LSR Consulting, LLC Ex Rel. Karna v. Wells Fargo Bank, N.A.

Case: 15-20774 Document: 00513660066 Page: 1 Date Filed: 08/31/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 15-20774 FILED
August 31, 2016
Lyle W. Cayce
Clerk
LSR CONSULTING, LLC,
as Assignee of Vinay K. Karna and Mridula L. Karna,
Plaintiff–Appellant,
versus
WELLS FARGO BANK, N.A.,
Defendant–Appellee.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:14-CV-1337
Before KING, SMITH, and COSTA, Circuit Judges.
JERRY E. SMITH, Circuit Judge:
LSR Consulting, LLC (“LSR”), appeals a summary judgment denying its
wrongful-foreclosure claims and awarding attorneys’ fees to Wells Fargo Bank,
N.A. (“Wells Fargo”). Finding no error, we affirm.
Case: 15-20774 Document: 00513660066 Page: 2 Date Filed: 08/31/2016
No. 15-20774
I.
In 2006, Mridula Lal Karna and Viday Karna bought real property on
Wichita Street (the “Wichita Property”) and Cleburne Street (the “Cleburne
Property”) in Houston. The original mortgagee of the Wichita Property was
Wells Fargo; the original mortgagee of the Cleburne Property was First
National Bank of Arizona and/or Mortgage Electronic Registration Systems,
Inc., as its nominee. Wells Fargo was the mortgage servicer for both loans.
The Karnas defaulted, and in 2010 Wells Fargo foreclosed. Before the
foreclosures, the Karnas, through counsel, requested that Wells Fargo verify
the debt as to both properties under the Fair Debt Collections Practices Act
(“FDCPA”), 15 U.S.C. § 1692g. Wells Fargo responded but, according to LSR,
failed to provide accurate and required information.
In 2014, the Karnas assigned their alleged claims against Wells Fargo to
their wholly owned company, LSR, agreeing to pay LSR the first $2,000 of any
funds it collected from Wells Fargo and permitting LSR to retain the funds
necessary to reimburse it for collection expenses, including attorneys’ fees.
Shortly thereafter, LSR sued in state court, and Wells Fargo removed. Wells
Fargo and the district court read LSR’s complaint as asserting causes of action
for wrongful foreclosure and violation of the FDCPA. 1 After discovery and
motion practice, the court granted summary judgment to Wells Fargo and
awarded it attorneys’ fees, both of which LSR appeals. 2
1As noted below, LSR contends, for the first time in its reply brief, that it never
claimed violation of § 1692g, even though it alleged a violation of that section in its original
complaint: “Although the Karnas specifically requested debt verification pursuant to
15 U.S.C. § 1692g, Wells Fargo failed to provide it.”
2 LSR does not appeal the summary judgment on the FDCPA claims.
2
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II.
Wells Fargo is entitled to summary judgment on the wrongful-fore-
closure claim because LSR cannot establish an essential element. Under Texas
law, a party alleging wrongful foreclosure must prove a defect in the
foreclosure-sale proceedings. 3 Texas requires strict compliance with a deed of
trust, 4 including notice conditions, 5 and LSR maintains that Wells Fargo did
not notify the Karnas of its intent to accelerate the maturity of the indebted-
ness before acceleration and foreclosure as required by the deeds of trust. 6
The district court concluded that the summary judgment evidence
refutes the Karnas’ allegations of lack of notice.
[T]he evidence in the record shows that Defendant served Plaintiff with
Notices of Default and Intent to Foreclose for the Cleburne Property via
certified mail on August 6, 2009, September 20, 2009, and Novem-
ber 14, 2009. Likewise, the evidence in the record shows that Defen-
dant served Plaintiff with Notices of Default and Intent to Foreclose on
the Wichita Property via certified mail on October 18, 2009 and
3Charter Nat’l Bank-Houston v. Stevens, 781 S.W.2d 368, 371 (Tex. App.—Houston
[14th Dist.] 1989, writ denied).
4 Univ. Sav. Ass’n v. Springwoods Shopping Ctr., 644 S.W.2d 705, 706 (Tex. 1982)
(“Texas courts have consistently held that the terms set out in a deed of trust must be strictly
followed.”).
5 Hous. First Am. Sav. v. Musick, 650 S.W.2d 764, 768 (Tex. 1983) (“Compliance with
the notice condition contained in the deed of trust and as prescribed by law is a prerequisite
to the right of the trustee to make the sale.”).
6 Deeds of Trust ¶ 22:
Lender shall give notice to Borrower prior to acceleration following Borrower’s
breach of any covenant or agreement in this Security Instrument (but not prior to
acceleration under Section 18 unless Applicable Law provides otherwise). The notice
shall specify: (a) the default; (b) the action required to cure the default; (c) a date,
not less than 30 days from the date the notice is given to Borrower, by which the
default must be cured; and (d) that failure to cure the default on or before the date
specified in the notice will result in acceleration of the sums secured by this Security
Instrument and sale of the Property. The notice shall further inform Borrower of
the right to reinstate after acceleration and the right to bring a court action to assert
the non-existence of a default or any other defense of Borrower to acceleration and
sale.
3
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November 15, 2009. Additionally, the record contains prima facie evi-
dence of Defendant’s service via the affidavit of Matthew Cunningham
of National Default Exchange, LP on May 4, 2010 for the Wichita Prop-
erty, and the affidavit of Mikey Wilkinson of Brice, Vander Linder &
Wernick, P.C. on May 6, 2010 for the Cleburne Property. As such, the
Court finds no genuine issue of material fact as to whether Defendant
served Plaintiff with the required Notices of Default and Intent to Fore-
close documents prior to accelerating Plaintiff’s indebtedness and pro-
ceeding with a foreclosure sale.
LSR Consulting, LLC v. Wells Fargo Bank, N.A. (S.D. Tex. Aug. 20, 2015) (cita-
tions omitted).
LSR, however, disputes the admissibility of the evidence that the district
court relied on in concluding that Wells Fargo notified the Karnas of its intent
to accelerate. The Notices of Default and Intent to Foreclose (the “notices”),
LSR maintains, are inadmissible because they are not self-authenticating and
were not authenticated by any witness testimony attached to the motions for
summary judgment. 7 They are also irrelevant, because what matters is wheth-
er the notices were sent, and there is allegedly no summary judgment evidence
that they were. LSR regards the declarations authenticating the notices as
inadmissible because, contrary to Local Rule 7.7 and the trial court’s Rule 4.K,
they were not filed with or attached to the motions for summary judgment. 8
7 Wells Fargo apparently intended, but failed, to attach declarations authenticating
the notices to its motions for summary judgment, which were filed on March 10 and 18, 2015,
respectively. On March 26, 2015, Wells Fargo filed declarations by Michael Burns and Becky
Howell. Burns’s declaration purported to authenticate the notices for the Cleburne Property;
Howell’s declaration purported to authenticate certain documents related to the Wichita
Property but not the notices. On April 16, 2015, Wells Fargo filed declarations by Andrea
Kruse authenticating the notices for both properties. LSR urged that all of those declarations
were inadmissible. In deciding the motions for summary judgment, the district court relied
on the declarations by Burns and Howell but not the late-filed declarations by Kruse.
8S.D. Tex. Civ. R. 7.7 (“If a motion or response requires consideration of facts not
appearing of record, proof by affidavit or other documentary evidence must be filed with the
motion or response.”); Rule 4.K (“All exhibits (contract, leases, affidavits, etc.) referred to in
briefs must be attached to the brief.”).
4
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And it urges the inadmissibility of the affidavits by Cunningham and Wilkin-
son because their statements regarding notice were conclusional and based on
information and belief rather than personal knowledge.
LSR’s objections are without merit. First, it is not dispositive whether
the notices in their current form are admissible in evidence. At the summary
judgment stage, materials cited to support or dispute a fact need only be capa-
ble of being “presented in a form that would be admissible in evidence.” FED.
R. CIV. P. 56(c)(2). The various declarations filed by Wells Fargo demonstrate
that the notices can be presented in a form admissible in evidence. So the
district court properly considered the notices.
Second, the court did not err in relying on the affidavits by Cunningham
and Wilkinson. Although LSR objects that the affidavits were not based on
personal knowledge, they contain sufficiently specific statements for the dis-
trict court to infer that the affiants had personal knowledge of the facts at-
tested therein. LSR also objects that the affidavits’ statements about the
mailing of the notices “have a conclusory character” and that “bald assertions
of ultimate facts are ordinarily insufficient to support summary judgment.”
Gossett v. Du-Ra-Kel Corp., 569 F.2d 869, 872 (5th Cir. 1978) (emphasis added).
Even if true, LSR’s averments do not suffice to disqualify the affidavits,
because the affidavits’ statements do not stand alone. Wells Fargo provided
supporting documentation.
Third, we reject LSR’s assertion that the Karnas’ testimony of non-
receipt of the notices creates a fact issue requiring trial. Paragraph fifteen of
the deeds of trust requires only constructive notice: “Any notice to Borrower
in connection with [the deeds of trust] shall be deemed to have been given to
Borrower when mailed by first class mail . . . .” That paragraph is thus akin
to Section 51.002(e) of the Texas Property Code, which defines service of
5
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certain foreclosure-related notices to be “complete when the notice is deposited
in the United States mail, postage prepaid and addressed to the debtor at the
debtor’s last known address.”
In interpreting Section 51.002(e), Texas courts have recognized that the
dispositive inquiry “is not receipt of notice, but, rather, service of notice.” 9 For
that reason, they have held there to be no genuine dispute as to the sending of
notices required under Section 51.002 when the sole contravening evidence is
the homeowner’s affidavit asserting non-receipt. Adebo, 2008 WL 2209703,
at *4. LSR points out that in Sauceda v. GMAC Mortgage Corp., 268 S.W.3d
135, 140 (Tex. App.—Corpus Christi 2008, no pet.), the court held that the
homeowner’s testimony of non-receipt created a fact issue as to whether he was
served with the statutorily required notice. 10 Unlike here and in Adebo, how-
ever, in Sauceda the mortgage servicer provided no supporting documentation
showing that it had served notice. 11
Applying the reasoning in Adebo to the notice and service provisions
under the instant deeds of trust, we can only conclude that the Karnas’ self-
9 Adebo v. Litton Loan Servicing, L.P., 2008 WL 2209703, at *4 (Tex. App.—Houston
[1st Dist.] 2008, no pet.) (mem. op.); see also WMC Mortg. Corp. v. Moss, 2011 WL 2089777,
at *7 (Tex. App.—Houston [1st Dist.] 2011, no pet.) (“The purpose of notice under Section
51.002 is to provide a minimum level of protection to the debtor, and actual receipt of the
notice is not necessary.”); Onuwuteaka v. Cohen, 846 S.W.2d 889, 892 (Tex. App.—Houston
[1st Dist.] 1993, writ denied) (“The general purpose of [Section 51.002] is to provide a mini-
mum level of protection for the debtor, and it provides for only constructive notice of the fore-
closure.” (emphasis added)).
10In addition, LSR cites Coleman v. Wells Fargo Bank, No. 09-03-598 CV, 2004 WL
2750240 (Tex. App.—Beaumont 2004, no pet.) (per curiam) (mem. op.), holding that by filing
two affidavits averring non-receipt of the notice required by Section 51.002(d), the home-
owner had raised a question of material fact defeating summary judgment. The Coleman
court, however, ignored Section 51.002(e). So it is not directly relevant.
11 The record in Saucedo contained two notices sent by the mortgage servicer and
received by the homeowner, but those notices failed to comply with all the statutory require-
ments or the notice requirements in the deed of trust.
6
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serving protestations of non-receipt of notice do not create a genuine dispute
as to whether Wells Fargo mailed notices of intent to accelerate. We thus
affirm summary judgment on the wrongful-foreclosure claims.
III.
Under the FDCPA, a court may award the defendant attorneys’ fees
upon “a finding by the court that an action under this section was brought in
bad faith and for the purpose of harassment.” 15 U.S.C. § 1692k(a)(3). The
district court made the requisite factual finding. But LSR contends that, as a
matter of law, the evidence is insufficient to support that finding.
The court did not abuse its discretion in finding that LSR brought its
FDCPA claim in bad faith and for the purpose of harassment. 12 The provision
that LSR alleges Wells Fargo violated applies only to debt collectors. But the
plain language of the FDCPA makes clear that a debt collector does not include
entities such as Wells Fargo, which do not have as their principal purpose “the
collection of any debts” and which do not “regularly collect[] or attempt[] to
collect, directly or indirectly, debts owed or due or asserted to be owed or due
another.” 15 U.S.C. § 1692a(6). “The legislative history . . . indicates conclu-
sively that a debt collector does not include . . . a mortgage servicing company
. . . .” 13 LSR sued Wells Fargo just days before the four-year statute of limi-
tations was set to expire with respect to the properties and has also sued
numerous other lenders in connection with four other properties under the
same theory, likewise just days before the running of limitations. LSR,
moreover, is merely the assignee of claims with regard to the properties. The
12 See Perry v. Stewart Title Co., 756 F.2d 1197, 1211 (5th Cir.), modified on other
grounds, 761 F.2d 237 (5th Cir. 1985) (reviewing § 1692k(a)(3) attorneys’ fee determination
for an abuse of discretion).
13 Id. at 1208.
7
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original holders of the claims are LSR’s principals, the Karnas, who, it could
be inferred, assigned their claim solely to limit their personal liability, should
Wells Fargo refuse to settle. Under these circumstances, there is no abuse of
discretion in imposing attorneys’ fees.
In its reply brief, LSR says that Wells Fargo is not entitled to attorneys’
fees under § 1692k because it never asserted a claim against Wells Fargo under
the FDCPA. Because LSR failed to raise that argument in its initial brief on
appeal, it has been waived. See Flex Frac Logistics, L.L.C. v. N.L.R.B., 746
F.3d 205, 208 (5th Cir. 2014).
AFFIRMED.
8