Opinion
CIVIL ACTION NO. 3:99-CV-2318-P
December 19, 2001
MEMORANDUM OPINION AND ORDER
Now before the Court is Plaintiff Interfederal Capital, Inc.'s ("Interfederal") Motion for Partial Summary Judgment and Defendant Flagstar Bank, FSB's ("Flagstar") Cross-Motion for Summary Judgment (Interfederal and Flagstar are referred to collectively herein as the "Parties"). After a careful review of the Parties' briefing, the evidence before the Court, and the applicable law, the Court hereby DENIES Plaintiff Interfederal Capital, Inc.'s Motion for Partial Summary Judgment and GRANTS Defendant's Cross-Motion for Summary Judgment.
FACTS
A. Introduction.
Samuel Mort Zimmerman ("Zimmerman") is the President of Interfederal. (PL's App. at 4.) In 1994, Zimmerman began dating Evie Littlejohn ("Littlejohn"). (Id. at 5.) In 1995, Littlejohn purchased a home in Dallas, Texas. (Id.) In connection with the purchase of her home, Littlejohn executed a first lien note (the "Note") in the amount of eighty-eight thousand dollars ($88,000.00) payable to Specialized Financial Services d/b/a SFM Mortgage. (Id.) The Note was secured by a deed of trust covering the house (the "Deed of Trust"). (Id.) Both the Note and the Deed of Trust (collectively, the "Loan") were assigned to First Security Savings Bank, FSB, which later became Defendant Flagstar. (Compl. ¶ 7.)
Zimmerman and Littlejohn were married in February 1996. (PL's App. at 6.) By the end of 1996, Littlejohn had indicated to Zimmerman that she wanted to end the marriage. (Id.) Accordingly, Littlejohn left Dallas to stay with a relative in Minnesota. (Id.) While in Minnesota, Littlejohn discussed with Zimmerman the possibility of her returning to Dallas. (Id.)
According to Zimmerman, during discussions with Littlejohn regarding her possible return to Dallas, Littlejohn "demanded that the Loan be refinanced." (Id. at 6.) Zimmerman responded by agreeing that "Interfederal would purchase the Loan from Flagstar." (Id.) Interfederal would then hold the Loan so that Littlejohn would no longer have to make regular monthly payments on it. (Id.)
In contrast, Littlejohn contends that during the time she was in Minnesota, Zimmerman volunteered to pay off her Loan with Flagstar in its entirety as a gesture of Zimmerman's desire to resolve their marital problems. (Def.'s App. at 185.) She maintains that she never had any conversation with Zimmerman that the Loan would be transferred to or assumed by Zimmerman or Interfederal. (Id.) Littlejohn further states that she was instructed by Zimmerman to send Flagstar a letter, which he dictated to her and which is included in the summary judgment record, requesting the payoff amount of the Loan. (Id. at 185, 189.) Littlejohn also maintains that she received a letter from Zimmerman on February 6, 1997, which is included in the record and which indicated to her that Zimmerman intended to pay off her entire Loan obligation without any obligation for repayment to him or anyone else, (Id. at 185, 191.) The handwritten letter from Zimmerman to Littlejohn reads as follows: "I am happy to do this and my intentions have always been honorable and I only want to continue to `show good faith' following our Tuesday morning conversation. There are no conditions to my action but I am hoping that this payment will open the door to the possibility of . . . bringing Evie back to Mort." (Def.'s App. at 191 (emphasis in original).)
Zimmerman contends that in order to effect an assignment of the Loan, Zimmerman sent his attorney, James Alexander, a cashier's check made payable to Flagstar for $87,658.99. (Id. at 7, 79.) Alexander then contacted Flagstar to discuss how to get the Loan assigned from Flagstar to Interfederal. (Id. at 79.) During this conversation, Alexander learned that Flagstar did not own the Loan; it was only the servicer of the Loan. (Id.) Alexander was told that the Loan was owned by Federal Home Loan Mortgage Corporation ("Freddie Mac"). (Id.) Upon learning this information, Alexander realized that immediate assignment of the Loan would be impossible — the process would take some time. (Id.)
Alexander explained the situation to Zimmerman, who then instructed Alexander to send the cashier's check to Flagstar, along with instructions that if Flagstar could not make an immediate assignment of the Loan, it should furnish Interfederal with a release of the Loan as a receipt for funds paid on the Loan. (Pl.'s App. at 7-8.) Zimmerman contends that he instructed Alexander to hold the release in his file for an indefinite period of. (Id at 8, 79.) In accordance with Zimmerman's instructions, on February 20, 1997, Alexander sent a cashier's check to Flagstar along with a letter stating that "[i]f you cannot assign the [L]oan to Interfederal Capital, Inc., then in that case, please furnish a release of the Note, Vendor's Lien, and Deed of Trust to Interfederal Capital, Inc." (Id at 79, 84.)
On or about March 26, 1997, Flagstar sent Alexander the Short Form Discharge of Mortgage/Deed of Trust ("Original Release"), which released the Loan and was executed by Flagstar. (Id. at 79-80.) On April 25, 1997, Alexander sent Zimmerman a letter informing him that Alexander was holding the Original Release in his file. (Id. at 80.) According to Zimmerman's affidavit, Zimmerman instructed Alexander to retain the Original Release in his file. (Pl.'s App. at 8, 80.)
Unbeknownst to Zimmerman, Flagstar had sent a letter to Littlejohn on or about February 26, 1997, informing her that the Loan had been paid in full. (Id. at 8; Def.'s App. at 185-86.) Flagstar subsequently sent Littlejohn the original Note marked "Paid in Full." (Def.'s App. at 185-86.) Flagstar also sent Littlejohn a Short Form Discharge of Mortgage/Deed of Trust dated March 26, 1997 (which was the same as the Original Release), that released the Loan. (Id. at 195.) Also unbeknownst to Zimmerman, on July 25, 1997, Littlejohn recorded her release in the Dallas County real property records. (Compl. ¶ 16.)
B. The State Court Action.
In April 1998, Littlejohn learned that certain liens had been placed on her property by Interfederal. (Def.'s App. at 186.) When Interfederal demanded that Littlejohn make payments to Interfederal on the Loan, Littlejohn filed a declaratory judgment action in June 1998 in the 162nd Judicial District Court, Dallas County, Texas (No. DV-98-04911) (the "State Court Action") against Zimmerman and Interfederal. (PL's App. at 9.) Littlejohn's primary claim in the State Court Action was that Littlejohn owed nothing in connection with the Loan. (Id. at 69-75.) Littlejohn asked the Court to declare that there was no valid assignment of the loan from Flagstar to Interfederal. (Id.) Littlejohn also sought a declaration that Interfederal had paid off the Loan, thereby fully cancelling Littlejohn's debt on the Loan. (Id.)
Other Defendants in the State Court Litigation included Daniel A. Zimmerman and Judy Prieto, who were Zimmerman's children and officers of Interfederal. (Findings of Fact and Concl. of Law at 1-2; PL's Resp. to Def.'s Cross-Mot. for Summ. J. at 3.)
In the State Court Action, Interfederal and Zimmerman, who were both defendants, filed counterclaims against Littlejohn contending that Interfederal obtained a valid assignment of the Note and Deed of Trust from Flagstar and that Littlejohn had been in default on her payment obligations to Interfederal under the "assigned" note. (Def.'s App. at 228.)
C. The Federal Action.
On October 12, 1999, Interfederal filed the instant action against Flagstar for allegedly mishandling the attempted purchase of the Loan by Interfederal. (Compl. ¶ 20.) Littlejohn, Zimmerman, and the other defendants in the State Court Action are not parties to this case. Interfederal contends that it had entered into a contract with Flagstar for the purchase of the Loan and that Flagstar breached the contract and acted negligently by sending Littlejohn a release of the Loan. (Id. ¶¶ 20, 24-29.) interfederal contends it was damaged because Flagstar's alleged mishandling of Zimmerman's payment caused Littlejohn to be able to sue Zimmerman and argue that she owed nothing on the Loan. (Id. ¶¶ 20, 30-32.)
D. The Outcome of the State Case.
On October 9, 2000, Judge Bill Rhea, who presided over the State Court Action, issued a Partial Summary Judgment in favor of Littlejohn. Specifically, the court held that Zimmerman's/Interfederal's payment of $87,658.99 to Flagstar discharged the Note and extinguished the Deed of Trust and that Littlejohn was the owner of the residence. (See Partial Summ. J. of Oct. 9, 2000). The court further held that the filings on which Interfederal asserted its lien on the property were null and void and that certain other liens on the property were null and void. (Id.) Finally, the court held that the assignment of the Note and Deed of Trust by Flagstar to Interfederal was invalid. (Id.) On January 16, 2001, a bench trial was held concerning damages in the State Court Litigation and the court issued its Findings of Fact and Conclusions of Law on March 6, 2001. (See Findings of Fact and Concl. of Law, Mar. 6, 2001.)
II. DISCUSSION
A. Summary Judgment Standard.
Summary Judgment shall be rendered when the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). All evidence and the inferences to be drawn therefrom must be viewed in the light most favorable to the party opposing the motion. United States v. Diebold. Inc., 369 U.S. 654, 655 (1962) The party defending against the motion for summary judgment cannot defeat the motion unless he provides specific facts that show the case presents a genuine issue of material fact, such that a jury might return a verdict in his favor.Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 256-57 (1986).
Once the moving party has made an initial showing, the party opposing the motion must come forward with competent summary judgment evidence of the existence of a genuine fact issue. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Mere assertions of a factual dispute unsupported by probative evidence will not prevent summary judgment. Anderson, 477 U.S. at 248-50; Abbot v. Equity Group. Inc., 2 F.3d 613, 619 (5th Cir. 1993). In other words, conclusory statements, speculation and unsubstantiated assertions will not suffice to defeat a motion for summary judgment. Douglass v. United Servs. Auto. Ass'n., 79 F.3d 1415, 1429 (5th Cir. 1996) (en banc). If the nonmoving party fails to make a showing sufficient to establish the existence of an element essential to is case, and on which he bears the burden of proof at trial, summary judgment must be granted. Celotex Corp., 477 U.S. at 322-23.
On October 13, 2000, Interfederal, the Plaintiff in this action, filed its Motion for Partial Summary Judgment seeking summary judgment of its breach of contract claim against Flagstar. (See Compl.) In order to prevail on its contract claim, Interfederal must establish that there is a valid and enforceable contract between Interfederal and Flagstar and a breach of that alleged contract. If Flagstar is able to establish a fact issue as to the existence of a valid and enforceable contract between Interfederal and Flagstar or the breach of that alleged contract, Interfederal will not prevail on its motion.
Flagstar has also filed a summary judgment motion in this case, seeking summary judgment on Interfederal's entire case against Flagstar, which includes a breach of contract claim and a negligence claim. In order to prevail on its motion, Flagstar must establish either that there was no contract between the Parties or no breach of the contract and that Flagstar did not act negligently with respect to its duty, if any, to Interfederal. If Interfederal is able to establish that a fact issue exists as to any of these issues, summary judgment in favor of Flagstar will be denied with respect to that issue or issues.
B. Motions for Summary Judgment on Interfederal's Breach of Contract Claim.
The Court does not accept Flagstar's argument that Interfederal's claims are barred by collateral estoppel. (See Def.'s Mot. for Summ. J. at 2-6, 30-31.) Contrary to Flagstar's position, the state court's order summarily granting Flagstar's partial summary judgment motion appears only to have determined the legal effect of Interfederal's payment to Flagstar. (Def.'s App. at 231-233.) However, the issue of the legal effect of Interfederal's payment to Flagstar is quite different from the issues here — whether Flagstar's conduct constituted a breach of an agreement and whether Flagstar's conduct was tortious.
Before the Court can determine whether a contract has been breached, Interfederal has the burden of establishing the existence of a valid contract between the Parties. For a valid contract to exist, there must be mutual assent between the parties to the contract — whereby the parties have agreed to the same bargain at the same time. See Turner-Bass Assocs. of Tyler v. Williamson, 932 S.W.2d 219, 222 (Tex.App. — Tyler 1996, writ denied); Restatement (Second) Contract § 17 (1979). The process by which parties reach this meeting of the minds generally is through some form of negotiation, during which, at some point, one party makes a proposal (an offer) and the other agrees to it (an acceptance).See Turner-Bass Assocs. of Tyler, 932 S.W.2d at 222; Restatement (Second) Contract § 22 cmt. a. In Texas, to form a binding contract the following elements must be in place: (1) an offer; (2) an acceptance in strict compliance with the terms of the offer; (3) a meeting of the minds; (4) each party's consent to the terms; and (5) execution and delivery of the contract with the intent that it be mutual and binding. Komet v. Graves, 40 S.W.3d 596, 600 (Tex.App.-San Antonio 2001, no writ).
According to Texas law, an offer must be so definite and unambiguous that the promises and performances to be rendered by each party are reasonably certain. Daugherty v. Missouri-Kansas-Texas R. Co. of Tex., 221 S.W.2d 928, 931 (Tex.Civ.App.-Austin 1949); 14 Tex. Jur.3d Contracts § 65 (1997). Without this certainty, there can be no meeting of the minds and no acceptance. Perren v. Baker Hotel of Dallas, 228 S.W.2d 311, 316 (Tex.Civ.App.-Waco 1950); 14 Tex. Jur.3d Contracts § 65.
In this case, Interfederal contends that Alexander's letter to Flagstar dated February 20, 1997 constituted an offer by Interfederal to purchase the Loan from Flagstar. (PL's Mot. for Summ. J. at 3-4.) In its briefing, Interfederal contends that Alexander "made an offer to Flagstar on behalf of Interfederal to purchase the Loan. Specifically, Alexander sent Flagstar a letter dated February 20, 1997 that enclosed the $87,658.99 cashier's check, and stated that `[i]f you cannot assign the Loan to Interfederal Capital, Inc., then in that case, please furnish a full release of the [Loan] to Interfederal Capital, Inc . . ." (PL's Mot. for Summ. J. at 4; PL's App. at 84 (emphasis in original).) This letter does not constitute a valid offer for several reasons. First, Alexander's letter to Flagstar contains within its four corners nothing more than some ambiguous instructions on how Interfederal expects Flagstar to process Interfederal's payment — it is not an offer to enter into a binding contract. (See PL's App. at 84.) The letter merely instructs Flagstar to apply the $87,658.99 payment to Loan No. 950012740 and to furnish a "full release" of the Loan to Interfederal. (Id.)
Second, the letter does not contain any expression of an intention on the part of Interfederal to enter into a binding agreement. For a communication to be an offer, it must create a reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms. See 4 Bus. Com. Litig. Fed. Cts. § 57.4 (West 1998); 14 Tex. Jur.3d § 65. Alexander, who was the scrivener of the letter and a practicing attorney for over fifty years — and who presumably knows how to draft an offer, did not express in the letter to Flagstar that Interfederal desired or intended to enter into any sort of legally binding agreement. (See Def.'s App. at 91; Pl.'s App. at 84.) Rather, Alexander's letter merely contains ambiguous instruction to Flagstar on how to process the cashier's check that was delivered by Interfederal.
For an offer to be valid, the promises and performances to be rendered by each party must be described with certainty therein. See Daugherty, 221 S.W.2d at 931. Alexander's letter contains no description of any consideration to be given in exchange for Flagstar's performance of providing a release of the Loan. The mere fact that the transaction involves money does not mean there is valid consideration. Alexander's letter cannot constitute an offer due to the complete absence of this essential term.
Even if Alexander's letter did constitute an offer to enter into a contract, the terms of the offer are so vague and ambiguous, and the performances required of the parties is so uncertain, that there could be no meeting of the minds, and thus no acceptance. See Daugherty, 221 S.W.2d at 931; Perren, 228 S.W.2d at 316. "In determining whether there was a `meeting of the minds,' and therefore an offer and acceptance, courts use an objective standard, considering what the parties did and said, not their subjective states of mind."Komet v. Graves, 40 S.W.3d 596, 601 (Tex.App.-San Antonio 2001). Courts look to the communications between the parties, as well as the acts and circumstances surrounding the communications, in making this determination. Id.
In its briefing, Interfederal insists that it "made an offer to Flagstar on behalf of Interfederal to purchase the Loan." (Pl.'s Br. at 4 (emphasis in original).) Yet, Interfederal's "offer" to Flagstar could not have been to "` purchase the Loan" because Interfederal knew that the Loan was not Flagstar's to sell; rather, it belonged to Freddie Mac. (See Pl.'s App. at 7, 79.)
Further, Interfederal insists that Flagstar's obligations included the obligations to (1) send only one release document to Interfederal and (2) not send any release document to Littlejohn. (PL's Mot. at 5-6.) These obligations, had they existed, would have constituted the essence of Flagstar's performance and therefore should have been included in any purported offer made to Flagstar. Yet they were not. Instead, Alexander's letter instructed Flagstar to provide a "full release" of the Loan to Interfederal, yet failed to explain what a "full release" was or how Flagstar was expected to effectuate a "full release." There is also no evidence in the record or argument in the Parties' briefing that establishes that Interfederal or its agents or representatives discussed with Flagstar its alleged performance obligations in connection with the alleged offer. The record merely establishes that Interfederal's conversation with Flagstar (through Alexander) consisted of discussion concerning Flagstar's status as a servicer, not an owner, of the Loan — nothing more. (PL's App. at 79.) Because the performances to be rendered by the Parties pursuant to this alleged offer are far from certain, Alexander's alleged offer could not have resulted in a meeting of the minds, and Flagstar could not have given its acceptance.
Because the evidence and the applicable law establishes that Interfederal did not make an legally enforceable offer, there can be no legally enforceable contract. Therefore, Interfederal's Motion for Partial Summary Judgment is DENIED and Flagstar's Motion for Summary Judgment is GRANTED with respect to Interfederal's breach of contract claim.
C. Flagstar's Motion for Summary Judgment on Interfederal's Negligence Claim.
As stated supra note 3, the Court finds that none of Interfederal's claims are barred by the doctrine of collateral estoppel.
In its motion, Flagstar contends that Interfederal's negligence claim fails as a matter of law because Interfederal's claim sounds only in contract (if at all), not in tort. (Def.'s Cross-Mot. for Summ. J. at 31-33.) Relying solely on Southwestern Bell Telephone Co. v. DeLanney, 809 S.W.2d 493, 494 (Tex, 1991), Flagstar argues that Interfederal's negligence claim against Flagstar is not actionable because the conduct of which Flagstar is accused gives rise to liability only because it allegedly breaches an agreement between the parties. (Id.) Flagstar maintains that Interfederal's tort claim is based on the theory that Flagstar was negligent because it engaged in conduct ( i.e. notifying Littlejohn that the note had been paid in full) that was contrary to the terms of the Parties' alleged agreement to release the note to Interfederal, and that therefore Flagstar's negligence action cannot stand. (See id. at 32 (citing Compl. ¶¶ 30-32).)
Although the principles of tort and contract causes of action are well settled, it is often difficult to determine the type of action that is brought. Jim Waiter Homes. Inc. v. Reed, 711 S.W.2d 617, 617 (Tex. 1986). To do so courts must look to the substance of the cause of action rather than the manner in which it was pled. Id at 617-18; River Consulting, Inc. v. Sullivan, 848 S.W.2d 165, 169 (Tex.App. — Houston [1st Dist] 1992, writ denied).
Tort obligations are those imposed by law when a person breaches a duty that is independent from promises made between the parties to a contract; contractual obligations are those that result from an agreement between parties, which is breached. DeLanney, 809 S.W.2d at 494; River Consulting. Inc., 848 S.W.2d at 169. If the defendant's conduct would give rise to liability only because it breaches the parties' agreement, the plaintiff's claim ordinarily sounds only in contract. DeLanney, 809 S.W.2d at 494; River Consulting, Inc., 848 S.W.2d at 169. If the defendant's conduct would give rise to liability independently of the fact that a contract exists between the parties, the plaintiff's claim may also sound in tort. DeLanney, 809 S.W.2d at 494.
Interfederal argues that the law imposes tort obligations on Flagstar that are distinct from those imposed by the Parties' alleged contract. Interfederal seeks to establish that the law imposes an obligation on Flagstar, as a reasonably prudent financial institution, to send one, and only one, release document to Interfederal and not to destroy the value of the Loan by delivering the release documents to anyone other than Interfederal. (See Pl.'s Resp. to Def.'s Cross-Mot. for Summ. J. at 22.)
In support of this argument, Interfederal relies solely on the affidavit of Bob Butler, the President of the North Dallas Branch of First Merchantile Bank, who explains that in a "typical refinancing transaction," it is incumbent on the holding lender to provide one and only one release to the party who made the payment. (See id.: Pl.'s App. at 145-48.) Butler then concludes that the transaction between Flagstar and Interfederal was a "typical refinancing transaction" because Interfederal exchanged the payoff amount of $87,658.99 for an original release to be held by Interfederal "until Littlejohn executed new loan documents in favor of Interfederal." (Pl.'s App. at 146.)
There is no evidence in the record to support Butler's conclusion that this was a typical refinancing transaction. Even if the Court considers Butler's testimony, the evidence before the Court does not support Interfederal's position that the transaction between Flagstar and Interfederal was supposed to be a refinancing transaction or that Flagstar was aware that this was payment for a refinancing. There is no evidence in the record to establish that there was any conversation or communication with Flagstar to put Flagstar on notice that it owed Interfederal a legal duty to treat this transaction as a typical refinancing. Just as the letter from Alexander to Flagstar was insufficient to constitute an enforceable offer, the letter, with its scant set of instructions, is insufficient to put Flagstar on notice that this was supposed to be a refinancing transaction. The instructions contained in the letter are insufficient to give rise to a legal duty to send one, and only one, release to Interfederal. Furthermore, there is no evidence that Littlejohn had any intention of executing new loan documents in favor of Interfederal. Because the evidence before the Court does not establish that Flagstar owed Interfederal a legal duty to send one release to Interfederal only, Flagstar's Cross-Motion for Summary Judgment is hereby GRANTED with respect to Interfederal's negligence cause of action.
THERFORE, as stated herein, Interfederal's Motion for Partial Summary Judgment is hereby DENIED, Flagstar's Cross-Motion for Summary Judgment is hereby GRANTED, and Interfederal's Complaint is hereby DISMISSED, with prejudice, in its entirety.
SO ORDERED.