Court Opinion

ID: 4248414
Source: CourtListenerOpinion
Date Created: 2018-02-27 01:00:21.633441+00
Date Added: 2024-06-11T07:48:10.378234
License: Public Domain

Case: 16-20507   Document: 00514362939    Page: 1   Date Filed: 02/26/2018

        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                                  Fifth Circuit

                                                                 FILED
                                No. 16-20507                February 26, 2018
                                                               Lyle W. Cayce
                                                                    Clerk
S. JAY WILLIAMS, individually and as assignee of WNC Institutional Tax
Credit Fund VII, L.P., WNC Housing, L.P., and Tracy Kennedy; SCII-GP,
L.L.C., as assignee of Shelter Resource Corporation, Swis Investments,
Limited, and SC-GP, Incorporated; SWIS INVESTMENTS, LIMITED; SWIS
COMMUNITY, LIMITED,

             Plaintiffs–Appellants,

v.

WELLS FARGO BANK, N.A., doing business through its operating division
Wells Fargo Commercial Mortgage Servicing; FANNIE MAE, also known as
Federal National Mortgage Association; DAVID F. STAAS; MARK
GLANOWSKI; COURTNEY DAVIS BRISTOW; WINSTEAD, P.C.,

             Defendants–Appellees.

                Appeal from the United States District Court
                     for the Southern District of Texas

Before REAVLEY, OWEN, and SOUTHWICK, Circuit Judges.
PER CURIAM:
      S. Jay Williams, SCII-GP, L.L.C., Swis Investments, Limited, and Swis
Community, Limited (the “Williams Parties”) appeal the dismissal of their
breach of contract claim. We affirm in part, reverse in part, and remand.
    Case: 16-20507    Document: 00514362939     Page: 2   Date Filed: 02/26/2018

                                 No. 16-20507
                                       I
      Williams formed Swis Community, Limited, which constructed a low-
income housing project.      Swis Community’s general partner was Swis
Investments, Limited, which was owned and controlled by Williams and W.
Tracy Kennedy. Swis Community’s special limited partner was WNC Housing,
Limited Partnership. Swis Investments and WNC Housing each had a 0.01%
interest in Swis Community. Swis Community’s limited partner was WNC
Institutional Tax Credit Fund VII, Limited Partnership (WNC Fund), which
owned 99.98% of the partnership interest. WNC Fund’s general partner was
WNC & Associates (WNC) which held a 0.01% interest, and its limited partner
was Key Investment Fund Limited Partnership X (Key Fund), which had a
99.99% interest in WNC Fund. Fannie Mae held a 99.90% interest in Key
Fund, giving it a 99.87% interest in Swis Community.
      Arbor National Commercial Mortgage, L.L.C. (“Arbor”) financed the
project through a loan to Swis Community secured by a Deed of Trust. Arbor
later assigned the note and Deed of Trust to Fannie Mae, and Wells Fargo
Bank, N.A. (“Wells Fargo”) ultimately became the loan servicer.            Swis
Community earned low income housing tax credits as a result of the project.
These credits were then allocated to Swis Community’s investors.
      After making payments on the loan for approximately a decade, Swis
Community defaulted in November 2010 and made no further payments for
five consecutive months.    Fannie Mae elected to accelerate the note and
institute non-judicial foreclosure proceedings pursuant to the Deed of Trust.
Attorneys from Winstead, P.C. were appointed as substitute trustees. Upon
request from one of the trustees for the “Borrower’s, Key Principals’ and Equity
Investor’s addresses,” a Wells Fargo employee provided the addresses from the
Deed of Trust for Williams, Kennedy, and WNC Fund. Notices were sent to
Williams and Swis Community at the address provided for Williams in the
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                                 No. 16-20507
Deed of Trust. Notices were also sent to Swis Investments, WNC Fund, and
Kennedy at their respective addresses.      For some years Wells Fargo had
treated the address for Williams as outdated and had been sending all
correspondence to a different address. As a result, the notices of acceleration
and foreclosure were sent to the wrong addresses and were not received by
Swis Community, Williams, or Swis Investments. The parties dispute whether
WNC received notice. The record shows that Kennedy did receive notice,
though at a different address than the one listed on the original certified mail
form, and the Williams Parties do not present contrary evidence in their
briefing.   The foreclosure sale proceeded, and Fannie Mae purchased the
property. It then deeded the project to another corporation. As a result of the
foreclosure, $1,207,617 in low income housing tax credits previously earned on
the project were “recaptured” by the IRS. Fannie Mae repaid approximately
$1,206,049, an amount that corresponded to its interest in the Swis
Community project, to the IRS for the recaptured tax credits.
      Litigation ensued between the parties associated with Swis Community
and WNC, which resulted in the assignment of WNC’s and Kennedy’s claims
against Fannie Mae to Williams. The Williams Parties brought suit against
Fannie Mae and Wells Fargo, seeking to recover the value of the recaptured
tax credits and corresponding interest totaling approximately $1.7 million.
The Williams Parties asserted claims against the defendants for breach of
contract premised on a violation of the notice terms in the Deed of Trust,
violations of the Texas Property Code, and wrongful foreclosure. They also
asserted a claim for breach of fiduciary duty against the substitute trustees.
The case was removed to federal court, and the district court declined to
remand it. The defendants moved for summary judgment, asserting jointly
that the notice was not improper, that the Williams Parties had not suffered
recoverable damages for their wrongful foreclosure claim, and even if
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recoverable, those damages were primarily suffered by Fannie Mae.                         The
defendants also asserted that the Williams Parties had no viable claim under
the Texas Property Code. Wells Fargo filed a separate motion for summary
judgment on the basis that it owed no contractual duty to the Williams Parties
because it was not a party to the Deed of Trust.
       The Williams Parties filed a motion for partial summary judgment on
their claims premised on the alleged violation of the Texas Property Code and
for breach of contract premised on the Deed of Trust. The district court granted
the motion for partial summary judgment in favor of the Williams Parties on
the breach of contract claim and dismissed the remaining claims with
prejudice.     However, on a motion for reconsideration, the district court
dismissed the breach of contract claim against both Fannie Mae and Wells
Fargo, concluding that, having defaulted on the Deed of Trust, the Williams
Parties could not maintain a cause of action based on the breach of that
agreement. 1 The court based its decision on this court’s opinion in Villarreal
v. Wells Fargo Bank, N.A. 2 In the same order, the district court granted Wells
Fargo’s independent motion for summary judgment. The district court also
dismissed the breach of fiduciary duty claim against the trustees.                        The
Williams Parties appeal the dismissal of their breach of contract claims against
Fannie Mae and the grant of summary judgment in favor of Wells Fargo. They
do not appeal the dismissal of the breach of fiduciary duty claim against the
substitute trustees.

       1 See Villarreal v. Wells Fargo Bank, N.A., 814 F.3d 763, 767 (5th Cir. 2016) (approving
of the dismissal of a breach of contract claim made by a party to the contract who failed to
plead facts supporting her own performance under the contract because “a party to a contract
who is . . . in default cannot maintain a suit for its breach” (quoting Dobbins v. Redden, 785
S.W.2d 377, 378 (Tex. 1990) (per curiam))).
       2 Id.

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                                      No. 16-20507
                                            II
       The district court did not err in holding that Wells Fargo is not liable for
breach of the Deed of Trust. The competent summary judgment evidence
reflects that Wells Fargo was never a party to or an assignee of the Deed of
Trust. The original Deed of Trust was entered into between Swis Community
and the trustee, for the benefit of Arbor. Arbor then assigned the note and
Deed of Trust to Fannie Mae. Wells Fargo was the loan servicer at the time of
default, but once Fannie Mae was notified of default, Fannie Mae became the
loan servicer. Fannie Mae then became the primary point of contact for Swis
Community. Because the only claim on appeal is for breach of contract based
on the Deed of Trust, and Wells Fargo was never a party to the Deed of Trust,
Wells Fargo has no liability. Summary judgment in favor of Wells Fargo was
appropriate.
                                            III
       As an initial matter, the Williams Parties contend that the district court
should not have granted Fannie Mae’s motion for reconsideration of its ruling
that Fannie Mae had breached the deed of trust by failing to send notices to
the correct addresses, contending that a motion for reconsideration is not a
proper vehicle for asserting new arguments. We review a district court’s grant
of a motion for reconsideration for abuse of discretion. 3
       Fannie Mae’s affirmative defense of prior material breach was not raised
in response to the Williams Parties’ motion for summary judgment, and the
Williams Parties motion for summary judgment did not squarely address it.
Fannie Mae’s motion for reconsideration framed the issue as a failure to allege
facts supporting an element of the Williams Parties’ claim for breach of

       3 See Edward H. Bohlin Co. v. Banning Co., 6 F.3d 350, 356 (5th Cir. 1993) (reviewing
a district court’s grant of a motion for reconsideration for abuse of discretion).
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                                        No. 16-20507
contract, and the Williams Parties did not object to this characterization in
their response. Nor did they raise the exceptions to the prior material breach
defense they now present on appeal. The Williams Parties objected to the
motion for reconsideration primarily on the grounds that Villarreal did not
apply and that the defendants failed to raise new facts or legal arguments not
previously presented. However, a court has broad discretion in these matters,
and we cannot conclude that it was an abuse of discretion for the district court
to grant the motion for reconsideration to consider the applicability of
Villarreal to this case. 4
        With regard to the merits of the claim that Fannie Mae breached the
deed of trust, under Texas law, such a claim is a breach of contract claim. 5 The
essential elements are “(1) the existence of a valid contract; (2) performance or
tendered performance by the plaintiff; (3) breach of the contract by the
defendant; and (4) damages to the plaintiff as a result of the defendant’s
breach.” 6 Fannie Mae asserts that the Williams Parties cannot maintain a suit
for breach of contract because they have not alleged facts supporting their own
performance under the contract, and therefore fail to satisfy the second
element of their breach of contract claim as a matter of law. We review the
district court’s grant of summary judgment de novo.

       4  See id. (reviewing a district court’s grant of a motion for reconsideration for abuse of
discretion).
        5 Caprock Inv. Corp. v. Montgomery, 321 S.W.3d 91, 95-96 (Tex. App.—Eastland 2010,

pet. denied) (considering a breach of contract claim, which the plaintiff based on a purported
breach of a deed of trust).
        6 Id. at 99; accord MG Bldg. Materials, Ltd. v. Moses Lopez Custom Homes, Inc., 179
S.W.3d 51, 61 (Tex. App.—San Antonio 2005, no pet.); Valero Mktg. & Supply Co. v. Kalama
Int’l, 51 S.W.3d 345, 351 (Tex. App.—Houston [1st Dist.] 2001, no pet.).

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      Based on our court’s opinion in Villarreal v. Wells Fargo Bank, N.A., 7
which applied the principle from Dobbins v. Redden 8 that “a party to a contract
who is . . . in default cannot maintain a suit for its breach,” 9 the district court
concluded that the Williams Parties’ breach of contract claim was
unsustainable. The obligor in Villarreal defaulted on a promissory note. 10
Wells Fargo, the noteholder, did not send the notice of default, notice of intent
to accelerate, and notice of acceleration to the plaintiff’s new residence.
Instead, it sent them to the address listed in the Deed of Trust, and to a
residence associated with a prior obligor on the note. 11 Wells Fargo foreclosed
on the property. 12 The obligor sued, alleging breach of contract, among other
claims. 13 This court concluded that the obligor “failed to allege any facts
showing her own performance and did not refute the facts in documents
referred to in her complaint” that showed she was in default. 14 The opinion
purported to apply the rule of Texas law stated in Dobbins, that “a party to a
contract who is [herself] in default cannot maintain a suit for its breach.” 15 We
held that the obligor’s unrefuted default on the note precluded her suit under
the Deed of Trust. 16
      The Williams Parties contend that the rule from Dobbins is subject to
several exceptions under Texas law that were not raised and therefore were
not considered in Villareal. One of these exceptions is that a party’s default

      7 814 F.3d 763.
      8 785 S.W.2d 377, 378 (Tex. 1990).
      9 Id. at 767 (quoting Dobbins, 785 S.W.2d at 378).
      10 Id. at 766.
      11 Id.
      12 Id.
      13 Id.
      14 Id. at 767.
      15 Id.; see Dobbins v. Redden, 785 S.W.2d 377, 378 (Tex. 1990).
      16 Villarreal, 814 F.3d at 767.

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under a contract will only excuse the other party’s performance of the contract’s
terms that are dependent upon the promises that the defaulting party failed to
perform. 17    For example, in Giblin v. Sudduth, a buyer of property also
obtained a five-year option to purchase an adjoining tract by agreeing to pay
$10 in rent each year. 18 The Texas court of appeals held that the purchaser’s
failure to pay the rent did not excuse the seller’s obligation to sell the adjoining
tract to the purchaser. 19
       This principle of Texas law was not presented to our court by any of the
parties in Villareal, and therefore, our court did not consider it.                We are
therefore free to consider in this case whether an exception to the general
proposition set forth in Dobbins exists in the context of a debt secured by a
deed of trust covering real property. We conclude that Fannie Mae’s agreement
in the deed of trust to give notice of foreclosure was independent of the
Williams Parties’ agreement under the note to pay monthly installments to
satisfy the debt. The obligation to give notice of foreclosure would not even
arise unless and until the Williams Parties were in default under the note.
       At least two Texas courts of appeals have held that a claim for breach of
a deed of trust for failure to serve notice of foreclosure exists as a stand-alone
cause of action, apart from a claim for wrongful foreclosure. 20 In Sauceda, the
lender sent two letters informing the debtors that the mortgage on their home

       17 See Hanks v. GAB Bus. Servs., 644 S.W.2d 707, 708 (Tex. 1982) (“A prerequisite to
the remedy of excuse of performance is that covenants in a contract must be mutually
dependent promises”); Chambers v. Hunt Petrol. Corp., 320 S.W.3d 578, (Tex. App.—Tyler
2010); Giblin v. Sudduth, 300 S.W.2d 330 (Tex. Civ. App.—Austin 1957, writ ref’d n.r.e.); see
also Green Intern, Inc. v. Solis, 951 S.W.2d 384, 389 (Tex. 1997) (quoting Hanks, 644 S.W.2d
at 708).
       18 Giblin, 300 S.W.2d at 332.
       19 Id. at 334.
       20 See Sauceda v. GMAC Mortg. Corp., 268 S.W.3d 135 (Tex. App.—Corpus Christi

2008); Jacaman v. Nationstar Mortg., LLC, 2018 WL 842975 (Tex. App.—San Antonio Feb.
14, 2018, no pet. h.).

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was in default for failure to make monthly payments. 21 However, an additional
written notice required by the deed of trust was not given. 22 The Texas court
held that the state district court had erred in granting summary judgment in
favor of the lender on the debtors’ breach-of-the-deed-of-trust claim. 23 Another
court of appeals, in an unpublished and therefore non-precedential opinion,
reached the same conclusion when presented with similar facts in Jacaman. 24
Neither court considered whether the fact that the debtors were in default
should excuse performance of the obligation to give notice of foreclosure, or
conversely, whether the promise to give notice of foreclosure was independent
of the obligation to make monthly payments. But it is unremarkable that such
a discussion was absent.
      As alluded above, the requirement in a deed of trust that there be notice
of intent to foreclose only has meaning if it can be enforced in the event of
default. Texas courts “must . . . attempt to give effect to all contract provisions
so that none will be rendered meaningless.” 25 If performance of the terms of a
deed of trust governing the parties’ rights and obligations in the event of
default can always be excused by pointing to the debtor’s default under the
terms of the note, the notice terms have no meaning.                 Such a reading is
inconsistent with the intent of the parties and with Texas law.
      However, we express no opinion as to the ultimate outcome of this case.
There are a number of issues either not briefed or not adequately briefed in
this appeal.    They include whether loss of tax credits is an appropriate
component of a damage claim for failure to give notice of foreclosure as required
under a deed of trust, and whether the failure to give notice, as distinguished

      21 268 S.W.3d at 140.
      22 Id.
      23 Id.
      24 Jacaman, 2018 WL 842975 at *7-8.
      25 Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex. 1998).

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from the default on the loan, or a foreclosure that was not wrongful, caused the
loss of tax credits.
                                 *        *         *
         For the foregoing reasons, we AFFIRM the district court’s judgment as
to Wells Fargo, we REVERSE the judgment of the district court as to the claim
that Fannie Mae breached the deed of trust by failing to give notice, and we
REMAND that claim against Fannie Mae for further proceedings in the district
court.

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