ACCEPTED
03-15-00339-CV
7305274
THIRD COURT OF APPEALS
AUSTIN, TEXAS
10/9/2015 10:18:07 AM
JEFFREY D. KYLE
CLERK
No. 03-15-00339-CV
FILED IN
3rd COURT OF APPEALS
IN THE THIRD COURT OF APPEALS AUSTIN, TEXAS
AT AUSTIN, TEXAS 10/9/2015 10:18:07 AM
JEFFREY D. KYLE
Clerk
BEN MELTON,
Appellant
vs.
CU MEMBER’S MORTGAGE, a division of
COLONIAL SAVINGS, F.A., and FIRST WESTERN TITLE CO.
Appellees
On Appeal from the 340 th District Court
of Tom Green County, Texas
Hon. Jay Weatherby Presiding
Trial Court Cause No. C103102C
APPELLANT’S BRIEF
Gregory Sherwood
Attorney
P.O. Box 200613
Austin, Texas 78720-0613
(512) 484-9029
State Bar No. 18254600
Email: gsherwood@mail.com
Attorney on Appeal
for Appellant Ben Melton
ORAL ARGUMENT REQUESTED
Identity of Parties and Counsel in this Appeal
No. 03-15-00339-CV; Ben Melton v. CU Member’s Mortgage, a division of
Colonial Savings, F.A., and First Western Title Co.
Ben Melton (Appellant):
c/o attorney Gregory Sherwood
Trial Counsel: Appellate Counsel:
James Mosser (Jan. 2015 atty. fee hrg.) Gregory Sherwood
Alexis Steinberg (Jan. 2014 sum. jdgmt. hrg.) P.O. Box 200613
Mosser Law, PLLC Austin, Texas 78720-0613
2805 N. Dallas Parkway, Suite 222
Plano, Texas 75093
CU Member’s Mortgage, a division of
Colonial Savings, F.A., and First Western
Title Co. (Appellees):
Mark Cronenwett (trial court and appeal)
Mackie Wolf, Zientz & Mann, PC
14150 N. Dallas Parkway, Suite 900
Dallas, Texas 75254
i
Table of Contents
Identity of Parties and Counsel in this Appeal .......................................................... i
Table of Contents ..................................................................................................... ii
Index of Authorities ................................................................................................. v
Statement of the Case ............................................................................................ viii
Statement Regarding Oral Argument ...................................................................... ix
Issues Presented ....................................................................................................... x
Issue 1: The trial court’s summary judgment should be
reversed because appellant exercised due diligence in
serving citation when suit was filed four years after the
home equity loan was signed, 60 days elapsed to provide
appellees with an opportunity to cure, and appellees were
served on day 61 after suit was filed. ............................................................ x
Issue 2: If Issue 1 is not granted, the summary judgment
order should be reversed because no statute of limitations
applies in suits for constitutional violations of home equity
loans. The Fifth Circuit incorrectly interpreted Texas state
law on this subject in Priester v. JP Morgan Chase Bank, N.A.,
708 F.3d 667 (5 th Cir. 2013), and the Texas Supreme Court has
been asked to reject this holding in No. 14-0714, Wood v. HSBC
Bank USA, N.A., et al (pet. granted Oct. 9, 2015, oral argument
set for Dec. 8, 2015) ...................................................................................... x
Issue 3: If Issues 1 or 2 are not granted, the portion of the
summary judgment order granting CU Member Mortgage’s
counterclaim should be reversed because it did not have
standing to file that counterclaim ................................................................... x
Issue 4: If the trial court’s summary judgment order is only
partly reversed, for example if the foreclosure portion is
ii
reversed but the limitations portion is affirmed, then this
court should vacate the trial court’s attorney’s fee order
and remand the case to the trial court for a determination
of which portion of appellees’ attorney’s fees are attributable
to the affirmed portion of the summary judgment order ............................... x
Statement of Facts .................................................................................................... 1
Summary of the Argument ....................................................................................... 7
Argument and Authorities ...................................................................................... 10
Issue 1 .......................................................................................................... 10
Issue 2 .......................................................................................................... 18
Issue 3 .......................................................................................................... 21
Issue 4 .......................................................................................................... 25
Conclusion and Prayer for Relief ........................................................................... 26
Certificate of Service ............................................................................................. 27
Certification of Word Count Compliance .............................................................. 27
Appendix
July 14, 2014 Order Granting Motion for Summary Judgment Filed
by CU Members Mortgage, a Division of Colonial Savings, F.A. and
First Western Title Co. (CR 264-266)
March 2, 2015 Order Granting Motion for Award of Attorneys’ Fees
by CU Members Mortgage, a Division of Colonial Savings, F.A. and
First Western Title Co. (CR 317-319)
March 12, 2015 Order Granting Bob Mims’ Second Motion for
Summary Judgment (1 st Supp. CR 4-5)
iii
March 12, 2015 Order Denying Ben Melton’s Motion to Correct
Filing Date, or in the Alternative for Leave to File (1 st Supp. CR 6)
June 3, 2015 Findings of Fact and Conclusions of Law on Motion
for Award of Attorneys’ Fees by CU Members Mortgage, a Division
of Colonial Savings, F.A. (2 nd Supp. CR 4-9)
iv
Index of Authorities
Cases
Buck v. Palmer, 381 S.W.3d 525 (Tex. 2012) ....................................................... 10
Cassidy Commission Co. v. Security State Bank,
333 S.W.2d 454 (Tex. Civ. App. – Houston 1960, no writ) .................................. 14
Heckman v. Williamson County, 369 S.W.3d 137 (Tex. 2012) ............................. 22
Hoehn v. Dallas County MHMR, No. 05-94-01515-CV,
1995 Tex. App. LEXIS 3406, 1995 WL 500271
(Tex. App. – Dallas Aug. 16, 1995, no writ)
(not designated for publication) ............................................................................. 14
In re Estate of Hardesty, 449 S.W.3d 895
(Tex. App. – Texarkana 2014, no pet.) .................................................................. 19
Johnson v. City of Fort Worth, No. 02-08-00369-CV
2009 Tex. App. LEXIS 2124
(Tex. App. – Fort Worth Mar. 26, 2009, no pet.) .................................................. 15
McCord v. Dodds, 69 S.W.3d 230
(Tex. App. – Corpus Christi 2001, pet. denied) ..................................................... 15
Montes v. Villarreal, 281 S.W.3d 552
(Tex. App. – El Paso 2008, pet. denied) ........................................................... 16-18
Priester v. JP Morgan Chase Bank, N.A.,
708 F.3d 667 (5 th Cir. 2013) ................................................... ix, x, 3, 8, 9, 11, 18-21
Proulx v. Wells, 235 S.W.3d 213 (Tex. 2007) ................................................. 10, 11
Rodriguez v. Tinsman & Houser, Inc.,
13 S.W.3d 47 (Tex. App. – San Antonio 1999, pet. denied) ................................. 13
v
Santiago v. Novastar Mortgage, Inc., 443 S.W.3d 462
(Tex. App. – Dallas 2014, pet. denied) .................................................................. 19
Schanzle v. JPMC Specialty Mortgage, LLC,
No. 03-09-00639-CV (Tex. App. – Austin 2011, no pet.)
(not designated for publication) ............................................................................... 5
Texas Ass’n of Bus. v. Texas Air Control Bd.,
852 S.W.2d 440, 445 (Tex. 1993) .......................................................................... 22
Williams v. Wachovia Mortg. Corp., 407 S.W.3d 391
(Tex. App. – Dallas 2013, pet. denied) .................................................................. 19
Wood v. HSBC Bank USA, N.A., et al, 439 S.W.3d 585
(Tex. App. – Houston [14 th Dist.] 2014, pet. granted Oct. 9, 2015) ...................... 19
Wood v. HSBC Bank USA, N.A., et al,
Tex. Sup. Ct. No. 14-0714 (pet. granted Oct. 9, 2015) ....... ix, x, 3, 8, 11, 18, 19, 21
Wright v. JPMorgan Chase Bank, N.A., 169 So.3d 251
(Fla. App. [4 th Dist.] July 1, 2015) ......................................................................... 25
Constitutional Provisions, Statutes and Rules
Tex. Civ. Prac. & Rem. Code § 16.051 ................................................................. 19
Tex. Const. art. XVI, § 50(a)(6) ......................................................................... 2, 12
Tex. Const. art. XVI, § 50(a)(6)(Q)(x) .............................................................. 2, 12
Tex. Prop. Code § 51.0001(3) ................................................................................ 24
Tex. Prop. Code § 51.0001(4)(C) .......................................................................... 23
Tex. Prop. Code § 51.0025 .................................................................................... 23
Tex. R. App. P. 47.7(b) .......................................................................................... 15
vi
Tex. R. App. P. 9.4(i)(1) ........................................................................................ 27
Tex. R. Civ. P. 166a(c) .............................................................................. 20, 21, 24
vii
No. 03-15-00339-CV
IN THE THIRD COURT OF APPEALS
AT AUSTIN, TEXAS
BEN MELTON,
Appellant
vs.
CU MEMBER’S MORTGAGE, a division of
COLONIAL SAVINGS, F.A., and FIRST WESTERN TITLE CO.
Appellees
On Appeal from the 340 th District Court
of Tom Green County, Texas
Hon. Jay Weatherby Presiding
Trial Court Cause No. C103102C
Statement of the Case
This is an appeal from two orders: (1) a July 14, 2014 summary judgment
and foreclosure order, Clerk’s Record (“CR”) 264-266, attached as appendix,
granted in favor of appellees CU Member’s Mortgage, a division of Colonial
Savings, F.A. (“CU Member’s”) and First Western Title Co., and (2) a March 2,
2015 order awarding attorney’s fees to both these appellees. CR 317-319, also
attached as appendix. These orders became final and appealable on March 12,
viii
2015, when the trial court signed orders disposing of all parties and claims. See
Order Granting Bob Mims’ Second Motion for Summary Judgment, 1 st Supp. CR
4-5, and Order Denying Ben Melton’s Motion to Correct Filing Date, or in the
Alternative for Leave to File, 1 st Supp. CR 6, included in this brief’s appendix.
Statement Regarding Oral Argument
Although the panel assigned to hear this case may determine that the issues
presented may be decided without oral argument, appellant’s counsel requests
argument because this court may have questions concerning: (1) whether appellant
Ben Melton exercised due diligence in serving appellees with citation 61 days after
suit was filed and limitations had expired, due to the Texas Constitution’s
requirement that a 60-day “right to cure” letter should first be served upon a home
equity lender or note holder; (2) whether the residual four year statute of
limitations should apply in suits concerning violations of the state constitutional
home equity loan provisions, a question that was answered by the Fifth Circuit in
Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667 (5 th Cir. 2013), with this
reasoning questioned in briefing to the Supreme Court of Texas in No. 14-0714,
Wood v. HSBC Bank USA, N.A., et al (pet. granted Oct. 9, 2015, oral argument set
for Dec. 8, 2015), and (3) whether appellee CU Member’s Mortgage had standing
to bring a counterclaim for foreclosure or equitable subrogation due to breach of
ix
the note, when CU Member’s Mortgage was not a party to the promissory note
because the note was sold to Freddie Mac, and CU Member’s Mortgage was
neither the mortgagee nor the mortgage servicer, the only parties permitted to seek
foreclosure under chapter 51 of the Texas Property Code.
Issues Presented
Issue 1: The trial court’s summary judgment should be reversed
because appellant exercised due diligence in serving citation when suit
was filed four years after the home equity loan was signed, 60 days
elapsed to provide appellees with an opportunity to cure, and
appellees were served on day 61 after suit was filed.
Issue 2: If Issue 1 is not granted, the summary judgment order
should be reversed because no statute of limitations applies in
suits for constitutional violations of home equity loans. The
Fifth Circuit incorrectly interpreted Texas state law on this subject
in Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667 (5 th Cir.
2013), and the Texas Supreme Court has been asked to reject this
holding in No. 14-0714, Wood v. HSBC Bank USA, N.A., et al
(pet. granted Oct. 9, 2015, oral argument set for Dec. 8, 2015).
Issue 3: If Issues 1 or 2 are not granted, the portion of the summary
judgment order granting CU Member Mortgage’s counterclaim should
be reversed because it did not have standing to file that counterclaim.
Issue 4: If the trial court’s summary judgment order is only partly
reversed, for example if the foreclosure portion is reversed but the
limitations portion is affirmed, then this court should vacate the trial
court’s attorney’s fee order and remand the case to the trial court for a
determination of which portion of appellees’ attorney’s fees are
attributable to the affirmed portion of the summary judgment order.
x
Statement of Facts
This appeal concerns a home equity loan for appellant Ben Melton’s
homestead which was signed on March 13, 2009, and financed by appellee CU
Member’s Mortgage. See CR 71-92: the home equity note and security instrument
attached to appellees’ motion for summary judgment. Mr. Melton made timely
payments on this loan until he lost his job in 2012, and he began investigating
possible ways to refinance the loan since the payments were becoming difficult to
make. See Affidavit of Ben Melton, attached to his response to appellees’ motion
for summary judgment, at CR 209, ¶ 18. Melton discovered in 2012 that appellee
CU Member’s Mortgage may have violated the Texas Constitution when it closed
his loan, and hired Mosser Law PLLC to represent him in this matter. CR 209-
210, ¶¶ 19-25.
According to Mr. Melton’s affidavit, Mosser Law PLLC served demand
letters on CU Member’s Mortgage on Monday, March 11, 2013, and filed suit on
Wednesday, March 13, 2013, exactly four years after the home equity loan closed
on March 13, 2009. CR 210, ¶¶ 26-27. See also Plaintiff’s Original Petition at CR
6-10. The suit contended in part that both appellees violated certain provisions of
the Texas Constitution’s provision which created home equity loans for
homesteads. CR 7-8, ¶¶ 8-11. Citations for both appellees were issued the next
1
day on March 14, 2013. CR 11 and 14. Both appellees were served on Monday,
May 13, 2013, which was two months (or 61 days) after suit was filed on March
13, 2013. CR 13 and 16. Tex. Const. art. XVI, § 50(a)(6), contains a provision
that requires that a 60-day notice letter be sent to the lender or holder of the home
equity note in order to give the lender or holder of the note an opportunity to cure
any loan defects and avoid forfeiture of all principal and interest. Tex. Const. art.
XVI, § 50(a)(6)(Q)(x).1 Plaintiff’s Original Petition discussed this 60-day cure
provision at CR 8, ¶ 12.
An original answer and first amended original answer were filed by both
appellees, who were represented jointly by the same law firm. CR 17-24.
Appellee CU Member’s Mortgage filed its original counterclaim against appellant
Ben Melton, seeking a foreclosure on the homestead for his failure to make
payments on the home equity loan. CR 37-41. Appellee First Western Title Co.
was not a party to this counterclaim. The counterclaim stated at ¶ 7:
The Note was initially payable to CU Member’s Mortgage. The
initial beneficiary of the Deed of Trust was Mortgage Electronic
1
“except as provided by Subparagraph (xi) of this paragraph, the lender or
any holder of the note for the extension of credit shall forfeit all principal
and interest of the extension of credit if the lender or holder fails to
comply with the lender’s or holder’s obligations under the extension of
credit and fails to correct the failure to comply not later than the 60th day
after the date the lender or holder is notified by the borrower of the
lender’s failure to comply by [list of possible cure options omitted].” Id.
2
Registration Services, Inc. (“MERS”), as nominee for CU Member’s
Mortgage and its successors and assigns. The Note was later assigned
to Freddie Mac, which retained Colonial Savings, F.A. as its servicing
agent. CU Member’s Mortgage is a division of Colonial Savings, F.A.
This counterclaim is filed by Colonial as the servicing agent for
Freddie Mac.
CR 38, ¶ 7. The counterclaim sought a judgment of foreclosure for failure to
timely make note payments, and based upon equitable subrogation, since payments
to prior lienholders of the homestead were made as part of the home equity loan.
CR 39-40.
After appellant Melton filed his second amended original petition, which
added additional causes of action, CR 42-48, both appellees CU Member’s
Mortgage and First Western Title Co. filed their combined motion for summary
judgment. CR 49-176. The summary judgment motion argued in part that
appellant’s cause of action for constitutional violations was barred by the four year
residual statute of limitations pursuant to the Fifth Circuit’s holding in Priester v.
JP Morgan Chase Bank, N.A., 708 F.3d 667, 674 (5 th Cir. 2013),2 as well as two
opinions of the Dallas court of appeals, and an unpublished opinion from the U.S.
District Court for the Western District of Texas. CR 55. Since appellant filed suit
2
As mentioned earlier, the Supreme Court of Texas is being asked to reject
the Priester reasoning in No. 14-0714, Wood v. HSBC Bank, N.A., et al.
The petition for review was granted the same day that this brief was filed,
with oral argument set for Dec. 8, 2015.
3
on the four-year anniversary of the closing of the home equity loan, but did not
serve appellees until two months later, appellees argued that this showed a lack of
due diligence in serving citation, justifying a grant of summary judgment based on
the expiration of limitations. CR 55-57. The summary judgment motion also
argued that CU Member’s Mortgage (identified as “Colonial” in the motion) was
“entitled to summary judgment on its claim for judicial foreclosure because
[Melton] defaulted on the loan.” CR 59-60 (quoted portion at CR 59, with
bracketing added). The motion’s prayer asked in part for summary judgment on all
of Melton’s claims against both appellees, summary judgment for CU Member
Mortgage’s counterclaim, a declaration that CU Member’s Mortgage may
foreclose on the property, and an order that CU Member’s Mortgage may recover
its attorney’s fees as an obligation on the note and security instrument. CR 60-61.
Appellant Melton filed his response to the summary judgment, CR 177-217,
and on that same date, he also filed his third amended petition, which added
contentions concerning the discovery rule and affirmative defenses to appellee CU
Member’s Mortgage’s counterclaim. CR 218-227. Both appellees filed a reply in
support of their combined motion for summary judgment, CR 249-256, which in
part cited several cases that appellees argued supported their argument that Mr.
Melton did not exercise due diligence in serving them with citation. CR 254-255.
4
The reply also stated that the discovery rule was inapplicable because the date that
limitations began to run was not when appellant learned of his injury in 2012, but
the date the loan closed in March 2009, citing in part this court’s opinion in
Schanzle v. JPMC Specialty Mortgage, LLC, No. 03-09-00639-CV (Tex. App. –
Austin 2011, no pet.) (not designated for publication).
The motion for summary judgment was heard January 10, 2014, and the
argument from that hearing is at Reporter’s Record (“RR”) vol. 2. The trial court
took the motion under advisement, RR vol. 2, p. 81, l. 10-11, and issued a May 12,
2014 letter ruling granting appellees’ summary judgment motion. CR 262-263.
The trial court signed its July 14, 2014 order granting the summary judgment
motion on July 14, 2014. CR 264-266, included as appendix to this brief. This
order also stated that the amount of appellees’ attorney’s fees to be awarded would
be decided at a later date. CR 265.
Both appellees filed their combined motion for attorney’s fees, CR 267-309,
which was heard along with motions concerning other parties and claims, on
January 7, 2015. The portion relevant to this appeal is at RR vol. 3. Both
appellees also asked for severance, but then withdrew that request because the
hearing disposed of all parties and claims. RR vol. 3, p. 5, l. 9-25. The trial court
issued its February 20, 2015 letter ruling disposing of all parties and claims, CR
5
313-316, and awarding attorney’s fees to both appellees in the amount of
$18,396.00, with a further award of appellate attorney’s fees of $10,000.00 “to
respond to an unsuccessful appeal of the Court’s judgment to the Court of
Appeals[.]” CR 313-314 (quoted portion at CR 314, bracketing added).3 However,
the trial court’s March 2, 2015 written order only awards attorney’s fees to CU
Member’s Mortgage, not to First Western Title Co.4 The order also stated that the
attorney’s fees would be “recovered from [Melton] as additional amounts owed on
the Note [footnote describing note omitted] and Security Instrument [footnote
describing that document omitted] at issue in this cause and not as a money
judgment against [Melton.]” CR 317-318, quoted portion at CR 318 (bracketing
added).
Ten days later, the trial court signed two written orders on March 12, 2015,
which disposed of all parties and claims. Those orders are at 1 st Supp. CR 4-6, and
are included in this brief’s appendix. On March 27, 2015, appellant Melton timely
filed a request for findings of fact and conclusions of law concerning the attorney’s
3
An additional award of $10,000 if CU Member’s Mortgage had to respond
to an unsuccessful petition for review to the Texas Supreme Court was
also included. CR 314.
4
The title of the order states that it is granting the motion for attorney’s fees
filed by both appellees, but the text of the order only awards attorney’s
fees to appellee CU Member’s Mortgage. CR 317-318, attached as
appendix.
6
fees order. CR 324-325. The trial court’s June 3, 2015 findings and conclusions
on this subject are at 2 nd Supp. CR 4-9, attached as appendix. Appellant also filed a
motion for new trial on April 1, 2015, CR 327-330, which was overruled by
operation of law. Mr. Melton then timely filed his notice of appeal on June 1,
2015. CR 346-347.
Summary of the Argument
The trial court’s summary judgment order should be reversed because Mr.
Melton exercised due diligence in serving citation 61 days after suit was filed on
the four year anniversary of the date the home equity loan was signed. An
ordinary, prudent person under similar circumstances would have served a 60 day
notice to cure letter upon appellees, as required by the Texas Constitution, and then
served appellees on day 61 once cure was not made. The focus on this issue is not
merely how much time elapsed between the time suit was filed when limitations is
about to expire and when service of citation occurred. The courts must also look at
whether the plaintiff acted negligently or was dilatory in serving citation when suit
is filed before limitations expires, and citation was served after limitations elapsed.
In the case at bar, appellant Melton filed suit on the four year anniversary of the
date the home equity loan was signed, but also served appellees with a “right to
cure” letter and waited the 60 day period contained in the Texas Constitution for
7
appellees to cure the defects noted in the lawsuit. When cure was not made after
that time, appellees were served on day 61 after suit was filed. Appellant exercised
due diligence in serving citation, and the trial court’s summary judgment order
should be reversed.
If this court does not agree that appellant exercised due diligence in serving
citation, then this court should reverse the trial court’s summary judgment because
there is no statute of limitations that applies to constitutional claims for violations
of the home equity loan constitutional provision. The Fifth Circuit held in Priester
v. JP Morgan Chase Bank, N.A., 708 F.3d 667 (5 th Cir. 2013), that because the
constitution was later amended to allow lenders and holders of home equity notes
an opportunity to cure any defects before suit is filed, this meant that the four year
residual statute of limitations should apply. However, the Texas Supreme Court
has been asked to reject this holding in No. 14-0714, Wood v. HSBC Bank USA,
N.A., et al. The court granted the petition for review on Oct. 9, 2015, and oral
argument is set for Dec. 8, 2015. If the Texas Supreme Court rejects Priester and
holds that no statute of limitations applies, then this court should reverse the trial
court’s summary judgment order on that basis. If the Texas Supreme Court holds
in a different manner that may still afford appellant relief on this appeal, this court
should permit supplemental briefing. Finally, since the Texas Constitution created
8
home equity loans and contains no limitations provision, this court should reject
the Priester reasoning and hold that there is no statute of limitations applicable to
claims for constitutional violations of the home equity loan provisions.
If this court affirms the trial court’s summary judgment order on limitations
grounds, the portion of the court’s order granting CU Member’s summary
judgment on its counterclaim should be reversed because CU Member’s Mortgage
lacked standing to bring its counterclaim seeking foreclosure for failure to make
timely payments on the home equity loan, and based upon equitable subrogation.
Standing may be raised for the first time of appeal since it is a component of the
court’s subject matter jurisdiction, and a court cannot grant relief if it does not have
subject matter jurisdiction. CU Member’s Mortgage was not the holder of the
promissory note, as it had sold the note to Freddie Mac; therefore, it could not sue
for breach of the note, only Freddie Mac could. The Texas Property Code permits
a Mortgagee or a Mortgage Servicer to seek foreclosure, but CU Member’s
Mortgage is neither of those entities, nor is there any summary judgment evidence
proving that it is a Mortgagee or Mortgage Servicer. The summary judgment
order granting the foreclosure counterclaim based upon breach of the note by
failing to timely make payments and equitable subrogation should be reversed for
lack of standing.
9
Finally, if this appeal is reversed in part and affirmed in part, this court
should vacate the order awarding attorney’s fees to CU Member’s Mortgage, and
remand to the trial court for a hearing to determine which portion of the attorney’s
fees are attributable to the part of the summary judgment order that is affirmed.
Argument and Authorities
Issue 1: The trial court’s summary judgment should be reversed
because appellant exercised due diligence in serving citation when suit
was filed four years after the home equity loan was signed, 60 days
elapsed to provide appellees with an opportunity to cure, and
appellees were served on day 61 after suit was filed.
This court reviews a trial court’s summary judgment de novo. Buck v.
Palmer, 381 S.W.3d 525, 527 (Tex. 2012). In doing so, the reviewing court must
determine whether there is more than a scintilla of probative evidence that raises
genuine issues of material fact. Id. Additionally, the record is reviewed in the
light most favorable to the nonmoving party, and the court indulges every
reasonable inference and resolves any doubt against the movant. Ibid.
The timely filing of a lawsuit does not toll the statute of limitations unless
the plaintiff exercises due diligence in effective service of citation upon the
defendant. Proulx v. Wells, 235 S.W.3d 213, 215 (Tex. 2007). If service is
diligently effected after limitations has expired, the date of service will related
back to the date of filing. Id. In assessing diligence, the relevant inquiry is
10
whether the plaintiff acted as an ordinarily prudent person would have acted under
the same or similar circumstances, and whether the plaintiff was diligent up until
the time the defendant was served. Id., 235 S.W.3d at 216. Generally, the question
of the plaintiff’s diligence in effecting service is one of fact, and is determined by
examining the time it took to secure citation, service, or both, and the type of effort
or lack of effort the plaintiff expended in procuring service. Ibid. Once a
defendant has affirmatively pled the defense of limitations and shown that service
was obtained after limitations expired, the burden shifts to the plaintiff to explain
the delay. Ibid.5
The parties in their summary judgment pleadings focused on the length of
time it took between filing suit and service of citation on the defendant, but that is
not the only inquiry in assessing due diligence. Not only must the amount of time
between filing of suit and service upon the defendant be considered, but also
whether the plaintiff was dilatory during that time. As noted earlier in this brief,
5
For this issue, appellant will assume that there is a four year statute of
limitations applicable to his suit for constitutional violations of the home
equity provisions. If this court grants this issue and holds that Mr. Melton
exercised due diligence in effecting service on day 61 after suit was filed,
then this court does not have to decide the second issue concerning
whether the Fifth Circuit in Priester incorrectly held that the four year
residual statute of limitations applied, a question that is pending before the
Texas Supreme Court in No. 14-0714; Wood v. HSBC Bank, N.A., et al.,
with oral argument set for Dec. 8, 2015.
11
Tex. Const. art. XVI, § 50(a)(6), contains a provision that requires that a 60 day
notice letter be sent to the lender or holder of the home equity note in order to give
the lender or holder of the note an opportunity to cure any loan defects and avoid
forfeiture of all principal and interest. Tex. Const. art. XVI, § 50(a)(6)(Q)(x).6 In
the case at bar, appellant Ben Melton did exercise due diligence in serving citation
because he filed suit on March 13, 2013, the four year anniversary of the date the
note was signed (March 13, 2009), his attorneys mailed the 60 day notice of cure
letter to CU Member’s Mortgage on March 11, 2009,7 and when no cure occurred
after 60 days had elapsed, Mr. Melton served both appellees the next day – day 61
after suit was filed. Contrary to being dilatory or negligent, appellant Melton was
diligent in waiting 60 days after suit was filed to give CU Member’s Mortgage an
opportunity to cure, and diligent in serving them appellees the next day – day 61
after suit was filed.
6
“except as provided by Subparagraph (xi) of this paragraph, the lender or
any holder of the note for the extension of credit shall forfeit all principal
and interest of the extension of credit if the lender or holder fails to
comply with the lender’s or holder’s obligations under the extension of
credit and fails to correct the failure to comply not later than the 60th day
after the date the lender or holder is notified by the borrower of the
lender’s failure to comply by [list of possible cure options omitted].” Id.
7
See Melton’s affidavit attached to his response to appellees’ motion for
summary judgment, at CR 210, ¶ 26.
12
Appellees argued below that because the state constitution’s provision
requiring that a 60 day notice of cure letter be sent before suit was filed did not
contain any language tolling limitations, that this was a mistake of law by Mr.
Melton which showed that he was not diligent in serving citation. In essence,
appellees are trying to punish appellant for being too diligent or too careful in
serving his 60 day notice to cure letter and waiting to serve citation until day 61.
Appellee’s summary judgment motion cited Rodriguez v. Tinsman &
Houser, Inc., 13 S.W.3d 47 (Tex. App. – San Antonio 1999, pet. denied), CR 56-
57, to support its claim of lack of due diligence, but it is distinguishable because in
that case, suit was filed on July 3, 1997, eleven days before limitations would
elapse on July 14, and plaintiff instructed the clerk not to issue citation because
plaintiff was going send correspondence to defendant’s attorney seeking a waiver
of citation. Id. at 48-49. When plaintiff discovered that this correspondence was
never sent to defendant’s attorney, plaintiff requested issuance of citation on July
31, 1997 (17 days after limitations expired on July 14), and defendant was served
on August 8, 1997. Id. at 48. The Fourth Court held that this amounted to lack of
diligence in effecting service as a matter of law because in this case, citation was
not timely issued before limitations expired, and it was undisputed that no steps
were taken to effect service until after limitations had expired. Id., at 51. But in
13
the case at bar, citation was issued the same day suit was filed, and service was
delayed to await the expiration of the 60 day cure period mandated by the state
constitution. Appellees were served 61 days after suit was filed, and that should
constitute due diligence as a matter of law, since service occurred the day after the
60 day cure period elapsed.
Appellant cited in his response to the summary judgment motion, CR 194,
the case of Cassidy Commission Co. v. Security State Bank, 333 S.W.2d 454 (Tex.
Civ. App. – Houston 1960, no writ). Suit was filed on Oct. 31, 1956, and citation
was issued that same day, but it was not served until Jan. 4, 1957. Id., at 456. The
trial court held that service had been timely made, and the Houston court affirmed.
Id., at 457.
In their reply, appellees cited cases involving mistakenly serving the wrong
governmental official as support for their theory that Melton’s mistaken belief that
he had to wait 60 days to serve citation because the state constitution requires a 60
day cure letter be sent to appellees before suit is filed was a lack of due diligence in
effecting service. CR 255. However, one of these cases, Hoehn v. Dallas County
MHMR, No. 05-94-01515-CV, 1995 Tex. App. LEXIS 3406, 1995 WL 500271, at
*3 (Tex. App. – Dallas Aug. 16, 1995, no writ) (not designated for publication),
has no precedential value, because it is a civil appellate opinion that was issued
14
before January 1, 2003. Tex. R. App. P. 47.7(b). The other case, Johnson v. City
of Fort Worth, No. 02-08-00369-CV, 2009 Tex. App. LEXIS 2124, at *9 (Tex.
App. – Fort Worth Mar. 26, 2009, no pet.), is distinguishable. Suit was filed on
Nov. 7, 2007 (after a “right to sue letter” had been served on Sept. 10, 2007), the
wrong governmental official was served, and the correct official was not served
until Jan. 2, 2008. The Second Court held that serving the wrong governmental
official showed a lack of due diligence by plaintiff in timely effecting service. In
the case at bar, the correct entities were served, and the delay in service was only to
permit the 60 day cure period run before proceeding further with the suit. Service
was effected on day 61, so this cannot constitute lack of due diligence in serving
citation.
Another case cited by appellees in their reply, McCord v. Dodds, 69 S.W.3d
230, 234 (Tex. App. – Corpus Christi 2001, pet. denied), CR 254-255, is
distinguishable because in that case, the wrong defendant was sued and served
citation, and plaintiff’s attorney could have discovered this error if discovery
responses had been reviewed four months earlier, which showed a lack of diligence
in effecting service upon the proper defendant. Id. There is no showing in this
case of negligence or lack of due dilgence of four months. Once 60 days after suit
was filed had elapsed, meaning that appellant had complied with the constitution’s
15
requirement that a 60 day time period to permit appellees to cure had run, the
appellees were served on day 61, the very next day.
Appellant’s research has revealed another case that while on its face may
support appellees’ position that Mr. Melton did not exercise due diligence because
he mistakenly believed he had to wait 60 days after suit was filed to permit
appellees an opportunity to cure before he could serve appellees, it is actually
distinguishable. Montes v. Villarreal, 281 S.W.3d 552 (Tex. App. – El Paso 2008,
pet. denied), concerned a medical malpractice action in which the plaintiff served a
statutory notice letter and medical authorization upon the defendant doctor one day
before the two year statute of limitations expired. Id., at 554. Under the applicable
statute, this tolled the statute of limitations for an additional 75 days, suit was filed
against the hospital and doctor on May 25, 2005, an amended petition was then
filed on Sept. 22, 2005, dropping the hospital as a defendant, citation for the doctor
was issued on Sept. 27 and the doctor was served on Oct. 4, 2005. Ibid. The
doctor sought summary judgment on limitations grounds based on lack of due
diligence in service, and plaintiff filed a response attempting to explain the four
month and nine day delay in serving citation, explaining that plaintiff thought that
issuing citation within the 60 day abatement period would violate that statute, and
16
because plaintiff’s attorney was waiting on an expert report on whether the hospital
exercised its duty of care. Id., at 554-556.
The Eighth Court held that plaintiff’s attorney’s explanation was not
sufficient to show exercise of due diligence in serving citation four months after
limitations had expired. The court held that the attorney was mistaken in believing
that there was a 60 day abatement period because that period only applied when a
plaintiff failed to provide a written medical authorization with a notice of health
care claim, and in this case, plaintiff’s attorney had supplied both documents to the
doctor. Id., at 556-557. Therefore, this was an insufficient explanation for the
delay in issuing citation.
However, in the case at bar, there was no delay in issuing citation, which
was done the same day suit was filed. CR 11 and 14.8 Additionally, while the
Eighth Court’s holding that the attorney’s mistaken belief that a 60 day abatement
period applied to require a delay in issuing citation, when it did not, may seem to
support appellees’ position, it does not. This is because if appellant’s compliance
with the state constitution’s 60 day cure period is interpreted as a misunderstanding
of the law, the fact remains that only one day elapsed between that time period
8
The Eighth Court also discussed why the attorney’s explanation as to why
he delayed issuing citation and serving the hospital. Id., at 557-558. This
writer does not believe that discussion is relevant to this appeal.
17
running and service of citation being completed. In Montes, supra, there was a
four month delay, which showed a lack of diligence.
Appellant Ben Melton timely filed suit before limitations expired, his
attorneys sent letters requesting cure within 60 days (as required by the state
constitution), and when cure was not made, the appellees were served on day 61
after suit was filed. This one day delay cannot be considered lack of due diligence
in serving citation. This court should reverse the trial court’s summary judgment,
and hold that appellant exercised due diligence as a matter of law.
Issue 2: If Issue 1 is not granted, the summary judgment order
should be reversed because no statute of limitations applies in
suits for constitutional violations of home equity loans. The
Fifth Circuit incorrectly interpreted Texas state law on this subject
in Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667 (5 th Cir.
2013), and the Texas Supreme Court has been asked to reject this
holding in No. 14-0714, Wood v. HSBC Bank USA, N.A., et al (pet.
granted Oct. 9, 2015, oral argument set for Dec. 8, 2015).
The first paragraph from the previous issue discussing the standard of review
for summary judgment appeals is incorporated by reference in this issue.
Appellees’ summary judgment motion asked the trial court to follow the reasoning
of the Fifth Circuit in Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667, 674
(5 th Cir. 2013), which held that the four year residual statute of limitations
18
contained in Tex. Civ. Prac. & Rem. Code § 16.051,9 applied to suits by homestead
owners for violations of the Texas constitutional provision creating home equity
loans. CR 55. While some Texas intermediate appellate courts have adopted
Priester’s reasoning, e.g., Williams v. Wachovia Mortg. Corp., 407 S.W.3d 391,
395-397 (Tex. App. – Dallas 2013, pet. denied); Santiago v. Novastar Mortgage,
Inc., 443 S.W.3d 462, 473 (Tex. App. – Dallas 2014, pet. denied); and In re Estate
of Hardesty, 449 S.W.3d 895, 908-911 (Tex. App. – Texarkana 2014, no pet.), the
Texas Supreme Court has not yet ruled on this issue. However, whether the
Supreme Court will adopt or reject Priester may be decided in Wood v. HSBC
Bank, N.A., et al, No. 14-0714 (pet. granted Oct. 9, 2015, oral argument set for
Dec. 8, 2015).10
Since the Texas Supreme Court has granted review in Wood, that opinion
will decide whether the four year residual statute of limitations applies in these
cases, as Priester held, whether no statute of limitations applies, as the petitioner in
Wood contends, or whether another rule will be created in that opinion. Rather
9
“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.”
10
The portion of the Houston [14th Dist.] court’s Wood opinion discussing
the Priester reasoning is at 439 S.W.3d 585, 589-594 (Tex. App. –
Houston [14th Dist.] 2014, pet. granted Oct. 9, 2015, oral argument set for
Dec. 8, 2015).
19
than “re-invent the wheel” by rebriefing the issues raised by appellant at pages 3-
16 of his response to the motion for summary judgment, CR 179-192, this writer
incorporates by reference the arguments and authorities presented to the trial court
at the summary judgment stage, summarized as follows:
! there is no statute of limitations for void liens (CR 179-182);
! the Fifth Circuit amended (or incorrectly interpreted) the Texas
Constitution (CR 182-185);
! the Fifth Circuit created a statute of limitations by holding that the
residual statute of limitations applies in these cases (CR 185-187);
! the Fifth Circuit misinterpreted Texas state law by relying on dicta
instead of holdings (CR 187-188);
! the Fifth Circuit’s Priester opinion is an abrogation of the homestead
protection, when all that the cure provision was intended to do was to
give lenders an opportunity to change their void loans into invalid
loans within a reasonable time (CR 188-190); and
! a void act could be validated in Texas, and the Fifth Circuit’s holding
in Priester that something that is once void is always void was
incorrect (CR-190-192).
Since a ground for reversal of a summary judgment must be contained in the
summary judgment pleadings, Tex. R. Civ. P. 166a(c), “Issues not expressly
presented to the trial court by written motion, answer or other response shall not be
considered on appeal as grounds for reversal[,]” the issue has already been briefed
in the trial court below, and the Texas Supreme Court may change the law in this
20
area if it grants review, appellant relies on the briefing in the trial court below, but
will ask for leave to file supplemental briefing on this issue if the Texas Supreme
Court grants the petition for review in Wood and issues an opinion while this
appeal remains pending.
Because appellant believes that the Fifth Circuit in Priester incorrectly held
that the four year residual statute of limitations applies for the reasons stated in the
appellant’s response to the motion for summary judgment, and the Texas Supreme
Court may issue an opinion in Wood rejecting the Priester holding just discussed,
appellant asks that this court reverse the summary judgment order, either based on
the opinion that will be issued in Wood, or based on the arguments and authorities
in appellant’s summary judgment response that no statute of limitations applies in
suits for violations of the state constitution’s provision prescribing the procedures
for creating home equity loans.
Issue 3: If Issues 1 or 2 are not granted, the portion of the summary
judgment order granting CU Member Mortgage’s counterclaim should
be reversed because it did not have standing to file that counterclaim.
Normally, a claim or defense that was not discussed in the summary
judgment pleadings cannot be ground for reversal by an appellate court. See Tex.
R. Civ. P. 166a(c), “Issues not expressly presented to the trial court by written
motion, answer or other response shall not be considered on appeal as grounds for
21
reversal.” However, the question of a party’s standing to file suit for the claims for
which it sought summary judgment may be raised for the first time on appeal and
cannot be waived since standing is a component of the court’s subject matter
jurisdiction to hear a case. “Standing is a constitutional prerequisite to suit. A
court has no jurisdiction over a claim made by a plaintiff who lacks standing to
assert it. Thus, if a plaintiff lacks standing to assert one of his claims, the court
lacks jurisdiction over that claim and must dismiss it.” Heckman v. Williamson
County, 369 S.W.3d 137, 150 (Tex. 2012) (footnotes omitted). “Because we
conclude that standing is a component of subject matter jurisdiction, it cannot be
waived and may be raised for the first time on appeal.” Texas Ass’n of Bus. v.
Texas Air Control Bd., 852 S.W.2d 440, 445 (Tex. 1993).
The counterclaim seeking foreclosure for breach of the promissory note and
equitable subrogation was filed by only by appellee CU Member’s Mortgage. CR
37-41. Thus, appellee First Western Title Co. is not a party to the counterclaim.
Appellee CU Member’s Mortgage did not have standing to bring its counterclaim
seeking judicial foreclosure based on plaintiff’s default on the note, CR 37-41, and
it failed to produce summary judgment showing that it had standing. CU
Member’s Mortgage discussed the elements of a breach of contract claim in its
summary judgment motion and attempted to apply it to the note on Mr. Melton’s
22
homestead. CR 59-60 (motion for summary judgment, ¶ 5). However, as the
summary judgment affidavit of Amily Sauceda, Assistant Vice President of
Colonial Savings, F.A. (a non-party to this litigation), states at ¶ 6, “The Note was
granted, sold, assigned, transferred, and conveyed by CU Members Mortgage to
Freddie Mac on May 12, 2009. Freddie Mac is the current owner and holder of the
Note.” CR 66. It is axiomatic that a non-party to a contract does not have standing
to sue for breach of that contract. Therefore, since CU Member’s Mortgage is not
a party to the note, it cannot sue for breach of that note.
CU Member’s Mortgage’s summary judgment motion correctly points out
that a default in the Note can give rise to a right to foreclose defined in the Deed of
Trust: “Pursuant to the Security Instrument, Colonial may foreclose on the
Property in the event there is a default in the payment obligations on the Note.”
CR 60. This foreclosure can be administered by either the Mortgagee or the
Mortgage Servicer. Tex. Prop. Code § 51.0025. However, CU Member’s
Mortgage is neither the Mortgagee nor the Mortgage Servicer.
The Mortgagee is Colonial Savings, F.A. See Tex. Prop. Code §
51.0001(4)(C) (defining Mortgagee as “the last person to whom the security
interest has been assigned of record”). See also Amily Sauceda’s summary
judgment affidavit, CR 66, ¶ 7: “The Deed of Trust was assigned, transferred, and
23
conveyed by MERS to Colonial Savings FA, as reflected in that certain
Assignment of Deed of Trust . . . .” The Mortgage Servicer is defined by Tex.
Prop. Code § 51.0001(3) as “the last person to whom a mortgagor has been
instructed by the current mortgagee to send payments for the debt secured by a
security instrument. A mortgagee may be the mortgage servicer.”
As the movant for summary judgment, CU Member’s Mortgage had the
burden to prove its counterclaims for foreclosure and equitable subrogation based
upon nonpayment of the Note. See Tex. R. Civ. P. 166a(c): “The judgment sought
shall be rendered forthwith if [the summary judgment evidence] show[s] that,
except as to the amount of damages, there is no genuine issue as to any material
fact and the moving party is entitled to judgment as a matter of law on the issues
expressly set out in the motion. . . .” Appellees produced no summary judgment
evidence to show that the Mortgagor (appellant Melton), was instructed to send
payments to CU Member’s Mortgage by the current mortgagee. In fact, Colonial
Savings, F.A. claimed to be the Mortgage Servicer. Affidavit of Amily Sauceda,
CR 66, ¶ 7.
Recently, the Florida Fourth District Court of Appeal reversed a summary
judgment awarded to a lender for its failure to produce summary judgment that it
had standing to bring the foreclosure action, and dismissed the foreclosure on the
24
mortgage for failure to prove standing. See Wright v. JPMorgan Chase Bank,
N.A., 169 So.3d 251-252 (Fla. App. [4 th Dist.] July 1, 2015). The same result
should occur in the case at bar. CU Member’s Mortgage is neither the Mortgagee
nor the Mortgage Servicer, as defined by the Texas Property Code provisions
discussed above, and it failed to produce summary judgment evidence proving that
it had either status. Furthermore, since CU Member’s Mortgage is not the owner
or holder of the Note, it does not have standing for the claim of equitable
subrogation pleaded in its counterclaim at CR 39-40. The owner of the Note,
Freddie Mac, is the only entity that can sue on the Note.
For these reasons, this court should sustain Issue 3, hold that appellee CU
Member’s Mortgage did not prove that it had standing to bring the counterclaim
for foreclosure based on failure to timely make Note payments, and for equitable
subrogation, reverse the summary judgment order on this basis, and vacate the
portion of the trial court’s orders granting foreclosure.
Issue 4: If the trial court’s summary judgment order is only partly
reversed, for example if the foreclosure portion is reversed but the
limitations portion is affirmed, then this court should vacate the trial
court’s attorney’s fee order and remand the case to the trial court for a
determination of which portion of appellees’ attorney’s fees are
attributable to the affirmed portion of the summary judgment order.
The trial court issued an order granting the appellees’ motion for attorney’s
fees. CR 317-319. If this case is reversed on Issues 1 or 2, the attorney’s fee order
25
should be vacated since the entire case would be remanded to the trial court for
further proceedings. However, if this court finds that limitations is a bar to
appellant’s suit on the home equity loan constitutional violations, but reverses the
foreclosure-equitable subrogation-breach of the note counterclaim portion of the
summary judgment, then this court should vacate the attorney’s fee award and
remand to the trial court for a hearing to determine which portion of appellees’
attorney’s fees are attributable to the affirmed portion of the case concerning
limitations, and which portion should be deleted as being attributable to the
reversed portion of the summary judgment order concerning foreclosure-equitable
subrogation-breach of the note counterclaim.
Conclusion and Prayer for Relief
WHEREFORE, PREMISES CONSIDERED, appellant Ben Melton prays
that this court reverse the trial court’s order granting summary judgment and order
for attorney’s fees. If this court affirms in part and reverses in part, appellant prays
that this court vacate the order for attorney’s fees and remand to the trial court for a
determination of what portion of attorney’s fees are attributable to the portion of
this appeal that this court affirms. Appellant Ben Melton also prays for his costs
of court, both in this court and in the court below, and for general relief.
26
Respectfully submitted,
/s/ Gregory Sherwood
GREGORY SHERWOOD
Attorney at Law
P.O. Box 200613
Austin, Texas 78720-0613
(512) 484-9029
State Bar No. 18254600
Email: gsherwood@mail.com
Attorney on Appeal
for Appellant Ben Melton
Certificate of Service
I hereby certify that a true copy of this document was served on October 9,
2015, either by e-service through the State electronic filing service provider, or by
email sent by undersigned counsel, upon the attorney for appellees in this appeal:
Mark Cronenwett, Mackie Wolf, Zientz & Mann, PC, 14150 N. Dallas Parkway,
Suite 900, Dallas, Texas 75254, email: mcronenwett@mwzmlaw.com.
/s/ Gregory Sherwood
Certification of Word Count Compliance
According to the WordPerfect program used to create this document, there
are 6,531 words in this brief, excluding the portions listed in Tex. R. App. P.
9.4(i)(1).
/s/ Gregory Sherwood
27
APPENDIX
ORDER GRANTING MOTION FOR SUMMARY
JUDGMENT BY CU MEMBERS MORTGAGE, A
DIVISION OF COLONIAL SAVINGS, F.A. AND
FIRST WESTERN TITLE CO.
- signed July 14, 2014 (CR 264-266)
ORDER GRANTING MOTION FOR AWARD OF
ATTORNEYS’ FEES BY CU MEMBERS
MORTGAGE, A DIVISION OF COLONIAL
SAVINGS, F.A. AND FIRST WESTERN TITLE CO.
- signed March 2, 2015 (CR 317-319)
ORDER GRANTING BOB MIMS’ SECOND MOTION
FOR SUMMARY JUDGMENT - signed March 12, 2015
(1st Supp. CR 4-5)
ORDER DENYING BEN MELTON’S MOTION
TO CORRECT FILING DATE, OR IN THE
ALTERNATIVE FOR LEAVE TO FILE
- signed March 12, 2015 (1st Supp. CR 6)
FINDINGS OF FACT AND CONCLUSIONS OF LAW
ON MOTION FOR AWARD OF ATTORNEYS’ FEES
BY CU MEMBERS MORTGAGE, A DIVISION OF
COLONIAL SAVINGS, F.A. - signed June 3, 2015
(2nd Supp. CR 4-9)
Ben Melton v. CU Members Mortgage, a Division of Colonial Savings, F.A. And First Western Title Co.
Combined Opinion