HSBC Bank USA NA v. Crum
Filing
58
MEMORANDUM OPINION AND ORDER denying 38 Motion for Summary Judgment without prejudice, pending additional briefing by the parties. Because of the Court's order for additional briefing, the present trial date of February 29, 2016 is VACATED. A new trial date will be set after the Court resolves the summary judgment issues. (Ordered by Judge Jane J Boyle on 2/24/2016) (Judge Jane J Boyle) Modified docket text and document type on 2/24/2016 (ran).
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
HSBC BANK USA, N.A., AS TRUSTEE
FOR MERRILL LYNCH MORTGAGE
INVESTORS TRUST, MORTGAGE
LOAN
ASSET-BACKED
CERTIFICATES, SERIES 2005-WMCI,
Plaintiff/Counter-Defendant,
v.
KENNETH E. CRUM,
Defendant/Counter-Plaintiff,
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CIVIL ACTION NO. 3:14-CV-3522-B
MEMORANDUM OPINION AND ORDER
Before the Court is Plaintiff/Counter-Defendant HSBC Bank USA, N.A., as Trustee for
Merrill Lynch Mortgage Investors Trust, Mortgage Loan Asset-Backed Certificates, Series
2005-WMCI’s (Plaintiff, HSBC, or the bank) Motion for Summary Judgment (Doc. 38). For the
following reasons, HSBC’s Motion is DENIED without prejudice pending additional briefing as
explained below.
I.
BACKGROUND
This is a mortgage case involving three issues that must be addressed in order to resolve
Plaintiffs’ motion for summary judgment: (1) whether HSBC actually owns the home equity note in
question and thus has standing to foreclose on Defendant’s property; (2) if so, whether the applicable
statute of limitations prevents it from doing so; and (3) if not, whether it has complied with all of the
procedural requirements to obtain a foreclosure judgment.
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On or around July 7, 2004, Defendant/Counter-Plaintiff Kenneth Crum (Crum) executed
a home equity note (the Note) with WMC Mortgage Corporation (WMC) in order to borrow
$116,000.00 to purchase the real property at issue in this suit—2499 Materhorn Drive, Dallas, TX
75228 (the Property). Doc. 39, Pl.’s Br. in Supp. of Mot. Summ. J. ¶ 2 [hereinafter Pl.’s Br.]; Doc.
46, Def.’s Resp. to Pl.’s Mot. Summ. J. ¶ 5 [hereinafter Def.’s Resp]. Through a series of transfers,
HSBC says it came to hold the Note, along with its status as beneficiary of the Security Interest. Doc.
39, Pl.’s Br. ¶ 3. Crum disagrees, pointing to: (1) conversations he allegedly had with HSBC
employees and agents, during which he says he learned that HSBC has no record in its databases of
him, his Social Security Number, the Property, or any existing account between him and the bank;
and (2) the Security and Exchange Commission’s public database, EDGAR, which Crum says shows
HSBC sold all of its assets—including the Note, supposedly—on or about April 1, 2013. Doc. 46,
Def.’s Resp. ¶¶ 16–17.
Ownership disputes aside, the parties agree to the following sequence of events:
May 11, 2009: Crum defaulted on his loan and law firm Mackie Wolf Zientz & Mann, P.C.
(MWZM), on behalf of mortgage servicer Wilshire Credit Corporation (Wilshire), sent him
a Notice of Default and Intent to Accelerate via certified mail. Id. ¶ 6; Doc. 39, Pl.’s Br. ¶ 5.
June 10, 2009: Wilshire formally accelerated the loan and MWZM sent Crum a Notice of
Acceleration of Loan Maturity via certified mail. Doc. 46, Def.’s Resp. ¶ 6; Doc. 39, Pl.’s Br.
¶ 5.
October 15, 2013: a different loan servicer, Select Portfolio Servicing Inc. (SPS), to whom
the loan had since been transferred, sent a Demand Letter – Notice of Default to Crum via
United States mail. Doc. 46, Def.’s Resp. ¶ 7; Doc. 39, Pl.’s Br. ¶¶ 7, 15.
March 14, 2014: MWZM again formally accelerated the debt, this time on SPS’s behalf, by
sending Crum a Notice of Acceleration of Loan Maturity via certified mail. Doc. 46, Def.’s
Resp. ¶ 7; Doc. 39, Pl.’s Br. ¶ 7.
April 15, 2014: HSBC’s agents decelerated the loan, sending Crum a Notice of Rescission
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of Loan Maturity via certified mail. Doc. 46, Def.’s Resp. ¶ 8; Doc. 39, Pl.’s Br. ¶ 8.
May 21, 2014, MZWM again accelerated the Note, sending Crum a Notice of Acceleration
of Loan Maturity via certified mail. Doc. 46, Def.’s Resp. ¶ 8; Doc. 39, Pl.’s Br. ¶ 8.
September 29, 2014: HSBC sued to obtain a foreclosure order under the loan agreement.
Doc. 46, Def.’s Resp. ¶ 9; Doc. 39, Pl.’s Br. ¶ 9.
Based on this timeline, Crum argues HSBC’s suit is time barred, as the statue of limitations
to enforce a security instrument, absent rescission, is four years. Doc. 46, Def.’s Resp. ¶¶ 2, 10. So,
Crum reasons, because (1) there was no rescission and (2) HSBC sued on September 29, 2014, see
Doc. 1, Compl., well after its legal right to do so was supposedly extinguished, its suit must be
dismissed. Doc. 46, Def.’s Resp. ¶¶ 2, 10
HSBC takes issue with Crum’s logic, alleging that his many omissions change the outcome
of this case. But first, it concedes two points: (1) Texas law requires one to exercise its lien or power
of sale within four years after an action accrues; and (2) generally, when a note or deed of trust
contains an optional acceleration clause, the action accrues when the holder actually exercises its
option to accelerate. Doc. 57, Pl.’s Corrected Reply ¶ 18 (citing Rivera v. Bank of Am., N.A., 607
F. App’x 358, 360 (5th Cir. 2015); Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562, 567
(Tex. 2001); Tex. Civ. Prac. & Rem. Code Ann. § 16.035). Thus, ordinarily, the statute of
limitations would bar HSBC’s claim as of June 10, 2013, four years after HSBC first accelerated the
Note.
But HSBC says that is not the case here and offers two reasons in support. First, because
Crum filed for bankruptcy and sued to prevent foreclosure, the clock stopped, the statute of
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limitations was tolled, and HSBC is still able to sue now. Doc. 57, Pl.’s Corrected Reply. ¶ 1.1 More
specifically, HSBC contends that (1) Crum’s bankruptcy suit gave it another 127 days to file—Crum
filed for Chapter 7 on June 3, 2013, and was granted a discharge on October 7, 2010, rendering
HSBC’s lien unenforceable during this time, id. ¶ 15, and (2) Crum’s foreclosure prevention suit gave
it another 500 days—Crum sued on July 4, 2011, HSBC removed on August 15, 2011, and
defendants (HSBC included) were granted summary judgment on November 4, 2012, again
rendering HSBC unable to pursue foreclosure during this time. Id. ¶ 17.
Second, HSBC alleges that it abandoned acceleration on October 15, 2013, when it sent
Crum a notice-of-default for less than the full amount due. Id. ¶ 20. This, the bank says, restored the
loan to its original condition, restarted the limitations period, and allows it to sue here now. Id. ¶¶
20–21.
Examining the summary judgment record, the Court finds that Crum has not presented
sufficient evidence to demonstrate there exists a genuine dispute of material fact as to whether (1)
HSBC actually owns the note; or (2) the statue of limitations prevents foreclosure. That being said,
the Court also finds HSBC has not definitively proven it has complied with Texas’ procedural
requirements for obtaining a foreclosure judgment. Namely, it is not clear whether it sent the
October 15, 2013 second Notice of Default via certified mail. Accordingly, the Court DENIES
HSBC’s Motion for Summary Judgment without prejudice and GRANTS both parties thirty days
(30) to file supplemental briefing on the issue of whether HSBC has complied with the procedural
1
HSBC says it was not aware of the suit earlier because Crum failed to respond to certain
interrogatories on point. Id. ¶ 6. But it has since “come to HSBC’s attention that Mr. Crum has filed for
bankruptcy protection an [initiated] an affirmative lawsuit to half foreclosure proceedings.” Id. ¶ 9.
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foreclosure requirements, discussed below in Section III(B). Supplemental briefing is now due March
24, 2016.
II.
LEGAL STANDARD
Federal Rule of Civil Procedure 56(a) provides that summary judgment is appropriate “if the
movant shows that there is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a). The substantive law governing a matter
determines which facts are material to a case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). The summary judgment movant bears the burden of proving that no genuine issue of
material fact exists. Latimer v. Smithkline & French Labs, 919 F.2d 301, 303 (5th Cir. 1990). If the
non-movant ultimately bears the burden of proof at trial, however, the summary judgment movant
may satisfy its burden by pointing to the mere absence of evidence supporting the non-movant’s case.
Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986).
Once the summary judgment movant has met this burden, the non-movant must “go beyond
the pleadings and designate specific facts showing that there is a genuine issue for trial.” Little v.
Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (per curiam) (citing Celotex, 477 U.S. at 325).
In determining whether a genuine issue exists for trial, the court will view all of the evidence in the
light most favorable to the non-movant. Munoz v. Orr, 200 F.3d 291, 302 (5th Cir. 2000). But the
non-movant must produce more than “some metaphysical doubt as to the material facts.” Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). If the non-movant is unable to make
such a showing, the court must grant summary judgment. Little, 37 F.3d at 1076.
III.
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ANALYSIS
A.
Crum’s Affirmative Defenses
1.
Does HSBC Own the Note?
To support its theory that HSBC does not hold the promissory note in question—and is
therefore unentitled to enforce it—Crum offers only his own affidavit.2 Doc. 47-1, Def.’s App., Aff.
of Kenneth Crum 1 (Crum Aff.). There, he swears to the fact that, on September 2, 2015, he called
HSBC, offered his personal information to a number of employees, and asked whether there was any
record of mortgage-related debt on his part in the bank’s system. Id. All individuals evidently
answered “no,” and Crum now contends, based entirely upon these representations, that this means
he has no mortgage with HSBC. Id.; see also Doc. 46, Def.’s Resp. ¶¶ 17–18.
HSBC, for its part, has demonstrated that: (1) the Note exists, see Doc. 40-1, Pl.’s Mot.
Summ. J. App. 7–11 [hereinafter Pl.’s MSJ App.], Ex. A-1, Home Equity Note; (2) the security
interest exists, id. at 12–33, Ex. A-2, Texas Home Equity Security Instrument; (3) both were assigned
from WMC to Merrill Lynch, id. at 34–37, Ex. A-3, Assignment from WMC to Merrill Lynch; (4)
then assigned from Merill Lynch to HSBC, id. at 38–40, Ex. A-4, Assignment from Merrill Lynch
to HSBC; (5) and that Crum eventually defaulted on the Note. See id. at 41–42, Ex. A-5, Note
Allonge; id. at 43–52, Ex. A-6, Payment History.
All this, of course, does not address Crum’s argument—that HSBC sold all of its assets,
2
Crum also insists that EDGAR, SEC’s online database, shows HSBC sold all of its assets on or about
April 1, 2013. Doc. 46, Pl.’s Resp. 17. But Crum does not offer anything in his appendix demonstrating this
is so, nor does he provide the Court with a URL or any instruction on how to go about obtaining this
information. The Court is not required to, nor will it, scour the record or internet in order to find the
information to which Crum alludes.
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“which would undoubtedly include [Crum’s] promissory note[,] on or about April 1, 2013.” Doc. 46,
Def.’s Resp. ¶ 17. But Crum, for his part, has offered no evidence to demonstrate that this sale did
occur. See generally id. Therefore, the Court cannot conclude that a reasonable jury, examining the
evidence presented here, could possibly find that HSBC sold all of its assets, including the Note. That
established, there is no reason to question HSBC’s supporting evidence, which suggests it still owns
the Note that it acquired on July 14, 2009. See Doc. 40-1, Pl.’s MSJ App. at 38–40, Ex. A-4,
Assignment from Merrill Lynch to HSBC.
That settled, the Court moves on to consider Crum’s statute of limitations defense.
2.
Is HSBC’s Claim Barred by the Statute of Limitations?
i.
Preliminary issues
The Court is not persuaded by HSBC’s argument that, because Crum never responded to its
interrogarotires and requests for production relating to past bankruptcy proceedings, foreclosure suits,
and statutes of limitations defenses, the bank was left unware of the relevant lawsuits, discussed
above. Doc. 57-1, Pl.’s Corrected Reply ¶ 9. Though HSBC was not a party to the bankruptcy
proceedings, see id. at 4–8, Ex. A-1, Bankr. Docket Sheet; id. at 9–20, Ex. A-2, Bankr. Pet.; id. at
21–23, Ex. A-3, Bankr. Discharge, it was, indeed, a defendant in the foreclosure prevention suit. See
id. at 25, Ex. A-4, Pl.’s Original Pet.(listing “HSBC BANK USA, NA, AS TRUSTEE FOR THE
MLM1 TRUST SERIES 2005-WMC1" as a defendant). Accordingly, without further explanation,
the Court finds it at least somewhat disingenuous for HSBC to now suggest it was not aware of
Crum’s July 2011 foreclosure prevention suit.
Nevertheless—and in spite of the fact that HSBC did not anticipate and preemptively address
Crum’s statute of limitations defense in its Motion for Summary Judgment (Doc. 39)—the Court still
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finds it appropriate to consider the bank’s argument and supporting evidence at this time. Under
Federal Rule of Evidence 201(c), courts may take judicial notice of a fact not subject to reasonable
dispute, such as a bankruptcy proceeding or foreclosure prevention suit. Chauhan v. Formosa Plastics
Corp., 212 F.3d 595, 595 (5th Cir. 2000) (citing Fed. R. Evid. 201(c), (e)).3 Accordingly, the Court
does just that and considers the two suits.
ii.
The bankruptcy proceeding
“Under Texas law, a secured lender must foreclose on its ‘real property lien not later than
four years after . . . the cause of action accrues.’” Rivera, 607 F. Appx. at 360 (citing Tex. Civ. Prac.
& Rem. Code § 16.035(a)). “If the ‘deed of trust secured by real property contains an optional
acceleration clause, default does not [of itself] start limitations running on the note. Rather, the
action accrues only when the holder actually exercises its option to accelerate.’” Id. (quoting Holy
Cross Church of God in Christ v. Wolf, 44 S.W.3d 562, 566 (Tex. 2001)). Here, both parties agree
that the loan was first accelerated on June 10, 2009. See supra Sec. II. Ordinarily, then, HSBC would
have been required to foreclose by June 10, 2013—four years after first accelerating. But Crum filed
for Chapter 7 Bankruptcy on June 3, 2013, and received a discharge October 7, 2010. See Doc. 57-1,
Pl.’s Corrected Reply 4–8, Ex. A-1, Bankr. Docket Sheet; id. at 9–20, Ex. A-2, Bankr. Pet.; id. at
21–23, Ex. A-3, Bankr. Discharge. Thus, for the 127 days the bankruptcy proceedings were active,
HSBC could not enforce its lien. See Brashear v. Victoria Gardens of McKinney, L.L.C., 302 S.W.3d
542, 547 (Tex. App.—Dallas 2009) (citing 11 U.S.C. § 108(c)) (emphasis added).4 Accordingly,
3
Under Federal Rule of Evidence 201(e), however, Crum is still entitled to be heard on this issue,
should he timely request such.
4
“Section 108(c) of the bankruptcy code . . . affords an extension of state-court deadlines under some
circumstances. That section provides, in pertinent part: [I]f applicable nonbankruptcy law . . . fixes a period
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those proceedings tolled the statue of limitations for HSBC to foreclose upon the Note, giving it until
October 15, 2013, to file suit. This, alone, is not enough for HSBC, which did not sue until
September 29, 2014. See Doc. 1, Compl. That being said, Crum filed another suit before the original
statute of limitations’ June 10, 2013, expiration date, thereby tolling the statue of limitations once
more and giving HSBC extra time to file.
iii.
The foreclosure prevention suit
On July 4, 2011,Crum sued HSBC and others to try to halt foreclosure proceedings on the
Property, alleging Texas Property Code, Texas Finance Code, and Texas Deceptive Trade Practices
Act violations, and bringing quiet title, declaratory relief, breach of contract, negligence and breach
of fiduciary duty claims against some or all defendants. See Doc. 57-1, Pl.’s Corrected Reply 33–40,
Ex. A-4, Pl.’s Original Pet. ¶¶ 40–60. On August 15, 2011, defendants in that case removed the
action to federal court, id. at 68, Ex. A-5, Docket Sheet 7, and on November 14, 2012, the Court
granted summary judgment. Id. at 73–74, Ex. A-6, Final Judgment. Thus, for 500 days, Crum’s
foreclosure prevention suit was active in court. Accordingly, the statute of limitations for HSBC to
foreclose upon the Note was tolled once more, this time for 500 days, thus giving the bank until
February 25, 2015 to foreclose upon the note—or until October 23, 2014, if one does not apply the
tolling from the two suits cumulatively. See Wells Fargo Bank, N.A. v. Murphy, 458 S.W.3d 912, 915
n.1 (Tex. 2015), reh’g denied (June 5, 2015) (citing Tex. R. Civ. P. 36.11(a)) (“The relevant portion
for commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the
debtor . . . and such period has not expired before the date of the filing of the [bankruptcy] petition, then
such period does not expire until the later of—(1) the end of such period, including any suspension of such
period occurring on or after the commencement of the case; or (2) 30 days after notice of the termination or
expiration of the stay under section 362, 922, 1201, or 1301 of this title, as the case may be, with respect to
such claim.” Id. (emphasis added).
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of Rule 736.11(a) states: ‘A proceeding or order under this rule is automatically stayed if a
respondent files a separate, original proceeding in a court of competent jurisdiction that puts in issue
any matter related to the origination, servicing, or enforcement of the loan agreement, contract, or
lien.’”). In any event, HSBC filed suit here on September 29, 2014, see Doc. 1, Compl., before either
date, rendering the distinction meaningless.
B.
The Merits
Defenses settled, this is essentially a breach of contract case. In Texas, the elements of a
breach of contract claim are: (1) the existence of a valid and enforceable contract; (2) performance,
tendered performance, or excuse from performance on the part of the plaintiff; (3) breach on the part
of the defendant; and (4) damages suffered by the plaintiff as a result of the defendant’s breach.
Mullins v. TestAmerica Inc., 564 F.3d 386, 418 (5th Cir. 2009) (citations omitted). All elements are
present here.
“Under Texas law, a valid contract requires an offer, acceptance, mutual assent, execution
and delivery of the contract with the intent that it be mutual and binding, and consideration.” Innova
Hosp. San Antonio, L.P. v. Blue Cross & Blue Shield of Georgia, Inc., 995 F. Supp. 2d 587, 609 (N.D.
Tex. 2014)
The Note and Security Interest here evidence all of the above—Crum took out a loan from
WMC, granted it an interest in the Property in return, and agreed to make the necessary payments.
Doc. 40-1, Pl.’s MSJ App. at 7–11, Ex. A-1, Texas Home Equity Note; id. at 12–33, Ex. A-2, Texas
Home Equity Security Interest. WMC then transferred that loan to Merrill Lynch, id. at 34–37, Ex.
A-3, Assignment from WMC to Merrill Lynch, who in turn transferred it to HSBC. Id. at 38–40, Ex.
A-4, Assignment from Merrill Lynch to HSBC. Nothing indicates WMC, Merrill Lynch, or HSBC
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failed to perform its duties under the contract. It appears, however, that Crum stopped making
payments—a fact which Crum does not deny—thus breaching the contract, and, in turn, injuring
HSBC. See Doc. 40-1, Pl.’s MSJ App. at 43–52, Ex. A-6, Payment History Records.
Breach established, the question becomes whether HSBC has complied with the Texas
Property Code requirements for the sale of real property under contract lien. This includes “the
mortgage servicer of the debt . . . serv[ing] a debtor in default under a deed of trust or other contract
lien on real property used as the debtor's residence with written notice by certified mail stating that the
debtor is in default under the deed of trust or other contract lien and giving the debtor at least 20 days
to cure the default before notice of sale can be given under Subsection (b).” Tex. Prop. Code Ann.
§ 51.002 (emphasis added).
Based on HSBC’s own representations, it is not clear whether it has done so. The bank says
that, on May 11, 2009, MWZM sent Crum, on behalf of Wilshire, a Notice of Default and Intent to
Accelerate via certified mail. Doc. 39, Pl.’s Br. ¶ 5. (citing Doc. 40-1, Pl.’s MSJ App. at 54, Ex. A-7,
First Notice of Default). But it is not clear whether HSBC’s second Notice of Default—sent by SPS
to Crum on October 15, 2013—was also sent via certified mail, though it did indisputably notify
Crum that he was in default and gave him over twenty days to cure. Doc. 39, Pl.’s Br. ¶¶ 7, 15 (citing
Doc. 40-1, Pl.’s MSJ App. 70–73, Ex. A-11, Notice of Default/Demand Letter). Rather, the bank
explicitly says it sent the second notice “via United States mail.” Id. ¶ 15. Given HSBC indicates in
the very next paragraph of its brief that it sent the subsequent “Notice of Acceleration of Loan
Maturity” “via United States certified and regular mail,” the method by which it sent the October
15, 2013, second Notice of Default becomes unclear. Id. ¶ 16. The statute, however, requires the
Notice of Default be sent via certified mail. See Bassknight v. Deutsche Bank Nat. Trust Co.,
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3:12-CV-1412-M BF, 2014 WL 6769085, at *5 (N.D. Tex. Dec. 1, 2014), subsequently aff'd, 611 Fed.
App’x 222 (5th Cir. 2015) (“Among other things, Section 51.002 of the Texas Property Code
requires that, prior to foreclosing on real property that is used as a debtor’s residence, the mortgage
servicer must serve the debtor with (1) a notice of default and (2) a notice of sale . . . [and] [t]he
mortgage servicer must serve the notice of default by certified mail . . . .”) (emphasis added) (internal
citations omitted).
Because neither HSBC’s briefing nor appendix make clear whether it sent the second Notice
of Default by certified mail, the Court DENIES HSBC’s Motion for Summary Judgment for the time
being, but GRANTS each party thirty days (30) to present briefing on the issue of whether HSBC
has comported with the procedural requirements here. That briefing is due by March 27, 2016.
IV.
CONCLUSION
The Court DENIES HSBC’s Motion for Summary Judgment at this time because it is unclear
whether the bank complied with Section 51.002 of the Texas Property Code—which requires
sending default notices by certified mail—when it sent the October 15, 2013 second Notice of
Default to Crum. Accordingly, the Court GRANTS each party thirty days (30) to brief this issue,
and only this issue. Briefing is due by March 27, 2016.
As for Crum’s affirmative defenses—that (1) HSBC no longer owns the Note and therefore
has no standing to sue; and (2) the statute of limitations prevents HSBC from suing here now—the
Court has determined, as set forth above, that these defenses lack merit. Accordingly, these
affirmative defenses will not preclude the Court from granting summary judgment should it find
HSBC has complied with the procedural requirements at issue here. No further briefing on these
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affirmative defenses will be permitted
SO ORDERED.
SIGNED: February 24, 2016.
JANE J. BOYLE
UNITED STATES DISTRICT JUDGE
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