Thrash v. Ocwen Loan Servicing, LLC (In Re Thrash)Thrash v. Ocwen Loan Servicing, LLC (In Re Thrash)
MEMORANDUM OPINION AND ORDER: (1) GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT; AND (2) DENYING PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
Before this court are cross motions for partial summary judgment, responses, replies, and supporting documentary evidence in the above-referenced adversary proceeding (“Adversary Proceeding”). 1 The Adversary Proceeding involves allegations by former Chapter 13 Debtors, James and Kimberly Thrash (“Mr. Thrash,” “Mrs. Thrash,” and together, the “Plaintiffs”), of unlawful and improper conduct by Ocwen Loan Servicing, LLC (the “Defendant”) in servicing the Plaintiffs’ home mortgage loan. 2 For the reasons set forth below: (1) Defendant’s MSJ is granted in part and denied in part (the motion is granted as to Counts One, Four, Five, Six and Seven, and is denied as to Count Twelve); and (2) Plaintiffs’ Cross MSJ (as to Counts Two and Three) is denied entirely. The Adversary Proceeding will proceed to a trial on the merits on the counts unresolved by this Memorandum Opinion and Order (ie., Counts Two, Three, Eight, Ten, and Twelve). 3
I. UNDISPUTED FACTS
The Plaintiffs filed a Chapter 13 bankruptcy case on December 6, 1999. Pls. Ex.
The Plaintiffs have, at all relevant times, owned and resided at a home at 4902 Oldfield Drive, Arlington, Texas 76016 (“Homestead”). The Homestead is the subject of this Adversary Proceeding. The Plaintiffs are obligated on a mortgage loan on the Homestead, and the mortgage loan has been serviced by Defendant at all relevant times. Plaintiffs argue in this Adversary Proceeding that Defendant has wrongly applied and/or accounted for payments made by the Plaintiffs on their mortgage loan both postpetition and post-discharge, has overstated the amount Plaintiffs owe on their mortgage loan post-discharge and, ultimately, has wrongfully attempted to foreclose on the Homestead. The more specific facts are that, during the Chapter 13 case, the Defendant timely filed a proof of claim, on or about January 6, 2000, asserting $10,470.52 in prepetition arrearages on the mortgage loan (which included, among other things, an escrow deficiency and late charges). Def. Ex. C. The Plaintiffs objected to this proof of claim, alleging that there were unreasonable and unauthorized charges asserted therein. Def. Ex. D. The proof of claim was, on August 28, 2000, disallowed in part ($4,492.52 was disallowed for improper escrow arrearages and certain other improper charges), and allowed in part, in the amount of $5,978. Def. Ex. E. Soon thereafter, on November 20, 2000, an Agreed Order Relative to the Automatic Stay of 11 U.S.C. § 362 (“Agreed Stay Order”) was entered in the case, resolving a motion to lift stay that was filed by the Defendant. The Agreed Stay Order provided that the Plaintiffs had become delinquent on three
post
petition payments (August-October 2000), resulting in a postpetition delinquency on their mortgage loan of $3,793.09, and that the automatic stay of their bankruptcy case would remain in place so long as the Plaintiffs cured this arrearage over six months (at $632.19 per month, commencing on November 15, 2000, with each payment due on the 15th day of the month thereafter), and also kept current on their regular mortgage payments which they were direct-paying (such mortgage payments being $1,170.20 per month, subject to periodic adjustments), as well as on their regular plan trustee payments. Pis. Ex. I. Three and-a-half years later, on June 14, 2004, the Defendant filed a Notice of Termination of Stay, claiming that the Plaintiffs had defaulted with regard to their postpetition direct-pay mortgage payments on certain occasions (the only details given in this Notice of Termination were that demands were made on the Plaintiffs by letters dated March 19, 2001, May 29, 2001 and November 7, 2003),
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that the Plaintiffs had “again defaulted in connection with Debtor’s [sic] payment of the post-petition installments and/or postpetition arrearage installments outside the plan” and had further “failed to cure said arrears within the specified time frame stated in said default letter,” and that the automatic stay was terminated by operation of the November 20, 2000 Agreed Order. Doc. No. 48 in bankruptcy case. As earlier noted, the Plaintiffs obtained a discharge on July 13, 2004 (less than a month
after
this Notice of Termination of Stay from Defendant), and, on
From June 2004 through early 2009, there were numerous communications (written and telephonic) among the Plaintiffs and Defendant, regarding the Plaintiffs’ alleged postpetition default. Plaintiffs appear to have made repeated requests for information regarding what payments Defendant believed had been missed under the mortgage loan. The Plaintiffs believed the Defendant had somehow not accounted for or had misapplied payments or were overcharging Plaintiffs. The Plaintiffs had made post-petition payments via Western Union and allege that they were trying to avoid significant charges for obtaining prior payment records from Western Union. Defendant allegedly was not helpful and/or indifferent with regard to the Plaintiffs’ requests. On July 13, 2004, the Defendant sent Mrs. Thrash a letter informing the Plaintiffs that it was Plaintiffs’ responsibility to provide evidence to Defendant of a misapplication of payments. By December 12, 2008, in a letter from the Defendant to Plaintiffs, Defendant claimed Plaintiffs owed $27,499.65. All the while, Plaintiffs have asserted they have made every required mortgage loan payment since completing their plan and receipt of the original June 14, 2004 Notice of Termination of Stay. Ultimately, the Defendant noticed a foreclosure, which led to this Adversary Proceeding being filed.
With regard to the Plaintiffs’ assertions that there were misapplications of postpe-tition loan payments by Defendant, inappropriate charges made, and other misdeeds undertaken, at least the following events appear from the summary judgment evidence to have occurred, and' — • according to the Plaintiffs — such actions were without authority from the loan documents, the bankruptcy court, the Bankruptcy Code or otherwise:
(a) the Defendant — consistent with its corporate policy, whenever there is a bankruptcy case in which postpetition mortgage payments are paid directly by debtors — accrued “late fees” every month, during the term of Plaintiffs’ bankruptcy plan, even if the Plaintiffs made their plan payments and their regular postpetition mortgage payments on time (or even early), since the Plaintiffs were technically not “contractually current” (according to the deposition testimony of Defendant’s Rule 30(b)(6) representative, this policy of accruing “late charges” is in place because so many chapter 13 debtors default on their plans and have their cases dismissed and, in such events, the Defendant would “have to go back and do a lot of accounting and reverse all of that ... which can get pretty confusing I would think”); 5
(b) the Defendant arguably did not properly account for the bankruptcy filing in its bookkeeping — for example, by continuing to carry disallowed components of its proof of claim on its books through the bankruptcy case and thereafter, and, thus, always showing the Plaintiffs to be behind in their payments; 6
(c) the Defendant erroneously applied, on November 18, 2002, $1,918.23 worth of post petition mortgage payments paid in by the Plaintiffs to Plaintiffs’ negative “escrow account” which was negative (at least in large part) due to pre petition arrearages that had been disallowed by the bankruptcy court in connection with Plaintiffs’ objection to the Defendant’s proof of claim;
(d) the Defendant erroneously applied, on December 31, 2002, $889.82 worth of post petition mortgage payments paid in by the Plaintiffs to Plaintiffs’ negative “escrow account” which was negative (at least in large part) due to pre petition arrearages that had been disallowed by the bankruptcy court in connection with Plaintiffs’ objection to the Defendant’s proof of claim;
(e) the Defendant sometimes applied Plaintiffs’ regular postpetition mortgage payments to principal and interest and sometimes posted them in a “suspense account” or applied them to “other charges” (the interpretation of this by Plaintiffs being that the Defendant was utterly inconsistent in its applications-methodology and that its practices, in fact, defied logical explanation; the explanation of the Defendant is that the Plaintiffs sometimes sent in postpetition payments in the wrong amount — perhaps because the Plaintiffs had a fluctuating “ARM” note — and, when the Plaintiffs sent in a payment in the wrong contractual amount, 7 the Defendant put the payment in a “suspense account” until the Plaintiffs had paid in the correct full amount that could be applied);
(f) because of postpetition payments being occаsionally put in a “suspense account,” there would be deemed-delays in payment, and this resulted in yet more late charges, which Plaintiffs claim were unmerited or disingenuous;
(g) the Defendant sometimes escrowed amounts for taxes and insurance when the mortgage loan did not contemplate this, and when the Plaintiffs allegedly have always paid taxes and insured the Homestead directly (the Plaintiffs, allegedly, have a special payment plan set up with the taxing authorities, due to Mr. Thrash being disabled); and
(h) the Defendant coded the Plaintiffs’ account so that broker price opinions were ordered roughly every six months at a cost of more than $100 each, and Plaintiffs argue that this was unwarranted.
The gist of all of this, Plaintiffs argue, is that the Defendant’s actions were tortious in many regards, violated the automatic stay
{e.g.,
by applying postpetition payments to disallowed prepetition amounts), violated the discharge order (e.g., by significantly overstating amounts on certain post-discharge notices, due to wrongly applying postpetition payments to prepetition amounts and wrongly assessing late charges and the like), and were contemp
As always, there are two sides to every story. In this Adversary Proceeding, the Defendant acknowledges that, due to an internal servicing error (and/or the business policies of the Defendant), it inadvertently: (a) misallocated two postpetition direct-mortgage payments on November 18, 2002 and December 31, 2002; and (b) failed to complete its normal bankruptcy accounting reconciliation upon discharge, and, thus, continued to include amounts disallowed during the bankruptcy case (through the sustained objection to its proof of claim) — thus overstating amounts owed on certain post-discharge notices of default. However, Defendant is adamant that payments made by the Debtor postpe-tition and/or post-discharge were not always in the correct amounts, due most likely to the floating interest rate applicable to the mortgage loan, and this is the reason for the “suspense accounts” that were used on a frequent basis. Additionally, the Defendant argues that there were, in fact, delinquent taxes on occasion, and the Defendant did (and was within its rights to) pay delinquent taxes and then assess these against Plaintiffs. Defendant denies that its collection efforts were ever unreasonable — pointing out that there are no allegations or evidence of calls at inappropriate hours, calls to work places, or inappropriate threats.
II. JURISDICTION
This court has jurisdiction over this Adversary Proceeding pursuant to 28 U.S.C. § 1334(b). 8 This Adversary Proceeding involves a mixture of core and non-core claims, pursuant to 28 U.S.C. § 157(b). The parties have ultimately consented to the bankruptcy court issuing final orders as to the non-core сlaims. 9
III. SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate when the movant has established that the pleadings, affidavits, and other evidence available to the court demonstrate that no genuine issue as to any material fact exists, and the movant is, thus, entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c);
Piazza’s Seafood World, LLC v. Odom,
A. Count One: Violation of 12 U.S.C. § 2605(g).
The Defendant has sought summary judgment on Count One of the Plaintiffs’ Amended Adversary Complaint (“Complaint”), which is a claim that Defendant allegedly violated Section 2605(g) of title 12 of the United States Code, which title is known as the Real Estate Settlement Procedures Act or “RESPA.” 12 U.S.C. § 2605(g). Hereinafter, the court will refer to this as the “RESPA Claim.” This particular statute in RESPA requires that a servicer of a “federally related mortgage,” who is required by the terms of the loan to make property-tax payments on the mortgagor’s behalf from an escrow, make such payments in a “timely manner.” Specifically, the statute reads:
If the terms of any federally related mortgage loan require the borrower to make payments to the servicer of the loan for deposit into an escrow account for the purpose of assuring payment of taxes, insurance premiums, and other charges with respect to the property, the servicer shall make payments from the escrow account for such taxes, insurance premiums, and other charges in a timely manner as such payments become due.
12 U.S.C. § 2605(g).
The Defendant has argued that no genuine issue as to any material fact exists with regard to this alleged statutory violation, because there is no summary judgment evidence (or even an allegation, for that matter) that the Defendant did not make “timely” payments on Plaintiffs’ behalf.
Plaintiffs now concede that “given the evidence developed, they are unable to maintain their cause of action for damages under 12 U.S.C. § 2605(g).” Plaintiffs’ Response to MSJ, p. 2, n. 1. Thus, summary judgment in Defendant’s favor on the RESPA Count is appropriate and will be granted. However, the Plaintiffs have argued in their Response that they nevertheless believe that Defеndant has still violated certain other provisions of RES-PA, by essentially setting up an escrow regarding taxes and failing to provide proper notice of escrow advances and alleged shortages/deficiencies in the escrow (citing 12 U.S.C. § 2609(b) and 24 C.F.R. § 3500.17(f)(5); this statute and regulation requires a mortgage servicer advancing escrow accounts to notify “the borrower at least once during the escrow account computation year if there is a shortage or deficiency in the escrow account”). Plaintiffs state that Defendant “should be precluded from any attempt to recover the unnoticed arrearages it presently seeks to collect” with regard to the taxes Defendant paid. See Plaintiffs’ Response to MSJ, pp. 23-24.
To be clear, Plaintiffs have not currently articulated in their Complaint any counts for relief for violations of RESPA other than violations of 12 U.S.C. § 2605(g)— which statute they now concede is inapplicable. Plaintiffs — if this is their intention — cannot attempt to assert a new RE SPA claim through an opposition to a motion for summary judgment. The court will not treat Plaintiffs’ opposition to the Defendant’s motion for summary judgment as a motion for leave to amend. Thus, summary judgment for Defendant is granted on the RESPA Count and no violations of RE SPA are currently at issue in this Adversary Proceeding as currently framed.
B. Count Four: Negligence.
The Defendant has sought summary judgment on Count Four of the Plaintiffs’ Complaint, which is a claim that Defendant was negligent in the manner in which it performed its duties in servicing Plaintiffs’ loan in that it: (a) failed to properly apply payments made by Plaintiffs; (b) demanded payment of monies not properly due; (c) failed to correct its bookkeeping errors that caused it to show arrearages where none were due; and (d) initiated a foreclosure based at least in part on Plaintiffs’ failure to remit amounts not actually owed. Defendant argues that to succeed on a negligence claim under Texas law, a plaintiff must prove that a defendant owed it a legal duty and breached such duty causing plaintiff to suffer damages. Defendant further argues that under Texas law, there exists no special relationship between a mortgagor and mortgagee giving rise to a legal duty upon which a negligence claim may be based. And, more specifically, a mortgage servicer owes no duty
other than contractual duties (i.e.,
to collect and apply payments in accordance with the mortgage contract). While the court believes that Defendant has not properly
1. The Elements of Simple “Negligence.”
First, under long-established Texas law, the elements of a negligence claim are: (a) a legal duty owed by one person to another; (b) breach of that duty; and (c) damages proximately caused by the breach.
E.g., Nabors Drilling, U.S.A., Inc. v. Escoto,
2. Duty or No Duty?
In the case at bar, the parties have focused almost exclusively on duty. And, unfortunately, there is little guiding-authority to enlighten this court as to whether there is a recognized duty to conform to a certain standard of conduct that might: (a) be owed from a mortgage lender or servicer to its borrower; and (b) give rise to a negligence claim. Negligence has been defined as a failure to use
ordinary or due care;
that is, failing to act as a person of ordinary prudence would have acted under the same or similar circumstances.
Webb v. Glenbrook Owners Ass’n, Inc.,
In a lender/servicer-borrower context, there is authority (cited by the parties, here) that addresses the duty, if any, of
“good faith and fair dealing
”— holding that there is none owed in this context.
E.g., White v. Mellon Mortg. Co.,
Despite the apparent nonexistence of a “special relationship” or fiduciary relationship
vis-a-vis
a mortgage servi-cer and borrower or lender and borrower under Texas law, this still begs the question of whether there is, nonetheless, a
duty of ordinary or due care,
generally, or some other duty/obligation to conform to a particular standard of conduct. For, clearly, as argued by the Defendant, in order to impose negligence-liability with respect to a particular person, there must be a violation of a duty owed by that very person to another particular person.
Abafos v. Oil Dev. Co. of Texas,
In any fact situation, case law has established that “duty” for negligence purposes is a pure question of law for the court to decide.
Pichardo,
3. The Real Issue: Damages.
Distilling all of the cited Texas authority to its essence, it appears to this court that, in order to determine whether the Defendant might have had a legal duty here that might create the possibility of negligence-liability, the court would have to evaluate whether there was a foreseeable risk of injury to the Plaintiffs, as well as the burden to the Defendant of guarding against the injury, the consequences of placing the burden on Defendant, and the social utility of Defendant’s conduct.
But here, despite the way the parties have framed the arguments, the court believes there is no need to tackle these factors relative to “duty.” Here, there is a more significant reason that the negligence claim fails as a matter of law— and it has nothing to do with “duty.” Here, Mr. and Mrs. Thrash have put forth no summary judgment evidence of any damages suffered
other than alleged economic harm and mental anguish/anxiety.
To be entitled to damages for negligence, a party must plead and prove something more than
mere economic harm. Blanche v. First Nationwide Mortg. Corp.,
Turning to the Thrashes’ Complaint and specific summary judgment evidence, they have testified in depositions that they have suffered two instances of economic harm. Specifically, Plaintiffs tried to refinance their home but were told by a mortgage lender that they were ineligible for refinancing because the Defendant reported them (to a credit bureau) as being many months behind on their mortgage. Pis. Ex. F, pp. 125-26. Plaintiffs have also testified that Plaintiffs financed an automobile purchase after their discharge and were informed that their interest rate was increased due to the delinquency reported by the Defendant to the credit bureaus. Pis. Ex. F, pp. 128-29. The Thrashes also more generally indicate mental and physical anguish by describing that “[t]he half-decade struggle to save their house has caused Plaintiffs severe emotional and physical stress. Plaintiff James Thrash suffers from acute heart trouble and a seizure-disorder, both of which are exacerbated by anxiety. He has suffered and continues to suffer ongoing medical expenses, physical pain, and mental anguish as a result of Ocwen’s wrongful acts.... [Mrs. Thrash] has suffered severe emotional distress as a result of Ocwen’s actions, battling depression and anxiety, for which she has had no choice but to seek medical treatment.” Complaint, ¶¶ 56-57. No evidence of specific medical bills or other proof of physical consequences was put into the summary judgment record. Lastly, Mrs. Thrash has allegedly spent
While the economic consequences may be real, and while the anguish may be genuine, the case law in Texas clearly does not allow a claim for negligence to proceed where there is only a claim of mere economic damages and/or mental anguish. Here, despite all the argument as to “duty” in the pleadings, the viability of the negligence claim really all boils down to damages. This court struggles with how a “negligence” claim might ever prevail in a suit by a borrower against lender (or mortgage servicer), since it is hard to conceive of how anything more than economic damages and mental anguish will ever be involved. 12 In any event, based on the foregoing, summary judgment shall be granted to the Defendant with regard to the negligence claim.
C. Count Five: Gross Negligence.
The Defendant has sought summary judgment on Count Five of the Plaintiffs’ Complaint, which is a claim that Defendant “acted with reckless, wanton and heedless disregard for the rights of the Plaintiffs” by its “failing to make any real effort to correct its mishandling of Plaintiffs’ account,” by “failing to ensure that Plaintiffs were not needlessly injured by its mistakes,” and by “threatening Plaintiffs with the loss of their most valuable asset without justification.” Complaint, ¶ 80. This allegedly caused Plaintiffs to suffer “personal and financial damages.”
Under Texas law, “gross negligence” is a heightened form of “negligence” that requires proof (in addition to the ordinary elements of negligence) of: (1) an act or omission that, viewed objectively from the actor’s standpoint, involved “an extreme degree of risk;” and (2) the actor had actual, subjective awareness of the risk and proceeded, nevertheless, with a “conscious indifference.”
Lane,
D. Counts Six and Seven: Fraudulent and Negligent Misrepresentation.
There is substantial overlap between Counts Six and Seven of the Plaintiffs’ Complaint and, thus, the court will combine the discussion of these counts.
The Defendant has sought summary judgment on Count Six (the tort of fraudulent misrepresentation) and Count Seven (the tort of negligent misrepresentation), in which Plaintiffs assert that: (1) Defendant falsely represented to the Plaintiffs that they owed amounts on their mortgage loan that Defendant knew or should have known had either been paid by the Plaintiffs or were not properly owed; (2) Defendant falsely represented to Plaintiffs that failure to pay such amounts would give the Defendant the right to foreclose on Plaintiffs’ home; (3) the misrepresentations involved matters that were material and central to the relationship between Defendant and Plaintiffs (namely, the amount of money owed and the manner, method, and date upon which payments on said amounts were to be made, and potential consequences of non-payment); (4) Defendant knew or should have known these representations were false (or, in making said misrepresentations, the Defendant failed to exercise the degree of diligence, care and expertise that the Plaintiffs were enti-tied to expect); (5) Plaintiffs justifiably relied on the alleged misrepresentations (in that Defendant had sole access to Plaintiffs’ account records); and (6) Plaintiffs have suffered personal and financial damage as result of their reliance.
1. Elements of Fraudulent and Negligent Misrepresentation.
First, the elements of the tort of
fraudulent misrepresentation
under Texas law are: (1) a material representation was made; (2) it was false; (3) it was known to be false when made or was recklessly made without knowledge of its truth; (4) it was intended to be relied upon; (5) it was relied upon; and (6) it caused injury.
Larsen v. Carlene Langford & Assocs.,
The elements of fraudulent and negligent misrepresentation are virtually identical except, of course, that in the case of negligent misrepresentation, a mere lack of care with regard to information supplied (as opposed to knowledge of falsity or recklessness) is sufficient to establish culpability. Note that negligent misrepresentation claims frequently arise
2. Mistakes Were Made — But Where is the Detrimental Reliance?
The specific details of the Complaint and summary judgment evidence related to Counts Six and Seven are that Plaintiffs received certain letters from the Defendant stating that Plaintiffs owed ar-rearages that, in fact, were not all owed (hereinafter, the “Three False Notices”). Specifically:
(a)on June 15, 2004, Plaintiffs received a Notice of Default from Defendant, stating that Plaintiffs owed Defendant $21,207.36 (Pls.Ex.K), which Defendant subsequently admitted was incorrect, in that it included prepetition amounts that were disallowed during thе Plaintiffs’ bankruptcy case;
(b) on June 18, 2004, Plaintiffs received a second Notice of Default from Defendant, stating that Plaintiffs owed Defendant $20,466.95 (Pls.Ex.K), which Defendant subsequently admitted was incorrect, in that it included prepetition amounts that were disallowed during the Plaintiffs’ bankruptcy case; and
(c) on November 1, 2008, Plaintiffs received a new Notice of Default from Defendant, demanding that Plaintiffs pay Defendant $27,499.65 or face foreclosure (Pls.Ex.O), which Defendant subsequently admitted was incorrect, in that it included prepetition amounts that were disallowed during the Plaintiffs’ bankruptcy case and perhaps other charges that were not collectible in light of the Plaintiffs’ discharge in 2004.
Defendant argues that, even though misrepresentations were made in these Three False Notices, Plaintiffs’ fraudulent and negligent misrepresentation claims fail as a matter of law because there is no summary judgment evidence suggesting any detrimental reliance. In other words, neither Count Six nor Count Seven can succeed unless Plaintiffs reasonably and justifiably relied on Defendant’s Three False Notices and suffered injury as a result. Defendant points to the fact that Plaintiffs admit that they did not take any specific action or make any payments in response to (or in reliance upon) the Three False Notices because they believed or knew that the statements were false. Def. Ex. A, pp. 96-97; Def. Ex. G, pp. 34-35.
See Matis v. Golden,
In order to succeed on a cause of action of fraudulent or negligent misrepresentation, Plaintiffs, indeed, must show justifiable and reasonable reliance on the representations in the Three False Notices and that injury was suffered as a result.
See Ortiz v. Collins,
The court must agree with the Defendant that Plaintiffs have failed to put forward any summary judgment evidence of detrimental reliance. Here, certainly other elements of these torts appear to be established ie.g., representations were made by the Defendant in the course of a business relationship, the representations were false, and the information was intended to be relied upon (or was at least supplied to Plaintiffs for guidance)). And it does not matter whether there was actually privity of contract between the Plaintiffs and the mortgage servicer Defendant. And it does not matter if any damages were merely of an economic nature (unlike with simple negligence). But where is the detrimental reliance here on the notices?
As the Defendant has pointed out, the Plaintiffs testified that they made no extra payments beyond their regular mortgage payments as a result of the Three False Notices described above. Def. Ex. A at p. 103 (lines 3-9), p. 96 (line 4) through p. 98 (line 17), p. 123 (line 16) through p. 125 (line 3); Def. Ex. G, pp. 34-35 & pp. 37-39.
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The Plaintiffs have as
The Plaintiffs have, indeed, testified that they have suffered two instances of economic harm as a result of the Defendant’s conduct. Specifically, Plaintiffs testified in depositions that they tried to refinance them home but were told by a mortgage lender that they were ineligible for refinancing because the Defendant reported them (to a credit bureau) as being many months behind on their mortgage. Pis. Ex. F, pp. 125-26. Plaintiffs have also testified in their depositions that Plaintiffs financed an automobile purchase after their discharge and were informed that their interest rate was increased due to the delinquency reported by the Defеndant to the credit bureaus. Pis. Ex. F, pp. 128-29. But, assuming this is true, there is nothing in the summary judgment record to tie this alleged denial of credit to the Three False Notices. Moreover, assuming this is true, the alleged injuries (denial of credit to the Thrashes at favorable rates) certainly would not have resulted from any reliance by Plaintiffs on the Three False Notices (but, rather, a reliance by third-party consumer lenders on a credit report which — by the way — is not in evidence).
3. The Earlier Allegedly False Notices.
The court notes, finally, that the Plaintiffs have newly argued in the Plaintiffs’ Response to MSJ that this Adversary Proceeding is not simply about the Three False Notices — which, the Plaintiffs admit, did not cause them to make extra payments beyond their regular mortgage payments. The Plaintiffs now argue that there were actually some
earlier
false demand notices (hereinafter, the “Earlier Allegedly False Notices”) about which they are also complaining, and the Plaintiffs did, indeed, detrimentally rely upon them by making immediate (and presumably unnecessary or inflated) payments.
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As further explained below, these Earlier Alleg
Specifically, the Plaintiffs have alleged in their Response to MSJ that Pis. Ex. J— which is a “comment log” internally generated by Defendant — showing account activity regarding the Plaintiffs’ mortgage loan, reflects: (a) that Defendant (or its representatives) sent default notices to Plaintiffs on or about March 27, 2001, November 7, 2003 and April 4, 2004, alleging that Plaintiffs were behind on their mortgage loan; and (b) that Plaintiffs made payments to the Defendant shortly after these default notices were sent. Plaintiffs presumably believe that the court can and should make an inference that the default notices referenced in the comment logs were sent, were received, and made false demands for amounts not truly due. Plaintiffs presumably also believe that the court can and should make an inference that the payments that Plaintiffs are shown to have made- in the comments log were made in reliance on the default notices and reflected inflated payments. However, all that is in the summary judgment record is this very cryptic comments log. Pis. Ex. J. The Plaintiffs have put forward no summary judgment evidence that these three default notices mentioned in the comment logs were, in fact: (1) sent; (2) received, and (3) false. Not only are these Earlier Allegedly False Notices
not
themselves in the summary judgement evidence, but — assuming they exist, were sent, and were received — the comment logs to which the Plaintiffs refer (if one looks at them really carefully)
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suggest that these were simply default notices regarding
regular
mortgage payments that the Plaintiffs missed postpetition and pre-discharge and/or regarding cure payments owed pursuant to the Agreed Stay Order (¿e., the comment logs do not describe default notices of alleged escrow shortages, late charges, or other amounts disallowed in the Defendant’s proof of claim). Further sifting through the comment logs, it appears that the only “immediate payments” Plaintiffs made after the dates of these alleged default notices were in the amounts of these regular mortgage payments missed (and/or for the cure payments owed pursuant to the Agreed Stay Order).
See
Pls. Ex. J, p. 21 of 21 (line 4); p. 20 of 21 (line 21); p. 18 of 21 (line 6 and above); p. 17 of 21 (line 8 through end); p. 16 of 21 (lines 13-15).
See also
Ex. R to Complaint (a demonstrative aid prepared by Plaintiffs, with attachments, showing payments sent by Plaintiffs via Western Union, from August 29, 2003 through November 4, 2008). Interestingly, Ex. R to the Complaint indeed shows some delays in payments by Plaintiffs around the same time that the Earlier Allegedly False Notices were sent, and also reflects (through the attachments) an absence of any evidence of payments by Plaintiffs other than regular mortgage payments and payments
The Plaintiffs may not merely rely on conelusory allegations in their pleadings.
Lockett,
The Defendant has argued essentially that, even if there were a scintilla of evidence that the Earlier Allegedly False Notices were sent, received, were false and were detrimentally relied upon, the Plaintiffs are barred from complaining of these by either doctrines of res judicata (in that there was no objection raised to the June 14, 2004 Notice of Termination of Stay that was filed in the Bankruptcy Court by the Defendant prior to the discharge order and/or prior to case closure) and also by the statute of limitations — there being approximately six-to-nine years that elapsed between the time of these Earlier Allegedly False Notices and the filing of the Adversary Proceeding in which Plaintiffs now complain about them. The Defendant may very well be correct (i.e., it would appear that any issues that could have been raised at the time of the filing of the June 14, 2004 Notice of Termination could and should have been raised in the form of a timely challenge to that Notice). But the court has no need to decide these issues (issues, by the way, that were not briefed by the parties). Rather, based upon all the foregoing, summary judgment will be granted for Defendants in connection with Counts Six and Seven, due to failure to put forth summary judgment evidence of justifiable, reasonable, and detrimental reliance.
E. Count Twelve: Unreasonable Collection Efforts.
The Defendant has sought summary judgment on Count Twelve, in which Plaintiffs assert that Defendant is liable to Plaintiffs for a common law tort of “unreasonable collection efforts.” Plaintiffs specifically state that the Defendant’s collection efforts toward Plaintiffs were “unreasonable and wrongful,” and Plaintiffs have a right to be free from unreasonable and wrongful collection efforts. Plaintiffs cite
Moore v. Savage,
A review of the summary judgment evidence presented by the Plaintiffs reflects deposition testimony of Mrs. Thrash that mentions, among other things, that in “phone calls we would have with them [Defendant] trying to straighten it out ... they would tell us how incompetent we were and why wasn’t my husband working to pay his bills. Pretty demeaning statements saying we were, in fact, deadbeats.” Def. Ex. A, p. 99 (lines 15-20). Mrs.
Mr. Thrash’s deposition testimony corrobоrated the same story about the two gentlemen visitors. Def. Ex. G, p. 59 (lines 5-23). Mr. Thrash also testified in his deposition that on one occasion, a Defendant-representative said, “I hope you’re taking better care of your kids than you are your house payments and your financial responsibilities.” Def. Ex. G, p. 51 (lines 7-10). Mr. Thrash testified that he talked to the Defendant numerous times and “all I got was discourteous talk of how I need to be paying my bills on time, being up on my bills, be more of a man to take care of my family.” Def. Ex. G, p. 56 (line 24) through p. 57 (line 3). Mr. Thrash testified that the Defendant “threatened to throw my family and my kids out on the street.” Def. Ex. G, p. 60 (lines 2-3). Mr. Thrash also suggested without elaboration that a Defendant-representative may have used profanity with him. See Pls. Ex. L, p. 48 (lines 1-6) (in response to Defendant’s lawyer asking Mr. Thrash if Mr. Thrash had used obscenities on the phone with Defendant).
The Defendant argues that the case law uniformly holds that conduct sufficient to sustain an unreasonable collection efforts claim involves threats, repeated phone calls and personal visits at all hours of the day and night, as well as repeated conduct with friends, family members, and coworkers. Essentially, the Defendant argues that Plaintiffs have not pled or provided summary judgment of collection efforts that were outrageous or harassing-enough to be actionable. Defendant points out that Plaintiffs have not testified as to any physical threats (only threats of foreclosure and putting the Plaintiffs’ kids out on the street), nor have they complained of phone calls late-at-night or at the work place, contacts with family and friends, or visits from Defendant-representatives (other than, perhaps, the two gentleman who said they had heard from the Defendant that the house was foreclosed, vacant, and was available).
Obviously, a tort like unreasonable collection efforts is highly fact intensive. And, obviously, it may largely boil down to the credibility of witnesses in a “he said-she said” type of scenario, with not a lot of documentary or other corroborating evidence. Possibly there could be recordings of phone conversations available in this case at a trial before a fact-finder- — although the summary judgment papers and evidence are silent on this point. In any event, the court is required to accept as true the summary judgment evidence of the Thrashes (that demeaning comments, yelling, and perhaps profanity took place on phone calls). The court is required to accept as true that two gentlemen showed up early one morning at the Thrashes’ house wanting to look at the house. While there is no testimony that the two gentlemen carried baseball bats or brass knuckles, this court also must accept as true that Mr. Thrash is disabled with a serious heart condition and that there are children in the house. And all of the phone calls and contacts and the gentlemen-visit (whatever their tone) happened against a backdrop of Three False Notices that Defendant admits had some significant level of incorrect arrearages contained therein. Again, the tort of unreasonable collection efforts is
highly fact intensive.
Clearly, here the non-movant (Plaintiffs) have put forth specific summary evidence to show that there
F. Counts Two and Three: Alleged Violation of the Automatic Stay (11 U.S.C. § 362(a)) and Alleged Contempt of the Confirmation Order and Discharge Order (11 U.S.C. § 105).
Finally, the court gets to what it considers to be “the real issue” in this Adversary Proceeding — despite there being twelve different counts and voluminous briefing on various tort theories. Plaintiffs allege that Defendant’s actions — inclusive of (1) misapplying payments to disallowed prepetition claims, (2) establishing undisclosed postpetition escrow advances not approved by the court, (3) assessing late charges and other charges for which Defendant never sought or obtained court approval, and (4) ultimately sending demand or default notices with erroneously calculated arrearages charged to Plaintiffs’ account — constituted violations of the automatic stay (to the extent the acts happened during the case), entitling Plaintiffs to actual and punitive damages. Plaintiffs rely upon section 362(a)(6) of the Bankruptcy Code, which prohibits “any act to collect, assess, or recover a claim against the debt- or that arose before the commencement of the case under this title.” 11 U.S.C. § 362(a)(6). Moreover, Plaintiffs allege that Defendant’s actions' — in (1) misapplying payments, (2) failing to adjust its books to account for the bankruptcy, (3) assessing wrongful charges made to the Plaintiffs’ account, and (4) sometimes putting regular mortgage payments in “suspense” — constituted contempt of the confirmation order and discharge order and an abuse of bankruptcy process, and warrant civil contempt sanctions, pursuant to Section 105 of the Bankruptcy Code. The Plaintiffs seek summary judgment on Counts Two and Three.
As noted earlier in this opinion, the summary judgment evidence established the following undisputed facts:
(a) the Defendant accrued “late fees” every month, during the term of Plaintiffs’ bankruptcy plan, even if the Plaintiffs timely made their plan payments and their regular postpetition mortgage payments, since the Plaintiffs were technically not “contractually current” (according to Defendant’s corporate policy and the deposition testimony of Defendant’s Rule 30(b)(6) representative; this corporate policy of accruing “late charges” is in place in the case of Chapter 13 debtors making postpetition regular mortgage payments via “direct pay,” because so many chapter 13 debtors default on their plans and have their cases dismissed and, in such events, the Defendant says it would be confusing to reinstate earlier reversed-out charges); 17
(b) the Defendant’s bookkeeping practices with regard to the Plaintiffs’ loan account were performed such that Defendant continued to carry disallowed components of Defendant’s proof of claim on its books through the bankruptcy case and thereafter, and, thus, alwaysshowed the Plaintiffs to be behind in their payments at least in this respect; 18
(c) the Defendant erroneously applied, on November 18, 2002 (ie., during the case), $1,918.23 worth of post petition regular mortgage payments paid in by the Plaintiffs to Plaintiffs’ negative “escrow account” which was negative (at least in large part) due to prepetition arrearages that had been disallowed by the bankruptcy court in connection with Plaintiffs’ objection to the Defendant’s proof of claim;
(d) the Defendant erroneously applied, on December 31, 2002 (i.e., during the case), $889.82 worth of post petition regular mortgage payments paid in by the Plaintiffs to Plaintiffs’ negative “escrow account” which was negative (at least in large part) due to pre petition arrearag-es that had been disallowed by the bankruptcy court in connection with Plaintiffs’ objection to the Defendant’s proof of claim;
(e) the Defendant sometimes applied Plaintiffs’ regular postpetition mortgage payments to principal and interest and sometimes posted them in a “suspense account” or applied them to “other charges” (the explanation of the Defendant is that the Plaintiffs sometimes sent in postpetition payments in the wrong amount and, when the Plaintiffs sent in a рayment in the wrong contractual amount, the Defendant put the payment in a “suspense account” until the Plaintiffs had paid in the correct full amount that could be applied);
(f) because of postpetition payments being occasionally put in a “suspense account,” there would be deemed-delays in payment, and this resulted in yet more late charges;
(g) the Defendant sometimes escrowed amounts for taxes and insurance when the mortgage loan did not contemplate this, and when the Plaintiffs allegedly have always paid taxes and insured the Homestead directly (the Plaintiffs, allegedly, have a special payment plan set up with the taxing authorities, due to Mr. Thrash being disabled);
(h) the Defendant coded the Plaintiffs’ account so that broker price opinions were ordered roughly every six months at a cost of more than $100 each, and Plaintiffs argue that this was unwarranted; and
(i) the above acts created a chain of events (all of which Plaintiffs argue were improper) that ultimately snowballed into numerous improper charges, fees, escrows and unjustified demands, and ultimately the attempted foreclosure.
The gist of all of this, Plaintiffs argue, is that the Defendant’s actions violated the stay (to the extent the actions occurred pre-discharge), and contemptuously violated the confirmation order and discharge order (to the extent the actions occurred after those orders and contradicted the terms or spirit of those orders).
The Defendant labels somе of these acts as mere accounting errors or misalloca-tions, and the Defendant denies that certain other acts were at all improper.
This court acknowledges that many opinions have been issued recently around the country regarding similar complaints being asserted by discharged debtors against their mortgage lenders.
See, e.g., Galloway v. EMC Mortg. Corp. (In re Galloway),
Adv. No. 09-01124-NPO,
This court is of the view that alleged violations of the automatic stay and alleged contempt of court orders are (like “unreasonable collection efforts”)
intensely
factual in nature. As stated earlier, the court must, in a summary judgment context, view all evidence in a light most favorable to the non-moving party.
Piazza’s Seafood World, LLC,
TV. CONCLUSION AND ORDER
For the reasons set forth above, it is hereby
ORDERED that (a) Defendant’s MSJ is GRANTED as to Counts One, Four, Five, Six and Seven, and is DENIED as to Count Twelve; and (b) Plaintiffs’ Cross MSJ as to Counts Two and Three is DENIED entirely. It is further
ORDERED that this Adversary Proceeding will proceed to a trial on the merits on the counts unresolved by this Memorandum Opinion and Order (i.e., Counts Two, Three, Eight, Ten, and Twelve).
Notes
.Specifically, the court refers to: (a) Ocwen’s Motion for Partial Summary Judgment and Brief in Support Thereof, along with Declaration of Danielle N. Oakley in Support of Ocwen’s Motion for Summary Judgment and Exs. A-I [Doc. No. 96 in the Adversary Proceeding] (hereinafter, "Defendant’s MSJ,” with exhibits referred to as "Dеf. Ex. _”); (b) Plaintiffs' Response in Opposition to Ocwen's Motion for Partial Summary Judgment, along with Exs. A-S [Doc. No. 98 in the Adversary Proceeding] (hereinafter, "Plaintiffs’ Response to MSJ,” with exhibits referred to as “Pis. Ex. _”); (c) Ocwen’s Reply in Support of its Motion for Partial Summary Judgment [Doc. No. 100 in the Adversary Proceeding] (hereinafter "Defendant's Reply”); (d) Plaintiffs' Motion for Partial Summary Judgment as to Plaintiffs’ Claims Alleging Violations of the Automatic Stay and Contempt and Incorporated Brief in Support, along with Exs. A-F [Doc. No. 94 in the Adversary Proceeding] (hereinafter, "Plaintiffs’ Cross MSJ,” with exhibits referred to as "Pis. Cross Ex._”); and (e) Ocwen Loan Servicing, LLC's Opposition to Plaintiffs' Motion for Summary Judgment as to Plaintiffs’ Claims Alleging Violations of the Automatic Stay and Contempt, along with Ex. 1 [Doc. No. 99 in the Adversary Proceeding] (hereinafter "Defendant’s Response to Cross MSJ,” with exhibit referred to as "Def. Cross Ex_”).
. The court uses the colloquial term "home mortgage loan” throughout this opinion to refer to the secured borrowing arrangement in place between the Plaintiffs and Defendant. Deeds of Trust (with promissory notes) are typically the instruments used in the state of Texas (rather than "mortgages”) to grant lenders security interests in borrowers' homes. The technical differences, for purposes of this opinion, are irrelevant.
. Count Eleven (which was presented/briefed in the Defendant's MSJ) has apparently been previously dismissed. The following additional counts asserted in the Plaintiffs' Complaint were not presented in the cross motions for summary judgment: Count Eight — Injunctive
. The summary judgment evidence is somewhat inconsistent on whether these were the correct dates of such demand letters. Compare Pis. Ex. J.
. It appears that there may be a procedure (when there is a discharge of a debtor) to perform a post-discharge audit or reconciliation and "reverse out" these late charges, but it was not undertaken in this case, since the automatic stay was terminated one month prior to the Plaintiffs’ discharge. See Pls. Ex. B, Deposition of Gina Johnson, p. 44.
. See Pls. Ex. B, Deposition of Gina Johnson, p. 13. See also footnote 5, supra. No post-discharge audipreconciliation to eliminate prepetition claims that were disallowed was ever done in this case, since the automatic stay was lifted in favor of the Defendant one month prior to the Plaintiffs' discharge.
. The Plaintiffs’ mortgage loan was an adjustable rate mortgage note, and the regular mortgage payment was $956.44 until September 1999, when it increased to $1,130.07 (and it adjusted thereafter from time to time).
. While this Adversary Proceeding involves Plaintiffs whose bankruptcy case ended many years ago, the Fifth Circuit has concluded in different contexts over the years that bankruptcy subject matter jurisdiction remains post-confirmation, and even after a bankruptcy case is closed, for such matters as enforcing/interpreting the scope of a debtor’s discharge order and addressing alleged violations of it. See,
e.g., Bradley v. Barnes (In re Bradley),
. The Defendant filed a motion for the district court to withdraw the reference of this Adversary Proceeding оn September 28, 2009 [Doc. No. 47] (the “Motion to Withdraw the Reference”). The Motion to Withdraw the Reference argued that non-core matters were primarily involved, that the Defendant sought and was entitled to a jury trial, and that the Defendant did not consent to the bankruptcy court presiding over such matters. The Defendant subsequently withdrew its motion to withdraw the reference. [Doc. No. 54.]
. Note that where a statute imposes a duty/standard of conduct, breach of the duty would fall into the category of what is known as negligence per se.
.
E.g., Phillips v. Latham,
. The court notes that there are certainly other torts where mere economic harm can be sufficient damages to establish liability. For example, pecuniary harm/damages are sufficient to establish a viable claim for negligent misrepresentation. See discussion in Section III.D., infra.
. The second prong of negligent misrepresentation has sometimes been differently phrased as "the defendant supplie[d] false information for the guidance of others in their business,” and the fourth and fifth prongs have sometimes been differently phrased as "the plaintiff suffered] pecuniary loss by justifiably relying on the representation.”
Fed. Land Bank Ass’n of Tyler v. Sloane,
. Since the court has determined that there is no summary judgment evidence of detrimental reliance in the case at bar, the question of whether there was "reasonable and justifiable” reliance is moot. If it were not, though, this would be a difficult, fact-intensive call, and the matter would probably have to go to trial.
See Ortiz,
. The court refers to this as a newly argued theory because, during depositions of Mr. and Mrs. Thrash, it arguably seemed as though they were testifying that the Three False Notices were the only ones about which the Plaintiffs were complaining. Def. Exs. A & G.
. The call logs appear to be in approximately 4-point font and are full of abbreviations and shorthand.
. The Defendant’s representative testified in a deposition that its usual procedure (when there is a discharge of a debtor) is to perform a post-discharge audit or reconciliation and "reverse out” these late charges, but it was not undertaken in this case, since the automatic stay was terminated one month prior to the Plaintiffs’ discharge. See Pls. Ex. B, Deposition of Gina Johnson, p. 44.
. See Pls. Ex. B, Deposition of Gina Johnson, p. 13. See also footnote 17, supra. No post-discharge audit/reconciliation to eliminate prepetition claims that were disallowed was ever done in this case, since the automatic stay was lifted in favor of the Defendant one month prior to the Plaintiffs' discharge.