Jones v. The Bank of New York Mellon
Filing
30
OPINION AND ORDER re: 21 adopting Memorandum and Recommendations, 13 granting Motion for Summary Judgment, 15 denying Cross Motion for Summary Judgment, 23 denying Motion for Summary Judgment on Counter-Plaintiff's Counter-Claims(Signed by Judge Melinda Harmon) Parties notified.(rhawkins, 4)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
GUY JONES,
§
§
Plaintiff/Counter Defendant, §
§
VS.
§
§
THE BANK OF NEW YORK MELLON
§
F/K/A THE BANK OF NEW YORK, AS §
TRUSTEE FOR CERTIFICATEHOLDERS §
OF CWABS, INC.,
§
§
Defendant/Counter Plaintiff, §
CIVIL ACTION NO. H-13-2414
OPINION AND ORDER
Pending before the Court in the above referenced cause,
challenging
a
foreclosure
on
Plaintiff
Guy
Jones’
(“Jones’”)
homestead at Site 74 of Garden Villas, 7025 East Alpine, Houston
Texas 77061 in Harris County (“the Property”), alleging breach of
contract, and seeking to quiet title, removed from state court on
diversity jurisdiction, are the following:
(1) Defendant The Bank
of New York Mellon, f/k/a Bank of New York, as Trustee for the
Certificateholders of CWABS, Inc.’s (“BONY’s”) motion for summary
judgment (instrument #13); (2) Jones’ cross motion for summary
judgment (#15); (3) United States Magistrate Judge Frances Stacy’s
memorandum and recommendation (#21) that #13 be granted; and (4)
Counter-Defendant Jones’ motion for summary judgment (#23) on
Counter-Plaintiff BONY’s counterclaims.
No objections have been
filed to the Magistrate Judge’s memorandum and recommendation.
After careful review of the briefs, the record of the case,
and the applicable law, for the reasons indicated below the Court
concludes that BONY’s motion for summary judgment (#13) should be
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granted, Jones’ cross motion (#15) should be denied, and Jones’
motion for summary judgment on BONY’s counterclaims (#23) should be
denied.
Standards of Review
Summary judgment under Federal Rule of Civil Procedure 56(c)
is appropriate when, viewing the evidence in the light most
favorable
to
the
nonmovant,
the
court
determines
that
“the
pleadings, depositions, answers to interrogatories and admissions
on file, together with the affidavits, show that there is no
genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law.”
A dispute of material
fact is “genuine” if the evidence would allow a reasonable jury to
find in favor of the nonmovant. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986).
Initially the movant bears the burden of identifying those
portions of the pleadings and discovery in the record that it finds
demonstrate the absence of a genuine issue of material fact on
which the nonmovant bears the burden of proof at trial; a “complete
failure of proof concerning an essential element of the nonmoving
party’s case necessarily renders all other facts immaterial.”
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Lujan v.
National Wildlife Federation, 497 U.S. 871, 885 (1990); Edwards v.
Your Credit, Inc., 148 F.3d 427, 431 (5th Cir. 1998).
If the movant meets its burden and points out an absence of
evidence to prove an essential element of the nonmovant’s case on
-2-
which the nonmovant bears the burden of proof at trial, the
nonmovant must then present competent summary judgment evidence to
support the essential elements of its claim and to demonstrate that
there is a genuine issue of material fact for trial.
National
Ass’n of Gov’t Employees v. City Pub. Serv. Board, 40 F.3d 698, 712
(5th Cir. 1994).
“[A] complete failure of proof concerning an
essential element of the nonmoving party’s case renders all other
facts immaterial.”
not
rely
merely
Celotex, 477 U.S. at 323.
on
allegations,
denials
The nonmovant may
in
a
pleading
or
unsubstantiated assertions that a fact issue exists, but must set
forth specific facts showing the existence of a genuine issue of
material fact concerning every element of its cause(s) of action.
Morris v. Covan World Wide Moving, Inc,, 144 F.3d 377, 380 (5th Cir.
1998).
Conclusory
allegations
preclude summary judgment.
unsupported
by
evidence
will
not
National Ass’n of Gov’t Employees v.
City Pub. Serv. Board, 40 F.3d at 713; Eason v. Thaler, 73 F.3d
1322, 1325 (5th Cir. 1996).
“‘[T]he mere existence of some alleged
factual dispute between the parties will not defeat an otherwise
properly supported motion for summary judgment . . . .’”
State
Farm Life Ins. Co. v. Gutterman, 896 F.2d 116, 118 (5th Cir. 1990),
quoting Anderson v. Liberty Lobby, Inc.. 477 U.S. 242, 247-48
(1986).
“Nor is the ‘mere scintilla of evidence’ sufficient;
‘there must be evidence on which the jury could reasonably find for
the plaintiff.’”
Id., quoting Liberty Lobby, 477 U.S. at 252. The
-3-
Fifth
Circuit
requires
probative evidence.’”
the
nonmovant
to
submit
“‘significant
Id., quoting In re Municipal Bond Reporting
Antitrust Litig., 672 F.2d 436, 440 (5th Cir. 1978), and citing
Fischbach & Moore, Inc. v. Cajun Electric Power Co-Op., 799 F.2d
194, 197 (5th Cir. 1986).
“If the evidence is merely colorable,
or
probative,
is
not
significantly
summary
judgment
may
be
Thomas v. Barton Lodge II, Ltd., 174 F.3d 636, 644 (5th
granted.”
Cir. 1999), citing Celotex, 477 U.S.
at 322, and Liberty Lobby,
477 U.S. at 249-50.
Allegations in a plaintiff’s complaint are not evidence.
Wallace
v.
Texas
Tech
Univ.,
80
F.3d
1042,
1047
(5th
Cir.
1996)(“[P]leadings are not summary judgment evidence.”); Johnston
v. City of Houston, Tex., 14 F.3d 1056, 1060 (5th Cir. 1995)(for the
party opposing the motion for summary judgment, “only evidence-–not
argument, not facts in the complaint--will satisfy’ the burden.”),
citing Solo Serve Corp. v. Westown Assoc., 929 F.2d 160, 164 (5th
Cir. 1991).
The nonmovant must “go beyond the pleadings and by
[his] own affidavits, or by depositions, answers to interrogatories
and admissions on file, designate specific facts showing that there
is a genuine issue of material fact for trial.”
Giles v. General
Elec. Co., 245 F.3d 474, 493 (5th Cir. 2001), citing Celotex, 477
U.S. at 324.
The court must consider all evidence and draw all inferences
from
the
nonmovant.
factual
record
in
the
light
most
favorable
to
the
Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S.
-4-
574, 587 (1986); National Ass’n of Gov’t Employees v. City Pub.
Serv. Board, 40 F.3d at 712-13.
Findings of the United States Magistrate Judge to which no
specific objections are made require the Court only to decide
whether the memorandum and recommendation is clearly erroneous or
contrary to law.
Byars v. Stephens, No. 5:13-CV-189-DAE, 2014 WL
1668488, at *2 (Apr. 14, 2014), citing U.S. v. Wilson, 864 F.2d
1219, 1221 (5th Cir. 1989). The district court “may accept, reject,
or modify, in whole or in part, the findings or recommendations
made by the magistrate judge.”
28 U.S.C. § 636(b)(1)(C).
Jones’ Original Petition (#1-1)
On or about June 4, 2003 Jones signed a home equity note in
the amount of $131,900.00 and a deed of trust covering the Property
in favor of the original mortgage lender, Aames Funding Corporation
(“Aames”).
BONY is the current owner of that note and deed of
trust and claims that it therefore has authority to accept mortgage
payments and to foreclose.
“A lien on a homestead can be created only in the manner set
out in the [Texas] Constitution.”
Hruska v. First State Bank of
Deanville, 747 S.W. 2d 783, 784 (Tex. 1988); Doody v. Ameriquest
Mortgage Co., 49 S.S. 3d 342 (Tex. 2001)(“a homestead lien that may
not have complied with constitutional requirements
at the outset
can be made valid at a later date” under 1997 amendment cure
provision,
§
50(a)((6)(Q)(x)1).
1
After examining the loan
Section 50(a)((6)(Q)(x) states that “except as provided by
Subparagraph (xi) of this paragraph, the lender or any holder of
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documents, Jones contends that they revealed a number of violations
of Texas Constitution Art. XVI § 50(a)(6) and its subsections.
In
a certified letter (#11-1, Ex. C) mailed to BONY on March 22, 2012,
Jones asserted the following constitutional violations relating to
his loan and requested BONY to cure them within sixty days:
(1)
Fees and charges for making the loan may not exceed 3% of the loan
amount (Tex. Const. Art. XVI § 50(a)(6)(E), or in Jones’ case
$3,957, followed by a list of specific fees charged to and paid by
Jones amounting to $4,074.25; (2) The loan must have provided that
borrowers receive a copy of the final loan application and all
executed documents signed at closing (Tex. Const. Art. XVI §
50(a)(6)(Q)(v)), but Jones claims that he did not receive copies of
the final loan documents; (3) The loan was made on the condition
that the owner of the homestead and any spouse of the owner may
within three days after the extension of credit is made rescind the
extension of credit without penalty or charge (Tex. Const. Art. XVI
§ 50(a)(6)(Q)(viii)), but Jones argues that he did not sign an
acknowledgment of the three-day right to rescind the document,
which notifies him of the right to abandon the extension of credit
without penalty; and (4) The owner of the homestead and the lender
must sign a written acknowledgment as to the fair market value of
the homestead property on the date the extension of credit is made
the note for the extension of credit shall forfeit all principal
and interest of the extension of credit if the lender or holder
fails to comply with the lender’s or holder’s obligations under
the extension of credit and fails to correct the failure to
comply not later than the 60th day after the date the lender or
holder is notified by the borrower of the lender’s failure to
comply by . . . . [enumeration of various ways to correct
constitutional deficiencies].”
-6-
(Tex. Const. Art. XVI § 50(a)(6)(Q)(ix), but Jones contends they
did not do so or, if Jones did execute one, a copy was not provided
to him at closing.
Jones
filed
this
action
on
June
27,
2012
to
stop
the
foreclosure and served BONY with the original petition on July 23,
2012.
He claims that BONY and any other party are barred from
accelerating the note and foreclosing on the Property because the
four-year statute of limitations in Texas Civil Practice & Remedies
Code § 16.035(b) has expired.
Jones contends that BONY exercised
its option to accelerate the debt in 2005 and claims that after the
expiration of the statute of limitations in 2009, BONY is illegally
attempting to sell the Property in 2012.
While the debt evidenced
by the note may still exist, Jones insists it is an unsecured debt
and BONY has no right or power to foreclose on the Property.
Jones also alleges that BONY breached the deed of trust in (1)
charging fees that exceeded 3% of the loan amount in violation of
Tex. Constitution Art. XVI § 50(a)(6)(E); (2) failing to refund or
“cure” the overcharged amount within the 60-day period allowed by
Art. XVI § 50(a)(6; and (3) violating several regulations required
by Art. XVI § 50(a)(6).
Last of all, Jones seeks to remove the cloud imposed by BONY’s
claim that BONY has a lien for security purposes on the Property
and to quiet title to the Property, and claims that he is the
undisputed owner by virtue of his recorded deed.
Jones maintains
that BONY’s Notice of Foreclosure is invalid because BONY’s uncured
constitutional violations have rendered BONY’s lien void ab initio.
Jones seeks (1) a declaratory judgment that BONY failed to
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cure the constitutional violations in the loan, that the mortgage
does not comply with the Texas Constitution and is thus void, and
that BONY must forfeit all principal and interest on the note; (2)
a permanent injunction, and (3) attorney’s fees.
In addition Jones argues that the discovery rule should apply
to extend the statute of limitations on his claims because he could
not discover BONY’s misconduct until March 13, 2013 when his
attorney reviewed all the loan documents, and so should equitable
tolling.
BONY’s Motion for Summary Judgment (#13)
BONY timely removed the suit on August 16, 2013.
BONY argues
that Jones’ claims of constitutional violations are time-barred by
Texas’ residual four-year statute of limitations,
Tex. Civ. Prac.
& Rem. Code § 16.051 (“Every action for which there is no express
limitations period, except an action for the recovery of real
property, must be brought not later than four years after the day
the cause of action accrues”)2 and are governed by the ruling in
the on-point case of Priester v. JP Morgan Chase Bank, N.A., 708
F.3d 667 (5th Cir. 2013), cert. denied, 134 S. Ct. 196 (2013), which
is binding on this Court.
Moreover BONY contends that Jones’
claims of breach of contract, the statute of limitations’ bar on
2
See also Rivera v. Countrywide Home Loans, Inc., 262 S.W.
3d 834, 840 (Tex. App.--Dallas 2008, no pet.)(“[W]e conclude the
legal injury occurred when Countrywide made a loan to the Riveras
in excess of the amount allowed by law. . . . Thus, the Riveras’
cause of action for Countrywide’s violation of [§ 50(a)(6)(B) of
home equity provisions of the Texas Constitution] accrued
September 28, 2001, the date of closing of the Riveras’ home
equity loan.”)
-8-
BONY’s foreclosure sale, and suit to quiet title are meritless and
derivative and should be dismissed.
Court’s Decision
Because the Court agrees with BONY and the Magistrate Judge
that as a matter of law Jones’ claims in his Original Petition
should be dismissed with prejudice, it does not summarize the
parties’ various arguments but simply explains the reasons why it
grants BONY’s motion for summary judgment on Jones’ claims.
In Priester, 708 F.3d 666, John and Bettie Priester obtained
a home equity loan secured by a first lien on their homestead from
Long Beach Mortgage Company (“Long Beach”) in November 2005.
The
Priesters claimed the mortgage agreement violated the Texas
Constitution because the closing of the loan took place in the
Priesters’ home and not in an office of an attorney, the lender or
the title company.
Tex. Const. Art. XVI § 50(a)(6)(N).
They also
assert that they did not receive notice of their rights twelve days
before the closing, as required by the state constitution.
Const. Art. XVI § 50(a)(6)(M)(I).
Tex.
In July 2010 the couple sent a
letter to the lender asking it to cure the alleged constitutional
deficiencies.3
Nothing happened because JP Morgan Chase Bank
(“Chase”) had taken over Long Beach, so the Priesters sent a
similar letter to Chase the next month.
Again nothing happened.
Approximately five years later the Priesters, arguing that the
statute of limitations had expired, filed suit against the lender
3
Under Tex. Const. Art. XVI(a)(6)(Q)(x), “a party may give
notice of a defect, and the other party has sixty days to cure.”
708 F. 3d at 673.
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seeking a declaratory judgment that the lien was void and that the
mortgage holder must forfeit all principal and interest, as well as
alleging a claim for defamation because the bank reported the
Priesters’ delinquent payments on the Priesters’ credit reports on
the grounds that they were in default on their mortgage payments.
Among numerous submissions, Chase ultimately filed a motion to
dismiss
the
suit
as
time-barred
recommended that it be granted.
and
the
magistrate
judge
The district court adopted the
memorandum and recommendation and dismissed the suit.
Priester v.
Long Beach Mortg. Co., No. 4:10-CV-641, 2011 WL 6116491 (E.D. Tex.
Oct. 13, 2011), report and recommendation adopted by , 2011 WL
6116481 (E.D. Tex. Dec. 8, 2011),
aff’d sub nom. Priester v. JP
Morgan Chase Bank, N.A., 708 F.3d 667 (5 th Cir. Feb. 13, 2013),
cert. denied, 134 S. Ct. 196 (2013).
On appeal, noting that the Texas Supreme Court has not yet
addressed
whether
the
residual
limitations period applies to
defects in homestead liens, but that two Texas appellate courts
had, both supporting that application, as well as numerous district
and bankruptcy courts, making an Erie guess4 the Fifth Circuit held
4
Since the Texas Supreme Court has not ruled on this issue
of substantive Texas law, the Fifth Circuit, as a federal court
sitting in diversity, had to make an “Erie-guess”, in other words
a prediction as to how that court would rule. Erie R.R. Co. v.
Tomkins, 304 U.S. 64 (1938); Westlake Petrochems, LLC v. United
Polychem, INc., 688 F.3d 232, 238 n.5 (5th Cir. 2012). “In
making an [Erie] guess in the absence of a ruling from the
state’s highest court, this Court may look to the decisions of
intermediate appellate state courts for guidance.” Howe ex rel.
Howe v. Scottsdale Ins. Co., 204 F.3d 624, 627 (5th Cir. 2000);
see also Hermann Holdings, Ltd. v. Lucent Tech., Inc., 301 F.3d
552, 558 (5th Cir. 2002). The Fifth Circuit may also “consult a
variety of sources, including the general rule on the issue,
-10-
that § 16.051's four-year statute of limitations applies to claims
alleging constitutional violations under Article XVI § 50(a)(6).5
708 F.3d at 673-74.
The panel further concluded that limitations
begins to run at the closing of the lien (creation of the lien) and
that the discovery rule exception does not apply except where it is
nearly impossible for the plaintiff to discover his injury. Id. at
675-76.
The appellate court also found that there was no evidence
that the defendants used deception to conceal the Priesters’ two
alleged constitutional violations.
Id. at 677.
In addition the
panel found the defamation claim to be meritless because the report
to the credit agencies was truthful.
It further determined that a
constitutional claim under § 50(a)(6) renders a lien voidable
rather than void.
Therefore once limitations expired, the lien was
no longer voidable and was valid, so the harm was erased and there
was no defamation, and the claim was correctly dismissed.
In the instant case after his home equity loan closed, Jones
delayed filing suit for ten years.
Nothing made the alleged injury
undiscoverable
he would have to have been
in
2003;
rather,
decisions from other jurisdictions, and general policy concerns.”
Audler v. CBC Inovis Inc., 519 F.3d 239, 249 (5th Cir. 2008).
See also Hughes v. Tobacco Inst., Inc., 278 F.3d 417, 421 (5th
Cir. 2001)(“This Court’s interpretation of Texas law is binding
on the district court, unless a subsequent state court decision
or statutory amendment renders our prior decision clearly
wrong.”). Not only has the Texas Supreme Court not addressed the
Priester holding, but as stated by Magistrate Judge Stacy, in
Moran v. Ocwen Loan Servicing, LLC, 560 Fed. Appx. 277, 279 (5th
Cir. Mar. 24, 2014), the Fifth Circuit reaffirmed its holding in
Preiester.
5
See Rivera, 262 S.W. 3d at 839, and Schanzle v. JPMC
Specialty Mortg., LLC, No. 03-09-00639-CV, 2011 WL 832170, at *4
(Tex. App.--Amarillo, pet. denied).
-11-
immediately aware of (1) what fees were charged since the amount
and their nature were stated on his Settlement Statement, (2)
whether he was given copies of papers he executed, and (3) whether
he was given notice of his rights.
Magistrate Stacy also ruled that because Jones’ other claims
(i.e., breach of contract, suit to quiet title, and claims for
declaratory and injunctive relief) are premised on the time-barred
claims
of
constitutional
violations,
these,
too,
should
be
dismissed.
In addition the magistrate judge correctly concluded that
Jones’ breach of contract claim also fails because “a party to a
contract who is in default cannot maintain a suit for breach of
contract” and it is undisputed that Jones defaulted on his mortgage
payment.
See, e.g., Gulf Pipe Line Co. v. Nearen, 138 S.W. 2d
1065, 1068 (Tex. 1940).
The evidence further shows that he failed
to make his February 1, 2008 payment until August 11, 2008 and made
not further payments.
The Magistrate Judge also held that as a
matter of law, the suit to quiet title claim failed, too, because
the statute of limitations expired and thus the bank’s lien is
valid.
The Court’s review of Magistrate Judge Stacy’s memorandum and
recommendation in its entirety indicates that she has correctly
stated the law and applied it to the facts here.
Accordingly, the
Court adopts the memorandum and recommendation as the Court’s own,
grants BONY’s motion for summary judgment (#13), and denies Jones’
cross motion for summary judgment (#15) on all claims against BONY
in Jones’ Original Petition.
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Jones’ Motion for Summary Judgment (#23) on BONY’s Counterclaims
BONY counterclaims for (1) breach of contract (note and
security instrument requiring Jones to make monthly payments of
principal and interest on the loan); (2) entitlement to judicial
foreclosure of BONY’s lien under Texas Constitution Art. 16 §
50(a)(6)(D) and Texas Property Code § 51.002; (3) a declaratory
judgment that Jones’ note and the security instrument remain in
full force and effect, that BONY’s lien on the Property is valid,
with the principal balance of the Note due and payable, and that
BONY is entitled to judicial foreclosure and sale of the Property;
(4) entitlement to attorney’s fees pursuant to Tex. Civ. Prac. &
Rem. Code §§ 37.009 and 38.001, on Jones’ breach of contract claim;
(5) an equitable lien against Jones that survives his claim to the
Property or value of the Property; and (6) equitable subrogation
against Jones that survives his claim to the Property or value of
the Property. #19 at pp. 9-11.
Jones’ motion claims that even if his claims are time-barred,
to foreclose on the Property BONY still must prove that it has a
valid lien on the homestead under the Texas Constitution, i.e.,
that it has complied with all of § 50(a)(6)’s requirements, but it
cannot do so given the alleged constitutional violation that fees
on the loan should not exceed 3% of the loan amount that Jones has
identified in his Original Petition under Texas Constitution Art.
XVI § 50(a)(6)(E).
Therefore the Property is protected from force
sale and BONY’s counterclaims should be denied.
BONY’s Response (#29)
BONY maintains that Jones’ allegation is not supported by
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legal authority.
Under Priester, 708 F.3d at 678, under Texas law
the home equity loan, even if the lien was defective when Jones’
mortgage was created on June 4, 2003, became valid as a matter of
law when the four-year statute of limitations expired on June 4,
2007.
Jones filed this lawsuit on June 27, 2013, ten years after
the mortgage originated.
So even if his claims of constitutional
deficiencies were correct, the lien was no longer voidable and was
valid as of expiration of the limitations period.
Id.
Even if Jones’ argument were correct, BONY argues that his
motion should be denied because BONY has a right of equitable
subrogation.
LaSalle Bank National Assoc. v. White, 246 S.W. 3d
616, 618-19 (Tex. 2008).6
Because the original lender, Aames, paid
off two of Jones’ other debts when the mortgage originated, BONY is
able to step into the shoes of his prior lenders and invoke the
right to equitable subrogation.
BONY insists that that right to
equitable subrogation, at minimum, presents a genuine issue of
material fact, and Jones’ motion should be denied.
Court’s Decision
Here, too, the Court concurs with BONY that Priester controls
and binds this Court to conclude that even if the lien were
6
In LaSalle, 246 S.W. 3d at 618-19 (citations omitted), the
Texas Supreme Court explained,
Texas has long recognized a lienholder’s common law
right to equitable subrogation. The doctrine allows a
third party who discharges a lien upon the property of
another to step into the original lienholder’s shoes
and assume the lienholder’s right to the security
interest against the debtor. The doctrine of equitable
subordination has been repeatedly applied to preserve
lien rights on homestead property.
-14-
defective (and the Court concludes it was not) when Jones’ mortgage
was created on June 4, 2003, it became valid as a matter of law
when the four-year statute of limitations expired on June 4, 2007
and that BONY has the right to foreclose on the Property.
Court’s Order
For the reasons stated above, the Court
ADOPTS Magistrate Judge Stacy’s memorandum and recommendation
(#21) as its own and accordingly
ORDERS that BONY’s motion for summary judgment (#13) on Jones’
claims against it is GRANTED and Jones’ cross motion (#15) is
DENIED.
The Court further
ORDERS that Jones’ motion for summary judgment on BONY’s
counterclaims (#23) is DENIED.
SIGNED at Houston, Texas, this
22nd
day of
January , 2015.
___________________________
MELINDA HARMON
UNITED STATES DISTRICT JUDGE
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