Smith v. Select Portfolio Servicing, Inc. et al

Filing 65

MEMORANDUM ADOPTING REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE for 54 Report and Recommendations, GRANTING 34 Motion for Summary Judgment, filed by Deutsche Bank National Trust Company, Select Portfolio Servicing, Inc. Signed by District Judge Amos L. Mazzant, III on 12/20/2018. (baf, )

United States District Court
EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION

SHELLY D. SMITH
v.
SELECT PORTFOLIO SERVICING, INC.,
ET AL.

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Civil Action No. 4:17-CV-753
(Judge Mazzant/Judge Nowak)

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 October 29, 2018, the report of the Magistrate Judge (Dkt. #54) was entered containing
proposed findings of fact and recommendations that Defendants Select Portfolio Servicing, Inc.
and Deutsche Bank National Trust Company, as Trustee, in Trust for the Registered Certificate
Holders of First Franklin Mortgage Loan Trust Series 2006-FF7, Mortgage Pass-Through
Certificates, Series 2006-FF7’s (collectively “Defendants”) Motion for Summary Judgment
(Dkt. #34) be granted. Having received the report of the Magistrate Judge, having considered
Plaintiff’s Objections (Dkt. #58), Defendants’ Response to Plaintiffs’ Objection (Dkt. #60),
Plaintiff’s Reply (Dkt. #61), Defendant’s Sur-Reply (Dkt. #63), and having conducted a de novo
review, the Court is of the opinion that the Magistrate Judge’s report should be adopted.
RELEVANT BACKGROUND
The underlying facts of this case have been set forth previously; as such, the Court sets
forth only those facts pertinent to Plaintiff’s Objections.

On January 31, 2006, Plaintiff executed an Adjustable Rate Note (“Note”) payable to
NationPoint, for the purchase of real property: 1888 Sandstone Drive, Frisco, Texas 75034 (the
“Property”) (Dkts. #40-1 at pp. 10–13; #34-2). On that same date, Plaintiff also executed a Deed
of Trust. Deutsche Bank was later assigned the Note; Select Portfolio Servicing, Inc. (“SPS”)
currently services the Loan (Dkts. #34-1; #34-4). On April 24, 2009, NationPoint confirmed
receipt of a loan modification application from Plaintiff and cautioned Plaintiff that she was still
obligated to make loan payments while the application was being considered (Dkt. #34-25).
Plaintiff thereafter defaulted on her loan payments, and on May 4, 2009, Deutsche Bank sent
Plaintiff a Notice of Default with Intent to Accelerate the Loan (“Notice of Default”) (Dkt. #3426). Plaintiff represents that after receiving the Notice of Default (but before any acceleration had
occurred), in May 2009, she sought legal representation to assist her in obtaining a modification
(Dkt. #34-27). Plaintiff next received a letter from Home Loan Services, dated June 5, 2009, the
former servicer of the Loan, notifying Plaintiff that her loan was $10,654.24 delinquent. Plaintiff
sent a letter disputing this amount on June 10, 2009 (Dkt. #40-1 at p. 42). Plaintiff did not,
however, cure any default. As a result, on June 12, 2009, Deutsche Bank sent Plaintiff a Notice
of Acceleration of Loan Maturity and a Notice of Foreclosure Sale (“June 2009 Notice of
Acceleration”), wherein Deutsche Bank accelerated the unpaid balance of the Note (Dkts. #401 at pp. 43–44; #34-19). In the months following, Plaintiff represents the Property was posted for
foreclosure sale multiple times, against which Plaintiff defended (Dkt. #40-1 at pp. 48–53).
On December 21, 2009, Deutsche Bank’s foreclosure counsel sent Plaintiff a Notice of
Rescission of Acceleration of Loan Maturity (“December 2009 Notice of Rescission”), notifying
Plaintiff that it rescinded its Notice of Acceleration, thereby giving Plaintiff an opportunity to cure
the default (Dkts. #40-1 at p. 54; #34-21). Over a year later, on January 11, 2011, Plaintiff retained

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an independent paralegal, and in 2012, a second law firm to sue Defendants and their predecessors,
incurring additional legal fees (Dkt. #40-1 at pp. 58, 70–72).1 See Shelly D. Smith v. Bank of
America, N.A., et. al., Case No. 4:12- cv-00724-RAS-DDB (E.D. Tex. 2012).
On June 1, 2016, Plaintiff filed the instant suit in state court, at least her third suit related
to the Property, seeking to enjoin Defendants from conducting a foreclosure sale of the Property
(Dkt. #1-4). On October 20, 2017, the case was removed to the Eastern District of Texas, Sherman
Division (Dkt. #1). Plaintiff filed a further amended complaint, the live pleading, seeking a
declaratory judgment that Defendants are unable to exercise their rights under the Deed of Trust
and Note because such actions are time-barred (Dkt. #13 at p. 8). On June 29, 2018, Defendants
moved for Summary Judgment (Dkt. #34). On October 29, 2018, the Magistrate Judge entered a
Report and Recommendation, recommending that the Court grant Defendants’ Motion for
Summary Judgment and dismiss Plaintiff’s claim(s) (Dkt. #54). On November 13, 2018, Plaintiffs
filed Objections to the Report and Recommendation of the Magistrate Judge (Dkt. #58). On
November 27, 2018, Defendant filed a Response to Plaintiff’s Objections (Dkt. #60). On
December 4, 2018, Plaintiff filed a Reply (Dkt. #61). On December 7, 2018, with leave of Court,
Defendants filed a Sur-Reply (Dkt. #63).
OBJECTIONS TO REPORT AND RECOMMENDATION
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).

Plaintiff’s 2012 suit centered on the servicing and collection of Plaintiff’s mortgage loan, attempted foreclosure, and
sale of the Property; this action was dismissed with prejudice. Shelly D. Smith v. Bank of America, N.A., et. al., Case
No. 4:12- cv-00724-RAS-DDB (E.D. Tex. 2012). An earlier suit involving Plaintiff and the pertinent parties was
voluntarily dismissed by Plaintiff. Shelly D. Smith v. Bank of America, N.A., et al., Case No. 4:12-cv-00212-RASDDB (E.D. Tex. 2012).
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The dispute between the Parties is best summarized as follows: both Parties agree that the Loan
was accelerated in June 2009 and that absent abatement or abandonment, limitations ran on
June 12, 2013. Defendants argue acceleration was abandoned in December 2009. Plaintiff
contends acceleration was never rescinded or abandoned because Plaintiff detrimentally relied on
the 2009 Notice of Acceleration; thus, any rescission or abandonment of acceleration was of no
effect and the four-year statute of limitations to foreclose has lapsed (Dkt. #54 at p. 6). Upon
consideration of the Parties’ filings, the Report of the Magistrate Judge recommended, without
deciding whether a detrimental reliance exception exists, that Defendant’s Motion for Summary
Judgment should be granted and Plaintiff’s claim(s) be dismissed because “the record in this case
demonstrates that Plaintiff fails to meet the requirements of establishing detrimental reliance.”
Specifically, as to the three instances of detrimental reliance proffered by the Plaintiff (i.e., sending
numerous correspondence to Defendants’ predecessors, hiring attorneys help resolve the matter,
and filing the above-referenced lawsuit), the Report found that such actions did not constitute
detrimental reliance because they were either taken prior to acceleration, in reliance on the Notice
of Default, in an effort to receive a loan modification, and/or after the rescission of acceleration.
The Report also found that because Plaintiff’s underlying claim fails, any request for declaratory
relief should also be dismissed.
Plaintiff objects that: “(1) [t]he December 2009 Notice of Rescission was unilateral;
(2) Plaintiff’s reliance continued after the June 2009 Acceleration; (3) Plaintiff suffered loss as a
result of the June 2009 Acceleration; (4) Defendants are estopped from unilaterally abandoning
acceleration; (5) Tex. Civ. Prac. & Rem. Code § 16.038 is not retroactive, and Texas does
recognize Plaintiff’s detrimental reliance theory; and (6) Texas Declaratory Judgment does not
require an underlying claim” (Dkt. #58 at p. 2).

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As an initial matter, the Court notes that Plaintiff’s first and fifth objections (that the
December 2009 Notice of Rescission was unilateral, Tex. Civ. Prac. & Rem. Code § 16.038 is not
retroactive, and Texas does recognize Plaintiff’s detrimental reliance theory) were not addressed
in the Report and Recommendation. The Report explicitly noted that the Magistrate Judge did not
reach such arguments because Plaintiff failed to meet the requirements to establish detrimental
reliance. Accordingly, the Court overrules these two objections and addresses only the remaining
three.
Plaintiff’s Reliance
Plaintiff objects that the Report incorrectly found that her actions taken prior to acceleration
of the Loan did not constitute detrimental reliance. Specifically, she claims she detrimentally
relied on the Notice of Acceleration (before it was sent) because Plaintiff was confident that she
would not be able to cure the default, and therefore, foreclosure would logically follow. Plaintiff
claims that because she foresaw acceleration was imminent, she retained legal counsel, and
thereafter fought off four foreclosure postings before the December 2009 Notice of Rescission was
received (Dkt. #58 at p. 5) (internal citations omitted). Defendants respond that:
Plaintiff concedes she began seeking legal representation before receiving the
June 2009 acceleration, but argues her reliance continued after she received the
acceleration. . . . By so objecting, Plaintiff concedes: (1) she sought to retain
counsel before receiving the June 2009 acceleration; (2) her “reliance” consisted of
seeking to postpone the foreclosure; and (3) she was successful in this challenge,
as she avoided foreclosure and the acceleration was rescinded.
(Dkt. #60 at pp. 3–4). As the Report and Recommendation noted in its consideration and ultimate
rejection of this same argument, actions taken before a loan was accelerated are insufficient to
demonstrate detrimental reliance on the acceleration of the Loan. To establish detrimental reliance
sufficient to bar Defendants from rescinding their acceleration of the Loan, Plaintiff must establish
she relied on the acceleration of her Loan; allegations that she relied upon the Notice of Default

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and suspected the Loan would thereafter be accelerated are insufficient. See Nationstar Mortgage,
LLC v. Landers, 12-17-00047-CV, 2018 WL 1737013, at *6 (Tex. App.—Tyler Apr. 11, 2018, no
pet.). The fact that Plaintiff continued to engage her counsel2 after the acceleration was actually
received does not alter that conclusion. Hiring counsel and even filing a lawsuit does not
demonstrate Plaintiff has detrimentally relied on the Loan’s acceleration. See Callan v. Deutsche
Bank Tr. Co. Americas, 93 F. Supp. 3d 725, 737–38 (S.D. Tex. 2015). Plaintiff’s objection is
overruled.
Detriment to Plaintiff
The Court next considers Plaintiff’s third and fourth objections together. 3 Specifically,
Plaintiff argues that the Report incorrectly concluded that she did not “suffer loss” as a result of
her reliance on the acceleration of the Loan. Plaintiff objects that “as a result of the June 2009
Acceleration, Plaintiff lost time gathering her financial information and documents and applying
for loan modifications. Plaintiff paid $3,900 in attorney’s fees to retain Janian & Association.
Moreover, Plaintiff suffered mental anguish from the constant posting of her very own home for
foreclosure sale.” (Dkt. #58 at p. 5) (internal citations omitted).

Defendants contend that

“Plaintiff’s three sources of purported loss do not establish detrimental reliance” because:
(1) “Plaintiff began applying for a loan modification and retaining Janian & Associates before the
June 2009 acceleration;” (2) “Janian & Associates continued to pursue a modification on her behalf
after the acceleration demonstrates she did not suffer this ‘loss’ on account of the
acceleration. . . .She pursued the same course both before and after the June 2009 acceleration;”

The Court addresses more fully Plaintiff’s allegations that she detrimentally relied on the acceleration of the Loan
by fighting off four foreclosure postings with its consideration infra as to whether Plaintiff relied to her detriment.
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Plaintiff’s third and fourth objections are largely duplicative of one another – Plaintiff clarifies that she does not raise
a promissory estoppel claim, but merely employs the elements of promissory estoppel to better plead her detrimental
reliance allegations (Dkt. #58 at p. 7).
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(3) “[t]hat Plaintiff alleges she suffered mental anguish on account of the acceleration also does
not advance her claim. Suffering mental anguish, even if true, does not amount to detrimental
reliance and should not estop a rescission of the acceleration” (Dkt. #60 at p. 5) (internal citations
omitted). To this point, the Report found that:
“[i]n order to show detrimental reliance under Texas law, a party ‘must show that
he materially changed his position in reliance’ on another party’s promise or
representation.” See Bitterroot Holdings, LLC, 648 F. App’x at 418 (quoting Sandel
v. ATP Oil & Gas Corp., 243 S.W.3d 749, 753 (Tex. App.—Houston [14th Dist.]
2007, no pet.)). Plaintiff has failed to show that she detrimentally relied on the
Notice of Acceleration. To the contrary, the record evidence indicates that Plaintiff
still resides at the Property, never took out a second loan or tried to sell the Property
and has continually sought a loan modification agreement both before and after the
Notice of Acceleration [Dkt. 34-22 at 42-47].
Upon independent review of the record and considering the arguments made within
Plaintiff’s Objections, the Court finds that Plaintiff has failed to demonstrate that she materially
altered her position to her detriment in reliance on the Loan’s acceleration. As discussed supra,
Plaintiff must demonstrate that she relied on the acceleration of the Loan to defeat Defendants’
rescission of acceleration. The record reflects the opposite conclusion; indeed, at her deposition,
when asked what Plaintiff had done differently after receiving the Notice of Acceleration in
June 2009 (i.e., when the Loan was accelerated), Plaintiff responded “nothing” (Dkt. #3422 at p. 42). Plaintiff’s objection expressly states that she proactively hired legal counsel because
she believed a foreclosure sale to be inevitable given that she would not be able to pay the amount
in arrears. Furthermore, Plaintiff’s allegations that her lost time in gathering documents and
mental anguish at fighting off four foreclosure postings establish that she detrimentally relied on
the acceleration of the Loan are insufficient. Courts have found allegations such as Plaintiff’s do
not constitute detrimental reliance. See Callan, 93 F. Supp. 3d at 737–38 Deutsche Bank Nat’l Tr.
Co. v. Guerrero, A-13-CV-513 LY, 2014 WL 12580037, at *11 (W.D. Tex. Oct. 7, 2014) (court

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did not find detrimental reliance where “Defendants state they spent substantial time and funds on
court costs and attorney’s fees ‘defending against’ Deutsche Bank’s attempt to foreclose on the
Property following the October 2008 acceleration”); In re Rosas, 520 B.R. 534, 544 (W.D. Tex.
2014).4 Plaintiff’s objection is overruled.
As to her fourth objection, Plaintiff asserts that “Defendants made a promise to foreclose,
and it was reasonable to determine that if Plaintiff did not act immediately, her home would be
foreclosed upon on July 7, 2009. Plaintiff immediately retained counsel to help her resolve her
issues with Defendants’ predecessors. Defendants cannot show that Plaintiff’s actions in reliance
of the June 2009 Notice of Acceleration were unreasonable and unjustified” (Dkt. #58 at p. 7).
Because the Court finds, as the Report found, that Plaintiff’s hiring legal counsel does not establish
she materially relied on the acceleration of the Loan, Plaintiff’s fourth objection, that her reliance
on the acceleration was reasonable, is overruled.
Declaratory Judgment
Plaintiff asserts that the Report incorrectly found that her declaratory judgment claim
should be dismissed because her underlying claim that Defendants were time-barred from
exercising their foreclosure rights under the Loan was unsupported by the record. Plaintiff argues
that:
Finally, Defendants asserted that a declaratory judgment action removed to federal
court is thereby converted into one brought under the federal Declaratory Judgment
Act which in turn requires the existence of an actual case or controversy. Therefore,
Defendants believe that, while Plaintiff seeks declaratory relief, since she has
otherwise “pled no viable claims” against them, “no actual controversy exists” that
Plaintiff is not entitled to relief under the federal Declaratory Judgment Act.
Nevertheless, here, a controversy exists: Defendants will continue to seek
foreclosure of Plaintiff’s home. Furthermore, if, in fact, the law is as circuitous as

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Plaintiff has failed to offer any authority in her Objections demonstrating that her time in marshaling documents and
mental anguish allegedly caused by the posted foreclosure sales of the Property constitute detrimental reliance
sufficient to undermine Defendants’ rescission of acceleration

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Defendants seem to believe, Plaintiff would be left with neither a forum nor a
remedy to address Defendants’ wrongs.
(Dkt. #58 at p. 9) (internal citations omitted). Plaintiff continues that should she raise any other
kind of claim related to the statute of limitations’ applicability to the instant case, she would open
the door for Defendants to raise any time-barred counterclaims of their own related to the Property
and foreclosure proceedings, and therefore, by not allowing her to pursue the declaratory judgment
claim, public interest is disserved.5 Defendant responds that “[t]he Report did not conclude
Plaintiff is barred from bringing a declaratory judgment claim. The Report concluded the
declaratory judgment claim failed because Plaintiff failed to show the statute of limitations lapsed.
Without establishing a viable underlying cause of action, a declaratory judgment, which is
remedial, cannot survive” (Dkt. #60 at p. 7).
As the Report noted, “[w]hen a declaratory judgment action filed in state court
is removed to federal court, that action is, in effect, converted into one brought under the
federal Declaratory Judgment Act.” Salisbury v. Fed. Home Loan Mortg. Corp., 4:12CV96,
2012 WL 3727545, at *4–5 (E.D. Tex. Aug. 27, 2012), report and recommendation adopted,
4:12CV96, 2012 WL 4490863 (E.D. Tex. Sept. 28, 2012); see also Compass Bank v. Durant,
516 S.W.3d 557, 574 (Tex. App.—Fort Worth 2017, pet. denied), reh’g denied (Mar. 2, 2017)
(“when federal courts are called upon to consider a declaratory judgment action, they do not apply
the Texas Declaratory Judgments Act (TDJA). Instead, the declaratory judgment action sought is

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Hartford Fire Ins. Co. v. City of Mont Belvieu, Texas, 3:07-CV-00359, 2008 WL 11390849, at *7 (S.D. Tex. Dec. 1,
2008) (“where a plaintiff brings a suit for declaratory judgment asserting that defendant’s claim is time-barred as a
matter of law, the defendant cannot then argue that the statute of limitations is extended by the filing of plaintiff’s
very complaint for declaratory judgment. ‘Were we to hold that section 16.069 revives claims which are absolutely
barred by limitations as a matter of law, the result would be that a litigant would never be able to seek a declaratory
judgment based on limitations because a defendant could always use section 16.069 to defeat such a suit.’ In other
words, allowing an extension of the statute of limitations because a party files for declaratory judgment that a claim
is time-barred would frustrate the very purpose of the declaratory relief and lead to absurd results.”) (quoting Ball v.
SBC Communications, No. 04-02-00702-CV, 2003 WL 21467219, at *4 (Tex. App.—San Antonio, June 25, 2003, no
pet.)).

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“in effect converted into one brought under the federal Declaratory Judgment Act” when the case
is removed to federal court.”).
As Defendant contends, the federal Declaratory Judgment Act “is a procedural device that
creates no substantive rights and requires the existence of a justiciable controversy.” Salisbury,
2012 WL 3727545, at *4 (citing Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 239–241
(1937); Lowe v. Ingalls Shipbuilding, 723 F.2d 1173, 1179 (5th Cir. 1984)). “Thus, the Act
provides no relief unless there is a justiciable controversy between the parties.” Id. “[D]eclaratory
relief is remedial only and does not independently establish a party’s cause of action.” Basye v.
Wells Fargo Bank, N.A., 3-12-CV-4098-K, 2013 WL 2110043, at *4 (N.D. Tex. May 16, 2013).
“It is the underlying cause of action that is actually litigated in a declaratory judgment action.” Id.
(emphasis added) (citing Collin County, Tex. v. Homeowners Ass’n for Values Essential to
Neighborhoods, (HAVEN), 915 F.2d 167, 171 (5th Cir. 1990)). Therefore, “[b]ecause Plaintiff’s
only substantive claims failed to state a cause of action upon which relief can be granted, Plaintiff
has no underlying claim to which she can tether her claim under the Declaratory Judgment Act.”
See id.; see also Salisbury, 2012 WL 3727545, at *5; Diaz v. Ocewen Loan Servicing, 3:13-CV2928-N-BK, 2014 WL 1012521, at *2 (N.D. Tex. Mar. 14, 2014) (“In this case, because
Plaintiff’s substantive claim fails for the reasons stated above, he is not entitled to any relief under
the Declaratory Judgment Act.”) (citing Marban v. PNC Mortg., No. 12–CV–3952, 2013 WL
3356285 at * 11 (N.D. Tex. 2013) (Lynn, J.) (declining to entertain plaintiff’s request for
declaratory judgment where he had not pleaded a plausible substantive claim)); Ross v.
Citimortgage Inc., 3:16-CV-0416-K-BK, 2016 WL 4440488, at *2 (N.D. Tex. July 8, 2016),
report and recommendation adopted, 3:16-CV-0416-K, 2016 WL 4429460 (N.D. Tex. Aug. 20,

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2016) (“because Plaintiff does not assert a substantive claim in his petition, he is not entitled to
any relief under the Declaratory Judgment Act.”). Plaintiff’s objection is overruled.
CONCLUSION
Having considered Plaintiff’s Objections (Dkt. #58), and having conducted a de novo
review, the Court adopts the Magistrate Judge’s report (Dkt. #54) as the findings and conclusions
of the Court.
It is ORDERED that Defendants Select Portfolio Servicing, Inc. and Deutsche Bank
.

National Trust Company, as Trustee, in Trust for the Registered Certificate Holders of First
Franklin Mortgage Loan Trust Series 2006-FF7, Mortgage Pass-Through Certificates, Series
2006-FF7’s Motion for Summary Judgment (Dkt. #34) is GRANTED.
IT IS SO ORDERED.
SIGNED this 20th day of December, 2018.

___________________________________
AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE

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