Freddie L. Shellnut v. Wells Fargo Bank, N.A., D/B/A America's Servicing Company US Bank National Assoc., as Trustee for Credit Suisse First Boston Mortgage Securities Corp., Home Equity Asset Trust 2006-7, Home Equity Pass-Through Certificate ( 2015 )

ACCEPTED
02-15-00204-CV
SECOND COURT OF APPEALS
FORT WORTH, TEXAS
11/9/2015 9:08:51 PM
DEBRA SPISAK
CLERK
No. 02-14- 00204-CV
FILED IN
2nd COURT OF APPEALS
COURT OF APPEALS FOR THE SECOND DISTRICTFORT
OF WORTH,
TEXASTEXAS
FORT WORTH DIVISION 11/9/2015 9:08:51 PM
DEBRA SPISAK
Clerk
FREDDIE L. SHELLNUT
V.
WELLS FARGO BANK, NA, et
al.
On Appeal from Cause No. 096-264305-13
96th Judicial District of Tarrant County, Texas
the Honorable R.H. Wallace, Jr. presiding.
APPELLANT’S BRIEF
Caleb Moore
Texas Bar No. 24067779
Law Firm of Caleb Moore, PLLC
2205 Martin Drive, Ste. 200
Bedford, TX 76021
Telephone: (682) 521-5002
Facsimile: (817) 581-2540
Email: cmoore@thedfwlawfirm.com
Attorney on Appeal for Freddie Shellnut
Appellant requests oral argument.
Page 1 of 63
No. 02-14- 00204-CV
FREDDIE L. SHELLNUT,
Appellant,
V.
WELLS FARGO BANK, NA, et al.,
Appellee.
Identity of Parties and Counsel
Appellant: Freddie Shellnut, Plaintiff
Trial Counsel: Caleb Moore
2205 Martin Drive, Suite 200
Bedford, Texas 76021
Appellant Counsel: Caleb Moore
2205 Martin Drive, Suite 200
Bedford, Texas 76021
Appellee: Wells Fargo Bank, NA, Defendant
Trial Counsel: Robert T. Mowrey
Locke Lord
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
Appellate Counsel: Thomas F. Loose
Mathew Davis
Locke Lord
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
Page 2 of 63
TABLE OF CONTENTS
Identity of Parties and Counsel ……..………………………………………….…2
Table of Contents …………………….……………………………………….…..3
Index of Authorities …………………..……………………………………….…..4
Statement of the Case ………………..……………………………………………8
Issues Presented ……………………………………………………………………9
Statement of the Facts ………………….…………………………………………10
Summary of the Argument ………………..………………………………..……20
Standard of Review ……………………….………………………………..……23
Argument ………………………………….……………………………….……26
A. Wells Fargo Failed to Establish as a Matter of Law that the Statute of Frauds
Bars Shellnut’s Claims for Breach of Contract, Fraud, TDCA, or Negligent
Misrepresentation…………………………………….……………..…….26
1. Breach of Contract—Shellnut’s summary judgment evidence
establishes, at a minimum, disputed issues of material fact exist
regarding who was the first party to materially breach the loan
agreements and statute of frauds is irrelevant to this
issue…………………………..…………………………………….26
a. Fair Notice Pleading….………………………………..…….27
b. Disputed Material Facts…….………………………………..29
2. The Statute of Frauds is inapplicable to Shellnut’s Fraud Claim.…38
3. The Statute of Frauds is inapplicable to Shellnut’s TDCA Claim…43
4. The Statute of Frauds is inapplicable to Shellnut’s Negligent
Misrepresentation Claim……………………………………………44
B. Wells Fargo Fails to Establish as a Matter of Law that the Economic Loss
Rule Bars Shellnut’s Claims for Fraud, TDCA, or Negligent
Misrepresentation…………………………………………………….……46
1. Fraud and TDCA—Economic Loss Rule………………………......49
2. Negligent Misrepresentation………………………………………..56
Page 3 of 63
a. The negligent misrepresentations shown in the summary
judgment evidence were based on duties not created by contract
and caused economic and non-economic harm………………56
b. Wells Fargo failed to conclusively negate one or more elements
of Shellnut’s negligent misrepresentation claim and genuine
issues of material fact exist………………………..…………57
C. The Trial Court abused its discretion in denying Shellnut’s First Amended
Second Motion to Compel Production of Documents and Interrogatory
Responses and in Granting, in part, Wells Fargo’s Request for a Protective
Order……………………………………………………………………….59
Conclusion and Prayer ………………………………………………………….62
INDEX OF AUTHORITIES
CASES:
20801, Inc. v. Parker,
249 S.W.3d 494 (Tex. 2010)………………………………………………23
Abraxas Petroleum Corp. v. Hornburg,
20 S.W.3d 741, 758 (Tex. App.—El Paso 2000, no pet.)………………..29
Austin v. Countrywide Homes Loans,
261 S.W.3d 68 (Tex. App.—Houston [1st Dist.] 2008, pet. denied)………25
Billstrom v. Mem'l Med. Ctr.,
598 S.W.2d 642, 647 (Tex. Civ. App.—Corpus Christi 1980)…………….28
Burnette v. Wells Fargo Bank, N.A.,
4:09-CV-370, 2010 WL 1026968, at *7 (E.D. Tex. Feb. 16, 2010)………58
Boyles v. Kerr,
855 S.W.2d 593, 601 (Tex.1993)…………………………………………27
Broom v. Brookshire Bros., Inc.,
923 S.W.2d 57, 60 (Tex. App.—Tyler 1995, writ denied)……………….27
Case Corp. v. Hi-Class Bus. Sys. Of Am., Inc.,
184 S.W.3d 760, 769–70 (Tex. App.—Dallas 2005, pet. denied)…………29
Centeq Realty, Inc. v. Siegler,
899 S.W.2d 195 (Tex. 1995)……………………………………………….24
Chau v. Riddle,
254 S.W.3d 453 (Tex. 2008)……………………………………………….24
Chavez v. Wells Fargo Bank, N.A.,
578 Fed. Appx. 345, 348 (5th Cir. 2014)………………………………….55
Cire v. Cummings,
Page 4 of 63
134 S.W.3d 835, 838–39 (Tex. 2004)……………………………………25
Citizens Nat'l Bank v. Allen Rae Investments, Inc.,
142 S.W.3d 459, 477 (Tex. App.—Fort Worth 2004, no pet.)………41, 56
City of Houston v. Clear Creek Basin Auth.,
589 S.W.2d 671 (Tex. 1979)………………………………………………24
Coker v. Coker,
650 S.W.2d 391, 393 (Tex. 1983)………………………………………….31
Cont'l Dredging, Inc. v. De–Kaizered, Inc.,
120 S.W.3d 380, 394–95 (Tex. App.—Texarkana 2003, pet. denied)…….29
Deuley v. Chase Home Finance LLC,
CIV.A. H-05-04253, 2006 WL 1155230 (S.D. Tex. Apr. 26, 2006)…….42
Dozier v. AMR Corp.,
2-09-186-CV, 2010 WL 3075633 (Tex. App.—Fort Worth Aug. 5, 2010, no
pet.)……………………………………………………………………………….25
Elliot-Williams Co. v. Diaz,
9 S.W.3d 801 (Tex. 1999)…………………………………………………23
EMC Mortg. Corp. v. Jones,
252 S.W.3d 857, 869–70 (Tex. App.—Dallas 2008, no pet.)……………54
Fed. Land Bank Ass’n of Tyler v. Sloane,
825 S.W.2d 439 (Tex. 1991)……………………………………….45, 56, 58
Formosa Plastics Corp. USA v. Presidio Engineers and Contractors Inc.,
960 S.W.2d 41, 45 (Tex. 1998)…………………………………….46, 49, 51
Fort Worth Star-Telegram v. Street,
61 S.W.3d 704 (Tex. App.—Fort Worth 2001, pet. denied)………….23, 24
Frost Nat’l Bank v. Fernandez,
315 S.W.3d 494 (Tex. 2010)……………………………………………..24
Gupta v. Eastern Idaho Tumor Institute, Inc.,
140 S.W.3d 747, 756 (Tex. App.—Houston [14th Dist.] 2004, pet.
denied)………………………………………………………………………30, 31
Haase v. Glazner,
62 S.W.3d 795 (Tex. 2001)……………………………………..………..26
Hanks v. GAB Bus. Servs., Inc.,
644 S.W.2d 707, 708 (Tex. 1982)………………………………………..31
Heil Co. v. Polar Corp.,
191 S.W.3d 805 (Tex. App.—Fort Worth 2006, pet. denied)………….51, 52
Henry v. Masson,
333 S.W.2d 825, 835 (Tex. App.—Houston [1st Dist.] 2010, pet.
denied)…..…………………………………………………………………....29, 30
Horizon v. Auld,
34 S.W.3d 887, 897 (Tex. 2000). ……………………………………..…27
Page 5 of 63
In re B.I.V.,
870 S.W.2d 12, 13 (Tex. 1994)…………………………………………….28
Joe v. Two Thirty Nine Joint Venture,
145 S.W.3d 150 (Tex. 2004)……………………………………………….25
Kruse v. Bank of New York Mellon,
936 F. Supp. 2d 790 (2013)……………………………………………43, 44
Long Trusts v. Griffin,
222 S.W.3d 412, 415–16 (Tex. 2007)…………………………………….31
Maginn v. Norwest Mortgage, Inc.,
919 S.W.2d 164 (Tex. App.—Austin 1996, no writ)………………….44, 45
Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding,
280 S.W.3d 844 (Tex. 2009)……………………………………………….23
McCaig v. Wells Fargo Bank (Texas), N.A.,
788 F.3d 463 (5th Cir. 2015)………………………………………44, 50, 52
McConnell v. Southside Indep. Sch. Dist.,
858 S.W.2d 337 (Tex. 1993)……………………………………………….24
McDaniel v. JPMorgan Chase Bank,
No. 1:12-CV-392, 2012 WL 6114944 (E.D. Tex. Dec. 10, 2012)………..52
Medina v. Herrera,
927 S.W.2d 597, 602 (Tex. 1996)………………………………………..28
Natividad v. Alexsis, Inc.,
875 S.W.2d 695, 699 (Tex. 1994)………………………………………….28
Nixon v. Mr. Property Mgmt. Co.,
690 S.W.2d 546 (Tex. 1985)………………………………………………23
Owens-Corning Fiberglass Corp. v. Malone,
972 S.W.2d 35 (Tex. 1998)………………………………………………..25
Perez v. Embree Const. Group, Inc.,
228 S.W.3d 875, 883 (Tex. App.—Austin 2007, pet. denied)………….….25
Rivera v. Bank of America, N.A.,
No. 4:13-CV-195, 2014 WL 2996159, at *7 (E.D. Tex. July 3, 2014)...56, 57
Sw. Bell Tele. Co. v. Delanney,
809 S.W.2d 493, 494 (Tex. 1991)…………………………………………46
Tex. State Dep’t of Corrs. v. Herring,
513 S.W.2d 6, 9–10 (Tex. 1974)…………………………………………..28
Travelers Ins. Co. v. Joachim,
315 S.W.3d 860 (Tex. 2010)………………………………………………23
Waterfield Mortg. Co., Inc. v. Rodriguez,
929 S.W.2d 641, 644 (Tex. App.—San Antonio 1996, no writ)…………..44
Page 6 of 63
STATUTES:
TEX. BUS. & COM. CODE § 2.201………………………………………………….26
TEX. BUS. & COM. CODE § 26.01…………………………………………………26
TEXAS RULES OF CIVIL PROCEDURE 166a(b), (c)…………………………………24
Page 7 of 63
STATEMENT OF THE CASE
Nature of the Case: Appellant Shellnut sued Appellees Wells Fargo and U.S.
National Bank Association for negligent
misrepresentation, unfair debt collection practices, breach
of contract, and fraud. (CR 5) Appellees filed a
Traditional Motion for Summary Judgment on all of
Appellant’s claims. (CR 341)
Trial Court: 96th District Court of Tarrant County, the Honorable
R.H. Wallace, Jr. presiding.
Disposition in the
Trial Court: On February 4, 2015, the trial court granted Appellees’
Motion for Summary Judgment dismissing all of
Appellant’s claims and ordered that Appellant take
nothing. (CR 630) On April 30, 2015, the trial court
granted Appellees’ Motion to Dismiss Counterclaim
without Prejudice and Final Judgment. (CR 646)
Appellant filed the Notice of Appeal on June 24, 2015.
(CR 662)
Parties in the Court
of Appeals: Appellants: Plaintiff, Freddie L. Shellnut
Appellees: Defendants, Wells Fargo Bank, NA, d/b/a
America’s Servicing Company; US Bank National
Assoc., as Trustee for Credit Suisse First Boston
Mortgage Securities Corp., Home Equity Asset Trust
2006-7, Home Equity Pass-Through Certificate.
Page 8 of 63
ISSUES PRESENTED FOR REVIEW
Did the trial court err in granting summary judgment?
Sub-Issue 1: The trial court erred in granting summary judgment on the breach of
contract claim. Wells Fargo failed to establish that Shellnut was the first party to
breach the contract. Second, Shellnut presented more than a scintilla of evidence
that raised genuine issues of material fact as to whether Wells Fargo breached the
contract. Accordingly, the summary judgment on breach of contract should be
reversed, and the case should be remanded for further proceedings in the trial
court.
Sub-Issue 2: The trial court erred in granting summary judgment because Wells
Fargo failed to establish as a matter of law that the statute of frauds barred
Shellnut’s claims. Alternatively, Shellnut presented more than a scintilla of
evidence that raised genuine issues of material fact as to whether the statute of
frauds applied to their claims. Accordingly, the summary judgment on the
affirmative defense of statute of frauds should be reversed, and the case should be
remanded for further proceedings in the trial court.
Sub-Issue 3: The trial court erred in granting summary judgment on Shellnut’s tort
claims. First, as a matter of law, Defendant did not present sufficient summary
judgment evidence establishing that the economic loss rule bars Shellnut’s
negligent misrepresentation or fraud claims as a matter of law. Second, Shellnut
presented more than a scintilla of evidence that raised genuine issues of material
fact on the elements of each claim. Third, the existence of a written contract does
not bar Shellnut’s negligent misrepresentation claim as a matter of law.
Accordingly, the summary judgment on Shellnut’s tort claims should be reversed,
and the case should be remanded for further proceedings in the trial court.
Sub-Issue 4: The trial court erred in denying Appellant’s motion to compel the
production of documents
Page 9 of 63
STATEMENT OF FACTS
Facts Related to the Contractual Agreements (Loan Documents)
The Note (CR 498–502) and the Texas Home Equity Security Instrument
(CR 503–21) provide the following key rights and duties agreed to between the
parties.
Note—Plaintiff’s Exhibit 2
Shellnut has the right to repay his loan in monthly installments of $1,372.86
and is required to make each monthly payment until the loan matures. (CR 498–
99).
Shellnut and Note Holder, here Wells Fargo, agreed that if Shellnut failed to
pay a monthly payment Shellnut would be in default and the Note Holder could
send a written notice stating that if the overdue amount was not paid by a date
certain at least thirty (30) days after the date of the notice, the Note Holder could
accelerate the full amount due. If the Note Holder has elected to send that notice,
the Note Holder has the right to be paid back its costs and expenses in enforcing
the Note, including reasonable attorney fees. (CR 499–500).
Any notice must be given by regular or certified mail. (CR 500).
Shellnut and Note Holder agreed that Shellnut had no personal liability for the
repayment of the Note and that if the Note was not repaid the Note Holder could
enforce its right to repayment solely against the Property. (CR 500).
Page 10 of 63
Security Instrument—Plaintiff’s Exhibit 3
Shellnut gave Lender a security interest in his homestead, subject to the
provisions in the Security Instrument and Note. (CR 503–21).
Shellnut has the contractual right, even after a default, to reinstate his
account up and until the earliest of five (5) days before a posted sale date, any
other period that applicable law might state his right to reinstate ends, or the entry
of a judgment enforcing the security interest. (CR 513).
To reinstate, Shellnut must cure any defaults of any covenant or agreement,
pay all expenses which are allowed by Section 50(a)(6), Article XVI of the Texas
Constitution, incurred in enforcing the security instrument, including but not
limited to reasonable attorney fees, property inspection and valuation fees and
other fees incurred for the purpose of protecting Lender’s interest. (CR 513).
If Wells Fargo determined that any part of the Property was subject to a lien
which can attain priority over the security Instrument that it may give borrower
notice identifying the lien triggering Shellnut’s obligation to cure the issue as
stated in § 4 within ten days of the date the notice was given. (CR 507)
Shellnut’s agreement with Lender to grant Lender a security interest in his
Property was expressly limited to and intended to comply with Section 50(a)(6),
Article XVI of the Texas Constitution and the parties agreed that any provision in
the Note or Security Instrument should be corrected, if needed, to comply with the
Page 11 of 63
above section of the Texas Constitution. (CR 514).
Facts Regarding the Loan, Servicing, and Loss Mitigation
Shellnut is the current record owner of the property located at 7604
Westwind Drive, Fort Worth, Texas 76179 (Property). (CR 498–502). On or
about February 17, 2006, Shellnut obtained a home equity loan from Aames
Funding Corporation DBA Aames Home Loan, for $192,000.00. (CR 498).
Beginning in approximately January 2010, Shellnut began to struggle to pay his
mortgage payments due to family medical expenses and a reduction in income.
(CR 494). However, Shellnut made payments on the loan until approximately
January 2011, at which time Shellnut quit sending payments. (CR 494).
Beginning in early 2010 and continuing throughout that year, Shellnut
reached out several times to American Servicing Company (ASC), who had taken
over servicing Shellnut’s loan, to determine the outstanding balance and any
options the company could provide in getting caught up on or lowering his
payments. (CR 494–95). ASC encouraged Shellnut to take part in their
Borrower’s Counseling Program, and the Loss Mitigation Department sent
Shellnut a letter stating that he needed to complete an application to be considered
for options such as a repayment plan, loan modification, partial claim, pre-
foreclosure sale, and deed in lieu of foreclosure. (CR 495). Shellnut sent in the
application and the financial records requested and followed up with Wells Fargo
Page 12 of 63
over the phone regarding the status of his modification. (CR 495). Throughout
2010, Shellnut was given various reports, both in writing and over the phone, when
he called, regarding the status of his loan modification application, including that
he was in underwriting, that the application was under review for a loan
modification, that the review revealed he needed to send updated financial
information, and other similar explanations explaining Wells Fargo’s delay in
approving or denying the application. (CR 495). During this, Shellnut continued
to send payments. (CR 495).
In 2011, Shellnut attempted to get a verified reinstatement figure and
confirmation that when paid, ASC would reinstate the loan; however, Barret,
Daffin, Frappier, Turner and Engel, LLP, (Barret Daffin) ASC’s foreclosure
attorney and ASC both refused. (CR 496–96). Shellnut attempted to get out of the
loan modification process but when ASC and Barrett Daffin refused, Shellnut
believed he had no choice but to wait for the loan modification process to
conclude. (CR 496). As such, he continued to send in requested documents,
applications, and financial records requested throughout 2011 and into 2012. (CR
495–96, 553–56).
Shellnut called ASC on multiple occasions trying to get confirmation that his
loan would be reinstated if he paid. (CR 495–96). Plaintiff’s Exhibit 12 includes a
transcript of examples of some of the recorded calls produced by Wells Fargo and
Page 13 of 63
Shellnut incorporates the examples by reference and the entire exhibit as being
relied on in support of the response to summary judgment. Of note the following
exchanges are particularly relevant:
(CR 570)
11 MR. SHELLNUT: Says, The above figures
12 were provided by our client and are subject to final
13 verification. Our client reserves the right to collect
14 additional amounts as necessary to complete the
15 reinstatement.
16 WELLS FARGO REPRESENTATIVE: Correct. So
17 what that means is that foreclosure fees can be assessed
18 daily, so by the time you make the payment, there could
19 be some outstanding fees. So once you pay the amount
20 that's quoted on the reinstatement figure by the time
21 frame that's given on the reinstatement notice, then at
22 that point the account would be brought out of
23 foreclosure.
(CR 562)
7MR. SHELLNUT: You're saying I can't make
8 a payment, is that what you're saying -- telling me?
9 WELLS FARGO REPRESENTATIVE: At this time
10 I wouldn't be able to accept the payment since it was
11 active foreclosure, but you can certainly contact the
12 foreclosure attorneys if you're wanting to reinstate the
13 loan by paying the total amount due. Otherwise, if
14 you're not able to do that, you know, we -- we are
15 reviewing you for modification options at this point.
16 It looks like the loan is active for that. So if we are
17 able to get you set up on some kind of a plan with us --
Shellnut was not told until August 2012 that his loan was not eligible to be
Page 14 of 63
modified because the investor declined. (CR 496, 555–56). Barrett Daffin
provided Shellnut with only a total loan amount of $201,662.12 and stated that it
did not include additional fees and charges. (CR 587).
Evidence of Account Discrepancies/Errors
On May 23, 2010, ASC stated Shellnut’s total past due amount was
$2,436.92; on June 11, 2010, ASC claimed in the proposed “Loan Modification
Agreement” that $13,198.07 was the past due amount; on August 15, 2010, ASC
claimed $2,795.76 was the total past due. (CR 581–86). On June 15, 2010,
account log shows Shellnut was told total due $3,824.80. (CR 591). On March 20,
2011, claimed total amount owed $2,903.04. (CR 589–90).
ASC’s records show Shellnut at a minimum made payments through January
2011. (Compare CR 524 and 532–43). On May 13, 2011, Barrett Daffin sent the
acceleration notice and claimed the total due on Shellnut’s account was
$201,662.12, which includes approximately $19,000.00 in unexplained fees,
claimed advances not including principal and could not include more than three
months of unpaid interest. (CR 587). As of May 25, 2011, estimated full
reinstatement amount provided to Shellnut was $8,133.30. (CR 588). On May 24,
2011, the reinstatement quote sent states $11,331.83 is due, with that amount
consisting of $0.00 in attorney fees. (CR 592).
The total amount Tarrant County was paid for taxes on the Property for
Page 15 of 63
2009, 2010, and 2011 was $10,010.72. (CR 545). This is $486.77 more than was
actually due for the time period. Wells Fargo claims to have advanced $12,119.43
in county taxes from January 2010 through November 2011, approximately
$2,000.00 more than Tarrant County has been paid. (CR 594). The payment
claimed to have been made in the amount of $2,595.48 does not match any of the
amounts Tarrant County reflects was paid. (CR 594).
Wells Fargo claims Shellnut owes reimbursement for advanced
homeowner’s insurance payments totaling $4,675.48; title, inspection, Broker
Price Opinion (BPO), and title related fees in the amount of $1,086.57. (CR 593–
95).
Of note, no written notice was ever sent to Shellnut stating that Wells Fargo
was going to pay taxes or insurance on his behalf. Nor was there any evidence that
Shellnut was past due on his taxes or that the County was seeking to collect taxes
from Shellnut.
Additional Evidence in Support of Plaintiff’s Tort Claims
On February 9, 2010, Wells Fargo knew the investor guidelines would not
allow a rate change, an extended maturity date more than ten months past current
maturity date; yet continued to call and solicit Shellnut for financial information to
attempt “modification.” (CR 597). These limitations to what could be modified
had nothing to do with any financial information provided by Shellnut as Wells
Page 16 of 63
Fargo’s records show as of February 16, 2010, Shellnut had not provided any
financial information. (CR 612).
On June 8, 2010, Wells Fargo knew the investor on Shellnut’s loan would
not reduce the interest rate, extend the maturity date beyond ten months past the
current maturity date, and could not reduce the monthly payment. (CR 596). It is
Wells Fargo’s policy to send a modification application to every customer who
calls inquiring about loan modification and advises that customer to submit
financial information and apply for a loan modification (CR 600). Wells Fargo
has no screening process to identify those loans that cannot be modified. (CR
600). Wells Fargo cannot confirm that a loss mitigation department capable of
accepting or denying Shellnut’s application for modification existed when he
started the process and Wells Fargo does not know at what point such a department
came into existence. (CR 601).
At the latest, June 8, 2010, is the date Wells Fargo knew that Shellnut’s loan
was ineligible for modification. (CR 602). Wells Fargo knew that the assistance
Shellnut was repeatedly applying for was a reduced monthly payment, but it
doesn’t know if it ever told him his loan was not eligible for that type of assistance.
(CR 603). Wells Fargo is unable to determine if anyone with a Texas Cash Out
Loan, including Shellnut, was ever eligible for a reduced payment plan as it does
not keep records or documents reflecting what was available for modification of
Page 17 of 63
Texas Cash Out loans at any particular time from 2010–2014. (CR 603–04).
Wells Fargo says that Shellnut was told “upfront” in 2012 that Wells Fargo
only offered repayment plans on Texas Cash Out loan and they are only offered
during the first 6 months past when a borrower misses a payment, “upfront” is
more than two years after Wells Fargo knew. (CR 6005). Wells Fargo doesn’t
know when that policy went into effect or what the policy was in 2010 and cannot
identify any way to determine that information. (CR 605–06). Wells Fargo’s
representative, Ms. Bosier, simply trusts that whatever the policies and procedures
were in 2010 that “they would have had all the–all the policies and procedures
for loss mitigation reviews in front of them while they were doing a review on
this loan.” (CR 606). Ms. Bosier trusts that the unknown or identified checks and
balances and that the unknown policies and procedures were being followed
because of the unknown training given to each representative for their specific job
by Wells Fargo. (CR 606). Any time a borrower contacts Wells Fargo requesting
help, Wells Fargo sends the borrower a loss mitigation application and requests the
borrower send in financial information to be reviewed for loan modification, even
if previously the borrower was reviewed and determined to be ineligible. (CR
607). Wells Fargo has determined it is not appropriate to tell a borrower that he
ineligible for the requested assistance when that determination was made. (607–
08). Waiting two years to tell an ineligible borrower about the ineligibility is
Page 18 of 63
completely appropriate to Wells Fargo and in line with its current policies and
procedures. (CR 607–08).
Wells Fargo claims Shellnut might have been eligible for a loan
modification with reduced payments in 2010, but no one at Wells Fargo is able to
identify the type of modification for which Shellnut’s loan was eligible. (CR 609).
Upon reviewing the file in preparation for the deposition, Wells Fargo did not see
anything that was incorrect or handled in a way that went against its policies and
procedures. (CR 610). In approximately ten (10) years with Wells Fargo, part of
which was spent working specifically with Texas Cash Out loans, this corporate
representative could not recall a Texas Cash Out loan ever being modified by
Wells Fargo. (CR 599, 611).
On December 18, 2014, Defendants filed an Amended Traditional Motion for
Summary Judgment on all of Shellnut’s claims. (CR 341-42). On February 4,
2015, the trial court rendered summary judgment on all of Shellnut’s claims in this
case. Shellnut filed a Motion for Leave to Amend Pleadings, Motion for New
Trial, Reconsideration, and Request for Ruling on Objections on February 20,
2015.
Wells Fargo moved to dismiss their live counterclaims. On April 30, 2015, the
trial court granted Defendant’s Motion for Summary Judgment. On that same day,
the trial court signed an order granting U.S. Bank National Association’s Motion to
Page 19 of 63
Dismiss Counterclaim Without Prejudice. On June 12, 205, the court denied all of
Shellnut’s motions and requests. On June 24, 2015, Shellnut filed his Notice of
Appeal with the trial court.
SUMMARY OF THE ARGUMENT
Wells Fargo knew no later than June of 2010 that without doubt the investor
on the Note would not modify Shellnut’s Note to reduce his monthly payment, yet
it did not inform Shellnut of that fact until August of 2012. Instead Wells Fargo
continued to send letters to Shellnut stating that he may be eligible for a loan
modification if he fills out loan modification applications and to sends in
supporting documents. Wells Fargo stated it would review what he sent in and at
various points told him the application for a modification had advanced to
underwriting. This went on through August 2012. Wells Fargo argues in its
Motion for Summary Judgment that all of these claims relate to the Note and Deed
of Trust and sound in contract alone and are thus barred by the statute of frauds or
the economic loss rule. Wells Fargo argues it had no duty of any kind other than
those created in the contract. Shellnut argues that Wells Fargo had an independent
duty to fully disclose the status of his loan modification and that his loan was not
eligible to be modified to lower his monthly payment, which is what he was
requesting. Had he known, Shellnut would have taken a different course of action
that could have captured some of his equity, avoided two years of negative credit
Page 20 of 63
reporting that caused or at least contributed to the loss of his job and avoid the
mental anguish he suffered during this drawn out process. When Shellnut
contacted Wells Fargo’s loss mitigation and was told he was in underwriting, this
was misleading, and possibly completely untrue. Shellnut took this to mean that he
was going to get a modification that would lower his monthly payment,
underwriting was just determining what the numbers would be. This conclusion is
not unreasonable given that he had been clear that is the assistance he needed and
was requesting.
Shellnut contends that failing to disclose his loan’s ineligibility for a reduced
monthly payment, while continuing to solicit him for a loan modifiction constitutes
a violation of Texas Debt Collection Act (TDCA) and fraud by non disclosure.
The continued written and verbal representations to Shellnut that he was being
reviewed for a modification that could result in a reduced monthly payment, when
he was not eligible, in 2010, 2011, and more than half of 2012 constitute Negligent
Misrepresentations. Additionally, Shellnut’s summary judgment evidence
shows Wells Fargo’s accounting system contained errors regarding the amount
Shellnut actually owed beginning in 2010. These errors included or resulted from
being charged taxes that were not in fact paid by Wells Fargo in 2010; claimed
advanced insurance premiums made by Wells Fargo, made without notice, when
Shellnut had already paid for his insurance; and inconsistent claims regarding
Page 21 of 63
claimed missed payments or reinstatement amounts. Wells Fargo claims because
Shellnut admits initially missing payments in 2010, that Shellnut was the first party
to breach and cannot sue for breach of contract, even though Shellnut resumed
paying through February of 2011 and the parties treated the contract as continuing.
These errors also support claims for TDCA violations as Wells Fargo threatened
foreclosure over fees and debt that was not owed.
Shellnut disputes that Wells Fargo met its burden of conclusively
establishing these affirmative defenses. Neither did Wells Fargo prove that no
genuine issue of material fact exists and that it was entitled to judgment as a matter
of law. The trial court made an error in granting the traditional motion for
summary judgment as there are material facts in dispute and the case should be
remanded for further proceeding.
Lastly, Shellnut alleges that the trial court abused its discretion in denying
Plaintiffs motion to compel Wells Fargo’s responses to interrogatories and in
granting in part Wells Fargo’s protective when Wells Fargo is relying on these
alleged policies and procedures as support that it properly handled Shellnut’s
account through loss mitigation.
Page 22 of 63
STANDARD OF REVIEW
De Novo Standard
Summary judgment is reviewed de novo on appeal. Fort Worth Star-Telegram
v. Street, 61 S.W.3d 704, 708 (Tex. App.—Fort Worth 2001, pet. denied);
Travelers Ins. Co. v. Joachim, 315 S.W.3d 860, 862 (Tex. 2010). When
reviewing a summary judgment, the appellate court must take as true all evidence
favorable to the nonmovant and indulge every reasonable inference in the
nonmovant’s favor. Fort Worth Star-Telegram, 61 S.W.3d at 708; Nixon v. Mr.
Property Mgmt. Co., 690 S.W.2d 546, 548 (Tex. 1985). The court will consider
the evidence presented in the light most favorable to the nonmovant, crediting
evidence favorable to the nonmovant if reasonable jurors could, and disregarding
evidence contrary to the nonmovant unless reasonable jurors could not. Mann
Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 280 S.W.3d 844, 848 (Tex.
2009). The court will indulge every reasonable inference and resolve any doubts
in the nonmovant’s favor. 20801, Inc. v. Parker, 249 S.W.3d 392, 399 (Tex.
2008).
A defendant is entitled to summary judgment if the summary judgment
evidence establishes, as a matter of law, that at least one element of a plaintiff’s
cause of action cannot be established. Fort Worth Star-Telegram, 61 S.W.3d at
708; Elliot-Williams Co. v. Diaz, 9 S.W.3d 801, 803 (Tex. 1999). To accomplish
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this, the defendant-movant must present summary judgment evidence that negates
an element of the plaintiff’s claim. Once this evidence is presented, the burden
shifts to the plaintiff to come forward with competent controverting evidence of a
genuine issue of material fact with regard to the element challenged by the
defendant. Fort Worth Star-Telegram, 61 S.W.3d at 806; Centeq Realty, Inc. v.
Siegler, 899 S.W.2d 195, 197 (Tex. 1995).
A defendant is entitled to summary judgment on an affirmative defense if the
defendant conclusively proves all the elements of the affirmative defense. Frost
Nat’l Bank v. Fernandez, 315 S.W.3d 494, 508–09 (Tex. 2010); see TEX. R. CIV. P.
166a(b), (c). To accomplish this, the defendant-movant must present summary-
judgment evidence that conclusively establishes each element. See Chau v. Riddle,
254 S.W.3d 453, 455 (Tex. 2008).
The scope of review from a summary judgment is limited. The court may not
consider on appeal issues not expressly presented to the trial court by written
motion, answer, or other response. TEX. R. CIV. P. 166a(c); Fort Worth Star-
Telegram, 61 S.W.3d at 708; City of Houston v. Clear Creek Basin Auth., 589
S.W.2d 671, 678 (Tex. 1979). The motion for summary judgment must state the
specific grounds on which judgment is sought, and a summary judgment may not
be granted on grounds not raised by the movant in his motion. TEX. R. CIV. P.
166a(c); Fort Worth Star-Telegram, 61 S.W.3d at 708; McConnell v. Southside
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Indep. Sch. Dist., 858 S.W.2d 337, 339 (Tex. 1993).
Abuse of Discretion Standard
The court applies an abuse of discretion standard to a trial court’s ruling on a
motion to compel or in whether to allow amendments to a pleading. Dozier v.
AMR Corp., 2-09-186-CV, 2010 WL 3075633, at *2 (Tex. App.—Fort Worth Aug.
5, 2010, no pet.); Austin v. Countrywide Homes Loans, 261 S.W.3d 68, 75 (Tex.
App.—Houston [1st Dist.] 2008, pet. denied); Perez v. Embree Const. Group, Inc.,
228 S.W.3d 875, 883 (Tex. App.—Austin 2007, pet. denied). The court does not
substitute its judgment for that of the trial court, but instead must determine
whether the trial court’s action was so arbitrary and unreasonable as to amount to a
clear and prejudicial error of law. Dozier, at *2; Joe v. Two Thirty Nine Joint
Venture, 145 S.W.3d 150, 161 (Tex. 2004). The test is whether the trial court
acted without reference to guiding rules or principles. Dozier, at *2; Cire v.
Cummings, 134 S.W.3d 835, 838-39 (Tex. 2004). An appellate court must uphold
the trial judge’s evidentiary ruling if there is any legitimate basis for it. Dozier, at
*2; Owens-Corning Fiberglass Corp. v. Malone, 972 S.W.2d 35, 43 (Tex. 1998).
Page 25 of 63
ARGUMENT
A. Wells Fargo Failed to Establish as a Matter of Law that the Statute of
Frauds Bars Shellnut’s Claims for Breach of Contract, Fraud, TDCA, or
Negligent Misrepresentation
To prove the affirmative defense of statute of frauds Wells Fargo must prove
with summary judgment evidence that the contract sought to be enforced falls
within the statute of frauds and that the contract was not in writing or signed by the
defendant. See TEX. BUS. & COM. CODE §§ 2.201, 26.01; Haase v. Glazner, 62
S.W.3d 795, 797 (Tex. 2001). Wells Fargo in its motion for summary judgment
argues that any oral statements, letters sent by Wells Fargo, or omissions of
information, no matter the content, that relate in any way to the terms or
modification of a written loan agreement fall within the statute of frauds and there
can be no cause of action for fraud, no violation of the TDCA, or any negligent
misrepresentation. (CR 346–47).
1. Breach of Contract-
Shellnut’s summary judgment evidence establishes, at a minimum,
disputed issues of material fact exist regarding who was the first party to
materially breach the loan agreements and statute of frauds is irrelevant to
this issue.
The statute of frauds cannot bar the breach of contract claims related to Wells
Fargo’s breach of the loan agreement because the subject contract is in writing and
signed. Wells Fargo’s primary argument related to Shellnut’s summary judgment
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evidence of breach of contract is that he did not plead breach of the loan
agreements with sufficient particularity to put it on notice. (CR 621). Wells Fargo
alternatively argues that there is no summary judgment evidence supporting breach
of contract because the Shellnut’s evidence and allegations are contradictory in that
Shellnut did not send in sufficient payment to reinstate, admits missing a payment
in 2009, and is trying to shift the burden to Wells Fargo to disprove a “myriad of
alleged breaches.” (CR 625–26). As stated, above, Wells Fargo bears the burden
of proof for its motion for summary judgment on all issues, including breach of
contract.
a. Fair Notice Pleading
Shellnut’s original petition provided fair notice of his breach of contract claims
against Wells Fargo. Shellnut is required to do nothing more in his live pleading
than give Wells Fargo fair notice of the issues in dispute. See Horizon v. Auld, 34
S.W.3d 887, 897 (Tex. 2000). When a party fails to specially except, courts should
construe the pleadings liberally in favor of the pleader. See Boyles v. Kerr, 855
S.W.2d 593, 601 (Tex.1993). Texas follows a “fair notice” standard for pleading,
which looks to whether the opposing party can ascertain from the pleading the
nature and basic issues of the controversy and what testimony will be relevant. See
Broom v. Brookshire Bros., Inc., 923 S.W.2d 57, 60 (Tex. App.—Tyler 1995, writ
denied). To the extent Wells Fargo’s motion for summary judgment was based on
Page 27 of 63
Shellnut’s pleadings, the Court should assume all allegations and facts in
Shellnut’s pleadings are true, make all inferences in Shellnut’s pleadings in his
favor, and ensure that any defects that do exist in the pleadings cannot be cured by
amendment. See Natividad v. Alexsis, Inc., 875 S.W.2d 695, 699 (Tex. 1994);
Medina v. Herrera, 927 S.W.2d 597, 602 (Tex. 1996); In re B.I.V., 870 S.W.2d 12,
13 (Tex. 1994).
Shellnut’s original petition, sections 17, 19, 20, 22, 22, 30, 71 83, 87, 88, 92
and 96 provide fair notice to Wells Fargo that Shellnut was suing Wells Fargo
because he was being improperly billed, assessed improper fees, charges etc. (CR
5–48). Of note, Shellnut specifically states, he tendered payment sufficient to
bring the account current, ASC demanded payments of fees not due or authorized,
did not bring the account current or properly credit payments. (CR 33–34). To the
extent summary judgment could have been granted due to a pleading issue it could
have been cured by amendment. When, as here, the non-movant's pleadings are
insufficient because they fail to state a cause of action, and no special exceptions to
such pleadings have been presented to the trial court for a ruling, a motion for
summary judgment granted by the trial court will be reversed and remanded to
allow the non-movant an opportunity to amend his pleadings. See Tex. State Dep’t
of Corrs. v. Herring, 513 S.W.2d 6, 9–10 (Tex. 1974); Billstrom v. Mem'l Med.
Ctr., 598 S.W.2d 642, 647 (Tex. Civ. App.—Corpus Christi 1980). To the extent
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any of the other claims were dismissed due to a pleading issue, the same arguments
and standards apply and Shellnut requests the Court reverse the summary judgment
and remand for further proceedings.
b. Disputed Material Facts
The Summary judgment evidence establishes issues of disputed material fact
as to which party materially breached first or who caused the material breach. The
elements of a claim for breach of contract are: (1) the existence of a valid contract;
(2) performance or tendered performance by the plaintiff; (3) breach of the contract
by the defendant; and (4) damages to the plaintiff resulting from that breach.
Abraxas Petroleum Corp. v. Hornburg, 20 S.W.3d 741, 758 (Tex. App.—El Paso
2000, no pet.). A breach of contract occurs when a party fails to perform an act
that it has expressly or impliedly promised to perform. Case Corp. v. Hi-Class
Bus. Sys. Of Am., Inc., 184 S.W.3d 760, 769–70 (Tex. App.—Dallas 2005, pet.
denied).
A material breach by one party to a contract can excuse the other party from
any obligation to perform. Henry v. Masson, 333 S.W.2d 825, 835 (Tex. App.—
Houston [1st Dist.] 2010, pet. denied). However, the question of whether a party’s
breach renders the contract unenforceable—the materiality of the breach—is a
question of fact. Cont'l Dredging, Inc. v. De–Kaizered, Inc., 120 S.W.3d 380,
394–95 (Tex. App.—Texarkana 2003, pet. denied).
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It is well established under Texas contract law that when one party to a
contract commits a material breach of that contract, the other party is discharged or
excused from further performance. Henry, 333 S.W.2d at 840 (citing BFI Waste
Sys. of N. Am. v. N. Alamo Water Supply Corp., 251 S.W.3d 30, 30–31 (Tex.
2008)). However, if the non-breaching party continues to insist on performance by
the party in default after the breach occurred, “the previous breach constitutes no
excuse for nonperformance on the part of the party not in default and the contract
continues in force for the benefit of both parties.” Henry, 333 S.W.2d at 840
(citing Chilton Ins. Co. v. Pate & Pate Enters., Inc., 930 S.W.2d 877, 887 (Tex.
App.—San Antonio 1996, writ denied) (quoting Houston Belt & Terminal Ry. v. J.
Weingarten Inc., 421 S.W.2d 431, 435 (Tex. Civ. App.—Houston [1st Dist.] 1967,
writ ref'd n.r.e.))). If this occurs, the non-breaching party has two options:
continuing performance under the contract or ceasing to perform. Gupta v.
Eastern Idaho Tumor Institute, Inc., 140 S.W.3d 747, 756 (Tex. App.—Houston
[14th Dist.] 2004, pet. denied). That choice only impacts whether the non-
breaching party is required to fully perform after the breach. Id. at 757. If the non-
breaching party treats the contract as continuing after the breach, that party is
deprived of any excuse for terminating his own performance. Henry, 333 S.W.3d
at 840.
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If the non-breaching party seeks to benefit from the contract after the breach,
that action operates as a conclusive choice, which then denies that non-breaching
party of an excuse for his non-performance. Hanks v. GAB Bus. Servs., Inc., 644
S.W.2d 707, 708 (Tex. 1982). Further, if the non-breaching party elects to treat the
contract as continuing after the breach and continues to demand performance, then
that party also obligates itself to full performance. See Long Trusts v. Griffin, 222
S.W.3d 412, 415–16 (Tex. 2007) (holding that by claiming as damages share of
lawsuit recovery, which was benefit of bargain, non-breaching party treated oil and
gas operating agreement not as terminated but as continuing and thus “could not
cease to share in the expenses and still insist in sharing in the recovery”); See also
Hanks, 644 S.W.2d at 708 (holding that by choosing to treat contract for sale of
business as continuing after other party's breach of covenant not to compete and by
retaining all assets of business and continuing its operation, non-breaching party
waived any right it had to partially rescind contract); See also Gupta, 140 S.W.3d
at 757–58 (holding that when non-breaching party elected to treat joint venture
agreement in full force and effect after alleged breaches at beginning of agreement
and continued to demand performance of opposing party, party's failure to comply
with agreement was not excused).
The Court’s primary concern in construing a written contract is to ascertain
the parties’ true intent that is expressed in the instrument. Coker v. Coker, 650
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S.W.2d 391, 393 (Tex. 1983). The Court must consider the entire contract to give
effect to all provisions so that none are rendered meaningless, and it is only when a
court can give a definite legal meaning to a written instrument that the contract is
construed as a matter of law. Id.
The trial court should not have decided the issue of who materially breached
the contact first because the summary judgment evidence was in dispute on that
issue. Wells Fargo claims Shellnut defaulted in February 2010. (CR 344).
However, the summary judgment evidence also shows that Shellnut made loan
installment payments through February 2011. (CR 528). Taken together, this
would mean that Wells Fargo at most established Shellnut was late in making his
February 2010 payment and that Wells Fargo elected to continue accepting
payments, which would not establish that Shellnut materially breached in February
2010. Wells Fargo did not present any uncontroverted summary judgment
evidence that Shellnut remained in breach or in default throughout 2010 when it
began having account errors regarding claimed advanced taxes and insurance;
therefore, Wells Fargo has not met its burden in disproving at least one required
element of Shellnut’s breach of contract claim or establishing an affirmative
defense as a matter of law.
Wells Fargo’s arguments in its Motion for Summary Judgment on Shellnut’s
contract claim also focuses on its mistaken contention that Shellnut asserts he is
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entitled to a loan modification. (CR 345–46). However, Shellnut has never
asserted that he was entitled to a loan modification. Here, the Note and Deed of
Trust establish the parties’ contractual rights and duties. The summary judgment
evidence establishes that Shellnut paid all payments on his account through
January 2011. (CR 524). The summary judgment evidence also establishes that
Wells Fargo treated the contract as continuing after Shellnut’s missed payments
and that Shellnut continued to send payments in 2010 while at the same time
requesting a reinstatement figure. (CR 494). Wells Fargo, through its attorney,
provided a document on multiple occasions entitled “Reinstatement Quote,” but
the Quotes expressly state in bold that they “are subject to final verification” and
that Wells Fargo expressly “reserves the right to collect additional amounts.” (CR
552–54). Wells Fargo refused to verify that if Shellnut paid by the date listed it
would reinstate his account. (CR 570–72). The parties dispute the legal
requirements of the DOT as to each party. Shellnut contends sections 4 and 14 of
the DOT require Wells Fargo to give Shellnut a ten-day written notice and
opportunity to cure before it pays any taxes or liens that Wells Fargo determines
could attain priority over its security interest. (CR 507, 512). Shellnut also
contends that section 18 requires Wells Fargo to confirm the amount in writing that
Shellnut needed to pay to be fully reinstated. (CR 513). Wells Fargo disagrees
and contends that the “Reinstatement Quotes” it sent were sufficient despite the
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facts that they stated there could be additional fees and that its customer service
representative stated that paying the amount listed would stop the foreclosure, but
not necessarily reinstate the account. (CR 552, 553, 554). Mrs. Shellnut attempted
to verify the numbers in the June 20, 2011 Reinstatement Quote by calling Wells
Fargo for information and at least part of that call was recorded and transcribed.
(CR 553, 563–68). Wells Fargo was unable to provide any details regarding the
makeup of the reinstatement quote, so customer service tried to help by calling
Barrett Daffin and after multiple transfers the Wells Fargo employee comments
that “these do not want to help people out.” (CR 567). Another call transcript is
included as an example of what Shellnut went through seeking to confirm that
information from Barrett Daffin was correct where he went through the process of
trying to verify the reinstatement quote but ended in the Wells Fargo employee
refusing to verify the amount. (CR 568–72). Shellnut believed there were account
errors, tried to get a true reinstatement quote, and requested confirmation in writing
that when paid the account would be reinstated, but could not get the amount and
did not pay. During the litigation, more than a scintilla of evidence was gathered
that shows as early as January 4, 2010, Wells Fargo was assessing fees not owed
by Shellnut and demanding reimbursement for the wrong amount of money. (CR
594). Taken as true, then Wells Fargo never was never correct with its
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reinstatement figures and Shellnut was correct in challenging them and refusing to
pay without Wells Fargo verifying what the figures were made up of.
The summary judgment evidence shows that as of August 7, 2012, Wells
Fargo claimed Shellnut was past-due on his account a total of $51,161.69,
including at least $18,478.66 attributed to fees that include “Miscellaneous Escrow
Disb,” taxes, insurance, inspections, title, and others fees, many of which Wells
Fargo allegedly advanced in 2010. (CR 524, 594). Wells Fargo lists fees for taxes,
but Tarrant County’s tax records for Shellnut’s Property contradict Wells Fargo’s
records and there is at least a $2,000.00 discrepancy. (CR 545, 587, 588, 592, 594).
This discrepancy in tax payments began in 2010 and a genuine issue of material
fact exists regarding what Shellnut actually owes because Wells Fargo has been
threatening foreclosure since at least June 2010 if Shellnut did not pay this
incorrect amount. (CR 581).
Further, comparing Plaintiff’s summary judgment Exhibits 13, 14, and 21
show another clear example of Wells Fargo’s accounting errors and contractual
breaches that create issues of material fact relating to Shellnut’s lack of continued
performance in 2011 and TDCA claims. (CR 581–84, 593–95). Plaintiff’s Exhibit
13 shows that Wells Fargo told Shellnut that as of May 23, 2010, his total account
delinquency was $2,436.92, but less than one month later, on June 11, 2010, Wells
Page 35 of 63
Fargo told Shellnut that he owed $13,198.07, which is in the claimed modification
offer for which Wells Fargo told Shellnut he was being considered (CR 581–84).
Wells Fargo’s offered “Modification” claims that as of June 2010, Shellnut
owed approximately $9,000.00 in unpaid escrow fees that Wells Fargo was going
to add to Shellnut’s principal balance. However, that figure is expressly
contradicted by Wells Fargo’s own “accounting” of Shellnut’s loan, which shows
that as of June 2010, Wells Fargo only paid $1,589.48 in escrow advances. (CR
593–95). There is further no written notice to Shellnut that Wells Fargo was going
to make any of these advancements. The summary judgment evidence presented
shows that since at least June 2010, Shellnut’s account contained errors regarding
the amounts demanded by Wells Fargo and the amounts allegedly paid by Wells
Fargo on Shellnut’s account.
Related to Wells Fargo’s failure to accurately keep track of Shellnut’s
payments, Wells Fargo breached the deed of trust contract when it paid Shellnut’s
insurance and taxes without first sending Shellnut written notice with an
opportunity to cure. This assumes Wells Fargo actually paid the insurance and
taxes as claimed, which Shellnut does not concede. Shellnut is required to pay all
taxes and any other type of fee that can acquire priority over Wells Fargo’s
security interest in the Property. (CR 507–08). If Shellnut does not pay those fees,
the Deed of Trust allows Wells Fargo to advance funds to pay any lien, which
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would include tax liens that might attain priority over its security interest after it
sends Shellnut a written notice giving ten days to take a specific set of actions.
(CR 507). Wells Fargo can only obtain insurance on the Property and bill it to
Shellnut’s account if Shellnut fails keep his own insurance on the property. (CR
508). Wells Fargo did not file any summary judgment evidence showing the trial
court that Shellnut did not maintain his own insurance during the relevant periods
of time or that Wells Fargo sent Shellnut a notice with ten days to cure before
paying his taxes or insurance or that it actually made the payments reflected. Thus,
issues of material fact exist regarding Wells Fargo’s breach of contract and the
validity of the fees it charged to Shellnut.
Shellnut attached summary judgment evidence in support of each element
for his breach of contract claim. Shellnut performed, or tendered performance,
through at least January 2011. (CR 494–97, 498–502, 503–21, 522–31). Wells
Fargo breached the loan contracts, which was evidenced by the attached summary
judgment evidence. Shellnut’s only breach alleged by Wells Fargo is missed
payments. Wells Fargo representative Maynhia Her stated under oath on August 7,
2012, that Shellnut failed to make his installment payment due for February 2011
and that as of August 8, 2012, the amount required to cure default by Shellnut was
$51,161.69. (CR 528). Thus, any payment related issue in 2009 or 2010 would be
a late payment issue, not a missed payment, leaving an issue of material fact
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concerning whether Wells Fargo materially breached first in 2010 when it began
making errors in applying and keeping track of Shellnut’s payments, or assessing
charges or fees that were not owed, as early as May 2010. (Compare CR 581
(showing a total delinquency of $2,436.92 as of May 23, 2010); CR 583 (claiming
that $13,198.07 was past due as of June 11, 2010); CR 585 (showing $2,795.76
was past due as of August 15, 2010); and CR 594 (showing as of November 2010
only $3,102.48 had been advanced).) Thus, in making every inference in
Shellnut’s favor, the trial court should have denied summary judgment and this
court should reverse and remand for further proceedings.
2. The Statute of Frauds is inapplicable to Shellnut’s Fraud Claim
Shellnut’s fraud claim is essentially that if Wells Fargo is going to send
letters to Mr. Shellnut stating that he might be eligible for a loan modification if he
fills out the application and submits all of the requested supporting documents,
then Wells Fargo had a duty to fully disclose and inform him once it knew his loan
was not eligible for modification. Shellnut made decisions leading to significant
financial harm and mental anguish that he would not have made had Wells Fargo
disclosed in 2010 that his loan was not eligible for a loan modification. Wells
Fargo in its reply brief argues not only that because the complained of conduct
relates to a loan the statute of frauds bars any claim for this type of conduct, but
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also that no such misrepresentation occurred because Shellnut was being reviewed
or was eligible for a modification. (CR 626).
The summary judgment evidence shows that Wells Fargo noted Shellnut as
prequalified for modification on November 23, 2009, but then on February 9,
2010, Wells Fargo determined that per investor guidelines it could not change the
interest rate, could extend the maturity date to January 31, 2037 (10 months
beyond the original maturity date of March 1, 2036 (CR 364)), and could cap
everything. (CR 597). The Shellnuts’ eligibility was based on the type of their
loan rather than financial information, as none had been provided as of February,
16, 2010. (CR 612). On June 8, 2010, Wells Fargo notes that after a review of the
financials that Shellnut had a surplus in the amount of $451.71 and that Shellnut
did not have the ability to support an “RPP” (presumably a repayment plan). (CR
596). A second note stated that per the investor guidelines Wells Fargo could not
reduce a fixed rate, could not reduce “ARM” rate, and could extend maturity date
only to January 31, 2037. (CR 596). When questioned about this issue, the Wells
Fargo corporate representative stated that Shellnut was ineligible for the potential
June 8, 2010 modification. (CR 602). The representative agreed that Wells Fargo
knew that Shellnut was requesting a reduced payment amount but did not know if
he was ever actually being considered for that type of modification or if it was
even available. (CR 603–04). The representative could not identify what
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corporate policies were in 2010, but affirmed that in 2012 Texas Cash-Outs could
not be modified. (CR 605–06). The representative also stated that whether
Shellnut was or was not eligible for a loan modification in 2010 is moot because he
asked for help and every time a borrower asks for help Wells Fargo sends out the
same letter and allows the borrower to be reviewed again—regardless of eligibility.
(CR 607). When asked if Wells Fargo should have told Shellnut he was not
eligible for, the corporate representative stated that (1) Shellnut was told in 2012,
and (2) there was no reason to tell him before 2012. (CR 607–08). Even when
asked specifically whether a person who has equity should be told that he or she is
not eligible for a reduced payment, the representative responded that Shellnut was
told that in 2012 and there was no reason to tell him before that. (CR 608).
The corporate representative stated that there was no way for Wells Fargo to
determine what Shellnut was being reviewed for from 2009–2012, but that she
could not recall ever seeing a Texas Cash-Out loan modified. (CR 609–11). Yet
on multiple occasions throughout 2011 and 2012, Wells Fargo updated Shellnut
when he called, making false statements of fact specifically telling Shellnut about
progress being made on his loan modification—progress that was not in fact being
made towards a modification that would reduce his monthly payment. (CR 495,
496, 561, 562, 573, 575–79).
Page 40 of 63
After Wells Fargo contacted Shellnut and offered to review a loan
modification application if he would submit one, along with the supporting
documents, it had a legal duty as of June 2010 to disclose to Shellnut that his loan
was not eligible for reduced monthly payments. A duty to disclose may arise in a
commercial context in four situations: (1) when there is a fiduciary relationship
between the parties; (2) when one voluntarily discloses information, the whole
truth must be disclosed; (3) when one makes a representation, new information
must be disclosed when that new information makes the earlier representation
misleading or untrue; or (4) when one makes a partial disclosure and conveys a
false impression. Citizens Nat'l Bank v. Allen Rae Investments, Inc., 142 S.W.3d
459, 477 (Tex. App.—Fort Worth 2004, no pet.). As argued above, this issue is
adequately pled to put Wells Fargo on notice, and summary judgment, to the extent
it may have been granted related to a pleading deficiency, should not have been
granted as no special exceptions were filed and there was adequate notice.
In the case before the Court, Wells Fargo voluntarily disclosed that Shellnut
might be eligible for a loan modification that could reduce his monthly payments
before determining in February or June 2010 that a Texas Cash-Out was not
eligible for a reduced monthly payment, yet failed to tell Shellnut that until August
2012. Wells Fargo obtained new information (ineligibility of the loan) it never
shared with Shellnut, who had no independent ability to discover that information
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and was relying on Wells Fargo to fully disclose the true status of his application in
making decisions concerning his house. Wells Fargo’s corporate representative
testified that upon review—knowing all of Shellnut’s claims—Wells Fargo had no
reason to inform him that his loan was not eligible for the reduced monthly
payment modification he had been applying for. The statute of frauds is
inapplicable because the issue complained of is not that Shellnut did not get a loan
modification, but that Wells Fargo waited two years from the date it knew he was
not eligible to tell him. During this time, Shellnut was damaged separately from
the contract in that he suffered negative credit reporting that caused or contributed
to the loss of his job, mental anguish damages, and loss of the accumulated equity
in his home. Wells Fargo should have informed Shellnut so he would have the
facts necessary to make decisions, like whether to put his house on the market
rather than trying for a loan modification.
The Deuley case relied on by Wells Fargo in its motion for summary
judgment is distinguishable from the case at hand. Deuley v. Chase Home Finance
LLC, CIV.A. H-05-04253, 2006 WL 1155230 (S.D. Tex. Apr. 26, 2006).
Shellnut’s claims do not involve an alleged oral modification that he is seeking to
enforce, but instead involve Wells Fargo’s breach of duty to disclose when it
determined that Shellnut was ineligible in 2010 for a reduced monthly payment
and made misrepresentations related to account errors regarding what was owed.
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The statute of frauds should not be applied here and does not support the dismissal
of the above listed claims based on the summary judgment evidence presented to
the trial court.
3. The Statute of Frauds is inapplicable to Shellnut’s TDCA Claim
Wells Fargo asserts that the statute of frauds bars Shellnut’s TDCA claim as it
seeks to enforce an unenforceable oral agreement. (CR 349). Again, Shellnut’s
claim is not intended to enforce an oral agreement concerning loan modifications
as Shellnut and Wells Fargo never reached a modification agreement. Shellnut’s
claim is seeking to hold Wells Fargo responsible for its TDCA violations in the
course of dealing with Shellnut concerning his mortgage debt. The loan
modification letters, statements made in the phone calls regarding the loan
modification, the reinstatement quotes that threaten foreclosure and demand
payment of an incorrect amount, and the other summary judgment evidence shown
above do not relate to oral loan modifications but to false and misleading
representations about the nature and amount of the debt. The result of these was
the loss of equity in collateral, increased debt to Wells Fargo, mental anguish, and
damage to Shellnut’s credit that resulted in the loss of his job.
The Kruse case relied on by Wells Fargo involves a borrower who seeks to
recover damages for a lender’s failure to perform an oral promise governed by the
statute of frauds. In the case at hand, Shellnut seeks to hold Wells Fargo
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accountable for the damages it caused in withholding information related to his
ineligibility, as well as the false and misleading statements of fact concerning the
amounts due, advances made, type of loan modification Shellnut was being
reviewed for, and account errors regarding the total balance. Kruse v. Bank of New
York Mellon, 936 F. Supp. 2d 790 (2013). Cases that have a more similar fact
pattern include: McCaig v. Wells Fargo Bank (Texas), N.A., 788 F.3d 463 (5th Cir.
2015) and Waterfield Mortg. Co., Inc. v. Rodriguez, 929 S.W.2d 641, 644 (Tex.
App.—San Antonio 1996, no writ); both of which are more fully addressed below.
4. The Statute of Frauds is inapplicable to Shellnut’s Negligent
Misrepresentation Claim
The statute of frauds is inapplicable to the negligent misrepresentation claim
because the claim is not based in an unenforceable oral contract. The summary
judgment evidence and facts relied on are the same as stated above in the breach of
contract and fraud sections. The analysis in Maginn v. Norwest Mortgage, Inc. is
relevant to this situation. Maginn v. Norwest Mortgage, Inc., 919 S.W.2d 164, 169
(Tex. App.—Austin 1996, no writ). In Maginn, the trial court held that the
plaintiff’s tort claims related to Norwest’s contingent loan approval, oral
representations that the loan would close and was approved were barred by the
statute of frauds because their nucleus was in an unenforceable oral contract. The
appellate court disagreed and held that the tort claims were not barred by the
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statute of frauds. The court clarified, stating: “Irrespective of their contract claims,
appellants’ alternative tort claims do not allege that Norwest contracted to loan
them money and then breached that contract. Instead, appellants allege that
Norwest never did agree to loan them money, but negligently misrepresented that it
would.” Id. The same reasoning applies here. Wells Fargo repeatedly
misinformed Shellnut—that he was being reviewed for a loan modification, was in
underwriting, more documents were needed, and so on—through 2010, 2011, and
half of 2012 when it knew by June 2010 that Shellnut’s loan was ineligible for a
loan modification for monthly payment.
The Maginn court relied heavily on the Texas Supreme Court case Federal
Land Bank v. Sloane in making their decision. Fed. Land Bank v. Sloane, 825
S.W.2d 439 (Tex. 1991). In Sloane, a bank had represented to the plaintiff that it
would loan him money, and he incurred expenses relying on this representation.
After the bank ultimately denied the plaintiff the loan, he sued it on a negligent
misrepresentation theory. The Court disagreed with the bank’s statute of frauds
defense explaining, “The Sloanes do not claim that the bank agreed to loan them
money and then breached that agreement; rather, they claim that the bank did not
agree to loan them money, yet negligently misrepresented that it had made such an
agreement.” Id. at 442.
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Wells Fargo breached its duty by causing Shellnut to incur expenses and
damages in relying on representations that his loan was being reviewed for
modification and that it was likely to be eligible. When viewed most favorably to
the nonmovant, the summary judgment evidence shows that: (1) Wells Fargo
represented to Shellnut that it was reviewing his loan for modification; (2) Wells
Fargo in fact knew that Shellnut’s loan could not be modified; and (3) Shellnut
incurred additional fees and late charges, endured mental anguish, and had
negative credit reporting that resulted in lost income that would not have occurred
if Wells Fargo had fully informed him that the applications he was sending in and
the monthly reduction in his loan payment he was waiting on had already been
decided on in 2010 by Wells Fargo.
B. Wells Fargo Fails to Establish as a Matter of Law that the Economic Loss
Rule Bars Shellnut’s Claims for Fraud, TDCA, or Negligent
Misrepresentation
Wells Fargo asserts in its motions for summary judgment that the economic
loss rule bars Shellnut’s fraud, TDCA, and negligent misrepresentation claims, but
failed to conclusively prove it as a matter of law. Wells Fargo not only falls short
of establishing that Shellnut’s claims are precluded, but it also fails to fully and
properly state the rule. The economic loss rule looks at the nature of both the
duties and injuries involved. Sw. Bell Tele. Co. v. Delanney, 809 S.W.2d 493, 494
(Tex. 1991); Formosa Plastics Corp. USA v. Presidio Engineers and Contractors
Page 46 of 63
Inc., 960 S.W.2d 41, 45 (Tex. 1998). Duties exist at law where there are general
obligations apart from any promises made or intentions manifested to avoid
injuring others. Delanney, at 494. When a defendant would be liable for its
conduct regardless of the fact that a contract exists, the plaintiff may have a tort
claim; when a defendant would only be liable because a contract did in fact exist,
the plaintiff ordinarily only has a contract claim. Id. The nature of the injury
usually determines which duties are breached, and when the only injury is
economic loss to the subject of a contract, only a contract claim exists. Id. at 495
(citing Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986)).
Wells Fargo heavily relies on Delanney, however it fails to properly apply it
to the facts of this case. While the Delanney Court limited the plaintiff to a breach
of contract claim because the “defendant’s duty existed only by virtue of the
contract between the parties,” the conduct complained of was the defendant’s
failure to publish plaintiff’s yellow pages listing according to their contract. There
were no facts pled or alleged harm based on anything not contained in contract to
publish the yellow page listing.
Here, Shellnut complains that Wells Fargo’s conduct breached duties it
would have had with or without a contract in place. The parties agree there was no
written contract between the parties that required a loan modification to be offered,
for a loan modification to be reviewed, or for Wells Fargo to even consider it, yet it
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is also undisputed that Wells Fargo chose to repeatedly send applications for loan
modifications to Shellnut or that Shellnut filled them out, sent in financial
documents, and that the parties communicated frequently regarding the status of
the loan modification. Regardless of any loan contract, Wells Fargo has the same
legal duties of care as any stranger to Shellnut and may be held liable for their
breach as well as for violations of the TDCA. If a company that was a complete
stranger contacted Shellnut stating it offered refinancing services and would
consider refinancing Shellnut’s loan if he filled out an application, sent in
documents regarding his income, represented that it was working with Wells Fargo
to determine a pay off, and then represented that it was reviewing the loan, that the
modification review had progressed to underwriting, that it was just waiting on
Wells Fargo to determine the correct pay off or for an updated financial record, but
then it turned out that none of the above was true and there was no communication,
then at minimum there is a potential fraud claim, TDCA claim, and negligent
misrepresentation claim if Shellnut’s reliance was reasonable and if he ultimately
suffered damages. The same analysis should apply here, and, because Wells Fargo
was the servicer of the Shellnuts’ loan, the evidence of his reasonable reliance on
what he was told is that much stronger.
Moreover, Shellnut suffered an independent injury as a result of Wells Fargo
breaching its duties at law. The economic loss rule bars tort claims when the
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injury is nothing more than economic loss related to the performance and subject
matter of the parties’ contract. Formosa, at 45. Shellnut’s lost equity, negative
credit reporting causing or contributing to his lost employment, mental anguish
damages, and other damages as pled were not caused by a breach of contract by
Wells Fargo but by the misrepresentations, withheld information, credit reporting
and, other conduct of Wells Fargo unrelated to any contractual term.
1. Fraud and TDCA—Economic Loss Rule
Wells Fargo failed to conclusively establish that Shellnut’s fraud and TDCA
claims are barred by the economic loss rule when it relied on conclusory
statements and cited to authority that has very little underlying factual connections
to his case. Shellnut provided summary judgment evidence listed above that, taken
as true, shows Wells Fargo committed fraud and violated the TDCA when it
assessed false charges stemming from account errors in Shellnut’s account and
sought to take possession of the Property through a foreclosure sale based on those
false charges. Wells Fargo also intentionally or recklessly misled Shellnut by
sending modification applications to him asking that he fill them out and indicating
he could receive a loan modification that could lower his monthly payment based
on his financial status, all the while knowing he had been determined ineligible in
2010. Further, Shellnut’s resulting loss of equity, mental anguish damages, loss of
income from negative credit reporting, and disclosures made to his employer
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causing or contributing to his job loss are independent injuries not based on the
performance of the contract, but caused by Wells Fargo’s actions, statements, and
decisions to withhold information from Shellnut that were not covered by the Note
and Deed of Trust, or relating to any duties or obligations created by the Note and
Deed of Trust.
The Fifth Circuit recently analyzed a very similar situation in the McCaig
case when it determined the economic loss rule did not apply and upheld an
approximate $300,000.00 verdict against Wells Fargo resulting from “mistakes”
made by Wells Fargo in servicing the McCaigs’ loan that were found to be
violations of the TDCA and breach of contract. McCaig v. Wells Fargo Bank
(Texas), N.A., 788 F.3d 463 (5th Cir. 2015).
The Fifth Circuit stated: “If Wells Fargo violated the TDCA, it can be held
liable for those violations even if there are contracts between the parties, and even
if Wells Fargo's prohibited conduct also amounts to contractual breach. A statutory
offender will not be shielded from liability simply by showing its violation also
violated a contract.” Id. at 475. The Fifth Circuit specifically notes that the TDCA
contemplates that there will often be contractual duties between the consumer and
debt collectors, but that even between contracting parties there can be independent
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duties. Id at 474–75.1 The analysis for the TDCA claims is equally applicable to
the fraud claims.
The above cited summary judgment evidence, taken as true, shows Wells
Fargo withheld from Shellnut its 2010 determination of his ineligibility for the
modification he was applying for through 2012 and waiting to hear back on, and
also during that time, Wells Fargo made account errors that led to it seeking to
collect improper amounts from Shellnut. Wells Fargo attached no summary
judgment evidence to its Motion for Summary Judgment explaining the
discrepancies in the written communications sent to Shellnut and the information
filed by Wells Fargo in the foreclosure application or contained in the Tarrant
County tax records that could support dismissal by summary judgment.
Wells Fargo relies on Heil Co. v. Polar Corp. in its Motion for Summary
Judgment for support that the economic loss rule precludes fraud claims, but fails
to address that the opinion by the Court in that case was very fact determinative
and those facts are much different than the facts presented in this case. Heil Co. v.
Polar Corp., 191 S.W.3d 805 (Tex. App.—Fort Worth 2006, pet. denied). In Heil,
1
See also Breach of “an independent legal duty, separate from the existence of the contract
itself,” represents a particular situation where tort claims (based on that independent duty) may
co-exist with contract claims (based on a breach of the contract). Formosa Plastics Corp. USA v.
Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998). “Thus, a party states a tort
claim when the duty allegedly breached is independent of the contractual undertaking and the
harm suffered is not merely the economic loss of a contractual benefit.” Chapman Custom
Homes, Inc. v. Dallas Plumbing Co., 445 S.W.3d 716, 718 (Tex.2014).
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the plaintiff’s complaints were for conduct specifically subject to the contract, and
the fraud claim’s only function was seeking punitive damages. Id. at 817. The
plaintiff’s claims were based on a failure to defend and indemnify as required by
the terms of the agreement, but did not concern any other conduct. Id. Much like
the cases and arguments cited to by Wells Fargo in the McCaig case that the Fifth
Circuit determined were so factually different as to not apply, the Heil case is very
different. Shellnut’s claims concern Wells Fargo’s conduct, omissions, and duties
taken on when it made representations relating to processing a loan modification.
Once it did that, as shown above, Wells Fargo was taking actions, making
representations, and owing Shellnut duties of truth and full disclosure that were
outside the scope of the loan contracts. Wells Fargo cites McDaniel v.
JPMorgan Chase Bank to support its assertion that TDCA claims are precluded by
the economic loss rule. McDaniel v. JPMorgan Chase Bank, No. 1:12-CV-392,
2012 WL 6114944 (E.D. Tex. Dec. 10, 2012). While the McDaniel court did find
that the economic loss rule has been applied to misrepresentations where actions
taken by a lender were wrongful only because they violated the agreement, this
case is distinguishable. The court explained that a plaintiff cannot recover under
tort when the deed of trust governs the conduct allegedly violating the TDCA. Id.
at *7. In that case, the complaints concerned payments and consequences of non-
payment governed by the deed, whereas Shellnut complains of false or misleading
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representations regarding the status of a loan modification that could result in a
lower monthly payment—that is, false representations regarding progress being
made in the review as the same time as account errors were being made that caused
damage to Shellnut as listed. These actions—not covered by the loan contracts—
constitute TDCA violations as pled. Stated another way, Wells Fargo paid taxes
and insurance without notice to Shellnut, in violation of the notice provisions in the
Deed of Trust. This breach of contract did not harm Shellnut, but what harmed
Shellnut is that Wells Fargo then filed foreclosure proceeding attempting to collect
debt not owed, misrepresented that debt to the court and Shellnut, and was
simultaneously representing to Shellnut in letters and over the phone that loss
mitigation was reviewing him for a loan modification. Wells Fargo went on to
represent that Shellnut’s application had advanced to underwriting and that he just
needed to send in updated financial info to move forward, all the while knowing he
could never qualify for a reduced monthly payment. These failures to disclose the
whole truth, misrepresentations regarding progress of the loan modification,
prolonged negative credit reporting, and attempts to foreclose based on inaccurate
account information are what harmed Shellnut and constitute fraud and TDCA
violations whether or not there was a contract. These actions are tortious even if
committed in the absence of a loan agreement.
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Even if Shellnut’s first missed or late payment gave Wells Fargo a right to
seek foreclose under the Loan Agreement following Shellnut’s breach, a
contractual right to foreclose on a property does not completely shield a debt
collector from liability under the TDCA. EMC Mortg. Corp. v. Jones, 252 S.W.3d
857, 869–70 (Tex. App.—Dallas 2008, no pet.). Liability for violations of the
TDCA can be based on both “the right to” collect and the “manner in which the
right is exercised.” Id. Regardless of any contractual right to foreclose created by
the Loan Agreement that Wells Fargo might have had, Wells Fargo violated the
TDCA by falsely representing that there was a way out of this situation through a
loan modification that, even in 2010, it knew could not lower a monthly payment.
Wells Fargo’s policy is not to tell the borrower when it is determined that a loan is
not eligible; instead, its policy is to keep sending out loan modification application
solicitations and requests for financial information even when the relief requested
has been denied and will not change. The determination in February 2010 was
made not based on Shellnut’s financial information that could change, but on the
fact that he had a Texas Cash-Out loan, something that was never going to change.
The trial court erred in dismissing Shellnut’s fraud and TDCA claims based on the
economic loss doctrine as the conduct complained of related to the manner of
collection and violations of the independent duty of disclosure and caused
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damages, including mental anguish and lost income, that are not breach of contract
damages, but tort damages.
Wells Fargo cites to the Chavez case that stated, “ We do not condone Wells
Fargo's conduct as alleged, but terrible customer service is not automatically the
equivalent of “deceptive means.” We have previously held that statements
regarding loan modifications do not concern the “character, extent, or amount of a
consumer debt” under section 392.304(a)(8)” and that to maintain a claim under
section 392.304(a)(19), a borrower would need to allege that Wells Fargo made an
“affirmative statement ” that was false or misleading. Chavez v. Wells Fargo Bank,
N.A., 578 Fed. Appx. 345, 348 (5th Cir. 2014). While there was certainly poor
customer service, Shellnut’s summary judgment evidence does not just allege or
allude to claimed vague claimed “not to worry” type statements as alleged in
Chavez, but cites to Wells Fargo’s internal notes, records and recorded calls
showing that Shellnut was told he was in underwriting, that Wells Fargo was
requesting that he send in additional financial information, when due to his loan
type he was never going to be approved, which was all going on at the same time
as Wells Fargo’s account errors causing the compute generated demands, account
statements and other correspondence sent to Shellnut to have in correct balances or
demand payments for claimed advances that were either not made or should not
have been made. These facts are actionable under the TDCA and for Fraud.
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2. Negligent Misrepresentation
a. The negligent misrepresentations shown in the summary judgment evidence
were based
on duties not created by contract and caused economic and non economic
harm.
Wells Fargo failed to conclusively establish that the economic loss rule bars
Shellnut’s negligent misrepresentation claim. Wells Fargo has not proven that it
did not have an independent duty of care or that its negligent misrepresentation did
not cause Shellnut a separate injury.
Wells Fargo relies on Rivera v. Bank of America to establish that the
economic loss rule bars a negligent misrepresentation claim if the borrower cannot
demonstrate that the lender owed any duty independent of a note and security
instrument. Rivera v. Bank of America, N.A., No. 4:13-CV-195, 2014 WL
2996159, at *7 (E.D. Tex. July 3, 2014). In this case, however, Wells Fargo, when
it chose to offer loan modification as an option to Shellnut, owed Shellnut an
independent duty—a duty to use reasonable care in providing information to
customers or potential customers, a duty of full disclosure, a duty to correct
information previously disclosed once it determined Shellnut’s loan could not be
modified, making prior representations misleading. See Citizens Nat'l Bank at 477;
Fed. Land Bank Ass’n of Tyler v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991). Wells
Fargo had a separate legal duty of care; therefore, Wells Fargo has not proven
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that Shellnut’s negligent misrepresentation claim should be dismissed as a matter
of law and dismissal of this claim in summary judgment was improper.
The court’s holding in Rivera that the plaintiffs’ complaints relating to the
parties’ contractual relationship under the terms of the note and security instrument
could not form the basis of a negligent misrepresentation claim is inapplicable
because Shellnut’s claims relate to Wells Fargo’s representations during the
modification application process, a process that was specifically not under the
terms of the Loan Agreement. Because Wells Fargo’s conduct complained of is
unrelated to the loan contracts and caused Shellnut injury, including mental
anguish damages, the economic loss rule does not bar his negligent
misrepresentation claim as a matter of law alleged in the motion for summary
judgment. Rivera, at *7.
b. Wells Fargo Failed to Conclusively Negate One or More Elements of
Shellnut’s Negligent Misrepresentation Claim and Genuine Issues of Material
Facts Exist.
Under Texas law, the elements of a negligent misrepresentation claim are (1)
the representation is made by a defendant in the course of his business, or in a
transaction in which he has a pecuniary interest, (2) the defendant supplies “false
information” for the guidance of others in their business, (3) the defendant did not
exercise reasonable care or competence in obtaining or communicating the
information, and (4) the plaintiff suffers pecuniary loss by justifiably relying on the
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representation. Fed. Land Bank Ass’n v. Sloane, 825 S.W.2d 439, 442 (Tex.
1991).
Wells Fargo asserts that Shellnut’s negligent misrepresentation claim fails as
a matter of law because such a claim requires proof that the defendant supplied
false information for the guidance of others “in their business.” As support, Wells
Fargo cites cases classifying negligent misrepresentation as a “commercial tort,” as
well a case where the claim was dismissed for lack of evidence that “the
information was supplied for the guidance of others in their business.” In reality,
none of the cited cases include any discussion of this “in their business” element or
what it means. Rather, Wells Fargo is relying on words and phrases taken out of
context with no real indication from the deciding courts regarding the “in their
business” element of a negligent misrepresentation claim. Case law is somewhat
unclear as to where the limits are on this element, however there is more than a
scintilla of evidence that Shellnut relied on the negligent misrepresentations in
making decisions relating to his business, as Shellnut stated in his affidavit that he
relied on the information he was provided in pursuing the loan modification and
the misrepresentations led to the loss of his job.2 Summary judgment should not
have been granted on this claim as more than a scintilla of evidence existed
2
See Burnette v. Wells Fargo Bank, N.A., 4:09-CV-370, 2010 WL 1026968, at *7 (E.D. Tex.
Feb. 16, 2010), report and recommendation adopted, 4:09-CV-370, 2010 WL 1026969 (E.D.
Tex. Mar. 17, 2010) (stating borrower had stated a valid cause of action against lender related to
consumer loan modification of borrower’s home.
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regarding Shellnut making decisions regarding his business based on the
representations he received from Wells Fargo and it should be remanded for
further proceedings.
C. The Trial Court abused its discretion in denying Shellnut’s First Amended
Second Motion to Compel Production of Documents and Interrogatory
Responses and in Granting, in part, Wells Fargo’s Request for a Protective
Order.
The Trial Court abused its discretion when it denied Shellnut’s First
Amended Second Motion to compel (Motion to Compel) with regard to
interrogatories 4–11, 14, 15, 18, 19, 22 and in Granting Wells Fargo’s Protective
Order with regard to deposition topics 8–9r, 13, 17 and 23. As the issues
surrounding the discovery dispute were briefed in detail to the Trial Court and are
somewhat voluminous, Shellnut incorporates all arguments laid out in the
Response Objecting to Defendant’s Motion for Protective Order (CR 222–44),
Motion to Compel and attached Exhibits (CR 253–300) as if laid out in full herein
and relies on the arguments and evidence attached in support, all included in the
Clerk’s Record filed with the Court. As well as the letter brief provided to the
Trial Court. (CR 328–29).
The standard of review is laid out above and it is well established that the
abuse of discretion standard applies and the Court has jurisdiction to review the
Trial Court’s order as final judgment was entered as stated above. Shellnut relies
on the arguments presented and listed above, but additionally would point out a
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few particular arguments and contradictions. Wells Fargo argues in its request for
a protective order that Shellnut’s request to question the corporate representative
regarding differences in home equity loan modifications are irrelevant and that
Shellnut should not be allowed to get information regarding policies and
procedures, yet in the deposition the Corp. Rep. gives testimony about how she
relies on policies and procedures and how they are different for Texas Cash out
loans in her explanation and justification for how Shellnut’s loss mitigation file
was handled. (Compare CR 189–90 and 605–06).
Despite the Corp. Reps. clear reliance on Wells Fargo’s policies and
procedures in her deposition testimony, Well Fargo argued to the Trial Court at
length and specifically in its affidavit in support of its response to the Motion to
Compel (CR 325) and in its request for protective order (CR 205–09) that the
information requested in the above listed interrogatories and deposition topics was
overly burdensome to gather and further were protected trade secrets. At a
minimum the policies and procedures that were specifically used by Wells Fargo to
guide its employees who dealt with Shellnut should have been ordered to be
produced based on the exhibits and argument presented to the Trial Court.
In addition to the arguments laid out in the Motion to Compel filed with the
Trial Court, Shellnut would point out some factual statements made by Wells
Fargo’s Corp. Rep that were not available at the time the Motion to Compel or
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Response to the Motion for Protective Order were filed. Of note Ms. Brooke
Bosier testified that:
a. She didn’t know when a loss mitigation department was created in Texas;
(CR 601)
b. When the loss mitigation department was created that handled Shellnut’s
applications or whether or not loan modification applications were being
submitted but no department had yet been created to review them; Id.
c. Wells Fargo’s policy for Texas cash out refinance in 2012 was that we
would only give repayment plans; (CR 605)
d. Wells Fargo might have had a different policy in 2010, but she didn’t know
it or if there was a way to determine what Wells Fargo’s policy was; (CR
605–06)
e. She trusts and relies on the 2010 policies and procedures without knowing
what they are; (CR 606)
f. She did not see violations of policies and procedures; (CR 610)
The arguments and evidence cited to in the Motion to Compel and the
Response to Wells Fargo’s Request for Protective Order, in addition to the
deposition testimony cited to above show that the requested topics and
interrogatories were in fact relevant, reasonably limited in the scope and each
requested information regarding disputed facts and topics with sufficient
specificity as to require Wells Fargo to answer under the Texas Rules of Civil
Procedure and the Trial Court abused its discretion in not allowing Shellnut access
to this information. Shellnut requests that upon remand of the above causes of
action this Court issue additional instructions for the Trial Court regarding,
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modifying the Trial Court’s order on the Motion to Compel and Protective Order,
CR 333-335.
CONCLUSION AND PRAYER
Appellant does not challenge the Trial Court’s dismissal of the negligent
hiring, DTPA and promissory estoppel claims. However, for the reasons set forth
above, Appellant, Freddie Shellnut, respectfully requests that this Honorable Court
grant Appellant’s appeal in full and remand for further proceedings his breach of
contract, TDCA, Fraud and Negligent Misrepresentation claims. Shellnut prays
that this Court reverse the trial court’s judgment and remand this case for further
proceedings.
ORAL ARGUMENT
Appellant requests oral argument be granted as it may shed clarity on the
argued distinctions related to the various duties owed, regarding the distinctions
between the summary judgment evidence showing breach of contract and actions
that constitute efforts to collect debt that are actionable regardless of whether or
not there is a breach of contract or who defaulted first.
Respectfully submitted,
LAW FIRM OF CALEB MOORE, PLLC
2205 Martin Drive, Suite 200
Page 62 of 63
Bedford, TX 76021
Telephone: (817) 953-2420
Facsimile: (817) 581-2540
By: /s/ Caleb Moore
Caleb Moore
cmoore@thedfwlawfirm.com
SBN: 24067779
Attorney for Freddie Shellnut
CERTIFICATE OF COMPLAINCE
This brief was prepared using Microsoft Word. Relying on the word count
function in that software, I certify that this brief contains 14,598 words. I certify
that this brief is in compliance with Local Rule 1.
/s/ Caleb Moore
Caleb Moore
CERTIFICATE OF SERVICE
I certify that on November 9, 2015, the above was served in accordance with
the Texas Rules of Civil and Appellate Procedure on opposing counsel using the
Clerk’s efiling system:
/s/ Caleb Moore
Caleb Moore
STATEMENT REGARDING APPENDIX
The Appellant is of the opinion that an appendix in this case containing
copies of the loan contracts, Trial Court’s judgment and other written
correspondence would be voluminous and impractical as well as duplicative of the
Clerk’s Record relied on and cited to and likely not aid the Court. As such, an
appendix has not been created. If Appellant’s opinion is mistaken, he can
promptly supplement this brief with an appendix upon receiving notice from this
Court.
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