Note Inv. Grp., Inc. v. Assocs. First Capital Corp.

Decision Date16 March 2015
Docket NumberCIVIL ACTION NO. 1:12–CV–419
Citation83 F.Supp.3d 707
PartiesThe Note Investment Group, Inc., Plaintiff, v. Associates First Capital Corporation, Successor–By–Merger to Associates Financial Services Company, Inc., Defendant.
CourtU.S. District Court — Eastern District of Texas

Brian Thompson Morris, Winstead PC, Dallas, TX, Richard Ray Burroughs, Jennifer Lauren Bergman, Law Office of Richard Burroughs, Cleveland, TX, for Plaintiff.

Brian Thompson Morris, Winstead PC, Dallas, TX, Kyle R. Watson, Winstead PC, The Woodlands, TX, for Defendant.

MEMORANDUM AND ORDER

MARCIA A. CRONE, District Judge

Pending before the court is Defendant Associates First Capital Corporation's (Associates) Motion for Summary Judgment (# 36). Associates seeks summary judgment as to all claims asserted by Plaintiff The Note Investment Group, Inc. (TNIG). Having considered the pending motion, the submissions of the parties, the pleadings, and the applicable law, the court is of the opinion that the motion should be granted.

I. Background
A. Nature of Dispute

On July 26, 2012, TNIG filed this action in the 75th Judicial District Court of Liberty County, Texas, and it was removed on the basis of diversity jurisdiction on August 24, 2012. TNIG seeks damages against Associates for the alleged breach of numerous contracts pursuant to which TNIG sold partial interests (“partials”) in real estate secured loans and contracts for deed to Associates. TNIG alleges that Associates breached these agreements by failing to reassign the loan or contract to TNIG following Associates' collection of the payments under the loan or contract purchased by Associates.

In this case, TNIG previously asserted the same claims against Grand Servicing Corporation (“Grand”), Associates' loan servicer, as well as claims involving other similar agreements. On May 23, 2013, however, the court dismissed Grand as a defendant in this action. See Docket Nos. 20 & 21 (Memorandum and Order and Order of Partial Dismissal). Thereafter, on July 10, 2013, the court ordered TNIG to file an amended pleading to narrow the scope of its complaint to include only those contracts in dispute. See Docket No. 25. Pursuant to that order, TNIG filed a Second Amended Complaint on July 23, 2013, asserting twenty-one breach of contract claims against Associates. See Docket No. 26.

On November 24, 2014, Associates filed the instant motion, wherein it seeks summary judgment as to all breach of contract claims asserted by TNIG on the basis that such claims are barred by the doctrines of res judicata and/or statute of limitations. Associates also maintains that TNIG's claims fail because there is no evidence of a contract breach on the part of Associates. TNIG did not file a response in opposition.1

B. Undisputed Facts

Commencing in mid–1999 and continuing through the late spring or early summer of 2001, Associates purchased from TNIG partial interests in loans secured by real property and partial interests in contracts for deed involving the sale of real property. A partial interest is a set number of consecutive monthly payments under a loan or a contract for deed.2

When TNIG sold a partial interest in a loan secured by real estate to Associates, TNIG and Associates executed a Deed of Trust Participation Agreement which governed the transaction. In most instances, when TNIG sold a partial interest to Associates in a contract for deed, TNIG and Associates executed an Agreement for Purchase of a Participation in an Installment Land Sales Contract which governed the transaction.

The Deed of Trust Participation Agreements and Agreements for Purchase of a Participation in an Installment Land Sales Contract have similar terms.3 The Participation Agreements for both loans and contracts for deed contain various representations and warranties by TNIG, including the representation that TNIG “is vested with full and absolute title to the [mortgage/contract] free and clear of all encumbrances and has the power and authority to assign and transfer the [mortgage/contract] to Associates under this Agreement.” The Participation Agreements also address the distribution of proceeds upon the borrower's or buyer's prepayment of the loan or contract for deed in full.

The Participation Agreements provide that when there is a default, upon written notice to TNIG of such default, TNIG must either: (i) repurchase Associates' interest in the loan or contract within thirty days by payment to Associates of an amount equal to Associates' guaranteed minimum yield; or (ii) within thirty days, pay the amount necessary to cure the default and undertake in writing to make all future scheduled payments to Associates to the extent that the borrower under the loan or buyer under the contract fails to do so, and if TNIG fails to do either, Associates may elect to foreclose on the underlying property and to pay itself out of the proceeds the foreclosure costs, plus its guaranteed minimum yield and the sum of $500.00. Unless there is an excess following the satisfaction of the foregoing, TNIG is entitled to no portion of the proceeds from the foreclosure.

The Deed of Trust Participation Agreement form provides that [s]hould Borrower or someone on behalf of Borrower make all payments owed to Associates either pursuant to the payment schedule or otherwise, then Associates shall execute an absolute assignment of the Mortgage and Note to owner....” The Agreement for Purchase of a Participation in an Installment Land Sales Contract form does not contain a provision expressly requiring the assignment upon a payout of the partial.

TNIG purchased the loans in which it sold partials to Associates from the person or entity that was the payee under the note, the beneficiary under the deed of trust, and the seller of the property to the borrower. TNIG purchased the contracts for deed in which it sold partials to Associates from the seller identified in the contract for deed who sold the property to the buyer/obligor.

Unbeknownst to Associates, when TNIG purchased the loans and contracts for deed in which a partial was conveyed to Associates, in many cases, TNIG agreed to pay for the loan or contract in two installments. Under this scenario, TNIG would pay the seller the installment of the purchase price for the loan or contract out of the funds paid by Associates to TNIG to purchase the partial, and TNIG would commit to pay the seller a second installment representing the remainder of the purchase price. The second installment would be due on the three-year anniversary of the sale of the loan or contract to TNIG unless: (i) the loan or contract went into default within the three-year period, in which case TNIG had no obligation to pay the second installment; or (ii) the loan or contract was paid in full, in which case TNIG would pay the seller the second installment out of the proceeds paid by Associates to TNIG over and above the amount of Associates' guaranteed minimum yield for Associates' partial.

On some occasions, Associates agreed to buy all of the remaining payments under a loan or contract for deed in which Associates had purchased a partial at some point following the purchase of the partial. The decision to do so, however, was made by Associates on a case-by-case basis, and the timing of when Associates elected to extend an offer to purchase such a remainder or to accept or make a counter-offer varied.

In November 2000, Citigroup Inc. (“Citigroup”) acquired Associates, and on May 24, 2001, Citigroup notified sellers such as TNIG that, effective immediately, Associates would no longer purchase seller-financed loans or contracts for deed.

For some of the loans and contracts in which TNIG sold a partial to Associates, TNIG defaulted under its obligation to pay TNIG's seller the second installment of the purchase price for the loan or contract and, as a result, some of TNIG's sellers (e.g., Speed Investments, Inc. (“Speed”)) threatened to sue TNIG. In at least one case, a seller sued TNIG for unpaid second installments. According to Associates, TNIG responded to the demands and claims of TNIG's sellers by asserting that Associates had orally agreed: (i) to purchase the remainder interest in all loans and contracts for deed in which TNIG sold a partial to Associates and which did not go into default within the first thirty-six months; and (ii) to pay a “second funding” installment to TNIG for that purchase, with TNIG claiming that because Associates had not paid the purchase price for the remainder, TNIG was unable to pay the second installment.

1. The Agreements at Issue
a. Brownell

Pursuant to a Participation Agreement dated December 28, 2000 (the “Brownell Participation Agreement”), TNIG sold Associates a partial (the “Brownell Partial”) consisting of 116 payments out of 232 remaining payments under a loan (the “Brownell Loan”) evidenced by a real estate lien note dated April 21, 2000, pursuant to which Clarence and Sandra Brownell promised to pay Komar Enterprises, Inc. (“Komar”) the original principal amount of $17,490.00.

By letter dated April 16, 2001, TNIG received notice of: (i) defaults under the Brownell Loan; (ii) Associates' intention to foreclose on the property securing the Brownell Loan (the “Brownell Property”); and (iii) TNIG's obligation either to repurchase the Brownell Loan or to cure the defaults under the loan within thirty days. After TNIG failed to repurchase the Brownell Loan or cure the defaults, the Brownell Property was sold at foreclosure on December 4, 2001. Associates purchased the property as the high bidder and, on November 29, 2001, it charged off $13,466.00 of the principal portion of the partial.

b. Joshua Brooke

Pursuant to a Participation Agreement dated October 24, 2000 (the Joshua Brooke Participation Agreement”), TNIG sold a partial (the “Joshua Brooke Partial”) to Associates. It consisted of 136 payments out of the 239 remaining payments under a loan (the Joshua Brooke Loan”) evidenced by a real estate lien note dated ...

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