Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_10-cv-00901/USCOURTS-azd-2_10-cv-00901-4/pdf.json

Nature of Suit Code: 371
Nature of Suit: Truth in Lending
Cause of Action: 15:1601 Truth in Lending

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Steve G. Thomas, 

Plaintiff, 

vs.

Wells Fargo Bank, National Association

dba Wells Fargo Home Mortgage, et al., 

Defendants. 

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No. CV-10-901-PHX-GMS

ORDER

Pending before the Court are Defendant Wells Fargo Bank, N.A.’s Motion for

Summary Judgment (Doc. 68) and Plaintiff’s Motion for Partial Summary Judgment (Doc.

71). Wells Fargo’s summary judgment motion is granted in part and denied in part. Plaintiff’s

summary judgment motion is denied. 

BACKGROUND

In September 2006, Plaintiff Steve G. Thomas purchased a home at 3644 East Maffeo

Road, Phoenix, Arizona (the “Property”) for $900,000. Plaintiff financed the purchase with

loans from Defendant Wells Fargo Bank, N.A. through an arrangement called an “80-10-10.”

(Doc. 69-1, Ex. 1 at ¶ 5). Through the 80-10-10 arrangement, 80 percent of the purchase

price was financed by Wells Fargo through a purchase money first mortgage loan, 10 percent

was financed by Wells Fargo through a purchase money second mortgage loan, and Plaintiff

paid the remaining 10 percent of the purchase price. (Id.). In other words, Plaintiff borrowed

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1

 Wells Fargo has produced an affidavit of Jeff Borden, Plaintiff’s Home Mortgage

Consultant, which states that the $85,000 was withheld from Plaintiff’s first loan. (Doc. 69-1,

Ex. 1 at ¶ 7). Plaintiff contends that the second mortgage loan was the source of the $85,000.

(Doc. 1). Plaintiff has not produced any evidence, however, that this is the case. The top left

corner of the Escrow Agreement bears the numbers “12061.” (Doc. 69-1, Ex. 1-K). These

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$720,00 through the first mortgage loan and $90,000 through the second mortgage loan, for

a total of $810,000 in borrowed funds. Plaintiff then paid the remaining $90,000 of the

purchase price, plus $14,983 in closing costs. (Doc. 69-1, Ex. 1-G at lines 103, 201, 202, 205,

303, 506). 

Plaintiff’s $720,000 first mortgage loan provided for a 30-year term of repayment at

a fixed rate of interest. (Doc. 69, ¶ 7; Doc. 86, ¶ 7). For the first ten years, Plaintiff’s

payments were interest only; thereafter, he was required to pay both principal and interest,

amortized over the remaining 20-year period. (Id.). In connection with the first mortgage

loan, Plaintiff signed a promissory note and a deed of trust. (Doc. 71, Exs. B, C). The

promissory note states that Plaintiff has “the right to make payments of Principal at any time

before they are due” and that upon making such a prepayment Plaintiff “will tell the Note

Holder in writing that [he is] doing so.” (Doc. 71, Ex. B). The deed of trust lays out an order

of priority under which Plaintiff’s payments are to be applied to his loans:

[A]ll payments accepted and applied by Lender shall be applied

in the following order of priority: (a) interest due under the

Note; (b) principal due under the Note; (c) amounts due under

Section 3. Such payments shall be applied to each Periodic

Payment in the order in which it became due. Any remaining

amounts shall be applied first to late charges, second to any

other amounts due under this Security Instrument, and then to

reduce the principal balance of the Note.

(Doc. 71, Ex. C). 

When Plaintiff purchased the Property it was new, and various improvements,

including landscaping, decking, and installation of a barbeque grill and firepit, had not yet

been completed. Plaintiff wished to make such improvements himself rather than have the

seller make them. Wells Fargo and Plaintiff therefore agreed to place $85,000 of the first

mortgage loan1

 into an escrow account with Defendant First American Title. (Doc. 69-1, Ex.

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are the last five digits of Plaintiff’s first mortgage loan. (See Doc. 69-3, Ex. 6; Doc. 69-1, Ex.

1-B at 000024).

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1 at ¶ 12, Ex. 1-G at line 506, Ex. 1-K). Although the $85,000 was never given directly to

Plaintiff, under the terms of this Escrow Agreement the $85,000 was loaned to Plaintiff in

September along with the funds used to purchase the Property, and then immediately

deposited with First American. (Doc. 69-1, Ex. 1-K at 000138). Although Plaintiff seems to

have immediately started paying interest on the $85,000, (See Doc. 69-3, Ex. 6 at 000234),

his access to these funds was limited by the Escrow Agreement (See Doc. 69-1, Ex. 1-K).

The Escrow Agreement lists four interested parties: 1) the Lender, Wells Fargo; 2) the

Mortgagor; 3) the Closing Agent, First American Title; and 4) the “responsible party”—the

party responsible for making the improvements. (Id.). The agreement does not explicitly

identify this “responsible party,” but the parties agree that the party responsible for making

the improvements was the Mortgagor, Plaintiff Steve Thomas. (Doc. 69, ¶ 18; Doc. 72, ¶ 4).

In other words, under the Escrow Agreement, Plaintiff has the rights and responsibilities of

both the Mortgagor and the “responsible party.” Under the terms of the Escrow Agreement,

First American was to release the $85,000 to Plaintiff once he had completed the

improvements “to [Wells Fargo’s] satisfaction and in accordance with any plans and

specifications for the work.” (Doc. 69-1, Ex. 1-K at ¶ 2.a). The Escrow Agreement further

states that Plaintiff was to complete the improvements “on or before 12/4/06, or such later

date as may be approved by the Lender,” and that Plaintiff “must notify the Lender upon

completion of the work.” (Id.). 

In the event Plaintiff did not satisfactorily complete the improvements by the date

specified or by later Lender-approved deadlines, the Escrow Agreement contemplates two

possible remedies. First,“the Lender is authorized to enter into a contract with any third party

for the completion of the work. The Closing Agent will pay the third party from the escrowed

funds. The remainder, if any, will be released to [Plaintiff].” (Doc. 69-1, Ex. 1-K at ¶ 3.b).

Second, where “the cost to [complete the improvements] is substantially more than the

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2

 Plaintiff contends that by June 2007 he had completed most of the agreed-upon

improvements. (Doc. 86, ¶ 25). The Court has ordered, however, that “[a]s a sanction,

Plaintiff will be unable to offer testimony or evidence as to the improvements he made upon

the property, except those specific improvements as are identified in Exhibit M attached to

Defendant’s Motion (Doc. 50).” (Doc. 59 at 1). To the extent Plaintiff wishes to argue at trial

that he completed a portion of the improvements, he will therefore be limited to those

improvements which he identified in Doc. 50, Exhibit M.

3

 The $85,000 credit reduced Plaintiff’s principal balance on that loan from $717,677

to $632,677. (Doc. 69, ¶ 28; Doc. 86, ¶ 28). Accordingly, Plaintiff’s biweekly interest

payment was reduced from $2,316 to $2,080. (Id.). This biweekly payment was deducted

from Plaintiff’s bank account via automatic withdrawal and Plaintiff claims that he was not

aware that his principal and payments had been reduced until months after the reduction.

(Doc. 72 at ¶¶ 13–14).

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amount escrowed . . . the Lender, at its discretion, may cause the release of the escrowed

funds to [Plaintiff].” (Id. at ¶ 3.d). 

Plaintiff did not complete the improvements by December 4, 2006. (See Doc. 69-1,

Ex. 1-K). Wells Fargo granted Plaintiff a 60-day extension and three additional 30-day

extensions to complete the improvements. (Doc. 69, ¶ 24; Doc. 86, ¶ 24). The last extension

expired on May 7, 2007 without Plaintiff having completed all of the improvements.2

 (Doc.

69-1, Ex. 1 at ¶ 15). On June 5, 2007, Wells Fargo requested via email that First American

send the escrowed funds to Wells Fargo “for principal reduction” on Plaintiff’s loan. (Doc.

69-2, Ex. 4-18).That same day, a First American representative replied that she would send

the funds “as soon as possible,” but asked “[h]as Mr. Thomas been notified that the funds are

being requested to be sent to you!!![?]” (Id.). Wells Fargo responded that “Mr. Jeff Borden

[Plaintiff’s] Home Mortgage Consultant spoke with him and made him aware of what we are

doing.” (Id.). First American forwarded the $85,000 to Wells Fargo, and on June 14, 2007,

Wells Fargo credited the funds to the principal of Plaintiff’s purchase money first mortgage

loan.3

In October 2009, Plaintiff stopped making payments on his loans. (Doc. 69-3, Ex. 6

at 000236). In January 2010, Wells Fargo declared Plaintiff in default and noticed a trustee’s

sale on the property. On June 30, 2010, the Property was sold at a public auction. (Doc. 69-3,

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4

 Plaintiff also attempted to bring a cause of action for an injunction against the

trustee’s sale. (Doc. 1-1, Ex. A). As the Court held, however, in its August 26, 2010 Order,

injunctions are remedies for underlying causes of action and not separate causes of action.

(Doc. 18 at 8). The Court accordingly dismissed this claim to the extent it was pled as a

separate cause of action. (Id.).

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Ex. 7).

On March 23, 2010, Plaintiff filed the instant action in Maricopa County Superior

Court, bringing a breach of contract claim against First American and four claims against

Wells Fargo. (Doc. 1-1, Ex. A). Plaintiff’s claims against Wells Fargo were for breach of

contract, violation of the covenant of good faith and fair dealing, violation of the truth in

lending law, and fraud.4

 On April 23, 2010, the action was removed to this Court. (Doc. 1).

On August 26, 2010, the Court dismissed Plaintiff’s truth in lending claim. (Doc. 18). Wells

Fargo now moves for summary judgment against Plaintiff on his remaining three claims.

(Doc. 68). Plaintiff, meanwhile, moves for summary judgment against Wells Fargo on his

breach of contract claim. (Doc. 71).

DISCUSSION

I. Legal Standard

Summary judgment is appropriate if the evidence, viewed in the light most favorable

to the nonmoving party, demonstrates “that there is no genuine dispute as to any material fact

and the movant is entitled to judgment as a matter of law.” FED.R.CIV.P. 56(a). Substantive

law determines which facts are material and “[o]nly disputes over facts that might affect the

outcome of the suit under the governing law will properly preclude the entry of summary

judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “A fact issue is

genuine ‘if the evidence is such that a reasonable jury could return a verdict for the

nonmoving party.’” Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1061 (9th Cir. 2002)

(quoting Anderson, 477 U.S. at 248). Thus, the nonmoving party must show that the genuine

factual issues “‘can be resolved only by a finder of fact because they may reasonably be

resolved in favor of either party.’” Cal. Architectural Bldg. Prods., Inc. v. Franciscan

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Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir. 1987) (quoting Anderson, 477 U.S. at 250)

(emphasis in original).

II. Legal Analysis

A. Wells Fargo’s Motion for Summary Judgment

Plaintiff has outstanding claims against Wells Fargo for 1) breach of contract, 2)

violation of the covenant of good faith and fair dealing, and 3) fraud and misrepresentation.

Wells Fargo seeks summary judgment against Plaintiff on all three claims. The Court will

address each claim in turn.

1. Breach of Contract

In its Complaint, Plaintiff claims that Wells Fargo breached the terms of the loan

agreement by requesting the $85,000 in escrowed funds from First American and applying

those funds to the principal of Plaintiff’s first mortgage loan. (Doc. 1, Ex. A). A valid claim

for breach of contract requires “the existence of a contract, breach of the contract, and

resulting damages.” Chartone, Inc. v. Bernini, 207 Ariz. 162, 170, 83 P.3d 1103, 1111 (App.

2004) (citing Thunderbird Metallurgical, Inc. v. Ariz. Testing Lab., 5 Ariz. App. 48, 423 P.2d

124 (1967)). 

Wells Fargo contends that Plaintiff has failed to provide any evidence that Wells

Fargo breached the notes, deeds of trust, or Escrow Agreement that make up the contract

between them. (Doc. 68 at 6). Wells Fargo does not dispute that it requested the escrowed

funds from First American and applied them to principal. Wells Fargo nonetheless contends

that it is entitled to summary judgment against Plaintiff on this claim because the Escrow

Agreement “did not require Wells Fargo to tender the escrowed funds to Plaintiff unless and

until the improvements were completed to Wells Fargo’s satisfaction.” (Doc. 68 at 7). 

To be sure, the Escrow Agreement stated that Plaintiff was to complete the

improvements by December 4, 2006, or by “such later date as may be approved by [Wells

Fargo].” (Doc. 69-1, Ex. 1-K at ¶ 2.a). Plaintiff failed to do so. (Doc. 16 at 9 n.4).The terms

of the Escrow Agreement do not, however, authorize Wells Fargo to apply the escrowed

funds back to principal upon such failure. To the contrary, the Escrow Agreement states that

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“[i]f the Lender determines that [Plaintiff] has failed to complete satisfactorily all or any part

of the [improvements] by the date specified . . . the Lender is authorized to enter into a

contract with any third party for the completion of the work. [First American] will pay the

third party from the escrowed funds. The remainder, if any, will be released to [Plaintiff].”

(Doc. 69-1, Ex. 1-K at ¶ 3.b). The only other remedy contemplated by the Agreement is for

Wells Fargo to “cause the release” of the escrowed funds to Plaintiff. (See id. at ¶¶ 3.c–3.d).

In short, Wells Fargo has failed to establish that the terms of the Escrow Agreement

permitted Wells Fargo to apply the $85,000 back to the principal of Plaintiff’s loan. Wells

Fargo is not, therefore, entitled to summary judgment against Plaintiff on the breach of

contract claim.

2. Breach of Covenant of Good Faith and Fair Dealing

Plaintiff has also brought a tort claim against Wells Fargo for breach of the covenant

of good faith and fair dealing. (Doc. 1, ¶¶ 31–36). There is a covenant of good faith and fair

dealing inherent in every contract which requires that “neither party [ ] act to impair the right

of the other to receive the benefits which flow from their agreement or contractual

relationship.” Rawlings v. Apodaca, 151 Ariz. 149, 153–54, 726 P.2d 565, 569–70 (1986).

Rawlings v. Apodaca is a case in which the Arizona Supreme Court dealt with the covenant

of good faith in the context of an insurance contract. Id. In Rawlings, the court held that “one

of the benefits that flow from [an] insurance contract is the insured’s expectation that his

insurance company will not wrongfully deprive him of the very security for which he

bargained.” Id. at 155. “Conduct by the insurer which does destroy the security . . . breaches

the implied covenant of good faith and fair dealing implied in the contract.” Id.

“[T]ort recovery for breach of the implied covenant is well established in actions

brought on insurance contracts but only reluctantly extended to other relationships.” 151

Ariz. at 158. Nonetheless, tort recovery is permitted in the context of a non-insurance

contract “where the contract creates a relationship in which the law implies special duties not

imposed on other contractual relationships. These relationships are characterized by elements

of public interest, adhesion, and fiduciary responsibility.” Id. (internal quotation omitted).

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In other words, Arizona permits the use of tort claims for breach of the implied covenant not

only in insurance contracts, but in all contracts in which the contracting parties have some

special relationship, such as one that is fiduciary in nature. See id. See also Flores v. ADT

Sec. Services, Inc., 2010 WL 6389598, at *4 (D. Ariz. June 28, 2010) (“[A] fiduciary type

duty . . . permits an aggrieved plaintiff to bring an action in tort for breach of the duty of

good faith.”)

Typically, a lender-borrower relationship is not fiduciary in nature. See, e.g.,

McAlister v. Citibank (Arizona), a Subsidiary of Citicorp, 171 Ariz. 207, 212–13, 829 P.2d

1253, 1258–59 (App. 1992) (holding that the fact that a borrower was a long-time customer

of a lender did not, without more, create a fiduciary relationship between the two sufficient

to invoke the implied covenant of good faith); Urias v. PCS Health Sys., 211 Ariz. 81, 118

P.3d 29 (App. 2005) (holding that a debtor/creditor relationship did not create a fiduciary

duty); Valley Natl. Bank of Phoenix v. Elect. Dist. No. 4, 90 Ariz. 306, 316, 367 P.2d 655,

662 (1961) (“[T]he relationship between a Bank and an ordinary depositor, absent any

special agreement, is that of debtor and creditor.”) (emphasis added). In the instant case,

however, the Escrow Agreement to which Wells Fargo and Plaintiff were both parties created

a fiduciary type relationship between them regarding the escrowed funds. See Sveback v.

Clayton Homes, Inc., 2012 WL 465417, at *4 (Ariz. App. February 14, 2012) (“An express

agency relationship is created by an express agreement between the principal and agent.”)

The Escrow Agreement states that “[t]his Agreement is made to . . . cause the Lender

to disburse the mortgage loan to [Plaintiff] prior to the actual completion of the repairs.”

(Doc. 69-1, Ex. 1-K at ¶ 2.a). In other words, under the agreement, Wells Fargo disbursed

the entire loan proceeds to Plaintiff, including the $85,000 for improvements. Under the

terms of the agreement, however, Plaintiff then “deposited with [First American] . . .

$85,000” of the proceeds and authorized the Lender to obtain access to the funds and to use

them in certain ways should Plaintiff not satisfactorily complete the promised improvements.

(Doc. 69-1, Ex. 1-K at ¶¶ 2.a, 3.b, 3.d). For instance, Plaintiff agreed that if he failed to

complete the improvements, Wells Fargo was “authorized to enter into a contract with any

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third party for the completion of the work” and to have First American pay the third party

“from the escrowed funds.” (Id. at ¶ 3.b). Plaintiff further agreed that if the improvements

cost substantially more than the amount escrowed, Wells Fargo was authorized, at its

discretion, to have First American release the entire $85,000 to Plaintiff, thereby “caus[ing]

the automatic termination of the Agreement.” (Id. at ¶ 3.d). 

Wells Fargo calls the $85,000 a “holdback.” Given, however, that these funds had

already been loaned to Plaintiff—who was apparently paying interest on them while they sat

in escrow—these funds were not held back from the loan transaction by Wells Fargo. Rather,

the funds were given to Plaintiff, who then placed them in escrow and gave Wells Fargo the

authorization to manage them for a particular purpose, namely the hiring of a third party to

complete the improvement should Plaintiff fail to complete the improvements himself. The

authorization Plaintiff gave Wells Fargo to use his $85,000 for a particular purpose created

a fiduciary type relationship between Plaintiff and Wells Fargo. See cf. Black’s Law

Dictionary (9th ed. 2009) (defining a “fiduciary” as “[o]ne who must exercise a high standard

of care in managing another’s money or property”).

 This fiduciary type relationship creates tort liability for Wells Fargo if it breached the

Escrow Agreement’s implied covenant of good faith and fair dealing. See Rawlings, 151

Ariz. at 159; Flores, 2010 WL 6389598, at *4. Plaintiff claims that Wells Fargo breached

this covenant by a) failing to inform Plaintiff upon his failure to complete the improvements

that the escrowed funds were being applied to principal, b) suborning Plaintiff to expend

monies on improvements to the property which it knew it would not reimburse him for,

thereby enhancing its security in the loan, c) altering its underwriting requirements relating

to the funding of Plaintiff’s second mortgage loan, and d) changing Plaintiff’s interest only

loan into a principal reducing loan.

Plaintiff has not produced evidence that Wells Fargo knew it would not reimburse him

for any improvements he made, altered its underwriting requirements, or changed the

fundamental nature of his loan. The record does, however, contain evidence that Wells Fargo

failed to inform Plaintiff that the escrowed funds were being applied to principal, and that

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such failure impaired Plaintiff’s right to receive a portion of the escrowed funds. (See Doc.

69-2, Ex. 4-18). When Wells Fargo requested the escrowed funds from First American, a

First American representative asked “[h]as Mr. Thomas been notified that the funds are being

requested to be sent to you!!![?]” (Id.). A Wells Fargo representative responded that “Mr. Jeff

Borden his Home Mortgage Consultant spoke with him and made him aware of what we are

doing. To confirm that I just spoke with Jeff again and he stated, ‘Mr. Thomas is aware that

we are taking the $85,000.00 and applying it to “principal reduction.”’ (Id.). First American

then forwarded the funds, apparently relying on Wells Fargo’s representation that Plaintiff

was aware of the purpose for which the funds were being used. (See id.). 

Plaintiff contends, however, that neither Borden nor any other Wells Fargo

representative informed him that the funds were being removed from the escrow account, and

that he did not discover that the funds had been removed until after the fact. (Doc. 69-2, Ex.

4 at 96:2–97:2, 157:3–14; see also Doc. 72, ¶ 13; Doc. 73). Mr. Borden’s affidavit does not

contend otherwise. (Doc. 69-1, Ex.1). Nor does Wells Fargo provide any other admissible

evidence showing that it contacted Plaintiff regarding its plans to apply the escrowed funds

to principal or that it was entitled to use Plaintiff’s funds in this manner. It appears, therefore,

that Wells Fargo destroyed benefits to which Plaintiff was entitled under the Escrow

Agreement. See Rawlings, 151 Ariz. at 153–54 (“Conduct by the insurer which does destroy

the security or impair the protection purchased breaches the implied covenant of good faith

and fair dealing implied in the contract.”). Wells Fargo is not entitled to summary judgment

against Plaintiff on his claim for breach of the covenant of good faith.

3. Fraud and Misrepresentation

Lastly, Wells Fargo contends that it is entitled to summary judgment against Plaintiff

on his fraud and misrepresentation claim. “A civil claim for fraud is established by showing

that the tortfeasor made a false and material representation, with knowledge of its falsity or

ignorance of its truth, with intent that the hearer would act upon the representation in a

reasonably contemplated manner, and that the hearer, ignorant of the falsity of the

representation, rightfully relied upon the representation and was thereby damaged.” Dawson

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v. Withycombe, 216 Ariz. 84, 96, 163 P.2d 1034, 1046 (Ct. App. 2007). Plaintiff argues that

Wells Fargo is not entitled to summary judgment because in the Court’s “disposition and

denial in part of Wells Fargo’s motion to dismiss, the court allowed plaintiff’s fraud claim

to stand. Nothing new has happened since then.” (Doc. 85 at 10). Motions to dismiss differ,

however, from motions for summary judgment. When a defendant moves to dismiss a claim

under Rule 12(b)(6), the facts alleged in the plaintiff’s complaint are taken as true. At the

summary judgment stage, however, “a plaintiff must set forth non-speculative evidence” of

the facts alleged in its complaint which entitle it to relief. Cafasso, U.S. ex rel. v. General

Dynamics C4 Systems, Inc., 637 F.3d 1047, 1061 (9th Cir. 2011). See also Keenan v. Allan,

91 F.3d 1275, 1279 (9th Cir. 1996) (“[I]t is not our task, or that of the district court, to scour

the record in search of a genuine issue of triable fact. We rely on the nonmoving party to

identify with reasonable particularity the evidence that precludes summary judgment.”)

(quoting Richards v. Combined Ins. Co., 55 F.3d 247, 251 (7th Cir.1995)). Plaintiff has not

set forth such evidence

To be sure, by signing the Escrow Agreement, Wells Fargo made the representation

that it would abide by the Agreement’s terms. But Plaintiff has produced no evidence, direct

or circumstantial, that Wells Fargo made this representation with intent that Plaintiff rely on

it and be deprived of his $85,000. It was only after Plaintiff’s repeated failures to meet his

deadlines that Wells Fargo appears to have decided to apply Plaintiff’s money to the

principle of his loan. (Doc. 69-1, Ex. 1 at ¶ 15). In short, Plaintiff is correct that in regards

to his fraud claim “[n]othing new has happened” since this claim survived Wells Fargo’s

motion to dismiss; Plaintiff has not set forth evidence to support the allegations of fraud in

his Complaint. Because he has not set forth evidence which would allow a reasonable jury

to find that Wells Fargo committed fraud, summary judgment is granted against him on this

claim.

B. Plaintiff’s Motion for Summary Judgment

Plaintiff, meanwhile, moves for summary judgment against Wells Fargo on his breach

of contract claim. Plaintiff does not seek summary judgment for Defendants’ alleged breach

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5

 Section 3 lists various charges entitled “Escrow Items” which Plaintiff is obligated

to pay Wells Fargo “on the day Periodic Payments are due.” (Doc. 71, Ex. C). Charges listed

as Escrow Items include “taxes and assessments,” “leasehold payments,” “ground rents,” and

insurance premiums. (Doc. 71, Ex. C).

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of the Escrow Agreement. Rather, his motion “deals only with Wells Fargo’s liability for

breach of the terms and conditions of the first note [and] deed of trust.” (Doc. 71 at 3)

(emphasis added). The deed of trust states that Plaintiff’s payments were to be applied to his

loans in the following order of priority:

(a) interest due under the Note; (b) principal due under the Note;

(c) amounts due under Section 3. . . . Any remaining amounts

shall be applied first to late charges, second to any other

amounts due under this Security Instrument, and then to reduce

the principal balance of the Note.

(Doc. 71, Ex. C). Plaintiff contends that when Wells Fargo took the $85,000 from the escrow

account and applied these funds to his loan, these funds effectually became a payment on his

loan. (Doc. 71 at 6). Plaintiff further contends that because the first category listed in the

deed of trust’s order of priority is “interest,” the $85,000 “payment” should have been

applied to the loan’s next $85,000 of interest. (Id.). In other words, Plaintiff argues that he

did not need to make any interest payments on his loan because he “was paid ahead 23

months.” (Id.). The first item listed in the deed of trust’s order of priority, however, is not

“interest,” but rather “interest due under the Note.” (Doc. 71, Ex. C). At the time the $85,000

was applied to Plaintiff’s loan, there does not appear to have been any interest due. (See Doc.

71, Ex. D). Nor were there principal, Section 3 charges5

, or late charges due. Therefore, even

if the $85,000 was properly classified as a “payment,” the order of priority specifies that such

a payment should be applied “to reduce the principal balance of the Note.” (Doc. 71, Ex. C).

This is precisely how Wells Fargo applied the funds. 

To be sure, the promissory note for Plaintiff’s first loan states that upon making

prepayments of principal, Plaintiff “will tell the Note Holder in writing that [he is] doing so.”

(Doc. 71, Ex. B). This clause does not, however, supercede or conflict with the order of

priority in the deed of trust. Where Plaintiff does not designate in writing that a given

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payment is a prepayment of principal, this can only mean that the regular order of priority

applies. (See Doc. 71, Ex. C). In short, even were the Court to hold that the $85,000 taken

from escrow by Wells Fargo should be classified as a “payment,” such a classification would

not entitle Plaintiff to interest credit under the loan agreement, and would not save him from

default. He is not entitled to summary judgment under the deed of trust or promissory note.

CONCLUSION

Wells Fargo has failed to establish that it is entitled to summary judgment on

Plaintiff’s breach of contract claim or on his breach of the covenant of good faith claim.

Summary judgment is, however, entered against Plaintiff on his fraud and misrepresentation

claim. Plaintiff is not entitled to summary judgment under the deed of trust or promissory

note.

IT IS THEREFORE ORDERED that Wells Fargo Bank, N.A.’s Motion for

Summary Judgment (Doc. 68) is granted in part and denied in part.

IT IS FURTHER ORDERED that Plaintiff’s Motion for Partial Summary Judgment

against Defendant Wells Fargo (Doc. 71) is DENIED.

DATED this 2nd day of April, 2012.

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