Siwell, Inc. dba Capital Mortgage Services
MEMORANDUM OPINION AND ORDER denying 258 Motion for Attorney Fees filed by Siwell, Inc. dba Capital Mortgage Services; denying as moot 263 Motion to Strike filed by Leverage Financial, LLC; and denying Motion for Judgment as a Matter of Law, or, Alternatively, for New Trial of Leverage Financial, LLC. (Ordered by Judge Sidney A Fitzwater on 4/18/2017) (Judge Sidney A Fitzwater)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
SIWELL, INC. d/b/a CAPITAL
LEVERAGE FINANCIAL, LLC,
§ Civil Action No. 5:12-CV-185-D
Following a jury trial and verdict in its favor, plaintiff Siwell, Inc. d/b/a Capital
Mortgage Services (“Siwell”) moves for attorney’s fees and costs under Tex. Civ. Prac. &
Rem. Code Ann. § 38.001 (West 2017). Defendant Leverage Financial, LLC (“Leverage”)
moves under Fed. R. Civ. P. 50(b) for judgment as a matter of law, or, alternatively, for a
new trial, contending that Siwell submitted insufficient evidence of damages. For the reasons
that follow, the court denies both motions.
Siwell purchased a home mortgage loan (“Bozeman Loan”) from Leverage, which it
later sold to the Federal National Mortgage Association (“Fannie Mae”). Fannie Mae
determined that the Bozeman Loan had been materially misrepresented because Bozeman
did not live in the property as her primary residence. Fannie Mae first demanded that Siwell
repurchase the loan, but later required that Siwell make Fannie Mae whole by compensating
Fannie Mae for the difference between the purchase price and the ultimate sale price.
Siwell sued Leverage for breach of contract.1 At trial, the jury found that the purchase
agreement between Siwell and Leverage required that Leverage repurchase the loan if the
loan did not meet the requirements for Fannie Mae delivery. Leverage did not repurchase
the Bozeman Loan, and the jury found that Siwell suffered damages as a result. Following
the verdict, Leverage moved for judgment as a matter of law, which the court denied.
Leverage now renews its motion, contending that Siwell failed to submit sufficient evidence
to prove that it incurred damages of $87,025.14. Siwell moves for an award of attorney’s
fees. Both motions are opposed.
In a breach of contract action under Texas law, “[a] person may recover reasonable
attorney’s fees from an individual or corporation, in addition to the amount of a valid claim
and costs[.]” Tex. Civ. Prac. & Rem. Code Ann. § 38.001.2 “Generally, the party seeking
to recover attorney’s fees carries the burden of proof.” Smith v. Patrick W.Y. Tam Trust, 296
S.W.3d 545, 547 (Tex. 2009). Section 38.001(8) applies to a valid claim for “an oral or
written contract.” Siwell has recovered from Leverage on a valid claim for a written
Siwell initially brought a claim regarding an additional loan, but the claim was
dismissed prior to trial.
Leverage moves to strike, or, alternatively, for leave to file a surreply to, Siwell’s
reliance on § 38.001 in its reply, contending that Siwell failed to identify the statutory basis
for recovering attorney’s fees until it filed its reply. Because the court concludes that Siwell
is not entitled to recover attorney’s fees under § 38.001, the court denies Leverage’s motion
contract. The question presented is whether Leverage, a limited liability company (“LLC”),
is “an individual or corporation” within the meaning of § 38.001.
As a threshold matter, Siwell contends that the court should not consider whether
Texas law allows recovery of fees against an LLC because Leverage failed to raise this
argument until its response to Siwell’s motion for attorney’s fees. In Siwell’s amended reply,
it contends that Leverage is raising an affirmative defense because it is asserting “an
independent reason (unrelated to the merits) why the plaintiff should not recover.” P. Am.
Reply ¶ 15 (citing MAN Engines & Components, Inc. v. Shows, 434 S.W.3d 132, 137 (Tex.
2014)). And Siwell concludes that, because affirmative defenses are waived if not pleaded,
see Rule 8(c), the court cannot consider Leverage’s argument. The court disagrees.
Because Siwell bears the burden of proving that it is entitled to attorney’s fees, it must
establish each element of the statute under which it seeks fees. See Smith, 296 S.W.3d at
547. If Siwell does not prove that Leverage is an entity that, by statute, can be liable for such
fees, Siwell is not entitled to such fees as a matter of law. This is not an affirmative defense.
See Seminole Pipeline Co. v. Broad Leaf Partners, Inc., 979 S.W.2d 730, 759 (Tex. App.
1998, no pet.) (holding as to statutory cap on damages: “If an intentional tort and/or malice
is not pled and proven by the plaintiff, the cap automatically applies. Thus, we do not view
the statutory cap as an affirmative defense.”). Leverage therefore is not asserting an
affirmative defense that is waived if not pleaded or otherwise asserted.3 Rather, Leverage
is relying on Siwell’s failure to establish an essential element of its attorney’s fees claim: that
Siwell is seeking to recover from an individual or corporation. “Because [Leverage] has
nothing to prove, [it] had nothing to plead” or raise before Siwell’s motion for attorney’s
fees, and its argument is properly before the court. Id.
Where, as here, the court is exercising diversity jurisdiction, it is Erie-bound4 to apply
the law as would a Texas court. See, e.g., Allstate Ins. Co. v. Shelby, 672 F. Supp. 956, 958
(N.D. Tex. 1987) (Fitzwater, J.). The Supreme Court of Texas has not yet addressed whether
§ 38.001 permits the recovery of attorney’s fees from an LLC. When there is no binding
decision of the Supreme Court of Texas on the question, this court must make an
“Erie-guess,” i.e., a prediction of how that court would resolve the issue if presented with the
same case. See, e.g., Chaney v. Dreyfus Serv. Corp., 595 F.3d 219, 229 (5th Cir. 2010)
(citing Six Flags, Inc. v. Westchester Surplus Lines Ins. Co., 565 F.3d 948, 954 (5th Cir.
2009)). “While decisions of intermediate state appellate courts provide guidance, they are not
Although this court has sometimes referred to similar arguments as “defenses,” see,
e.g., Hoffman v. L &M Arts, 2015 WL 1000838, at *1-2 (N.D. Tex. Mar. 6, 2015) (Fitzwater,
J.), aff’d in part, rev’d in part on other grounds, 838 F.3d 568 (5th Cir. 2016), it simply
meant that the defendant, as a means of defending itself, had pointed to the plaintiff’s failure
to establish an element of its claim. The court has not suggested that such an argument is
subject to waiver. See id. (holding that pretrial order contained reference to defendant’s
arguments regarding attorney’s fees, and thus not deciding whether arguments could be
Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938).
controlling. If a state’s highest court has not ruled on the issue in question, a federal court
must determine, to the best of its ability, what the highest court of the state would decide.”
United Teacher Assocs. Ins. Co. v. Union Labor Life Ins. Co., 414 F.3d 558, 565-66 (5th Cir.
2005) (citations omitted).
This court recently considered this question in Hoffman v. L &M Arts, 2015 WL
1000838 (N.D. Tex. Mar. 6, 2015) (Fitzwater, J.), aff’d in part, rev’d in part on other
grounds, 838 F.3d 568 (5th Cir. 2016).5 It concluded that,
based on the plain meaning of the terms “individual” and
“corporation,” the history of § 38.001 and its predecessor,
Article 2226, and the construction given to § 38.001 by Texas
courts of appeals and federal courts (including judges of this
court), the court makes an Erie prediction that the Supreme
Court of Texas would hold that an LLC is neither an
“individual” nor a “corporation” within the meaning of
§ 38.001, and that a party with a valid claim cannot recover
attorney’s fees from an LLC under § 38.001.
Id. at *10. On appeal, the Fifth Circuit declined to consider this court’s interpretation of
§ 38.001 because the panel had held that there was no compensable breach of contract. But
the panel “note[d] that an intervening decision by the Court of Appeals of Texas support[ed]
[this] court’s Erie guess that an LLC like [the defendant] is not ‘an individual or corporation’
under section 38.001(8).” Hoffman v. L &M Arts, 838 F.3d 568, 583 n. 14 (5th Cir. 2016)
(citing Choice! Power, L.P. v. Feeley, 501 S.W.3d 199, 214 (Tex. App. 2016, no pet.)). And
Siwell also contends that Hoffman is inapplicable because, unlike here, the
defendants in Hoffman challenged the recovery of attorney’s fees in pleadings and in the
pretrial order and thus preserved their argument. The court disagrees for the reasons
explained supra at § II(B).
at least one Texas court of appeals has cited Hoffman approvingly, see Alta Mesa Holdings,
L.P. v. Ives, 488 S.W.3d 438, 455 (Tex. App. 2016, pet. denied), and this court is unaware
of any contrary authority. Accordingly, the court concludes that § 38.001 bars recovery of
attorney’s fees from Leverage, an LLC.
The court concludes that Siwell has failed to meet its burden to show that it is entitled
to recover attorney’s fees from Leverage, and it denies Siwell’s motion for attorney’s fees.
The court now turns to Leverage’s motion for judgment as a matter of law, or,
alternatively, for a new trial.
A motion for judgment as a matter of law “‘challenges the legal sufficiency of the
evidence to support the verdict.’” Jacobs v. Tapscott, 516 F.Supp.2d 639, 643 (N.D. Tex.
2007) (Fitzwater, J.) (quoting Hodges v. Mack Trucks, Inc., 474 F.3d 188, 195 (5th Cir.
2006)), aff’d, 277 Fed. Appx. 483 (5th Cir. 2008).
Judgment as a matter of law is appropriate with respect to an
issue if there is no legally sufficient evidentiary basis for a
reasonable jury to find for a party on that issue. This occurs
when the facts and inferences point so strongly and
overwhelmingly in the movant’s favor that reasonable jurors
could not reach a contrary verdict. In considering a Rule 50
motion, the court must review all of the evidence in the record,
drawing all reasonable inferences in favor of the nonmoving
party; the court may not make credibility determinations or
weigh the evidence, as those are jury functions. In reviewing the
record as a whole, the court must disregard all evidence
favorable to the moving party that the jury is not required to
believe. That is, the court should give credence to the evidence
favoring the nonmovant as well as that evidence supporting the
moving party that is uncontradicted and unimpeached, at least
to the extent that that evidence comes from disinterested
Brennan’s Inc. v. Dickie Brennan & Co., 376 F.3d 356, 362 (5th Cir. 2004) (brackets,
citations, and internal quotation marks omitted). The court will “‘uphold a jury verdict
unless the facts and inferences point so strongly and so overwhelmingly in favor of one party
that reasonable [jurors] could not arrive at any verdict to the contrary.’” Goodner v. Hyundai
Motor Co., 650 F.3d 1034, 1039 (5th Cir. 2011) (quoting Cousin v. Trans Union Corp., 246
F.3d 359, 366 (5th Cir. 2001)). “In other words, the ‘jury verdict must be upheld unless there
is no legally sufficient evidentiary basis for a reasonable jury to find as the jury did.’” Id. at
1039-40 (quoting Foradori v. Harris, 523 F.3d 477, 495 (5th Cir. 2008)).
Leverage’s sole ground for obtaining judgment as a matter of law is that Siwell failed
to present sufficient evidence of damages at trial. According to Siwell, it suffered damages
when it paid the sum of $84,100 to Fannie Mae to make it whole after Fannie Mae’s loss on
the subsequent sale of the Bozeman Loan. At trial, Royce Lewis (“Lewis”), Siwell’s CEO,
testified as to this payment:
Why [is Siwell seeking $84,100]?
Well, the number that we talked about originally was
Fannie Mae’s repurchase amount. That’s the amount that
they—that they told us to credit their account to
repurchase the loan. When it ended up that Fannie Mae
sold the property, then the proceeds of the sale were
applied to the unpaid balance, which reduced the amount
to the $84,000 figure.
So as we sit here today, there was this sale; there was a
credit bid; but there remained a deficiency, an amount
that was still owed Fannie Mae to be made whole?
And that’s the [$]84,100 you just mentioned?
And at some point, did Fannie Mae make demand on
[Siwell] to pay that new, different, revised lower
Yeah, that’s called a make-whole, and yes, there was a
make-whole request made.
And did [Siwell], in fact, pay that $84,100 to Fannie
Siwell maintains that this testimony conclusively establishes damages. Leverage
contends that Lewis’ testimony is insufficient evidence of damages because, according to
Leverage, Siwell still retains the right to pull the $84,100 out of the custodial account in
which it is deposited. Leverage notes that Siwell had previously deposited $123,457.13 in
a custodial account from which both Fannie Mae and Siwell could withdraw after Fannie
Mae demanded repurchase of the Bozeman Loan. Lewis testified that this is normal
procedure in his dealings with Fannie Mae. But Fannie Mae never removed the funds from
the custodial account, and Siwell withdrew the sum years later. According to Lewis, Siwell
deposited the sum of $84,100 after it received a make-whole demand from Fannie Mae.6
Leverage maintains that Siwell retains the same prospect of future recovery here as it did for
Lewis’ testimony notes that, at some point, Fannie Mae revoked its repurchase
demand and instead issued a make-whole demand. Lewis had no knowledge as to why this
the repurchase demand, and that Siwell’s damages are therefore speculative.
The court concludes that Siwell presented a legally sufficient evidentiary basis for a
reasonable jury to find that Siwell incurred damages. Leverage notes that a September 1,
2015 report from Fannie Mae listed the payment as “pending,” and it posits that the payment
may still be pending. D. Br. 3 (quoting Tr. 269-70). But Lewis specifically refuted this
theory in his trial testimony:
All right. My question to you is, if this [report] is
supposedly evidence that you actually paid Fannie and
they accepted this money, why didn’t you show it to the
jury yesterday in support of your damages?
I don’t know.
Could it be because Fannie Mae actually hasn’t received
that money? . . .
So this report is over one year old, and all it shows is that
this [$]84,100 is pending. Why don’t you have anything
that proves that that money was sent and actually
I don’t know why. I know that it was.
Tr. 269-70. Lewis’ testimony, which the jury was entitled to believe, proves that Siwell’s
damages are not speculative, but have been realized through final payment of Fannie Mae’s
make-whole demand. Accordingly, the court concludes that this testimony provided a
sufficient evidentiary basis for a reasonable jury to have found that Fannie Mae received the
$84,100 sum that it demanded from Siwell,7 and that Siwell therefore suffered damages.8
Accordingly, the court denies Leverage’s motion for judgment as a matter of law, or,
alternatively, for a new trial.
For the foregoing reasons, the court denies Siwell’s motion for attorney’s fees and
denies Leverage’s motion for judgment as a matter of law, or, alternatively, for a new trial.
April 18, 2017.
SIDNEY A. FITZWATER
UNITED STATES DISTRICT JUDGE
Because of Lewis’ testimony, the court need not decide whether Siwell’s placement
of the $84,100 sum into the custodial account, regardless of whether Fannie Mae removed
the funds, constituted damages.
Outside of its general no-evidence challenge, Leverage does not contend that the
jury’s award of $87,025.14 in damages is otherwise unsupported or warrants a remittitur.
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