Williams et al v. Federal National Mortgage Association et al

Filing 10

Memorandum Opinion - Defendants' motion for summary judgment is granted as to Plaintiffs' claims for breach of fiduciary duty, negligence, and civil conspiracy. However, because there are still issues of material fact to be resolved, summ ary judgment as to Plaintiffs' claim for breach of contract is denied in part but granted to the extent that Plaintiffs allege that Defendants would not foreclose because a second modification agreement was being processed. Defendants' mot ion for summary judgment on Plaintiffs claim for an accounting, to set aside trustee's deed, and for injunctive relief is denied. Defendants' motion to dismiss Plaintiff Jolene Williams for lack of standing is denied. Motions terminated: [ 7] MOTION to Dismiss for Lack of Subject Matter Jurisdiction MOTION for Summary Judgment filed by BAC Home Loans Servicing LP, Bank of America, NA, Federal National Mortgage Association. (Ordered by Judge Mary Lou Robinson on 2/13/2012) (chmb)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS

AMARILLO DIVISION
TERRY D. WILLIAMS AND
JOLENE B. WILLIAMS"
Plaintiffs,

NO.2:11-CV-157-J

V.

FEDERAL NATIONAL MORTGAGE
ASSOCIATION A/IVA FANNIE MAE,
BAC HOME LOANS SERVICING. L.P.
AND BANK OF AMERICA. N.A..
Defendants.

Memorandum Opinion
Plaintiffs sue to set aside

a foreclosure sale

of certain private property by BAC Home

Loans Servicing, L.P. and for damages. By verified complaint they allege breach of contract,
negligence, breach of fiduciary duty and civil conspiracy. Before the Court is Defendants'

Motionfor Summary Judgment and Motion to Dismiss. Plaintiffs did not respond to Defendants'
motion.
Statement of Facts
Plaintiffs Teny D. Williams and Jolene B. Williams borrowed money from BAC Home
Loans Servicing, L.P., then known as Countrywide Home Loans Servicing, L.P., to purchase a
home in Canyon,

TX. The mortgage was secured by a deed of trust. Defendants BAC Home

Loans Servicing, L.P. ("BAC") serviced the mortgage. BAC was formerly known as

Countrywide Home Loans Servicing, L.P. Defendant Bank of America, N.A., is the successor
entity of a merger between Bank of America, N.A. and BAC Home Loans Servicing. Federal

National Mortgage Association alUaFawtie Mae ("Fannie Mae") is a government sponsored
entity that guarantees home mortgages.

After they fell behind on their mortgage payments, the Plaintiffs agreed to a loan
modification with BAC. By their sworn pleading the Williams claim that after the modification
they made all required payments following the modification. They allege that despite doing so

BAC accused them of falling behind on their monthly payments, told them there was no loan
modification, and claimed that the loan modification had been denied.
The Williams allege that they attempted to correct the misunderstanding, but BAC sent
them default notices threatening to foreclose on the property. Plaintiffs allege they investigated
and discovered that their monthly payments were not being applied to their mortgage account but

were instead applied to miscellaneous categories unrelated to their mortgage. They also allege
that a portion of their delinquent payments that represented the ooescrow portion" of their monthly
payments was added to the principal balance of the loan but not credited to their escrow account.
Defendants allege that Plaintiffs were delinquent on monthly payments of $1,485.29,
Jennifer Settlow, who is a "litigation specialist" for Bank of America, N.A., avers that Plaintiffs

failed to make the required payments to o'escrow for property taxes, private mortgage insurance,
and casualty insurance" along with the monthly principal and interest payments on the mortgage.

Settlow avers that Plaintiffs' last made a payment on their loan in October, 2010.

Plaintiffs claim that at some point BAC informed them they were required to apply for

a

second loan modification. They allege they did, but before the modification was approved BAC

notified them that they had defaulted on their loan and, per the terms of the loan modification,
their payments would be accelerated. Plaintiffs allege that when they contacted BAC regarding
this notice they were told the notices were mistaken and that BAC would not foreclose on the

property. Defendants deny a second loan modification was ever offered or that they ever
represented that they would not foreclose on Plaintiffs' property because the second loan

modification was being processed. Jennifer Settlow avers that "at no time did Plaintiff Teny

Williams enter into any loan modification agreement with Bank of America after his execution
of the first Loan Modification."
Defendants posted the property for non-judicial foreclosure and on May 3, 201 1, BAC
sold the property to Fannie Mae at a trustee's sale in Randall County, Texas. On June 9,2011,

Plaintiffs were served with process for a Forcible Entry and Detainer suit filed by Fannie Mae.
On June 16,2011, the Randall County District Court granted a temporary restraining
order sought by the williams to prevent Fannie Mae from seizing the property.
Soon after, the Williams brought this suit in state court. The Williams are suing Fannie

Mae, BAC, and Bank of America, N.A. for: (1) breach of fiduciary duty; (2) breach of contract;
(3) negligence and negligent misrepresentation of the terms of the loan. Plaintiffs also ask the
Court to set aside the trustee's deed conveyed to Fannie Mae, arguing that Defendants had no
plausible or legal basis to accelerate the payments on the note or remove them from their
homestead. Plaintiffs seek actual damages, $1,000,000.00 for exemplary damages, attorney's
fees, costs, and an accounting of their payments under the terms of their mortgage.

Defendants removed the suit to this Court and moved for summary judgment. They
argue that: 1) Jolene Williams should be dismissed from the suit because she lacks standing to
sue as a non-signatory of the promissory note; 2)

Plaintiffs' breach of contract suit fails because

an individual in default on a contract cannot maintain a suit for breach of contract; 3) that

Plaintiffs'breach of contract claim is based on allegations barred by the Texas Statute of Frauds;
4) that Plaintiffs' fiduciary duty claim fails because lenders have no fiduciary duty to a debtor; 5)

that Plaintiffs' civil conspiracy claim fails because there was no unlawful pu{pose; 6) and,

finally, that Plaintiffs' negligence claim is barred by the economic loss doctrine.
Plaintiffs did not respond to Defendants' summary judgment motion.

Motion to Dismiss Jolene Williams

as a

Plaintiff

In order to bring a cause of action for breach of contract a plaintiff must establish that she
is a party to the contract. See Atlantic Lloyds Ins. Co. v. Butler,l37 S.W.3d I99,221(Tex. App.

-Houston [1st Dist.] 2004, pet. denied). Defendants argue Jolene Williams does not have
standing to sue under a breach ofcontract theory because she is not a party to the note.

In Defendants' own summary judgment evidence, Jolene Williams is a co-signatory

of

the deed of trust which sets out the terms of the mortgage, and a co-signatory on documents titled

"Renewal and Extension" and "Modification of Note and Security Instrument." Defendants'
motion to dismiss Jolene B. Williams is denied.

Summary Judgment Standard

A motion for summary judgment should be granted if the movant shows that there is no
genuine issue as to any material fact. Feo. R. Crv. P. 56(a).

A party who moves for summary judgment has the burden of identifying the parts of the
pleadings and discovery on file that, together with any affidavits, show the absence of a genuine
issue of material

fact.

See Celotex Corp. v. Catrett, 477

U.5.317,325 (1936). The nonmovant

must set forth specific facts that show a genuine issue for trial. Anderson v. Liberty Lobby, Inc.,
477 U.5.242,256 (1986). To determine whether a genuine issue of material fact exists, courts
must resolve all ambiguities of fact in favor of the non-movingparty. .Id. Summary judgment is
mandated

if the nonmovant fails to sufficiently

establish the existence of an element essential to

her case on which she bears the burden of proof at

trial. Nebraska v. Wyoming,

507 U.S. 584,

590 (1993); Celotex Corp.,477 U.S. at322; EMCASC) Ins. Co.,438 F.3d at 523; Cutrera v. Bd.

of Supervisors of La. State Univ., 429

F

.3d 108,

1

l0 (5th Cir, 2005); Patrick v. Ridge,394 F.3d

311, 315 (5th Cir.2004).

Discussion
Defendants' motion for summary judgment is granted as to Plaintiffs' claims for breach

of fiduciary duty, civil conspiracy, and negligence.

A. Breach of Contract
There remain genuine issues of material facts regarding Plaintiffs' claim for breach

of

contract. However, any breach of contract claim premised on statements made by Defendants
that

oothe

notices were mistaken and that the Property would not be foreclosed," because

Defendants were processing a second loan modification is baned by the Texas statute of frauds.

TEX. BUS. & Covv. CooE $ 26.02(b) applies to loan agreements in excess of $50,000. Under
26.02(b), "the rights and obligations of the parties to an agreement...shall be determined solely

from the written loan agreement, and any prior oral agreements between the parties are
superseded by and merged into the loan agreement." $ 26.02(c). Furthermore, "an agreement

subject to Subsection (b) of this section may not be varied by any oral agreements or discussions
that occur before or contemporaneously with the execution of the agreement." $ 26.02(d).
Where Plaintiffs predicate their breach of contract claim on Defendants' oral statements
that they would not foreclose on the property because they were processing a second loan

modification, Plaintiffs are barred from enforcing those oral representations. See Ellen v. F.H.
Partners, LLC.,2010 WL 4909973 (Tex.App.-Austin, 2010) (finding that plaintiff s allegations
that defendant told them they would not foreclose on the home until a later date was barred by
the statute of frauds); SP Tenace, L.P. v, Meritage Homes of Tex.,2010 WL 1840183, at *5

$

(Tex.App.-Houston [1st Dist.] May 6, 2010, no pet.) ("Generally, if a contract falls within the
statute of frauds, then a party cannot enforce any subsequent oral material modification to the

contract.").

Plaintiffs' allegations that they discovered their payments were being incorrectly applied
to their mortgage account or that they received default notices showing a negative balance on the
owed payments are not barred by the statute of frauds. These allegations are allegations of a
breach of contract based on the terms of the written agreement between Plaintiffs and

Defendants. Consequently, Plaintiffs' claim of breach of contract based on these allegations is
not barred by the statute of frauds.

B. Breach of Fiduciary Duty
Plaintiffs argue Defendants breached their fiduciary duty to them. Defendants deny a
fiduciary duty existed between themselves and the Plaintiffs. Generally, a fiduciary duty does
not exist between a loan servicer and its client. See Hinton v. Federal Nat'l Mortg. Ass'n,945
F.Supp. 1052, 1060 (S.D. Tex. 1996), aff'd 137 F.3d 1150 (5th Cir. 1998); 1001 McKinney Ltd.
v. Credit Suisse First Boston Mortgage Capital, 192 S.W.3d 20,36 (Tex.App.-Houston [14th

Dist.] 2005, pet. denied) ("Generally, the relationship between a borrower and a lender is an
arm's length business relationship in which both parties are looking out for their own interests.").

Defendants deny a fiduciary duty was ever created. Plaintiffs cannot sustain a claim for breach

of fiduciary duty because no facts are presented that Defendants had a fiduciary duty to them.
C. Negligence

Plaintiffs' negligence claims arise out of alleged breaches of the loan modification. They
allege that Defendants negligently performed their side of the agreement, negligently

I

t

misrepresented the terms of the loan modification, and misrepresented to the Plaintiffs that they

would not foreclose on the property,

Plaintiffs' negligence claims are barred because they allege Defendants were negligent in
their performance of the loan agreement, but, under Texas law, "the failure to perform the terms
of a contract is a breach of contract, not a tort." See Jim Walter Homes, Inc. v. Reed,771 S.W.2d
617,618 (Tex. 1986). Texas uses a two-step approach to determine whether a Plaintiff may
bring an additional negligence claim for allegations where there is an underlying claim for
breach of contract: "First, a court should examine the faulted conduct to determine

if it violates

duties imposed by law, independent of those duties imposed by the contract. Next, it should
examine the nature of the alleged injury, recognizing that "[w]hen the injury is only the
economic loss to the subject of a contract itself the action sounds in contract alone." See Heller

Financial, Inc. v. Grqmmco Computer Sales, Inc.,7

|

F.3d 51 8 (5th Cir. 1996) (quoting Jim

Walter Homes at 618). Plaintiffs' allegations that Defendants negligently performed their

obligations under the loan agreement and loan modification are equivalent to arguing Defendants
failed to perform their obligations under the contract. Under Texas law Plaintiffs cannot pursue
claims for negligence or negligent misrepresentation

D. Civil Conspiracy
Defendants claim their actions enforcing Plaintiffs' indebtedness were lawful because

Plaintiffs were behind on their payments. Plaintiffs allege that they made timely payments under
the loan modification but Defendants conspired against them to unlawfully push the Plaintiffs

into default. Plaintiffs present no evidence to support this claim either in their sworn pleadings
or in a response to the motion for summary judgment.

t

I

Furthermore, in order for there to be an actionable civil conspiracy claim there must be

proof of an underlying tort. See Toles v. Toles,113 S.W.3d 899 (Tex. App. Dallas 2003);

Prostokv. Browning, I l2 S.W.3d 876 (Tex. App. Dallas 2003). Conspiracy for breach of
contract is not actionable under Texas law because there is no underlying

tort.

See Leasehold

Expense Recovery, Inc. v. Mothers Work, lnc.,331 F.3d 452 (5th Cir. 2003). The only remaining

Plaintiffs' claim is their claim for breach of contract. Accordingly, Plaintiffs' claim of civil
conspiracy is dismissed.

Conclusion
Defendants' motion for summary judgment is granted as to Plaintiffs' claims for breach

of fiduciary duty, negligence, and civil conspiracy. However, because there are still issues of
material fact to be resolved, summary judgment as to Plaintiffs' claim for breach of contract is
denied in part but granted to the extent that Plaintiffs allege that Defendants would not foreclose
because a second modification agreement was being processed. Defendants' motion for
summary judgment on Plaintiffs claim for an accounting, to set aside trustee's deed, and for

injunctive relief is denied. Defendants' motion to dismiss Plaintiff Jolene Williams for lack of
standine is denied.

It is SO ORDERED.

7:
ATES DISTRICT JUDGE