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Wolf vs. Wells Fargo response to 5.4 Jury Verdict
Citation preview
CAUSE NO. 2011-36476
MARY ELLEN WOLF and § CIVIL DISTRICT COURT
DAVID WOLF §
§
v. §
§
WELLS FARGO BANK, N.A., § HARRIS COUNTY, TEXAS
AS TRUSTEE FOR CARRINGTON §
MORTGAGE LOAN TRUST, TOM §
CROFT, NEW CENTURY MORTGAGE §
CORPORATION, AND CARRINGTON §
MORTGAGE SERVICES, LLC § 151st JUDICIAL DISTRICT
DEFENDANTS/COUNTER-PLAINTIFFS’ MOTION FOR JUDGMENT
NOTWITHSTANDING THE VERDICT AND MEMORANDUM OF LAW IN SUPPORT
MAYER BROWN LLP CRAIN, CATON & JAMES Lucia Nale Peter C. Smart (pro hac vice application pending) State Bar No. 00784989 IL State Bar No. 6201684 1401 McKinney, Suite 1700 Thomas V. Panoff Houston, Texas 77010 (pro hac vice application pending) Tel: (713) 658-2323 IL State Bar No. 6283695 Fax: (713) 658-1921 Christopher S. Comstock [email protected] (pro hac vice application pending) IL State Bar No. 6299333 71 South Wacker Drive Chicago, Illinois 60606 Tel: (312) 782-0600 Fax: (312) 701-7711 [email protected] [email protected] [email protected]
Counsel for Defendants/Counter-Plaintiffs
12/21/2015 12:27:48 PMChris Daniel - District Clerk Harris County
Envelope No. 8321717By: VERONICA GONZALEZ
Filed: 12/21/2015 12:27:48 PM
TABLE OF CONTENTS
Page
i
INTRODUCTION ......................................................................................................................... 1
BACKGROUND ........................................................................................................................... 3
I. Plaintiffs’ Mortgage Loan .................................................................................................. 3
II. The NC3 Trust and PSA .................................................................................................... 4
III. Plaintiffs’ Default............................................................................................................... 5
IV. Procedural History ............................................................................................................. 5
V. The Trial and Jury Verdict ................................................................................................. 7
STANDARD OF REVIEW ........................................................................................................... 8
ARGUMENT ................................................................................................................................. 9
I. PLAINTIFFS’ CLAIMS FAIL AS A MATTER OF LAW .............................................. 9
A. Plaintiffs’ Fraudulent Lien Claim Fails As A Matter Of Law ............................... 9
1. Plaintiffs, as mortgage borrowers, lack standing to assert violations of the PSA as a matter of law ................................................................... 10
2. Even if Plaintiffs had standing to assert violations of the PSA, they did not present at trial any evidence of a PSA violation .......................... 14
3. Even if there was evidence of a PSA violation, such a violation would have rendered the Transfer of Lien merely voidable, not void .......................................................................................................... 16
4. Even if the Transfer of Lien was void, an assignment cannot violate the fraudulent lien statute as a matter of law ............................... 19
5. Even if an assignment could violate the fraudulent lien statute, Plaintiffs failed to present any evidence of fraudulent intent .................. 21
6. Plaintiffs also lack standing to assert that the Transfer of Lien is fraudulent on other grounds ..................................................................... 24
7. Even if Plaintiffs had standing, they did not present any evidence at trial to support a finding that the Transfer of Lien is fraudulent .......... 26
B. Plaintiffs’ Remaining Claims Also Fail As A Matter of Law ............................. 27
1. Plaintiffs’ other claims are derivative of their fraudulent lien claim ....... 27
2. There is no evidence to support the elements of the remaining claims ....................................................................................................... 28
a. Negligence per se and gross negligence per se ........................... 28
b. Unjust enrichment and money had and received ......................... 30
c. Declaratory judgment .................................................................. 32
TABLE OF CONTENTS (continued)
Page
ii
II. THE VERDICT IS CONTRADICTORY ........................................................................ 33
III. THE EXEMPLARY DAMAGES AWARD IS IMPROPER AND DISPROPORTIONATE .................................................................................................. 34
IV. DEFENDANTS ARE ENTITLED TO FORECLOSE .................................................... 37
CONCLUSION ............................................................................................................................ 38
iii
TABLE OF AUTHORITIES
Page(s)
Cases
Abruzzo v. PNC Bank, N.A., 2012 WL 3200871 (N.D. Tex. 2012) .......................................................................................12
Akins v. Wells Fargo Bank, N.A., 2013 WL 4735581 (E.D. Tex. 2013) .......................................................................................21
Allstate Ins. Co. v. Michael Kent Plambeck, D.C., 2014 WL 1303000 (N.D. Tex. 2014) .................................................................................32, 34
Amoco Prod. Co. v. Smith, 946 S.W.2d 162 (Tex. App.—El Paso 1997, no pet.) ........................................................30, 31
Auriti v. Wells Fargo Bank, N.A., 2013 WL 2417832 (S.D. Tex. 2013) .......................................................................................12
BAC Home Loans Servicing, LP v. Tex. Realty Holdings, LLC, 901 F. Supp. 2d 884 (S.D. Tex. 2012) .....................................................................................12
Bagby Elevator Co., Inc. v. Schindler Elevator Corp., 609 F.3d 768 (5th Cir. 2010) ...................................................................................................31
Bank of Saipan v. CNG Fin. Corp., 380 F.3d 836 (5th Cir. 2004) ...................................................................................................30
Bank of N.Y. Mellon v. Gales, 982 N.Y.S.2d 911 (App. Div. 2014) ........................................................................................13
Bennett v. Reynolds, 315 S.W.3d 867 (Tex. 2010) ....................................................................................................37
Bernal v. Wilmington Fin., 2013 WL 2896892 (N.D. Tex. 2013) .......................................................................................12
Bierwirth v. BAC Home Loans Servicing, L.P., 2012 WL 3793190 (Tex. App.–Austin 2012, pet. denied) (mem. op.) ....................................12
Bircher v. Bank of N.Y. Mellon, 2012 WL 3245991 (N.D. Tex. 2012) .......................................................................................12
Bittinger v. Wells Fargo Bank NA, 744 F. Supp. 2d 619 (S.D. Tex. 2010) ...............................................................................13, 22
iv
Blair v. Deutsche Bank Nat’l Trust Co., 2013 WL 6628634 (W.D. Tex. 2013) ......................................................................................12
BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996) .................................................................................................................36
In re Bond, 2013 WL 1619691 (S.D. Tex. 2013) ...........................................................................12, 17, 20
Boswell v. Farm & Home Sav. Ass’n, 894 S.W.2d 761 (Tex. App.—Fort Worth 1994, writ denied) ...................................................8
Bravo v. MERSCORP, Inc., 2013 WL 4851697 (E.D.N.Y. 2013)........................................................................................13
Burgess v. Bank of Am, N.A., 2014 WL 5461803 (W.D. Tex. 2014) ....................................................................29, 30, 31, 32
Byers v. Bank of N.Y. Mellon, 2013 WL 2471588 (E.D. Tex. 2013) .......................................................................................12
Calderon v. Bank of Am. N.A., 941 F. Supp. 2d 753 (W.D. Tex. 2013)........................................................................12, 17, 24
Calvino v. Conseco Fin. Servicing Corp., 2013 WL 4677742 (W.D. Tex. 2013) ......................................................................................12
Campbell v. MERS, Inc., 2012 WL 1839357 (Tex. App.–Austin 2012, pet. denied) ......................................................22
Castillo v. Deutsche Bank Nat’l Trust Co., 2014 WL 279675 (W.D. Tex. 2014) ........................................................................................12
Cernosek Enters., Inc. v. City of Mont Belvieu, 338 S.W.3d 655 (Tex. App.–Houston [1st Dist.] 2011, no pet.) .............................................11
Cimerring v. Merrill Lynch Mortg., 2012 WL 2332358 (N.Y. Sup. Ct. 2012) .................................................................................13
Clouse v. Levin, 339 S.W.3d 766 (Tex. App.–Houston [14th Dist.] 2011, no pet.) ...........................................11
Colton v. U.S. Bank Nat’l Ass’n, 2013 WL 5903618 (N.D. Tex. 2013) .......................................................................................12
Colton v. U.S. Nat'l Bank Ass’n, 2013 WL 1934560 (N.D. Tex. 2013) .......................................................................................20
v
Darocy v. Chase Home Fin., LLC, 2012 WL 840909 (N.D. Tex. 2012) ...................................................................................22, 33
Dempsey v. U.S. Bank Nat’l Ass’n, 2012 WL 2036434 (E.D. Tex. 2012) .......................................................................................22
Edwards v. Ocwen Loan Servicing, LLC, 2012 WL 844396 (E.D. Tex. 2012) ...................................................................................12, 23
Farkas v. GMAC Mortg., L.L.C., 737 F.3d 338 (5th Cir. 2013) (per curiam)...............................................................................11
Felder v. Countrywide Home Loans, 2013 WL 6805843 (S.D. Tex. 2013) .................................................................................12, 18
Ferguson v. Bank of New York Mellon Corp., 2014 WL 2815487 (S.D. Tex. 2014) .......................................................................................20
Filgueira v. US Bank Nat. Ass’n, 734 F.3d 420 (5th Cir. 2013) ...................................................................................................32
Fort Bend County Drainage Dist. v. Sbrusch, 818 S.W.2d 392 (Tex. 1991) ......................................................................................................8
Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671 (Tex. 2000) ......................................................................................................32
Garcia v. Bank of New York Mellon, 2012 WL 692099 (N.D. Tex. 2012) .........................................................................................21
Gillespie v. BAC Home Loan Servicing, LP, 2013 WL 646383 (N.D. Tex. 2013) .........................................................................................24
Glaser v. Wells Fargo Bank, N.A., 2013 WL 676662 (E.D. Tex. 2013) .........................................................................................24
Glass v. Carpenter, 330 S.W.2d 530, 537 (Tex. App.—San Antonio 1959, writ ref’d n.r.e) .................................25
Golden v. Wells Fargo Bank, NA, 2012 WL 8019261 (W.D. Tex. 2012) ......................................................................................12
Golden v. Wells Fargo Bank, N.A., 557 F. App’x 323 (5th Cir. 2014) ............................................................................................20
Gray v. Entis Mech. Servs., L.L.C., 343 S.W.3d 527 (Tex. App.–Houston [14th Dist.] 2011, no pet.) ...........................................10
vi
Green v. Bank of Am., N.A., 2013 WL 3937070 (S.D. Tex. 2013) .......................................................................................18
Greer v. White Oak State Bank, 673 S.W.2d 326, 329 (Tex. App. – Texarkana 1984, no writ) ................................................31
Harley v. HSBC Bank USA Nat’l Ass’n, 2012 WL 8019262 (W.D. Tex. 2012) ......................................................................................12
Harris County, Texas v. MERSCORP, Inc., 791 F.3d 545 (5th Cir. 2015) ...................................................................................................28
Heartland Holdings, Inc. v. U.S. Trust Co. of Tex. N.A., 316 S.W.3d 1 (Tex. App.–Houston [14th Dist.] 2010, no pet.) ...............................................11
Herrera v. Wells Fargo Bank, N.A., 2013 WL 961511 (S.D. Tex. 2013) .........................................................................................12
Hosey v. Network Funding, LP, 2013 WL 5971061 (S.D. Tex. 2013) .......................................................................................12
HSBC Bank USA. v. Baksh, 2012 WL 952121 (N.Y. Sup. Ct. 2012) ...................................................................................13
HSBC Bank USA, Nat. Ass’n v. Mann, 2015 WL 6456042 (N.J. App. Div. 2015) ...............................................................................13
J.W.D., Inc. v. Fed. Ins. Co., 806 S.W.2d 327 (Tex. App.–Austin 1991, no writ) ...........................................................22, 23
Jaimes v. Fed. Nat'l Mortgage Ass‘n, 930 F. Supp. 2d 692 (W.D. Tex. 2013)....................................................................................20
James M. Clifton, I, Inc. v. Premillenium, Ltd., 2010 WL 2089655 (Tex. App.–Dallas 2010, no pet.) (mem. op.) ...........................................11
Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617 (Tex. 1986) ....................................................................................................28
John C. Flood of DC, Inc. v. SuperMedia, L.L.C., 408 S.W.3d 645 (Tex. App.–Dallas 2013, pet. denied) ...........................................................11
Johnson v. JPMorgan Chase Bank, N.A., 2013 WL 2554415 (E.D. Tex., June 7, 2013) ..........................................................................28
Juliette Fowler Homes, Inc. v. Welch Assocs., Inc., 793 S.W.2d 660 (Tex. 1990) ......................................................................................................9
vii
Karamath v. U.S. Bank, N.A., 2012 WL 4327613 (E.D.N.Y. 2012)........................................................................................13
Kelly v. JPMorgan Chase Bank, N.A., 2013 WL 874863 (N.D. Tex. 2013) .........................................................................................21
Kendig v. State, 2003 WL 23025209 (Tex. App.–Houston [14th Dist.] 2003, no pet.) .....................................23
Khan v. Wells Fargo Bank, N.A., 2014 WL 200492 (S.D. Tex. 2014) .........................................................................................12
Kiggundu v. MERS, Inc., 469 F. App’x 330 (5th Cir. 2012) (per curiam) .................................................................22, 23
Kirby Lumber Corp. v. Williams, 230 F.2d 330 (5th Cir. 1956) ...................................................................................................22
Kramer v. Fed. Nat’l Mortg. Ass’n, 2012 WL 3027990 (W.D. Tex. 2012) ................................................................................17, 22
Lall v. The Bank of New York Mellon, 2015 WL 5697480 (N.D. Tex. 2015) .......................................................................................12
Lambert v. First Nat’l Bank of Bowie, 993 S.W.2d 833 (Tex. App. – Fort Worth 1999, pet. denied) .................................................31
Lamell v. OneWest Bank, FSB, 2015 WL 7258685 (Tex. App.—Houston Nov. 17, 2015, no pet.) ...................................16, 26
Lawson v. Gibbs, 591 S.W.2d 292 (Tex. Civ. App.–Houston [14th Dist.] 1979, writ ref’d n.r.e.) ......................23
Lighthouse Church v. Tex. Bank, 889 S.W.2d 595 (Tex. App.–Houston [14th Dist.] 1994, writ denied) ....................................25
Livingston v. Wells Fargo Bank, N.A., 2014 U.S. Dist. LEXIS 128874 (E.D. Tex. 2014), Report and
Recommendation Adopted By 2014 U.S. Dist. LEXIS 127784 (E.D. Tex. 2014) ........................................................................................................................................18
Lusk v. Wells Fargo Bank, Nat’l Ass’n, 2012 WL 1836342 (E.D. Tex. 2012) .......................................................................................23
Marsh v. JPMorgan Chase Bank, N.A., 888 F. Supp. 2d 805 (W.D. Tex. 2012)..............................................................................19, 20
viii
Martin v. Wells Fargo Bank, N.A., 2013 WL 3809676 (N.D. Tex. 2013) .......................................................................................12
Martin v. Wells Fargo Bank, N.A., 2013 WL 694009 (E.D. Tex. 2013) .........................................................................................23
MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647 (Tex. 1999) ....................................................................................................10
Medcalf v. Ocwen Loan Servicing LLC, 2014 WL 2722325 (W.D. Tex. 2014) ......................................................................................20
Meiners v. Tex. Osage Co-op. Royalty Pool, Inc., 309 S.W.2d 898 (Tex. Civ. App.–El Paso 1958, writ ref’d n.r.e.) ...........................................25
Metcalf v. Deutsche Bank Nat’l Trust Co., 2012 WL 2399369 (N.D. Tex. 2012) .......................................................................................12
Milton v. U.S. Bank Nat. Ass’n, 508 F. App’x. 326 (5th Cir. 2013) ...........................................................................................29
Molin v. Fremont Inv. & Loan, 2013 WL 6732043 (S.D. Tex. 2013) .......................................................................................12
Morlock, L.L.C. v. Bank of N.Y., 448 S.W.3d 514 (Tex. App.—Houston 2014, pet. denied) ......................................................26
Morlock, LLC v. Bank of N.Y. Mellon, 2012 WL 5943469 (S.D. Tex. 2012), aff’d per curiam, 537 F. App’x 583 (5th Cir. 2013) .................................................................................................................................12
Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546 (Tex. 1985) ....................................................................................................29
Nobles v. Marcus, 533 S.W.2d 923 (Tex. 1976) ....................................................................................................25
Owens-Corning Fiberglas Corp. v. Malone, 972 S.W.2d 35 (Tex. 1998) ......................................................................................................34
Perdomo v. Fed. Nat’l Mortg. Ass’n, 2013 WL 1123629 (N.D. Tex. 2013) .................................................................................20, 21
Perkins v. Bank of Am., 2013 WL 1415159 (S.D. Tex. 2013) .......................................................................................20
Poag v. Flories, 317 S.W.3d 820 (Tex. App.–Fort Worth 2010, pet. denied) ...................................................25
ix
Pope v. Beauchamp, 219 S.W. 447 (Tex. 1920) ........................................................................................................22
Portwood v. Buckalew, 521 S.W.2d 904 (Tex. Civ. App.—Tyler 1975, writ ref’d n.r.e.) ..............................................9
Rajamin v. Deutsche Bank Nat’l Trust Co., 2013 WL 1285160 (S.D.N.Y. 2013) ........................................................................................13
Reinagel v. Deutsche Bank Nat’l Trust Co., 735 F.3d 220 (5th Cir. 2013) ........................................................................................... passim
Robeson v. Mortgage Elec. Registration Sys., 2012 WL 42965 (Tex. App.–Fort Worth 2012, pet. denied) (mem. op.) ................................12
Rodriguez v. Bank of Am., N.A., 2013 WL 1773670 (W.D. Tex. 2013) ......................................................................................23
Routh v. Bank of Am., N.A., 2013 WL 4040753 (W.D. Tex. 2013) ......................................................................................12
Rowland v. City of Corpus Christi, 620 S.W.2d 930 (Tex. Civ. App.—Corpus Christi 1981, writ ref’d n.r.e.) ...............................8
Saucedo v. Deutsche Bank Nat’l Trust Co., 2013 WL 656240 (W.D. Tex. 2013) ........................................................................................20
Schrader-Scalf v. CitiMortgage, Inc., 2013 WL 625745 (N.D. Tex. 2013) .........................................................................................12
Schumpert v. Wells Fargo Bank, N.A., 2013 WL 944935 (E.D. Tex. 2013) .........................................................................................32
Scott v. Bank of Am., N.A., 2013 WL 1821874 (W.D. Tex. 2013) ......................................................................................25
Sigaran v. U.S. Bank Nat’l Ass’n, 560 F. App’x 410 (5th Cir. 2014) ......................................................................................12, 18
Staats v. Miller, 243 S.W.2d 686 (Tex. 1951) ....................................................................................................31
Standiford v. CitiMortgage, Inc., 2015 WL 6831578 (Tex. App.—Austin Nov. 3, 2015, no pet.) (mem. op.) .....................25, 26
State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003) .................................................................................................................36
x
Stevens v. Deutsche Bank Nat. Trust Co., 570 F. App’x. 402 (5th Cir. 2014) .....................................................................................12, 17
Stine v. Stewart, 80 S.W.3d 586 (Tex. 2002) (per curiam) .................................................................................10
Summers v. PennyMac Corp., 2012 WL 5944943 (N.D. Tex. 2012) .......................................................................................12
Svoboda v. Bank of Am., N.A., 571 F. App’x 270 (5th Cir. 2014) ................................................................................12, 17, 18
Tamir v. Bank of N.Y. Mellon, 2013 WL 4522926 (E.D.N.Y. 2013)........................................................................................13
Temple v. Bank of Am., N.A., 2013 WL 6852372 (E.D. Tex. 2013) .......................................................................................12
Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299 (Tex. 2006) ..............................................................................................36, 37
Transportation Ins. Co. v. Moriel, 879 S.W.2d 10 (1994) ..............................................................................................................30
Tri-Cities Constr. v. Am. Nat’l Ins., 523 S.W.2d 426 (Tex. App.—Houston 1975, no writ) ............................................................17
Truitt v. Resmae Mortg. Corp., 2013 WL 841465 (E.D. Tex. 2013) .........................................................................................12
Tyler v. Bank of Am., N.A., 2013 WL 1821754 (W.D. Tex. 2013) ..........................................................................23, 33, 37
U.S. Bank Nat’l Ass’n v. Dumas, 144 So.3d 29 (La. Ct. App. 2014) ............................................................................................13
U.S. Bank, N.A. v. Madero, 2012 WL 5893625 (N.Y. Sup. Ct. 2012) aff’d 5 N.Y.S.3d 105 (App. Div. 2015) ........................................................................................................................................13
Van Duzer v. U.S. Bank Nat’l Ass’n, 2014 WL 357878 (S.D. Tex. 2014) .........................................................................................12
Vanderbilt Mortg. & Fin., Inc. v. Flores, 692 F.3d 358 (5th Cir. 2012) ...................................................................................................11
Vickery v. Wells Fargo Bank, N.A., 2013 WL 321662 (S.D. Tex. 2013) .........................................................................................24
xi
Walker & Assocs. Surveying, Inc. v. Roberts, 306 S.W.3d 839 (Tex. App.—Texarkana 2010) (no writ) .......................................................18
In re Walker, 466 B.R. 271 (Bankr. E.D. Pa. 2012) ......................................................................................13
Wells Fargo Bank, N.A. v. Ballestas, 355 S.W.3d 187 (Tex. App.–Houston [1st Dist.] 2011, no pet.) .............................................11
Wells Fargo Bank, N.A. v. Erobobo, 9 N.Y.S.3d 312 (App. Div. 2015) ............................................................................................13
Wells Fargo Bank, N.A. v. Wolf, 444 S.W.3d 685 (Tex. App.—Houston [14th Dist.] 2014, no pet.) ...........................................6
West v. First Baptist Church, 71 S.W.2d 1090 (Tex. 1934) ....................................................................................................22
Wheeler v. White, 314 S.W.3d 225 (Tex. App.–Houston [14th Dist.] 2010, pet. denied) ....................................11
Yasuda Fire & Marine Ins. Co. v. Criaco, 225 S.W.3d 894 (Tex. App.–Houston [14th Dist.] 2007, no pet.) ...........................................11
Statutes & Rules
Tex. Bus. & Com. Code § 3.205 ..............................................................................................23, 33
Tex. Civ. Prac. & Rem. Code Ann. § 41.003 ................................................................................35
Tex. Civ. Prac. & Rem. Code Ann. § 41.008 ................................................................................35
Tex. Civ. Prac. & Rem. Code § 12.001 .........................................................................................19
Tex. Civ. Prac. & Rem. Code § 12.002 ................................................................................. passim
Tex. Local Government Code § 192.007 .............................................................................6, 27, 28
Tex. Rule of Civil Pro. 301 .................................................................................................... passim
Other Authorities
U.S. Const. amend. XIV, § 1 .........................................................................................................36 Tex. Const. art I, § 19 ....................................................................................................................36 House Comm. on Crim. Jurisprudence, Bill Analysis, Tex. H.B. 1185, 75th Leg., R.S. (1997) ..............................................................................................................20
xii
Senate Jurisprudence Comm., Bill Analysis, Tex. H.B. 1185, 75th Leg., R.S. (1997) ..............................................................................................................20 4 McDonald & Carlson Tex. Civ. Prac. § 26.8 (2d ed.) .............................................................. 8-9
1
INTRODUCTION
Plaintiffs Mary Ellen Wolf and David Wolf assert various claims all based on a theory of
liability that Defendants Wells Fargo Bank, N.A., as Trustee for Carrington Mortgage Loan
Trust, Series 2006-NC3 Asset Backed Pass-Through Certificates (“Wells Fargo”) and Carrington
Mortgage Services, LLC (“Carrington” and, collectively, “Defendants” or “Defendants/Counter-
Plaintiffs”)1 allegedly lack authority to foreclose on Plaintiffs’ property. Plaintiffs argue that the
Note and Deed of Trust were not properly assigned into the relevant securitization trust under the
applicable Pooling and Servicing Agreement (“PSA”) and thus the transfer of the lien to Wells
Fargo (the “Transfer of Lien”) allegedly constitutes a “fraudulent lien.”
On November 4-10, 2015, the Court held a jury trial. The jury returned a verdict finding
that Wells Fargo is the holder of the Note. X3, Charge of the Court (“Verdict”), p. 15. The jury
further found that Plaintiffs failed to comply with their Note and owe $655,191.73. Id. pp. 13-
14. In addition, the jury found that Wells Fargo and Carrington are not holding any money in
equity or good conscience belonging to the Plaintiffs. Id. pp. 11-12. On these issues, the verdict
should be upheld.
The remainder of the jury verdict, however, should be overturned because it is contrary to
law, unsupported by any evidence, and internally contradictory. Plaintiffs’ fraudulent lien claim
fails as a matter of law for numerous reasons: (1) Plaintiffs lack standing to assert violations of
the PSA; (2) even if Plaintiffs had standing to assert PSA violations, they did not present any
1 Codefendant New Century Mortgage Corporation filed for bankruptcy in 2007 and sold its servicing business to Carrington (X18, Vol. 3, 18:14-18:18), and Plaintiffs stipulated to the dismissal of Codefendant Tom Croft during the trial (X19, Vol. 4, 56:11-56:22). In this brief, exhibits are listed in the attached Index of Exhibits and are designated by exhibit number as X__. Portions of the trial transcript are cited by volume, page, and line numbers as “Vol. __, __:__-__:__.” Plaintiffs’ trial exhibits are cited by exhibit and page number as “P__ at __.” Defendants’ trial exhibits are cited by exhibit and page number as “D__ at __.”
2
evidence at trial to support a finding that the PSA was violated; (3) even if Plaintiffs had
presented evidence of a PSA violation, such a violation would have rendered the Transfer of
Lien merely voidable, not void; (4) even if the Transfer of Lien had been void, an assignment
cannot violate the fraudulent lien statute as a matter of law; and (5) even if an assignment could
violate the fraudulent lien statute, Plaintiffs failed to present any evidence of fraudulent intent.
In addition, Plaintiffs lack standing to assert that the Transfer of Lien is otherwise fraudulent and
have not presented any evidence of fraud.
Plaintiffs’ other causes of action are entirely derivative of their fraudulent lien claim and
fail for the same reasons. Plaintiffs also failed to present any evidence to establish the
independent elements of those claims.
Furthermore, the jury’s verdict itself is inherently contradictory and contrary to
controlling law. Specifically, despite finding that Wells Fargo is the holder of the Note and that
Plaintiffs failed to comply with the Note and owe over $650,000, the jury found that Defendants
had made, presented or used a “fraudulent” lien, and that Defendants owe Plaintiffs $150,000 in
financial damages (X3, Verdict p. 6), $40,000 in damages for “mental anguish” (id. p. 7) and
$5,000,000 in “exemplary damages” (X3, Additional Instruction for Bifurcated Trial, p. 2). The
jury also found that Defendants were unjustly enriched, but that Defendants did not hold any
money in equity or good conscience belonging to the Plaintiffs and the “enrichment” was in the
amount of zero dollars. X3, Verdict, pp. 9-11.
Finally, even if the jury’s findings on liability were not otherwise unsustainable (which
they are), the award of “exemplary damages” is improper, and the amount awarded is grossly
disproportionate and thus violates Texas and federal law.
3
For all of these reasons, the Court should enter a judgment notwithstanding the verdict
pursuant to Texas Rule of Civil Procedure 301. The judgment should: (1) find against Plaintiffs
on all of their claims, (2) award Plaintiffs no relief, including no damages, exemplary damages or
attorneys’ fees, (3) enter judgment ordering a sheriff’s sale of the Property, (4) award Defendants
their costs of Court and all other relief to which they are entitled, and (5) award Defendants such
other relief as may be just and proper.
BACKGROUND
I. Plaintiffs’ Mortgage Loan
On or about April 17, 2006, Plaintiffs applied for a $400,000 home equity loan from New
Century Mortgage Corporation (“New Century”) to be secured by residential property located at
6404 Buffalo Speedway in Houston, Texas (the “Property”). X4, D1. Plaintiffs used the
proceeds of the loan to pay off a prior mortgage on the Property. X19, Vol. 4, 21:14-22:12. The
terms of the loan are set forth in a promissory note (“Note”) (X5, D2) and a Texas Home Equity
Security Instrument (“Deed of Trust”) (X6, D3). Plaintiffs signed the Note and Deed of Trust on
or about June 15, 2006. X5, D2, p.5; X6, D3, p.17; X19, Vol. 4, 22:13-22:23, 24:10-24:23.
Thereafter, New Century endorsed the Note in blank on the last page. X5, D2, p.5. On June 26,
2006, New Century executed a blank assignment, assigning the Deed of Trust to the holder of the
instrument. X16, D16.
Pursuant to the terms of the Note, Plaintiffs agreed, in relevant part: (i) to pay monthly
mortgage payments to the “Note Holder” (defined as “anyone who takes this Note by transfer
and who is entitled to receive payments under this Note”) and (ii) that Plaintiffs would be in
default if they did not timely pay the monthly loan payment. X5, D2, pp. 1, 3. Among other
things, the Deed of Trust authorizes the Note Holder to accelerate Plaintiffs’ repayment
4
obligation upon default and to foreclose on the lien “by a court order.” X6, D3, p.14. The Deed
of Trust further provides that “[t]he Note or a partial interest in the Note (together with this
Security Instrument) can be sold one or more times without prior notice to [Plaintiffs].” Id. p.12.
II. The NC3 Trust and PSA
After Plaintiffs executed the Note and Deed of Trust, the loan was assigned to Wells
Fargo in its capacity as Trustee for the Carrington Mortgage Loan Trust, Series 2006-NC3 (“the
NC3 Trust”). A Transfer of Lien document dated October 15, 2009 memorialized the transfer of
Plaintiffs’ Deed of Trust and Note from New Century to Wells Fargo. X11, D10.
The NC3 Trust was created by an August 1, 2006 Pooling and Servicing Agreement
(“PSA”). X17, P13. The PSA is governed by New York law. Id. at P02145. The PSA provides
for applicable mortgage loans to be placed in the NC3 Trust to be securitized for sale to
investors. Id. at P02051-P02060. The three parties to the PSA are New Century, Wells Fargo,
and Stanwich Asset Acceptance Company, LLC (“Stanwich”). Id. at P02002. Specifically, the
PSA designates New Century, or any successor, as the Servicer (id. at P02042), designates Wells
Fargo as the Trustee (id. at P02048), and designates Stanwich as the Depositor (id. at P02017).
In contrast, Plaintiffs and other borrowers whose loans were placed into the NC3 Trust are not
parties to the PSA. Id.2
New Century filed for bankruptcy in 2007. X7, D7. Through a Limited Power of
Attorney executed on June 18, 2007, Carrington was appointed as New Century’s true and lawful
attorney-in-fact to act in its name, place and stead. X8, D8; X19, Vol. 4, 111:3-113:4. The
Liquidating Trustee also executed a Limited Power of Attorney to Carrington. X9, D8A. In
2 The PSA itself only lists the “Swap Counterparty”—defined as “Swiss Re Financial Corporation” (X17, P13 at P02046)—as a recognized third-party beneficiary under the PSA. Id. at P02149. No other third party beneficiaries are enumerated. Id.
5
addition, Wells Fargo executed a Limited Power of Attorney dated October 22, 2007 appointing
Carrington as New Century’s attorney-in-fact “with full authority and power” to take actions
related to the notes and deeds of trust securitized into the NC3 Trust. X10, D9.
III. Plaintiffs’ Default
Plaintiffs stopped making payments on their loan as of January 2010 and have not paid
anything further to date. X14, D13; X19, Vol. 4, 26:16-26:18. Although Plaintiffs claim to be
confused as to who owns their loan and is entitled to payments (X18, Vol. 3, 26:1-26:21),
Plaintiffs concede that no one other than Carrington has demanded payment under the loan or
attempted to collect under the loan, and Plaintiffs have not made payments to any other entity
(X19, Vol. 4 at 32:16-34:3).
Since Plaintiffs ceased making payments, Carrington has paid property taxes and
insurance on the Property and has now advanced over $85,000. X15, D15. With unpaid
principal and interest, Plaintiffs now owe a total of $755,828.09 on their mortgage loan. Id.
On December 3, 2010, nearly a year after Plaintiffs ceased making payments, Carrington
sent Plaintiffs a notice of intent to foreclose, which included an opportunity to cure their default.
X12, D11. After Plaintiffs failed to cure the default, Wells Fargo, as trustee for the NC3 Trust,
filed an application to proceed with a non-judicial foreclosure sale and sent Plaintiffs a notice of
acceleration on February 3, 2011. X13, D12.
IV. Procedural History
After Wells Fargo filed the foreclosure application, Plaintiffs filed this suit as a putative
class action, claiming that Wells Fargo lacks the authority to foreclose on the Property because
the assignment of the Deed of Trust to Wells Fargo allegedly violated the PSA. The Court
initially granted summary judgment against Plaintiffs’ claims for damages on statute of
6
limitations grounds, but later reversed that decision.3 The Court also granted Plaintiffs’ motion
for class certification. Defendants appealed that order, and, in August 2014, the Court of
Appeals reversed and remanded for further proceedings. Wells Fargo Bank, N.A. v. Wolf, 444
S.W.3d 685 (Tex. App.—Houston [14th Dist.] 2014, no pet.).
Following remand, Plaintiffs filed their Fourth Amended Petition (“4AP”). X1.
Plaintiffs asserted six causes of action (none of which on a class-wide basis): (1) violation of
Section 12.002 of the Texas Civil Practice & Remedies Code (“CPRC”); (2) negligence per se
premised on alleged violation of CPRC Section 12.002 and Section 192.007 of the Texas Local
Government Code (“TLGC”); (3) gross negligence per se premised on alleged violation of
Section 12.002 and Section 192.007; (4) declaratory judgment; (5) unjust enrichment; and
(6) money had and received. X1, 4AP ¶¶ 106-140.
Plaintiffs’ claims were all premised on the theory that their Note and Deed of Trust “were
not properly transferred into the [] NC3 Trust.” Id. ¶ 21. Plaintiffs argued that the PSA requires
a “valid chain of title” showing assignments from the Originator to the Sponsor to the Depositor
into the NC3 Trust and that Wells Fargo allegedly “cannot prove a legal and valid chain of title.”
Id. ¶¶ 22-23. Plaintiffs thus argued that the Transfer of Lien constitutes a “fraudulent lien or
claim against real property or an interest in real property” in violation of Section 12.002 because
it allegedly “falsely represent[s] Defendants’ interest” in the Property. Id. ¶¶ 108-110. Plaintiffs
sought damages and attorneys’ fees and costs. Id. p. 42.
3 Defendants hereby reserve their right to re-assert any defenses raised in their prior summary judgment briefs, including their statute of limitations defenses, whether on appeal or otherwise as necessary.
7
On August 27, 2015, Defendants filed their Fourth Amended Answer and Third
Amended Counterclaim (“Answer”). X2. Defendants denied Plaintiffs’ claims and brought a
counterclaim seeking a judicial foreclosure on the Property. X2, Answer ¶¶ 35-37.
V. The Trial and Jury Verdict
During the trial, counsel for Defendants produced the original “blue ink” Note and Deed
of Trust. X19, Vol. 4, 221:6-222:6, 223:2-223:18. Plaintiffs presented no evidence—nor is there
any—to dispute that Defendants are the current holders of the original Note and Deed of Trust.
At the close of the evidence, counsel for Defendants moved for a directed verdict, which
the Court denied. X20, Vol. 5, 76:22-85:13. Prior to the submission of the verdict form to the
jury, Defendants’ counsel and Plaintiffs’ counsel raised objections to the content of the verdict
form, which also were overruled. Id. 86:1-93:11.
Following the trial, the jury returned a verdict on a form with 14 questions. The jury
found that:
• Wells Fargo is the Holder of the Note (X3, Verdict, p. 15);
• Plaintiffs failed to comply with the terms of the Note (id. p. 13);
• Plaintiffs owe $655,191.73 under the Note (id. p. 14);
• Defendants violated CPRC Section 12.002 (id. p. 5);
• Plaintiffs sustained $150,000 in total past financial injuries (id. p. 6),
• Plaintiffs sustained $40,000 total in “emotional distress” (id. p. 7);
• The Transfer of Lien was “void” (id. p. 17);
• Wells Fargo did not “own” the Note or Deed of Trust (id. p. 16);
• Defendants violated the PSA (id. p. 18);
• Plaintiffs are entitled to $190,000 total in attorneys’ fees (id. p. 19);
8
• Defendants were “unjustly enriched” but in the amount of zero dollars (id. pp. 9-10); and
• Defendants did not hold any money belonging to the Plaintiffs (id. p. 11).
After returning the verdict, the jury was given an additional question and found that
Plaintiffs are entitled to a total of $5,000,000 in “exemplary damages.” X3, Additional
Instruction for Bifurcated Trial, p. 2.
As explained below, the portions of the jury’s verdict in favor of Plaintiffs are contrary to
law, unsupported by the evidence, and internally contradictory. Accordingly, the Court should
grant judgment notwithstanding the verdict and enter a judgment as requested herein.
STANDARD OF REVIEW
Texas Rule of Civil Procedure 301 provides that upon motion and notice, the trial court
may “render judgment non obstante veredicto if a directed verdict would have been proper,” and
upon like motion and notice may “disregard any jury finding on a question that has no support in
the evidence,” or conversely, that the evidence establishes as a matter of law.
A motion for judgment notwithstanding the verdict is proper when: (1) a specified defect
in the opponent’s pleading makes it insufficient to support a judgment; (2) the evidence
conclusively establishes the right of the movant to judgment or negates the right of the opponent;
(3) the evidence is insufficient to raise a fact issue that must be established before the opponent
is entitled to judgment; or (4) the facts as proven do not constitute a recognized ground of
recovery or defense. Fort Bend County Drainage Dist. v. Sbrusch, 818 S.W.2d 392, 394 (Tex.
1991); Boswell v. Farm & Home Sav. Ass’n, 894 S.W.2d 761, 768 (Tex. App.—Fort Worth
1994, writ denied); Rowland v. City of Corpus Christi, 620 S.W.2d 930, 932-33 (Tex. Civ.
App.—Corpus Christi 1981, writ ref’d n.r.e.); see also 4 McDonald & Carlson Tex. Civ. Prac.
§ 26.8 (2d ed.) (“McDonald & Carlson”) (collecting cases).
9
Furthermore, a jury’s findings can be disregarded on a motion for judgment
notwithstanding the verdict when: (1) there is a complete absence of evidence of a vital fact;
(2) the court is barred by rules of law or evidence from giving weight to the only evidence
offered to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a
scintilla of evidence; or (4) the evidence establishes conclusively the opposite of a vital fact.
Juliette Fowler Homes, Inc. v. Welch Assocs., Inc., 793 S.W.2d 660, 666 n.9 (Tex. 1990); 4
McDonald & Carlson § 26.8. Jury findings that are immaterial are disregarded. Portwood v.
Buckalew, 521 S.W.2d 904, 913 (Tex. Civ. App.—Tyler 1975, writ ref’d n.r.e.); 4 McDonald &
Carlson § 26.8. Judgment notwithstanding the verdict is appropriate either when there was no
evidence to support an issue or the evidence established an issue as a matter of law and the jury
was not free to make contrary findings. Id.
ARGUMENT
I. PLAINTIFFS’ CLAIMS FAIL AS A MATTER OF LAW.
Plaintiffs’ primary claim is premised on Defendants’ alleged violation of the Texas
fraudulent lien statute, CPRC Section 12.002. X1, 4AP ¶¶ 106-114. As shown below, however,
that claim fails as a matter of law on a number of independent grounds. Plaintiffs’ remaining
claims fail because they are derivative of the fraudulent lien claim and because there is no
evidence to support the elements of the claims.
A. Plaintiffs’ Fraudulent Lien Claim Fails As A Matter Of Law.
Plaintiffs allege that Defendants violated Section 12.002 of the CPRC by publicly filing
the Transfer of Lien, which Plaintiffs allege is fraudulent. X1, 4AP ¶¶ 106-114. The jury found
that Defendants had violated CPRC Section 12.002. X3, Verdict, p. 5. As demonstrated below,
this finding is contrary to law and unsupported by the evidence.
10
In order to prove a violation of Section 12.002, Plaintiffs must present evidence
demonstrating that Defendants: (1) had “knowledge that [a] document or other record is ... a
fraudulent lien or claim against real ... property or an interest in real ... property”; (2) “inten[ded]
that the document ... be given the same legal effect as a court record ... evidencing a valid lien or
claim”; and (3) “intend[ed] to cause [Plaintiffs] to suffer” either “financial injury” or “mental
anguish or emotional distress.” Tex. Civ. Prac. & Rem. Code § 12.002(a); accord, e.g., Gray v.
Entis Mech. Servs., L.L.C., 343 S.W.3d 527, 530 (Tex. App.–Houston [14th Dist.] 2011, no pet.).
Plaintiffs’ claim fails on a number of independent grounds.
1. Plaintiffs, as mortgage borrowers, lack standing to assert violations of
the PSA as a matter of law.
Plaintiffs’ claims are entirely dependent on their allegation that the Transfer of Lien is
void and fraudulent because Defendants allegedly failed to comply with the PSA in transferring
the Note and Deed of Trust to the NC3 Trust. See, e.g., X1, 4AP ¶¶ 19-23 (arguing that “the
notes and mortgages of Plaintiffs were not properly transferred into the [] NC3 Trust” pursuant
to the PSA, and therefore the Transfer of Lien is allegedly void and fraudulent); ¶ 82 (“Plaintiffs’
note and mortgage loan were not properly transferred into the [] NC3 Trust.”). However,
Plaintiffs lack standing to assert a violation of the PSA.
Plaintiffs’ lack of standing to allege PSA violations flows from a bedrock principle of
Texas law. As the Texas Supreme Court has held, a person who is not party to a contract may
sue for a breach of the contract “only if the parties intended to secure a benefit to that third party,
and only if the contracting parties entered into the contract directly for the third party’s benefit.”
Stine v. Stewart, 80 S.W.3d 586, 589 (Tex. 2002) (per curiam); accord, e.g., MCI Telecomms.
Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 651 (Tex. 1999).
11
In this context, the term “standing” refers to contractual standing, not to statutory or
jurisdictional standing, which goes to the jurisdictional question whether the “plaintiff has
suffered a legally cognizable injury or wrong.” Vanderbilt Mortg. & Fin., Inc. v. Flores, 692
F.3d 358, 370 (5th Cir. 2012); accord Cernosek Enters., Inc. v. City of Mont Belvieu, 338 S.W.3d
655, 663 (Tex. App.–Houston [1st Dist.] 2011, no pet.). As Texas courts have explained,
“‘standing’ to sue on [a] contract[] is not the same as standing in the jurisdictional sense.”
Wheeler v. White, 314 S.W.3d 225, 229 (Tex. App.–Houston [14th Dist.] 2010, pet. denied).
Instead of asking whether the plaintiff suffered an injury, contractual “standing” applies
the rule that “an entity has no ‘standing’ to enforce a contract if that entity is not a party to the
contract or a third-party beneficiary of it.” Yasuda Fire & Marine Ins. Co. v. Criaco, 225
S.W.3d 894, 898 (Tex. App.–Houston [14th Dist.] 2007, no pet.). That analysis “goes to the
merits,” not to “jurisdiction.” Id.4 As a result, a party seeking to enforce a contract must show
“both” that it has jurisdictional “standing” and that it has the “capacity” to allege violations of
the contract. John C. Flood of DC, Inc. v. SuperMedia, L.L.C., 408 S.W.3d 645, 650-51 (Tex.
App.–Dallas 2013, pet. denied). Thus, even if Plaintiffs have jurisdictional standing, they can
nevertheless allege PSA violations only if they are parties to, or beneficiaries of, that agreement.
The U.S. Court of Appeals for the Fifth Circuit has recently, and repeatedly, applied that
rule to PSAs in similar cases, unequivocally holding that “borrowers, as non-parties to the PSA,
‘have no right to enforce its terms unless they are its third-party beneficiaries.’” Farkas v.
GMAC Mortg., L.L.C., 737 F.3d 338, 342 (5th Cir. 2013) (per curiam) (emphasis added)
4 Accord, e.g., Wells Fargo Bank, N.A. v. Ballestas, 355 S.W.3d 187, 192 (Tex. App.–Houston [1st Dist.] 2011, no pet.); Clouse v. Levin, 339 S.W.3d 766, 769 n.1 (Tex. App.–Houston [14th Dist.] 2011, no pet.); Heartland Holdings, Inc. v. U.S. Trust Co. of Tex. N.A., 316 S.W.3d 1, 6-7 (Tex. App.–Houston [14th Dist.] 2010, no pet.); James M. Clifton, I, Inc. v.
Premillenium, Ltd., 2010 WL 2089655, at *2 (Tex. App.–Dallas 2010, no pet.) (mem. op.).
12
(quoting Reinagel v. Deutsche Bank Nat’l Trust Co., 735 F.3d 220, 228 (5th Cir. 2013)); see also
Sigaran v. U.S. Bank Nat’l Ass’n, 560 F. App’x 410, 413 (5th Cir. 2014) (“We hold that under
either New York or Texas law, the [borrowers] do not have the right to challenge this violation
of the terms of the PSA.”); Svoboda v. Bank of Am., N.A., 571 F. App’x 270, 272-73 (5th Cir.
2014) (same); Stevens v. Deutsche Bank Nat. Trust Co., 570 F. App’x. 402, 403 (5th Cir. 2014)
(same).5 Countless other courts have reached the same result: Plaintiffs “lack[] standing to
challenge the assignment” of their deed of trust “on the ground[] that it was made in violation of
the … PSA.” Martin v. Wells Fargo Bank, N.A., 2013 WL 3809676, at *3 (N.D. Tex. 2013).6
5 “Federal authority is persuasive here because a great amount of home-mortgage litigation in Texas is tried in its federal courts, applying Texas foreclosure law.” Bierwirth v. BAC Home
Loans Servicing, L.P., 2012 WL 3793190, at *1, n.3 (Tex. App.–Austin 2012, pet. denied) (mem. op.) (citing Robeson v. Mortgage Elec. Registration Sys., 2012 WL 42965, at *4, n.4 (Tex. App.–Fort Worth 2012, pet. denied) (mem. op.)).
6 Accord, e.g., Lall v. The Bank of New York Mellon, 2015 WL 5697480, at *4 (N.D. Tex. 2015); Van Duzer v. U.S. Bank Nat’l Ass’n, 2014 WL 357878, at *8 (S.D. Tex. 2014); Castillo v.
Deutsche Bank Nat’l Trust Co., 2014 WL 279675, at *5 (W.D. Tex. 2014); Khan v. Wells Fargo
Bank, N.A., 2014 WL 200492, at *9 (S.D. Tex. 2014); Blair v. Deutsche Bank Nat’l Trust Co., 2013 WL 6628634, at *3 (W.D. Tex. 2013); Hosey v. Network Funding, LP, 2013 WL 5971061, at *4 (S.D. Tex. 2013); Felder v. Countrywide Home Loans, 2013 WL 6805843, at *18-19 (S.D. Tex. 2013); Molin v. Fremont Inv. & Loan, 2013 WL 6732043, at *2 n.13 (S.D. Tex. 2013); Calvino v. Conseco Fin. Servicing Corp., 2013 WL 4677742, at *5 (W.D. Tex. 2013); Routh v.
Bank of Am., N.A., 2013 WL 4040753, at *3 n.7 (W.D. Tex. 2013); Temple v. Bank of Am., N.A., 2013 WL 6852372, at *3 (E.D. Tex. 2013); Colton v. U.S. Bank Nat’l Ass’n, 2013 WL 5903618, at *3 (N.D. Tex. 2013); Bernal v. Wilmington Fin., 2013 WL 2896892, at *3 (N.D. Tex. 2013); Auriti v. Wells Fargo Bank, N.A., 2013 WL 2417832, at *9 (S.D. Tex. 2013); Byers v. Bank of
N.Y. Mellon, 2013 WL 2471588, at *4 (E.D. Tex. 2013); In re Bond, 2013 WL 1619691, at *9 (S.D. Tex. 2013); Herrera v. Wells Fargo Bank, N.A., 2013 WL 961511, at *9 (S.D. Tex. 2013); Calderon v. Bank of Am. N.A., 941 F. Supp. 2d 753, 766 (W.D. Tex. 2013); Schrader-Scalf v.
CitiMortgage, Inc., 2013 WL 625745, at *3 (N.D. Tex. 2013); Truitt v. Resmae Mortg. Corp., 2013 WL 841465, at *3 (E.D. Tex. 2013); Golden v. Wells Fargo Bank, NA, 2012 WL 8019261, at *2 (W.D. Tex. 2012); Morlock, LLC v. Bank of N.Y. Mellon, 2012 WL 5943469, at *2 (S.D. Tex. 2012), aff’d per curiam, 537 F. App’x 583 (5th Cir. 2013); Summers v. PennyMac Corp., 2012 WL 5944943, at *7 (N.D. Tex. 2012); Harley v. HSBC Bank USA Nat’l Ass’n, 2012 WL 8019262, at *2 (W.D. Tex. 2012); BAC Home Loans Servicing, LP v. Tex. Realty Holdings, LLC, 901 F. Supp. 2d 884, 907 (S.D. Tex. 2012); Bircher v. Bank of N.Y. Mellon, 2012 WL 3245991, at *6 (N.D. Tex. 2012); Abruzzo v. PNC Bank, N.A., 2012 WL 3200871, at *2 (N.D. Tex. 2012); Metcalf v. Deutsche Bank Nat’l Trust Co., 2012 WL 2399369, at *4 (N.D. Tex. 2012); Edwards
13
The New York courts have—like the Fifth Circuit—repeatedly held that borrowers “lack
standing to challenge [the] ownership of the Notes and [deeds of trust] ... based on non-
compliance with ... PSAs.” Rajamin v. Deutsche Bank Nat’l Trust Co., 2013 WL 1285160, at *3
(S.D.N.Y. 2013).7 Indeed, earlier this year, a New York appellate court issued a decision in a
materially identical case, reversing a trial court ruling that Plaintiffs previously relied upon in
this case. See Wells Fargo Bank, N.A. v. Erobobo, 9 N.Y.S.3d 312 (App. Div. 2015). The
borrower in Erobobo alleged that the “assignment of the note and mortgage to [Wells Fargo]
failed to comply with certain provisions of the pooling and servicing agreement … and was thus
void under New York law.” Id. at 313-14. The trial court held that the mortgagor presented “a
triable issue of fact as to whether the purported assignment of the note and mortgage to [Wells
Fargo] violated certain provisions of the PSA governing the trust, and was therefore void under
[New York law].” Id. at 314. However, the appellate court reversed, holding that the plaintiff,
“as a mortgagor whose loan is owned by a trust, does not have standing to challenge [Wells
Fargo’s] possession or status as assignee of the note and mortgage based on purported
noncompliance with certain provisions of the PSA.” Id.8
v. Ocwen Loan Servicing, LLC, 2012 WL 844396, at *5 (E.D. Tex. 2012); Bittinger v. Wells
Fargo Bank NA, 744 F. Supp. 2d 619, 625–26 (S.D. Tex. 2010); see also In re Walker, 466 B.R. 271, 284–85 & nn. 28–29 (Bankr. E.D. Pa. 2012) (noting the “judicial consensus” on this issue).
7 Accord Bank of N.Y. Mellon v. Gales, 982 N.Y.S.2d 911, 912 (App. Div. 2014); Bravo v.
MERSCORP, Inc., 2013 WL 4851697, at *3 n.6 (E.D.N.Y. 2013); Tamir v. Bank of N.Y. Mellon, 2013 WL 4522926, at *3 (E.D.N.Y. 2013); Karamath v. U.S. Bank, N.A., 2012 WL 4327613, at *7 (E.D.N.Y. 2012); U.S. Bank, N.A. v. Madero, 2012 WL 5893625 (N.Y. Sup. Ct. 2012), aff’d 5 N.Y.S.3d 105 (App. Div. 2015); Cimerring v. Merrill Lynch Mortg., 2012 WL 2332358, at *9 (N.Y. Sup. Ct. 2012); HSBC Bank USA v. Baksh, 2012 WL 952121, at *2 (N.Y. Sup. Ct. 2012).
8 Other states follow New York and Texas in holding that borrowers lack standing to challenge compliance with a PSA. See, e.g., HSBC Bank USA, Nat. Ass’n v. Mann, 2015 WL 6456042, at *2, 4 (N.J. App. Div. 2015) (mortgagor, “as a non-party to the trust’s Pooling and Service Agreement (PSA), lacked standing to assert any breach of the PSA”); U.S. Bank Nat’l
Ass’n v. Dumas, 144 So.3d 29, 38 n.3 (La. Ct. App. 2014) (reaching the same result; “[c]ourts of
14
At trial, Plaintiffs failed to present – or even argue – that they are third party beneficiaries
to the PSA at issue. Indeed, the terms of the PSA itself clearly demonstrate Plaintiffs are not
third party beneficiaries thereof. See, e.g., X17, P13 at P02149. Accordingly, Plaintiffs lack
standing under governing Texas and New York law to allege that Defendants violated the PSA.
Because all of their claims are premised on the allegation that the Transfer of Lien is void due to
alleged violations of the PSA, those claims fail as a matter of law.
2. Even if Plaintiffs had standing to assert violations of the PSA, they did
not present at trial any evidence of a PSA violation.9
Even if an alleged violation of the PSA could support a claim under Section 12.002 of the
CPRC, Plaintiffs failed at trial to present any evidence showing any such violation. Plaintiffs
argued at trial that Defendants violated the PSA by allegedly failing to transfer their loan into the
NC3 Trust prior to the August 2006 “Closing Date.” X18, Vol. 3, 10:20-11:2 (arguing that
Defendants violated the PSA by allegedly failing to timely transfer Plaintiffs’ loan into the NC3
Trust because “[t]here’s a closing date. After it closes, no mortgages in or out. That’s it.”).
Plaintiffs’ argument fails for two reasons. First, Plaintiffs’ loan was assigned into the
NC3 Trust, along with other loans, by virtue of the terms of the PSA itself. Section 2.01 of the
PSA is entitled “Conveyance of Mortgage Loans,” and constitutes a conveyance of the relevant
other states, including New York [the law of which governed the trust], that have considered alleged violations of a PSA trust agreement have held that a borrower obligated under a promissory note in the trust does not have standing to assert a claim for any such violations”).
9 Plaintiffs’ central argument in this case has always been that Defendants violated the PSA by failing to properly assign the Deed of Trust to the NC3 Trust under the PSA. X1, 4AP ¶¶ 21-24 (alleging that Plaintiffs’ Deed of Trust was “not properly transferred into the [] NC3 Trust”). However, the jury was not asked to find, and thus did not find, that Defendants failed to properly assign the Deed of Trust (or any other instrument) pursuant to the terms of the PSA. Instead, the jury was asked to decide whether Defendants “violate[d] the PSA” (X3, Verdict, p. 18) and whether the Transfer of Lien is “void” (id. p. 17). The jury’s findings on these points are thus too vague and indefinite to support a ruling in Plaintiffs’ favor on their theory. For this additional reason, the Court should grant the requested judgment notwithstanding the verdict.
15
loans into the NC3 Trust. X17, P13 at P02051. The PSA provides that, on the “Closing Date”—
which is defined as August 10, 2006 (id. at P02015)—Stanwich, as the Depositor, “will transfer,
assign, set over and otherwise convey to the Trustee [Wells Fargo] … all the right, title and
interest” in the relevant mortgage loans. Id. at P02051. The PSA further provides in Section
2.02 that “the assignment and transfer herein contemplated is absolute and constitutes a sale of
the Mortgage Loans, the related Mortgage Notes and the related documents, conveying good title
thereto free and clear of any liens and encumbrances…” Id. at P02055. See also PSA Section
2.06 (“The Trustee acknowledges the assignment to it of the Mortgage Loans. . . .”). Id. at
P02060.
Thus, the Note and Deed of Trust were assigned and conveyed to Wells Fargo as trustee
in August 2006 pursuant to the PSA. Plaintiffs have argued that any assignment in 2006
nonetheless violated the PSA because the assignment was not publicly recorded until the
Transfer of Lien was filed in October 2009. X1, 4AP ¶ 24 (arguing that assignment was not
recorded until Transfer of Lien was filed in October 2009); X18, Vol. 3, 9:20-11:2 (same). The
PSA makes clear, however, that “Assignments” made pursuant to the PSA “shall not be required
to be submitted for recording … unless [Wells Fargo] or [Stanwich] receives written notice that
failure to record would result in a withdrawal or downgrading by any Rating Agency of the
rating on any Class of Certificates” associated with the NC3 Trust. X17, P13 at P02052-P02053
(emphasis added); see also id. at P02006 (definition of “Assignment,” noting that the PSA does
“not … require[]” recordation of all assignments). Plaintiffs presented no evidence at trial
suggesting that Wells Fargo or Stanwich ever received such written notice under the PSA—
which means they have not identified, and cannot identify, any evidence suggesting that any
party had a duty to record the assignment of their Deed of Trust under the PSA.
16
Second, even if Plaintiffs had shown that their loan was not assigned into the NC3 Trust
prior to the Closing Date—which they have not—that still would not constitute a violation of the
PSA. This is because the PSA contemplates assignment of loans after the Closing Date.
Indeed, in a recent decision, the Texas Court of Appeals reached the same conclusion in
construing a similar PSA. Lamell v. OneWest Bank, FSB, 2015 WL 7258685, at *4-5 (Tex.
App.—Houston Nov. 17, 2015, no pet.). In Lamell, the borrower argued that the defendants had
violated the PSA by failing to assign a deed of trust before the applicable closing date. Id. at *4.
The court rejected that argument, noting that “the Pooling and Servicing Agreement
contemplates the delivery of loans into the trust after the closing date.” Id. The court cited
various provisions of the PSA in support, including a provision acknowledging that “parties may
need to purchase additional loans and place them into the trust at later dates in certain
situations.” Id. A materially similar provision appears at Section 2.03 of the PSA for the NC3
Trust. X17, P13 at P02055-P02057 (authorizing Servicer to request that any missing or defective
documents in a Mortgage File be replaced or cured by the Responsible Party and to substitute
loans for any loans deleted from a Mortgage File). Thus, even if Plaintiffs’ loan had not been
assigned at the Closing Date—which it was—there still would not be any evidence to support a
finding that the PSA was violated.
Accordingly, Plaintiffs failed to produce any evidence to support a finding that
Defendants violated the PSA. The jury finding to the contrary is unsupported and cannot stand.
X3, Verdict, p. 18. Plaintiffs’ fraudulent lien claim fails for this additional reason.
3. Even if there was evidence of a PSA violation, such a violation would
have rendered the Transfer of Lien merely voidable, not void.
The jury finding that the Transfer of Lien is “void” is contrary to law and of no help to
Plaintiffs. X3, Verdict, p. 17. To be sure, Texas cases hold that “the obligors of a claim may
17
defend [a] suit brought thereon on any ground which renders the assignment void, but may not
defend on any ground which renders the assignment voidable only.” Tri-Cities Constr. v. Am.
Nat’l Ins., 523 S.W.2d 426, 430 (Tex. App.—Houston 1975, no writ) (emphasis added). Those
cases, however, do not speak to the challenges Plaintiffs raise here, which assert offensive claims
for damages against Defendants. See, e.g., Bond, 2013 WL 1619691, at *10 (reading Tri-Cities
as speaking to only the defenses available in enforcement actions); Kramer v. Fed. Nat’l Mortg.
Ass’n, 2012 WL 3027990, at *5 (W.D. Tex. 2012) (same).10
More importantly, however, even if an offensive claim could be supported by a finding
that an assignment is void, Plaintiffs would still lack standing because the Transfer of Lien here
is not void. It is well established that an assignment made in violation of a PSA is voidable, not
void. As the Fifth Circuit held in Reinagel, even if the “assignments violated the PSA,” that fact
“would not render [them] void.” 735 F.3d at 228 (emphasis added); accord Svoboda, 571 F.
App’x at 272-73; Stevens, 570 F. App’x. at 403.
The same is true under New York law, which holds “that a beneficiary can ratify a
trustee’s ultra vires acts.” Calderon, 941 F. Supp. 2d at 766. The possibility that the beneficiary
could ratify “unauthorized transactions” by the trustee necessitates the conclusion that such
transactions are “voidable rather than void,” because “[a] void contract cannot be ratified.” Id.
at 766–67 (internal quotation marks omitted). Thus, when New York courts apply New York
10 The rule that defenses to a suit include “any ground which renders [an] assignment void” (Tri-Cities, 523 S.W.2d at 430) rests on a rationale that has no application here. Texas courts allow borrowers to raise such defenses in order to “insure ... that [they] will not have to pay the same claim twice.” Id. Not only is such an allegation lacking here, but it fails as a matter of law: if Wells Fargo foreclosed on Plaintiffs’ home under the deed of trust, no other entity could do so, because Plaintiffs would no longer own the property. There is no plausible “suggestion” that Plaintiffs could possibly “be[] put in a position where [they] will have to pay the same claim twice.” Kramer, 2012 WL 3027990, at *5; accord, e.g., Bond, 2013 WL 1619691, at *10. As a result, the purported rule that plaintiffs may raise arguments that would void an assignment is inapplicable here.
18
law, they “‘treat[] actions by trustees as voidable.’” Felder, 2013 WL 6805843, at *19 (quoting
Green v. Bank of Am., N.A., 2013 WL 3937070, at *3 (S.D. Tex. 2013)).
Indeed, a federal court recently applied these precise grounds in dismissing with
prejudice a virtually identical claim brought by the same law firm that represents Plaintiffs here.
Livingston v. Wells Fargo Bank, N.A., 2014 U.S. Dist. LEXIS 128874 (E.D. Tex. 2014), Report
and Recommendation Adopted By 2014 U.S. Dist. LEXIS 127784 (E.D. Tex. 2014). In
Livingston, the borrowers sued Wells Fargo and Carrington under Section 12.002 of CPRC
alleging that the assignments of their deed of trust were not made by the applicable closing date
in the PSA and thus were fraudulent. 2014 U.S. Dist. LEXIS 128874, at *4-5.
First, the court determined that the definition of “fraudulent” under Section 12.002
requires a demonstration that “the Defendants ‘knowingly misrepresented the truth’ or
‘concealed a material fact’ when the deed of trust assignments were recorded.” Id. at *13 (citing
Walker & Assocs. Surveying, Inc. v. Roberts, 306 S.W.3d 839, 849-50 (Tex. App.—Texarkana
2010) (no writ)). Next, the court cited recent Fifth Circuit decisions applying “New York law to
hold violations of a PSA are voidable--not void--and therefore susceptible of ratification.” Id. at
*15 (citing Sigaran, 560 F. App’x at 413; Svoboda, 571 F. App’x at 272-73). Finally, the court
found that the mortgagors had not shown that the assignments were never ratified or otherwise
“treated as lawful transactions under the trust by the beneficiaries.” Id. Accordingly, the court
found that the assignments “did not misrepresent or conceal any material fact” and were
“therefore not fraudulent for purposes of Section 12.002.” Id. at *15-16.
The same is true here. To the extent Plaintiffs allege that the assignment to Wells Fargo
violated the PSA, they have not introduced any evidence that such alleged violations were not
ratified or otherwise treated as lawful by the parties and beneficiaries of the NC3 Trust. Id. at
19
*15. Because any violation of the PSA would render the Transfer of Lien merely voidable and
not void, Plaintiffs cannot premise their claims on such alleged violations.
The jury’s finding that the Transfer of Lien is “void” is thus erroneous as a matter of law.
The jury was not presented with any evidence—nor is there any—to support a finding that the
instrument is void, instead of merely voidable. The jury’s finding is thus contrary to the myriad
New York and Texas law cited above and cannot stand.11
4. Even if the Transfer of Lien was void, an assignment cannot violate
the fraudulent lien statute as a matter of law.
Even if Plaintiffs could show that the Transfer of Lien was somehow void or fraudulent,
Plaintiffs still cannot bring a successful claim under Section 12.002 of CPRC because an
assignment cannot constitute a “fraudulent lien or claim” under Texas law.
The plain text of Section 12.002 applies only to “fraudulent lien[s] or claim[s] against,”
among other things, “real property ... or an interest in real ... property.” Tex. Civ. Prac. & Rem.
Code § 12.002. A “lien” for purpose of the statute is a specific type of claim: “‘a claim in
property for the payment of a debt [that] includes a security interest.’” Marsh v. JPMorgan
Chase Bank, N.A., 888 F. Supp. 2d 805, 813 (W.D. Tex. 2012) (quoting Tex. Civ. Prac. & Rem.
Code § 12.001(3)).
An assignment cannot constitute either a “lien” within that definition or any other type of
“claim” against real property. The reason is simple: An assignment merely “transfer[s]” a
preexisting “interest in property” instead of “purporting to create a lien or claim against real ...
11 Indeed, the jury was not provided with instructions regarding the relevant New York and Texas authorities and was not given any information to distinguish a “void” instrument from an instrument that is merely “voidable.” Instead, the jury was instructed only that “void” means “those documents that are of no effect whatsoever, and those that are an absolute nullity.” X3, Verdict, p. 17. This cursory description is insufficient to instruct the jury as to the correct standard for differentiating void and voidable instruments under governing law.
20
property.” Marsh, 888 F. Supp. 2d at 813 (internal quotation marks and emphasis omitted);
accord, e.g., Perkins v. Bank of Am., 2013 WL 1415159, at *4 (S.D. Tex. 2013); Perdomo v.
Fed. Nat’l Mortg. Ass’n, 2013 WL 1123629, at *5 (N.D. Tex. 2013). The assignment itself is
thus not the lien or claim; instead, it is the underlying deed of trust that “creates”—and therefore
constitutes—the “lien.”
“The plain and common meaning of the statute’s words” thus “do[es] not suggest the
Texas legislature intended to include mortgage assignments within the purview of Chapter 12.”
Marsh, 888 F. Supp. 2d at 813. Furthermore, “the legislative history of” the fraudulent lien
statute confirms that its “purpose ... was to ‘creat[e] a private cause of action against a person
who files fraudulent judgment liens or fraudulent documents purporting to create a lien or claim
against ... property.’” Id. (quoting House Comm. on Crim. Jurisprudence, Bill Analysis, Tex.
H.B. 1185, 75th Leg., R.S. (1997)) (emphasis in Marsh); accord Senate Jurisprudence Comm.,
Bill Analysis, Tex. H.B. 1185, 75th Leg., R.S. (1997).
The fact that a deed of trust assignment does not create a lien but instead merely
“transfer[s] an existing deed of trust from one entity to another” thus means that an assignment
cannot constitute a “fraudulent lien” under Texas law. Id.12
All of Plaintiffs’ claims are
12 Although there are a handful of outlier opinions, the overwhelming majority of courts have held that “a document assigning a deed of trust does not qualify as a ‘lien or claim’ under Section 12.002.” Golden v. Wells Fargo Bank, N.A., 557 F. App’x 323, 327 n.2 (5th Cir. 2014); see also Jaimes v. Fed. Nat'l Mortgage Ass‘n, 930 F. Supp. 2d 692, 697 (W.D. Tex. 2013) (Chapter 12 does not apply to mortgage assignments); Medcalf v. Ocwen Loan Servicing
LLC, 2014 WL 2722325, at *3 (W.D. Tex. 2014) (same); Saucedo v. Deutsche Bank Nat’l Trust
Co., 2013 WL 656240, at *5 (W.D. Tex. 2013) (an assignment “does not purport to create a lien or claim” against real property and, thus, is not subject to Chapter 12); Ferguson v. Bank of New
York Mellon Corp., 2014 WL 2815487, at *5 (S.D. Tex. 2014) (“The Fergusons’ § 12.002 claim also fails because MERS’s assignment to the Bank of New York did not create a lien, which is an element of the cause of action. To the contrary, the assignment simply transferred the lien.”); Perkins, 2013 WL 1415159, at *4 (same); Bond, 2013 WL 1619691, at *12 (same); Colton v.
U.S. Nat'l Bank Ass’n, 2013 WL 1934560, at *5 n.13 (N.D. Tex. 2013) (“[f]ederal district courts
21
premised on their allegations that the Transfer of Lien constitutes a “fraudulent lien,” and
therefore all of the claims fail as a matter of law.
5. Even if an assignment could violate the fraudulent lien statute,
Plaintiffs failed to present any evidence of fraudulent intent.
To prove a claim under Section 12.002 of CPRC, Plaintiffs must prove that, in filing the
allegedly invalid Transfer of Lien with the County Clerk’s Offices, Defendants knew that the
Transfer of Lien was fraudulent and also intended that the Transfer of Lien would cause
Plaintiffs to suffer some type of injury. See Tex. Civ. Prac. & Rem. Code § 12.002(a)(2)–(3).
No evidence was produced at trial showing that any Defendant filed the Transfer of Lien
knowing it to be fraudulent. Indeed, given the fact that – as shown above – the Transfer of Lien
was not in fact fraudulent, no such evidence of fraudulent intent could possibly exist.
Moreover, there is no evidence to support any finding of intent to cause harm. The
Transfer of Lien memorialized the assignment of Plaintiffs’ Deed of Trust from New Century to
Wells Fargo, but that assignment did not cause Plaintiffs to suffer any injury, nor could it.
Plaintiffs owed monthly payments under the Note and Deed of Trust. X5, D2, pp. 1, 3. That
obligation did not change when the Note and Deed of Trust were assigned. The only thing that
changed was the party entitled to those payments. Indeed, both the Note and Deed of Trust
specifically contemplate that the instruments could be assigned without prior notice to Plaintiffs.
have interpreted § 12.002(a) as applying only to fraudulent documents purporting to create a lien or claim against property, but not a document like an assignment, which merely transfers an existing claim”); Garcia v. Bank of New York Mellon, 2012 WL 692099, at *3 (N.D. Tex. 2012) (same); Akins v. Wells Fargo Bank, N.A., 2013 WL 4735581, at *3 (E.D. Tex. 2013) (same); Kelly v. JPMorgan Chase Bank, N.A., 2013 WL 874863, at *7 (N.D. Tex. 2013). And indeed, the majority rule on this issue is sound, in large part due to the considerations surrounding the void/voidable distinction previously discussed. Clearly the Texas legislature intended to allow homeowners a mechanism to recover damages from a party that creates a fraudulent lien, but whether damages should lie for a lien fraudulently transferred is a matter best resolved between the creator of the lien and the transferor of the lien – not the property owner, who remains subject to the legitimately created lien in any event.
22
X5, D2, p. 1 (defining “Note Holder” as “anyone who takes this Note by transfer and who is
entitled to receive payments under this Note”); X6, D3, p. 12 (providing that “[t]he Note or a
partial interest in the Note (together with this Security Instrument) can be sold one or more times
without prior notice to [Plaintiffs].”).
Nor did the Transfer of Lien—even if somehow defective—change Defendants’ ability to
foreclose on the Property following Plaintiffs’ default. Under Texas law, “a mortgage on real
estate ... ‘follow[s]’ the promissory note it secured.” J.W.D., Inc. v. Fed. Ins. Co., 806 S.W.2d
327, 330 (Tex. App.–Austin 1991, no writ) (citing, inter alia, West v. First Baptist Church, 71
S.W.2d 1090, 1099 (Tex. 1934); Pope v. Beauchamp, 219 S.W. 447, 449 (Tex. 1920)); accord,
e.g., Kiggundu v. MERS, Inc., 469 F. App’x 330, 332 (5th Cir. 2012) (per curiam); Campbell v.
MERS, Inc., 2012 WL 1839357, at *4 (Tex. App.–Austin 2012, pet. denied) (quoting J.W.D.,
Inc.). Moreover, “the ability to foreclose on a deed of trust is transferred when the note is
transferred.” Bittinger, 744 F. Supp. 2d at 625 (citing J.W.D., Inc., 806 S.W.2d at 329–30).13
Thus, the date on which “‘an assignment of deed of trust is either prepared or recorded’”
would not affect “‘the ability to foreclose.’” Darocy v. Chase Home Fin., LLC, 2012 WL
840909, at *10 (N.D. Tex. 2012) (quoting Bittinger, 744 F. Supp. 2d at 625). And “Texas courts
have affirmed and applied the ‘mortgage follows the note’ rule in cases where the mortgage
assignment was not recorded by the transferee and even when there was no actual separate
written assignment of the mortgage.” Dempsey v. U.S. Bank Nat’l Ass’n, 2012 WL 2036434, at
*4 (E.D. Tex. 2012) (citing Kirby Lumber Corp. v. Williams, 230 F.2d 330, 333 (5th Cir. 1956),
13 In other words, when the legal interest in a debt is transferred, the equitable interest in the deed of trust “is also automatically transferred.” Campbell, 2012 WL 1839357, at *4. That equitable interest permits the owner or holder of the note to foreclose under Texas law. See, e.g., Kramer, 2012 WL 3027990, at *7.
23
and J.W.D., Inc., 806 S.W.2d at 329–30); accord, e.g., Lusk v. Wells Fargo Bank, Nat’l Ass’n,
2012 WL 1836342, at *4 (E.D. Tex. 2012).
In particular, when a note is endorsed “in blank”—which is to say, when the note has an
“indorsement,” but does not “identif[y] a person to whom it makes the [note] payable”—the note
is “payable to bearer and may be negotiated by transfer of possession alone.” Tex. Bus. & Com.
Code § 3.205(a)–(b) (emphasis added). “[P]hysical possession of [such] a promissory note ...
establishes ownership” of the note and thus establishes authority to foreclose on the deed of trust.
Tyler v. Bank of Am., N.A., 2013 WL 1821754, at *4 (W.D. Tex. 2013); accord, e.g., Rodriguez
v. Bank of Am., N.A., 2013 WL 1773670, at *7 (W.D. Tex. 2013); Edwards, 2012 WL 844396, at
*5; Kendig v. State, 2003 WL 23025209, at *3 n.2 (Tex. App.–Houston [14th Dist.] 2003, no
pet.).
Plaintiffs’ Note is endorsed “in blank.” X5, D2, p.5. As the Holder of Plaintiffs’ Note,
Wells Fargo has the authority “to foreclose on [Plaintiffs’] property.” Kiggundu, 469 F. App’x at
332; accord, e.g., Tyler, 2013 WL 1821754, at *4; Lusk, 2012 WL 1836342, at *3–4; Lawson v.
Gibbs, 591 S.W.2d 292, 294 (Tex. Civ. App.–Houston [14th Dist.] 1979, writ ref’d n.r.e.). The
“validity of the assignment of the mortgage document” is thus “beside the point” in any
proceeding involving Wells Fargo’s authority to foreclose on, or otherwise enforce its interest in,
Plaintiffs’ mortgage. Kiggundu, 469 F. App’x at 332; accord, e.g., Martin v. Wells Fargo Bank,
N.A., 2013 WL 694009, at *4 (E.D. Tex. 2013). Because the Transfer of Lien merely
memorializes the transfer of secured interests from one entity to another, and because Defendants
did not intend it to cause any injury to Plaintiffs (nor did it cause any injury), Plaintiffs did not,
and cannot, prove the intent elements of their fraudulent lien claim.
24
Accordingly, the evidence at trial was insufficient to establish Plaintiffs’ right to relief
under Section 12.002. Therefore, Defendants are entitled to a judgment notwithstanding the
verdict and ruling in Defendants’ favor on Plaintiffs’ claim under Section 12.002.
6. Plaintiffs also lack standing to assert that the Transfer of Lien is
fraudulent on other grounds.
As shown above, Plaintiffs lack standing to assert that the Transfer of Lien is fraudulent
based on alleged violations of the PSA. Similarly, Plaintiffs lack standing to challenge the
Transfer of Lien on any other basis. The Transfer of Lien memorializes a transfer from New
Century to Wells Fargo. X11, D10. Plaintiffs are not parties to, nor beneficiaries of, the
assignment. And just as courts have consistently held that non-parties to PSAs may not allege
PSA violations, the “courts have” also “consistently held that a borrower does not have standing
to challenge [deed of trust] assignment[s] … to which the borrower was a non-party.” Glaser v.
Wells Fargo Bank, N.A., 2013 WL 676662, at *2 (E.D. Tex. 2013) (borrower plaintiffs “do[] not
have standing to challenge [the] assignment” of their deed of trust); accord Calderon, 941 F.
Supp. 2d at 764; Gillespie v. BAC Home Loan Servicing, LP, 2013 WL 646383, at *5 (N.D. Tex.
2013); Vickery v. Wells Fargo Bank, N.A., 2013 WL 321662, at *9 (S.D. Tex. 2013).
Accordingly, Plaintiffs lack standing to challenge the Transfer of Lien. For instance,
throughout the trial, Plaintiffs’ counsel argued that the Transfer of Lien was void because Tom
Croft allegedly signed the document as a Vice President of New Century when he was an
employee of Carrington and because New Century allegedly did not own the Note at the time.
See, e.g., X20, Vol. 5, 109:25-110:20. Even assuming for the sake of argument that Plaintiffs
were correct, they still would lack standing to bring that claim.
Indeed, in Reinagel, the Fifth Circuit heard a claim by a mortgagor challenging an
assignment of lien on the ground that the individual executed the assignment as “Vice President”
25
of an entity, Citi Residential Lending, Inc., “even though he was actually an employee of a third-
party contractor, Nationwide Title Clearing.” 735 F.3d at 226. The Fifth Circuit rejected that
argument, citing Texas Supreme Court precedent holding that “a contract executed on behalf of a
corporation by a person fraudulently pretending to be a corporate officer is, like any other
unauthorized contract, not void, but merely voidable at the election of the defrauded principal—
here, Citi.” Id. (citing Nobles v. Marcus, 533 S.W.2d 923, 925-26 (Tex. 1976)). Thus, even if
Croft had fraudulently misrepresented his title on the Transfer of Lien, Plaintiffs still would lack
standing to challenge the document on that basis. Id.
Nor can Plaintiffs challenge the Transfer of Lien on any other basis. As Texas courts
have explained, “[u]nder Texas law, deeds obtained by fraud ... are voidable rather than void.”
Scott v. Bank of Am., N.A., 2013 WL 1821874, at *5 (W.D. Tex. 2013) (emphasis added) (citing
Poag v. Flories, 317 S.W.3d 820, 826 (Tex. App.–Fort Worth 2010, pet. denied), and Nobles,
533 S.W.2d at 925); accord, e.g., Lighthouse Church v. Tex. Bank, 889 S.W.2d 595, 602 (Tex.
App.–Houston [14th Dist.] 1994, writ denied); Glass v. Carpenter, 330 S.W.2d 530, 537 (Tex.
App.—San Antonio 1959, writ ref’d n.r.e). Any “alleg[ation] that the assignment” at issue was
“fraudulent” can therefore be made only by “the defrauded party” to the assignments—which is
to say, either New Century or Wells Fargo, not Plaintiffs. Scott, 2013 WL 1821874, at *5;
accord, e.g., Lighthouse Church, 889 S.W.2d at 601; Meiners v. Tex. Osage Co-op. Royalty
Pool, Inc., 309 S.W.2d 898, 902 (Tex. Civ. App.–El Paso 1958, writ ref’d n.r.e.) (citing cases).
Indeed, the Third District of the Court of Appeals recently reached this result in a
substantially identical case. Standiford v. CitiMortgage, Inc., 2015 WL 6831578 (Tex. App.—
Austin Nov. 3, 2015, no pet.) (mem. op.). In Standiford, as in this case, the borrower brought
numerous claims arising out of the attempted foreclosure of his property, including a claim
26
alleging a fraudulent lien under CPRC Section 12.002. 2015 WL 6831578, at *1. The borrower
challenged an assignment of the lien from Mortgage Electronic Registration Systems, Inc.
(“MERS”) to CitiMortgage, Inc. (“CMI”), alleging that MERS was not listed in the deed of trust
and “was not authorized to assign his loan to CMI and that CMI did not have authority to
foreclose.” Id. at *4. The court rejected that theory:
[B]ecause Standiford’s allegations as to MERS’s lack of authority, even if true, would only render the deed-of-trust assignment from MERS to CMI voidable, not void, he does not have standing to challenge the assignment as a non-party, and his claims dependent on this challenge fail as a matter of law.
Id. The appellate court therefore upheld summary judgment for CMI.
Other recent decisions are in accord. See Lamell, 2015 WL 7258685, at *5 (mortgagor
could not bring argument that assignments “were fabricated” because “such a claim would
render the note merely voidable, not void”);14 Morlock, L.L.C. v. Bank of N.Y., 448 S.W.3d 514,
517 (Tex. App.—Houston 2014, pet. denied) (same).
Plaintiffs have not presented any evidence to support a claim that the Transfer of Lien (or
any other document) is void, rather than merely voidable. Accordingly, Plaintiffs lack standing
to challenge the validity of the Transfer of Lien.
7. Even if Plaintiffs had standing, they did not present any evidence at
trial to support a finding that the Transfer of Lien is fraudulent.
Even if Plaintiffs had standing to challenge the Transfer of Lien, they did not present any
evidence at trial to support a finding that the Transfer of Lien is fraudulent. Plaintiffs cannot rely
on their allegations that the individual who signed the Transfer of Lien, Tom Croft,
misrepresented that he was a Vice President of New Century. See, e.g., X20, Vol. 5, 109:25-
14 The Lamell court found that the borrower had jurisdictional standing to maintain suit (2015 WL 7258685, at *3), but lacked contractual standing to challenge the validity of the assignments at issue (id. at *5). Similarly here, even if Plaintiffs have standing to maintain suit, they are non-parties to the Transfer of Lien and thus lack standing to challenge that document.
27
110:20. As explained above, after New Century’s bankruptcy, Carrington was appointed as its
attorney-in-fact “with full authority and power” to take actions related to the notes and deeds of
trust securitized into the NC3 Trust. X10, D9. Because Croft was a Carrington employee (an
officer, in fact), he was authorized to execute the Transfer of Lien on New Century’s behalf. Id.
And, even if Croft had not been authorized to sign on behalf of New Century—which he was—
Plaintiffs could not challenge the Transfer of Lien on this basis. See Reinagel, 735 F.3d at 226
(contract signed “by a person fraudulently pretending to be a corporate officer is … not void, but
merely voidable”).
Accordingly, Plaintiffs did not introduce any evidence—nor could they—showing that
the Transfer of Lien was fraudulent. In the absence of any such evidence, the jury’s conclusion
that the Transfer of Lien violated CPRC Section 12.002 is inappropriate and the Defendants are
entitled to judgment as a matter of law with respect to all findings derived from that conclusion.
B. Plaintiffs’ Remaining Claims Also Fail As A Matter of Law.
Plaintiffs’ other claims also fail as a matter of law due to the lack of supporting evidence.
Each is derivative of Plaintiffs’ fraudulent lien claim and therefore fails for the same reasons.
Moreover, there is no evidence to support the elements of the other causes of action, so each
claim independently fails on the merits.
1. Plaintiffs’ other claims are derivative of their fraudulent lien claim.
As an initial matter, all of Plaintiffs’ claims are derivative of their claim under Section
12.002 of CPRC and fail for the same reason as that claim fails. Plaintiffs’ claims for negligence
per se and gross negligence per se are based on Defendants’ alleged violation of Section 12.002.
X1, 4AP ¶¶ 115-122.15 Likewise, Plaintiffs’ claims for unjust enrichment and money had and
15 Plaintiffs’ negligence and gross negligence counts also cite Section 192.007 of the Local Government Code. X1, 4AP ¶¶ 115-122. However, Section 192.007 does not provide a private
28
received both rely on the allegedly fraudulent Transfer of Lien that is the subject of Plaintiffs’
Section 12.002 claim. Id. ¶¶ 134, 139. Finally, Plaintiffs’ claim for declaratory judgment seeks
declarations specifically related to the Transfer of Lien. Id. ¶ 125. Accordingly, all of these
claims are derivative of Plaintiffs’ claim under Section 12.002 and fail for the same reasons as
that claim.
2. There is no evidence to support the elements of the remaining claims.
Plaintiffs’ other claims fail as a matter of law because there is no evidence to support the
elements of each claim.
a. Negligence per se and gross negligence per se.
Plaintiffs have failed to introduce evidence—nor is there any—to support the elements of
their claims for negligence per se (X1, 4AP ¶¶ 115-118) and gross negligence per se (id. ¶¶ 119-
122).
As an initial matter, Plaintiffs’ claims for negligence per se and gross negligence per se
are barred by the economic loss rule. Under well-settled Texas law, when the injury is only the
economic loss to the subject of a contract itself, the economic loss rule generally precludes
recovery in tort. Johnson v. JPMorgan Chase Bank, N.A., 2013 WL 2554415 at *13 (E.D. Tex.,
June 7, 2013). The Texas Supreme Court has held that the economic loss doctrine applies to real
estate transactions. Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986) (“When
the injury is only the economic loss to the subject of a contract itself, the action sounds in
contract alone.”). The economic loss rule thus bars Plaintiffs’ claim for negligence per se and
gross negligence per se.
right of action and, therefore, Plaintiffs have no standing to assert any alleged violation of Section 192.007 or have that statute form the basis of any claim. See Harris County, Texas v.
MERSCORP, Inc., 791 F.3d 545, 552-555 (5th Cir. 2015).
29
Even in the absence of the economic loss rule, to recover for negligence per se, Plaintiffs
must establish that: (1) they belong to the class of persons the statute was designed to protect,
and their alleged injury is of the type the status was designed to prevent; (2) the statute is one for
which tort liability may be imposed when violated; (3) Defendants violated the statute without
excuse; and (4) Defendants’ act or omission proximately caused the plaintiff’s injury. Nixon v.
Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 549 (Tex. 1985). Plaintiffs have not presented evidence
to support any of these elements.
Plaintiffs have not proven, nor could they prove, any facts indicating that there was a
special relationship between Defendants and Plaintiffs giving rise to a duty under Texas law.
Indeed, Texas law is just the opposite. See Milton v. U.S. Bank Nat. Ass’n, 508 F. App’x. 326,
329-330 (5th Cir. 2013) (finding that the plaintiff’s “negligence and gross negligence claims
fail[ed]” because under Texas law, there is “no special relationship between a mortgagor and
mortgagee” that would give rise to a stand-alone duty); see also Burgess v. Bank of Am, N.A.,
2014 WL 5461803, at *12 (W.D. Tex. 2014) (holding that mortgagor could not bring negligence
per se and gross negligence per se claims premised on alleged violation of Section 12.002
because “Plaintiff has failed to cite any authority that a mere violation of that statute constitutes
negligence per se.”).16
And even if Defendants had a legal duty to Plaintiffs—which they did not—Plaintiffs
have not introduced any evidence to show how Defendants breached that duty, much less how
they were damaged in any way that was not the direct result of their own default on the Note.
16 In addition, Section 12.002 imposes a civil penalty for an intentional act. As such, it is not possible to negligently violate the statute. If it were, then the “intentional” standard in Chapter 12 would be lessened to a negligence standard.
30
Further, to recover for gross negligence per se, Plaintiffs must establish that: (1) viewed
objectively from the standpoint of the actor, the act or omission involved an extreme degree of
risk, considering the probability and magnitude of the potential harm to others, and (2) the actor
had actual, subjective awareness of the risk involved, but nevertheless proceeded in conscious
indifference to the rights, safety, or welfare of others. Transportation Ins. Co. v. Moriel, 879
S.W.2d 10, 22 (1994). Even accepting the Plaintiffs’ argument that Defendants violated Section
12.002, the alleged conduct would not come close to establishing that Defendants acted with “an
extreme degree of risk” or that they had “actual, subjective awareness of the risk involved” or
proceeded “in conscious indifference to the rights, safety, or welfare of others.”
b. Unjust enrichment and money had and received.
Plaintiffs also failed to introduce evidence to support the elements of their claims for
unjust enrichment (X1, 4AP ¶¶ 133-137) and money had and received (id. ¶¶ 138-144).
A claim for money had and received is described as follows:
The question, in an action for money had and received, is to which party does the money, in equity, justice, and law, belong. All plaintiff need show is that defendant holds money which in equity and good conscience belongs to him. Again, it has been declared that a cause of action for money had and received is less restricted and fettered by technical rules and formalities than any other form of action. It aims at the abstract justice of the case, and looks solely at the inquiry, whether the defendant holds money, which belongs to the plaintiff.
Burgess, 2014 WL 5461803, at *12 (quoting Bank of Saipan v. CNG Fin. Corp., 380 F.3d 836,
840 (5th Cir. 2004)). “A cause of action for money had and received belongs conceptually to the
doctrine of unjust enrichment.” Id. (quoting Amoco Prod. Co. v. Smith, 946 S.W.2d 162, 164
(Tex. App.—El Paso 1997, no pet.)). “Unjust enrichment is not an independent cause of action
but rather characterizes the result of a failure to make restitution of benefits under circumstances
which give rise to an implied or quasi-contractual obligation to return the benefits.” Id. (quoting
Amoco Prod., 946 S.W.2d at 164).
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An action for money had and received is designed to prevent unjust enrichment in
circumstances in which the defendant holds money that, in equity and good conscience, belongs
to the plaintiff. See Staats v. Miller, 243 S.W.2d 686, 687-88 (Tex. 1951); Greer v. White Oak
State Bank, 673 S.W.2d 326, 329 (Tex. App. – Texarkana 1984, no writ). Proving ownership of
the proceeds is essential to the claim. Id.
Plaintiffs’ claims fail because they cannot demonstrate proof of ownership. Moreover,
Plaintiffs have presented no evidence showing that Defendants have been unjustly enriched. In
fact, the evidence shows that Plaintiffs have failed to make monthly payments for years, while
continuing to live for free on the Property. X14 D13; X19, Vol. 4, 26:16-26:18. Since Plaintiffs
ceased making payments, Defendants have paid property taxes and insurance on the Property and
have advanced over $85,000 during that time frame. X15, D15. With unpaid principal, interest
and taxes, Plaintiffs now owe a total of $755,828.09 on their mortgage loan. Id.
Accordingly, the evidence clearly shows that Plaintiffs have been unjustly enriched at
Defendants’ expense, not the other way around. It is a fundamental rule of law that he who seeks
equity must do equity. Bagby Elevator Co., Inc. v. Schindler Elevator Corp., 609 F.3d 768, 774
(5th Cir. 2010) (citation omitted); Lambert v. First Nat’l Bank of Bowie, 993 S.W.2d 833, 835-36
(Tex. App. – Fort Worth 1999, pet. denied). Because Plaintiffs come to the Court with unclean
hands—undisputedly in default on their contractual obligations—their claim for equitable relief
should be dismissed for this reason as well.
In addition, Plaintiffs cannot bring these sorts of quasi-contractual claims when an
express contract, evidenced by the Note and Deed of Trust, governs the subject matter at issue.
Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671, 684 (Tex. 2000) (“when a valid, express
contract covers the subject matter of the parties’ dispute, there can be no recovery under a quasi-
32
contract theory”). Accordingly, there is no evidence to support Plaintiffs’ unjust enrichment and
money had and received claims. See also Burgess, 2014 WL 5461803, at *13 (dismissing same
claims in case raising materially similar allegations). Thus, to the extent the jury’s verdict found
that Defendants were liable on either theory, the verdict cannot stand.
In any event, the jury’s verdict itself forecloses any claim for money had and received or
unjust enrichment. The jury found (correctly) that Defendants do not hold any money that, in
equity and good conscience, belongs to Plaintiffs (X3, Verdict, p. 11) and that any “unjust
enrichment” was in the amount of zero dollars (id. p. 10). These findings preclude a finding of
liability for unjust enrichment. See Allstate Ins. Co. v. Michael Kent Plambeck, D.C., 2014 WL
1303000, at *6 (N.D. Tex. 2014) (entering judgment for defendants “because the jury answered
‘zero’ for all damages questions relating to Plaintiffs’ fraud and unjust enrichment claims”).
c. Declaratory judgment.
Plaintiffs’ last claim is for declaratory judgment. X1, 4AP ¶¶ 123-132. The claim is
derivative of Plaintiffs’ substantive causes of action and challenges Defendants’ use of the
Transfer of Lien and Defendants’ ability to foreclose. Id. Because Plaintiffs’ substantive claims
fail as a matter of law, they cannot maintain a declaratory judgment claim. See, e.g., Filgueira v.
US Bank Nat. Ass’n, 734 F.3d 420, 424 (5th Cir. 2013); Schumpert v. Wells Fargo Bank, N.A.,
2013 WL 944935 at *5 (E.D. Tex. 2013).
Accordingly, there is no evidence in the record to support any of Plaintiffs’ causes of
action. To the extent the jury found for Plaintiffs on any of their claims, Defendants are entitled
to judgment notwithstanding the verdict.
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II. THE VERDICT IS CONTRADICTORY.
The jury’s verdict also is deficient because it is inherently contradictory and contrary to
governing law. For this additional reason, the Court should grant judgment in favor of
Defendants notwithstanding the verdict.
As an initial matter, the jury found that Wells Fargo is the Holder of the Note (X3,
Verdict, p. 15), that Plaintiffs are in default under the Note (id. p. 13), and that Plaintiffs owe
over $650,000 under the Note (id. p. 14). However, the jury also found that Wells Fargo is not
the “Owner” of the Note or Deed of Trust. Id. p. 16. As explained above, however, Plaintiffs’
Note is endorsed “in blank.” X5, D2, p.5. Therefore, under Texas law, the Note is “payable to
bearer and may be negotiated by transfer of possession alone.” Tex. Bus. & Com. Code
§ 3.205(a)–(b) (emphasis added). “[P]hysical possession of [such] a promissory note ...
establishes ownership” of the note and thus establishes authority to foreclose on the deed of trust.
Tyler, 2013 WL 1821754, at *4. Thus, if Wells Fargo holds the Note—which it unequivocally
does (it produced the Note for the jury at trial)—then it “owns” the Note under Texas law. Id.
Because Wells Fargo holds and owns the Note, the Transfer of Lien evidencing the
assignment from New Century to Wells Fargo cannot be a fraudulent or false document. New
Century, Plaintiffs’ lender, undisputedly held the Note and Deed of Trust immediately following
execution of those documents. Wells Fargo now possesses and owns those documents, as proven
at trial. X19, Vol. 4, 221:6-222:6, 223:2-223:18; X5, D2; X6, D3. The Transfer of Lien merely
memorialized the transfer of the documents from New Century to Wells Fargo. Neither Texas
law nor the PSA required that those assignments be recorded. Darocy, 2012 WL 840909, at *10
(“under Texas law, the ability to foreclose on a deed of trust is transferred when the note is
34
transferred, not when an assignment of deed of trust is either prepared or recorded”); X17, P13 at
P02052-P02053.
Accordingly, the jury’s findings that Defendants violated the PSA (X3, Verdict, p. 18),
used a fraudulent lien (id. p. 5), and caused damage to Plaintiffs (id. pp. 6-7) are all contradicted
by the (correct and indisputable) finding that Wells Fargo holds the Note. Thus, those findings
cannot stand and Defendants are entitled to judgment notwithstanding the verdict.
In addition, the jury wrongly found that Defendants were unjustly enriched (id. p. 9) but
found that the unjust enrichment was in the amount of zero dollars (id. p. 10). The jury also
found (correctly) that Defendants do not hold any money that, in equity and good conscience,
belongs to Plaintiffs. Id. p. 11. The latter two findings preclude a finding of liability for unjust
enrichment. See Michael Kent Plambeck, 2014 WL 1303000, at *6 (entering judgment for
defendants “because the jury answered ‘zero’ for all damages questions relating to Plaintiffs’
fraud and unjust enrichment claims”). Accordingly, the Court should correct the unjust
enrichment finding by granting judgment as a matter of law in favor of Defendants.
III. THE EXEMPLARY DAMAGES AWARD IS IMPROPER AND
DISPROPORTIONATE.
As shown above, the jury’s liability findings cannot stand. However, even if the jury
reached the correct decision on liability (which it did not), its award of $5,000,000 in “exemplary
damages” is improper under Texas law. It is also grossly disproportionate to the economic and
non-economic damages awarded and thus cannot stand for this additional reason.
The purpose of exemplary damages is to punish a party for outrageous, malicious, or
otherwise morally culpable conduct, and to deter similar acts in the future. Owens-Corning
Fiberglas Corp. v. Malone, 972 S.W.2d 35, 41-42 (Tex. 1998). Exemplary damages may be
awarded only if the claimant proves by clear and convincing evidence that the harm with respect
35
to which the claimant seeks exemplary damages results from fraud, malice, or gross negligence.
Tex. Civ. Prac. & Rem. Code Ann. § 41.003(a). The claimant must prove the elements of
exemplary damages by clear and convincing evidence. Id. This burden of proof may not be
shifted to the defendant, nor can it be satisfied by evidence of ordinary negligence, bad faith, or a
deceptive trade practice. Tex. Civ. Prac. & Rem. Code Ann. § 41.003(b).
As explained above, Plaintiffs’ fraudulent lien claim fails as a matter of law and thus
cannot support an award of exemplary damages. And, the jury was never even instructed on the
elements of gross negligence, fraud, or malice. Accordingly, there is no finding on which to rest
an award of exemplary damages.
In any event, even if the prerequisites for exemplary damages had been established
(which they have not), the amount of exemplary damages awarded is grossly disproportionate to
the other damages awarded and thus violates Texas law.17 In Texas, the amount of exemplary
damages awarded against a defendant may not exceed the greater of $200,000, or two times the
amount of economic damages plus an amount equal to any noneconomic damages found by the
jury, not to exceed $750,000. Tex. Civ. Prac. & Rem. Code Ann. § 41.008(b).
As explained above, there was no evidence to support any award of economic or non-
economic damages, so there is no basis for exemplary damages.18 However, even crediting the
jury’s erroneous findings, the jury found a total of only $150,000 in economic damages and
17 Section 12.002(b)(4) authorizes exemplary damages only “in an amount determined by the court.” There is no provision authorizing the jury to decide an amount of exemplary damages. Thus, it was erroneous to give this question to the jury.
18 Moreover, because the jury found that Plaintiffs are in default under the Note and owe over $650,000 on the Note and found that Defendants hold the Note (X3, Verdict, pp. 13-15), any amount of economic or non-economic damages should be offset against the amounts that Plaintiffs owe to Defendants, resulting in no economic or non-economic damages and thus no basis for exemplary damages.
36
$40,000 in non-economic damages. X3, Verdict, pp. 6-7. Accordingly, the award of $5,000,000
exceeds the statutory limit under Texas law.19
The Due Process Clauses in the Fourteenth Amendment to the U.S. Constitution and in
Article I, § 19 of the Texas Constitution also constrain the amount of exemplary or punitive
damages that may be awarded. As determined by the U.S. Supreme Court, “[t]he Due Process
Clause of the Fourteenth Amendment prohibits a State from imposing a ‘grossly excessive’
punishment on a tortfeasor.” BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 562 (1996). In
reaching its decision, the Court discussed the ratio of punitive damages to compensatory
damages. It noted:
The second and perhaps most commonly cited indicium of an unreasonable or excessive punitive damages award is its ratio to the actual harm inflicted on the plaintiff. The principle that exemplary damages must bear a “reasonable relationship” to compensatory damages has a long pedigree.
Id. at 580 (internal citations omitted).
Here, the exemplary damages awarded do not bear a “reasonable relationship” to the
economic and non-economic damages awarded. In fact, the jury awarded exemplary damages at
more than a 25-to-1 ratio. Both the U.S. Supreme Court and the Texas Supreme Court have
recognized that “few awards exceeding a single-digit ratio ... will satisfy due process.” Tony
Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 308 (Tex. 2006) (quoting State Farm Mut. Auto.
Ins. Co. v. Campbell, 538 U.S. 408, 425 (2003)). The Texas Supreme Court has further
recognized that awards for “mental anguish,” such as the $40,000 awarded here, “themselves
often include a punitive element.” Id.
19 Here, two times the amount of economic damages awarded is $300,000, and an amount equal to noneconomic damages awarded is $40,000. Accordingly, under Texas statutory law alone, exemplary damages may not exceed a maximum cap of $340,000. Regardless, as explained below, any such amount is still subject to constitutional proportionality limitations imposed by the Due Process Clause.
37
In Tony Gullo, the Texas Supreme Court held that a ratio of 4.33 to 1 “at least pushes
against, if not exceeds, the constitutional limits,” noting:
Pushing exemplary damages to the absolute constitutional limit in a case like this leaves no room for greater punishment in cases involving death, grievous physical injury, financial ruin, or actions that endanger a large segment of the public. On this record, Gullo Motors’ conduct merited exemplary damages, but the amount assessed by the court of appeals exceeds constitutional limits.
Id. at 310; see also Bennett v. Reynolds, 315 S.W.3d 867, 873-85 (Tex. 2010) (finding that
exemplary damages award violated due process and exceeded constitutional limits).
Accordingly, there is no basis in the jury’s verdict for any award of exemplary damages.
However, even if such a basis was established, the amount of exemplary damages awarded is
grossly disproportionate and thus subject to reversal under both Texas and federal law.
IV. DEFENDANTS ARE ENTITLED TO FORECLOSE.
Finally, the Court should grant judgment on Defendants’ counterclaim and order a
sheriff’s sale of the Property. As explained above, and proven at trial, Defendants hold both the
Note endorsed in blank and the Deed of Trust. X19, Vol. 4, 221:6-222:6, 223:2-223:18; X5, D2;
X6, D3. Under Texas law, “physical possession” of a note endorsed in blank “establishes
ownership” of the note and thus establishes authority to foreclose on the deed of trust. Tyler,
2013 WL 1821754, at *4. The jury expressly found that Wells Fargo is the Holder of the Note
and that Plaintiffs owe $655,191.73 under the Note. X3, Verdict, pp. 14, 15. Undisputed
evidence was presented at trial showing the Plaintiffs are in default. X14, D13; X19, Vol. 4,
26:16-26:18. Accordingly, Defendants are entitled to a judgment ordering a sheriff’s sale of the
Property to enforce their security interest.
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CONCLUSION
For the reasons set forth above, the Court should enter a judgment notwithstanding the
verdict pursuant to Texas Rule of Civil Procedure 301. The judgment should: (1) find against
Plaintiffs on all of their claims, (2) award Plaintiffs no relief, including no damages, exemplary
damages or attorneys’ fees, (3) enter judgment ordering a sheriff’s sale of the Property, (4) award
Defendants their costs of Court and all other relief to which they are entitled, and (5) award such
other relief to Defendants as may be just and proper.
Date: December 21, 2015 Respectfully submitted:
/s/ Peter C. Smart ‘
MAYER BROWN LLP CRAIN, CATON & JAMES Lucia Nale Peter C. Smart (pro hac vice application pending) State Bar No. 00784989 IL State Bar No. 6201684 1401 McKinney, Suite 1700 Thomas V. Panoff Houston, Texas 77010 (pro hac vice application pending) Tel: (713) 658-2323 IL State Bar No. 6283695 Fax: (713) 658-1921 Christopher S. Comstock [email protected] (pro hac vice application pending) IL State Bar No. 6299333 71 South Wacker Drive Chicago, Illinois 60606 Tel: (312) 782-0600 Fax: (312) 701-7711 [email protected] [email protected] [email protected]
Counsel for Defendants/Counter-Plaintiffs
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CERTIFICATE OF SERVICE
I certify that a true and correct copy of the foregoing was served on the following through the electronic filing manager and via regular mail this 21st day of December 2015:
William Craft Hughes Jarrett Lee Ellzey, Jr HUGHES ELLZEY LLP 2700 Post Oak Blvd, Suite 1120 Galleria Tower I Houston, TX 77056 Tel: (713) 554-2377 Fax: (888) 995-3335 [email protected] [email protected] Counsel for Plaintiffs
/s/ Peter C. Smart ‘ Peter C. Smart