ACCEPTED
03-15-00339-CV
7305274
THIRD COURT OF APPEALS
AUSTIN, TEXAS
10/9/2015 10:18:07 AM
JEFFREY D. KYLE
CLERK
No. 03-15-00339-CV
FILED IN
3rd COURT OF APPEALS
IN THE THIRD COURT OF APPEALS AUSTIN, TEXAS AT AUSTIN, TEXAS 10/9/2015 10:18:07 AM JEFFREY D. KYLE
Clerk
BEN MELTON,
Appellant
vs.
CU MEMBER’S MORTGAGE, a division of COLONIAL SAVINGS, F.A., and FIRST WESTERN TITLE CO.
Appellees
On Appeal from the 340 th District Court of Tom Green County, Texas Hon. Jay Weatherby Presiding Trial Court Cause No. C103102C
APPELLANT’S BRIEF
Gregory Sherwood
Attorney
P.O. Box 200613
Austin, Texas 78720-0613
(512) 484-9029
State Bar No. 18254600
Email: gsherwood@mail.com
Attorney on Appeal
for Appellant Ben Melton
ORAL ARGUMENT REQUESTED
Identity of Parties and Counsel in this Appeal
No. 03-15-00339-CV; Ben Melton v. CU Member’s Mortgage, a division of Colonial Savings, F.A., and First Western Title Co.
Ben Melton (Appellant): c/o attorney Gregory Sherwood Trial Counsel: Appellate Counsel:
James Mosser (Jan. 2015 atty. fee hrg.) Gregory Sherwood Alexis Steinberg (Jan. 2014 sum. jdgmt. hrg.) P.O. Box 200613 Mosser Law, PLLC Austin, Texas 78720-0613 2805 N. Dallas Parkway, Suite 222 Plano, Texas 75093
CU Member’s Mortgage, a division of Colonial Savings, F.A., and First Western Title Co. (Appellees):
Mark Cronenwett (trial court and appeal) Mackie Wolf, Zientz & Mann, PC 14150 N. Dallas Parkway, Suite 900 Dallas, Texas 75254
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Table of Contents
Identity of Parties and Counsel in this Appeal .......................................................... i Table of Contents ..................................................................................................... ii Index of Authorities ................................................................................................. v Statement of the Case ............................................................................................ viii Statement Regarding Oral Argument ...................................................................... ix Issues Presented ....................................................................................................... x
Issue 1: The trial court’s summary judgment should be reversed because appellant exercised due diligence in serving citation when suit was filed four years after the home equity loan was signed, 60 days elapsed to provide appellees with an opportunity to cure, and appellees were served on day 61 after suit was filed. ............................................................ x
Issue 2: If Issue 1 is not granted, the summary judgment order should be reversed because no statute of limitations applies in suits for constitutional violations of home equity loans. The Fifth Circuit incorrectly interpreted Texas state law on this subject in Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667 (5 th Cir. 2013), and the Texas Supreme Court has been asked to reject this holding in No. 14-0714, Wood v. HSBC Bank USA, N.A., et al (pet. granted Oct. 9, 2015, oral argument set for Dec. 8, 2015) ...................................................................................... x
Issue 3: If Issues 1 or 2 are not granted, the portion of the summary judgment order granting CU Member Mortgage’s counterclaim should be reversed because it did not have standing to file that counterclaim ................................................................... x
Issue 4: If the trial court’s summary judgment order is only partly reversed, for example if the foreclosure portion is
ii
reversed but the limitations portion is affirmed, then this court should vacate the trial court’s attorney’s fee order and remand the case to the trial court for a determination of which portion of appellees’ attorney’s fees are attributable to the affirmed portion of the summary judgment order ............................... x
Statement of Facts .................................................................................................... 1 Summary of the Argument ....................................................................................... 7 Argument and Authorities ...................................................................................... 10 Issue 1 .......................................................................................................... 10 Issue 2 .......................................................................................................... 18 Issue 3 .......................................................................................................... 21 Issue 4 .......................................................................................................... 25 Conclusion and Prayer for Relief ........................................................................... 26 Certificate of Service ............................................................................................. 27 Certification of Word Count Compliance .............................................................. 27 Appendix
July 14, 2014 Order Granting Motion for Summary Judgment Filed by CU Members Mortgage, a Division of Colonial Savings, F.A. and First Western Title Co. (CR 264-266)
March 2, 2015 Order Granting Motion for Award of Attorneys’ Fees by CU Members Mortgage, a Division of Colonial Savings, F.A. and First Western Title Co. (CR 317-319)
March 12, 2015 Order Granting Bob Mims’ Second Motion for Summary Judgment (1 st Supp. CR 4-5)
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March 12, 2015 Order Denying Ben Melton’s Motion to Correct Filing Date, or in the Alternative for Leave to File (1 st Supp. CR 6)
June 3, 2015 Findings of Fact and Conclusions of Law on Motion for Award of Attorneys’ Fees by CU Members Mortgage, a Division of Colonial Savings, F.A. (2 nd Supp. CR 4-9)
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Index of Authorities
Cases Buck v. Palmer, 381 S.W.3d 525 (Tex. 2012) ....................................................... 10
Cassidy Commission Co. v. Security State Bank, 333 S.W.2d 454 (Tex. Civ. App. – Houston 1960, no writ) .................................. 14
Heckman v. Williamson County, 369 S.W.3d 137 (Tex. 2012) ............................. 22
Hoehn v. Dallas County MHMR, No. 05-94-01515-CV, 1995 Tex. App. LEXIS 3406, 1995 WL 500271 (Tex. App. – Dallas Aug. 16, 1995, no writ) (not designated for publication) ............................................................................. 14
In re Estate of Hardesty, 449 S.W.3d 895 (Tex. App. – Texarkana 2014, no pet.) .................................................................. 19
Johnson v. City of Fort Worth, No. 02-08-00369-CV 2009 Tex. App. LEXIS 2124 (Tex. App. – Fort Worth Mar. 26, 2009, no pet.) .................................................. 15
McCord v. Dodds, 69 S.W.3d 230 (Tex. App. – Corpus Christi 2001, pet. denied) ..................................................... 15
Montes v. Villarreal, 281 S.W.3d 552 (Tex. App. – El Paso 2008, pet. denied) ........................................................... 16-18
Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667 (5 th Cir. 2013) ................................................... ix, x, 3, 8, 9, 11, 18-21
Proulx v. Wells, 235 S.W.3d 213 (Tex. 2007) ................................................. 10, 11
Rodriguez v. Tinsman & Houser, Inc., 13 S.W.3d 47 (Tex. App. – San Antonio 1999, pet. denied) ................................. 13
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Santiago v. Novastar Mortgage, Inc., 443 S.W.3d 462 (Tex. App. – Dallas 2014, pet. denied) .................................................................. 19
Schanzle v. JPMC Specialty Mortgage, LLC, No. 03-09-00639-CV (Tex. App. – Austin 2011, no pet.) (not designated for publication) ............................................................................... 5
Texas Ass’n of Bus. v. Texas Air Control Bd., 852 S.W.2d 440, 445 (Tex. 1993) .......................................................................... 22
Williams v. Wachovia Mortg. Corp., 407 S.W.3d 391 (Tex. App. – Dallas 2013, pet. denied) .................................................................. 19
Wood v. HSBC Bank USA, N.A., et al, 439 S.W.3d 585 (Tex. App. – Houston [14 th Dist.] 2014, pet. granted Oct. 9, 2015) ...................... 19
Wood v. HSBC Bank USA, N.A., et al, Tex. Sup. Ct. No. 14-0714 (pet. granted Oct. 9, 2015) ....... ix, x, 3, 8, 11, 18, 19, 21
Wright v. JPMorgan Chase Bank, N.A., 169 So.3d 251 (Fla. App. [4 th Dist.] July 1, 2015) ......................................................................... 25
Constitutional Provisions, Statutes and Rules Tex. Civ. Prac. & Rem. Code § 16.051 ................................................................. 19 Tex. Const. art. XVI, § 50(a)(6) ......................................................................... 2, 12 Tex. Const. art. XVI, § 50(a)(6)(Q)(x) .............................................................. 2, 12 Tex. Prop. Code § 51.0001(3) ................................................................................ 24 Tex. Prop. Code § 51.0001(4)(C) .......................................................................... 23 Tex. Prop. Code § 51.0025 .................................................................................... 23 Tex. R. App. P. 47.7(b) .......................................................................................... 15 vi
Tex. R. App. P. 9.4(i)(1) ........................................................................................ 27 Tex. R. Civ. P. 166a(c) .............................................................................. 20, 21, 24
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No. 03-15-00339-CV
IN THE THIRD COURT OF APPEALS AT AUSTIN, TEXAS
BEN MELTON,
Appellant
vs.
CU MEMBER’S MORTGAGE, a division of COLONIAL SAVINGS, F.A., and FIRST WESTERN TITLE CO.
Appellees
On Appeal from the 340 th District Court of Tom Green County, Texas Hon. Jay Weatherby Presiding Trial Court Cause No. C103102C
Statement of the Case
This is an appeal from two orders: (1) a July 14, 2014 summary judgment and foreclosure order, Clerk’s Record (“CR”) 264-266, attached as appendix, granted in favor of appellees CU Member’s Mortgage, a division of Colonial Savings, F.A. (“CU Member’s”) and First Western Title Co., and (2) a March 2, 2015 order awarding attorney’s fees to both these appellees. CR 317-319, also attached as appendix. These orders became final and appealable on March 12,
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2015, when the trial court signed orders disposing of all parties and claims. See Order Granting Bob Mims’ Second Motion for Summary Judgment, 1 st Supp. CR 4-5, and Order Denying Ben Melton’s Motion to Correct Filing Date, or in the Alternative for Leave to File, 1 st Supp. CR 6, included in this brief’s appendix.
Statement Regarding Oral Argument Although the panel assigned to hear this case may determine that the issues presented may be decided without oral argument, appellant’s counsel requests argument because this court may have questions concerning: (1) whether appellant Ben Melton exercised due diligence in serving appellees with citation 61 days after suit was filed and limitations had expired, due to the Texas Constitution’s requirement that a 60-day “right to cure” letter should first be served upon a home equity lender or note holder; (2) whether the residual four year statute of limitations should apply in suits concerning violations of the state constitutional home equity loan provisions, a question that was answered by the Fifth Circuit in Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667 (5 th Cir. 2013), with this reasoning questioned in briefing to the Supreme Court of Texas in No. 14-0714, Wood v. HSBC Bank USA, N.A., et al (pet. granted Oct. 9, 2015, oral argument set for Dec. 8, 2015), and (3) whether appellee CU Member’s Mortgage had standing to bring a counterclaim for foreclosure or equitable subrogation due to breach of
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the note, when CU Member’s Mortgage was not a party to the promissory note because the note was sold to Freddie Mac, and CU Member’s Mortgage was neither the mortgagee nor the mortgage servicer, the only parties permitted to seek foreclosure under chapter 51 of the Texas Property Code.
Issues Presented
Issue 1: The trial court’s summary judgment should be reversed because appellant exercised due diligence in serving citation when suit was filed four years after the home equity loan was signed, 60 days elapsed to provide appellees with an opportunity to cure, and appellees were served on day 61 after suit was filed.
Issue 2: If Issue 1 is not granted, the summary judgment order should be reversed because no statute of limitations applies in suits for constitutional violations of home equity loans. The Fifth Circuit incorrectly interpreted Texas state law on this subject in Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667 (5 th Cir.
2013), and the Texas Supreme Court has been asked to reject this holding in No. 14-0714, Wood v. HSBC Bank USA, N.A., et al (pet. granted Oct. 9, 2015, oral argument set for Dec. 8, 2015).
Issue 3: If Issues 1 or 2 are not granted, the portion of the summary judgment order granting CU Member Mortgage’s counterclaim should be reversed because it did not have standing to file that counterclaim.
Issue 4: If the trial court’s summary judgment order is only partly reversed, for example if the foreclosure portion is reversed but the limitations portion is affirmed, then this court should vacate the trial court’s attorney’s fee order and remand the case to the trial court for a determination of which portion of appellees’ attorney’s fees are attributable to the affirmed portion of the summary judgment order.
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Statement of Facts
This appeal concerns a home equity loan for appellant Ben Melton’s homestead which was signed on March 13, 2009, and financed by appellee CU Member’s Mortgage. See CR 71-92: the home equity note and security instrument attached to appellees’ motion for summary judgment. Mr. Melton made timely payments on this loan until he lost his job in 2012, and he began investigating possible ways to refinance the loan since the payments were becoming difficult to make. See Affidavit of Ben Melton, attached to his response to appellees’ motion for summary judgment, at CR 209, ¶ 18. Melton discovered in 2012 that appellee CU Member’s Mortgage may have violated the Texas Constitution when it closed his loan, and hired Mosser Law PLLC to represent him in this matter. CR 209- 210, ¶¶ 19-25.
According to Mr. Melton’s affidavit, Mosser Law PLLC served demand letters on CU Member’s Mortgage on Monday, March 11, 2013, and filed suit on Wednesday, March 13, 2013, exactly four years after the home equity loan closed on March 13, 2009. CR 210, ¶¶ 26-27. See also Plaintiff’s Original Petition at CR 6-10. The suit contended in part that both appellees violated certain provisions of the Texas Constitution’s provision which created home equity loans for homesteads. CR 7-8, ¶¶ 8-11. Citations for both appellees were issued the next
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day on March 14, 2013. CR 11 and 14. Both appellees were served on Monday, May 13, 2013, which was two months (or 61 days) after suit was filed on March 13, 2013. CR 13 and 16. Tex. Const. art. XVI, § 50(a)(6), contains a provision that requires that a 60-day notice letter be sent to the lender or holder of the home equity note in order to give the lender or holder of the note an opportunity to cure any loan defects and avoid forfeiture of all principal and interest. Tex. Const. art. XVI, § 50(a)(6)(Q)(x).1 Plaintiff’s Original Petition discussed this 60-day cure provision at CR 8, ¶ 12.
An original answer and first amended original answer were filed by both appellees, who were represented jointly by the same law firm. CR 17-24. Appellee CU Member’s Mortgage filed its original counterclaim against appellant Ben Melton, seeking a foreclosure on the homestead for his failure to make payments on the home equity loan. CR 37-41. Appellee First Western Title Co. was not a party to this counterclaim. The counterclaim stated at ¶ 7:
The Note was initially payable to CU Member’s Mortgage. The initial beneficiary of the Deed of Trust was Mortgage Electronic
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“except as provided by Subparagraph (xi) of this paragraph, the lender or any holder of the note for the extension of credit shall forfeit all principal and interest of the extension of credit if the lender or holder fails to comply with the lender’s or holder’s obligations under the extension of credit and fails to correct the failure to comply not later than the 60th day after the date the lender or holder is notified by the borrower of the lender’s failure to comply by [list of possible cure options omitted].” Id.
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Registration Services, Inc. (“MERS”), as nominee for CU Member’s Mortgage and its successors and assigns. The Note was later assigned to Freddie Mac, which retained Colonial Savings, F.A. as its servicing agent. CU Member’s Mortgage is a division of Colonial Savings, F.A.
This counterclaim is filed by Colonial as the servicing agent for Freddie Mac.
CR 38, ¶ 7. The counterclaim sought a judgment of foreclosure for failure to timely make note payments, and based upon equitable subrogation, since payments to prior lienholders of the homestead were made as part of the home equity loan. CR 39-40.
After appellant Melton filed his second amended original petition, which added additional causes of action, CR 42-48, both appellees CU Member’s Mortgage and First Western Title Co. filed their combined motion for summary judgment. CR 49-176. The summary judgment motion argued in part that appellant’s cause of action for constitutional violations was barred by the four year residual statute of limitations pursuant to the Fifth Circuit’s holding in Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667, 674 (5 th Cir. 2013),2 as well as two opinions of the Dallas court of appeals, and an unpublished opinion from the U.S. District Court for the Western District of Texas. CR 55. Since appellant filed suit
2
As mentioned earlier, the Supreme Court of Texas is being asked to reject the Priester reasoning in No. 14-0714, Wood v. HSBC Bank, N.A., et al.
The petition for review was granted the same day that this brief was filed, with oral argument set for Dec. 8, 2015.
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on the four-year anniversary of the closing of the home equity loan, but did not serve appellees until two months later, appellees argued that this showed a lack of due diligence in serving citation, justifying a grant of summary judgment based on the expiration of limitations. CR 55-57. The summary judgment motion also argued that CU Member’s Mortgage (identified as “Colonial” in the motion) was “entitled to summary judgment on its claim for judicial foreclosure because [Melton] defaulted on the loan.” CR 59-60 (quoted portion at CR 59, with bracketing added). The motion’s prayer asked in part for summary judgment on all of Melton’s claims against both appellees, summary judgment for CU Member Mortgage’s counterclaim, a declaration that CU Member’s Mortgage may foreclose on the property, and an order that CU Member’s Mortgage may recover its attorney’s fees as an obligation on the note and security instrument. CR 60-61.
Appellant Melton filed his response to the summary judgment, CR 177-217, and on that same date, he also filed his third amended petition, which added contentions concerning the discovery rule and affirmative defenses to appellee CU Member’s Mortgage’s counterclaim. CR 218-227. Both appellees filed a reply in support of their combined motion for summary judgment, CR 249-256, which in part cited several cases that appellees argued supported their argument that Mr. Melton did not exercise due diligence in serving them with citation. CR 254-255.
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The reply also stated that the discovery rule was inapplicable because the date that limitations began to run was not when appellant learned of his injury in 2012, but the date the loan closed in March 2009, citing in part this court’s opinion in Schanzle v. JPMC Specialty Mortgage, LLC, No. 03-09-00639-CV (Tex. App. – Austin 2011, no pet.) (not designated for publication).
The motion for summary judgment was heard January 10, 2014, and the argument from that hearing is at Reporter’s Record (“RR”) vol. 2. The trial court took the motion under advisement, RR vol. 2, p. 81, l. 10-11, and issued a May 12, 2014 letter ruling granting appellees’ summary judgment motion. CR 262-263. The trial court signed its July 14, 2014 order granting the summary judgment motion on July 14, 2014. CR 264-266, included as appendix to this brief. This order also stated that the amount of appellees’ attorney’s fees to be awarded would be decided at a later date. CR 265.
Both appellees filed their combined motion for attorney’s fees, CR 267-309, which was heard along with motions concerning other parties and claims, on January 7, 2015. The portion relevant to this appeal is at RR vol. 3. Both appellees also asked for severance, but then withdrew that request because the hearing disposed of all parties and claims. RR vol. 3, p. 5, l. 9-25. The trial court issued its February 20, 2015 letter ruling disposing of all parties and claims, CR
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313-316, and awarding attorney’s fees to both appellees in the amount of $18,396.00, with a further award of appellate attorney’s fees of $10,000.00 “to respond to an unsuccessful appeal of the Court’s judgment to the Court of Appeals[.]” CR 313-314 (quoted portion at CR 314, bracketing added).3 However, the trial court’s March 2, 2015 written order only awards attorney’s fees to CU Member’s Mortgage, not to First Western Title Co.4 The order also stated that the attorney’s fees would be “recovered from [Melton] as additional amounts owed on the Note [footnote describing note omitted] and Security Instrument [footnote describing that document omitted] at issue in this cause and not as a money judgment against [Melton.]” CR 317-318, quoted portion at CR 318 (bracketing added).
Ten days later, the trial court signed two written orders on March 12, 2015, which disposed of all parties and claims. Those orders are at 1 st Supp. CR 4-6, and are included in this brief’s appendix. On March 27, 2015, appellant Melton timely filed a request for findings of fact and conclusions of law concerning the attorney’s
3
An additional award of $10,000 if CU Member’s Mortgage had to respond to an unsuccessful petition for review to the Texas Supreme Court was also included. CR 314.
4
The title of the order states that it is granting the motion for attorney’s fees filed by both appellees, but the text of the order only awards attorney’s fees to appellee CU Member’s Mortgage. CR 317-318, attached as appendix.
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fees order. CR 324-325. The trial court’s June 3, 2015 findings and conclusions on this subject are at 2 nd Supp. CR 4-9, attached as appendix. Appellant also filed a motion for new trial on April 1, 2015, CR 327-330, which was overruled by operation of law. Mr. Melton then timely filed his notice of appeal on June 1, 2015. CR 346-347.
Summary of the Argument
The trial court’s summary judgment order should be reversed because Mr.
Melton exercised due diligence in serving citation 61 days after suit was filed on the four year anniversary of the date the home equity loan was signed. An ordinary, prudent person under similar circumstances would have served a 60 day notice to cure letter upon appellees, as required by the Texas Constitution, and then served appellees on day 61 once cure was not made. The focus on this issue is not merely how much time elapsed between the time suit was filed when limitations is about to expire and when service of citation occurred. The courts must also look at whether the plaintiff acted negligently or was dilatory in serving citation when suit is filed before limitations expires, and citation was served after limitations elapsed. In the case at bar, appellant Melton filed suit on the four year anniversary of the date the home equity loan was signed, but also served appellees with a “right to cure” letter and waited the 60 day period contained in the Texas Constitution for
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appellees to cure the defects noted in the lawsuit. When cure was not made after that time, appellees were served on day 61 after suit was filed. Appellant exercised due diligence in serving citation, and the trial court’s summary judgment order should be reversed.
If this court does not agree that appellant exercised due diligence in serving citation, then this court should reverse the trial court’s summary judgment because there is no statute of limitations that applies to constitutional claims for violations of the home equity loan constitutional provision. The Fifth Circuit held in Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667 (5 th Cir. 2013), that because the constitution was later amended to allow lenders and holders of home equity notes an opportunity to cure any defects before suit is filed, this meant that the four year residual statute of limitations should apply. However, the Texas Supreme Court has been asked to reject this holding in No. 14-0714, Wood v. HSBC Bank USA, N.A., et al. The court granted the petition for review on Oct. 9, 2015, and oral argument is set for Dec. 8, 2015. If the Texas Supreme Court rejects Priester and holds that no statute of limitations applies, then this court should reverse the trial court’s summary judgment order on that basis. If the Texas Supreme Court holds in a different manner that may still afford appellant relief on this appeal, this court should permit supplemental briefing. Finally, since the Texas Constitution created
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home equity loans and contains no limitations provision, this court should reject the Priester reasoning and hold that there is no statute of limitations applicable to claims for constitutional violations of the home equity loan provisions.
If this court affirms the trial court’s summary judgment order on limitations grounds, the portion of the court’s order granting CU Member’s summary judgment on its counterclaim should be reversed because CU Member’s Mortgage lacked standing to bring its counterclaim seeking foreclosure for failure to make timely payments on the home equity loan, and based upon equitable subrogation. Standing may be raised for the first time of appeal since it is a component of the court’s subject matter jurisdiction, and a court cannot grant relief if it does not have subject matter jurisdiction. CU Member’s Mortgage was not the holder of the promissory note, as it had sold the note to Freddie Mac; therefore, it could not sue for breach of the note, only Freddie Mac could. The Texas Property Code permits a Mortgagee or a Mortgage Servicer to seek foreclosure, but CU Member’s Mortgage is neither of those entities, nor is there any summary judgment evidence proving that it is a Mortgagee or Mortgage Servicer. The summary judgment order granting the foreclosure counterclaim based upon breach of the note by failing to timely make payments and equitable subrogation should be reversed for lack of standing.
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Finally, if this appeal is reversed in part and affirmed in part, this court should vacate the order awarding attorney’s fees to CU Member’s Mortgage, and remand to the trial court for a hearing to determine which portion of the attorney’s fees are attributable to the part of the summary judgment order that is affirmed.
Argument and Authorities
Issue 1: The trial court’s summary judgment should be reversed because appellant exercised due diligence in serving citation when suit was filed four years after the home equity loan was signed, 60 days elapsed to provide appellees with an opportunity to cure, and appellees were served on day 61 after suit was filed.
This court reviews a trial court’s summary judgment de novo. Buck v.
Palmer, 381 S.W.3d 525, 527 (Tex. 2012). In doing so, the reviewing court must determine whether there is more than a scintilla of probative evidence that raises genuine issues of material fact. Id. Additionally, the record is reviewed in the light most favorable to the nonmoving party, and the court indulges every reasonable inference and resolves any doubt against the movant. Ibid.
The timely filing of a lawsuit does not toll the statute of limitations unless the plaintiff exercises due diligence in effective service of citation upon the defendant. Proulx v. Wells, 235 S.W.3d 213, 215 (Tex. 2007). If service is diligently effected after limitations has expired, the date of service will related back to the date of filing. Id. In assessing diligence, the relevant inquiry is
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whether the plaintiff acted as an ordinarily prudent person would have acted under the same or similar circumstances, and whether the plaintiff was diligent up until the time the defendant was served. Id., 235 S.W.3d at 216. Generally, the question of the plaintiff’s diligence in effecting service is one of fact, and is determined by examining the time it took to secure citation, service, or both, and the type of effort or lack of effort the plaintiff expended in procuring service. Ibid. Once a defendant has affirmatively pled the defense of limitations and shown that service was obtained after limitations expired, the burden shifts to the plaintiff to explain the delay. Ibid.5 The parties in their summary judgment pleadings focused on the length of time it took between filing suit and service of citation on the defendant, but that is not the only inquiry in assessing due diligence. Not only must the amount of time between filing of suit and service upon the defendant be considered, but also whether the plaintiff was dilatory during that time. As noted earlier in this brief,
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For this issue, appellant will assume that there is a four year statute of limitations applicable to his suit for constitutional violations of the home equity provisions. If this court grants this issue and holds that Mr. Melton exercised due diligence in effecting service on day 61 after suit was filed, then this court does not have to decide the second issue concerning whether the Fifth Circuit in Priester incorrectly held that the four year residual statute of limitations applied, a question that is pending before the Texas Supreme Court in No. 14-0714; Wood v. HSBC Bank, N.A., et al., with oral argument set for Dec. 8, 2015.
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Tex. Const. art. XVI, § 50(a)(6), contains a provision that requires that a 60 day notice letter be sent to the lender or holder of the home equity note in order to give the lender or holder of the note an opportunity to cure any loan defects and avoid forfeiture of all principal and interest. Tex. Const. art. XVI, § 50(a)(6)(Q)(x).6 In the case at bar, appellant Ben Melton did exercise due diligence in serving citation because he filed suit on March 13, 2013, the four year anniversary of the date the note was signed (March 13, 2009), his attorneys mailed the 60 day notice of cure letter to CU Member’s Mortgage on March 11, 2009,7 and when no cure occurred after 60 days had elapsed, Mr. Melton served both appellees the next day – day 61 after suit was filed. Contrary to being dilatory or negligent, appellant Melton was diligent in waiting 60 days after suit was filed to give CU Member’s Mortgage an opportunity to cure, and diligent in serving them appellees the next day – day 61 after suit was filed.
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“except as provided by Subparagraph (xi) of this paragraph, the lender or any holder of the note for the extension of credit shall forfeit all principal and interest of the extension of credit if the lender or holder fails to comply with the lender’s or holder’s obligations under the extension of credit and fails to correct the failure to comply not later than the 60th day after the date the lender or holder is notified by the borrower of the lender’s failure to comply by [list of possible cure options omitted].” Id.
7
See Melton’s affidavit attached to his response to appellees’ motion for summary judgment, at CR 210, ¶ 26.
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Appellees argued below that because the state constitution’s provision requiring that a 60 day notice of cure letter be sent before suit was filed did not contain any language tolling limitations, that this was a mistake of law by Mr. Melton which showed that he was not diligent in serving citation. In essence, appellees are trying to punish appellant for being too diligent or too careful in serving his 60 day notice to cure letter and waiting to serve citation until day 61.
Appellee’s summary judgment motion cited Rodriguez v. Tinsman & Houser, Inc., 13 S.W.3d 47 (Tex. App. – San Antonio 1999, pet. denied), CR 56- 57, to support its claim of lack of due diligence, but it is distinguishable because in that case, suit was filed on July 3, 1997, eleven days before limitations would elapse on July 14, and plaintiff instructed the clerk not to issue citation because plaintiff was going send correspondence to defendant’s attorney seeking a waiver of citation. Id. at 48-49. When plaintiff discovered that this correspondence was never sent to defendant’s attorney, plaintiff requested issuance of citation on July 31, 1997 (17 days after limitations expired on July 14), and defendant was served on August 8, 1997. Id. at 48. The Fourth Court held that this amounted to lack of diligence in effecting service as a matter of law because in this case, citation was not timely issued before limitations expired, and it was undisputed that no steps were taken to effect service until after limitations had expired. Id., at 51. But in
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the case at bar, citation was issued the same day suit was filed, and service was delayed to await the expiration of the 60 day cure period mandated by the state constitution. Appellees were served 61 days after suit was filed, and that should constitute due diligence as a matter of law, since service occurred the day after the 60 day cure period elapsed.
Appellant cited in his response to the summary judgment motion, CR 194, the case of Cassidy Commission Co. v. Security State Bank, 333 S.W.2d 454 (Tex. Civ. App. – Houston 1960, no writ). Suit was filed on Oct. 31, 1956, and citation was issued that same day, but it was not served until Jan. 4, 1957. Id., at 456. The trial court held that service had been timely made, and the Houston court affirmed. Id., at 457.
In their reply, appellees cited cases involving mistakenly serving the wrong governmental official as support for their theory that Melton’s mistaken belief that he had to wait 60 days to serve citation because the state constitution requires a 60 day cure letter be sent to appellees before suit is filed was a lack of due diligence in effecting service. CR 255. However, one of these cases, Hoehn v. Dallas County MHMR, No. 05-94-01515-CV, 1995 Tex. App. LEXIS 3406, 1995 WL 500271, at *3 (Tex. App. – Dallas Aug. 16, 1995, no writ) (not designated for publication), has no precedential value, because it is a civil appellate opinion that was issued
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before January 1, 2003. Tex. R. App. P. 47.7(b). The other case, Johnson v. City of Fort Worth, No. 02-08-00369-CV, 2009 Tex. App. LEXIS 2124, at *9 (Tex. App. – Fort Worth Mar. 26, 2009, no pet.), is distinguishable. Suit was filed on Nov. 7, 2007 (after a “right to sue letter” had been served on Sept. 10, 2007), the wrong governmental official was served, and the correct official was not served until Jan. 2, 2008. The Second Court held that serving the wrong governmental official showed a lack of due diligence by plaintiff in timely effecting service. In the case at bar, the correct entities were served, and the delay in service was only to permit the 60 day cure period run before proceeding further with the suit. Service was effected on day 61, so this cannot constitute lack of due diligence in serving citation.
Another case cited by appellees in their reply, McCord v. Dodds, 69 S.W.3d 230, 234 (Tex. App. – Corpus Christi 2001, pet. denied), CR 254-255, is distinguishable because in that case, the wrong defendant was sued and served citation, and plaintiff’s attorney could have discovered this error if discovery responses had been reviewed four months earlier, which showed a lack of diligence in effecting service upon the proper defendant. Id. There is no showing in this case of negligence or lack of due dilgence of four months. Once 60 days after suit was filed had elapsed, meaning that appellant had complied with the constitution’s
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requirement that a 60 day time period to permit appellees to cure had run, the appellees were served on day 61, the very next day.
Appellant’s research has revealed another case that while on its face may support appellees’ position that Mr. Melton did not exercise due diligence because he mistakenly believed he had to wait 60 days after suit was filed to permit appellees an opportunity to cure before he could serve appellees, it is actually distinguishable. Montes v. Villarreal, 281 S.W.3d 552 (Tex. App. – El Paso 2008, pet. denied), concerned a medical malpractice action in which the plaintiff served a statutory notice letter and medical authorization upon the defendant doctor one day before the two year statute of limitations expired. Id., at 554. Under the applicable statute, this tolled the statute of limitations for an additional 75 days, suit was filed against the hospital and doctor on May 25, 2005, an amended petition was then filed on Sept. 22, 2005, dropping the hospital as a defendant, citation for the doctor was issued on Sept. 27 and the doctor was served on Oct. 4, 2005. Ibid. The doctor sought summary judgment on limitations grounds based on lack of due diligence in service, and plaintiff filed a response attempting to explain the four month and nine day delay in serving citation, explaining that plaintiff thought that issuing citation within the 60 day abatement period would violate that statute, and
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because plaintiff’s attorney was waiting on an expert report on whether the hospital exercised its duty of care. Id., at 554-556.
The Eighth Court held that plaintiff’s attorney’s explanation was not sufficient to show exercise of due diligence in serving citation four months after limitations had expired. The court held that the attorney was mistaken in believing that there was a 60 day abatement period because that period only applied when a plaintiff failed to provide a written medical authorization with a notice of health care claim, and in this case, plaintiff’s attorney had supplied both documents to the doctor. Id., at 556-557. Therefore, this was an insufficient explanation for the delay in issuing citation.
However, in the case at bar, there was no delay in issuing citation, which was done the same day suit was filed. CR 11 and 14.8 Additionally, while the Eighth Court’s holding that the attorney’s mistaken belief that a 60 day abatement period applied to require a delay in issuing citation, when it did not, may seem to support appellees’ position, it does not. This is because if appellant’s compliance with the state constitution’s 60 day cure period is interpreted as a misunderstanding of the law, the fact remains that only one day elapsed between that time period
8
The Eighth Court also discussed why the attorney’s explanation as to why he delayed issuing citation and serving the hospital. Id., at 557-558. This writer does not believe that discussion is relevant to this appeal.
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running and service of citation being completed. In Montes, supra, there was a four month delay, which showed a lack of diligence.
Appellant Ben Melton timely filed suit before limitations expired, his attorneys sent letters requesting cure within 60 days (as required by the state constitution), and when cure was not made, the appellees were served on day 61 after suit was filed. This one day delay cannot be considered lack of due diligence in serving citation. This court should reverse the trial court’s summary judgment, and hold that appellant exercised due diligence as a matter of law.
Issue 2: If Issue 1 is not granted, the summary judgment order should be reversed because no statute of limitations applies in suits for constitutional violations of home equity loans. The Fifth Circuit incorrectly interpreted Texas state law on this subject in Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667 (5 th Cir.
2013), and the Texas Supreme Court has been asked to reject this holding in No. 14-0714, Wood v. HSBC Bank USA, N.A., et al (pet.
granted Oct. 9, 2015, oral argument set for Dec. 8, 2015).
The first paragraph from the previous issue discussing the standard of review for summary judgment appeals is incorporated by reference in this issue. Appellees’ summary judgment motion asked the trial court to follow the reasoning of the Fifth Circuit in Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667, 674 (5 th Cir. 2013), which held that the four year residual statute of limitations
19
contained in Tex. Civ. Prac. & Rem. Code § 16.051,9 applied to suits by homestead owners for violations of the Texas constitutional provision creating home equity loans. CR 55. While some Texas intermediate appellate courts have adopted Priester’s reasoning, e.g., Williams v. Wachovia Mortg. Corp., 407 S.W.3d 391, 395-397 (Tex. App. – Dallas 2013, pet. denied); Santiago v. Novastar Mortgage, Inc., 443 S.W.3d 462, 473 (Tex. App. – Dallas 2014, pet. denied); and In re Estate of Hardesty, 449 S.W.3d 895, 908-911 (Tex. App. – Texarkana 2014, no pet.), the Texas Supreme Court has not yet ruled on this issue. However, whether the Supreme Court will adopt or reject Priester may be decided in Wood v. HSBC Bank, N.A., et al, No. 14-0714 (pet. granted Oct. 9, 2015, oral argument set for Dec. 8, 2015).10 Since the Texas Supreme Court has granted review in Wood, that opinion will decide whether the four year residual statute of limitations applies in these cases, as Priester held, whether no statute of limitations applies, as the petitioner in Wood contends, or whether another rule will be created in that opinion. Rather
9
“Every action for which there is no express limitations period, except an action for the recovery of real property, must be brought not later than four years after the day the cause of action accrues.”
10
The portion of the Houston [14th Dist.] court’s Wood opinion discussing the Priester reasoning is at 439 S.W.3d 585, 589-594 (Tex. App. – Houston [14th Dist.] 2014, pet. granted Oct. 9, 2015, oral argument set for Dec. 8, 2015).
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than “re-invent the wheel” by rebriefing the issues raised by appellant at pages 3- 16 of his response to the motion for summary judgment, CR 179-192, this writer incorporates by reference the arguments and authorities presented to the trial court at the summary judgment stage, summarized as follows:
! there is no statute of limitations for void liens (CR 179-182);
! the Fifth Circuit amended (or incorrectly interpreted) the Texas Constitution (CR 182-185);
! the Fifth Circuit created a statute of limitations by holding that the residual statute of limitations applies in these cases (CR 185-187);
! the Fifth Circuit misinterpreted Texas state law by relying on dicta instead of holdings (CR 187-188);
! the Fifth Circuit’s Priester opinion is an abrogation of the homestead protection, when all that the cure provision was intended to do was to give lenders an opportunity to change their void loans into invalid loans within a reasonable time (CR 188-190); and
! a void act could be validated in Texas, and the Fifth Circuit’s holding in Priester that something that is once void is always void was incorrect (CR-190-192).
Since a ground for reversal of a summary judgment must be contained in the summary judgment pleadings, Tex. R. Civ. P. 166a(c), “Issues not expressly presented to the trial court by written motion, answer or other response shall not be considered on appeal as grounds for reversal[,]” the issue has already been briefed in the trial court below, and the Texas Supreme Court may change the law in this
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area if it grants review, appellant relies on the briefing in the trial court below, but will ask for leave to file supplemental briefing on this issue if the Texas Supreme Court grants the petition for review in Wood and issues an opinion while this appeal remains pending.
Because appellant believes that the Fifth Circuit in Priester incorrectly held that the four year residual statute of limitations applies for the reasons stated in the appellant’s response to the motion for summary judgment, and the Texas Supreme Court may issue an opinion in Wood rejecting the Priester holding just discussed, appellant asks that this court reverse the summary judgment order, either based on the opinion that will be issued in Wood, or based on the arguments and authorities in appellant’s summary judgment response that no statute of limitations applies in suits for violations of the state constitution’s provision prescribing the procedures for creating home equity loans.
Issue 3: If Issues 1 or 2 are not granted, the portion of the summary judgment order granting CU Member Mortgage’s counterclaim should be reversed because it did not have standing to file that counterclaim.
Normally, a claim or defense that was not discussed in the summary judgment pleadings cannot be ground for reversal by an appellate court. See Tex. R. Civ. P. 166a(c), “Issues not expressly presented to the trial court by written motion, answer or other response shall not be considered on appeal as grounds for
22
reversal.” However, the question of a party’s standing to file suit for the claims for which it sought summary judgment may be raised for the first time on appeal and cannot be waived since standing is a component of the court’s subject matter jurisdiction to hear a case. “Standing is a constitutional prerequisite to suit. A court has no jurisdiction over a claim made by a plaintiff who lacks standing to assert it. Thus, if a plaintiff lacks standing to assert one of his claims, the court lacks jurisdiction over that claim and must dismiss it.” Heckman v. Williamson County, 369 S.W.3d 137, 150 (Tex. 2012) (footnotes omitted). “Because we conclude that standing is a component of subject matter jurisdiction, it cannot be waived and may be raised for the first time on appeal.” Texas Ass’n of Bus. v. Texas Air Control Bd., 852 S.W.2d 440, 445 (Tex. 1993).
The counterclaim seeking foreclosure for breach of the promissory note and equitable subrogation was filed by only by appellee CU Member’s Mortgage. CR 37-41. Thus, appellee First Western Title Co. is not a party to the counterclaim. Appellee CU Member’s Mortgage did not have standing to bring its counterclaim seeking judicial foreclosure based on plaintiff’s default on the note, CR 37-41, and it failed to produce summary judgment showing that it had standing. CU Member’s Mortgage discussed the elements of a breach of contract claim in its summary judgment motion and attempted to apply it to the note on Mr. Melton’s
23
homestead. CR 59-60 (motion for summary judgment, ¶ 5). However, as the summary judgment affidavit of Amily Sauceda, Assistant Vice President of Colonial Savings, F.A. (a non-party to this litigation), states at ¶ 6, “The Note was granted, sold, assigned, transferred, and conveyed by CU Members Mortgage to Freddie Mac on May 12, 2009. Freddie Mac is the current owner and holder of the Note.” CR 66. It is axiomatic that a non-party to a contract does not have standing to sue for breach of that contract. Therefore, since CU Member’s Mortgage is not a party to the note, it cannot sue for breach of that note.
CU Member’s Mortgage’s summary judgment motion correctly points out that a default in the Note can give rise to a right to foreclose defined in the Deed of Trust: “Pursuant to the Security Instrument, Colonial may foreclose on the Property in the event there is a default in the payment obligations on the Note.” CR 60. This foreclosure can be administered by either the Mortgagee or the Mortgage Servicer. Tex. Prop. Code § 51.0025. However, CU Member’s Mortgage is neither the Mortgagee nor the Mortgage Servicer.
The Mortgagee is Colonial Savings, F.A. See Tex. Prop. Code § 51.0001(4)(C) (defining Mortgagee as “the last person to whom the security interest has been assigned of record”). See also Amily Sauceda’s summary judgment affidavit, CR 66, ¶ 7: “The Deed of Trust was assigned, transferred, and
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conveyed by MERS to Colonial Savings FA, as reflected in that certain Assignment of Deed of Trust . . . .” The Mortgage Servicer is defined by Tex. Prop. Code § 51.0001(3) as “the last person to whom a mortgagor has been instructed by the current mortgagee to send payments for the debt secured by a security instrument. A mortgagee may be the mortgage servicer.”
As the movant for summary judgment, CU Member’s Mortgage had the burden to prove its counterclaims for foreclosure and equitable subrogation based upon nonpayment of the Note. See Tex. R. Civ. P. 166a(c): “The judgment sought shall be rendered forthwith if [the summary judgment evidence] show[s] that, except as to the amount of damages, there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law on the issues expressly set out in the motion. . . .” Appellees produced no summary judgment evidence to show that the Mortgagor (appellant Melton), was instructed to send payments to CU Member’s Mortgage by the current mortgagee. In fact, Colonial Savings, F.A. claimed to be the Mortgage Servicer. Affidavit of Amily Sauceda, CR 66, ¶ 7.
Recently, the Florida Fourth District Court of Appeal reversed a summary judgment awarded to a lender for its failure to produce summary judgment that it had standing to bring the foreclosure action, and dismissed the foreclosure on the
25
mortgage for failure to prove standing. See Wright v. JPMorgan Chase Bank, N.A., 169 So.3d 251-252 (Fla. App. [4 th Dist.] July 1, 2015). The same result should occur in the case at bar. CU Member’s Mortgage is neither the Mortgagee nor the Mortgage Servicer, as defined by the Texas Property Code provisions discussed above, and it failed to produce summary judgment evidence proving that it had either status. Furthermore, since CU Member’s Mortgage is not the owner or holder of the Note, it does not have standing for the claim of equitable subrogation pleaded in its counterclaim at CR 39-40. The owner of the Note, Freddie Mac, is the only entity that can sue on the Note.
For these reasons, this court should sustain Issue 3, hold that appellee CU Member’s Mortgage did not prove that it had standing to bring the counterclaim for foreclosure based on failure to timely make Note payments, and for equitable subrogation, reverse the summary judgment order on this basis, and vacate the portion of the trial court’s orders granting foreclosure.
Issue 4: If the trial court’s summary judgment order is only partly reversed, for example if the foreclosure portion is reversed but the limitations portion is affirmed, then this court should vacate the trial court’s attorney’s fee order and remand the case to the trial court for a determination of which portion of appellees’ attorney’s fees are attributable to the affirmed portion of the summary judgment order.
The trial court issued an order granting the appellees’ motion for attorney’s fees. CR 317-319. If this case is reversed on Issues 1 or 2, the attorney’s fee order
26
should be vacated since the entire case would be remanded to the trial court for further proceedings. However, if this court finds that limitations is a bar to appellant’s suit on the home equity loan constitutional violations, but reverses the foreclosure-equitable subrogation-breach of the note counterclaim portion of the summary judgment, then this court should vacate the attorney’s fee award and remand to the trial court for a hearing to determine which portion of appellees’ attorney’s fees are attributable to the affirmed portion of the case concerning limitations, and which portion should be deleted as being attributable to the reversed portion of the summary judgment order concerning foreclosure-equitable subrogation-breach of the note counterclaim.
Conclusion and Prayer for Relief WHEREFORE, PREMISES CONSIDERED, appellant Ben Melton prays that this court reverse the trial court’s order granting summary judgment and order for attorney’s fees. If this court affirms in part and reverses in part, appellant prays that this court vacate the order for attorney’s fees and remand to the trial court for a determination of what portion of attorney’s fees are attributable to the portion of this appeal that this court affirms. Appellant Ben Melton also prays for his costs of court, both in this court and in the court below, and for general relief.
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Respectfully submitted,
/s/ Gregory Sherwood
GREGORY SHERWOOD
Attorney at Law
P.O. Box 200613
Austin, Texas 78720-0613
(512) 484-9029
State Bar No. 18254600
Email: gsherwood@mail.com
Attorney on Appeal
for Appellant Ben Melton
Certificate of Service
I hereby certify that a true copy of this document was served on October 9, 2015, either by e-service through the State electronic filing service provider, or by email sent by undersigned counsel, upon the attorney for appellees in this appeal: Mark Cronenwett, Mackie Wolf, Zientz & Mann, PC, 14150 N. Dallas Parkway, Suite 900, Dallas, Texas 75254, email: mcronenwett@mwzmlaw.com.
/s/ Gregory Sherwood
Certification of Word Count Compliance
According to the WordPerfect program used to create this document, there are 6,531 words in this brief, excluding the portions listed in Tex. R. App. P. 9.4(i)(1).
/s/ Gregory Sherwood
APPENDIX
ORDER GRANTING MOTION FOR SUMMARY JUDGMENT BY CU MEMBERS MORTGAGE, A DIVISION OF COLONIAL SAVINGS, F.A. AND FIRST WESTERN TITLE CO.
- signed July 14, 2014 (CR 264-266)
ORDER GRANTING MOTION FOR AWARD OF ATTORNEYS’ FEES BY CU MEMBERS MORTGAGE, A DIVISION OF COLONIAL SAVINGS, F.A. AND FIRST WESTERN TITLE CO.
- signed March 2, 2015 (CR 317-319)
ORDER GRANTING BOB MIMS’ SECOND MOTION FOR SUMMARY JUDGMENT - signed March 12, 2015 (1st Supp. CR 4-5)
ORDER DENYING BEN MELTON’S MOTION TO CORRECT FILING DATE, OR IN THE ALTERNATIVE FOR LEAVE TO FILE - signed March 12, 2015 (1st Supp. CR 6)
FINDINGS OF FACT AND CONCLUSIONS OF LAW ON MOTION FOR AWARD OF ATTORNEYS’ FEES BY CU MEMBERS MORTGAGE, A DIVISION OF COLONIAL SAVINGS, F.A. - signed June 3, 2015 (2nd Supp. CR 4-9)