Alexander v. Bayview Loan Servicing LLC

Filing 94

ORDER denying 87 Motion for Leave to File a counterclaim and third party complaint; granting defendant's 88 Motion for Summary Judgment. This case is dismissed with prejudice. Signed by Judge Susan Webber Wright on 11/5/12. (kpr)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
WESTERN DIVISION

DWIGHT ALEXANDER
Plaintiff
V.
BAYVIEW LOAN SERVICING, LLC
Defendant

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NO: 4:10CV01535 SWW

ORDER
Plaintiff Dwight Alexander (“Alexander”) brings this diversity action for breach of
contract and fraud against Bayview Loan Servicing, LLC (“Bayview”). Before the Court is
Bayview’s motion for summary judgment (docket entries #88, #89, #90) and Alexander’s
response in opposition (docket entries #91, #92). Also before the Court is Bayview’s motion
seeking leave to file a counterclaim and third-party complaint (docket entry #87). After careful
consideration, and for reasons that follow, summary judgment will be entered in Bayview’s
favor, and the motion for leave to file a counterclaim and third-party complaint will be denied.
I.
Summary judgment is appropriate when “the pleadings, the discovery and disclosure
materials on file, and any affidavits show that there is no genuine issue as to any material fact
and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). As a
prerequisite to summary judgment, a moving party must demonstrate “an absence of evidence to
support the non-moving party’s case.” Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).
Once the moving party has properly supported its motion for summary judgment, the non-

moving party must “do more than simply show there is some metaphysical doubt as to the
material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
The non-moving party may not rest on mere allegations or denials of his pleading but
must “come forward with ‘specific facts showing a genuine issue for trial.’” Id. at 587 (quoting
Fed. R. Civ. P. 56(e)). “[A] genuine issue of material fact exists if: (1) there is a dispute of fact;
(2) the disputed fact is material to the outcome of the case; and (3) the dispute is genuine, that is,
a reasonable jury could return a verdict for either party.” RSBI Aerospace, Inc. v. Affiliated FM
Ins. Co., 49 F.3d 399, 401 (8th Cir. 1995).
II.
The following facts are undisputed.1 On June 16, 2003, Alexander executed a real estate
installment note (“Note”) and mortgage (“Mortgage”) in favor of the Martin Family Trust in the
principal amount of $346,232.19. See docket entry #90, Ex. C. The Note and Mortgage called
for monthly payments in the amount of $3,016.05, payable on or before the 15th day of each
month, beginning July 15, 2003.
Originally, the Mortgage encumbered twenty separate properties, and the Note terms
required Alexander to pay property taxes assessed on each property and to insure the houses and
buildings thereon. The Note further provided that if Alexander failed to pay taxes or insurance
premiums, the holder had the right to pay those items and have a lien for the amount paid, with
interest at the highest rate allowed by law.

1

Local Rule 56.1 provides that a party moving for summary judgment must submit a
statement of the material facts as to which it contends there is no genuine issue to be tried, and
the non-moving party must file a responsive statement of the material facts as to which it
contends a genuine issue exists to be tried. “All material facts set forth in the statement filed by
the moving party . . . shall be deemed admitted unless controverted by the statement filed by the
non-moving party . . . . ” Local Rule 56.1(c).

On July 14, 2003, the Martin Family Trust assigned the Note and Mortgage to MFT,
L.L.C. See docket entry #90, Ex. D. On November 30, 2004, MFT, L.L.C. released one of the
properties covered under the Mortgage, located at 2314 South Brown Street. See docket entry
#90, Ex. D. On December 28, 2005, MFT, L.L.C. assigned the Mortgage and Note to Bayview.
See docket entry #90, Exs. A, B. At the time of the assignment to Bayview, the principal amount
due under the loan was $313,777.66. See docket entry #90, Ex. E at 51.
Soon after Bayview took over the Note, Alexander fell behind on payments, and Bayview
assigned late charges. See docket entry #90, Ex. E. In July 2007, Bayview waived late charges
in the amount of $2,111.27, and Alexander brought the Note current through June 2007. See
docket entry #90, Ex. E at 50.
Alexander again fell behind on payments in late 2007. On November 16, 2007, Bayview
released a property encumbered by the mortgage, located at 811 Maxwell Street. See docket
entry #66, Ex. G. Beginning in November 2007, Bayview paid property taxes and insurance
premiums for the properties originally covered under the Mortgage. See docket entry #90, at 49.
Bayview erroneously made insurance and property tax disbursements for each of the twenty
properties originally covered under the Mortgage–including the released South Brown Street and
Maxwell Street properties.
In July 2008, Alexander’s loan payments were in arrears dating back to November 2007,
and Bayview initiated foreclosure proceedings. However, in August 2008, Bayview cancelled
the foreclosure, and the parties entered a loan adjustment agreement (“LOA”) that added overdue
payments, interest, late fees, escrow advances and other fees to the principal balance of the Note.
See docket entry #90, Ex. H. The LOA required Alexander to make monthly payments of
$1,753.91, plus monthly escrow payments of $767.06, which decreased his monthly payments by

approximately $500.
Bayview processed the LOA in December 2008, and it waived $2,122.41 in late charges
when it re-amortized Alexander’s debt. However, prior to entering the LOA, Alexander made no
payments toward escrow, and the LOA provided for the establishment of an escrow account for
the collection of property taxes and insurance premiums. The terms of the LOA provided that
Bayview would analyze the escrow account from time to time and adjust Alexander’s escrow
payments if necessary. In the process of reviewing the loan adjustment agreement, Bayview
discovered and corrected charges to the escrow account related to insurance and taxes
erroneously paid on the Maxwell Street property. Bayview failed, however, to discover its
erroneous disbursements and escrow charges for insurance on the South Brown Street property.
Alexander made ten regular payments under the LOA, plus three partial payments.
However, Alexander failed to make a payment in February 2010, and Bayview initiated the
foreclosure process. Subsequently, Alexander filed numerous state and federal actions in an
attempt to stop foreclosure.
In this case, Alexander charges that Bayview breached contractual duties because it
required him to pay insurance and taxes on released properties, which “created a repugnant
situation that makes it impossible for [him] to comply with the terms of the mortgage
agreement.” Docket entry #64, Amend. Compl., ¶ 14. Alexander also charges that Bayview
committed fraud, which rendered the Note, Mortgage, and LOA void and unenforceable. By
way of relief, Alexander seeks $285,500 for breach of contract and $300,000 in punitive
damages. Alexander also seeks rescission.

III.

Breach of Contract
The elements for breach of contract under Arkansas law include: (1) the existence of a
valid and enforceable contract; (2) an obligation on the part of the defendant; (3) a breach of that
obligation; and (4) damages resulting from the breach. See Rabalaias v. Barnett, 284 Ark. 527,
683 S.W.2d 919 (Ark.1985)). Bayview asserts that it is entitled to summary judgment because
Alexander is unable to prove damages. Bayview acknowledges that it erroneously disbursed
$11,026.56 for insurance premiums on the South Brown Street property and charged the same to
Alexander’s escrow account. Bayview notes, however, that even accounting for the $11,026.56
in charges, there remains an outstanding escrow balance of $92,844.93. Bayview further notes
that Alexander “has enjoyed the benefit of avoiding foreclosure . . . for over two years without
any type of payment to Bayview.”
Alexander argues that by requiring him to make escrow payments for a property that had
been released from the Mortgage, Bayview created a situation that made it impossible for him to
continue to make payments under the Note. In other words, Alexander claims that Bayview’s
errorneous escrow charges caused his default.
Generally, damages for breach of contract are those which would place the injured party
in the same position as if the contract had not been breached, and damages must arise from the
wrongful acts of the breaching party. See Dawson v. Temps Plus, Inc., 337 Ark. 247, 258, 987
S.W.2d 722, 278 (1999). Here, Alexander’s total delinquency under the LOA is far greater than
Bayview’s charges for insurance premiums on the South Brown Street property. Given the
undisputed evidence of Alexander’s payment history and the lack of any plausible evidence that
Bayview’s error caused Alexander to fall behind on payments, no reasonable fact finder could
conclude that Bayview’s erroneous charges caused Alexander’s default.

Furthermore, the Court finds that Alexander has failed to allege facts or present evidence
that Bayview breached a contractual duty. The LOA provides that Bayview will establish an
escrow account for the collection of property taxes and insurance premiums, and neither the
Note nor the LOA contains express terms regarding Bayview’s accounting duties related to
insurance premium disbursements and escrow charges. Bayview acknowledges that it
mistakenly paid insurance premiums on the South Brown Street property and made related
charges to the escrow account totaling $11,026.56. However, it is undisputed that when
Bayview discovered similar accounting errors associated with the Maxwell Street property, it
credited the escrow account to reverse those errors, and Alexander does not assert that Bayview
has refused to do the same with respect to the South Brown Street property. Although every
contract imposes upon each party a duty of good faith and fair dealing in its performance, the
record is void of evidence that Bayview breached that duty.
Given the lack of specific contract terms prohibiting Bayview’s conduct or evidence that
Bayview failed in its duty to perform the contract in good faith, the Court finds no genuine issues
for trial with respect to Alexander’s breach of contract claim.
Fraud
In Arkansas, fraud consists of five elements: “(1) a false representation of a material fact;
(2) knowledge that the representation is false or that there is insufficient evidence upon which to
make the representation; (3) intent to induce action or inaction in reliance upon the
representation; (4) justifiable reliance upon the representation; and (5) damage suffered as a
result of the reliance.” Tyson Foods, Inc. v. Davis, 347 Ark. 566, 580, 66 S.W.3d 568, 577
(2002).
Alexander claims that Bayview engaged in “several degrees and definitions of fraud,”

including fraud in the execution, fraud in the inducement, and “positive fraud.” Amend. Compl.,
¶ 16. According to Alexander, he was not notified of the mortgage assignment to Bayview and
he was forced to be a party to a contract he knew nothing about. Alexander further claims that
Bayview “reset” his principal debt to $346,232.19, and “he didn’t know that [the South Brown
Street property] was being reclaimed, for purposes of recreating a debt obligation . . . . ” Amend.
Compl., ¶ 17.
Bayview asserts that Alexander is unable to show any fraudulent conduct on its part. The
Court agrees. Alexander was not a party to the assignment of the Mortgage and Note to
Bayview, and he presents no evidence that the assignment was fraudulent or otherwise invalid.
Alexander’s claim that Bayview “reset” the loan amount is without support. The Assignment of
Mortgage from MFT, L.L.C. to Bayview simply restates the original $346,232.19 loan amount,
and Bayview’s loan records clearly show that at the time of transfer, the principal balance under
the Note was $313,777.66. See docket entry #90, Ex. #1, Loan Payment History at 51.
Additionally, the record is void of evidence that Bayview “reclaimed” the South Brown Street
property or that Bayview knew that the South Brown Street property had been released from the
Mortgage when it charged the escrow account for insurance disbursements. Finally, the record is
void of evidence that Alexander’s default is fairly traceable to Bayview’s accounting error. In
sum, the Court finds that Bayview is entitled to summary judgment on Alexander’s fraud claim.
Additional Allegations
In addition to his claims for breach of contract and fraud, Alexander claims that Bayview
harassed him by attempting foreclosure and engaged in predatory lending practices, which
caused him to suffer anxiety and depression. The record is void of evidence supporting these
allegations, and Alexander fails to allege that Bayview’s purported conduct violated a specific

statute or common-law principle. In sum, the Court finds that Bayview is entitled to summary
judgment in its favor.
IV.
On February 23, 2012, Bayview filed an answer to the amended complaint, along with a
“Counterclaim and Third Party Claim for Foreclosure.” Bayview brought the so-called “thirdparty claims”2 against parties that may have an interest in one or more of the properties covered
under the Mortgage. Because the counterclaim and third-party complaint went beyond a
responsive pleading and changed the scope of this case, the Court struck those pleadings for
failure to obtain leave under Fed. R. Civ. P. 15(a)(2). Five days before Bayview filed its motion
seeking summary judgment on Alexander’s claims, it filed a motion seeking leave to refile the
aforementioned counterclaim and third-party complaint.
The Court has determined that no issues for trial exist with respect to Alexander’s claims,
and Bayview’s permissive counterclaim seeking foreclosure3 would unduly complicate and

2

Federal Rule of Civil Procedure 14, which governs impleader, or third-party practice,
provides that a defending party may bring a third-party complaint against “a nonparty who is or
may be liable to it for all or part of the claim against it.” Fed. R. Civ. P. 14(a)(1). Thus,
Bayview may bring a third-party complaint against persons who are or may be liable to Bayview
for all or part of Alexander’s claims against Bayview. See 6 CHARLES ALAN WRIGHT & ARTHUR
MILLER, FEDERAL PRACTICE AND PROCEDURES § 1442 (2d. ed. 1990)(noting that impleader
under Rule 14(a) “is available only against persons who are or may be liable to defendant for
part or all of plaintiff's claim; it cannot be used as a way of combining all controversies having a
common relationship in one action”). Bayview does not allege that the proposed third-party
defendants may be liable to it for part or all of Alexander’s claim, thus impleader is not
appropriate. Instead, Rules 19 and 20 of the Federal Rules of Civil Procedure govern joinder of
the so-called “third-party defendants.”
3

A compulsory counterclaim is one that arises out of the same transaction or occurrence
that is the subject matter of the opposing party's claim. See Fed. R. Civ. P. 13(a). The Eighth
Circuit articulated four tests for determining whether a counterclaim arises out of the same
transaction or occurrence: (1) whether the issues of fact and law raised by the claim and
counterclaim are largely the same; (2) whether res judicata will bar a subsequent suit on
defendant's claim absent the compulsory counterclaim rule; (3) whether substantially the same

prolong this litigation, which has been pending since October 22, 2010.
Furthermore, a permissive counterclaim requires an independent basis for subject matter
jurisdiction, which is lacking here. See Shelter Mut. Ins. Co. v. Public Water Supply Dist. No. 7,
747 F.2d 1195, 1197 (8th Cir. 1984)("Although a separate statement alleging jurisdiction is not
necessary to support a compulsory counterclaim, a permissive counterclaim does require a basis
of jurisdiction independent from that supporting the main claim.")

The only possible basis for

subject matter jurisdiction is 28 U.S.C. § 1332, which requires complete diversity of citizenship
between the parties. Bayview fails to allege the citizenship of the proposed parties, and merely
states that Alexander and “Third Party Defendants are residents of this state.” See docket entry
#66, ¶ 30. Additionally, the grant of diversity jurisdiction extends to civil actions between
“citizens” of different states, see 28 U.S.C. § 1332(a), and Bayview names the State of Arkansas
and the United States Department of Education as a third-party defendants. The law is clear that
neither a state nor an agency of the federal government is a citizen for purposes of § 1332. See
Moor v. Cnty. of Alameda, 411 U.S. 693, 717, 93 S.Ct. 1785 (1973)(“There is no question that a
State is not a ‘citizen’ for purposes of the diversity jurisdiction.”); Weeks Const., Inc. v. Oglala
Sioux Housing Authority, 797 F.2d 668, 676 n.10 (8th Cir. 1986)(noting that an agency of the
United States is not a citizen of a state for purposes of diversity of citizenship jurisdiction).
Accordingly, the motion for leave will be denied. See Knapp v. Hanson, 183 F.3d 786, 790 (8th
Cir. 1999)(providing that permission to amend may be denied when the proposed amendment
would be futile).

evidence supports or refutes the plaintiff's claim as well as defendant's counterclaim; and (4)
whether there is any logical relation between the claim and the counterclaim. See Minnetonka,
Inc. v. Sani-Fresh Int'l, Inc., 103 F.R.D. 377, 379 (D. Minn. 1984). In this case, the answer to
questions (1) through (3) above is "no."

V.
For the reasons stated, Defendant’s motion for summary judgment (docket entry #88)
is GRANTED, and Defendant’s motion for leave to file a counterclaim and third party complaint
(docket entry #87) is denied. There being no issues remaining, pursuant to the judgment entered
together with this order, this action is DISMISSED WITH PREJUDICE.
IT IS SO ORDERED THIS 5th DAY OF NOVEMBER, 2012.

/s/Susan Webber Wright
UNITED STATES DISTRICT JUDGE

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