Opinion
No. 07-19-00177-CV
08-03-2020
KERRY KNORPP AND VON DELL KNORPP, APPELLANTS v. CIT GROUP/CONSUMER FINANCE, INC., now known as VERICREST FINANCIAL, INC., APPELLEE
On Appeal from the 320th District Court of Potter County, Texas
Trial Court No. 97-712-D , Honorable Pamela Sirmon, Presiding
MEMORANDUM OPINION
Before QUINN, C.J., and PARKER and DOSS, JJ.
Kerry Knorpp and Von Dell Knorpp appeal from a final summary judgment permitting The Bank of New York Mellon, as Trustee for CIT Home Equity Loan Trust 2003-1, to conduct a judicial foreclose on their home. The Knorpps had sued Mellon, alleging various causes of action emanating from the home equity loan extended to them and subsequently acquired by Mellon. So too had they sought to adjudicate the validity of the lien underlying the loan. Mellon counterclaimed by seeking to foreclose on that encumbrance. Apparently, the Knorpps defaulted on the loan over ten years ago and initiated suit, in 2009, to contest Mellon's right to foreclose on the home. Attorneys came and went over the years. Furthermore, motions for summary judgment were filed by Mellon in 2013, 2016, and 2018. The latter, and the trial court's decision to grant it, form the basis of this appeal.
They actually sued Mellon's predecessor, CIT Group/Consumer Finance Inc. For purposes of this appeal, we use only the name Mellon in reference to actions undertaken by it and its predecessor.
Several issues pend for our review. They encompass the validity of Mellon's lien under the Texas Constitution, the existence of fact questions pretermitting summary judgment, and the trial court's decision to strike the Knorpps' amended petition. We reverse in part.
Amended Petition
We begin our analysis with the amended petition. Without leave of the trial court, the Knorpps filed it on January 22, 2019. That was two days before the scheduled January 24, 2019 hearing on the summary judgment motion. Mellon moved to strike the pleading as tardy; that is, it contended the document should have been filed no later than seven days before the scheduled hearing date. Moreover, the substantive aspect of its complaint lay in the allegations proffered by the Knorpps regarding the constitutionality of the lien. They asserted within the amended pleading that the lien was void because it failed to comply with various aspects of article XVI, § 50 of the Texas Constitution relating to home equity loans. This and other allegations in the amended pleading allegedly added new claims or affirmative defenses constituting new substantive matter reshaping the nature of the case. As Mellon argued within its appellee's brief, "[t]he Bank could not have anticipated that mere days before the summary judgment hearing, the Knorpps would . . . assert a violation of section 50(a)(6)(B)." The Knorpps believe that the trial court erred in granting the motion to strike because amendments should be liberally granted unless an opposing party established surprise or prejudice, which Mellon allegedly did not. We agree.
Whether a trial court erred in granting or denying a motion to strike pleadings is reviewed under the standard of abused discretion. Signal Peak Enters. of Tex., Inc. v. Bettina Invs., Inc., 138 S.W.3d 915, 921 (Tex. App.—Dallas 2004, pet. struck); see Advanced Messaging Wireless, Inc. v. Campus Design, Inc., 190 S.W.3d 66, 72 (Tex. App.—Amarillo 2005, no pet.) (stating that the decision of the trial court in allowing an amended pleading will not be disturbed on appeal unless the record shows a clear abuse of discretion). Such an abuse occurs when the trial court acts without reference to any guiding rules and principles or when it acts arbitrarily and unreasonably. In re Estate of Bryant, No. 07-18-00429-CV, 2020 Tex. App. LEXIS 2131, at *26 (Tex. App.—Amarillo Mar. 11, 2020, no pet.) (mem. op.).
Next, parties may amend their pleadings "at such time as not to operate as a surprise to the opposite party." TEX. R. CIV. P. 63. Yet, any pleading offered for filing within seven days of the trial date shall be filed only after leave is obtained, which leave "shall be granted . . . unless there is a showing that such filing will operate as a surprise to the opposite party." Id. A summary judgment hearing is considered a trial for purposes of Rule 63. Goswami v. Metropolitan Sav. & Loan Ass'n, 751 S.W.2d 487, 490 (Tex. 1988). Furthermore, we interpreted Rule 63 as meaning that "the court had no discretion to refuse the amendment unless it was a surprise," even when the amendment was late and unaccompanied by a motion for leave to file it. In re Marriage of Brown, 870 S.W.2d 600, 603 (Tex. App.—Amarillo 1993, writ denied); accord Resolution Trust Corp. v. Cook, 840 S.W.2d 42, 46 (Tex. App.—Amarillo 1992, writ denied) (stating that "a trial court has no discretion to refuse an amendment unless the opposing party presents evidence of surprise or prejudice, or the amendment contains the assertion of a new cause of action or defense and, thus, is prejudicial on its face, and the opposing party objects to the amendment"). The burden to establish such surprise or prejudice lies with the party opposing amendment. Resolution Trust Corp. v. Cook, 840 S.W.2d at 46.
So, under the standard of review, the guiding rules and principles with which the trial court's decision must comport relate to surprise and prejudice and whether Mellon illustrated same. If it did not, then granting the motion to strike and thereby denying the Knorpps leave to amend would be an instance of abused discretion. We turn to the record now.
According to the record before us, the trial court held a live hearing on both the motion to strike and motion for summary judgment. Concerning the former, Mellon alluded to the changes between the Knorpps' original and amended pleadings. One cannot deny that the Knorpps' original petition was rather obscure in nature. They generally complained of the 1) misapplication of payments, 2) amount owed, and 3) erroneous assessment of fees and costs. These complaints were then used to underlie claims of fraud, breached contract, unfair debt collection efforts, usury, and for declaratory relief regarding the amount owed. Comparing that pleading with its amended version reveals that the latter did include information and allegations omitted from the former. First, it combined the causes of action with affirmative defenses to Mellon's counterclaim for foreclosure. Second, though the causes of action generally remained the same, they were more fully explained or, as argued by the Knorpps, "fleshed-out." However, two new categories of claims were added, waiver and estoppel.
Yet, their estoppel claim was founded upon the alleged assessment of "erroneous and unreasonable charges," and the Knorpps first complained of such charges or improper fees in their original petition. Thus, the alleged circumstances underlying it were made known early and required no additional development. The Knorpps were merely attempting to use the same facts to contrive one additional claim. That hardly constituted surprise.
As for waiver, it was based on Mellon's purported failure to supply the Knorpps with a copy of the loan application and final, executed loan documents. Furthermore, counsel for Mellon remarked to the trial court at the hearing that " in the original complaint , there was one snippet that the loan violated the constitution, simply because the Plaintiffs were not provided the documents at closing." (Emphasis added). In so remarking, Mellon effectively acknowledged that the substance of the waiver claim was not new. That, in turn negates a suggestion of surprise or prejudice.
As for the "affirmative defenses" mentioned in the amended document, they were not alleged in a prior pleading filed by the Knorpps. They also pertained to article XVI, § 50 of the Texas Constitution. That article and section dealt with home equity loans and the circumstances under which their grant may result in an enforceable lien upon one's homestead. The two purported transgressions concerned prohibitions against 1) the loan and other indebtedness secured by the home exceeding 80 percent of the fair market value of the realty and 2) the imposition of certain fees exceeding three percent of the original principal amount of the loan. To Mellon, these were the "game changer, because at this juncture, if they're allowed to amend, and they prevail . . . then they're attempting to invalidate the lien to get a free house, and prevent us from foreclosing." And, being in the nature of confession and avoidance, the financial entity continued, they had to be affirmatively pled but were not.
Assuming arguendo the constitutional topics were in the nature of affirmative defenses, the Knorpps actually were attempting to affirmatively plead them via the amended pleading. More importantly, though, that was not the first time they were broached during the litigation. The Knorpps earlier had relied on those very constitutional provisions to thwart foreclosure. It did so in July of 2016 when responding to Mellon's April 2016 motion for summary judgment. The provisions having been broached about 2.5 years earlier most definitively contradicts the contention that their reiteration 2.5 years later inflicted surprise and prejudice. They may be a "game changer" given their potential ramifications but finding their effects unsatisfactory is not the equivalent of surprise and prejudice. The constitutional provisions were interjected into the litigation years before the January 24, 2019 summary judgment hearing, and Mellon had opportunity to prepare for their impact during that period.
Combining both a petition and answer in one pleading may have been somewhat distracting. That may have led one to misinterpret the nature of the two distinctive pleadings being encompassed within the one document. Indeed, an aspect of the amended pleading sought affirmative relief arising from particular causes of action. A different aspect purported to defend against relief affirmatively sought by Mellon and likened to an answer to the entity's counterclaim. But, irrespective of being included with causes of action in one amended pleading, the affirmative defenses were made known to Mellon. Thus, under the circumstances at bar, any claim of surprise and prejudice regarding their inclusion in what can be characterized as the Knorpps' first formal answer to the counterclaim two days before the summary judgment hearing was unfounded. As the Honorable Chief Justice Charles Reynolds said years ago, a trial court has no discretion to refuse a belated amendment unless it was a surprise, even if unaccompanied by a motion for leave to amend. In re Marriage of Brown, supra. Surprise and prejudice being required but absent here, we conclude that the trial court erred in striking the Knorpps' amended pleading.
Our review of the record uncovered no other answer having been filed to the counterclaim.
Summary Judgment
We next consider the contention that the trial court erred in granting summary judgment. The Knorpps first line of attack concerns the aforementioned constitutional provisions. They contend that the summary judgment evidence raised a material issue of fact regarding the validity of Mellon's lien. Allegedly, sufficient evidence illustrated that the loan in question, when coupled with other loans secured by liens on the property, exceeded the 80% cap imposed by our State Constitution. We agree that it created a material issue of fact on the matter.
Per our Texas Constitution, one's homestead generally is protected from forced sale for the payment of debts. TEX. CONST. art. XVI, § 50(a). There are exceptions, though. Forced sale may result from an extension of credit that is, among other things, 1) "secured by a voluntary lien on the homestead created under a written agreement with the consent of each owner and each owner's spouse" and 2) "of a principal amount that when added to the aggregate total of the outstanding principal balances of all other indebtedness secured by valid encumbrances of record against the homestead does not exceed 80 percent of the fair market value of the homestead on the date the extension of credit is made " TEX. CONST. art. XVI, § 50(a)(6)(A) & (B). Furthermore, a lien securing such an extension of credit (i.e. a home equity loan) "is not valid before the defect is cured." Wood v. HSBC Bank, N.A., 505 S.W.3d 542, 547 (Tex. 2016); see TEX. CONST. art. XVI, § 50(c) (stating that no mortgage, trust deed, or other lien on the homestead shall ever be valid unless it secures a debt described by § 50 of the Texas Constitution).
Here, the summary judgment record depicts that the loan at issue was a home equity loan within the umbrella of art. XVI, § 50(a) of the Constitution. Also, within that record is the affidavit of Kerry Knorpp. In it, he attested that "[a]t the time we obtained a home equity loan" 1) an appraisal listed the fair market value of the property at approximately $180,000, 2) the original principal amount of the home equity loan was $127,184.10, and 3) per his "notes made in May of 2002, there were approximately $244,000.00 in valid encumbrances against the homestead at that time." Construing this information in a light most favorable to the non-movant, we interpret it as evidence illustrating the loan of Mellon exceeded the 80% fair market value cap specified in the Constitution. See Darby v. N. Y. Times Co., No. 07-12-00193-CV, 2014 Tex. App. LEXIS 2197, at *3 (Tex. App.—Amarillo Feb. 26, 2014, pet. denied) (mem. op.) (stating that in reviewing a summary judgment we construe the evidence in a light most favorable to the non-movant and draw reasonable inferences from that evidence in favor of the non-movant). Consequently, we agree that it raises a material issue of fact regarding whether the 80% cap was exceeded.
Mellon responded to this circumstance by contending that "Plaintiffs' prior lien, along with other encumbrances, were paid off at closing and released thereafter"; consequently, there was no violation of the cap. See Bank of N. Y. Mellon v. Daryapayma, 457 S.W.3d 618, 621 (Tex. App.—Dallas 2015, pet. denied) (stating that "[b]ecause the parties agreed the home equity loan was made, in large part, to pay off the existing mortgages, the loan documents reflect this agreement, and the existing mortgages were paid off, the balances of those existing mortgages should not be included when determining whether the amount of the home equity loan exceeds eighty percent of the fair market value of the homestead"). Yet, it cited us no evidence of record to support its proposition, and we have no duty to peruse the record sua sponte for such evidence. Nelson v. Martinez, No. 07-15-00430-CV, 2016 Tex. App. LEXIS 7421, at *18 (Tex. App.—Amarillo July 12, 2016, pet. denied) (mem. op.). On the other hand, Knorpp also attested that "[w]e were obligated to use proceeds of the loan [to] repay debts that were not secured by the homestead including a state court judgment, storage bill, hospital bill, and funeral expenses." At the very least that tends not only to contradict Mellon's position but also create an issue of fact regarding whether the loan was used to satisfy pre-existing liens.
Mellon also argued that the purported constitutional violation was waived because the Knorpps failed to raise it through any pleading. Yet, they did so raise it in the amended pleading discussed above, and we concluded that it was error to strike that pleading. So, it remains our position that a material issue of fact existed pretermitting summary judgment allowing foreclosure.
The Knorpps also question the manner in which their payments were applied. The deed of trust required that payments be applied in the following order: accrued interest, principle on the note, and then "other charges." Evidence indicated that Mellon applied portions of various payments to reduce "other charges." The latter consisted of the cost of hazard insurance Mellon acquired after the Knorpps allowed the insurance to lapse. And, at the time those "other charges" were being paid, there remained outstanding principle and interest attributable to the Knorpps' default in payments. This circumstance "artificially inflated the balance due" and entitled them to a declaratory judgment specifying the amount due, according to the Knorpps. Yet, they made no attempt to explain how the balance due was "artificially inflated." Rather, their contention is merely conclusory. Thus, the issue was inadequately briefed and, therefore, waived. See Royal v. State, No. 07-19-00321-CR, 2020 Tex. App. LEXIS 5318, at *3-4 (Tex. App.—Amarillo July 14, 2020, no pet. h.) (mem. op., not designated for publication) (stating that an appellant must support his complaint with appropriate citation to the record, authority, and substantive analysis to avoid waiving it). Thus, we cannot say that the trial court erred in granting summary judgment on the request for declaratory relief.
Next, the Knorpps contend that the trial court erred in granting summary judgment upon their unfair debt collection cause of action. This was purportedly so given the evidence of misrepresentations made by Mellon in attempting to collect the debt. See TEX. FIN. CODE ANN. § 392.304(a)(8) (West 2016) (stating that a debt collector may not use a fraudulent, deceptive, or misleading representation that employs misrepresenting the character, extent, or amount of a consumer debt or its status in a judicial proceeding). The sole misrepresentations expounded upon consisted of the assessment of an alleged improper "fee" of approximately $6,000 and the alleged accusation that the Knorpps would be liable personally for the debt. Regarding the former, we were cited to no evidence indicating the purpose of the $6,000 fee. Nor did they attempt to explain why it was improper. Instead, the Knorpps simply argued that it was assessed "without explanation and without authority under the Deed of Trust and Note" and, therefore, constituted a misrepresentation. The argument being accompanied by no legal authority supporting it, we deem it inadequately briefed. Moreover, the burden lay with them to present evidence supporting the contention that the fee was unauthorized under the deed of trust. In that regard, we were cited to no provision in the deed stating that a fee is unauthorized simply because it is unexplained. Short of such a clause, a fee must be shown to be unauthorized through evidence of its unauthorization. Thus, the Knorpps failed to illustrate that the fee or its assessment constituted a misrepresentation in some way.
As for the accusation about personal liability, it is founded upon the indebtedness being nonrecourse and Mellon representing in a letter that the Knorpps may be personally liable for any deficiency. Omitted from their contention though is the remainder of the sentence within the letter upon which they rely. It alludes to them being personally liable "unless previously discharged in bankruptcy or otherwise released from liability." As can be seen, the accusation concerning personal liability was conditional and allowed for the very circumstance at bar. The circumstance to which we allude is the nonrecourse nature of the loan. So, in actuality, they were told that they would be liable if not otherwise released and they were otherwise released. We find nothing misrepresentative in the statement at issue.
The Knorpps also question whether the trial court erred in rejecting their unfair debt collection claim by mistakenly concluding that only economic damages could be recovered. We need not address this given that the purported misrepresentations underlying that cause of action did not warrant reversal of the summary judgment. We need not address the question of damages if a violation was not illustrated.
Having addressed the issues necessary for the disposition of this appeal, we reverse the trial court's summary judgment only to the extent that it found the realty and improvements described in its judgment were subject to a valid lien and foreclosure in compliance with art. XVI, § 50(a) of the Texas Constitution. In all other respects, the summary judgment is affirmed. We remand the cause to the trial court for further proceedings.
Brian Quinn
Chief Justice