.”). Wells Fargo is not entitled to summary judgment 21 against Plaintiff on his claim for breach of the covenant of good faith. 22 3. Fraud and Misrepresentation 23 Lastly, Wells Fargo contends that it is entitled to summary judgment against Plaintiff 24 on his fraud and misrepresentation claim. “A civil claim for fraud is established by showing 25 that the tortfeasor made a false and material representation, with knowledge of its falsity or 26 ignorance of its truth, with intent that the hearer would act upon the representation in a 27 reasonably contemplated manner, and that the hearer, ignorant of the falsity of the 28 representation, rightfully relied upon the representation and was thereby damaged.” Dawson - 10 - 1 v. Withycombe, 216 Ariz. 84, 96, 163 P.2d 1034, 1046 (Ct. App. 2007). Plaintiff argues that 2 Wells Fargo is not entitled to summary judgment because in the Court’s “disposition and 3 denial in part of Wells Fargo’s motion to dismiss, the court allowed plaintiff’s fraud claim 4 to stand. Nothing new has happened since then.” (Doc. 85 at 10). Motions to dismiss differ, 5 however, from motions for summary judgment. When a defendant moves to dismiss a claim 6 under Rule 12(b)(6), the facts alleged in the plaintiff’s complaint are taken as true. At the 7 summary judgment stage, however, “a plaintiff must set forth non-speculative evidence” of 8 the facts alleged in its complaint which entitle it to relief. Cafasso, U.S. ex rel. v. General 9 Dynamics C4 Systems, Inc., 637 F.3d 1047, 1061 (9th Cir. 2011). See also Keenan v. Allan, 10 91 F.3d 1275, 1279 (9th Cir. 1996) (“[I]t is not our task, or that of the district court, to scour 11 the record in search of a genuine issue of triable fact. We rely on the nonmoving party to 12 identify with reasonable particularity the evidence that precludes summary judgment.”) 13 (quoting Richards v. Combined Ins. Co., 55 F.3d 247, 251 (7th Cir.1995)). Plaintiff has not 14 set forth such evidence 15 To be sure, by signing the Escrow Agreement, Wells Fargo made the representation 16 that it would abide by the Agreement’s terms. But Plaintiff has produced no evidence, direct 17 or circumstantial, that Wells Fargo made this representation with intent that Plaintiff rely on 18 it and be deprived of his $85,000. It was only after Plaintiff’s repeated failures to meet his 19 deadlines that Wells Fargo appears to have decided to apply Plaintiff’s money to the 20 principle of his loan. (Doc. 69-1, Ex. 1 at ¶ 15). In short, Plaintiff is correct that in regards 21 to his fraud claim “[n]othing new has happened” since this claim survived Wells Fargo’s 22 motion to dismiss; Plaintiff has not set forth evidence to support the allegations of fraud in 23 his Complaint. Because he has not set forth evidence which would allow a reasonable jury 24 to find that Wells Fargo committed fraud, summary judgment is granted against him on this 25 claim. 26 B. 27 Plaintiff, meanwhile, moves for summary judgment against Wells Fargo on his breach 28 of contract claim. Plaintiff does not seek summary judgment for Defendants’ alleged breach Plaintiff’s Motion for Summary Judgment - 11 - 1 of the Escrow Agreement. Rather, his motion “deals only with Wells Fargo’s liability for 2 breach of the terms and conditions of the first note [and] deed of trust.” (Doc. 71 at 3) 3 (emphasis added). The deed of trust states that Plaintiff’s payments were to be applied to his 4 loans in the following order of priority: 7 (a) interest due under the Note; (b) principal due under the Note; (c) amounts due under Section 3. . . . Any remaining amounts shall be applied first to late charges, second to any other amounts due under this Security Instrument, and then to reduce the principal balance of the Note. 8 (Doc. 71, Ex. C). Plaintiff contends that when Wells Fargo took the $85,000 from the escrow 9 account and applied these funds to his loan, these funds effectually became a payment on his 10 loan. (Doc. 71 at 6). Plaintiff further contends that because the first category listed in the 11 deed of trust’s order of priority is “interest,” the $85,000 “payment” should have been 12 applied to the loan’s next $85,000 of interest. (Id.). In other words, Plaintiff argues that he 13 did not need to make any interest payments on his loan because he “was paid ahead 23 14 months.” (Id.). The first item listed in the deed of trust’s order of priority, however, is not 15 “interest,” but rather “interest due under the Note.” (Doc. 71, Ex. C). At the time the $85,000 16 was applied to Plaintiff’s loan, there does not appear to have been any interest due. (See Doc. 17 71, Ex. D). Nor were there principal, Section 3 charges5, or late charges due. Therefore, even 18 if the $85,000 was properly classified as a “payment,” the order of priority specifies that such 19 a payment should be applied “to reduce the principal balance of the Note.” (Doc. 71, Ex. C). 20 This is precisely how Wells Fargo applied the funds. 5 6 21 To be sure, the promissory note for Plaintiff’s first loan states that upon making 22 prepayments of principal, Plaintiff “will tell the Note Holder in writing that [he is] doing so.” 23 (Doc. 71, Ex. B). This clause does not, however, supercede or conflict with the order of 24 priority in the deed of trust. Where Plaintiff does not designate in writing that a given 25 26 27 28 5 Section 3 lists various charges entitled “Escrow Items” which Plaintiff is obligated to pay Wells Fargo “on the day Periodic Payments are due.” (Doc. 71, Ex. C). Charges listed as Escrow Items include “taxes and assessments,” “leasehold payments,” “ground rents,” and insurance premiums. (Doc. 71, Ex. C). - 12 - 1 payment is a prepayment of principal, this can only mean that the regular order of priority 2 applies. (See Doc. 71, Ex. C). In short, even were the Court to hold that the $85,000 taken 3 from escrow by Wells Fargo should be classified as a “payment,” such a classification would 4 not entitle Plaintiff to interest credit under the loan agreement, and would not save him from 5 default. He is not entitled to summary judgment under the deed of trust or promissory note. 6 CONCLUSION 7 Wells Fargo has failed to establish that it is entitled to summary judgment on 8 Plaintiff’s breach of contract claim or on his breach of the covenant of good faith claim. 9 Summary judgment is, however, entered against Plaintiff on his fraud and misrepresentation 10 claim. Plaintiff is not entitled to summary judgment under the deed of trust or promissory 11 note. 12 13 14 15 16 IT IS THEREFORE ORDERED that Wells Fargo Bank, N.A.’s Motion for Summary Judgment (Doc. 68) is granted in part and denied in part. IT IS FURTHER ORDERED that Plaintiff’s Motion for Partial Summary Judgment against Defendant Wells Fargo (Doc. 71) is DENIED. DATED this 2nd day of April, 2012. 17 18 19 20 21 22 23 24 25 26 27 28 - 13 -

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