Cho et al v. Wells Fargo Bank, N.A. et al
MEMORANDUM ADOPTING REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE for 66 Report and Recommendations, 46 Motion for Summary Judgment, filed by Wells Fargo Bank, N.A.. Defendants Motion for Summary Judgment (Dkt. #46) is GRANTED IN PART AND DENIED IN PART, and Plaintiffs claims for reformation and declaratory judgment against Defendant Wells Fargo Bank, N.A. are DISMISSED with prejudice. The other claims shall proceed to trial. Signed by Judge Amos L. Mazzant, III on 8/3/17. (cm, )
United States District Court
EASTERN DISTRICT OF TEXAS
SIMON CHO, HAE CHO
§ Civil Action No. 4:16-CV-256
§ (Judge Mazzant/Judge Nowak)
WELLS FARGO BANK, N.A.
MEMORANDUM ADOPTING REPORT AND
RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
Came on for consideration the report of the United States Magistrate Judge in this action,
this matter having been heretofore referred to the Magistrate Judge pursuant to 28 U.S.C. § 636.
On June 14, 2017, the report of the Magistrate Judge (Dkt. #66) was entered containing proposed
findings of fact and recommendations that Defendant’s Motion for Summary Judgment (Dkt. #46)
be granted in part and denied in part and Defendant’s Motion for Partial Summary Judgment
(Dkt. #47) be denied. The Magistrate Judge recommended that Plaintiffs’ claims for reformation
and declaratory judgment be dismissed. Having received the report of the Magistrate Judge
(Dkt. #66), having considered each of Defendant’s timely filed objections (Dkt. #67), Plaintiffs’
response thereto (Dkt. #68), and having conducted a de novo review, the Court is of the opinion
that the findings and conclusions of the Magistrate Judge are correct, and the Court hereby adopts
the Magistrate Judge’s report (Dkt. #66) as the findings and conclusions of the Court.
The underlying facts and legal claims are set out in further detail by the Magistrate Judge
and need not be repeated here in their entirety (see Dkt. #66). Accordingly, the Court sets forth
herein only those facts pertinent to Defendant’s objections.
In September 2011, Plaintiffs applied for a home equity loan. Hae Cho signed a “Special
Durable Power of Attorney for Real Estate Transactions” appointing her husband, Simon Cho, as
her Power of Attorney (“POA”). The POA strictly limited Simon Cho’s authority to acting “on
behalf of Hae Cho to sell the [P]roperty and perform acts associated with the sale of the
[P]roperty.” The POA authorized Simon Cho to “[c]ontract to sell the Property for any price on
any terms,” “[c]onvey the Property,” “[e]xecute and deliver any legal instruments relating to the
sale and conveyance of the Property,” and “[a]ccept notes, deeds of trust, and other legal
instruments” on Hae Cho’s behalf. The POA does not reference refinancing or encumbering the
Property, or using it as security for a loan. On November 1, 2011, Simon Cho, solely on behalf of
Hae Cho through the POA, executed a Texas Home Equity Note in the principal amount of
$197,600.00 payable to Wells Fargo (“Note”). Simon Cho did not sign the Note on his own behalf.
As security for the Note, Simon Cho, individually and on behalf of Hae Cho as her power of
attorney, executed a Texas Home Equity Security Instrument dated November 1, 2011 (“Security
Instrument” or “Deed of Trust”), which granted a security interest in the Property.
Of the loan proceeds, $138,392.24 were used to pay off debts against the Property,
including the first loan secured by the Property and serviced by IndyMac Federal Bank, FSB in
the amount of $113,560.75; the home equity loan held and serviced by Capital One in the amount
of $19,422.61; and real estate taxes owed to Collin County for 2011 in the amount of $5,408.88.
The remainder was paid to Plaintiffs. Hae Cho was not present at the real estate closing.
On April 16, 2015, Plaintiffs brought suit in the 429th Judicial District Court of Collin
County, Texas seeking a declaration that the Loan violated the Texas Constitution. Specifically,
Plaintiffs’ state court pleading alleged causes of action for quiet title, statutory and common law
fraud, and reformation of the Deed of Trust and sought: (1) a judgment declaring that the Note
violated Article XVI Section 50(a)(6)(A) of the Texas Constitution, declaring all principle and
interest of the loan forfeited as provided by Article XVI Section 50(a)(6)(Q)(xi) of the Texas
Constitution, and ordering Defendant to disgorge any amount already paid under the Note; (2) an
order requiring Defendant to remove its lien on the Property and refrain from attempting any
further legal action to collect on the Note; (3) a damage award for common law fraud; (4) a damage
award for statutory fraud under Section 27.01 of the Texas Business and Commerce Code; and
(5) an order reforming the Deed of Trust to remove Simon Cho as a party and signatory to
appropriately reflect the underlying Note. In support of their fraud and reformation claims,
Plaintiffs allege Charles Park, while acting in the course of his employment for Defendant Wells
Fargo, represented to Plaintiff Simon Cho that Simon Cho was not an owner of the Property, and
the Property was owned solely by Hae Cho.
Defendant’s original answer, in response to the state court petition, raised affirmative
defenses, including the statute of limitations and the doctrine of unclean hands. Moreover, while
the case was still pending in state court, Defendant filed a counterclaim on March 3, 2016,
requesting a judgment of judicial foreclosure, an order of equitable subrogation, and a judgment
on its alleged equitable lien. Defendant removed the case to federal court on April 14, 2016 on
the grounds of diversity jurisdiction. Subsequent to removal, on September 27, 2016, Plaintiffs
filed an Amended Complaint. Plaintiffs’ Amended Complaint seeks an order removing any cloud
on the title to their residential property, damages for fraudulent misrepresentations allegedly made
by Defendant during loan discussions, damages for breach of a note provided by Defendant and
secured by a deed of trust on the Property, and reformation of the deed of trust to remove Simon
Cho as a party and signatory. In support of Plaintiffs’ fraud claim, the Amended Complaint asserts
additional allegations related to Charles Park, including that approximately a month before the
loan closing, Charles Park represented to Plaintiff Simon Cho that Simon Cho was not required to
be a borrower on the Loan, Hae Cho could be the only borrower, and the Home Equity Loan could
be closed without Hae Cho’s knowledge. Plaintiffs further claim Charles Park failed to inform
Hae Cho that the loan was a home equity loan and intentionally concealed that fact from her.
Defendant moved for summary judgment and/or partial summary judgment on each of
Plaintiffs’ claims. The Magistrate Judge entered a report and recommendation on June 14, 2017,
recommending Defendant’s Motion for Summary Judgment be granted in part and denied in part
(dismissing Plaintiff’s claims for reformation and declaratory judgment) and Defendant’s Motion
for Partial Summary Judgment be denied. Subsequently, on June 22, 2017, Defendant filed its
objections to the Magistrate Judge’s report and recommendation. Plaintiffs filed their Response
on July 6, 2017.
A party who files timely written objections to a magistrate judge’s report and
recommendation is entitled to a de novo review of those findings or recommendations to which
the party specifically objects. 28 U.S.C. § 636(b)(1)(C); Fed. R. Civ. P. 72(b)(2)-(3). The
Magistrate Judge made the following findings and conclusions in the report and recommendation:
(1) the POA signed by Hae Cho did not authorize Simon Cho to sign the Note and/or Deed of Trust
to the Property in favor of Defendant on Hae Cho’s behalf; (2) Plaintiffs’ additional fraud
allegations were not barred by limitation when they related back to the original allegations (and a
fact issue exists as to Plaintiffs’ fraud claims); (3) Plaintiffs’ reformation claim should be
dismissed because Simon Cho signed the Deed of Trust consistent with his intent that such would
encumber the Property as security for the home equity loan; (4) Plaintiffs’ declaratory judgment
claim should be dismissed because Plaintiffs could not obtain a judgment that Defendant violated
section 50(a)(6) of the Texas Constitution or that Plaintiffs are entitled to forfeiture remedies under
section 50(a)(6)(Q)(xi) for any such violation; (5) summary judgment is inappropriate for
Defendant’s equitable subrogation counterclaim because Defendant may have perpetrated fraud
and the balance of the equities is unclear; and (6) summary judgment is inappropriate for
Defendant’s judicial foreclosure counterclaim (after concluding Defendant is not entitled to entry
of an equitable subrogation lien on the current record). Defendant objects to the Magistrate Judge’s
findings that (1) Simon Cho lacked authority through the POA to sign the Loan documents;
(2) Plaintiffs’ fraud claim was not barred by limitation or that Plaintiffs can demonstrate reliance
despite their conduct and the Loan documents; (3) Defendant’s counterclaim for an equitable
subrogation lien be denied when this conclusion “would allow Plaintiffs to profit from their
misconduct”; and (4) Defendant’s counterclaim for judicial foreclosure “for the same reasons
[Defendant] should have been granted dispositive relief on its equitable subrogation claim.” The
Court notes neither party objects to the Magistrate Judge’s finding that Plaintiff’s claims for
reformation and declaratory judgment should be dismissed. As such, the Court adopts these
findings and proceeds to evaluate those objections related to the POA’s authority, Plaintiffs’ fraud
claim, and Defendant’s equitable subrogation and judicial foreclosure counterclaims.
Objection 1: Authority Given to Simon Cho in POA
Defendant first objects to the Magistrate Judge’s finding that the POA authorized Simon
Cho to sell the Property but not to encumber it as security for a loan on the grounds that if Simon
Cho had the authority under the POA to sell or convey the Property and to accept notes and security
instruments, then a necessary corollary to those powers is to mortgage the Property. Plaintiffs
argue to the contrary that the plain language of the POA does not permit Simon Cho to encumber
Texas courts construe a power of attorney as a whole in order to ascertain the parties’
intentions and rights. In re Estate of Miller, 446 S.W.3d 445, 455 (Tex. App.—Tyler 2014, no
pet.). In determining the limits of an agent’s authority, the meaning of general words in the power
of attorney are restricted by the context in which they are used. Gouldy v. Metcalf, 12 S.W. 830,
831 (1889); In re Estate of Miller, 446 S.W.3d at 455. Further, the authority granted by a power
of attorney is strictly construed, so as to exclude the exercise of any power that is not warranted
either by the actual terms used or as a necessary means of executing the authority with effect.
Gouldy, 12 S.W. at 831; In re Estate of Miller, 446 S.W.3d at 455; Wise v. Mitchell, No. 05-1500610-CV, 2016 WL 3398447, at *8 (Tex. App.—Dallas June 20, 2016), reh’g overruled (Aug.
1, 2016), review denied (Dec. 9, 2016).
The language in the POA at issue authorized Simon Cho to sign a contract to “sell the
Property for any price on any terms,” sign and deliver legal documents for “the sale and
conveyance of the Property,” and “convey” the Property. While the POA authorized Simon Cho
to “[a]ccept notes, deeds of trust, and other legal instruments” on Hae Cho’s behalf, Defendant
cites no authority in support of its assertion that such language necessitates a finding that the POA
authorized Simon Cho to mortgage the Property. Further, Defendant offers no argument and/or
authority in conflict with the Magistrate Judge’s analysis of Gray v. Powell, wherein a Texas
appellate court found that the power “to sell and convey” in a power of attorney did not authorize
the attorney-in-fact to mortgage the property. 282 S.W. 631, 632 (Tex. Civ. App.—El Paso 1926,
writ ref’d). Considering context and applying a strict interpretation of the POA, as the Court must,
the Court finds the phrase “[a]ccept notes, deeds of trust, and other legal instruments” must be read
in conjunction with the term “sale” and references completing any real estate sale by accepting
payment obligations from the buyer, such that the POA does not contemplate the power to
mortgage. Defendant’s first objection is overruled.
Objection 2: Fraud Claim
Defendant next objects to the Magistrate Judge’s finding that Plaintiffs’ fraud claim is not
barred by limitations and that Plaintiffs can show reliance and damages. Specifically, Defendant
argues (A) the alleged misrepresentations on which Plaintiffs’ fraud claims are based in their
Amended Complaint are “nowhere close to the one that formed the basis of Plaintiffs’ original
claims; and (B) any alleged statement to Simon Cho that he could obtain a home equity loan
without his wife’s knowledge or consent constitutes a “red flag” indicating that reliance on such
representation is not justified and unwarranted.
A. Statute of Limitations
Defendant argues Defendant did not receive fair notice from Plaintiff’s Original Petition—
which alleged Charles Park made false representations to Simon Cho that the Property was owned
entirely by Hae Cho—that Plaintiffs would base their fraud cause of action on alleged statements
made by Charles Park a month prior to the closing of the Loan that (a) Simon Cho was not required
to be a borrower on the loan, (b) Hae Cho could be the only borrower, and (c) the loan could be
closed without Hae Cho’s knowing about it. While Plaintiffs’ fraud claims in their Original
Petition were timely raised, Defendants contend that the fraud claim in Plaintiffs’ Amended
Complaint cannot relate back. Plaintiffs argue the allegations in the Amended Complaint all relate
to a single transaction—the home equity loan that Defendant obtained without the written consent
of Hae Cho and because of misrepresentations made by Charles Park.
As applicable to this case, Rule 15(c)(1) of the Federal Rules of Civil Procedure states that
a pleading amendment relates back to the date of the original pleading if:
(A) the law that provides the applicable statute of limitations allows relation back;
(B) the amendment asserts a claim or defense that arose out of the conduct,
transaction, or occurrence set out—or attempted to be set out—in the original
Fed. R. Civ. P. 15(c)(1). Rule 15(c)(1)(A) requires this Court to look to Texas law, which provides
the statute of limitations for Plaintiffs’ fraud claim, when determining if new allegations relate
back to a former pleading. Under Texas law:
[i]f a filed pleading relates to a cause of action, cross action, counterclaim, or
defense that is not subject to a plea of limitation when the pleading is filed, a
subsequent amendment or supplement to the pleading that changes the facts or
grounds of liability or defense is not subject to a plea of limitation unless the
amendment or supplement is wholly based on a new, distinct, or different
transaction or occurrence.
Tex. Civ. Prac. & Rem. Code § 16.068. Rule 15(c)(1)(B) of the federal rules essentially states the
same principle: If the newly alleged facts arise “out of the conduct, transaction, or occurrence set
out--or attempted to be set out--in the original pleading,” those new allegations relate back to the
original pleading for statute of limitations purposes. “The doctrine of relation back under Rule
15(c) is liberally applied, . . . especially if no disadvantage will accrue to the opposing party.”
Woods Expl. & Producing Co. v. Aluminum Co. of Am., 438 F.2d 1286, 1299 (5th Cir. 1971).
Whether the Court applies the federal rule or § 16.068, the Court finds that the relationback doctrine applies. As an initial matter, the Court notes that it previously found that the relationback doctrine applies to the instant case at the motion to dismiss stage. Cho v. Wells Fargo Bank,
N.A., No. 4:16-CV-256, 2017 WL 989303, at *5 (E.D. Tex. Feb. 17, 2017), report and
recommendation adopted. Simon Cho v. Wells Fargo Bank, N.A., 2017 WL 978851 (E.D. Tex.
Mar. 14, 2017).1 To reiterate, Plaintiffs’ allegation in the state court Complaint—that Charles
The Magistrate Judge entered a report and recommendation finding that the relation-back doctrine applied to
Plaintiffs’ common law fraud claim, such that it should not be dismissed as barred by limitation (Dkt. #63 at 10).
Park misrepresented to Simon Cho both that he (Simon Cho) was not an owner of the Property and
that Hae Cho owned the Property in an effort to induce Simon to enter into the Loan—put
Defendant on notice that Plaintiffs were alleging fraud in relation to the Loan and the statements
of Charles Park. Plaintiffs’ Amended Complaint further expounds on this allegation of fraud by
alleging additional fraudulent statements at the time he made the statements contained within the
state court Complaint; additional allegations detailing how Defendant perpetrated fraud related to
inducing Simon to enter into the Loan do not necessarily bar Plaintiffs’ fraud claim. See Baker v.
Carter, No. 4:12-CV-478, 2013 WL 1196106, at *10 (E.D. Tex. Mar. 22, 2013) (finding new
factual allegations related to original complaint’s suggestion of fraud); Gray v. Upchurch, No.
5:05-CV-210, 2006 WL 3694604, at *3 (S.D. Miss. Dec. 13, 2006) (finding amendment of
pleading related back when the second amended complaint included additional allegations to
specifically explain how the fraud was allegedly perpetrated against the plaintiffs). To the extent
Defendant argues the relation-back doctrine applies only if the additional misrepresentations
alleged in Plaintiffs’ Amended Complaint relate to representations regarding the ownership of the
Property at closing, Defendant mistates the standard. Instead, both the federal and Texas rules
merely require the allegations in the Amended Complaint arise from the same transaction or
occurrence. Here, the factual bases for Plaintiffs’ fraud claim in Plaintiffs’ Original Complaint
and Amended Complaint each arise out of the same transaction—the home equity financing
extended by Wells Fargo on November 1, 2011. Accordingly, the Court finds Defendant was
sufficiently on notice of the claim.
Defendant did not object to the Magistrate Judge’s finding that the relation-back doctrine should apply; after a de novo
review despite Defendant’s failure to object, the Court adopted the Magistrate Judge’s finding that the relation-back
doctrine should apply (Dkt. #65).
B. Disposition on the Merits
Defendant argues Plaintiffs cannot show they actually and justifiably relied on the
representations to their detriment or that they suffered any fraud damages. Plaintiffs argue a fact
issue exists on these points in the summary judgment record.
An element of a fraud claim is the plaintiff’s actual and justifiable reliance on a
misrepresentation to his/her detriment. See, e.g., FDIC v. Patel, 46 F.3d 482, 486-87 (5th Cir.
1995); Wuertz v. Nationwide Life Ins. Co., No. 01-07-00272-CV, 2009 WL 1331860, at *4 (Tex.
App.—Houston [1st Dist.] May 14, 2009, no pet.); DRC Parts & Accessories, L.L.C. v. VM Motori,
S.P.A., 112 S.W.3d 854, 858 (Tex. App.—Houston [14th Dist.] 2003, pet. denied). A “party to an
arm’s length transaction must exercise ordinary care and reasonable diligence for the protection of
his own interests, and a failure to do so is not excused by mere confidence in the honesty and
integrity of the other party.” DRC Parts, 112 S.W.3d at 858; Wuertz, 2009 WL 1331860, at *4.
A person may not justifiably rely on a misrepresentation if there are “red flags” indicating such
reliance is unwarranted. Lewis v. Bank of Am. NA, 343 F.3d 540, 546 (5th Cir. 2003) (quoting In
re Mercer, 246 F.3d 391, 418 (5th Cir. 2001)). “It is well-established that ‘[t]he recipient of a
fraudulent misrepresentation is not justified in relying upon its truth if he knows that it is false or
its falsity is obvious to him.’” Bartolowits v. Wells Fargo Bank, N.A., No. 3:13-CV-4666-D, 2016
WL 1436430, at *6 (N.D. Tex. Apr. 11, 2016) (citing Nat’l Prop. Holdings, L.P. v. Westergren,
453 S.W.3d 419, 424 (Tex. 2015)).
Defendant cites Lewis as authority in support of its argument that the instant
misrepresentations are “red flags.” In Lewis, the Fifth Circuit found a loan officer’s alleged
statement that the bank could shelter Lewis from taxes and early withdrawal penalties when
moving money from a benefits plan to non-tax deferred CDs constituted a “red flag.” Lewis, 343
F.3d at 545-47. The Fifth Circuit found that Lewis could not have justifiably relied on the loan
officer’s statements because the record was devoid of evidence that Lewis perceived the loan
officer to be an expert in tax law or investment planning, subsequent communications sent to Lewis
by the bank made no reference of sheltering Lewis from the tax consequences of the transaction,
Lewis had a background in business and familiarity with retirement accounts, and Lewis had
access to professional accountants. Id. at 547. Lewis is factually inapposite; here, Defendant
points to no evidence in the summary judgment record that Charles Park made a statement outside
of his expertise or that Simon Cho had relevant experience sufficient to view Park’s alleged
statements as a “red flag” warranting further investigation. Rather, Defendant cites that Simon
Cho needed a POA to sign the Loan documents in support of its position that Plaintiffs cannot
prove reliance on any representation that the home equity loan could be closed without Hae Cho’s
knowledge. This evidence merely challenges the veracity of Plaintiffs’ evidence that they relied
on Defendant’s alleged misrepresentations, which creates a fact issue. Choosing to credit only the
evidence cited by Defendant and discarding the evidence cited by Plaintiff would require the Court
to improperly weigh the evidence and resolve disputed issues in favor of the moving party.
Heinsohn v. Carabin & Shaw, P.C., No. 15-50300, 2016 WL 4011160, at *13 (5th Cir. July 26,
2016). Doing so would be tantamount to making a credibility determination, and—at the summary
judgment stage—a court “may make no credibility determinations.” Id. at *13.
Defendant also argues that Plaintiffs failed to show they suffered any damages as a result
of any alleged misrepresentations. Defendants argue, without any support, that Plaintiffs cannot
establish damages because Plaintiffs received $197,600 from Defendant when Plaintiffs acquired
the Loan, and whether Plaintiffs are at risk of losing their home because it is encumbered by a debt
they cannot afford to pay is irrelevant. Plaintiffs’ argue Defendant’s objection does not challenge
whether Plaintiffs suffered damage in the form of lost equity in their home, but rather Defendants
should receive a set-off for any amount of the Loan disbursed to Plaintiffs. The Court was not
directed to any authority, and found none, in support of Defendant’s argument. Without support,
the Court finds this argument unavailing. Defendant’s second objection is overruled.
Objection 3: Equitable Subrogation Counterclaim
Defendant objects to the Magistrate Judge’s finding that Defendant is not entitled to
summary judgment on its counterclaim for equitable subrogation. Specifically, Defendant argues
the Magistrate Judge erred when the finding was primarily grounded on the “Report’s erroneous
findings as to the authority of Simon Cho under the POA and as to Plaintiffs’ fraud claim.”
“Equitable subrogation ‘is a legal fiction’ whereby an obligation, extinguished by a
payment made by a third person, is treated as still subsisting for the benefit of this third person, so
that by means of it one creditor is substituted to the rights, remedies, and securities of another.”
Bank of Am. v. Babu, 340 S.W.3d 917, 925 (Tex. App.—Dallas 2011, no pet.); Premium Plastics
v. Seattle Specialty Ins. Servs., Inc., No. CIV.A. H-10-3960, 2012 WL 1029528, at *4 (S.D. Tex.
Mar. 26, 2012), aff’d, 544 F. App’x 287 (5th Cir. 2013).
The general purpose of equitable
subrogation is to prevent unjust enrichment of the debtor. First Nat’l Bank of Kerrville v. O’Dell,
856 S.W.2d 410, 415 (Tex. 1993). There are two key elements to equitable subrogation: (1) the
person whose debt was paid was primarily liable on the debt, and (2) the claimant paid the debt
involuntarily. Murray v. Cadle Co., 257 S.W.3d 291, 299 (Tex. App.—Dallas 2008, pet. denied).
The burden is on the party claiming equitable subrogation to establish he is entitled to it. Id. The
trial court must balance the equities in view of the totality of the circumstances to determine
whether a party is entitled to equitable subrogation. Babu, 340 S.W.3d at 926.
Defendant’s argument rests on the notion that Texas courts liberally apply equitable
subrogation, and that the invalidation of a contractual lien does not preclude equitable subrogation.
See Murray, 257 S.W.3d at 299; LaSalle Bank Nat’l Ass’n v. White, 246 S.W.3d 616, 620 (Tex.
2007). While this is true, equitable subrogation—like all equitable remedies—is sometimes denied
to litigants who come to court with unclean hands. See Lazy M Ranch, Ltd. v. TXI Operations, LP,
978 S.W.2d 678, 683 (Tex. App.—Austin 1998, pet. denied) (“Under the doctrine of unclean
hands, a court may refuse to grant equitable relief to a plaintiff who has been guilty of unlawful or
inequitable conduct regarding the issue in dispute.”); Schenck v. Halliday Real Estate, Inc., 803
S.W.2d 361, 366 (Tex. App.—Tyler 1990, no writ) (“It is well settled that a party seeking equity
cannot come into a court with unclean hands.”). To defeat Defendant’s claim, Plaintiffs would
have to prove Defendant engaged in fraudulent conduct—exactly the type of conduct that has led
Texas courts to deny a remedy lying in equity, including legal subrogation. In re Canion, 196 F.3d
579, 586 nn.25-26 (5th Cir. 1999); see Rotge v. Dunlap, 91 S.W.2d 905, 908 (Tex. Civ. App.—El
Paso 1936, writ dis’d by agr.) (“The findings show fraud on [the part of the party seeking legal
subrogation]. He does not come into court with clean hands, and is therefore not in a position to
invoke the equitable principles upon which legal subrogation rests.”); Christian v. Manning, 59
S.W.2d 234, 237 (Tex. App.—Fort Worth 1933), modified, 124 Tex. 517, 81 S.W.2d 54 (1935)
(applying to legal subrogation the maxim that “one who seeks equity must come into court with
clean hands”); Bell v. Franklin, 230 S.W. 181, 185 (Tex. Civ. App.—San Antonio 1921, no writ)
(same). Plaintiff’s fraud claim will proceed to trial; should a jury find that Defendant’s employee
engaged in fraudulent conduct and thus has unclean hands, equitable subrogation—a remedy lying
in equity—might be unavailable.
Accordingly, Defendant’s counterclaim for equitable
subrogation is inappropriate for summary judgment. Defendant’s third objection is overruled. See
Rotge, 91 S.W.2d at 908.
Objection 4: Judicial Foreclosure Counterclaim
Defendant objects to the Magistrate Judge’s finding that summary judgment is
inappropriate as to Defendant’s counterclaim for judicial foreclosure on the basis that the
Magistrate Judge erroneously found that Defendant was not entitled to entry of an equitable
subrogation lien on the current record. Because the Court adopted the Magistrate Judge’s finding
as to Defendant’s equitable subrogation counterclaim, the Court likewise finds that Defendant is
not entitled to an order permitting a judicial foreclosure at this time. Defendant’s fourth objection
is overruled. The Court adopts each of the findings of the Magistrate Judge.
Having received the report of the United States Magistrate Judge, having considered each
of Defendant’s timely filed objections (Dkt. #67), Plaintiffs’ response thereto (Dkt. #68), and
having conducted a de novo review, the Court is of the opinion that the findings and conclusions
of the Magistrate Judge are correct and adopts the Magistrate Judge’s report (Dkt. #66) as the
findings and conclusions of the Court.
It is, therefore, ORDERED that Defendant’s Motion for Summary Judgment (Dkt. #46) is
GRANTED IN PART AND DENIED IN PART, and Plaintiffs’ claims for reformation and
declaratory judgment against Defendant Wells Fargo Bank, N.A. are DISMISSED with prejudice.
The other claims shall proceed to trial.
It is further ORDERED that Defendant’s Motion for Partial Summary Judgment is
IT IS SO ORDERED.
SIGNED this 3rd day of August, 2017.
AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE
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