Trevino v. Select Porfolio Servicing, Inc. (In re Trevino), CASE NO: 10-70594

• Decision Date: 14 November 2018
• Docket Number: CASE NO: 10-70594,ADVERSARY NO. 16-7024
• Parties: IN RE: JOSE SR. TREVINO, et al Debtors JOSE TREVINO, et al Plaintiffs v. SELECT PORFOLIO SERVICING, INC., et al Defendants
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas

IN RE: JOSE SR. TREVINO, et al Debtors

JOSE TREVINO, et al Plaintiffs v. SELECT PORFOLIO SERVICING, INC., et al Defendants

CASE NO: 10-70594

ADVERSARY NO. 16-7024

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS MCALLEN DIVISION

November 14, 2018

CHAPTER 13

Judge Eduardo V. Rodriguez

MEMORANDUM OPINION GRANTING DEFENDANTS' MOTION TO STAY AND TO COMPEL ARBITRATION

Resolving ECF No. 103

I. INTRODUCTION

In the United States, there is the long-held belief that "[l]itigation is the pursuit of practical ends, not a game of chess." Indianapolis v. Chase Nat'l Bank, 314 U.S. 63, 69 (1941). This Court recognizes that alternative dispute resolutions, or ADR, quickly brings a practical end to most parties' disputes. Moreover, this Court highly encourages parties to pursue ADR whenever possible. And although this Court is not in favor of forcing unwilling parties to spend limited time and resources pursuing ADR, Congress, the Supreme Court, and the Fifth Circuit have made it clear when arbitration clauses must be enforced on unwilling parties.

Here, Defendants Select Portfolio Servicing, Inc. ("SPS") and Wilmington Savings Fund Society, FSB, d/b/a Christiana Trust, as Indenture Trustee for CSMC 2015-RPL1 Trust, Mortgage-Backed Notes, Series 2015-RPL1 ("Wilmington") (collectively, "Defendants") ask this Court, by means of "Defendants' Motion to Stay And to Compel Arbitration" ("Motion to Arbitrate"), to stay the pending case and force Jose and Teresa Trevino ("Trevinos" or "Plaintiffs") into arbitration in accordance with a rider found in the Trevinos' note. ECF No. 103. Unfortunately for the Plaintiffs, this is a case where Congress, the Supreme Court, and the Fifth Circuit have made it clear that the arbitration rider in the note must be enforced.

II. FINDINGS OF FACT

Plaintiffs filed a Chapter 13 bankruptcy petition on August 25, 2010. Bankr. ECF No. 1.¹ Five years into the bankruptcy proceeding, Wilmington was transferred the rights as mortgagee of Plaintiffs' loan from U.S. Bank Trust, N.A. as Trustee for LSF8 Master Participation Trust. Defs.' Ex. 6 Along with this transfer came the assignment of SPS as servicer of Plaintiffs' loan. Id.; Defs.' Ex. 4. Just over one year later, Plaintiffs initiated this adversary proceeding against Defendants, alleging: (1) abuse of process; (2) violations of the Real Estate Settlement Procedures Act and Truth-in-Lending Act, (3) relief pursuant to Fed. R. Bankr. P. 3002.1(i); (4) violations of the chapter 13 plan and the orders confirming the plan; (5) violations of the Fair Debt Collection Practices Act; (6) violations of the Texas Debt Collection Act; (7) breach of contract; (8) violation of the discharge junction; and (9) request for declaratory and injunctive relief. ECF No. 1.

Defendants responded in kind by filing "Defendants' Motion to Dismiss Each Cause of Action in the Amended Petition Pursuant to Rule 12(b)(6)" ("Motion to Dismiss") on January 13, 2017. ECF No. 22. The next day, Defendants' followed this up with an amended motion to dismiss. ECF No. 23. A "Comprehensive Scheduling, Pre-Trial & Trial Order" ("SchedulingOrder") was entered at a hearing held on January 25, 2017, where the Court scheduled deadlines; Plaintiffs consented to the entry of final orders on all non-core matters by this Court; and Defendants were granted leave to file a second amended motion to dismiss. ECF No. 25. Shortly thereafter Defendants filed "Defendants' Second Amended Motion to Dismiss Each Cause of Action in the Amended Complaint Pursuant to Rule 12(b)(6)" ("Second Amended Motion to Dismiss") on February 8, 2017. ECF No. 28. In Defendants' Second Amended Motion to Dismiss, SPS and Wilmington consented "to this Court adjudicating, and hearing and determining the causes of action raised in Plaintiffs' Complaint." Id. at 2, ¶ 1. Less than one month later, Plaintiffs filed a "Motion for Rule 9011 Sanctions" ("Sanctions Motion") on March 13, 2017, ECF No. 36, with Defendant's responding to the Sanctions Motion on April 3, 2017. ECF No. 39. Four days later, Plaintiffs filed their response to the Second Amended Motion to Dismiss, ECF No. 42, further amending their response on April 14, 2017. ECF No. 45. A hearing on the Second Amended Motion to Dismiss was held on May 23, 2017, with this Court taking said matter under advisement. ECF No. 67.

On July 7, 2017, Defendants filed an "Emergency Motion to Extend Abatement of Discovery." ECF No. 69. Granting the emergency motion on the same day, this Court abated the Scheduling Order pending the Court's entry of an order regarding the Second Amended Motion to Dismiss. ECF No. 73. This Court denied Defendants' Second Amended Motion to Dismiss, ECF No. 28, and unabated the adversary on February 23, 2018. ECF No. 76.

On April 13, 2018, Defendants filed their answer to the complaint, ECF No. 88, further amending it on May 3, 2018. ECF No. 91. In filing their answer and various motions to dismiss, Defendants have not asserted any counterclaims, nor have they taken any discovery. Notably, no motion for summary judgment has been filed in this case. Less than two weeks after Defendants'initial answer to the complaint, on April 27, 2018, Defendants filed "Defendants' Statement of Consent to Entry of Final Orders or Judgment." ECF No. 90. On May 24, 2018, Plaintiffs filed a "Motion to Strike/Deem Admitted Defendants' Amended Answer to Plaintiffs' First Amended Complaint" ("Motion to Strike"). ECF No. 95. Less than a month later, on June 13, 2018, Defendants filed their response to Plaintiffs' Motion to Strike. ECF No. 96. Two days later, Defendants filed a "Motion for Leave to File Second Amended Answer" ("Motion for Leave"). ECF No. 99.

Just under a week later, on June 21, 2018, Defendants filed their Motion to Arbitrate. ECF No. 103. For the first time in this adversary proceeding, Defendants raise the issue of arbitration. Id. Defendants point out that on February 21, 2005, Plaintiffs executed a note in the original principal amount of $91,500 (the "Note"). Defs.' Ex. 2, at 6. To secure repayment of the Note, the Trevinos executed a deed of trust (the "Deed of Trust"). Id. at 11. The Note and Deed of Trust are collectively referred to as the "Loan." The Deed of Trust specifically included an arbitration rider (the "Arbitration Rider"). Id. at 31-33. Both Plaintiffs executed the Arbitration Rider in addition to executing the Deed of Trust. Id. at 33. The Arbitration Rider provides: "All disputes, claims or controversies arising from or related to the loan evidenced by the Note, including statutory claims, shall be resolved by binding arbitration, and not by court action except as provided under "'Exclusions below.'" Id. at 31. It further provides that the agreement to arbitrate "shall be governed by the Federal Arbitration Act." Id. The Arbitration Rider also provides that Plaintiffs shall not be responsible to pay the balance of any initial fees, and all other fees and costs of the arbitration. Id. at 32. The Arbitration Rider includes a conspicuous notice providing that, by signing the rider, although Plaintiffs were giving up rights associated with litigating disputes in court, the agreement was completely voluntary, and ifPlaintiffs did not agree to arbitrate, they would not be denied the Loan:

NOTICE: BY SIGNING THIS ARBITRATION RIDER YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT TO [sic] THE MATTERS DESCRIBED IN THE "ARBITRATION OF DISPUTES" SECTION ABOVE DECIDED EXCLUSIVELY BY ARBITRATION, AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT HAVE TO LITIGATE DISPUTES IN A COURT OR JURY TRIAL. DISCOVERY IN ARBITRATION PROCEEDINGS MAY BE LIMITED BY THE RULES OF PROCEDURE OF THE SELECTED ARBITRATION SERVICE PROVIDER.

THIS IS A VOLUNTARY ARBITRATION AGREEMENT, IF YOU DECLINE TO SIGN THIS ARBITRATION AGREEMENT, LENDER WILL NOT REFUSE TO COMPLETE THE LOAN TRANSACTION BECAUSE OF YOUR DECISION.

Id. at 32, 33. Plaintiffs responded to Defendants' Motion to Arbitrate on July 23, 2018. ECF No. 120. Defendants further supplemented their Motion to Arbitrate by filing "Defendants' Reply in Support of Motion to Stay and to Compel Arbitration" on August 27, 2018. ECF No. 125. A hearing on the Motion to Arbitrate was held on August 31, 2018, with this Court taking the matter under advisement. ECF No. 129. Based on the arguments presented in the live pleadings, all evidence in the record, and relevant case law, this matter is ripe for consideration and this Court now issues its Memorandum Opinion.

III. CONCLUSIONS OF LAW

A. Jurisdiction, Venue, and This Court's Constitutional Authority to Enter a Final Order

This Court holds jurisdiction pursuant to 28 U.S.C. § 1334 and now exercises its jurisdiction in accordance with In re: Order of Reference to Bankruptcy Judges, Gen. Order 2012-6 (S.D. Tex. May 24, 2012). Furthermore, these are core matters under § 157(b)(2), and this Court holds the constitutional authority under Stern v. Marshall, 564 U.S. 462 (2011) to issue a final order. However, to the extent these are non-core matters, parties may consent tojurisdiction of this Court on non-core matters to enter a final order. Wellness Int'l Network v. Sharif, 135 S. Ct. 1932, 1938-39 (2015). And in this adversary, Plaintiffs filed their consent on January 25, 2017, ECF No. 25, and Defendants filed their consent on April 27, 2018. ECF No. 90. Therefore, even if the matters before the Court are non-core matters, all parties have consented and this Court holds constitutional authority to enter a final order and judgment. Finally, venue is governed by 28 U.S.C. §§ 1408, 1409. Here, venue is proper because the Court presided over the underlying Bankruptcy Case. See Bankr. ECF No. 1.

B. Whether the Servicer of a Loan Can Rely on the Contents of the Deed of Trust to Compel Arbitration

This Court must first determine whether SPS is a party to the contract with the arbitration clause between the Trevinos and Wilmington, or is otherwise entitled to enforce the clause. Discussed infra, this...