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Shellnut v. Wells Fargo Bank, N.A.

Court of Appeals of Texas, Second District, Fort Worth

April 27, 2017






         This appeal by a homeowner against a home-equity loan lender and its loan servicer involves similar factual allegations and issues raised in a striking number of suits across this state, mostly in the federal courts. A common theme in these suits is the contention that the loan servicer, lender, or both--either deliberately or negligently--misled a homeowner who had defaulted on his or her monthly payments into believing that he or she might be eligible for a loan modification and that the loan modification application process would forestall or waive imminent foreclosure proceedings on the home-equity note and deed of trust. Most homeowners, like the appellant in this case, have had little success in defending these claims against summary judgment or a 12(b)(6) dismissal motion, [2] much less in bringing their claims to trial or obtaining a judgment, considering that most cannot overcome the undisputed fact that they have been in, and remain in, default.

         In this case, Freddie L. Shellnut sued his home-equity loan lender--U.S. Bank National Association, as Trustee for Credit Suisse First Boston Mortgage Securities Corp., Home Equity Asset Trust 2006-7, Home Equity Pass-Through Certificates Series 2006-7--and its loan servicer--Wells Fargo Bank, N.A., doing business as America's Servicing Company--in the 96th District Court after U.S. Bank had obtained a judicial foreclosure order in the 352nd District Court. After discovery, during which Shellnut filed two lengthy motions to compel and U.S. Bank and Wells Fargo raised numerous objections, the trial court granted a take-nothing summary judgment. On appeal, Shellnut raises a single issue generally challenging the summary judgment. Within that general issue, he raises four subissues: (1) he raised a fact issue on his breach of contract claim; (2) U.S. Bank and Wells Fargo did not conclusively prove that the statute of frauds bars his claims for fraud, negligent misrepresentation, and violation of the Texas Debt Collection Act (TDCA); (3) U.S. Bank and Wells Fargo did not conclusively prove that the economic-loss rule bars all recovery on these same tort claims; and (4) the trial court erred by denying his amended second motion to compel discovery.

         Throughout the trial court proceedings and this appeal, U.S. Bank and Wells Fargo have characterized Shellnut's allegations as nothing more than an attempt to avoid foreclosure by complaining that they wrongfully refused to modify his loan when he fell behind on his payments, a remedy that he had no right to under the loan documents and which neither U.S. Bank nor Wells Fargo had any duty to consider or grant. But the allegations in Shellnut's original petition--whether ultimately true or not--cannot be distilled to quite so simple a premise.

         After carefully reviewing the petition, the motion for summary judgment, Shellnut's response, and the reply, we reverse the summary judgment in part. Because under Texas law Shellnut's fraud and negligent misrepresentation claims are not barred to the extent that he seeks non-benefit-of-the-bargain damages and because the claim-specific grounds for summary judgment on his negligent misrepresentation claim do not entitle U.S. Bank and Wells Fargo to summary judgment, we reverse the summary judgment on those claims to the extent Shellnut seeks non-benefit-of-the-bargain damages. In addition, because Shellnut's TDCA-violation claims are not barred by the economic-loss rule-- except for his claim that U.S. Bank and Wells Fargo violated the TDCA by wrongfully threatening to foreclose--we reverse the summary judgment for that claim to the extent it states claims based on their actions other than threatening to foreclose. But because Shellnut failed to raise a fact issue on his breach of contract claim, we affirm the summary judgment as to that claim. We also affirm the summary judgment on the remaining claims in his original petition because he did not challenge that part of the summary judgment on appeal.

         Shellnut Obtains Home-Equity Loan, Falls Behind on Payments, Seeks Assistance, and Sues After U.S. Bank Threatens Foreclosure

         Shellnut obtained a home-equity loan in 2006 from Aames Funding Corporation doing business as Aames Home Loan, signing a note and a deed of trust to secure the loan. The note has a thirty-year term and, as required by Texas law, a nonrecourse liability provision. See Tex. Const. art. XVI, § 50(a)(6)(E); Wells Fargo Bank, N.A. v. Murphy, 458 S.W.3d 912, 917 (Tex. 2015); Fein v. R.P.H., Inc., 68 S.W.3d 260, 266 (Tex. App.--Houston [14th Dist.] 2002, pet. denied) ("A nonrecourse note has the effect of making a note payable out of a particular fund or source, namely, the proceeds of the sale of the collateral securing the note.").[3] After Shellnut signed the loan documents but before 2010, U.S. Bank became the holder of the note, and Wells Fargo became the loan servicer.

         Shellnut missed some of his monthly payments during 2010; although he was able to make up most of the missed payments at various times during that year, he ended 2010 about one payment behind. Also during 2010, Shellnut began calling Wells Fargo to seek its assistance in obtaining either a loan modification with a lower monthly payment or any other option that would help him get caught up on his payments. Shellnut admitted in discovery that he and U.S. Bank entered into a special forbearance agreement in 2010.[4] Additionally, Shellnut was offered at least one loan modification in June 2010, but he rejected it because the monthly payments "were considerably increased." According to Shellnut, Wells Fargo informed him throughout 2010 that he was eligible for a loan modification and that his request for a modification was being considered; it also instructed him to stop sending loan payments during the modification process. Shellnut stopped making payments altogether after January 2011.[5] In May 2011, Wells Fargo sent Shellnut a notice of acceleration and intent to foreclose, but it did not start foreclosure proceedings at that time.

         Throughout the remainder of 2011 and 2012, Shellnut remained in contact with Wells Fargo seeking, among other things, the exact amount necessary to reinstate the loan in accordance with the deed of trust. Shellnut received at least three reinstatement quotes from U.S. Bank's foreclosure attorney in 2011, but he refused to tender payment in reliance on the quotes because they contained a disclaimer--that U.S. Bank "reserves the right to collect additional amounts as necessary to complete the reinstatement"--and because neither the foreclosure attorney nor Wells Fargo would agree in a separate writing that no additional fees or costs would be assessed to reinstate the loan. In August 2012, approximately two and one-half years after Shellnut had first contacted Wells Fargo seeking loan repayment assistance, Wells Fargo sent Shellnut a letter informing him that he was not entitled to a loan modification because "the investor that ultimately owns your mortgage . . . has declined the request." A Wells Fargo representative also told Shellnut that the loan was no longer eligible for modification because it had been in default for more than six months.

         In September 2012, U.S. Bank filed a petition for judicial foreclosure of the loan[6] in the 352nd District Court, ultimately securing a court order allowing it to foreclose. After U.S. Bank obtained its order but before it could complete the foreclosure, Shellnut sued both U.S. Bank and Wells Fargo (collectively Lender)[7]in the 96th District Court alleging causes of action for breach of contract, promissory estoppel, fraud, violation of the TDCA and the Deceptive Trade Practices Act (DTPA), negligent misrepresentation, and negligent hiring. Shellnut's suit stayed the foreclosure order; there do not appear to have been any further proceedings in the 352nd District Court. See Tex. R. Civ. P. 736.11(a). Lender then filed a counterclaim in this suit, again seeking a judicial foreclosure order.

         During the discovery period, Shellnut filed two motions to compel discovery, and Lender filed a motion for protective order and summary judgment motion. The trial court partially granted both of Shellnut's motions to compel and partially granted Lender's motion for protective order. Several months thereafter, Lender filed an amended traditional motion for summary judgment. See Tex. R. Civ. P. 166a(c). As an initial matter, Lender argued that all of Shellnut's claims were based on its refusal to modify the loan and that all of his claims therefore failed because Shellnut was not entitled to a loan modification as a matter of law. Additionally, Lender contended that as a matter of law, all of Shellnut's claims-- except his breach of contract claim based on the note and deed of trust (the loan documents)--were barred by the statute of frauds and the economic-loss rule. Finally, Lender raised additional, claim-specific grounds for all of Shellnut's claims except fraud.

         The trial court granted summary judgment for Lender on all of Shellnut's claims without specifying any grounds. Lender then filed an unopposed motion to dismiss its counterclaim seeking an order allowing it to foreclose; the trial court granted the motion, dismissed the counterclaim, and rendered a final take-nothing judgment in Lender's favor.

         Appeal Limited to Breach of Written Contract, Fraud, Negligent Misrepresentation, and Violation of TDCA Claims

         Although Shellnut has raised a general issue challenging the granting of the summary judgment, he has not presented argument within that issue challenging the propriety of the summary judgment on his promissory estoppel, DTPA, negligent hiring, and breach of verbal contract claims. Thus, we will review the propriety of the summary judgment only as to the claims he has addressed in his briefing: breach of the loan documents, fraud, violation of the TDCA, and negligent misrepresentation. See LeBlanc v. Riley, No. 02-08-234-CV, 2009 WL 885953, at *3 (Tex. App.-Fort Worth Apr. 2, 2009, no pet.) (mem. op.); Bingham v. Sw. Bell Yellow Pages, Inc., No. 02-6-229-CV, 2008 WL 163551, at *1 n.2 (Tex. App.-Fort Worth Jan. 17, 2008, no pet.) (mem. op. on reh'g).[8]

         Traditional Summary Judgment Standard of Review Applies

         We review a summary judgment de novo. Travelers Ins. Co. v. Joachim, 315 S.W.3d 860, 862 (Tex. 2010). We consider the evidence presented in the light most favorable to the nonmovant, crediting evidence favorable to the nonmovant if reasonable jurors could, and disregarding evidence contrary to the nonmovant unless reasonable jurors could not. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). We indulge every reasonable inference and resolve any doubts in the nonmovant's favor. 20801, Inc. v. Parker, 249 S.W.3d 392, 399 (Tex. 2008). A defendant who conclusively negates at least one essential element of a cause of action is entitled to summary judgment on that claim. Frost Nat'l Bank v. Fernandez, 315 S.W.3d 494, 508 (Tex. 2010), cert. denied, 562 U.S. 1180 (2011); see Tex. R. Civ. P. 166a(b), (c).

         A defendant is entitled to summary judgment on an affirmative defense if the defendant conclusively proves all the elements of the affirmative defense. Frost Nat'l Bank, 315 S.W.3d at 508-09; see Tex. R. Civ. P. 166a(b), (c). To accomplish this, the defendant-movant must present summary judgment evidence that conclusively establishes each element of the affirmative defense. See Chau v. Riddle, 254 S.W.3d 453, 455 (Tex. 2008).

         Because Most of Lender's Summary Judgment Grounds Are Based on Shellnut's Pleadings, We Briefly Summarize His Claims

         Because the resolution of this appeal requires a firm command of the exact nature of the different claims in Shellnut's live pleading--his forty-seven page original petition--we will briefly summarize the claims on which he appeals.

         Breach of Contract

         Shellnut pled that Lender breached the loan documents by refusing a tender of the full amount of his default as authorized by the loan documents and by failing to properly credit his account for the amount of the tender. Additionally, Shellnut claimed that Lender "demanded the payment of additional fees that were not authorized at that time." Finally, Shellnut contended that Lender refused to communicate to him in writing the amount needed to reinstate the note. According to Shellnut's pleading, he performed and tendered performance under the loan documents, and he was temporarily excused from future performance by Lender's offer to assist him in obtaining a federal home loan modification.


         Shellnut claimed that Lender materially misrepresented its "ability and willingness to process [his] application for a federal loan modification as well as the time frame the process . . . would likely take." He further contended that Lender misrepresented the likely cost to him "in the form of continued accrual of interest charges and the increased debt [he] would incur each month . . . in addition to his interest and unpaid principal in the form of attorney fees, foreclosure fees[, ] and other service charges." Shellnut alleged that Lender was aware that these misrepresentations were false and intended that he act on them to his detriment. He specifically contended that Lender did not offer him or consider an internal loan modification, but rather represented to him "that another entity or party had decision making power and could decide, if given the proper forms and information, whether [he] qualified and could be offered essentially assistance from the federal government."

         TDCA Violation

         Shellnut claimed that in the course of attempting to collect amounts past due under the loan documents, Lender (1) voluntarily offered to assist him in completing a federal loan modification but failed to provide the assistance and delayed the process for two years and (2) refused to allow Shellnut to make payments on the loan while purporting to provide that assistance and as a result, "each month increased the debt with penalties and fees . . . dramatically increasing the amount of the debt by mispresenting what it was in fact doing."

         According to Shellnut, this conduct violated section 392.304(a)(8) and (a)(14) of the Texas Finance Code. Tex. Fin. Code Ann. § 392.304(a)(8), (14) (West 2016). Shellnut further generally claimed that "after notice of representation and that the amount in question is disputed, [Lender] continued to contact [the Shellnuts] directly and continued to harass them for payment."

         Negligent Misrepresentation

         Shellnut included specific allegations that he contended amounted to negligent misrepresentation:

a. [Lender] made representations to [the Shellnuts] in the course of providing assistance with a federal home loan modification;
b. [Lender] supplied false information attempting to guide, advise[, ] and direct [the Shellnuts] with regard to fees they would have to pay and not pay, with regard [to] the timeline the application process would take, as well as the amounts they would have to pay during the loan modification process . . . .

         Shellnut also claimed generally that Lender "failed to use reasonable care in communicating the correct status of [the] mortgage loan and loan modification application."


         In addition to alleging claim-specific damages--which we will address in our discussion of the economic-loss rule--Shellnut generally alleged that he is entitled to the following damages: lost equity in his home, lost earnings and time spent attempting to comply with Lender's modification requests, "cpa fees" and other expenses, damage to his credit score and credit reputation, mental anguish damages, economic damages, exemplary damages, attorney's fees, and court costs.

         Summary Judgment Improper on General Ground That Shellnut Had No Right to Loan Modification Because He Did Not Allege Wrongful Refusal to Modify as Basis For These Claims

         As part of his first subissue, Shellnut argues that Lender was not entitled to summary judgment based on its broad characterization of his pleadings as primarily seeking relief from its refusal to modify his loan. We refer to this argument as subissue 1A.[9]

         Lender's first ground for summary judgment was that all of Shellnut's complaints fail because they are "ultimately grounded in his contention that [Lender] 'wrongfully delayed' the loan modification process and 'misled' him regarding his ability to obtain a loan modification." According to Lender, because all of Shellnut's claims emanate from his contention that it wrongfully refused to modify his loan and because Shellnut has no right to a loan modification under Texas law, all of his claims fail. Although this first ground is not assigned a specific subissue in Shellnut's briefing, he does argue throughout his brief that his claims are not based on Lender's refusal to enter into a loan modification.[10]Rather, he contends that his claims are based on Wells Fargo's affirmative statements that Lender was considering a loan modification when it was not and that Wells Fargo would assist him in obtaining help with this loan modification from a federal government program when it either had no intention to do so or knew he could not obtain one. In other words, he alleges Lender was stringing him along in order to pad its post-default fees and charges labeled as collection costs.

         We agree with Shellnut's characterization of his pleadings. None of his claims allege or are based on the premise that Lender wrongfully refused to modify his loan. Instead, he alleges that Wells Fargo wrongfully told him it would place his loan into a loan modification review or assist him in obtaining federal aid to modify the loan, without the intent to actually do so, for the purpose of adding extra, default-related fees and costs to the balance due under the note. He also alleges that Wells Fargo knew it could not provide him with assistance in obtaining a modification. Thus, the allegations in his pleadings are not premised upon an asserted right to a loan modification--which Lender did not have a duty to consider, and which Shellnut had no right to demand, under the loan documents--but rather the allegedly untruthful representation that he was being considered for a loan modification or other type of loan assistance, that caused him to take some actions and refrain from taking others.

         In urging summary judgment on Shellnut's pleadings, Lender relied on numerous federal cases dismissing suits by defaulted borrowers against lenders and loan servicers because a borrower has no right to a loan modification. But the holdings in those cases are fact-specific and in response to different allegations than those made by Shellnut; thus, they are inapposite.[11] See Calvino v. Conseco Fin. Servicing Corp., No. A-12-CA-577-SS, 2013 WL 4677742, at *7 (W.D. Tex. Aug. 30, 2013) (addressing argument that servicer wrongfully refused to offer loan modification); Soufimanesh v. U.S. Bank, N.A., No. 4:12cv295, 2013 WL 3215744, at *9 (E.D. Tex. June 24, 2013) (noting that U.S. Bank was not required to modify loan in addressing borrower's argument that bank's statement that it was considering a loan modification effected a withdrawal of the foreclosure notices it had sent borrower); Singha v. BAC Home Loans Servicing, LP, No. 4:10-CV-692, 2012 WL 3904345, at *4 (E.D. Tex. Aug. 7, 2012) (holding that because borrower had no right to a loan modification, lender's refusal to modify was not a repudiation for purposes of an anticipatory breach claim), adopting report & recommendation, 2012 WL 3904063 (E.D. Tex. Sept. 7, 2012), aff'd, 564 F.App'x 65 (5th Cir. 2014); Mahmood v. Bank of Am., N.A., No. 3:11-CV-03504-M-BK, 2012 WL 527902, at *3 (N.D. Tex. Jan. 18, 2012) (addressing claim for failure to negotiate a loan modification), accepting findings, conclusions & recommendation, 2012 WL 527901 (N.D. Tex. Feb. 16, 2012); Mulder v. Select Portfolio Servicing, Inc., No. 1:11-CV-00862-SS, slip op. at 2 (W.D. Tex. Sept. 30, 2011) (order setting hearing on motion seeking to temporarily restrain foreclosure) (noting--without describing the specific allegations in Mulder's pleadings--that neither law nor equity were on Mulder's side since he had been in default for almost a year and had not clearly alleged "any legal excuse for his failure to make his loan payments").[12]

         Accordingly, we conclude and hold that Lender was not entitled to summary judgment on all of Shellnut's claims on ...

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