Case: 12-60595 Document: 00512106909 Page: 1 Date Filed: 01/09/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
January 9, 2013
No. 12-60595 Lyle W. Cayce
Summary Calendar Clerk
LOUIS PENNELL, JR.; PAMELA PENNELL,
Plaintiffs–Appellants
v.
WELLS FARGO BANK, N.A.; WELLS FARGO HOME MORTGAGE,
Defendants–Appellees
Appeal from the United States District Court
for the Southern District of Mississippi, Biloxi
Civ No. 1:10–cv–00582–HSO–JMR
Before SMITH, PRADO, and HIGGINSON, Circuit Judges.
PER CURIAM:*
Plaintiffs–Appellants Louis Pennell, Jr. and Pamela Pennell (“the
Pennells”) brought several claims against Defendants Wells Fargo Bank, N.A.
and Wells Fargo Home Mortgage (“Wells Fargo”) after losing their home
following their mortgage default. The district court granted summary judgment
in favor of Wells Fargo on all claims. The Pennells appeal only as to their
negligent misrepresentation claim. Because we hold that Wells Fargo’s
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
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representations were promises of future conduct, incapable as a matter of law
of supporting a negligent misrepresentation claim, we affirm the district court’s
grant of summary judgment.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. Factual Background
The Pennells built a home in Ocean Springs, Mississippi (“the home”) in
2002, with the help of a $200,000 loan from First Federal Bank. In 2007, the
Pennells refinanced the home, executing a $375,500 promissory note in favor of
Wells Fargo Bank. The home was used as security for the loan. Pursuant to the
promissory note, the Pennells agreed to repay the loan in monthly installments
of $2,777.14. The promissory note provided that the Pennells would be
considered in default if full monthly payments were not made on the date that
they were due. Wells Fargo Bank was authorized to accelerate the loan balance
in the event of default. Under the terms of the note, Wells Fargo was to serve
the Pennells notice prior to acceleration, advise them of an opportunity to cure,
and warn them that failure to cure could result in foreclosure. Wells Fargo was
also to notify the Pennells in writing if it elected to sell the house.
The Pennells fell behind on payments. Over an almost two-year period,
Wells Fargo sent the Pennells twelve letters warning them of impending
acceleration on the balance if they did not cure their default. The letters also
warned that foreclosure could be initiated after acceleration. Mrs. Pennell
acknowledged receiving the letters. After receiving letters for about a year, the
Pennells contacted Wells Fargo about a loan modification. Wells Fargo sent the
Pennells a letter offering a Trial Period Plan. The letter stated that if the
Pennells qualified and complied, they could avoid foreclosure. The letter also
stated that the Pennells’ outstanding payments would be reviewed for a possible
loan modification. The Pennells signed the Trial Period Plan Agreement in
September 2009, then timely made their October, November, and December
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payments. It is undisputed that the Pennells made no further payments after
December 2009, although the Pennells argue that they were told by Shannon
Garcia, a Wells Fargo representative, that the loan modification would be
processed faster if the Pennells did not make payments in the interim.
Wells Fargo began foreclosure proceedings in January 2010. Mr. Pennell
testified that they may have received a letter informing them that Wells Fargo
had initiated foreclosure. Regardless, the Pennells acknowledge that Morris &
Associates, the attorneys hired to execute the foreclosure, sent the Pennells a
letter on February 9, 2010, informing them of the foreclosure.
After Wells Fargo Bank initiated foreclosure on the home, the Pennells
continued to receive communications from Wells Fargo concerning the loan
modification. The Pennells contend they were told not to worry about the default
and foreclosure letters they were receiving, because they were in the loan
modification process. Specifically, the Pennells testified they received a letter
from Wells Fargo Bank dated May 27, 2010. The letter requested a signed copy
of the Pennells’ tax return, and gave them three weeks to provide it. Mrs.
Pennell testified that she faxed the tax return immediately. She testified that
she called Shannon Garcia, who said the tax return had been received, and that
“we would be closing up this next week, we would be finishing everything.” Mrs.
Pennell testified that she took Garcia’s statement to mean that the loan
modification would be completed.
A foreclosure sale occurred on June 3, 2010. The Pennells contacted Wells
Fargo and Morris & Associates about rescinding the foreclosure sale. Wells
Fargo sent the Pennells a letter on June 14, 2010 stating that if the Pennells
paid $30,242.15, the loan could be reinstated. Mr. Pennell withdrew the
necessary funds from his 401(k) plan. Mr. Pennell testified that when he called
Wells Fargo Bank, he was told Wells Fargo had decided not to accept a payoff to
rescind the foreclosure.
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Wells Fargo Home Management sent the Pennells a letter dated August
2, 2010, formally denying their request to rescind the foreclosure. The letter
stated that foreclosure proceedings were valid because no viable plan or loan
modification was approved before the foreclosure sale. Mr. Pennell
acknowledged that he did not receive a loan modification.
B. Procedural Background
On December 22, 2010, the Pennells filed a complaint against Wells Fargo
Bank, Wells Fargo Home Management, and Morris & Associates, alleging that
the Defendants wrongly foreclosed on their home, among other claims. In a
lengthy opinion, the district court granted summary judgment for the
Defendants. The Pennells appeal only the district court’s grant of summary
judgment as to their claim for negligent misrepresentation against Wells Fargo
Bank.
II. JURISDICTION
This court has jurisdiction pursuant to 28 U.S.C. § 1291.
III. DISCUSSION
A. Standard of Review
The Court of Appeals reviews a district court’s grant of a motion for
summary judgment de novo, applying the same standard as the district court.
Chaney v. Dreyfus Serv. Corp., 595 F.3d 219, 228 (5th Cir. 2010). Summary
judgment is proper when “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).
The district court’s jurisdiction was based on diversity jurisdiction
pursuant to 28 U.S.C. § 1332. In a diversity action, a federal court applies the
substantive law of the state in which it sits. Krieser v. Hobbs, 166 F.3d 736, 739
(5th Cir. 1999). Moreover, the parties agree that Mississippi substantive law
governs.
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B. Analysis
The Pennells allege that Wells Fargo negligently misrepresented the loan
modification process through their letters concerning the Trial Period Plan. The
district court held that the representations did not concern existing facts, but
instead were promises of future conduct, and therefore not actionable under
Mississippi law. Further, the district court held that even if Wells Fargo made
representations of existing fact, the Pennells could not reasonably have relied on
the representations because they contradicted the loan documents and other
correspondence from Wells Fargo.
To establish a claim for negligent misrepresentation in Mississippi, the
Pennells must prove the following five elements: (1) a misrepresentation or
omission of a fact; (2) that the representation or omission was material or
significant; (3) that the person/entity charged with the negligence failed to
exercise the degree of diligence and expertise the public is entitled to expect of
such persons/entities; (4) that the plaintiff reasonably relied upon the
misrepresentation or omission; and (5) that the plaintiff suffered damages as a
direct and proximate result of such reasonable reliance. Mladineo v. Schmidt, 52
So. 3d 1154, 1164–65 (Miss. 2010).
To establish the first element, the plaintiff must prove that the defendant
misrepresented an existing fact, not just a promise of future conduct. Spragins
v. Sunburst Bank, 605 So. 2d 777, 780 (Miss. 1992). Under Mississippi law, a
promise to do or to refrain from doing an act in the future does not concern an
existing fact, and thus cannot support a negligent misrepresentation claim. Bank
of Shaw v. Posey, 573 So. 2d 1355, 1360 (Miss. 1990); Moran v. Fairley, 919 So.
2d 969, 973 (Miss. Ct. App. 2005).
In reaching its conclusion that Wells Fargo’s representations were promises
of future conduct, the district court relied on several cases. First, the district
court discussed three Mississippi state cases that found that promises to lend
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money or build a hotel could not, as a matter of law, support a negligent
misrepresentation claim. See Holland v. Peoples Bank & Trust Co., 3 So. 3d 94,
96, 99–100 (Miss. 2008); Skrmetta v. Bayview Yacht Club Inc., 806 So. 2d 1120,
1124–25 (Miss. 2002); Bank of Shaw, 573 So. 2d at 1360. Although it was not
required to do so, the district court provided persuasive authority as well. The
district court cited several federal cases, including one from the Fifth Circuit,
interpreting Texas law to find that a promise to modify a loan was a promise of
future conduct that could not support a negligent misrepresentation claim. See
De Franceschi v. BAC Home Loans Servicing, L.P., 477 F. App’x 200, 205 (5th Cir.
2012) (unpublished) (promising not to foreclose on home while loan modification
was pending was not an existing fact, but rather a promise of future conduct).
The Pennells challenge the district court’s conclusion, arguing that Wells
Fargo’s representations concerned existing facts. The Pennells specifically argue
that Wells Fargo misrepresented the nature and terms of the modification
process, and cite two cases that hold that misrepresenting a modification process
can constitute an existing fact that can support a claim for negligent
misrepresentation. See Crowley v. Adams & Edens, P.A., 731 F. Supp. 2d 628,
637 (S.D. Miss. 2010) (applying Mississippi law); Poppelreiter v. GMAC Mortg.,
LLC, No. 1:11CV008–A–S, 2011 WL 2690165, at *6 (N.D. Miss. July 11, 2011)
(same). The district court in Poppelreiter adopts the reasoning of Crowley,
however in Crowley, the district court highlights that the plaintiff’s summary
judgment evidence was conclusive that loan modification would be forthcoming,
Crowley, 731 F. Supp. 2d at 635–36 & n.6, unlike here. Regardless, while these
two cases apply Mississippi law, they are federal district court opinions, not
Mississippi state court opinions. Federal district court cases are not
authoritative statements of state law; a state’s supreme court is the final arbiter
of its own state law issues. See Lucas v. United States, 807 F.2d 414, 418 (5th
Cir. 1986). The Pennells do not dispute that the Mississippi Supreme Court’s
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interpretation of its own laws is supreme, but instead incorrectly argue that
federal district court cases be given consideration as well. Regardless how the
federal district court has recently interpreted Mississippi state law in Crowley
and Poppelreiter, Mississippi state law is clear. A creditor’s representation of
possible future events is a promise of future conduct. Holland, 3 So. 3d at
99–100.
The Pennells argue that the Trial Period Plan included representations of
existing fact, by claiming to be a possible solution. The plan stated only that the
Pennells “may qualify” and that the chance to avoid foreclosure was conditioned
on approval of their application. The Period Plan was by its nature a promise to
evaluate a potential future change. A promise to perform an act in the future can
only support a negligent misrepresentation claim if the promisor had the present
intent not to perform. Bank of Shaw, 573 So. 2d at 1360. The Pennells did not
submit any evidence indicating that Wells Fargo invited them to apply for a loan
modification while simultaneously harboring the intent to not perform.
The Pennells also argue that the May 27, 2010 and June 14, 2010 letters
constituted misrepresentations of existing fact. The May 27 letter states that
Wells Fargo must receive the Pennells’ tax returns before the process can move
forward, which is not a representation of an existing fact, but instead an
indication that Wells Fargo will act in the future. See Spragins, 605 So. 2d at 780
(mortgagee’s promise to buy a property in the future was not a representation of
existing fact). Likewise, the June 14 letter contains a future promise to reinstate
the loan if the Pennells paid the $30,242.15, and thus cannot support a negligent
misrepresentation claim.
Because Wells Fargo’s representations concerned promises of future
conduct, the Pennells’ negligent misrepresentation claim is foreclosed. Thus, we
do not reach the district court’s finding that the Pennells did not reasonably rely
on the representations, as required for a negligent misrepresentation claim.
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IV. CONCLUSION
For the foregoing reasons, we AFFIRM the district court’s grant of
summary judgment in favor of Wells Fargo.
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