Denton v. Nationstar Mortg. LLC
| Decision Date | 20 April 2020 |
| Docket Number | Case No. 18-CV-241-GKF-JFJ |
| Parties | TERRY L. DENTON and CYNTHIA R. DENTON, Plaintiffs, v. NATIONSTAR MORTGAGE LLC, D/B/A MR. COOPER AS SUCCESSOR TO SETERUS, INC. and FEDERAL NATIONAL MORTGAGE ASSOCIATION, Defendants. |
| Court | U.S. District Court — Northern District of Oklahoma |
Before the court is the Motion Pursuant to Fed. R. Civ. P. 56 for Summary Judgment [Doc. 105] of defendant Federal National Mortgage Association (Fannie Mae). For the reasons set forth below, the motion is granted as to Counts II and VI of the Second Amended Complaint and punitive damages sought pursuant to 23 O.S. § 9.1. The motion is otherwise denied.
This lawsuit arises out of the failure of a mortgage loan servicer to apply an insurance settlement check to pay off the Dentons' promissory note and release the mortgage. The Dentons filed suit on March 15, 2018 in Oklahoma state court against Bank of America, N.A. (BANA) and Seterus, Inc. BANA then removed the action to this court.
Upon removal, Seterus and BANA filed motions to dismiss for failure to state a claim. The Dentons filed their First Amended Complaint, mooting the two motions to dismiss. Seterus and BANA then filed motions to dismiss the First Amended Complaint. The court granted BANA's motion and terminated BANA as a party, and granted Seterus's motion to dismiss counts II, V, and VI. The Dentons then requested leave to file a Second Amended Complaint substituting Nationstar Mortgage LLC, d/b/a Mr. Cooper (Mr. Cooper) as successor to Seterus and adding Fannie Mae as a defendant. The court granted the motion and the Dentons filed their Second Amended Complaint on June 3, 2019. On September 19, 2019, the Dentons requested leave to file a Third Amended Complaint, which the court denied because the request was filed four months beyond the deadline and the proposed amendment was based on facts the Dentons previously knew or should have known.
Pursuant to Federal Rule of Civil Procedure 56, "[t]he court shall grant summary judgment if the movant shows that 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). "Summary judgment is appropriate if the pleadings, depositions, other discovery materials, and affidavits demonstrate the absence of a genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." 1-800 Contacts, Inc. v. Lens.com, Inc., 722 F.3d 1229, 1242 (10th Cir. 2013) (quoting Sally Beauty Co., Inc. v. Beautyco, Inc., 304 F.3d 964, 971 (10th Cir. 2002)). "A 'material' fact is one 'that might affect the outcome of the suit under the governing law, . . . and a 'genuine' issue is one for which 'the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'" Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) (internal citation omitted).
On August 28, 1998, Nationsbanc Mortgage Corporation extended a $59,850 home loan to the Dentons. The loan was evidenced by a promissory note and secured by a mortgage on the real estate located at 2205 North Beverly Drive, Sapulpa, Oklahoma. Fannie Mae obtained ownership of the loan in 1998. [Doc. 105, p. 6, ¶ 2; Doc. 116, p. 7, ¶ 2].
Seterus, Inc. began servicing the loan effective June 1, 2016. [Doc. 105, p. 6, ¶ 3; Doc. 116, p. 7, ¶ 3]. Seterus serviced the loan for, and on behalf of Fannie Mae, under a Mortgage Selling and Servicing Contract (Servicing Contract). [Doc. 105, p. 6, ¶ 4; Doc. 116, p. 8, ¶ 4]. Defendant Mr. Cooper, successor to Seterus, was also subject to the Servicing Contract. [Doc. 105, p. 6, ¶ 5; Doc. 105-3, p. 71, lines 6-23; Doc. 116, p. 8, ¶ 5]. The Servicing Contract required Seterus, and subsequently Mr. Cooper, to service the loan "according to the provisions in [Fannie Mae's] Guides that are in effect on the date of this Contract or as amended in the future." [Doc. 105, p. 6, ¶ 6; Doc. 116, p. 8, ¶ 6]. Where the Servicing Guide is silent, the servicer has discretion to service the loan consistent with applicable law and the Servicing Guide. [Doc. 105, p. 7, ¶ 10; Doc. 116, p. 11, ¶ 10].
The Dentons assert six causes of action against Fannie Mae. First, the Dentons assert a claim under the Truth in Lending Act (TILA), 15 U.S.C. § 1601-1667f (Count II). Second, Count VI alleges a violation of 46 Okla. Stat. § 15 for failure to release the Dentons' mortgage. Third, Count VII alleges a violation of the Uniform Commercial Code's section on tender of payment, 12A O.S. § 3-603 (2019). Fourth and fifth, plaintiffs assert state law claims for trespass (Count VIII) and breach of contract (Count IX). Finally, plaintiffs allege Fannie Mae has committed a tortious breach of the implied covenant of good faith and fair dealing (Count X). Fannie Mae moves for summary judgment on all claims.
Fannie Mae argues Counts II, VII, IX, and X fail because, even to the extent Seterus, or Mr. Cooper as Seterus's successor, was acting as Fannie Mae's agent, "under the Merrill doctrine Fannie Mae is not liable for its agents' unauthorized actions." [Doc. 105, p. 10]. The Dentons contend that the Merrill doctrine does not shield Fannie Mae from liability and, at least in the TenthCircuit, the Merrill doctrine does not extend past "estoppel for deceit, fraud or negligent misrepresentation by a government agent." [See Doc. 116, p. 17].
"Modern estoppel cases begin with Federal Crop Ins. Co. v. Merrill, 332 U.S. 380 (1947), the leading case expressing the traditional limitations of equitable estoppel against the government." Penny v. Giuffrida, 897 F.2d 1543, 1546 (10th Cir. 1990). "In Merrill, two farmers relied on a government agent's promise that their entire wheat crop would be federally insured by the Federal Crop Insurance Corporation (FCIC)." Id. However, unknown to the farmers and the agent, FCIC regulations Id. The Supreme Court, while acknowledging that the requirements for private estoppel were satisfied, explained:
It is too late in the day to urge that the Government is just another private litigant, for purposes of charging it with liability, whenever it takes over a business theretofore conducted by a private enterprise or engages in competition with private ventures. Government is not partly public or partly private, depending upon the governmental pedigree of the type of a particular activity or the manner in which the Government conducts it. The Government may carry on its operations through conventional executive agencies or through corporate forms especially created for defined ends. Whatever the form in which the Government functions, anyone entering into an arrangement with the Government takes the risk of having accurately ascertained that he who purports to act for the Government stays within the bounds of his authority. The scope of this authority may be explicitly defined by Congress or be limited by delegated legislation, properly exercised through the rule-making power. And this is so even though, as here, the agent himself may have been unaware of the limitations upon his authority.
Merrill, 332 U.S. 380, 383-84 (1947). In its opinion, the Supreme Court noted "the duty of all courts to observe the conditions defined by Congress for charging the public treasury." Id. at 385. "From this seed, a principle sprouted: the federal government cannot be bound by the unauthorized acts of its agents." Faiella v. Federal National Mortgage Ass'n, 928 F.3d 141, 143 (1st Cir. 2019) (citing Penny, 897 F.2d at 1546).
Fannie Mae principally relies on Faiella v. Federal National Mortgage Ass'n, 928 F.3d 141 (1st Cir. 2019), for the proposition that Fannie Mae enjoys the protection of the Merrill doctrine. In Faiella, the First Circuit was "present[ed] a question of first impression at the federal appellate level: does the protective carapace of the Merrill doctrine extend to the Federal National Mortgage Association (Fannie Mae)?" Id. at 143. The First Circuit concluded that it did.
There, as here, Fannie Mae was the assignee of a home mortgage loan. The borrower brought suit against Fannie Mae and the third-party servicer, ultimately alleging violations of several federal and state debt collection and consumer protection laws and regulations, as well as common-law tort claims for deceit and negligent misrepresentation. Id. at 144. Id. at 144-45.
The First Circuit determined the key inquiry as to whether the Merrill doctrine applied is whether Fannie Mae is a "federal instrumentality." The court addressed two arguments raised by the borrower's briefing: (1) because Fannie Mae is not a federal instrumentality for the purposes of sovereign immunity or the Federal Tort Claims act, that status is precluded in the Merrill context and (2) Fannie Mae, as a shareholder-owned corporation, should not receive the protections of the Merrill doctrine. Id. The court reasoned "[f]irst, the fact that an entity is deemed not to be a federal instrumentality for a particular purpose for a particular purpose does not signify that the entity should not be deemed to be a federal instrumentality for some other purpose." Id. "Second, the question of instrumentality status is not determined either by Fannie Mae's corporate form or by whether Fannie Mae serves a 'proprietary' function." Id. (citing Merrill, 332 U.S. at 384). Instead, the First Circuit concluded, the inquiry "hinges on whether Congress created Fannie Maeto serve an...
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