Pelt v. U.S. Bank Trust National Ass'n , 359 F.3d 764 ( 2004 )

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS February 9, 2004
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 03-10206
JOHN HENRY PELT; JANICE PELT
Plaintiffs - Counter Defendants - Appellants
v.
US BANK TRUST NATIONAL ASSOCIATION, formerly known as First
Trust Bank National Association, as Trustee under the
Pooling and Service Agreement, New Century Home Equity Loan
Trust, Series 1998-NC7;
Defendant - Counter Claimant - Appellee
NEW CENTURY MORTGAGE CORPORATION
Defendant - Appellee
Appeal from the United States District Court
for the Northern District of Texas
Before KING, Chief Judge, and JONES and SMITH, Circuit Judges.
KING, Chief Judge:
Plaintiffs-Appellants John Pelt and Janice Pelt filed suit
against Defendants-Appellees U.S. Bank Trust National Association
(“U.S. Bank Trust”) and New Century Mortgage Corporation (“New
Century”) seeking, inter alia, a declaration that Defendants had
violated various provisions of the Texas Constitution in
connection with the origination of Plaintiffs’ home equity loan.
U.S. Bank Trust filed a counterclaim, seeking an order both
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upholding the validity of the loan and authorizing a foreclosure
of the property securing the loan. After a jury trial, the
district court entered judgment in favor of Defendants.
Plaintiffs appeal, contending that the district court improperly
instructed the jury on a controlling issue of Texas
constitutional law. For the following reasons, we AFFIRM.
I. BACKGROUND
In September 1998, Plaintiffs obtained a $240,000 home
equity loan from New Century, secured by Plaintiffs’ homestead
located in Duncanville, Texas. Plaintiffs ceased making payments
on the loan in August 1999. Subsequently, in February 2000, New
Century filed an application in Texas state court for an order
authorizing an expedited foreclosure of the lien securing the
loan. See TEX. R. CIV. P. 736. In May 2003, Plaintiffs filed
this diversity suit in federal district court, naming as
Defendants both New Century and the current holder of the home
equity loan, U.S. Bank Trust.1
In their complaint, Plaintiffs alleged that the home equity
loan documents failed to comply with several of the requirements
set forth in Article XVI, § 50(a)(6) of the Texas Constitution
including, inter alia, § 50(a)(6)(Q)(v), which requires that the
lender provide the borrower copies of all documents signed at the
closing. Thus, they sought both a declaratory judgment that the
1
This suit abated the state foreclosure action. See
TEX. R. CIV. P. 736(10).
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loan was invalid and a judgment ordering Defendants to forfeit
all principal and interest under the loan. See TEX. CONST. art.
XVI, § 50(a)(6)(Q)(x) (“[T]he lender or any holder of the
note . . . 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. . . .”).2 In response, U.S. Bank Trust filed a
counterclaim seeking an order authorizing foreclosure of the
property securing the loan.
Defendants also filed a motion for summary judgment on
Plaintiffs’ claims arising under the Texas Constitution and on
U.S. Bank Trust’s counterclaim. In September 2002, the district
court granted the motion in part and denied it in part, leaving
for trial: (1) Plaintiffs’ forfeiture claim under
§ 50(a)(6)(Q)(v) and § 50(a)(6)(Q)(x) and (2) the counterclaim
for an order of foreclosure. At trial, Plaintiffs presented
evidence that, prior to the lawsuit, they did not receive copies
of eight of the documents that they had signed in connection with
the loan; however, Defendants’ evidence suggested that unsigned
copies of all loan documents were provided to Plaintiffs on the
day of the closing and that copies of the signed documents were
2
Plaintiffs also alleged that New Century violated the
Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq.
(2000), and that both Defendants violated the Texas Debt
Collection Act, TEX. FIN. CODE ANN. § 392 et seq. (Vernon 1998).
But Plaintiffs withdrew both of these claims just before trial.
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made available to Plaintiffs shortly thereafter. After weighing
the evidence, the jury returned a verdict against Plaintiffs.
The district court then entered a judgment decreeing that the
loan was valid and authorizing U.S. Bank Trust to foreclose on
the property. Plaintiffs then filed a motion for a new
trial––claiming that the verdict was against the weight of the
evidence, and that the court had erroneously charged the
jury––which the district court denied in January 2002. On
appeal, Plaintiffs maintain that the district court erroneously
instructed the jury regarding the meaning of the language in
Article XVI, § 50(a)(6)(Q)(v) of the Texas Constitution.
II. DISCUSSION
We review the district court’s instructions to the jury
under a two-prong standard of review:
First, the challenger must demonstrate that the charge as
a whole creates substantial and ineradicable doubt
whether the jury has been properly guided in its
deliberations. Second, even if the jury instructions
were erroneous, we will not reverse if we determine,
based upon the entire record, that the challenged
instruction could not have affected the outcome of the
case.
Johnson v. Sawyer, 120 F.3d 1307, 1315 (5th Cir. 1997) (citation
and internal quotation marks omitted).
Plaintiffs contend that the district court’s supplemental
instruction to the jury regarding Question No. 1 of the jury
charge was erroneous. Question No. 1 essentially asked the jury
to decide whether Plaintiffs had proven that Defendants violated
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Article XVI, § 50(a)(6)(Q)(v) of the Texas Constitution, which
requires that “the lender, at the time the extension of credit is
made, provide the owner of the homestead a copy of all documents
signed by the owner related to the extension of credit” (emphasis
added). Specifically, Question No. 1 inquired whether Plaintiffs
had “prove[n] by a preponderance of the evidence that New
Century, or someone on its behalf, failed to provide them a copy
of all documents they signed related to the home equity loan at
the time it was made[.]” On appeal, neither party argues that
the wording of this question was either misleading or erroneous.
In the course of its deliberations, however, the jury
expressed its confusion over the meaning of Question No. 1 by
sending a handwritten note to the district court, which stated:
Consider the following statement: “failed to provide them
a copy of all documents they signed related to the home
equity loan . . .”
Does this statement in Question 1 require the lender
to provide a “signed” copy of the documents? If unsigned
documents were provided, would that meet the requirement
of the Texas Constitution?
(ellipsis in original). Plaintiffs asked the court to respond to
this query by informing the jury that “signed copies” of the
documents were required by the Texas Constitution. Defendants
disagreed and argued that if the lender had provided the
homeowner with unsigned copies of the documents it had fulfilled
its obligations under § 50(a)(6)(Q)(v). After considering these
arguments, the district court delivered the following
supplemental instruction to the jury over Plaintiffs’ objection:
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The Texas Constitution requires that “a copy of all
documents signed by the owner” be provided. It does not
state that the owner be provided “a signed copy.” It
does require the owner to be provided with a copy of any
document that he or she signed at the time the home
equity loan was made. You are further instructed to use
your good judgment and common sense in deciding this
question.
The jury subsequently found that Plaintiffs had not sustained
their burden of proof on this claim.
On appeal, Plaintiffs contend that the district court
erroneously instructed the jury that a lender may satisfy
§ 50(a)(6)(Q)(v) by providing unsigned copies of the home equity
loan documents to the borrower. Although no case from either the
Texas Supreme Court or any other Texas state court has
interpreted § 50(a)(6)(Q)(v), we do not believe that the district
court’s supplemental instruction was an improper statement of the
law. The Texas Supreme Court has repeatedly instructed that, in
interpreting the Texas Constitution, courts must “rely heavily on
its literal text and must give effect to its plain language” to
assure that constitutional provisions are given “the effect their
makers and adopters intended.” Doody v. Ameriquest Mortgage Co.,
49 S.W.3d 342, 344 (Tex. 2001); accord Stringer v. Cendant
Mortgage Corp., 23 S.W.3d 353, 355 (Tex. 2000). Here,
§ 50(a)(6)(Q)(v) states that a lender must provide to the
borrower a “copy of all documents signed by the owner”–-it does
not require, as the district court aptly pointed out in its
supplemental instruction, that the owner be provided “a signed
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copy” of each of these documents. Instead, the phrase “signed by
the owner” simply identifies which--of the numerous documents
presented at the closing of the home equity loan--must be copied
and given to the borrower: only those that the borrower actually
signs in connection with the loan. In other words, the provision
does not further require that the documents be photocopied only
after they are signed.
Nonetheless, Plaintiffs assert that the Texas courts’ policy
of construing statutes and constitutional provisions liberally in
favor of homestead owners should influence our interpretation of
§ 50(a)(6)(Q)(v)’s language. See, e.g., Andrews v. Sec. Nat’l
Bank of Wichita Falls, 50 S.W.2d 253, 256 (Tex. 1932) (“The
universal rule of construction is that homestead provisions of
the organic law and statutes are to be liberally construed, for
the purpose of effectuating the wise and salutary provisions
thereof.”); see also Rooms With a View, Inc. v. Private Nat’l
Mortgage Ass’n, Inc., 7 S.W.3d 840, 847 (Tex. App.-Austin 1999,
pet. denied) (“Homestead rights are intended to protect Texas
families from destitution and homelessness and encourage feelings
of independence . . . . Courts should liberally construe
homestead provisions in a manner that promotes that intended
purpose.” (citations and internal quotation marks omitted)).
While we agree that Texas law aims to protect the rights and
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interests of homeowners,3 we also note that the Texas Supreme
Court nevertheless has applied its general rules of
constitutional construction––including a heavy reliance on the
plain language of a provision––to other subsections of
§ 50(a)(6). See, e.g., Doody, 49 S.W.3d at 346-47 (holding that
§ 50(a)(6)(Q)(x) provides lenders with the opportunity to cure
defects in all of the lender’s obligations under the extension of
credit, even though the borrower had argued that this result
might provide an incentive for lenders to violate many of the
requirements initially); Stringer, 23 S.W.3d at 357 (reconciling
a conflict between the language of § 50(a)(6)(Q)(i) and
§ 50(g)(Q)(1) in a manner more favorable to lenders than to
borrowers, based on the plain meaning of these sections).
Moreover, we do not believe that interpreting § 50(a)(6)(Q)(v) to
allow a lender to copy the unsigned documents harms the borrower
in any way, since this provision still requires that the copies
given be accurate facsimiles of the loan documents. That is, if
a document is altered before the borrower executes it at the
closing, then the lender does not comply with the Texas
Constitution unless it ensures that the borrower receives a copy
of the document that includes the alterations. Therefore, we
3
For example, the provision in question is one of a
lengthy list of requirements and obligations that lenders must
fulfill to ensure that a home equity loan will not later be
subject to forfeiture. See Stringer, 23 S.W.3d at 356-57
(discussing the requirements set forth in TEX. CONST. art. XVI,
§ 50(a)(6)).
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conclude that the district court did not err when it instructed
the jury that § 50(a)(6)(Q)(v) does not require lenders to
provide the borrower with “a signed copy” of each document that
the borrower signed at the closing.4
Finally, Plaintiffs argue, in the alternative, that we
should reverse and remand for a new trial because the district
court improperly allowed the jury to resolve a question of law.
See Green Tree Acceptance, Inc. v. Wheeler, 832 F.2d 116, 118
(8th Cir. 1987) (“When a ground for the verdict should have been
decided as a matter of law, reversal and a new trial are
4
Plaintiffs also rely on the Regulatory Commentary on
Equity Lending Procedures, an interpretive document drafted by
several Texas agencies, to buttress their assertion that
§ 50(a)(6)(Q)(v) requires lenders to provide homeowners with
copies of all “signed documents” related to the extension of
credit. We recognize the persuasive value of this document, see
Stringer, 23 S.W.3d at 357, but we do not believe that it
supports Plaintiffs’ position in this case. In the section
interpreting § 50(a)(6)(Q)(v), the Regulatory Commentary
paraphrases the constitutional language and suggests that, in the
event that a document cannot be signed at closing, “the lender
must provide the owner copies of these documents within a
reasonable time after execution.” OFFICE OF CONSUMER CREDIT COMM’R ET
AL., REGULATORY COMMENTARY ON EQUITY LENDING PROCEDURES 10 (1998). This
statement does not implicitly assume, as Plaintiffs contend, that
the copies given to the borrower must bear the borrower’s
signature. Instead, the Regulatory Commentary simply recognizes
that a lender might not be able, during the closing, to identify
and provide copies of documents that the borrower might later
sign in relation to the closing. Because § 50(a)(6)(Q)(v) only
requires the borrower to provide copies of documents that are
actually “signed by the owner related to the extension of
credit,” the borrower must be given time to provide copies of
these extra documents after it becomes apparent that these
documents fit this criterion. For the same reasons, Plaintiffs’
reliance on the recent regulations adopted by the Texas Finance
Commission is also unavailing. See 29 Tex. Reg. 96 (2004) (to be
codified at 7 TEX. ADMIN. CODE § 153.22).
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required . . . .”). Plaintiffs point to the final sentence of
the supplemental instruction, in which the district court stated:
“You are further instructed to use your good judgment and common
sense in deciding this question.” Because the jury had inquired
about the meaning of § 50(a)(6)(Q)(v)’s language in its query to
the court, Plaintiffs suggest that, by inviting the jury to use
its own “judgment” in deciding this question, the district court
allowed the jury to settle on its own interpretation of the
constitutional provision.
We disagree. Viewed as a whole, the district court’s
supplemental instruction resolved the issue of constitutional
interpretation. In response to the jury’s inquiry--whether the
Texas Constitution required the lender to provide “signed copies”
of the loan documents, as opposed to unsigned copies--the
district court clearly stated: “It does not state that the owner
be provided ‘a signed copy.’” This instruction, phrased in a
manner that directly responds to the jury’s query, demonstrates
that the district court believed that providing copies of the
unsigned documents satisfied the terms of § 50(a)(6)(Q)(v).
Thus, the district court did not ask the jury to decide a
question of law; rather, the jury was faced with the task of
sifting through the conflicting testimony presented by the
parties in this case and deciding whether, in fact, New Century
met this constitutional requirement by providing Plaintiffs with
a full set of the home equity loan documents in a timely fashion.
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III. CONCLUSION
Accordingly, we AFFIRM the judgment of the district court.
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