Sheets v. BofA / Countrywide Home Loans

IN THE SUPREME COURT OF THE STATE OF IDAHO
Docket No. 42063
COUNTRYWIDE HOME LOANS, INC., )
)
Plaintiff-Counterdefendant-Third Party )
Defendant-Respondent, )
) Boise, November 2015 Term
v.
)
RALPH E. SHEETS, JR. and DEBRA ) 2016 Opinion No. 46
SHEETS, as individuals with an interest in )
the property legally described as: SEE FILE ) Filed: April 26, 2016
FOR DESCRIPTION, )
) Stephen Kenyon, Clerk
Defendants-Counterclaimants-Third )
Party Plaintiffs-Appellants, )
)
v. )
)
BANK OF AMERICA, N.A., successor by
)
merger and name change to BAC HOME
LOANS, f/k/a COUNTRYWIDE HOME )
LOANS, INC., and BAC HOME LOAN )
SERVICING, L.P., f/k/a COUNTRYWIDE )
HOME LOAN SERVICING, LP, and )
RECONTRUST COMPANY, N.A., )
)
Third Party Defendants-Respondents. )
Appeal from the District Court of the Third Judicial District of the State of Idaho,
Adams County. Hon. Bradly S. Ford, District Judge.
The judgment of the district court is affirmed.
John Curtis Hucks, New Meadows, for appellants.
Routh Crabtree Olsen, P.C., Boise and Murr Siler & Accomazzo, P.C., Denver,
Colorado, for respondents. Daniel Delaney argued.
_______________________________________________
HORTON, Justice.
This is a case involving a dispute over a mistakenly released deed of trust, which secured
a 2004 residential mortgage between Ralph Sheets and the lender, Bank of America, N.A., f/k/a
Countrywide Home Loans, Inc. (Countrywide); the servicer of the loan; and the trustee who
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executed the mistaken release (companies collectively referred to as “Bank of America”). The
district court granted summary judgment reinstating the deed of trust and dismissing Sheets’
counterclaims. We affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
In December of 2004, Sheets borrowed $65,250 from Countrywide. He executed a
promissory note, secured by a deed of trust to his home in New Meadows.1 Between December
of 2004 and April of 2009, Sheets timely paid the amounts due on the note.
In 2008, Countrywide sent Sheets a letter telling Sheets that he “may” qualify for a lower
interest rate on a refinancing loan and estimating he had $88,056 equity in the home. Around this
time, Bank of America acquired and merged with Countrywide.2
In the late spring of 2009, Sheets applied for a new loan (the 2009 Refinancing). The loan
application indicated that the loan would be for the principal sum of $87,500 at an interest rate of
5.125%. However, Sheets claimed that he was orally promised a loan of $108,000 at a lower
interest rate in subsequent telephone conversations with a loan officer, Paul Campbell.
Closing on the new loan was scheduled for October 27, 2009. Sheets testified that the
title company agent at the closing would not let him execute the documents because they were
“bad” and incomplete. Thus, the 2009 Refinancing did not close. Sheets arrived home and found
proposed closing documents, but he did not sign the documents because he did not agree with the
terms contained therein. Sheets testified that, based upon his previous conversations with
Campbell, he understood that Bank of America had agreed to not include a requirement for an
escrow payment.
On November 9, 2009, the trustee of the deed of trust, ReconTrust Company, N.A.
(ReconTrust), erroneously recorded a full reconveyance of the deed of trust securing Sheets’
original note. How the erroneous reconveyance came to be recorded is not clear. Bank of
America claims that it caused the reconveyance to be recorded because it mistakenly proceeded
as if the 2009 Refinancing had closed. Sheets claims that Bank of America had a darker, ulterior
motive which it subsequently tried to conceal by failing to turn over relevant evidence in
discovery. Sheets does not explain what this ulterior motive might be.
1
Ralph Sheets’ wife, Debra Sheets, had no personal liability under the note and deed of trust. Although she is a
named defendant in this action, it appears that Ralph Sheets is the only party with a liability to Bank of America. As
such, we refer to the defendants in this action as “Ralph Sheets” or “Sheets.”
2
Sheets has been inconsistent in his claims of the date of merger, alternatively asserting that it took place in April of
2009 and the fall of 2008. The date of merger is not established in the record.
2
For some time after the reconveyance was recorded, the status of Sheets’ loan was
confused. Sheets claimed he repeatedly tried to contact Bank of America representatives who
failed to timely respond and that he tried to make loan payments in November and December of
2009. At the end of November, Sheets’ online banking statement incorrectly stated that he had
two obligations to Bank of America: the original 2004 loan, with a balance of $43,263.84; and a
new loan with a balance of $87,750. Sheets hired counsel in late November of 2009 to assist him
with the matter. On January 25, 2010, Bank of America sent Sheets a notice of its intent to
accelerate his obligation and foreclose the deed of trust if Sheets did not bring his account
current and pay late fees.
On March 29, 2010, Bank of America sent Sheets a letter asking Sheets to stipulate to
rescinding the reconveyance. The next day, Bank of America filed a complaint against Sheets
seeking reinstatement of the deed of trust. On May 25, 2010, Bank of America sent Sheets a
notice of its intent to commence foreclosure proceedings. Sheets filed an answer, counterclaim,
demand for jury trial, and third party complaint against the third-party defendants in this action.
He brought counterclaims for: (1) breach of contract; (2) specific performance; (3) violation of
the Idaho Consumer Protection Act; (4) violation of the federal Fair Credit Reporting Act; (5)
slander of credit; and (6) violation of Idaho Code section 45-1502.
In 2012, Bank of America filed two motions for summary judgment, seeking
reinstatement of the deed of trust and dismissal of Sheets’ counterclaims. The district court ruled
in favor of Bank of America on all issues. When considering Bank of America’s motion for
summary judgment on its complaint, the district court determined that the terms of the deed of
trust were dispositive and that it was clear that Sheets was not entitled to reconveyance of the
trust deed until he fully paid the underlying note which the trust deed secured. The district court
alternatively granted summary judgment on the theory of unjust enrichment, reasoning that it
would be inequitable for Sheets to obtain the benefit of the reconveyance.
The district court dismissed Sheets’ counterclaims, finding that a valid contract did not
exist between Sheets and Bank of America because there was no written contract complying with
the statute of frauds and no evidence of a meeting of the parties’ minds as to the terms of the
alleged contract. Based upon this determination, the district court denied Sheets’ request for
specific performance because no contract existed. Sheets timely appealed.
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II. STANDARD OF REVIEW
“When reviewing a grant of summary judgment, this Court employs the same standard as
the district court.” Idaho Youth Ranch, Inc. v. Ada Cnty. Bd. of Equalization, 157 Idaho 180, 182,
335 P.3d 25, 27 (2014). Summary judgment is appropriate when “the pleadings, depositions, and
admissions on file, together with the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a judgment as a matter of law.” I.R.C.P.
56(c). “When considering a motion for summary judgment, this Court liberally construes the
record in a light most favorable to the party opposing the motion and draws all reasonable
inferences in that party’s favor.” Kepler-Fleenor v. Fremont Cnty., 152 Idaho 207, 210, 268 P.3d
1159, 1162 (2012). When “the evidence reveals no disputed issues of material fact, then only a
question of law remains, over which this Court exercises free review.” Stonebrook Const., LLC
v. Chase Home Fin., LLC, 152 Idaho 927, 930, 277 P.3d 374, 377 (2012) (quoting Lockheed
Martin Corp. v. Idaho State Tax Comm’n, 142 Idaho 790, 793, 134 P.3d 641, 644 (2006)).
III. ANALYSIS
Sheets contends that the district court erred by granting summary judgment in Bank of
America’s favor and dismissing his counterclaims. We address these claims in turn.
A. The district court properly granted summary judgment rescinding the reconveyance.
The district court granted summary judgment in favor of Bank of America’s complaint on
the theory of unjust enrichment because allowing Sheets to gain a benefit from the erroneous
reconveyance would be inequitable.3 It determined that unclean hands did not bar Bank of
America from equitable relief. It reasoned that, although Bank of America “clearly acted without
oversight and without awareness of the actions of its agents,” such conduct did not amount to
conduct that was “inequitable, unfair and dishonest, or fraudulent and deceitful,” which is
necessary for application of the doctrine of unclean hands.
Sheets contends that two documents created by Bank of America’s agents, which he
refers to as the Beltran and Wigner Documents, were false and bar Bank of America from
seeking equitable relief. Bank of America responds that Sheets’ insinuation that Bank of
America’s mistaken reconveyance was part of an undefined “sinister scheme” is unsupportable.
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The district court also granted Bank of American’s request for summary judgment for rescission of the
reconveyance on an alternative theory, determining that the substance of Bank of America’s claim was for a
declaratory judgment and that under the terms of the deed of trust and note Sheets was not entitled to reconveyance
until he paid off his loan. We do not reach this alternative ground for relief because we affirm the district court’s
grant of summary judgment on the equitable theory of unjust enrichment.
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“Unjust enrichment occurs where a defendant receives a benefit which would be
inequitable to retain without compensating the plaintiff to the extent that retention is unjust.”
Vanderford Co. v. Knudson, 144 Idaho 547, 557, 165 P.3d 261, 271 (2007). “The substance of an
action for unjust enrichment lies in a promise, implied by law, that a party will render to the
person entitled thereto that which in equity and good conscience belongs to the latter.” Smith v.
Smith, 95 Idaho 477, 484, 511 P.2d 294, 301 (1973). “The elements of unjust enrichment are that
(1) a benefit is conferred on the defendant by the plaintiff; (2) the defendant appreciates the
benefit; and (3) it would be inequitable for the defendant to accept the benefit without payment
of the value of the benefit.” Teton Peaks Inv. Co., LLC v. Ohme, 146 Idaho 394, 398, 195 P.3d
1207, 1211 (2008). Here, Sheets borrowed money from Bank of America, used the money to
purchase property for his own benefit and pledged that property to Bank of America as security
for repayment of the loan. It would be inequitable for Sheets retain that property without
requiring that he fulfill his promise to repay the loan. Therefore, the district court correctly
determined that Sheets would be unjustly enriched if the reconveyance was not rescinded.4
To avoid this result, Sheets has raised the defense of unclean hands. The unclean hands
doctrine “stands for the proposition that a litigant may be denied relief by a court of equity on the
ground that his conduct has been inequitable, unfair and dishonest, or fraudulent and deceitful as
to the controversy in issue.” Ada Cnty. Highway Dist. v. Total Success Investments, LLC, 145
Idaho 360, 370, 179 P.3d 323, 333 (2008) (quotations omitted) (quoting Gilbert v. Nampa Sch.
Dist. No. 131, 104 Idaho 137, 145, 657 P.2d 1, 9 (1983)). For the doctrine to apply, “[t]he
conduct must be intentional or willful, rather than merely negligent.” Grazer v. Jones, 154 Idaho
58, 68, 294 P.3d 184, 194 (2013).
In determining if the clean hands doctrine applies a court has discretion to
evaluate the relative conduct of both parties and to determine whether the conduct
of the party seeking an equitable remedy should, in the light of all the
circumstances, preclude such relief. A trial court’s decision to afford relief based
on the unclean hands doctrine, or to reject its application, will not be overturned
on appeal absent a demonstration that the lower court abused its discretion.
4
Such a decision is consistent with the equitable decisions of other courts. See, e.g., Holiday Hospitality
Franchising, Inc. v. States Res., Inc., 232 S.W.3d 41, 52-54 (Tenn. Ct. App. 2006) (reinstating a mistakenly released
deed of trust on summary judgment under the “equitable lien” theory); Cameron State Bank v. Sloan, 559 S.W.2d
564, 568 (Mo. Ct. App. 1977) (deciding that “negligence on the part of the bank” in mistakenly releasing a deed of
trust did “not permit appellants to gain an unconscionable advantage”).
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Ada Cnty. Highway Dist., 145 Idaho at 371, 179 P.3d at 334 (alterations omitted) (quoting Sword
v. Sweet, 140 Idaho 242, 251, 92 P.3d 492, 501 (2004)). The three-part test for abuse of
discretion asks whether the district court “(1) correctly perceived the issue as one of discretion;
(2) acted within the outer boundaries of its discretion and consistently with the legal standards
applicable to the specific choices available to it; and (3) reached its decision by an exercise of
reason.” Sun Valley Potato Growers, Inc. v. Texas Refinery Corp., 139 Idaho 761, 765, 86 P.3d
475, 479 (2004).
The district court did not abuse its discretion in rejecting Sheets’ unclean hands defense.
The district court explicitly recognized that this was a discretionary decision. The district court
identified the relevant legal principles, which require the conduct to be “inequitable, unfair and
dishonest, or fraudulent and deceitful as to the controversy in issue.” The district court provided
a reasoned analysis, explaining why Bank of America’s conduct did not meet the requisite
standard.
In doing so, the district court analyzed both the Beltran and Wigner Documents which
Sheets relied upon in support of his claim that Bank of America had unclean hands. The Beltran
Document is entitled “Disbursement Authorization Checklist” and certifies that the requirements
for the 2009 Refinancing were satisfied and that the loan should be funded. The district court
found that the document was obviously incorrect because the 2009 Refinancing did not close.
The Wigner Document is a loan quality checklist, which appears to be a post-closing checklist
and that shows the 2009 loan was closed. The district court reasoned that, although the
documents demonstrated Bank of America’s “corporate failings” and lack of oversight, they did
not evidence “inequitable, unfair and dishonest, or fraudulent and deceitful” conduct. We are
unable to conclude that this finding was erroneous.5
5
Sheets argues that a series of discovery disputes prevented him from accessing information from various Bank of
America agents who could have helped clarify what precipitated the reconveyance and failed 2009 Refinancing.
Bank of America responds by arguing Sheets waived his discovery arguments by failing to object before the district
court. Sheets replies that he did file a motion to compel, much of which the district court dismissed after determining
that Bank of America did not have the requested information. “The trial court has broad discretion in determining
whether or not to grant a motion to compel.” Nightengale v. Timmel, 151 Idaho 347, 351, 256 P.3d 755, 759 (2011).
The district court did not abuse its discretion by only partially granting Sheets’ motion to compel. The district court
denied much of the relief Sheets sought because Sheets’ requests were broad and did not comply with the Idaho
Rules of Civil Procedure. The district court noted that it was “sympathetic to the Sheets’ frustration at trying to
recover information from an entity such as Countrywide and its association with the entity of Bank of America,” but
it was limited by Sheets’ broad requests and Bank of America’s representations that it did not have the information.
The record does not show that Sheets made further attempts to refine his discovery requests. We are unable to
conclude that the district court abused its discretion with regard to Sheets’ motion to compel.
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Sheets has not shown that the district court erred by refusing to apply the doctrine of
unclean hands as a bar to the Bank of America’s claim for relief. Thus, we affirm the district
court’s grant of summary judgment in favor of Bank of America on its claim for relief from the
reconveyance.
B. The district court properly granted summary judgment dismissing Sheets’
counterclaims.
Sheets advanced counterclaims with respect to an alleged agreement to refinance Sheets’
loan.6 These counterclaims involve a breach of contract claim and a specific performance claim.
The district court determined that a valid contract did not exist between Sheets and Bank
of America because there was no written contract that would comply with the statute of frauds
and there was no evidence of a meeting of the minds as to the terms of the alleged contract.
Sheets contends that Bank of America committed in writing to loan Sheets money “by approving
and scheduling a closing for the 2009 Refinancing.” Bank of America responds that there is no
written contract and that the parties never had a meeting of the minds as to important terms of the
alleged contract. Bank of America is correct on both counts.
Summary judgment was appropriate because the alleged contract to lend money in the
2009 Refinancing is not evidenced by a signed writing. Idaho’s Statute of Frauds is set forth at
Idaho Code section 9–505, and provides in relevant part:
In the following cases the agreement is invalid, unless the same or some
note or memorandum thereof, be in writing and subscribed by the party charged,
or by his agent. Evidence, therefore, of the agreement cannot be received without
the writing or secondary evidence of its contents:
....
5. A promise or commitment to lend money or to grant or extend credit in
an original principal amount of fifty thousand dollars ($50,000) or more, made by
a person or entity engaged in the business of lending money or extending credit.
Sheets has not met his burden to present a writing signed by an agent of Bank of America
committing to loan him money. Sheets directs our attention to Bajrektarevic v. Lighthouse Home
Loans, Inc., 143 Idaho 890, 155 P.3d 691 (2007), in support of his claim that this Court may look
to the conduct of the parties to determine whether a contract existed. However, that case does not
6
Sheets’ appeal does not challenge the dismissal of certain counterclaims, including those asserting claimed
violations of the Idaho Consumer Protection Act and the federal Fair Credit Reporting Act, slander of credit, and
violation of Idaho Code section 45-1502.
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support his assertion that a commitment to lend money may be implied from the parties’ conduct,
without the requisite written document.
The district court also correctly determined that there was no evidence of a meeting of the
minds between Sheets and Bank of America sufficient to establish an enforceable contract.
“Formation of a valid contract requires a meeting of the minds as evidenced by a manifestation
of mutual intent to contract.” Justad v. Ward, 147 Idaho 509, 512, 211 P.3d 118, 121 (2009).
“For a contract to exist, a distinct understanding that is common to both parties is necessary.”
Wandering Trails, LLC v. Big Bite Excavation, Inc., 156 Idaho 586, 592, 329 P.3d 368, 374
(2014). “An enforceable contract must be complete, definite, and certain in all of the contract’s
material terms.” Id.
Here, the loan application stated the loan was for the principal amount of $87,500 with an
interest rate of 5.125%. However, Sheets claimed that he was orally promised a loan of $108,000
at a lower, but unspecified, interest rate in subsequent telephone conversations with loan officer,
Paul Campbell. The $20,500 discrepancy in the loan amount is unexplained. The proposed
closing documents that Sheets received from Bank of America did not contain terms that Sheets
found acceptable. In the absence of evidence of any agreement as to material terms, including the
principal sum to be loaned and the interest rate to be paid thereon, the district court correctly
determined that a meeting of the minds did not occur.
The district court denied Sheets’ request for specific performance because it determined
no contract existed between the parties. It is axiomatic that a court may not order specific
performance of a contract that does not exist. Therefore, the district court properly dismissed
Sheets’ counterclaim.
C. We award Bank of America attorney fees on appeal.
Bank of America requests appellate attorney fees under the terms of the deed of trust and
Idaho Code sections 12-123, 12-120, and 12-121. We grant Bank of America’s request for
attorney fees under Idaho Code section 12-121. That statute allows an award of “reasonable
attorney’s fees to the prevailing party . . . .” I.C. § 12-121. Attorney fees are awarded to the
prevailing party only if “the Court determines that the action was brought or pursued frivolously,
unreasonably or without foundation.” Baker v. Sullivan, 132 Idaho 746, 751, 979 P.2d 619, 624
(1999). Sheets’ appeal meets this standard.
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Sheets has alleged Bank of America engaged in some sort of scheme to defraud him
without a shred of evidence to support that claim. There is simply no evidence of inequitable,
unfair, dishonest, fraudulent, or deceitful conduct needed to support his claim that Bank of
America had unclean hands. Likewise, there is no evidence supporting Sheets’ counterclaims for
breach of contract and specific performance. Although he had no evidence to support his defense
to Bank of America’s action or his counterclaims, Sheets has maintained this action and failed to
pay on his loan for six years, apparently hoping to obtain a windfall due to Bank of America’s
error in 2009. We find Sheets’ appeal to have been pursued frivolously, unreasonably, and
without foundation. Thus, we award Bank of America attorney fees under Idaho Code section
12-121.
IV. CONCLUSION
We affirm the district court’s decision granting summary judgment to Bank of America
on its claim to void the mistakenly recorded reconveyance and the district court’s judgment
dismissing Sheets’ counterclaims. We award attorney fees and costs on appeal to Bank of
America.
Chief Justice J. JONES and Justices EISMANN, BURDICK and W. JONES, CONCUR.
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