Casstevens v. Smith

• Decision Date: 23 October 2008
• Docket Number: No. 06-07-00116-CV.,06-07-00116-CV.
• Parties: Ann CASSTEVENS, Individually and on behalf of Kenneth Casstevens, Deceased, Appellant, v. Daniel SMITH and Shannon Smith, Appellees.
• Court: Texas Court of Appeals

269 S.W.3d 222

Ann CASSTEVENS, Individually and on behalf of Kenneth Casstevens, Deceased, Appellant, v. Daniel SMITH and Shannon Smith, Appellees.

No. 06-07-00116-CV.

Court of Appeals of Texas, Texarkana.

Submitted September 10, 2008.

Decided October 23, 2008.

Rehearing Overruled November 18, 2008.

M. Keith Dollahite, M. Keith Dollahite, PC, Tyler, TX, for Appellant.

Ralph E. Allen, Tyler, TX, for Appellees.

Before MORRISS, C.J., CARTER and MOSELEY, JJ.

OPINION

Opinion by Justice CARTER.

Ann Casstevens and her husband¹ were defrauded by their neighbors, Roger and Natalie Carroll, when they bought the Carrolls' house. Even though the Casstevenses paid the Carrolls $34,000 in cash and executed a note for $90,000 to the Carrolls and received a warranty deed, they were not informed that the Carrolls still owed two debts on the house—an original note to a bank for $88,800 and a second lien to the prior owners, Richard and Mary Campbell, for $18,200. Apparently no title history search was conducted. The Casstevenses made monthly payments to the Carrolls for six years, but the Carrolls did not pay off either of the debts on the house.

To make matters worse, in 2004 when the Casstevenses learned of the Carrolls' bank note, the Carrolls prevailed on them to prepay $64,000 cash purportedly to allow the Carrolls to pay off their bank obligation. But the Carrolls did not pay off either their first or second lien on the house. Ultimately, the Campbell note was foreclosed and on May 3, 2005, Daniel and Shannon Smith bought the property at the foreclosure sale for approximately $22,000 owed to the Campbells.

Appearing to recognize the dilemma of the Casstevenses, the Smiths indicated they would "work with" the Casstevenses and attempted to negotiate with them. The Casstevenses offered to reimburse the Smiths for their investment, but the Smiths declined and attempted to reach an agreement for the Casstevenses to pay rent. In late August 2005, the Smiths paid the bank approximately $44,000 and extinguished that lien. Based on these ownership rights, the Smiths asserted full ownership of the house and eventually evicted the Casstevenses.

The Casstevenses have recovered a default judgment against Mr. Carroll based on statutory fraud, common-law fraud, violation of the Texas Deceptive Trade Practices Act, and for exemplary damages; Mrs. Carroll has declared bankruptcy. This suit is brought by Ann Casstevens, individually and on behalf of Kenneth Casstevens, deceased, against the Smiths. In it, Ann Casstevens relies on the theories of equitable subrogation, unjust enrichment, common-law and statutory fraud, filing fraudulent court records, unfair debt collection practices, and superior title to the property. The trial court granted a traditional and no-evidence summary judgment to the Smiths. For reasons stated below, we affirm the no-evidence summary judgment except with respect to an issue concerning the alleged violation of the Debt Collection Practices Act.

I. Standards for a No-Evidence Summary Judgment

In a no-evidence motion for summary judgment, the movant represents that no evidence exists as to one or more essential elements of the nonmovant's claims, upon which the nonmovant would have the burden of proof at trial. TEX.R. CIV. P. 166a(i). The nonmovant then must present evidence raising a genuine issue of material fact on the challenged elements. Id. To defeat a no-evidence motion for summary judgment, the respondent is not required to marshal its proof; its response need only point out evidence that raises a fact issue on the challenged elements. TEX.R. CIV. P. 166a(i) cmt.

A no-evidence summary judgment is essentially a pretrial directed verdict. We therefore apply the same legal sufficiency standard in reviewing a no-evidence summary judgment as we apply in reviewing a directed verdict. Wal-Mart Stores, Inc. v. Rodriguez, 92 S.W.3d 502, 506 (Tex.2002).

We review the nonmovant's summary judgment evidence to determine whether the nonmovant produced any evidence of probative force to raise a fact issue on the material questions presented. Id.; Woodruff v. Wright, 51 S.W.3d 727 (Tex.App.-Texarkana 2001, pet. denied). A nonmovant will defeat a no-evidence summary judgment motion if the nonmovant presents more than a scintilla of probative evidence on each element of his or her claim. King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 751 (Tex.2003); Jackson v. Fiesta Mart, Inc., 979 S.W.2d 68, 70-71 (Tex.App.-Austin 1998, no pet.). In a summary judgment hearing, the trial court's decision is based on written pleadings and written evidence rather than live testimony. See TEX.R. CIV. P. 166a(c).

We first address the issue of equitable subrogation.

II. Equitable Subrogation

Casstevens argues that, by making payments to the Carrolls that the Carrolls used to pay on the first lien to the Bank, Casstevens stepped into the shoes of the first lienholder, the bank.

The doctrine of equitable subrogation allows a party who would otherwise lack standing to step into the shoes of and pursue claims belonging to a party with standing. Frymire Eng'g Co. v. Jomar Int'l, Ltd., 259 S.W.3d 140 (Tex.2008). As the Texas Supreme Court again recognized in Frymire, Texas courts interpret this doctrine liberally. Equitable subrogation applies "in every instance in which one person, not acting voluntarily, has paid a debt for which another was primarily liable and which in equity should have been paid by the latter." Id. at 142. Thus, a party seeking equitable subrogation must show it involuntarily paid a debt primarily owed by another in a situation that favors equitable relief. The doctrine exists to prevent the unjust enrichment of the debtor who owed the debt being paid.

Frymire was a subcontractor who installed a water valve that ultimately failed in a hotel, causing extensive damage. According to Frymire's contract, it was responsible to the hotel for any damage caused. Frymire paid the damage claim pursuant to its contract with the hotel, but later sued the manufacturer of the valve in tort. The Texas Supreme Court recognized that the payment fulfilled a debt owed by Frymire to the hotel and concluded that a tort claim against the manufacturer still existed, along with some evidence that the manufacturing defect caused the injury. Thus, there was some evidence that Frymire paid a debt primarily owed by the manufacturer—and the court further found that the payment was involuntary, although made under the terms of the contract—noting that the contract was not with the manufacturer, but with another entity, and thus equitable subrogation was not foreclosed.

The doctrine of equitable subrogation "is not applied for the mere stranger or volunteer who has paid the debt of another, without any assignment or agreement for subrogation, without being under any legal obligation to make payment, and without being compelled to do so for the preservation of any rights or property of his own." First Nat'l Bank of Kerrville v. O'Dell, 856 S.W.2d 410, 415 (Tex.1993) (quoting Oury v. Saunders, 77 Tex. 278, 280, 13 S.W. 1030, 1031 (1890)); Langston v. GMAC Mortgage Corp., 183 S.W.3d 479, 481 (Tex.App.-Eastland 2005, no pet.).

Casstevens argues that her monthly payments to the Carrolls, which they in turn paid to the bank on the first lien mortgage, created this equitable right of subrogation. It is clear that the Carrolls never completely paid off the first mortgage. Casstevens asserts that this alleged equitable subrogation right was in existence when the Smiths acquired title by buying the bank's lien on the property; therefore, it is argued, the Smiths' title is subject to this alleged equitable subrogation right.

The right of equitable subrogation arises when one pays the debt of another for which the other is primarily liable. For instance, if Casstevens had paid off the Carrolls' bank note in its entirety, under this theory Casstevens would step into the position of the bank and could recover from the Carrolls for the amount paid. Here, Casstevens is not attempting to assert a subrogation right against the Carrolls, but asserts that this right defeats or dilutes the ownership acquired by the Smiths when they acquired the bank's lien. We do not believe this is the purpose of the equitable subrogation doctrine—instead, the doctrine allows the payor to assert rights owned by a creditor against the party primarily liable—in this case, the Carrolls. Equitable subrogation is a legal fiction whereby an obligation that is extinguished by a third party is treated as still existing to allow the creditor to seek recovery from the party primarily liable. Bennett Truck Transport, L.L.C. v. Williams Bros. Constr., 256 S.W.3d 730 (Tex.App.-Houston [14th Dist.] 2008, no pet.). The purpose is to prevent the unjust enrichment of the debtor who was primarily liable. Smart v. Tower Land & Inv. Co., 597 S.W.2d 333, 337 (Tex.1980). Here, any right of subrogation owned by Casstevens could be asserted only against the Carrolls (the parties primarily liable), not against the bank or the Smiths.

A right of subrogation is not a substantive, tangible thing of such nature that it can be seized and held independently of a judicial proceeding; it is a right of action only—that is, it must be established by a judicial proceeding. Downing v. Jeffrey, 173 S.W.2d 241, 246 (Tex.Civ.App.-Galveston 1943, writ ref'd w.o.m.) (op. on reh'g). Here, even if Casstevens had proof of payment on behalf of the Carrolls, her equitable cause of action would be against the Carrolls, not the Smiths. We do not believe this unprosecuted, alleged cause of action that Casstevens may have against the Carrolls affects the title and ownership rights acquired by the Smiths.

The Texas Supreme Court has made it clear that the purpose of the doctrine is to prevent the unjust enrichment of the debtor who owed the debt that is paid. O'Dell, 856 S.W.2d at 415. Who was unjustly enriched?...