Brian Justice v. Wells Fargo Bank, N.A. ( 2017 )

REVISED March 22, 2017
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 15-20615 FILED
December 14, 2016
BRIAN W. JUSTICE, Lyle W. Cayce
Clerk
Plaintiff–Appellant,
v.
WELLS FARGO BANK NATIONAL ASSOCIATION, on behalf of the
Registered Holders of Bear Stearns Asset Backed Securities, I, L.L.C., Asset-
Backed Certificates, Series 2007-AC2; SELECT PORTFOLIO SERVICING,
INCORPORATED,
Defendants–Appellees.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:14-CV-3341
Before HIGGINBOTHAM, PRADO, and GRAVES, Circuit Judges.
PER CURIAM:*
In 2014, Plaintiff–Appellant Brian W. Justice sued Defendants–
Appellants Wells Fargo Bank National Association (“Wells Fargo”) and Select
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
No. 15-20615
Portfolio Servicing, Inc. (“SPS”) to quiet title to his home in response to Wells
Fargo’s attempt to foreclose on his property. The district court granted
summary judgment in favor of Wells Fargo and SPS (collectively,
“Defendants”). We affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
The following facts are not disputed. In 2006, Justice took out a $720,000
mortgage on his home through Maverick Residential Mortgage, Inc.
(“Maverick”). In 2007, service of the mortgage was transferred from Maverick
to EMC Mortgage Corporation (“EMC”). The mortgage was assigned to Wells
Fargo in 2008.
In June 2008, Justice defaulted. EMC sent Justice a notice of default in
December 2008 and a notice of acceleration in March 2009. In June of that
year, EMC sought an expedited order for foreclosure on Justice’s property
under Texas Rule of Civil Procedure 736.
In September 2009, EMC sent Justice a proposed repayment plan. Under
the plan, EMC agreed “not to pursue [its] remedies for default” while the
agreement was in effect if Justice made three payments of $3,293 beginning on
November 1, 2009, and ending on January 1, 2010. The agreement also
provided that EMC did not “waive[] its right to proceed with the existing
acceleration and/or foreclosure by acceptance of partial payments unless and
until [Justice] make[s] all payments due under this Agreement by the due
dates referenced above.” On November 6, 2009, and December 7, 2009, Justice
made two payments that EMC accepted for $3,250 each. Although disputed at
the district court, both Justice and Defendants now agree that the repayment
plan never took effect and is not a binding contract between the parties.
EMC sent another notice of acceleration in August 2010. In September
2010, EMC again attempted to foreclose under Texas Rule of Civil Procedure
736. In October 2011, Justice filed suit against Defendants alleging multiple
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causes of action related to the loan. The suit was ultimately dismissed upon
Justice’s request.
In March 2013, Justice received another notice of default. Service of the
mortgage was transferred to SPS around August 2013. SPS sent Justice an
additional notice of default in October of that year and a notice of acceleration
in September 2014. Wells Fargo again sought an expedited order to foreclose
on Justice’s property under Texas Rule of Civil Procedure 736 in October 2014.
In response, Justice filed suit to quiet title.
Justice and Defendants filed cross-motions for summary judgment. The
district court granted summary judgment in favor of Defendants and dismissed
the case. The district court held that Defendants’ foreclosure action was not
barred by the applicable statute of limitations because they had abandoned
their prior acceleration of Justice’s debt. The court explained that Defendants’
acceptance of two partial payments from Justice, the repayment agreement,
and “other loan communications” are evidence of abandonment. Justice timely
appealed.
II. DISCUSSION
A. Jurisdiction
The district court had diversity jurisdiction under 28 U.S.C. § 1332 and
we have appellate jurisdiction under 28 U.S.C. § 1291. Although we recognize
that the Supreme Court’s recent decision in Americold Realty Trust v. Conagra
Foods, Inc., 136 S. Ct. 1012 (2016), has injected some uncertainty into the
diversity jurisdiction inquiry where a party sued is at least nominally a “trust,”
this uncertainty does not affect the outcome of this case.
In Americold, the Supreme Court held that for diversity jurisdiction
purposes a Maryland real estate investment trust takes the citizenship of its
members. Id. at 1015–16. The Court characterized this holding as merely
“adher[ing] to [its] oft-repeated rule that diversity jurisdiction in a suit by or
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against [an unincorporated entity] depends on the citizenship of all [its]
members.” Id. at 1015 (emphasis added) (final alteration in original) (quoting
C.T. Carden v. Arkoma Assocs., 494 U.S. 185, 195–96 (1990)). As to trusts, the
Court reiterated its prior holding in Navarro Savings Association v. Lee, 446
U.S. 458, 465 (1980), “that when a trustee files a lawsuit in her name, her
jurisdictional citizenship is the State to which she belongs—as is true of any
natural person.” Americold, 136 S. Ct. at 1016 (emphasis in original). Where a
trustee has been sued or files suit in her own name, the only preliminary
question a court must answer is whether the party is an “active trustee[] whose
control over the assets held in [its] name[] is real and substantial.” Carden,
494 U.S. at 191 (quoting Navarro, 446 U.S. at 465). The fact “[t]hat the trust
[otherwise] may depart from conventional forms in other respects has no
bearing upon this determination.” Navarro, 446 U.S. at 465.
Here, Wells Fargo was sued in its capacity as a trustee. Regardless of
whether the trust managed by Wells Fargo could be characterized as a
“traditional trust,” Wells Fargo itself wields the very sort of “real and
substantial” control over assets held in its name that was long ago
contemplated by the Supreme Court in Navarro. See id. at 464–65. Per the
Trust’s Pooling and Servicing Agreement, Wells Fargo as the trustee holds “all
the right, title and interest of the Depositor in and to the Trust Fund.” EMC
Mortgage Corp. & Wells Fargo Bank, N.A. Pooling and Servicing Agreement
§ 2.01 (Feb. 1, 2007), https://www.sec.gov/Archives/edgar/data/1388968/
000088237707000985/d642573_ex4-1.htm. Moreover, the trust’s beneficiaries
have no power to “control the operation and management of the Trust Fund”—
this is solely the job of the trustee. Id. § 12.08. Accordingly, we look only to
Wells Fargo’s citizenship—rather than that of the trust beneficiaries—to
determine whether diversity jurisdiction exists. As Wells Fargo is a citizen of
South Dakota, SPS is a citizen of Utah, and Justice is a citizen of Texas, we
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find that the district court properly exercised subject matter jurisdiction in this
case.
B. Analysis
We review a district court’s grant of summary judgment de novo. Davis
v. Hernandez, 798 F.3d 290, 292 (5th Cir. 2015). 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). “A genuine dispute of material fact exists when the ‘evidence
is such that a reasonable jury could return a verdict for the nonmoving party.’”
E.E.O.C. v. LHC Grp., Inc., 773 F.3d 688, 694 (5th Cir. 2014) (quoting Royal v.
CCC & R Tres Arboles, L.L.C., 736 F.3d 396, 400 (5th Cir. 2013)).
The parties agree that Texas law governs this case. “In determining
questions of Texas law, this court looks to the decisions of the Texas Supreme
Court, which are binding.” Packard v. OCA, Inc., 624 F.3d 726, 729 (5th Cir.
2010). Decisions issued by Texas intermediate appellate courts can “provide
guidance, but are not controlling.” Id. In the absence of controlling precedent
from the Texas Supreme Court, our Court must determine how the Texas
Supreme Court would rule if faced with the same legal question. Id. at 729–30.
Under Texas law, a foreclosure suit must be filed within four years after
the cause of action accrues. Tex. Civ. Prac. & Rem. Code § 16.035(a). A cause
of action for foreclosure does not accrue “until the maturity date of the last
note, obligation, or installment.” Id. § 16.035(e). “On the expiration of the four-
year limitations period, the real property lien and a power of sale to enforce
the real property lien become void.” Id. § 16.035(d). If a note contains an
optional acceleration clause, defaulting on the note does not automatically
begin the statute of limitations. Holy Cross Church of God in Christ v. Wolf, 44
S.W.3d 562, 566 (Tex. 2001). Rather, the statute of limitations does not start
to run until the holder of the note actually exercises its option to accelerate. Id.
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“Effective acceleration requires two acts: (1) notice of intent to accelerate, and
(2) notice of acceleration.” Id. Each notice must be “clear and unequivocal.” Id.
(quoting Shumway v. Horizon Credit Corp., 801 S.W.2d 890, 893 (Tex. 1991)).
However, “[a]bandonment of acceleration has the effect of restoring the
contract to its original condition,” including “restoring the note’s original
maturity date.” Boren v. U.S. Nat’l Bank Ass’n, 807 F.3d 99, 104 (5th Cir. 2015)
(quoting Khan v. GBAK Props., Inc., 371 S.W.3d 347, 353 (Tex. App.—Houston
[1st Dist.] 2012, no pet.)). Acceleration of a note may be abandoned “by
agreement or other action of the parties.” Id. (quoting Khan, 371 S.W.3d at
353). A note holder may even “unilaterally abandon acceleration after its
exercise, so long[] as the borrower neither objects to abandonment nor has
detrimentally relied on the acceleration.” Id. at 105.
“Texas courts have framed the issue of abandonment of acceleration by
reference to traditional principles of waiver.” Id. “Under Texas law, the
elements of waiver include: (1) an existing right, benefit, or advantage held by
a party; (2) the party’s actual knowledge of its existence; and (3) the party’s
actual intent to relinquish the right, or intentional conduct inconsistent with
the right.” Id. (quoting Thompson v. Bank of Am. Nat’l Ass’n, 783 F.3d 1022,
1025 (5th Cir. 2015)). “Waiver is a question of law when the facts that are
relevant to a party’s relinquishment of an existing right are undisputed.” Id.
at 106.
All parties agree that Justice’s mortgage was accelerated when EMC
sent Justice a notice of acceleration in March 2009. Under Texas law, this
means Defendants’ cause of action for foreclosure accrued at that time. See
Holy Cross, 44 S.W.3d at 566. Justice argues that because Defendants’ cause
of action accrued in March 2009, Wells Fargo’s attempt to foreclose on his
property in October 2014 is barred by the statute of limitations provided by
Texas Civil Practice & Remedies Code § 16.035(a). Because the 2009 notice of
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acceleration was issued more than four years prior to Defendants’ October 2014
attempt to foreclose, in order to resolve this appeal, we must determine
whether Defendants abandoned the 2009 acceleration.
Defendants argue that they abandoned the 2009 acceleration when they
accepted two payments of $3,250 from Justice without exercising any of their
available remedies. In Holy Cross Church of God in Christ v. Wolf, the Texas
Supreme Court held that a note holder can abandon acceleration “if the holder
continues to accept payments without exacting any remedies available to it
upon declared maturity.” 44 S.W.3d at 566–67. We recently applied this
precedent in Rivera v. Bank of America, N.A., 607 F. App’x 358 (5th Cir. 2015)
(per curiam). In Rivera, the borrowers received a notice of acceleration in 2004.
Id. at 359. In 2006, the lender accepted several payments from the borrowers
and applied them toward the loan’s balance. Id. Citing Holy Cross, we
concluded that absent any “competent contrary evidence” of the lender’s intent,
the lender abandoned its 2004 acceleration by accepting partial payments from
the borrowers. Id. at 361.
EMC accepted two partial payments from Justice for $3,250 each in
November and December of 2009. The district court found that acceptance of
these payments was evidence of EMC’s intent to abandon the 2009
acceleration, and we agree. But, such evidence is not necessarily conclusive.
See Martin v. Fed. Nat’l Mortg. Ass’n, 814 F.3d 315, 318 (5th Cir. 2016)
(“Accepting a payment after acceleration could be intentional conduct
inconsistent with the acceleration that—in some circumstances—amounts to
an abandonment or waiver of the acceleration.” (emphasis added)); Holy Cross,
44 S.W.3d at 566–67 (explaining that a note holder “can abandon acceleration
if the holder continues to accept payments without exacting any remedies
available to it upon declared maturity.” (emphasis added)). Therefore, we must
determine whether Justice “point[s] to any competent contrary evidence” to
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support his argument that Defendants did not intend to abandon the 2009
acceleration by accepting partial payments. Rivera, 607 F. App’x at 361.
On appeal, Justice argues that because Defendants made “such strong
disclaimer[s]” of abandonment, they did not abandon acceleration by accepting
Justice’s November 2009 and December 2009 payments. He argues that in
order to abandon acceleration Defendants must have demonstrated their
intent to abandon through other actions, “such as a firm offer to accept less
than full payoff to reinstate the loan.” To support his argument, Justice focuses
on what he characterizes as “disclaimers” of abandonment in EMC’s proposed
repayment plan and the security instrument governing Defendants’ lien on the
property.
With regard to the repayment agreement, Justice appears to argue that
even though the agreement was never an effective contract between the
parties, it served to reaffirm the 2009 acceleration. As a preliminary matter,
Defendants contend that Justice has waived this argument. Justice argued to
the district court that the repayment plan was effective and binding on the
parties. On appeal, Justice argues that the repayment agreement was actually
a unilateral offer to abandon acceleration, which he never accepted. In his reply
brief, Justice concedes that this argument was not made to the district court
but argues that we should still address it because it is a pure question of law.
Arguments that are not first raised to the district court are waived. State
Indus. Prods. Corp. v. Beta Tech., Inc., 575 F.3d 450, 456 (5th Cir. 2009). In
our Circuit, waived arguments can be considered on appeal if the party
asserting the argument can demonstrate “extraordinary circumstances.” Id.
“Extraordinary circumstances exist when the issue involved is a pure question
of law and a miscarriage of justice would result from our failure to consider it.”
Id. (quoting N. Alamo Water Supply Corp. v. City of San Juan, 90 F.3d 910,
916 (5th Cir. 1996)). Because Justice has failed to demonstrate that
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extraordinary circumstances exist, we decline to address his argument that the
2009 repayment agreement served to reaffirm the 2009 acceleration.
Justice also argues on appeal that the 2006 security instrument
governing Defendants’ lien on the property contains a “disclaimer[]” of
abandonment. The provision provides:
Any forbearance by Lender in exercising any right or remedy
including, without limitation, Lender’s acceptance of payments
from third persons, entities or Successors in Interest of Borrower
or in amounts less than the amount then due, shall not be a waiver
of or preclude the exercise of any right or remedy.
Justice appears to argue that because this provision serves as a “disclaimer[]”
of abandonment, Defendants cannot abandon acceleration by accepting
payments without additional evidence of their intent to abandon. But Justice
has failed to adequately explain how this provision of the security instrument
relates to abandonment of an existing acceleration. Abandonment of an
existing acceleration and waiver of Defendants’ right to accelerate in the future
are two distinct issues and this provision only addresses the latter, providing
Defendants with a “reservation of rights if [they] choose[] to refrain from
exercising a right or remedy under the deed of trust.” Wells v. Bank of Am.,
N.A., No. 3:13–CV–3658–M, 2015 WL 4269089, at *6 (N.D. Tex. July 14,
2015); see also Mendoza v. Wells Fargo Bank, N.A., No. H–14–554, 2015 WL
338909, at *4–5 (S.D. Tex. Jan. 23, 2015); cf. Martin, 814 F.3d at 319 (observing
that identically worded language in a security instrument entitled lender “to
defer acceleration and foreclosure (and any other remedy) after default without
waiving its rights”).
Similar to Rivera, Defendants acceptance of Justice’s two payments of
$3,250, while refraining from pursuing any of their available remedies against
Justice, is compelling evidence of Defendants’ intent to abandon the 2009
acceleration. Because Justice has failed to present contrary evidence that
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raises a genuine dispute of material fact as to Defendants’ intent, the district
court is affirmed.
III. CONCLUSION
For the foregoing reasons, the district court’s grant of summary
judgment in favor of Defendants is AFFIRMED.
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