Newton et al v. Beneficial Financial I, Inc. et al

Filing 152

MEMORANDUM OPINION. Signed by Senior Judge Norman K. Moon on 3/26/19. (hnw)

03/26/2019

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
CHARLOTTESVILLE DIVISION
TONIA WOODSON NEWTON, ET AL.,

CASE NO. 3:16-CV-00058

Plaintiffs,
MEMORANDUM OPINION

v.
BENEFICIAL FINANCIAL I, INC., ET AL.,
Defendants.

JUDGE NORMAN K. MOON

This matter is before the Court upon Defendants’ renewed motions for summary
judgment. (Dkts. 142, 144). For the reasons stated herein, the Court will grant the motions.
I.

FACTS & PROCEDURAL HISTORY

The Court’s February 16, 2018 opinion adequately outlined the standard of review on
summary judgment, (dkt. 95 at 3–4), as well as the facts of this case. (Id. at 1, 4 – 6). The Court
incorporates by reference these portions of its February 16 opinion.

Nonetheless, a brief

summation of the factual background and procedural history of the case is in order.
Judith Woodson purchased a home in Gordonsville, Virginia in January 2005. She
financed the purchase with a mortgage issued by a predecessor of Defendant Beneficial Financial
I, Inc. (“Beneficial”). Approximately one year later, Woodson received a second loan from
Beneficial based on her equity in the home. Beneficial sold this second loan to Defendant Ditech
Financial, LLC (“Ditech”). Woodson eventually fell behind in making payments on these loans.
For fiscal year 2012, Beneficial completed a Form 1099-C for the second loan, indicating that
Woodson’s mortgage debt had been discharged.

Beneficial presents evidence that it

subsequently issued a corrected Form 1099-C for fiscal year 2012. When Woodson defaulted on
the second loan by failing to make any payments after January 2012, Beneficial marked her

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second loan account as “charged off,” which Beneficial maintains is an internal notation
reflecting an unlikelihood of repayment.
Woodson died in 2015, and the three plaintiffs (“the heirs”) inherited the home. Due to
delinquencies on the loan, Beneficial moved to foreclose on the property in August 2016. The
heirs filed suit in state court to stop the foreclosure proceedings. (Dkt. 1). Defendants removed
the case to federal court based on diversity jurisdiction. Judge Conrad transferred the case to me
in December 2017. (Dkt. 87). During the pendency of this suit, Carrington Mortgages Services,
LLC (“Carrington”), who is not a party to the suit, purchased the first mortgage from Beneficial.
In their quiet title action, the heirs asked the Court to determine whether Beneficial
discharged the home equity loan (Count One). The heirs sought the removal of a lien related to
this loan (Count Two) and compensatory damages based on Beneficial’s refusal to remove the
lien (Count Three). The heirs sought declaratory judgments preventing foreclosure and the
imposition of related costs (Counts Four and Five). Lastly, the heirs sought a declaratory
judgment on the balance of the mortgage loan and a related lien (Count Six). (Dkt. 35).
On February 16, 2018, this Court granted Defendants’ motions for summary judgment
and denied the heirs’ motion to compel discovery as moot by operation of Judge Conrad’s
scheduling order. (Dkt. 96). However, on May 2, 2018, the Court granted the heirs’ motion for
reconsideration after the heirs offered e-mail correspondence showing that the motion to compel
was not moot. (Dkt. 111). The Court vacated its previous orders in part, reinstated the case on
its active docket, reopened the motions to compel and for summary judgment, and referred the
motion to compel to U.S. Magistrate Judge Joel C. Hoppe. (Id. at 3).
Judge Hoppe granted the motion to compel in part, permitting the heirs to reopen their
deposition of Beneficial in light of six newly-produced pages of account notes and requiring

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Beneficial to, if possible, produce a letter corresponding to an entry in the aforementioned
account notes. (Dkt. 118). Judge Hoppe subsequently allowed the heirs to serve three additional
interrogatories on Beneficial “requesting information about the steps Beneficial took to uncover”
156 pages of documents “Beneficial’s counsel belatedly produced” and “the steps Beneficial has
taken to ensure it has produced all non-privileged documents” requested by the heirs and relevant
to the case. (Dkt. 139 at). The sole question now is whether any of this discovery added new
evidence that changes the Court’s previous conclusion that Defendants’ motions for summary
judgment should be granted.
II.

ANALYSIS

The heirs contend that it would be premature to grant summary judgment because
discovery remains outstanding under Judge Hoppe’s order permitting additional interrogatories.
The heirs further argue that the Court should deny summary judgment on substantive grounds
because a genuine dispute of material fact exists about whether Defendants cancelled the home
equity loan. Defendants’ arguments with respect to outstanding discovery are without merit, and
the Court again concludes that no reasonable jury could find that the home equity loan was
discharged. Thus, the Court will grant Defendants’ renewed motions for summary judgment.
A.

The Heirs’ Discovery-Related Arguments

The heirs assert that it would be “premature” to grant summary judgment because
Beneficial’s responses to the three additional interrogatories authorized by Judge Hoppe were
“woefully deficient.” (Dkt. 148 at 4, 18–20). Specifically, the heirs contend that Beneficial
“refused to identify” all of the “technology systems that it used” from January 2005 to June 2018
“to produce under Bates numbers the documents it produced in discovery”; “refused to provide
any meaningful facts as to when, where, or how it searched available sources of information”;

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and “refused to provide any information concerning its [document retention accessibility]
policies and practices.” (Id. at 4). In a declaration, the heirs’ counsel maintains that Beneficial
“should be required to answer” these interrogatories, and “Plaintiffs should be allowed to re-open
and fully depose” Beneficial regarding irregularities in Defendants’ production of documents.
(Dkt. 148-25 at 2).
The Court notes at the outset that Judge Hoppe already denied the heirs’ motion to reopen and extend their deposition of Beneficial. (Dkt. 139). Moreover, the Court has reviewed
Beneficial’s responses to the heirs’ interrogatories, (dkt. 148-3), and finds Beneficial’s answers
responsive and in compliance with Judge Hoppe’s order delineating the permissible scope of the
three additional interrogatories. (Dkt. 139).
Most importantly, the heirs fail to articulate how any information sought in response to
these interrogatories, or in a re-opened deposition of Beneficial, could create a genuine dispute of
material fact about whether Defendants discharged the home equity loan. See Hodgin v. UTC
Fire & Sec. Am. Corp., Inc., 885 F.3d 243, 250 (4th Cir. 2018) (affirming district court’s denial
of Rule 56(d) motion because plaintiffs “failed to demonstrate that the information they sought to
attain in the depositions would create a genuine issue of material fact”); Poindexter v. MercedesBenz Credit Corp., 792 F.3d 406, 411 (4th Cir. 2015) (same). Apart from conclusory statements
that the underlying documents at issue are “of crucial importance” because Ms. Woodson is now
deceased, (dkt. 148 at 19), the heirs have “not explained” how any further information from
Beneficial on the subjects raised in the three interrogatories “could possibly create a genuine

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issue of material fact sufficient for [them] to survive summary judgment.” Poindexter, 792 F.3d
at 411. Thus, the heirs’ arguments concerning outstanding discovery fail.1
B.

Summary Judgment

As in its previous opinion, the Court will assess the heirs’ claims as two distinct
categories: those seeking relief related to the home equity loan (Counts One through Four), and
those seeking relief related to the first mortgage (Counts Five and Six). As before, the claims
related to the home equity loan fail because no reasonable jury could find that Beneficial
discharged the loan in writing. The claims related to the first mortgage fail because they became
moot upon the cancellation of the foreclosure sale and Beneficial’s sale of the mortgage to
Carrington. Accordingly, the Court will grant Defendants’ motions for summary judgment with
respect to Counts One through Four, and will dismiss Counts Five and Six as moot.
1.

Claims Related to the Home Equity Loan (Counts One through Four)

With respect to Counts One through Four, the sole question at this juncture is whether
any new evidence has emerged that creates a genuine dispute of material fact about whether
Beneficial discharged the home equity loan in writing.2
1

The heirs also argue that Defendants’ motions should be denied because Defendants rely
on “inadmissible evidence,” namely business records for which no foundation has been or can be
laid, since “anomalies” in Defendants’ document productions “establish a profound lack of
trustworthiness” in these records. (Dkt. 148 at 20). This argument fails. Beyond vague and
unsubstantiated statements that Defendants’ records are “manifestly disorganized and
incomplete,” (id.), the heirs offer no substantive reasons to doubt the authenticity and
trustworthiness of these records. Moreover, the heirs’ argument that this evidence is presently
inadmissible is insufficient because “[u]nder the current version of” Fed. R. Civ. P. 56, “facts in
support of or in opposition to a motion for summary judgment need not be in admissible form;
the new requirement is that the party identifies facts that could be put in admissible form” at trial.
Jones v. W. Tidewater Reg’l Jail, 187 F.Supp.3d 648, 654 (E.D. Va. 2016). The heirs offer no
coherent argument that the records in question could never be put in admissible form at trial.
2

The Court notes that “[t]he responsibility to comb through the record in search of facts
relevant to summary judgment falls on the parties—not the court.” Carlson v. Boston Sci. Corp.,
856 F.3d 320, 325 (4th Cir. 2017).
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A plaintiff asserting a claim for quiet title must demonstrate that “he has satisfied his
legal obligations to the party in interest and, thus, maintains a superior interest in the property.”
Jones v. Fulton Bank, N.A., 565 F. App’x 251, 253 (4th Cir. 2014). As delineated in the Court’s
prior opinion, (dkt. 95 at 7–9), the loan agreement between Woodson and Beneficial stated that
“[i]n order for any amendment to [the loan agreement] to be valid, it must be in writing.” (Dkt.
69-4 at 5). Additionally, under Virginia’s statute of frauds, “[a]ny modification of a mortgage
agreement must [] be in writing to be enforceable.” Baird v. Fed. Home Loan Mortg. Corp., No.
3:15-cv-00041, 2016 WL 6583732, at *3 (W.D. Va. Nov. 4, 2016), aff’d, 706 F. App’x 123 (4th
Cir. 2017). Here, there is no evidence that Defendants returned the deed of trust or marked the
note paid, and the heirs do not contend that the home equity loan was ever fully repaid. Rather,
as before, the heirs rely entirely on Beneficial’s alleged cancellation of the home equity loan.
The heirs’ present no new evidence that alters the Court’s previous conclusion that no
reasonable jury could find the home equity loan was discharged. Citing evidence already
considered by the Court, (dkts. 148-15–19), the heirs aver that Beneficial agreed in writing to
cancel the loan upon Woodson’s payment of $4,943.44 by October 31, 2012, and that Beneficial
subsequently advised Newton (one of the heirs) over the phone that no further payments were
due on the loan. Although the heirs argue that Beneficial “received” $4,943.44 in payments as
acceptance of Beneficial’s offer to cancel the loan, (dkt. 148 at 15), Beneficial’s evidence of
Woodson’s payments shows that Woodson only paid $4,114.76, which falls short of the amount
the heirs argue would have settled the loan. (Dkt. 148-15 at 2–7). Moreover, even crediting
Newton’s characterizations of her phone calls with Beneficial as true, such verbal assurances
were insufficient to relieve Woodson of obligations to make further payments because both the
loan agreement and Virginia’s statute of frauds required any amendment to the loan agreement to

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be in writing. See Baird, 2016 WL, at *3.3 The Court notes that it already considered this
theory, concluding that no reasonable jury could find that the loan was actually discharged in
writing on the basis of this evidence. The Court incorporates by reference that reasoning and
conclusion from its previous opinion. (Dkt. 95 at 8–9).
Likely in recognition of the fact that cancellation of the home equity loan would need to
be reflected in writing, the heirs yet again narrow their focus on the Form 1099-C issued by
Beneficial. A Form 1099-C is a “reporting mechanism to the IRS” that entities must file upon
discharging a debt. F.D.I.C. v. Cashion, 720 F.3d 169, 180 (4th Cir. 2013). “[T]he mere fact
that a Form 1099-C is filed does not constitute sufficient evidence, standing alone, that a debt has
been cancelled.” Id. This is so because the Form 1099-C may “have simply been filed by
mistake.” Id.
Here, it is undisputed that Beneficial sent Woodson a Form 1099-C purporting to cancel
the debt, and, until this point, it had been undisputed that Beneficial later issued a corrected Form
1099-C indicating that no debt had been discharged. (Dkts. 95 at 10; 69-7). The heirs now point
to supposed “irregularities” on the original and corrected Form 1099-Cs Beneficial produced as
evidence that “the ‘corrected’ 1099-C [Beneficial] relied upon was created in 2015, after
[Beneficial] had sold the HELOC and after Plaintiffs presented [the original] 1099-C to
[Beneficial].” (Dkt. 148 at 15). Specifically, the heirs cite differences between the original
Form 1099-C Woodson received and the copies of the original and corrected Form 1099-Cs
Beneficial produced, including discrepancies in the way Woodson’s Social Security number and

3

The heirs’ evidence that Beneficial employees were “not aware of” the home equity loan
when the heirs attempted to acquire the property through a short sale, (dkt. 148-19), and that
Beneficial did not provide Woodson with notice that it had sold the loan, (dkt. 148-20), is not
evidence that the loan was ever discharged in writing and therefore does not create genuine
dispute of material fact on that question.
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the IRS website address appears on these documents, as well as discrepancies in the “CII”4
numbers displayed on these two sets of documents. The heirs note that the original Form 1099-C
Beneficial produced is marked “CII00000001,” and the corrected Form 1099-C Beneficial
produced is marked “CII00000002,” (dkt. 148-8–9), whereas the original Form 1099-C Woodson
received is marked “CII00006684.” (Dkt. 148-7). The heirs assert that these discrepancies
“would be consistent” with Beneficial “having restarted the then-decommissioned CII platform
to create these two 1099-Cs which restarted the document numbering feature.” (Dkt. 148 at 8).
Under the heirs’ theory, these irregularities, coupled with various internal notations produced by
Beneficial, (dkt. 148-6, 148-12), suggest that “the 1099-Cs relied upon by Defendants may have
been ‘created’ at a subsequent date in response to” the heirs’ claims. (Dkt. 148 at 6–9).
Although the heirs do not affirmatively state that they now dispute whether Beneficial
actually issued a corrected Form 1099-C, these arguments appear to indicate that the heirs have
adopted that position. For several reasons, the Court concludes that this speculative evidence
could not support an inference that Beneficial never issued a corrected Form 1099-C or allow a
reasonable jury to find that the loan was discharged in writing.
First, the discrepancies the heirs highlight—apparently as evidence that the corrected
Form 1099-C was never issued—also exist with respect to the original Form 1099-C Woodson
received. Although the heirs extrapolate from these discrepancies to suggest that the corrected
Form 1099-C was never issued, the heirs do not apply the same logic to the original Form 1099C. Not only do the heirs not dispute that Beneficial issued the original Form 1099-C and that
Woodson received it, they rely on the issuance and receipt of the original Form 1099-C as their
primary evidence that Beneficial discharged the home equity loan. Thus, in essence, the heirs
4

CII was Beneficial’s “original servicing platform,” which Beneficial stated in a letter to
Judge Hoppe had been “replaced” in April 2013 with “LoanServ.” (Dkt. 114 at 2).
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would ask a jury to infer from these discrepancies that the corrected Form 1099-C was never
issued but to then ignore the same discrepancies and find that the original Form 1099-C was
issued. Such an inference would be unwarranted and unreasonable. At most, the irregularities
the heirs point to could support an inference that the Form 1099-Cs Beneficial produced were
duplicates created on the CII software system in response to discovery requests, not an inference
that Beneficial never issued the corrected Form 1099-C in the first instance.
Second, even assuming that a reasonable jury could find that Beneficial never issued the
corrected Form 1099-C, this would still leave only the original Form 1099-C purporting to
cancel the debt as the heirs’ sole evidence that Beneficial discharged the loan in writing.
Although a “properly authenticated Form 1099-C . . . introduced into evidence along with other
circumstantial evidence of cancellation of the debt” could “be properly considered by the trier of
fact under the totality of the circumstantial evidence of cancellation,” a Form 1099-C alone is not
sufficient to withstand a motion for summary judgment. Cashion, 720 F.3d at 180. Here, the
evidence reflects that Beneficial did issue a corrected Form 1099-C. (Dkts. 145-2, 148-6, 148-9,
150-1). And, more importantly, the parties’ behavior leaves no doubt that the original Form
1099-C did not reflect a discharge of debt, as Beneficial and Woodson worked together in an
attempt to settle the home equity loan in 2013, after the “date of identifiable event” specified on
both Form 1099-Cs (May 30, 2012).5 (Dkts. 69-6 at 5; 84-1 at 614; 145-3). As discussed above,
none of the other evidence the heirs rely on would allow a reasonable jury to find that the loan
was discharged in writing.6 Indeed, Newton confirmed in her deposition that she “didn’t receive
5

The Court addressed any analyzed this evidence in its prior opinion and now incorporates
by reference that portion of the opinion. (Dkt. 95 at 10–11).
The heirs assert that Beneficial’s document productions have been “incomplete,” citing
Beneficial’s alleged failure to produce Form 1098s, creditor’s copies of the Form 1099-Cs, and
correspondence explaining the mistaken 1099-C and subsequent corrected 1099-C. (Dkt. 148 at
9
6

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anything in writing specifically saying that [Woodson] did not have to make payments on the
line of credit.” (Dkt. 77-1 at 60).
Accordingly, the discrepancies between the Form 1099-C Woodson received and the
Form 1099-Cs Beneficial produced constitute only a speculative “scintilla of evidence” from
which no reasonable jury could find that Beneficial did not issue the corrected Form 1099-C or
that the home equity loan was ever discharged in writing. Dash v. Merryweather, 731 F.3d 303,
311 (4th Cir. 2013). To defeat a motion for summary judgment, the heirs “must rely on more
than conclusory allegations, mere speculation, the building of one inference upon another, or the
mere existence of a scintilla of evidence.” Id. at 311. Because the heirs still have “not come
forward with evidence that creates a genuine issue of material fact as to whether” Beneficial ever
discharged the home equity loan in writing, the Court finds that a reasonable jury could not find
in the heirs’ favor. Cashion, 720 F.3d at 181. Accordingly, Defendants’ motions for summary
judgment on the heirs’ action to quiet title (Count One) must be granted.
For reasons adequately explained in the Court’s prior opinion, (dkt. 95 at 14), Counts
Two, Three, and Four similarly hinge on whether the home equity loan was ever discharged in
writing. Because the heirs have not introduced evidence that would allow a reasonable jury to
find that this loan was discharged, Defendants are also entitled to summary judgment on these
three counts.
2.

Claims Related to the First Mortgage (Counts Five and Six)

Two counts remain, and both will be dismissed as moot. With respect to Count Five, the
heirs concede that this count is moot since it “seeks injunctive relief to prevent foreclosure

5–6). But the heirs offer no explanation of how these supposed deficiencies create a genuine
dispute of material fact about whether the home equity loan was ever discharged in writing. See
Hodgin, 885 F.3d at 250.
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proceedings” and “those proceedings have been cancelled.” (Dkt. 148 at 17). With respect to
Count Six, which seeks a declaratory judgment about the status of the mortgage loan and a
related lien, the heirs contend that this count is not moot, citing evidence that Beneficial added
improper charges to the mortgage loan.

(Id. at 17–18).

However, the Court previously

dismissed this count because the sale of the mortgage to Carrington in August 2017 rendered it
moot. Although “the heirs may still dispute whether the property may be foreclosed on and what
the balance of the outstanding mortgage is,” such disputes are now with Carrington, not
Beneficial. (Dkt. 95 at 15–16). The heirs raise no argument or evidence to alter that conclusion.
“The jurisdiction of federal courts is limited to live cases or controversies.” Gupton v.
Wright, No. 7:15-cv-00214, 2016 WL 524656, at *2 (W.D. Va. Feb. 8, 2016). “If developments
occur during the course of a case which render the court unable to grant a party the relief
requested, the claims must be dismissed as moot.” Id. Accordingly, because the cancellation of
the foreclosure proceeding and the sale of the mortgage to Carrington render Counts Five and
Six moot, the Court must dismiss these claims.
III.

CONCLUSION

The Court will grant Defendants’ motions for summary judgment with respect to Counts
One through Four because the heirs have not presented evidence from which a reasonable jury
could find that the home equity loan was discharged in writing. Counts Five and Six will be
dismissed as moot. An appropriate order will issue.
26th
Entered this _____ day of March, 2018.

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