Opinion
NO. 09-15-00474-CV
06-29-2017
HUBERT LEE HART AND GILDA BETH HART, Appellants v. WELLS FARGO BANK N.A., Appellee
On Appeal from the 284th District Court Montgomery County, Texas
Trial Cause No. 14-06-06396-CV
MEMORANDUM OPINION
Hubert Lee Hart and Gilda Beth Hart appeal from a summary judgment ruling that favored Wells Fargo Bank N.A. (the Bank) and allowed the Bank to judicially foreclose on the lot the Harts used to secure their home-equity loan. Because arguments the Harts present in their brief do not show that the trial court committed error when it granted the Bank's motion, we affirm the trial court's judgment.
Background
In 2006, the Harts obtained a Texas home-equity loan, which was collateralized by real property in Montgomery County, Texas. The property used to collateralize the loan is described in the Deed of Trust as lot 52, block one, of Stonecrest Ranch. See Tex. Const. art. XVI, § 50. In 2010, the Bank acquired the Harts' loan by assignment from another lender. Subsequently, the Harts failed to timely make payments on the loan. As a result, the Bank instituted foreclosure proceedings in a District Court in Montgomery County. The Bank's foreclosure action was assigned cause number 10-10-11450, but the case was dismissed after the Harts and the Bank agreed to modify the terms of the loan.
The deed of trust provided that the property secured by the Deed of Trust "is limited to homestead property in accordance with [s]ection 50(a)(6)(H), [a]rticle XVI of the Texas Constitution."
In late 2012, the Bank filed a second foreclosure action in Montgomery County, and this suit was assigned Cause Number 12-11-12144. Subsequently, the Bank dismissed Cause Number 12-11-12144 when the Harts sued the Bank in January 2013 in Montgomery County claiming the Bank had violated Texas law and the Texas Constitution in attempting to collect on the loan. The Harts' suit was assigned Cause Number 13-01-00500; the suit included a claim based on the Texas Debt Collection Practices Act and a claim based on the Bank's alleged failure to comply with provisions in the Texas Constitution governing home-equity loans. See Tex. Civ. Prac. & Rem. Code Ann. § 134.003 (West 2011) ("A person who commits theft is liable for the damages resulting from the theft."); see also Tex. Const. art. XVI, § 50(a)(6) (protecting a person's homestead from forced sale, mortgages, deeds of trust, and liens except in certain situations as expressly allowed). In response to the suit, the Bank removed Cause Number 13-01-00500 to a federal court in Houston, Texas, where it was assigned Civil Action Number 4:13-CV-578. In March 2014, the Bank obtained a summary judgment on the Harts' claim from the United States District Court for the Southern District, Houston Division.
In June 2014, the Bank sued the Harts in a Montgomery County District Court to foreclose on lot 52. The suit was assigned Cause Number 14-06-06396, and it is that suit that is the subject of this appeal. In its petition in Cause Number 14-06-06396, the Bank alleged that "[a]ll conditions precedent for foreclosure have been performed or occurred" before it filed suit. When the Harts answered the Bank's suit, they alleged that the lien securing their home-equity loan was unenforceable because lot 52 contained 13.520 acres, which is more than the ten-acre size allowed to be used in collateralizing a home-equity loan based on section 50 of the Texas Constitution. See Tex. Const. art. XVI, § 50(a)(6)(H) (directing that a home-equity loan cannot be secured by any additional real property other than the homestead); Tex. Const. art. XVI, § 51 (explaining that a homestead in "a city, town or village, shall consist of lot or contiguous lots amounting to not more than 10 acres of land"). The Harts also alleged that although the Bank had been notified that lot 52 consisted of more than ten acres, the Bank had failed to cure the discrepancy violating the requirements of section 50 within the sixty-day period allowed by section 50. See Tex. Const. art. XVI, § 50(a)(6)(Q)(x). The Harts further alleged that because the Bank had not timely cured the defect, section 50 required the Bank to forfeit its right to collect any of the principal or interest on the loan, and to forfeit its right to foreclose on the lot. See id.
In August 2015, the Bank filed a traditional motion for summary judgment, sought an order to foreclose on lot 52, and requested an award based on the principal and interest it was owed under the terms of the loan. See Tex. R. Civ. P. 166a(c). In its motion, the Bank argued that no genuine issues of material fact were in dispute because the summary judgment evidence conclusively established that it held a Deed of Trust on lot 52, that the Harts had defaulted on their obligations under the loan, that the Deed of Trust allowed the Bank to foreclose on lot 52, and that the Harts had failed to cure their default in payment as required by the terms of the loan. The Bank's motion also asserted that the Harts' complaints, which asserted that the loan was issued in violation of the restrictions on home-equity loans in section 50 of the Texas Constitution, were barred either by the four-year statute of limitations, or by the doctrine of res judicata. The Bank's res judicata claim was based on the history of the litigation over the loan in which the Harts had asked the court to resolve issues that included the validity of the loan.
In response to the Bank's motion, the Harts claimed that they were "not seeking affirmative relief nor forfeiture of the loan." Instead, they argued that the Bank was not entitled to judicially foreclose on their homestead because lot 52 exceeded ten acres in violation of section 50 of the Texas Constitution. Additionally, the Harts argued that the statute of limitations did not prevent them from defending against the foreclosure action by demonstrating that the lien on their homestead was not valid based on provisions in the Texas Constitution. In responding to the Bank's res judicata claim, the Harts argued that, without citing any statutes or other legal authorities, the Bank could not rely on res judicata because the defects in the Bank's loan were being used to defend against the Bank's foreclosure action. According to the Harts' responses, the Bank should not be able to rely on the doctrine of res judicata because the doctrine, as applied in their case, was "unjust and nonsensical."
In October 2015, the trial court granted the Bank's motion for summary judgment. The recitations in the judgment include findings that the loan is evidenced by a valid note and security agreement, that the documents were duly executed by the Harts, that the Harts defaulted on the loan, and that the Harts did not cure the default. The judgment rendered by the trial court allowed the Bank to foreclose on lot 52 and allowed lot 52 to be sold at public auction within thirty days of the judgment if the Harts failed to pay the full amount of the judgment. The judgment provides that "this is a final judgment that disposes of all issues and all relief not expressly granted is denied."
The Harts timely appealed from the trial court's judgment. See Tex. R. App. P. 26.1 (requiring the appellant to file its notice of appeal within 30 days of the date the judgment is signed). In issue one, the Harts argue that the Bank was not entitled to rely on the four-year statute of limitations to prevent the court from considering their claim asserting that the Bank's lien is invalid. In issue two, the Harts argue that the Bank failed to conclusively establish that it had a valid lien because the evidence shows that lot 52 consists of more than ten acres.
Standard of Review
A de novo standard applies to our review of a trial court's ruling on a motion for summary judgment. See Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). On appeal, the summary-judgment record is reviewed "in the light most favorable to the nonmovant, indulging every reasonable inference and resolving any doubts against the motion." City of Keller v. Wilson, 168 S.W.3d 802, 824 (Tex. 2005). If the party moving for summary judgment establishes, through its motion and its summary judgment evidence that it should recover as a matter of law, the burden shifts to the party opposing the motion to produce evidence that raises a genuine issue of material fact that is sufficient to defeat the opposing party's motion. M.D. Anderson Hosp. & Tumor Inst. v. Willrich, 28 S.W.3d 22, 23 (Tex. 2000); see also Tex. R. Civ. P. 166a(c). A genuine issue of material fact exists if reasonable and fair-minded jurors could differ in the conclusions they could reach from the evidence the trial court considered in deciding the motion. See Goodyear Tire & Rubber Co. v. Mayes, 236 S.W.3d 754, 755 (Tex. 2007).
Analysis
In addressing the parties' arguments, we briefly note that the Harts have not claimed that the Bank is not the owner or holder of their note, that the note is not secured by lot 52, that the Bank did not properly notify the Harts of their default, that the Bank failed to notify the Harts that it was accelerating the note, or that they made all of the payments required by the terms of their loan. Additionally, we note that the Bank has never disputed that lot 52 is comprised of 13.520 acres, nor has the Bank ever claimed that it attempted to cure the alleged defect in the note in any of the methods specified by section 50. See Tex. Const. art. XVI, § 50(a)(6)(Q)(x). Since the trial court's judgment allowed the loan to be foreclosed and the property securing the loan sold without specifying the grounds on which it granted the Bank's motion, we are required to affirm the summary judgment if any of the grounds the Bank asserted in its motion are meritorious. See State v. Ninety Thousand Two Hundred Thirty-Five Dollars & No Cents in U.S. Currency, 390 S.W.3d 289, 292 (Tex. 2013); FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000).
The trial court's final judgment authorized the sale of all of lot 52. However, the Harts have not complained in the appeal that the trial court's judgment gave the Bank more relief than it was entitled to receive under the terms in the Deed of Trust, which contains language that purports to limit the Bank's lien to the requirements of section 50(a)(6)(H), article XVI of the Texas Constitution.
We will address the Harts' arguments regarding the statute of limitations first, as developments in the case law addressing section 50 resulted in the Bank's conceding that limitations could not be used to avoid the Harts' complaint that the loan violated the requirements in section 50. See Tex. Const. art. XVI, § 50(a)(6)(H). After the parties filed their briefs, the Texas Supreme Court held that the statute of limitations does not bar a debtor's right to challenge the validity of a home-equity loan based on a claim that the loan did not comply with the requirements of section 50. Wood v. HSBC Bank USA, N.A., 505 S.W.3d 542, 547-51 (Tex. 2016). After the Texas Supreme Court issued its opinion in Wood, the Bank supplemented its brief and advised that in light of the holding in Wood, the judgment could not be affirmed based on its argument that the four-year statute of limitations barred the trial court from reaching the Harts' arguments about the validity of the lien.
Nonetheless, the trial court's ruling did not necessarily rely on the four-year statute of limitations, so the Bank's concession regarding the effect of Wood does not end our inquiry into whether the trial court's judgment can be affirmed. In its motion for summary judgment, the Bank also relied on the doctrine of res judicata and the history of the previous litigation between the parties over the loan to argue that the Harts should not be allowed to relitigate issues regarding the constitutional validity of the home-equity loan. According to the Bank, the parties litigated issues involving the constitutional validity of the loan in federal court, and it asserts that even if the exact question regarding whether lot 52 exceeded ten acres was not litigated, it was an issue that the Harts could have litigated along with their other challenges asserting the loan violated the home-equity lending provisions in the Texas Constitution.
In our opinion, the summary judgment evidence established that claims contesting the constitutional validity of the home-equity loan were resolved in the federal suit. The doctrine of "[r]es judicata, or claims preclusion, prevents the relitigation of a claim or cause of action that has been finally adjudicated, as well as related matters that, with the use of diligence, should have been litigated in the prior suit." Barr v. Resolution Trust Corp., 837 S.W.2d 627, 628 (Tex. 1992). Since the Bank's res judicata claim relies on a federal judgment, federal law determines whether the judgment in Civil Action Number 4:13-CV-578 barred the trial court from addressing the Harts' complaint that the loan was collateralized by a lot containing more than ten acres of land. See San Antonio Indep. Sch. Dist. v. McKinney, 936 S.W.2d 279, 281 (Tex. 1996) (noting that because the first suit was decided in federal court, federal res judicata law controls); Eagle Props., Ltd. v. Scharbauer, 807 S.W.2d 714, 718 (Tex. 1990) (same).
"'The res judicata effect of a prior judgment is a question of law that we review de novo.'" Oreck Direct LLC V. Dyson Inc., 560 F.3d 398, 401 (5th Cir. 2009) (quoting Davis v. Dallas Area Rapid Transit, 383 F.3d 309, 313 (5th Cir. 2004)). Additionally, we note that the Bank could properly use the doctrine of res judicata offensively in an effort to prevent the Harts from relitigating claims that they could have litigated in prior proceedings. See New Talk, Inc. v. Sw. Bell Tel. Co., No. 02-15-00199-CV, 2017 Tex. App. LEXIS 4359, *12 n.3 (Tex. App.—Fort Worth May 11, 2017, no pet.); Koval v. Henry Kirkland Contractors, Inc., No. 01-06-00067-CV, 2008 Tex. App. LEXIS 1237, **12-13 (Tex. App.—Houston [1st Dist.] Feb. 15, 2008, no pet.).
"Under federal law, the doctrine of res judicata will apply if: (1) the parties are identical in both suits; (2) the prior judgment is rendered by a court of competent jurisdiction; (3) there is a final judgment on the merits; and (4) the same cause of action is involved in both cases." Eagle Props., 807 S.W.2d at 718 (citing Nilsen v. City of Moss Point, 701 F.2d 556, 559-60 (5th Cir. 1983)); Clear Lake Ctr., L.P. v. Garden Ridge, L.P., 416 S.W.3d 527, 540-41 (Tex. App.—Houston [14th Dist.] 2013, no pet.). Significantly, with respect to whether the same cause of action is involved in this case and the case that resulted in a judgment in the Bank's favor in federal court, res judicata applies to not only claims that were actually litigated but it also "'bars all claims that were or could have been advanced in support of the cause of action on the occasion of its former adjudication, . . . not merely those that were adjudicated.'" In re Howe, 913 F.2d 1138, 1144 (5th Cir. 1990) (quoting Nilsen, 701 F.2d at 560).
The summary judgment evidence conclusively established that the parties are identical in both this suit and Civil Action Number 4:13-CV-578, the suit between them in federal court. The summary judgment evidence includes the judgment in Civil Action Number 4:13-CV-578, and that judgment was rendered by a court of competent jurisdiction. See e.g., Hawkins v. JPMorgan Chase Bank, N.A., 616 Fed. App'x 662, 2015 U.S. App. LEXIS 9442 (5th Cir. Tex., 2015) (reflecting a federal court addressed questions regarding the effect of the home-equity lending provisions under the Texas Constitution on a loan); Cerda v. 2004-EQR1 L.L.C., 612 F.3d 781 (5th Cir. 2010) (same); Grun v. Countrywide Home Loans, Inc., Civil Action No. SA-03-CA-0141-XR, 2004 U.S. Dist. LEXIS 12399 (W.D. Tex., July 1, 2004) (same). In the trial court and on appeal, the Harts have not asserted that diversity jurisdiction did not exist in Civil Action Number 4:13-CV-578. Additionally, the judgment in Civil Action Number 4:13-CV-578 reflects that it is a final judgment on the merits of the Harts' claims. The Harts have not claimed that the judgment was appealed.
In the petition the Harts filed that the Bank removed to federal court, the Harts sued the Bank claiming that the home-equity loan was made despite the fact that the loan violated provisions in the Texas Constitution. While the judgment in Civil Action Number 4:13-CV-578 does not state the specific grounds on which the federal court granted the Bank's motion for summary judgment, the Harts provided the trial court with no evidence showing that the federal court did not actually consider all of the claims they made against the Bank, including their claim alleging that the loan violated the requirements of section 50. See Tex. Const. art. XVI, § 50(a)(6).
On this record, the trial court did not err when it concluded that the Harts could have advanced all of the constitutional claims they made in this suit claiming that the loan violated the requirements of section 50. See Howe, 913 F.2d at 1144. We conclude that the summary judgment evidence before the trial court sufficiently demonstrated that the suit between the parties in federal court, Civil Action Number 4:13-CV-578, and this suit, Cause Number 14-06-06396, both involved "the same nucleus of operative facts." The issues the Harts raised in both cases addressed whether the Bank's loan violated section 50. See Howe, 913 F.2d at 1144; Walker v. Anderson, 232 S.W.3d 899, 912 (Tex. App.—Dallas 2007, no pet.). We hold the trial court did not err by applying the doctrine of res judicata to prevent the Harts from relitigating whether the home-equity loan violated section 50 of the Texas Constitution. See Eagle Props., 807 S.W.2d at 718; see also Howe, 913 F.2d at 1144.
In a letter that the Harts filed in response to the Bank's arguments, the Harts raised an additional argument, suggesting that because the Bank failed to plead res judicata in its petition, as required by Rule 94 of the Texas Rules of Civil Procedure, the trial court should have refused to consider the Bank's res judicata claim in deciding the Bank's motion. See Tex. R. Civ. P. 94 (listing res judicata as one of the affirmative defenses that must be set forth in a pleading). However, the Harts' complaint that the trial court could not rely on the doctrine of res judicata in deciding the Bank's motion for summary judgment based on a defect in the Bank's petition has no merit. The record shows that the Bank expressly relied on the doctrine of res judicata in its motion for summary judgment, and in their response to the Bank's motion, the Harts never complained that the Bank failed to plead res judicata as an avoidance. See John C. Flood of DC, Inc. v. Supermedia, L.L.C., 408 S.W.3d 645, 655 (Tex. App.—Dallas 2013, pet. denied) ("Unpleaded affirmative defenses can serve as a basis for summary judgment when the defenses are raised in the summary judgment motion and the opposing party does not object to lack of a proper pleading in either a written response to the motion or before rendition of judgment.").
We overrule the Harts' second issue, which asserts the trial court erred by applying the doctrine of res judicata in resolving the Bank's motion for summary judgment. Because the Bank's motion conclusively established that it was entitled to judgment, we hold the trial court did not err when it granted the Bank's motion for summary judgment. Accordingly, the judgment is affirmed.
AFFIRMED.
/s/_________
HOLLIS HORTON
Justice Submitted on June 21, 2016
Opinion Delivered June 29, 2017
Before Kreger, Horton, and Johnson, JJ.