Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca5-15-50180/USCOURTS-ca5-15-50180-0/pdf.json

Parties Involved:
Francisco Javier Jayme
Appellee
Joe Jesse Monge
Appellant
Rosana Elena Monge
Appellant
Alicia Rojas
Appellee

Document Text:

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 15-50180

In the Matter of: JOE JESSE MONGE; ROSANA ELENA MONGE,

 Debtors.

JOE JESSE MONGE; ROSANA ELENA MONGE, 

 Appellants,

versus

ALICIA ROJAS; FRANCISCO JAVIER JAYME, 

 Appellees.

Appeal from the United States District Court 

for the Western District of Texas

Before SMITH, BARKSDALE, and COSTA, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

Joe and Rosana Monge appeal the district court’s judgment that adopted 

in part the bankruptcy court’s proposed findings of fact and conclusions of law. 

Finding no error, we affirm.

This adversary matter arises out of the Monges’ Chapter 11 bankruptcy 

United States Court of Appeals

Fifth Circuit

FILED

June 14, 2016

Lyle W. Cayce

Clerk

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proceeding.1 Aside from defunct corporations, the remaining defendants are 

Alicia Rojas and her husband, Francisco Jayme. Rojas is an attorney and

licensed mortgage broker who, from late 2005 through 2008, was a mortgage 

broker for the Monges. Jayme is a licensed real estate agent who, during the 

same period, served as a real estate agent for the Monges. The adversary proceeding concerns mainly the sale and leasing of a house in New Mexico known 

as the Thoroughbred Property.

Jayme originally obtained title to the Thoroughbred Property in 2002 

through a general warranty deed filed in Dona Ana County, New Mexico. 

Almost immediately, however, he went into arrears on the property. To avoid 

foreclosure, he filed a series of four Chapter 13 bankruptcy cases in New Mexico and Texas. Each was dismissed, and Jayme’s mortgage lender, Citibank, 

foreclosed on November 1, 2005. A New Mexico state court approved the foreclosure sale on January 9, 2006, and a Special Master’s deed confirming the 

foreclosure (effective to November 1, 2005) was filed and recorded on January 19, 2006. That deed noted that Jayme retained a one-month statutory 

right to redeem the foreclosed property.

Sometime in late 2005, the Monges became acquainted with Rojas and 

Jayme and, in December 2005, executed a purchase agreement to buy the 

Thoroughbred Property from Rojas and Jayme for $775,000. To finance the 

purchase, the Monges obtained from America’s Wholesale Lender a mortgage 

loan for $697,000 that was arranged by Rojas as the mortgage broker. The 

closing took place on February 3, 2006. A general warranty deed conveying 

the property from Jayme to the Monges, along with the Thoroughbred mortgage, was first recorded in Dona Ana County on February 6, 2006.

 

1 We base our summary of the facts on the findings adopted by the district court and 

not challenged on appeal.

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Jayme used the proceeds to redeem the Thoroughbred Property from 

Citibank on February 8, 2006, just one day before his statutory right of redemption was set to expire. It was not until June 27, 2006, however, that 

Citibank executed a quitclaim deed conveying the property back from Citibank 

to Jayme. The quitclaim deed was recorded in Dona Ana County on July 28, 

2006. That same day, shortly after the quitclaim deed was recorded, the general warranty deed from Jayme to the Monges and the Thoroughbred mortgage 

originally recorded on February 6, 2006, were re-recorded.

In theory, the Thoroughbred Property was being sold to the Monges so 

that Rojas and Jayme could obtain an estimated $300,000 in equity from the 

sale. Rojas and Jayme planned to use that equity to purchase and develop the 

Country Cove Subdivision, a new real estate venture between them and the

Monges. The anticipated equity, however, never materialized, because Jayme 

ended up receiving zero dollars in cash from the sale. Partially as a result, the 

Country Cove venture was a failure.

On the same day as the closing of the sale of the Thoroughbred Property

to the Monges, i.e., on February 3, 2006, Rojas signed a residential lease with 

an option to purchase the Thoroughbred Property. Under the terms of the 

agreement, Rojas would lease the property from the Monges for one year with 

a one-year option to purchase it. The term of the lease was from February 2, 

2006, through January 31, 2007, with the rent equal to the amount of the 

Monges’ monthly mortgage payment to America’s Wholesale Lender. Rojas 

and Jayme, however, were unable to make most of the rental payments and 

have paid no rent since April 2008, despite continuing to live on the property. 

Rojas and Jayme never exercised the option to repurchase the Thoroughbred 

Property; the option expired in January 2007.

Because of Rojas and Jayme’s failure to pay rent, the Monges eventually 

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defaulted. To avert foreclosure on the Thoroughbred Property, they filed for 

bankruptcy in 2009. They initiated the instant adversary proceeding against 

Rojas and Jayme in June 2010. After a bench trial, the bankruptcy court on 

September 5, 2014, submitted the proposed findings and conclusions (178 

pages) to the district court for de novo review. On September 18, the Monges 

timely filed objections. Rojas and Jayme did not respond. On January 27, 

2015, the district court overruled all of the objections, adopted the proposed 

findings in part, and entered a final judgment from which the Monges appeal.

I.

We review “the decision of a district court, sitting as an appellate court, 

by applying the same standards of review to the bankruptcy court’s findings of 

fact and conclusions of law as applied by the district court.”2 Here, however, 

the bankruptcy court submitted only proposed findings of fact and conclusions 

of law to the district court pursuant to 28 U.S.C. § 157(c)(1), so the district 

court did not sit as an appellate court.3 Unlike the district court, then, this 

court does not review the bankruptcy court’s proposed findings of fact and 

conclusions of law de novo but, instead, we review the district court’s findings 

of fact for clear error and its conclusions of law de novo.4

II.

The Monges urge that the district court should have sustained their 

 

2 First Nat’l Bank v. Crescent Elec. Supply Co. (In re Renaissance Hosp. Grand Prairie 

Inc.), 713 F.3d 285, 294 (5th Cir. 2013) (quoting In re Gerhardt, 348 F.3d 89, 91 (5th Cir. 

2003)).

3 See 28 U.S.C. § 157(c)(1) (requiring district court to review bankruptcy court’s proposed findings of fact and conclusions of law de novo).

4 Cf. Tasch, Inc. v. Diamond Offshore Drilling, Inc. (In re Tasch, Inc.), No. 01-31363,

2002 WL 1973464, at *2 (5th Cir. July 31, 2002) (reviewing, for clear error, findings of fact 

proposed by the bankruptcy court and adopted by the district court).

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objections to the proposed findings because the objections were unopposed. 

Under Rule 9033(b) of the Federal Rules of Bankruptcy Procedure, each party 

has fourteen days to file objections to the bankruptcy court’s proposed findings 

of fact and conclusions of law and another fourteen days to respond to objections submitted by other parties. The Monges filed their objections within the 

time period, but Rojas and Jayme neither filed objections nor responded to the 

Monges’ objections. For that reason, the Monges argue, Rojas and Jayme 

waived their right to appeal the proposed findings, and the district court should 

have sustained all of the Monges’ objections.

We disagree. In accordance with 28 U.S.C. § 157, Rule 9033(d) explicitly 

instructs the district court to “make a de novo review upon the record or, after 

additional evidence, of any portion of the bankruptcy judge’s findings of fact or 

conclusions of law to which specific written objection has been made in accordance with this rule” and authorizes the district court to “accept, reject, or 

modify the proposed findings of fact or conclusions of law.” No statute or rule 

prohibits the district court from considering or ruling on the merits of an unopposed objection just because it is unopposed. By failing to file objections or 

to respond to the Monges’ objections, Rojas and Jayme have waived their right 

to appeal the proposed findings and to present any legal issues in opposition to 

them. That waiver, however, has no impact on the district court’s authority to 

consider the merits of the objections. The district court need not sustain the 

Monges’ objections merely because they are unopposed; it may overrule the 

objections if they lack merit, as the district court indeed found. 

III.

The district court overruled the Monges’ objection to the bankruptcy 

court’s proposed finding that they must have realized there was no equity in 

the Thoroughbred Property. Of the multiple Forms HUD-1 in the record, 

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several show Rojas and Jayme as receiving some equity in the property. At 

least one HUD-1 from the day of the closing, however, shows them as receiving 

no cash from the sale. Under these circumstances, we cannot say that the district court clearly erred in concluding that the Monges knew or should have 

known, by the closing date, that Rojas and Jayme would receive no equity in 

the Thoroughbred Property. Consequently, we affirm the district court’s adoption of the bankruptcy court’s finding.

IV.

The Monges maintain that the district court erred in overruling their 

objection to the bankruptcy court’s proposed finding that Rojas and Jayme did 

not misrepresent to the Monges that Rojas and Jayme expected to make their 

rental payments solely from the equity received through the sale of the Thoroughbred Property. The bankruptcy court, however, never proposed such a 

finding, the district court never adopted such a finding, the Monges never 

raised this issue in the district court, and the Monges do not adequately brief

it on appeal. The Monges’ argument is thus both meritless and waived. See 

In re Bradley, 501 F.3d 421, 433 (5th Cir. 2007).

V.

To qualify for financing to purchase the Thoroughbred Property and a

separate parcel of real estate, Rojas helped the Monges complete loan applications, to each of which were attached fictitious leases. The bankruptcy court

declined to propose, and the district court refused to make, a finding as to 

whether the Monges signed the fictitious leases. The Monges assert that this 

was error. We disagree, because the evidence was ambiguous, and the Monges 

failed to introduce expert testimony that their signatures were forged. 

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VI.

In addition to maintaining that the district court should have found that 

the Monges did not sign the fictitious leases, the Monges claim that the district 

court erred in overruling their objection to the bankruptcy court’s proposed 

finding that it could not be determined whether Rojas and Jayme created the 

fictitious leases. The Monges, however, never raised this issue in their objections to the proposed findings, and the district court never considered the issue. 

Consequently, it has been waived. See id. at 433.

VII.

The district court overruled the Monges’ objection to the bankruptcy 

court’s proposed conclusion that they were not entitled to punitive damages

based on violation of the automatic stay. In so doing, it committed no error.

The court may award punitive damages for willful violation of an automatic stay “in appropriate circumstances,” 11 U.S.C. § 362(k)(1), which we 

have held requires “egregious conduct.” Young v. Repine (In re Repine), 

536 F.3d 512, 521 (5th Cir. 2008). In Young, we found the violator’s conduct 

egregious because she violated a stay despite repeated warnings and bankruptcy court admonishments not to do so. Id. According to the district court,

Rojas and Jayme’s refusal to relinquish possession of the Thoroughbred Property was not egregious, because there was no evidence that the Monges ever

notified Rojas and Jayme that their conduct violated the automatic stay as distinguished from the lease agreement. We agree, both for this reason and because Rojas and Jayme believed that they had the right to possess the Thoroughbred Property. See Proposed Findings, Monge v. Rojas, No. 10-03019-hcm, 

at 83 (Bankr. W.D. Tex. Sept. 5, 2014).

The Monges also assert that Rojas and Jayme willfully violated the automatic stay by attempting to “sell” the property to themselves in 2012. Like the 

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district court, we find the evidence for this alleged attempted fraudulent sale 

of the Thoroughbred Property to be ambiguous. For that reason and in the 

absence of any proposed finding on the matter by the bankruptcy court, we 

refuse to award punitive damages on this basis.

Finally, the Monges argue that they are entitled to punitive damages for 

breach of contract. Under New Mexico law, punitive damages are available for 

breach of contract where there is “evidence of . . . a culpable mental state or 

other form of overreaching, malicious, or wanton conduct.” Constr. Contracting 

& Mgmt., Inc. v. McConnell, 815 P.2d 1161, 1165 (N.M. 1991). The district 

court concluded that the Monges had failed to meet their burden of proving a 

culpable mental state. We agree. It was foolish or at least overly optimistic of 

Rojas and Jayme to think that they could make the higher rental payments to 

the Monges under the lease when they could not even make the far lower

monthly mortgage payments to Citibank. But foolishness or over-optimism is 

not a culpable mental state, and mere breach of a contract, without more, is 

not “overreaching, malicious, or wanton conduct.” Id.

VIII.

To succeed on a claim for fraud under New Mexico law, the Monges must 

prove three elements: (1) “a misrepresentation of a fact,” (2) “known to be 

untrue by the maker,” and (3) “made with an intent to deceive and to induce 

the other party to act upon it with the other party relying upon it to his injury 

or detriment.” Unser v. Unser, 526 P.2d 790, 795–96 (N.M. 1974). The district 

court determined that two of those three elements were not satisfied. There 

may not “necessarily” have been a misrepresentation of a fact, because Jayme 

possessed a statutory right of redemption, and “even if [Rojas and Jayme] did 

make a false statement, there is no indication that their intent was to deceive.” 

Order, Monge v. Rojas, No. EP-14-CV-385-PRM, at 25 (W.D. Tex. Jan. 27, 

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2015). On appeal, the Monges advance numerous arguments as to why there 

was in fact a misrepresentation. We decline to consider these arguments, however, because the district court’s finding that Rojas and Jayme did not intend 

to deceive is not clearly erroneous and, without proof of this element, the 

Monges are not entitled to recover for fraud.5

IX.

The Monges maintain that the district court erred in overruling their 

objection to the bankruptcy court’s proposed conclusion that Jayme did not 

commit fraud by non-disclosure in the sale and conveyance of the Thoroughbred Property. Under New Mexico law, a claim of fraud by non-disclosure 

requires a showing that a party to a transaction knew of material facts, had a 

duty to disclose those material facts, and remained silent. Krupiak v. Payton, 

561 P.2d 1345, 1346 (N.M. 1977). A duty to disclose may arise from knowledge 

that the other party to a transaction is “acting under a mistaken belief” or from 

the defendant’s possession of “superior knowledge that is not within the reach 

of the other party or could not have been discovered by the exercise of reasonable diligence.” Id. The Monges contend that Rojas and Jayme had a duty to 

disclose to them the fact that the Thoroughbred Property was in foreclosure 

and that Jayme had filed for bankruptcy. The district court disagreed because 

the Monges could have discovered those facts through a title search and examination of public records.

We agree with the district court that there was no duty to disclose and 

 

5 The Monges never objected to the bankruptcy court’s proposed conclusions that they

did not rely upon Jayme’s (mis)representations concerning good title and that even if they 

did, they suffered no damages as a result, because Jayme later corrected the problems with 

title and because they had title insurance. Proposed Findings at 99–100. Consequently, 

those issues are waived, and the Monges could obtain no actual relief even if we found that 

they did satisfy the requirements for a claim for fraud.

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hence that the Monges have no claim for fraud by non-disclosure. The Monges 

cite no relevant cases in support of their position.6 And their notion that they 

did in fact exercise “reasonable diligence” is flawed. They assert that they 

exercised reasonable diligence by having a title company perform a title search. 

They assert that the company discovered the non-disclosed information but 

failed to inform them of the results of the title search. Aside from any action 

they could bring against the title company (a matter as to which we express no 

opinion), the fact remains that the non-disclosed information was in fact discoverable through the exercise of reasonable diligence, even if it was not actually discovered by them.

X.

The Monges maintain that the district court erred in overruling their 

objection to the bankruptcy court’s proposed conclusion that Rojas and Jayme 

did not breach a duty of good faith and fair dealing. Unlike Texas,7 New Mexico

imposes a duty of good faith and fair dealing on parties to a contract. Watson 

Truck & Supply Co. v. Males, 801 P.2d 639, 642 (N.M. 1990). To prevail on 

this claim, the Monges must show “bad faith” or that Rojas and Jayme “wrongfully and intentionally used the contract to the detriment of the other party.” 

Cont’l Potash, Inc. v. Freeport-McMoran, Inc., 858 P.2d 66, 82 (N.M. 1993). 

This requirement is met if the Monges show that Rojas and Jayme entered into 

a contract without any intention of honoring it. See Romero v. Mervyn’s, 

 

6 The decisions in Daly v. Bernstein, 28 P. 764, 766 (N.M. 1892) and Steadman v. Turner, 507 P.2d 799 (N.M. Ct. App. 1973), are inapposite because they deal with fraud by affirmative misrepresentation. The opinion in Wirth v. Commercial Res., Inc., 630 P.2d 292 (N.M.

Ct. App. 1981), is distinguishable because it deals with failure to disclose information about 

a physical aspect of the property (the availability of water) rather than with legal title.

7 “Texas law does not impose a generalized contractual duty of good faith and fair 

dealing and, in fact, rejects it in almost all circumstances.” Hux v. S. Methodist Univ., 819 

F.3d 776, 781 (5th Cir. 2016) (citing English v. Fischer, 660 S.W.2d 521, 522 (Tex. 1983)).

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784 P.2d 992, 1001 (N.M. 1989). 

The district court concluded that the Monges had failed to show that 

Rojas and Jayme never intended to honor the lease agreement because Rojas 

and Jayme paid some rent during the term of the lease.8 District Court Order

at 29. “Had [Rojas and Jayme] subjectively intended to live on the property 

‘rent free’ the whole time, they likely would not have paid [the Monges] any 

rent.” Id. This is correct.

The Monges object that the district court’s reasoning rests on an erroneous factual basis, but they have waived the argument. The bankruptcy court 

proposed finding that Rojas and Jayme paid $12,568 in rent during the term 

of the lease agreement. Proposed Findings at 39. And the district court 

adopted that proposed finding, to which the Monges never objected in the district court. They have thus waived any challenge to this finding, which, in any 

event, we would uphold as not clearly erroneous.

The judgment of the district court is AFFIRMED. 

 

8 According to proposed findings adopted without objection, Rojas and Jayme made 

$61,134 in rental payments after the expiration of the lease.

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