Mortgage v. Flores
| Citation | 735 F.Supp.2d 679 |
| Decision Date | 25 August 2010 |
| Docket Number | Civil Action No. C-09-312 |
| Parties | VANDERBILT MORTGAGE AND FINANCE, INC., Plaintiff, v. Cesar FLORES, et al, Defendants. |
| Court | United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas |
Jorge C. Rangel, Jaime Santiago Rangel, The Rangel Law Firm P.C., James W. Upton, Upton Mickits & Heymann, LLP, Upton Mickits et al., Corpus Christi, TX, Cristina Espinoza Rodriguez, Stephen G. Tipps, Baker Botts, Jennifer Anne Powis, Houston, TX, Edward S. Sledge, IV, Thomas W. Thagard, III, Maynard Cooper & Gale P.C., Birmingham, AL, for Plaintiff.
Baldemar F. Gutierrez, Attorney at Law, J. Javier Gutierrez, The Gutierrez Law Firm, Inc., Alice, TX, for Defendants.
On this day came on to be considered Intervention-Defendants Clayton Homes and Kevin T. Clayton's joint Motion to Dismiss the claims of Intervenors Maria and Arturo Trevino pursuant to Federal Rule of Civil Procedure 12(b)(6) (the "Motion to Dismiss"). (D.E. 101.) For the reasons stated herein, Defendants' Motion to Dismiss is GRANTED IN PART and DENIED IN PART.
This Court has subject matter jurisdiction over this action pursuant to28 U.S.C. § 1331 (federal question) as Intervenors bring a cause of action under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968 ("RICO").
Intervention-Defendants, Clayton Homes, CMH Homes, and Kevin T. Clayton, sell manufactured homes to customers across the United States. (D.E. 98 at 18-19.) CMH is the retailer with a network of nearly 400 stores across the country, including the Corpus Christi store involved in this action. Clayton Homes is the holding company with its principal place of business in Delaware. Kevin Clayton is the CEO of Clayton Homes and member of its Board of Directors. Intervention-Defendant, Vanderbilt Mortgage and Finance, Inc. is the "sister company" to CMH and provides financing to CMH customers. Intervention-Defendant John Wells is an individual residing in Texas. Intervention-Defendant Benjamin Frazier is an individual residing in Texas. (D.E. 98 at 18-19.) Both Wells and Frazier were employees of CMH Homes' Corpus Christi store when the alleged transactions took place. (D.E. 98 at 5, 17.)
Maria and Arturo Trevino are a married couple residing in Texas who, at the time of the events that are the subject of this action, owned two vacant lots located in Jim Wells County, Texas. (D.E. 98 at 4, 18-19.) Defendants and Counter-Plaintiffs Cesar Flores and Alvin E. King are the owners of a mobile home purchased from CMH Homes in Corpus Christi, Texas. (D.E. 98 at 2.)
On August 4, 2009, Vanderbilt brought suit in state court against Flores and King, seeking to repossess and foreclose a mobile home they purchased from Defendant CMH Homes. (D.E. 1, Exhibit B.) On September 18, 2009, Flores and King counter-sued, bringing various state law causes of action and a federal claim under the R.I.C.O. statute. (D.E. 1, Ex. B.) On October 26, 2009, Maria and Arturo Trevino intervened in the state court action, bringing identical claims against Vanderbilt and joining additional Third-Party Defendants, Clayton Homes, Inc., CMH Homes, Inc., Kevin T. Clayton, John Wells and Benjamin Joseph Frazier. (D.E. 11, Exhibit C; D.E. 98.) The Trevinos allege various causes of action against the Intervention-Defendants under Texas and Federal law. (D.E. 98.) Following the Trevinos' intervention, Intervention-Defendant CMH Homes, Inc. removed the entire state court action to this Court based on this Court's federal question jurisdiction under R.I.C.O. and 28 U.S.C. § 1331. (D.E. 1.) As alleged in the Trevinos' Original Intervention Complaint (D.E. 11, Exhibit B), and in their Second Amended Intervention Complaint (D.E. 98), the facts on record are as follows:
On or about January 5, 2002, Counter-Plaintiffs, Cesar Flores and Alvin E. King and Defendants 1 Clayton Homes, Inc. ("Clayton") and CMH Homes, Inc. ("CMH") entered into a manufactured home purchase and financing contract (the "Contract"), for which Vanderbilt Mortgage and Finance ("Vanderbilt") provided the financing. (D.E. 98, p. 2.) On January 7, 2002, two days after the closing, CMH, Clayton Homes and Vanderbilt filed aDeed of Trust and a Builder's & Mechanic's Lien Contract containing the signatures of Maria and Arturo Trevino and purporting to create liens on real property owned by the Trevinos in order to secure the Flores and King's mobile home purchase. (D.E. 98, p. 2.) The documents also contained the signature of Benjamin Frazier, who was a notary public and a former employee of CMH Homes. (D.E. 98, p. 2.) Allegedly, all of these signatures were forged. According to the Intervenors, Christopher Lance Kimball, the CMH sales associate responsible for the sale of the mobile home to Flores and King, "knowingly forged" Maria Trevino and Arturo Trevino's names on the lien documents and then proceeded to notarize the forged signatures "by impersonating [and forging the signature of] a notary public of the State of Texas [i.e. Frazier.]" (D.E. 98, p. 5.) Kimball allegedly used Frazier's notary stamp when notarizing the documents. (D.E. 98, p. 5.) The Intervenors contend that they never executed any of these documents and never intended their property to be encumbered to secure the mobile home purchase of someone else. (D.E. 98, p. 4-6.) The Intervenors contend that the purpose of forging documents creating liens on their property was to create the appearance that the Contract was secured by real property, and thus making the Contract easier to package into securities and sell on the secondary market. (D.E. 98, p. 4.)
In addition, the Intervenors allege that Lance Kimball falsely represented to Flores and King that they had been approved for a financing interest rate of 10.99%, when in fact the interest rate was around 4% higher. (D.E. 98, p. 3-4.) The increase in the rate allegedly represented a Yield Spread Premium ("YSP"), which Intervenors state is an additional portion added to the finance rate that serves as a commission or kickback for CMH, Clayton, and its sales personnel. (D.E. 98, p. 4.) This YSP was allegedly not disclosed to Flores and King. (D.E. 98, p. 3.) Intervenors state that this enterprise worked because Vanderbilt was not an independent mortgage finance company, but rather worked in unison with the other Defendants. Intervenors state that the loan documents were sent from Texas to Tennessee and processed by CMH. (D.E. 98, p. 4.)
After previous litigation from 2003 to 2005, Defendants discovered the fraud outlined above and allegedly attempted to conceal the fraud by filing releases of the Deeds of Trust and Mechanic's Liens in the real property records of various counties. Such releases were filed in relation to the Trevino's real property. (D.E. 98, p. 7.) The releases were signed by VMF and filed with the Jim Wells County Clerk on October 14, 2005. (D.E. 98, p. 7.) The Mechanic's Lien release indicated that the Contract had been "paid in full" and the Deed of Trust Release "expressly released the mortgage[.]" (D.E. 98, p. 7.) As such, the Intervenors state that Vanderbilt released and extinguished Counter-Plaintiffs' Flores' and King's mortgage obligation on their mobile home. (D.E. 98, p. 7-8.)
Defendants allegedly failed to disclose that these releases were filed with the County Clerk, and continued to fraudulently enforce the loans and collect payments from Counter-Plaintiff Flores and King, even though the mortgage obligation had been paid in full, as represented in the releases. (D.E. 98, p. 8.) Defendants allegedly filed the releases in secret and instructed the County Clerk to return the documents to Defendants' Tennessee offices rather than the purchaser or landowner. The end result, according to the Intervenors, was that the landowner and purchaser were entirely unaware that theirobligations had been released. (D.E. 98, p. 8.) The Intervenors contend that after filing the secret releases, Defendants continued to collect payments for a debt that was no longer due, including payments from Counter-Plaintiffs Flores and King. (D.E. 98, p. 8.)
The Intervenors allege that the ultimate purpose behind creating and filing the fraudulent documents was to defraud investors. Vanderbilt allegedly issued false prospectus statements to potential investors, and to attract more investors Defendants represented that many of the contracts at issue were backed by secured interests in land that were fraudulently obtained. (D.E. 98, p. 12.) Intervenors claim that some of these loans were sold to the Federal National Mortgage Association, or Fannie Mae, without any disclosure of the fraud described above. (DE. 98, p. 14.) Intervenors state that Berkshire Hathaway, the parent company of Defendants, owned a percentage of Fannie Mae when it purchased the fraudulent loans. Intervenors argue that Berkshire Hathaway, as the parent company, knew or should have known that Fannie Mae paid hundreds of millions of dollars for nearly worthless interests. (D.E. 98, p. 12.)
On April 19, 2010, Defendants filed a petition with the Texas Department of Housing and Community Affairs that, according to Intervenors, contained false statements in order to obtain certain guidance from the agency as to the meaning of the "paid in full" terminology in the releases. Specifically, the petition states that several landowners entered into agreements with the Defendants for the lien and deed of trust contract, when in fact their signatures were forged. As a related matter, the petition allegedly falsely states that the purchaser's manufactured homes were perfected as personal property when in fact Defendants already represented to investors that these transactions created a present interest in real property through the Deeds of Trust, which were not to secure an interest just in the manufactured homes, but were for the purpose of...
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