Court Opinion

ID: 4156424
Source: CourtListenerOpinion
Date Created: 2017-03-29 18:00:45.981314+00
Date Added: 2024-06-11T14:23:42.146916
License: Public Domain

Case: 16-10604    Document: 00513931083        Page: 1   Date Filed: 03/29/2017

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

                                     No. 16-10604                      FILED
                                                                 March 29, 2017
                                                                  Lyle W. Cayce
OCWEN LOAN SERVICING, L.L.C.,                                          Clerk

              Plaintiff - Appellee

v.

ROBERT M. BERRY,

              Defendant - Appellant

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

Before STEWART, Chief Judge, and KING and DENNIS, Circuit Judges.
KING, Circuit Judge:
      This case concerns a dispute between a borrower and lender over a home
equity loan. The lender filed this lawsuit seeking a judgment allowing it to
foreclose, and the borrower asserted affirmative defenses and a counterclaim
alleging numerous violations of the Texas Constitution’s home equity loan
provisions.   The district court granted summary judgment for the lender,
finding, inter alia, that the borrower’s affirmative defenses and counterclaim
alleging violations of the Texas Constitution’s home equity loan provisions
were barred by a four-year statute of limitations. Finding that the application
of a four-year statute of limitations was in error, we VACATE and REMAND.
    Case: 16-10604     Document: 00513931083     Page: 2   Date Filed: 03/29/2017

                                  No. 16-10604
           I. FACTUAL AND PROCEDURAL BACKGROUND
      In 2007, Defendant–Appellant Robert Berry took out a loan from
Overland Mortgage, L.P. that was secured by a lien on his home. Plaintiff–
Appellee Ocwen Loan Servicing, L.L.C. eventually acquired Overland’s
interest in the loan. In 2010, a Notice of Default and Intent to Accelerate was
sent to Berry following missed payments.           In June 2013, a Notice of
Acceleration was sent to Berry after he failed to cure the default.
      In September 2014, Ocwen filed its original complaint in this action,
seeking a judgment allowing it to foreclose on the property. In November 2014,
Berry filed his answer, which included as an affirmative defense the allegation
that Ocwen’s security interest is unenforceable because there were multiple
violations of Article 16, section 50(a)(6) of the Texas Constitution. In May
2015, Ocwen filed its first amended complaint (FAC), adding, inter alia, a cause
of action for equitable subrogation and asserting that Berry’s affirmative
defense alleging violations of the Texas Constitution was barred by the statute
of limitations.
      Berry filed an answer and counterclaim to the FAC the next month,
asserting once again the affirmative defense that Ocwen’s security interest is
unenforceable due to violations of section 50(a)(6) of the Texas Constitution
and adding a counterclaim that “[t]he extension of credit was made in violation
of the Texas Constitution for the reasons reflected in Affirmative Defenses and
the alleged lien is invalid on its face.” In its answer to the counterclaim, Ocwen
asserted, inter alia, that Berry’s allegations were “barred, in whole or in part,
by the applicable statute of limitations. In particular, his Counterclaim was
filed more than four years after the closing of the subject loan and his
Counterclaim is subject to a four-year limitations period.” Berry then filed a
first amended answer and counterclaim, adding more detail and allegations to

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                                         No. 16-10604
the affirmative defense and slightly changing the wording of the counterclaim. 1
In its amended answer to the counterclaim, Ocwen once again asserted that
Berry’s claims were barred by the statute of limitations.
       In August 2015, Ocwen and Berry each moved for summary judgment.
The district court granted Ocwen’s motion for summary judgment and denied
Berry’s motion for summary judgment. In relevant part, the district court
found that Ocwen had cited to evidence in support of its assertions that it was
the owner of the loan and had followed the proper procedures to foreclose on
the property. The district court then recognized that—rather than respond to
or dispute this evidence—Berry instead argued that the loan was invalid
because of numerous alleged violations of the Texas Constitution committed
by Ocwen’s predecessor in interest during the closing of the loan. Berry had
argued that, although Fifth Circuit precedent would normally apply a four-
year statute of limitations to his constitutional arguments had he filed the
lawsuit, his arguments were raised as affirmative defenses and as a
counterclaim. Therefore, according to Berry, they were timely under Tex. Civ.
Prac. & Rem. Code § 16.069, 2 and alternatively, under the theory of
recoupment. The district court held, however, that the alleged violations of the
Texas Constitution were barred by a four-year statute of limitations, rejecting
Berry’s argument that he could rely on section 16.069 to avoid the statute of
limitations. The district court explained that, although it was unclear whether
Berry, a counterclaimant, was required to specifically reference section 16.069
in his counterclaim, Berry not only had failed to cite section 16.069 in his

       1 The counterclaim now stated, in relevant part, that “[t]he extension of credit was
made in violation of the Texas Constitution for the reasons reflected in Affirmative Defenses
and the alleged lien and note are invalid.”
       2 Section 16.069 states, in relevant part, that “[i]f a counterclaim . . . arises out of the

same transaction or occurrence that is the basis of an action, a party to the action may file
the counterclaim . . . even though as a separate action it would be barred by limitation.”
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                                 No. 16-10604
amended counterclaim, but he also had failed to mention avoidance of the
statute of limitations in theory.    Accordingly, the district court held that
Berry’s argument in reliance on section 16.069 was waived because he was
required to, at the very least, affirmatively plead his theory of avoidance
regarding the statute of limitations.
      Berry then filed a motion for reconsideration. Treating Berry’s motion
as a motion to alter or amend the judgment under Federal Rule of Civil
Procedure 59(e), the district court denied the motion.
      Berry timely filed a notice of appeal.
                       II. STANDARD OF REVIEW
      We review “[a] grant of summary judgment . . . de novo, applying the
same standard on appeal that is applied by the district court.” Tiblier v.
Dlabal, 743 F.3d 1004, 1007 (5th Cir. 2014) (quoting Coliseum Square Ass’n v.
Jackson, 465 F.3d 215, 244 (5th Cir. 2006)). Summary judgment is appropriate
“if the movant shows 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). We also review “a district court’s determinations of state law de novo.”
Lozovyy v. Kurtz, 813 F.3d 576, 580 (5th Cir. 2015).
                  III. THE STATUTE OF LIMITATIONS
      After the parties filed their appellate briefs, we requested and received
supplemental letter briefs from the parties addressing what impact, if any, the
Texas Supreme Court’s recent decision in Wood v. HSBC Bank USA, N.A., 505
S.W.3d 542 (2016), has on this appeal. In Wood, which was decided after the
district court’s grant of summary judgment but prior to the filing of appellate
briefs, the Texas Supreme Court held that no statute of limitations applied to
a borrower’s quiet title action alleging that a lien securing a home equity loan
was invalid because of violations of section 50(a)(6) of the Texas Constitution.
Id. at 547–51. Neither party had previously addressed Wood. In his letter
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                                 No. 16-10604
brief, Berry argues that Wood makes clear that no statute of limitations applies
to his affirmative defenses and counterclaim alleging violations of section
50(a)(6) of the Texas Constitution. Ocwen concedes that Wood abrogated in
part prior Fifth Circuit precedent applying a four-year statute of limitations to
such claims, namely Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667,
674 (5th Cir. 2013), but argues, inter alia, that Berry waived any argument
relying on Wood by failing to include such an argument in his opening brief.
      We first turn to Ocwen’s contention that Berry waived any argument
that relies on Wood because he failed to discuss it in his opening brief.
According to Ocwen, Wood was decided several months before Berry filed his
opening brief, and therefore, Berry had the opportunity to include an argument
regarding Wood but failed to do so. Although Ocwen correctly identifies the
general rule that issues not briefed are waived, “the issues-not-briefed-are-
waived rule is a prudential construct that requires the exercise of discretion.”
See United States v. Miranda, 248 F.3d 434, 443 (5th Cir. 2001). In this case,
although Berry did not include an argument specifically about how Wood
affects this case, the issue of what, if any, statute of limitations applies to
Berry’s constitutional arguments was the focus of his entire opening brief.
Specifically, Berry contended in his opening brief that the district court erred
in applying a four-year statute of limitations because (1) his counterclaim was
timely, regardless of the four-year statute of limitations, under Tex. Civ. Prac.
& Rem. Code § 16.069, or alternatively, (2) no statute of limitations applied
given that his constitutional arguments are in the nature of recoupment.
Moreover, if we were to consider only the arguments in Berry’s opening brief
regarding section 16.069 and recoupment, we would necessarily have to
presume that the four-year statute of limitations would otherwise apply to
Berry’s arguments. In other words, if no statute of limitations applied to
Berry’s arguments in light of Wood, there would be no need to consider whether
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                                  No. 16-10604
his constitutional allegations avoided the now nonexistent four-year statute of
limitations based on section 16.069 or the theory of recoupment. Finally, the
issue of Wood’s application is a pure question of law. See New Orleans Depot
Servs., Inc. v. Dir., Office of Worker’s Comp. Programs, 718 F.3d 384, 387–88
(5th Cir. 2013) (en banc) (stating that a pure question of law is “a well-settled
discretionary exception to the waiver rule”). For these reasons, we exercise our
discretion to decide this purely legal issue notwithstanding the fact that Berry
did not discuss it in his opening brief.
      We next turn to whether, in light of Wood, the district court erred in
applying a four-year statute of limitations to Berry’s affirmative defenses and
counterclaim alleging violations of section 50(a)(6) of the Texas Constitution.
Because this is a diversity case, we apply Texas law regarding the statute of
limitations. Citigroup Inc. v. Fed. Ins. Co., 649 F.3d 367, 373 (5th Cir. 2011).
At the time that the district court granted summary judgment, Fifth Circuit
precedent applied Texas’s residual four-year statute of limitations to
allegations such as Berry’s. See Priester, 708 F.3d at 674. In Priester, we
considered whether a limitations period applied to alleged violations of section
50(a)(6) of the Texas Constitution. Id. at 673. Section 50(a)(6) does not state
whether a limitations period applies, and thus, we were required to decide
whether Texas’s residual four-year statute of limitations applied. Id.; Tex. Civ.
Prac. & Rem. Code § 16.051 (“Every action for which there is no express
limitations period, except an action for the recovery of real property, must be
brought not later than four years after the day the cause of action accrues.”).
Recognizing that the Texas Supreme Court had not yet directly addressed the
issue, we analyzed, inter alia, Texas court of appeals decisions and concluded
that the four-year statute of limitations applied. Priester, 708 F.3d at 673–74.
In subsequent decisions, we have declined to overturn Priester, noting that
there had been no change in law that would allow us to do so. See, e.g., Smith
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                                  No. 16-10604
v. JP Morgan Chase Bank, N.A., 594 F. App’x 221, 222 (5th Cir. 2014) (per
curiam) (“As three other panels have previously noted, there has been no
change in law that would allow us to overturn the Priester decision.”).
      However, in May 2016, such a change of law occurred when the Texas
Supreme Court decided Wood.         Although “[a] panel of this court cannot
‘overturn’ the decision of another panel,” “[i]n diversity cases, . . . we are to
follow subsequent state court decisions that are clearly contrary to a previous
decision of this court.” Farnham v. Bristow Helicopters, Inc., 776 F.2d 535, 537
(5th Cir. 1985); see also Kansa Reinsurance Co. v. Cong. Mortg. Corp. of Tex.,
20 F.3d 1362, 1373 (5th Cir. 1994) (“[T]his court also employs a rule in diversity
cases that overrules our prior precedent when there is a significant change in
the applicable state’s substantive law.”). In Wood, the Texas Supreme Court
directly addressed whether a statute of limitations applies to a quiet title
action alleging violations of section 50(a)(6). 505 S.W.3d at 547–51. As part of
its analysis of the issue, the Texas Supreme Court explicitly cited and rejected
the reasoning in Priester. Id. at 548. Ultimately, the Texas Supreme Court
held that constitutionally noncompliant home equity liens are invalid (before
the defect is cured) and that no statute of limitations applied to a quiet title
action alleging such violations. Id. at 547–51. Accordingly, we now must follow
the Texas Supreme Court’s holding in Wood that no statute of limitations
applies to a borrower’s allegations of violations of section 50(a)(6) of the Texas
Constitution in a quiet title action, rather than our prior holding in Priester.
      Thus, the district court erred in finding that Berry’s affirmative defenses
and counterclaim alleging violations of section 50(a)(6) of the Texas
Constitution were barred by a four-year statute of limitations. Indeed, in light
of Wood, the parties seem to agree that no statute of limitations applies to

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                                      No. 16-10604
Berry’s arguments. 3 Although Wood concerned a borrower’s quiet title action,
Ocwen has not argued that Wood’s statute of limitations holding should not be
applied to Berry’s arguments simply because they were asserted as affirmative
defenses and as a counterclaim. Cf. Carrington Mortg. Servs., LLC v. Hutto,
No. 14-15-00442, 2017 WL 592120, at *3–4 (Tex. App.—Houston [14th Dist.]
Feb. 14, 2017, no pet. h.) (applying Wood’s holding where borrowers alleged
violations of section 50(a)(6) as defenses to lender’s foreclosure action). We
express no opinion on the merits of Berry’s constitutional arguments. 4
                                 IV. CONCLUSION
       For the foregoing reasons, the judgment of the district court is
VACATED, and the case is REMANDED to the district court. Each party shall
bear its own costs.

       3 In its letter brief, Ocwen conceded that Wood partially abrogated Priester. Ocwen
did not argue that Wood is distinguishable from the instant case.
       4 Ocwen also argued in its letter brief that the grant of summary judgment should be

affirmed because Berry did not challenge on appeal Ocwen’s alternative argument regarding
equitable subrogation. However, the district court explicitly did not reach this alternative
argument because it had already found that Berry’s arguments were time-barred. On
remand, the district court may wish to consider the arguments that it did not previously
reach.
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