IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 99-11404
JAMES S. DOODY; PAUL D. CARRINGTON,
Plaintiffs-Appellants,
versus
AMERIQUEST MORTGAGE COMPANY,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Texas
February 13, 2001
Before HIGGINBOTHAM, WIENER, and DENNIS, Circuit Judges.
PER CURIAM:
CERTIFICATE FROM THE UNITED STATES COURT OF APPEALS FOR THE FIFTH
CIRCUIT TO THE SUPREME COURT OF TEXAS, PURSUANT TO THE TEXAS
CONSTITUTION, ART. 5, § 3-C AND RULE 58 OF THE TEXAS RULES OF
APPELLATE PROCEDURE
TO THE SUPREME COURT OF TEXAS AND THE HONORABLE JUSTICES THEREOF:
I. STYLE OF THE CASE
The style of the case in which certification is made is James
S. Doody, Paul D. Carrington, Plaintiffs-Appellants versus
Ameriquest Mortgage Company, Defendant-Appellee, Case No. 99-11404,
in the United States Court of Appeals for the Fifth Circuit, on
appeal from the United States District Court for the Northern
District of Texas. This case involves a determinative question of
state law, and jurisdiction of the case in the federal courts is
based solely on diversity of citizenship.
II. STATEMENT OF THE CASE
James S. Doody and Paul D. Carrington secured a loan from
Ameriquest Mortgage Company in January of 1998. The loan was for
$45,500 and was secured by their homestead.
Home equity lending was recently authorized in Texas by
section 50 of Article XVI of the Texas Constitution. Section 50
imposes a number of requirements that home equity loans must
satisfy. Those that appear principally relevant to this case are:
1. The fee cap provision, section 50(a)(6)(E), which mandates
that “fees . . . necessary to originate, evaluate, maintain,
2
record, insure, or service the extension of credit” may not
exceed three percent of the principal.1
2. The forfeiture provision, section 50(a)(6)(Q)(x), which
mandates that “[t]he lender . . . shall forfeit all principal
and interest of the extension of credit if the lender . . .
fails to comply with the lender’s . . . obligations under the
extension of credit within a reasonable time after the lender
. . . is notified by the borrower of the lender’s failure to
comply.”2
3. The voiding provision, section 50(c), which mandates that
“[n]o mortgage, trust deed, or other lien on the homestead
shall ever be valid unless it secures a debt described by this
section. . . .”3
The loan taken out by Doody and Carrington had closing costs
of $2,006.88, which was approximately 4.4 percent of the loan
amount. In April of 1998, Ameriquest realized that such closing
costs violated section 50(a)(6)(E), and refunded $641.88 to Doody
1
Texas Const., art. XVI, § 50(a)(6)(E) (2000).
2
Id. § 50(a)(6)(Q)(x).
3
Id. § 50(c).
3
and Carrington, reducing the fees to $1,365.00. That amount is
three percent of the principal.
The contract Doody and Carrington signed with Ameriquest
contained a waiver provision. That provision stated that if
Ameriquest discovered that it had overcharged the borrowers, it
would refund that overcharge and “Borrower’s acceptance of any such
refund will constitute a waiver of any right of action Borrower
might have arising out of such overcharge.” Doody and Carrington
accepted their refunds in this case.
Doody and Carrington have sued in the United States District
Court for the Northern District of Texas, seeking declaratory
relief. The district court dismissed, holding that the controversy
was not ripe because plaintiffs had not failed to pay on their
mortgage, and Ameriquest had not yet begun foreclosure proceedings.
In this respect, the district court erred. The Declaratory
Judgment Act exists to allow litigants to determine an actual
controversy such as this one before the dispute grows into a
contract violation or a foreclosure proceeding.4
We are required, however, to affirm the district court’s
judgment if it was correct, even if for a reason not articulated.5
4
See, e.g., Rowan Companies, Inc. v. Griffin, 876 F.2d 26, 28
(5th Cir. 1989)(“The declaratory judgment vehicle also is intended
to provide a means of settling an actual controversy before it
ripens into a . . . breach of a contractual duty.”).
5
See United States v. Real Prop., 123 F.3d 312, 313 (5th Cir.
1997) (“It is well-settled, however, that we will not reverse a
judgment of the district court if it can be affirmed on any ground,
4
Ameriquest advances two reasons why dismissal might be appropriate.
Both raise issues of Texas law that are of first impression and
therefore most properly addressed to the Supreme Court of Texas and
the Honorable Justices thereof.
I
Before turning to these issues, we first reject plaintiff’s
contention regarding hazard insurance. Ameriquest required Doody
and Carrington to take out hazard insurance on the mortgaged
property. No hazard insurance premiums were refunded. If the
premiums paid for that insurance count towards the three percent
cap, the cap was amply exceeded and the loan and lien are both
therefore invalid. We hold, however, that hazard insurance does
not constitute “fees . . . necessary to originate . . . the
extension of credit.” This is clear from the language of section
50. The Supreme Court of Texas has held, in interpreting section
50, that “[w]e avoid a construction that renders any provision
meaningless or inoperative.”6 Section 50 states that the lender
may not “require the owner” to pay fees “to any person that are
necessary to originate” the loan.7 Hazard insurance is only
“necessary to originate” this loan in the sense that the lender
regardless of whether the district court articulated the ground.”).
6
Stringer v. Cendant Mortgage Corp., 23 S.W.3d 353, 355 (Tex.
2000).
7
Texas Const. art. XVI, § 50(a)(6)(E).
5
required it. Plaintiff’s construction would render “necessary to
originate” redundant and therefore meaningless and inoperative.
II
Having dispensed with the hazard insurance question, the case
then turns on two questions about the interaction between the
invalidity provision and the forfeiture provision of section 50.
The forfeiture provision allows a lender to cure noncompliance with
the terms of the loan, thereby avoiding forfeiture. Ameriquest
argues that such a cure also allows the lender to avoid invalidity
of the loan under section 50(c). Thus, Ameriquest argues, since it
refunded the overcharged amount, neither section 50(a)(6)(Q)(x) nor
section 50(c) invalidate its lien. Doody counters that the two
provisions address conceptually distinct violations and provide
conceptually distinct remedies, such that importing the cure
portion from one into the other is inappropriate. The forfeiture
provision addresses violations of the terms of the loan, which
include, but are not limited to, the requirements imposed by the
Texas Constitution. The voiding provision addresses violations of
the Texas Constitution. The forfeiture provision contains a harsh
remedy: invalidating the underlying debt itself and giving a
complete windfall to the debtor. To moderate that, the cure
provision was inserted. The voiding provision, by contrast,
invalidates the lien, leaving the debtor obliged to pay the
underlying debt.
6
If Ameriquest prevails on this argument, and the lien is
therefore valid, the remaining issue need not be reached. In the
event, however, that Plaintiffs prevail, Ameriquest asserts a
second reason why its lien is not invalid. Ameriquest argues that
by accepting a refund of the overcharged amount, Doody and
Carrington waived their right to bring this case. Plaintiff
counters by citing Hruska v. First State Bank of Deanville,8 in
which the Supreme Court of Texas held that “[a] lien cannot be
‘estopped’ into existence. . . . Waiver and estoppel are defensive
in nature and operate to prevent the loss of existing rights. They
do not operate to create liability where it does not otherwise
exist.”9 If the voiding provision applies here, Plaintiff argues,
the lien was never valid and therefore cannot be waived into
existence. Plaintiff also cites other Texas cases indicating a
general aversion to permitting homesteaders to waive their
constitutional protections.10 The Supreme Court of Texas has also,
however, articulated narrow exceptions to the general rule that
homestead protections are unwaivable.11 The amendment to section
50 is new, and has not been extensively considered by the Texas
8
747 S.W.2d 783 (Tex. 1998).
9
Id. at 785.
10
See, e.g., Texas Land & Loan Co. v. Blalock, 76 Tex. 85, 13
S.W. 12 (1890).
11
See, e.g., Lincoln v. Bennett, 138 Tex. 56, 156 S.W.2d 504,
505 (1941).
7
courts. For that reason and for the reason that these questions
affect important interests of Texas, we are reluctant to undertake
in the first instance to decide whether an exception is appropriate
here.
The final resolution of this case requires an answer to the
question of whether Ameriquest’s lien is invalid because Ameriquest
charged fees amounting to 4.4 percent, even though it later
refunded the overcharged amount. As this issue raises two
questions of first impression interpreting a new provision of the
Texas Constitution, we certify those questions to the Supreme Court
of Texas.
III. QUESTIONS CERTIFIED
1. Under the Texas Constitution, if a lender charges closing costs
in excess of three percent, but later refunds the overcharge,
bringing the charged costs within the range allowed by section
50(a)(6)(E), is the lien held by the lender invalid under section
50(c)?
2. If this question is reached, may the protections of section 50
of the Texas Constitution be waived by a buyer who accepts a refund
of any overcharged amounts when the loan contract provides that
accepting such refund waives any claims under section 50?
8
IV. CONCLUSION
We disclaim any intention or desire that the Supreme Court of
Texas confine its reply to the precise form or scope of the
question certified. The answers provided by the Supreme Court of
Texas will determine the remaining issues in this case.
QUESTIONS CERTIFIED.
9