United States District Court, S.D. Texas, Houston Division
RALPH D. HUSTON & CHRISTINA HUSTON, Plaintiffs,
U.S. BANK NATIONAL ASSOCIATION, et al., Defendants
For Ralph D. Huston, Christina Huston, Plaintiffs, Counter Defendants: Ralph D Huston, Attorney at Law, Houston, TX.
For U.S. Bank National Association, as Trustee for Citigroup Mortgage Loan Trust 2007-WFHE4, Asset-Backed Pass-Through Certificates Series 2007-WFHE4, Defendant, Counter Claimant: Richard A Illmer, Husch Blackwell LLP, Dallas, TX.
Gray H. Miller, United States District Judge.
Memorandum Opinion & Order
Pending before the court are the following: (1) a motion for summary judgment filed by plaintiffs Ralph D. Huston and Christina Huston (the " plaintiffs" ) (Dkt. 32); and (2) a cross-motion for summary judgment filed by defendant U.S. Bank National Association, as Trustee for Citigroup Mortgage Loan Trust 2007-WFHE4 (" U.S. Bank" ). Dkt. 33. The court has considered the motions, responsive briefing, record evidence, and applicable law. For the reasons that follow, the plaintiffs' motion for summary judgment is DENIED, and U.S. Bank's cross-motion is GRANTED.
On April 26, 2007, Ralph Huston (" Ralph" ) obtained a $224,000.00 home equity loan (the " note" ) from Wells Fargo Bank, N.A. (" Wells Fargo" ). Dkt. 33, Ex. A-1 (Texas home equity adjustable rate note) at 1. Under the terms of the note, Wells Fargo had the power to transfer or assign the note. Id. at 1 § 1. The note was secured by a Texas Home Equity Security Instrument (the " security instrument" ), also dated April 26, 2007, and which was recorded in the Harris County real property records. Dkt. 33, Ex. A-2 (the security instrument). The security instrument was executed by both Ralph and his wife, Christina Huston (" Christina" ), and it created a first lien mortgage on their homestead, with the power of sale, to secure payment under the note. Id.
Plaintiffs have failed to remit their monthly mortgage payment since November 2009. Dkt. 33, Ex. A (declaration of Michael Dolan) at 3 ¶ 7. On December 13, 2009, Wells Fargo notified Ralph that the note was in default and disclosed its intent to accelerate the note. Id. at 3 ¶ 8; Dkt. 33, Ex. A-4 (notice of default). Plaintiffs were given until January 12, 2010 to remit the deficiency and cure the default, but they failed to do so. Dkt. 33, Ex. A at 3 ¶ 8.
On or around February 1, 2010, Wells Fargo assigned the note and security instrument to U.S. Bank. See Dkt. 33, Ex. A-3 (assignment). U.S. Bank retained Wells Fargo to be its loan servicing agent for a portfolio of loans, and Wells Fargo is the current servicer of the note. Dkt. 33, Ex. A at 3 ¶ 6. Because plaintiffs were delinquent in their monthly payments, Wells Fargo hired foreclosure counsel, Barrett Daffin Frappier Turner & Engel, L.L.P. (" Barrett Daffin" ) to begin foreclosure proceedings. Id. at 4 ¶ 9. On February 15, 2010, Barrett Daffin sent plaintiffs a letter notifying them that U.S. Bank had elected to accelerate maturity of the debt. Id.; see also Dkt. 33, Ex. A-5 (acceleration notice). U.S. Bank applied for a home equity foreclosure order, under Rule 736 of the Texas Rules of Civil Procedure, in the 151st District Court of Harris County on March 24, 2010. See Dkt. 33, Ex. B (the first Rule 736 application); In re Order for Foreclosure Concerning Ralph D. Huston & Christina Huston, et al., No. 2010-18933 (151st Dist. Ct. of Harris Cnty. filed Mar. 24, 2010). U.S. Bank filed an amended application on May 4, 2010. Dkt. 33, Ex. C (the amended first Rule 736 application).
In response, the plaintiffs filed an " original answer" asserting various defenses and a plea for abatement and dismissal of the Rule 736 proceeding under Rule 736(10).
See Huston, 359 S.W.3d at 680. On June 27, 2010, plaintiffs filed a counterclaim, challenging U.S. Bank's right to foreclose. Dkt. 33, Ex. D (counterclaim). Two months later, on August 22, 2010, plaintiffs filed an original petition for declaratory relief with the 80th District Court of Harris County, seeking relief that was identical to the counterclaim in the Rule 736 proceeding. Dkt. 33, Ex. E (original petition); Huston v. U.S. Bank Nat'l Ass'n, No. 2010-52541 (80th Dist. Ct. of Harris Cnty. filed Aug. 22, 2010) (hereinafter " Huston I " ). After receiving notice of the filing of Huston I, the 151st District Court dismissed the entire proceeding without prejudice, including U.S. Bank's application and the plaintiffs' counterclaim. Dkt. 33, Ex. F.
On November 24, 2010, plaintiffs appealed the dismissal of their counterclaim to the state appellate court. Dkt. 33, Ex. P (notice of appeal). On October 27, 2011, the First Court of Appeals affirmed the dismissal of plaintiffs' counterclaim on grounds that a counterclaim cannot be asserted in a Rule 736 proceeding. Huston, 359 S.W.3d at 682-83. The First Court reasoned that an expedited foreclosure proceeding was legally and practically distinct from a judicial foreclosure suit, in that the court's decision in a Rule 736 proceeding is without preclusive effect and is issued without the benefit of discovery. See id. at 682; TEX. R. CIV. P. 736.9 (" An order is without prejudice and has no res judicata, collateral estoppel, estoppel by judgment, or other effect in any other judicial proceeding." ); TEX. R. CIV. P. 736.4 (" No discovery is permitted in a Rule 736 proceeding." ). The court therefore held that a counterclaim was incongruent with the purposes of an expedited proceeding and would not be allowed. Id. at 682-83. The court specifically noted that its decision did not deprive the plaintiffs of a right to pursue their claim because the case was dismissed after they filed suit in the 80th District Court. Id. at 683. " The Hustons may pursue their claim against U.S. Bank in that lawsuit." Id.
And so they did. After filing Huston I, the plaintiffs served U.S. Bank, which answered the petition with a general denial on September 30, 2010. Huston I Dkt. 1, Ex. B-3 (U.S. Bank's original answer). On October 7, 2010, U.S. Bank removed Huston I to the Southern District of Texas, Houston Division, Judge Keith Ellison presiding. Huston I Dkt. 1. On December 5, 2011, after the First Court of Appeals affirmed the dismissal of the first Rule 736 application and counterclaim, U.S. Bank moved for leave to amend its answer in Huston I and assert a counterclaim for judicial foreclosure. Huston I Dkt. 13. Judge Ellison denied U.S. Bank's motion on December 14, 2011, finding that the counterclaim was unnecessary for U.S. Bank to receive full relief on the merits in a favorable judgment. Huston I Dkt. 17 at 6-7. U.S. Bank therefore never asserted a counterclaim for judicial foreclosure in Huston I.
After discovery closed, U.S. Bank moved for summary judgment as to plaintiff's claim for declaratory relief. Huston I Dkt. 18. On February 28, 2012, Judge Ellison granted U.S. Bank's motion and dismissed plaintiffs' claim with prejudice. Huston I Dkt. 37 at 9. However, Judge Ellison also denied U.S. Bank's request for an order of foreclosure as moot, reasoning that U.S. Bank could file a renewed Rule 736 application in state court after dismissal of Huston I. Id. at 8.
And so U.S. Bank did. Six months later, due to plaintiffs' continuing failure to cure their default, U.S. Bank applied for a
second Rule 736 home equity foreclosure order in the 165th District Court of Harris County on August 24, 2012. Dkt. 33, Ex. L (the second Rule 736 application); In re Order for Foreclosure Concerning 16519 Town Lake Court, Houston, Texas 77059 Under Tex. R. Civ. P. 736, No. 2012-48887 (165th Dist. Ct. of Harris Cnty. filed Aug. 24, 2012). Plaintiffs then filed a second declaratory judgment suit against U.S. Bank in the 190th District Court of Harris County on November 29, 2012. Dkt. 1, Ex. B-2 (original petition); Huston v. U.S. Bank Nat'l Ass'n, No. 2012-70759 (190th Dist. Ct. of Harris Cnty. filed Nov. 29, 2012) (hereinafter " Huston II " ). U.S. Bank removed Huston II to this court on December 27, 2012. Dkt. 1.
Plaintiffs' live pleading asserts one claim for declaratory relief against U.S. Bank. Dkt. 21 (amended complaint) at 4 ¶ ¶ 9-11. Plaintiffs claim that U.S. Bank cannot foreclose on the home equity lien because U.S. Bank failed to request a judicial foreclosure in Huston I. Id. at 4 ¶ 10. Plaintiffs contend that U.S. Bank's request to foreclose was a compulsory counterclaim in the previous suit, and U.S. Bank may not relitigate that issue in this or any other proceeding. Id. U.S. Bank answered the amended complaint, Dkt. 26, and filed a counterclaim. Dkt. 14. U.S. Bank claims that it has a right to a judicial foreclosure order because the plaintiffs remain in default on a valid lien and U.S. Bank has met the statutory prerequisites for foreclosure. Id. at 4-6.
On October 14, 2013, the parties filed cross-motions for summary judgment. Plaintiffs move for summary judgment on grounds that the evidence establishes, as a matter of law, that U.S. Bank is barred from pursuing a suit for judicial foreclosure because that was a compulsory counterclaim in Huston I. Dkt. 32. U.S. Bank moves for summary judgment on plaintiffs' declaratory relief claim, arguing that a judicial foreclosure action is not barred. Dkt. 33 at 8-14. U.S. Bank further moves for summary judgment on its counterclaim for judicial foreclosure and attorneys' fees under the home equity note. Id. at 14-20. The motions are ripe for disposition.
III. Legal Standard
Summary judgment is proper if " the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(a); see also Carrizales v. State Farm Lloyds, 518 F.3d 343, 345 (5th Cir. 2008). The mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). An issue is " material" if its resolution could affect the outcome of the action. Burrell v. Dr. Pepper/Seven Up Bottling Grp., Inc., 482 F.3d 408, 411 (5th Cir. 2007). " [A]nd a fact is genuinely in dispute only if a reasonable jury could return a verdict for the nonmoving party." Fordoche, Inc. v. Texaco, Inc., 463 F.3d 388, 392 (5th Cir. 2006).
The moving party bears the initial burden of informing the court of all evidence demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Only when the moving party has discharged this initial burden does the burden shift to the non-moving party to demonstrate that there is a genuine issue ...