United States ex rel. Houpt v. Wells Fargo Bank, N.A., Case No. 4:17-cv-00377-CWD

CourtUnited States District Courts. 9th Circuit. District of Idaho
Writing for the CourtHonorable Candy W. Dale United States Magistrate Judge
Docket NumberCase No. 4:17-cv-00377-CWD
Decision Date13 February 2019

WELLS FARGO BANK, N.A., Defendant.

Case No. 4:17-cv-00377-CWD


February 13, 2019



The Court has before it four motions: (1) Plaintiff's Motion for Partial Summary Judgment (Dkt. 22); (2) Defendant's Motion for Summary Judgment (Dkt. 24); (3) Relator's 56(f) [sic] Motion for a Continuance of Defendant's Motion for Summary Judgment to Allow for Additional Discovery (Dkt. 30); and (4) Plaintiff's Motion for Order of Duces Tecum Deposition for Certain SBA Employees (Dkt. 32).

Plaintiff/Relator Charles Houpt brings this action against Wells Fargo Bank National Association (Wells Fargo) pursuant to the False Claims Act (FCA), 31 U.S.C. § 3729 et. seq., and the Financial Institutions Reform and Enforcement Act (FIRREA),

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12 U.S.C. § 1833a. Houpt alleges that Wells Fargo presented a false or fraudulent claim for payment to the Small Business Administration (SBA); made false statements to the SBA; and, withheld material information from the SBA related to an SBA loan secured by the Houpts' real and personal property. He seeks civil penalties under FIRREA for the bank's allegedly false claims.

Having carefully considered the record, oral argument from both parties on January 23, 2019, and relevant authority, the Court will grant Defendant's motion for summary judgment and deny Plaintiff's motion for partial summary judgment, for the reasons explained below. And, Plaintiff's motion to continue and his motion to take the deposition of SBA employees will be denied.1


1. Background - The SBA Loan and the State Court Litigation2

The dispute between Relator Charles Houpt and Wells Fargo has a long history which began in 1993, when Gail and Charles Houpt executed a promissory note in the

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original principal amount of $312,800 to American Bank of Commerce ("ABC"). The loan was secured by both personal property and real property commonly identified as 1954 S. Yellowstone Highway in Idaho Falls, Idaho (the "Property"). The Houpts granted a deed of trust to ABC as beneficiary, and to First American Title Company ("FATCO") as Trustee, which was recorded in Bonneville County as Instrument Number 846613 on or about March 19, 1993. The loan was subject to the United States Small Business Administration ("SBA") Guarantee under the ABC Note and Deed of Trust.3

Between July of 1994 and April of 2001, several bank mergers occurred. These bank mergers eventually resulted in the ABC Note being assigned to Wells Fargo Bank Northwest National Association. On February 5, 2004, Wells Fargo purchased most of the assets and liabilities of Wells Fargo Bank Northwest, and by means of that transaction, Wells Fargo obtained ownership of the obligation owing under the ABC Note and ABC Deed of Trust. Houpt v. Wells Fargo, No. CV2012-3518 (Idaho, 7th Dist, Jan. 7, 2014) (Mem. Dec. and Order re: Motions for Summary Judgment). (Dkt. 27-1.) At the time of the asset purchase, Wells Fargo did not record an assignment of the ABC Deed of Trust. Houpt v. Wells Fargo Bank, Nat. Ass'n, 160 Idaho 181, 184, 370 P.3d 384, 387 (2016).4

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Beginning in November of 2007, the Houpts failed to make numerous payments on the ABC Note to Wells Fargo. Although they were able to bring their payments current on several occasions prior to November 10, 2009, they made no payment to Wells Fargo after November 10, 2009. Id.

In or about May of 2010, following the Houpts' initial default on the ABC Note, Wells Fargo asked the SBA to pay the guaranteed portion of the loan balance. At that time, the balance due on the ABC Note was $69,164.13. On May 4, 2010, the SBA paid the loan guarantee to Wells Fargo. Decl. of Glorfield ¶ 6. (Dkt. 26.) Wells Fargo received $56,240.50. Houpt, 370 P.3d at 395.

In October of 2010, Wells Fargo initiated non-judicial foreclosure proceedings against the Houpts' Property. On October 18, 2010, FATCO recorded a Notice of Trustee's Sale, indicating ABC was the beneficiary of the Deed of Trust. The sale date was set for February 17, 2011. On February 16, 2011, the Houpts filed a bankruptcy petition under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Idaho, Case No. 11-40182-JDP, which stayed the foreclosure proceedings.

On February 14, 2012, the Bankruptcy Court granted stay relief to Wells Fargo, and the bank resumed foreclosure proceedings. On March 5, 2012, FATCO filed an Amended Notice of Default, Instrument No. 1411255, stating the ABC Note was in

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default with an unpaid principal balance of $62,452.66,5 accrued interest in the amount of $11,338.06, and legal and other fees in the amount of $50,381.82, for a total amount due of $124,172.54. On March 15, 2012, FATCO filed a new Notice of Trustee's Sale, stating "Beneficial Interest is now held by Wells Fargo Bank, National Association, by merger agreement dated February 5, 2004." The date of the new sale was set for July 17, 2012. Houpt, 370 P.3d at 388.

On June 22, 2012, the Houpts filed a Complaint and Motion for Preliminary Injunction in the District Court of the Seventh Judicial District of the State of Idaho, in and for the County of Bonneville, against Wells Fargo, claiming, among other things, that Wells Fargo's actions constituted wrongful foreclosure. The Houpts sought to halt the sale of the Property.

During the state court litigation, on August 24, 2012, Wells Fargo obtained a written assignment of the ABC Note and Deed of Trust from Wells Fargo Northwest, and recorded the assignment in the records of Bonneville County on September 4, 2012. On September 17, 2012, the state district court denied the Houpts' motion for preliminary injunction, noting that Wells Fargo had recorded the assignment of the Deed of Trust.

Wells Fargo resumed foreclosure proceedings on the Property, but in June of 2013, the Houpts found a buyer for the Property outside of the foreclosure proceedings. On July 16, 2013, the Houpts and Wells Fargo filed a stipulation with the state district

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court to accommodate the sale, which provided that the Houpts could sell the Property, distribute $19,156.65 of the proceeds to Wells Fargo to reimburse it for property tax payments, and deposit the remaining $139,500.45 in anticipated sale proceeds with the Clerk of the Court to be distributed "according to the resolution of the priorities of valid liens or other considerations." Id. The sale of the Property was completed per the terms of the parties' stipulation.

Additional motion practice ensued, and the state district court issued two memorandum decisions. On January 7, 2014, the district court granted Wells Fargo's motion for summary judgment. The court ruled that the Houpts' claim for wrongful foreclosure was moot, because: (1) Wells Fargo had recorded a written assignment of the beneficiary's interest in the ABC Deed of Trust on September 4, 2012; and (2) the Houpts had voluntarily sold the Property outside the foreclosure proceedings.

In its second memorandum decision issued on February 20, 2014, upon motions for reconsideration, the state district court reaffirmed that the Houpts' claims were moot because of the stipulated sale of the Property. The court determined also that Wells Fargo, by virtue of the earlier assignments due to the bank mergers and the 2004 asset purchase agreement, stepped into the shoes of ABC with respect to the priority date of the lien secured by the Property. The court noted that the failure to record the assignment of the ABC Deed of Trust did not affect the assignment's validity, nor Wells Fargo's first priority lien status as against other lien holders in the Property.

The court ordered the sale proceeds of the Property to be paid to Wells Fargo and, after making certain deductions, awarded Wells Fargo its costs and attorney fees. The

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district court's award consisted of $62,452.66 in principal, $17,216.20 in interest, $20,270.69 in costs, and $40,111.50 in attorney fees. The court ordered the entirety of the $139,500.45 on deposit with the court to be disbursed to Wells Fargo to satisfy the award of $140,051.05.

On March 4, 2014, the Houpts timely filed a notice of appeal. On March 9, 2016, the Idaho Supreme Court issued a written opinion affirming the district court's decision. The appellate court agreed that Wells Fargo's recording of the notice of assignment of beneficial interest on September 4, 2012, and the voluntary stipulated sale which occurred in June of 2013, mooted the Houpts' wrongful foreclosure claims against Wells Fargo. However, the court remanded for a determination of what effect, if any, the SBA loan guarantee payment made to Wells Fargo by the SBA on May 4, 2010, may have had on the interest and balance due under the ABC Note. Further, the court vacated the district court's grant of attorney fees and costs for a determination that would exclude all costs and fees incurred by Wells Fargo before it recorded the notice of assignment of beneficial interest in the ABC Note and Deed of Trust on September 4, 2012. Id. at 398. The court explained that Wells Fargo should not have been awarded attorney fees for the time expended during its initial improper initiation of foreclosure, before it had properly perfected its secured interest in the Property by recording the notice of assignment. Id. at 397-98.6

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During the proceedings upon remand, the Houpts argued that Wells Fargo's failure to follow the SBA's liquidation procedures relieved them of their obligation to pay the full balance remaining on the ABC Note, and should have prevented the bank from recovering attorney fees and reduced its recovery by the amount of the loan guarantee payment. The court disagreed. In a written memorandum issued on November 29, 2016, the court held that Wells Fargo's alleged failure to comply with SBA regulations did not alter the terms of the Note...

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