Mark Fornesa v. Fifth Third Mortgage Compan , 897 F.3d 624 ( 2018 )

Case: 17-20324 Document: 00514574430 Page: 1 Date Filed: 07/27/2018
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
No. 17-20324 July 27, 2018
Summary Calendar
Lyle W. Cayce
Clerk
MARK ANTHONY FORNESA; RICARDO FORNESA, JR.,
Plaintiffs - Appellants
v.
FIFTH THIRD MORTGAGE COMPANY, also known as Fifth Third Bank,
Defendant - Appellee
_________________________
MARK ANTHONY FORNESA; RICARDO FORNESA, JR.,
Plaintiffs - Appellants
v.
FIFTH THIRD MORTGAGE COMPANY,
Defendant - Appellee
Appeal from the United States District Court
for the Southern District of Texas
Before JONES, SMITH, and COSTA, Circuit Judges.
EDITH H. JONES, Circuit Judge:
Mark Fornesa and his father, Ricardo Fornesa, Jr., sued Fifth Third
Bank for foreclosing on a property in violation of the automatic stay imposed
Case: 17-20324 Document: 00514574430 Page: 2 Date Filed: 07/27/2018
No. 17-20324
during Ricardo’s Chapter 13 bankruptcy. See 11 U.S.C. § 362(a). Following a
bench trial, the district court granted judgment for Fifth Third and held, inter
alia, that the plaintiffs were judicially estopped from claiming a stay violation
because Ricardo failed to adequately disclose his assets in bankruptcy. We
AFFIRM.
BACKGROUND
In February 2010, Mark Fornesa obtained a secured loan from Fifth
Third to purchase a piece of real property. Mark subsequently entered an
equity sharing agreement with his father. This agreement gave Ricardo an
equitable interest in the property and required Ricardo to make payments for
three years. Ricardo voluntarily made payments to Fifth Third pursuant to
Mark’s loan. Mark and Ricardo did not record the equitable interest or inform
Fifth Third.
In 2012, Ricardo sought Chapter 13 bankruptcy. In his 2012 bankruptcy
schedules, Ricardo listed an “[e]quity sharing agreement in son’s house,” but
he did not list the property’s address or list Fifth Third as a creditor. By its
own terms, the equity sharing agreement expired in February 2013.
In January 2014, Ricardo surrendered his own homestead in the
bankruptcy and moved into his son’s house. In November 2014, Mark and
Ricardo stopped making payments on the Fifth Third loan. Then, in January
2015, Mark signed a quitclaim deed, conveying the property to Ricardo. This
deed was recorded, but Ricardo did not amend his bankruptcy schedules. Nor
did anyone inform Fifth Third about the transfer.
Fifth Third gave notice of default and intent to accelerate the loan in
March 2015. The loan was accelerated and posted for foreclosure on April 6,
2015. Ricardo claims that on April 28 he sent Fifth Third a check for the
delinquent loan payments along with a package containing his bankruptcy
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papers, the quitclaim deed, and the equity sharing agreement. Fifth Third
disputes that it received the bankruptcy documents. Fifth Third returned the
check because, as of May 1, the check constituted only a partial payment and
could not bring the loan current. On May 4, Ricardo again allegedly sent a
package containing his bankruptcy papers to Fifth Third. This package would
not have been received before May 5. The property was sold at a foreclosure
sale that afternoon. After the sale, Fifth Third contacted Mark, indicating that
he had two weeks to redeem the property. Mark declined.
Instead, Mark and Ricardo brought a pro se lawsuit against Fifth Third
for wrongful foreclosure, violation of the Emergency Stabilization Act, and
violation of the automatic stay under 11 U.S.C. § 362(a). 1 The plaintiffs sought
actual damages of $50,000 and punitive damages of $450,000. Fifth Third
removed the case to federal district court. Mark and Ricardo filed a second
lawsuit in state court, which was also removed and consolidated with the first
case. In early 2016, Ricardo filed an adversary proceeding in bankruptcy,
urging similar arguments. The bankruptcy judge entered a report to the
district court recommending a withdrawal of the reference, and the district
court entered an order withdrawing the reference. The consolidated action in
federal district court proceeded to a bench trial. The district court held that
the plaintiffs’ claims lacked merit, entered judgment for Fifth Third, and
denied a motion for a new trial. Following these orders, the district court
reviewed Fifth Third’s objections to the plaintiffs’ evidence and denied
admittance of several exhibits.
The plaintiffs timely appealed.
The plaintiffs have waived their claims for wrongful foreclosure and for violation of
1
the Emergency Stabilization Act by failing to argue them in their appellate briefing. See
N.W. Enterprises, Inc. v. City of Houston, 352 F.3d 162, 183 n.24 (5th Cir. 2003).
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STANDARD OF REVIEW
We review a district court’s determination of judicial estoppel for abuse
of discretion. Love v. Tyson Foods, Inc., 677 F.3d 258, 262 (5th Cir. 2012). “A
district court abuses its discretion if it: (1) relies on clearly erroneous factual
findings; (2) relies on erroneous conclusions of law; or (3) misapplies the law to
the facts.” Id. (quoting McClure v. Ashcroft, 335 F.3d 404, 408 (5th Cir. 2003)).
We review a district court’s evidentiary rulings and denial of a motion for a
new trial under the same standard. Maurer v. Independence Town, 870 F.3d
380, 383 (5th Cir. 2017); United States v. Sertich, 879 F.3d 558, 562 (5th Cir.
2018).
DISCUSSION
“The doctrine of judicial estoppel is equitable in nature and can be
invoked by a court to prevent a party from asserting a position in a legal
proceeding that is inconsistent with a position taken in a previous proceeding.”
Love, 677 F.3d at 261. In this way, the doctrine “protect[s] the integrity of the
judicial process.” Allen v. C & H Distribs., L.L.C., 813 F.3d 566, 572 (5th Cir.
2015) (citations omitted). Judicial estoppel has three elements: (1) the party
against whom estoppel is sought has asserted a position plainly inconsistent
with a prior position, (2) a court accepted the prior position, and (3) the party
did not act inadvertently. See id. (citing Flugence v. Axis Surplus Ins. Co. (In
re Flugence), 738 F.3d 126, 129 (5th Cir. 2013)). “Judicial estoppel is
particularly appropriate where . . . a party fails to disclose an asset to a
bankruptcy court, but then pursues a claim in a separate tribunal based on
that undisclosed asset.” Love, 677 F.3d at 261-62 (quoting Jethroe v. Omnova
Sols., Inc., 412 F.3d 598, 600 (5th Cir. 2005)). The district court did not abuse
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its discretion in finding that Ricardo was estopped from pursuing his claim for
a violation of the automatic stay.
The first and second elements of judicial estoppel are satisfied by
Ricardo’s failure to amend his bankruptcy schedules to disclose the quitclaim
deed or his putative claims against Fifth Third. Chapter 13 debtors have a
continuing obligation to amend financial schedules to disclose assets acquired
post-petition. See Allen, 813 F.3d at 572 (quoting Flugence, 738 F.3d at 129).
Therefore, Ricardo’s failure to fulfill his Chapter 13 duty by amending his asset
schedules “impliedly represented” to the bankruptcy court that his financial
status was unchanged. In re Flugence, 738 F.3d at 129. This was plainly
inconsistent with his subsequent assertion of an undisclosed claim based on
the undisclosed asset. Id. The bankruptcy court, moreover, implicitly accepted
the representation by operating as though Ricardo’s financial status were
unchanged. See id. (“Had the court been aware . . . it may well have altered
the plan.”).
Establishing the defense of inadvertence would require Ricardo to prove
(1) that he did not know about the inconsistency or (2) that he lacked a motive
for concealment. See Allen, 813 F.3d at 573. It is insufficient, however, for
Ricardo to have been unaware of his duty to disclose; rather, he must have
actually been unaware of the relevant underlying facts. See id. Ricardo cannot
show this lack of knowledge because he was aware that he had received the
quitclaim deed and aware of the basis for his claims against Fifth Third. This
court has also held that a motive to conceal is “self-evident” when a debtor fails
to disclose an asset to the bankruptcy court due to the “potential financial
benefit resulting from the nondisclosure.” See id. at 574 (quoting Love,
677 F.3d at 262). Ricardo had a motive to conceal his changed financial status.
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In sum, the district court did not abuse its discretion in holding that
Ricardo was judicially estopped from claiming Fifth Third violated the
automatic stay. For the same reason, the district court did not abuse its
discretion in denying the plaintiffs’ motion for a new trial.
Nor have the plaintiffs shown that the district court abused its discretion
in excluding several of their exhibits. These exhibits were (1) a third-party
expert’s appraisal of the property at issue, (2) documents pertaining to an
eviction proceeding against the plaintiffs that was eventually non-suited,
(3) several of Fifth Third’s responses to interrogatories, (4) mailing receipts
indicating when Fifth Third received the package containing Ricardo’s
bankruptcy documents, and (5) Ricardo’s real estate license and his own
appraisal of the property.
The plaintiffs’ briefing on the evidentiary rulings fails to explain any
legal or factual errors made by the district court. Fifth Third objected to the
third-party’s appraisal and Ricardo’s appraisal because they were not
adequately disclosed during discovery. The plaintiffs’ briefing on these
exclusions does not address their tardy designation of the evidence. 2 Likewise,
the plaintiffs have not countered Fifth Third’s objections that some exhibits
were inadmissible for lack of authentication or were irrelevant to the disputed
claims. None of the excluded evidence, moreover, bears on the merits of Fifth
Third’s judicial estoppel defense.
For these reasons, we AFFIRM the judgment of the district court.
2 Instead, the plaintiffs merely cite Federal Rules of Evidence 703 and 705 regarding
the permissible basis for expert opinion. These arguments are inapposite.
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