CAUSE NO. 2011-36476

MARY ELLEN WOLF and § CIVIL DISTRICT COURT

DAVID WOLF §

§

v. §

§

WELLS FARGO BANK, N.A., § HARRIS COUNTY, TEXAS

AS TRUSTEE FOR CARRINGTON §

MORTGAGE LOAN TRUST, TOM §

CROFT, NEW CENTURY MORTGAGE §

CORPORATION, AND CARRINGTON §

MORTGAGE SERVICES, LLC § 151st JUDICIAL DISTRICT

DEFENDANTS/COUNTER-PLAINTIFFS’ MOTION FOR JUDGMENT

NOTWITHSTANDING THE VERDICT AND MEMORANDUM OF LAW IN SUPPORT

MAYER BROWN LLP CRAIN, CATON & JAMES Lucia Nale Peter C. Smart (pro hac vice application pending) State Bar No. 00784989 IL State Bar No. 6201684 1401 McKinney, Suite 1700 Thomas V. Panoff Houston, Texas 77010 (pro hac vice application pending) Tel: (713) 658-2323 IL State Bar No. 6283695 Fax: (713) 658-1921 Christopher S. Comstock psmart@craincaton.com (pro hac vice application pending) IL State Bar No. 6299333 71 South Wacker Drive Chicago, Illinois 60606 Tel: (312) 782-0600 Fax: (312) 701-7711 lnale@mayerbrown.com tpanoff@mayerbrown.com ccomstock@mayerbrown.com

Counsel for Defendants/Counter-Plaintiffs

12/21/2015 12:27:48 PMChris Daniel - District Clerk Harris County

Envelope No. 8321717By: VERONICA GONZALEZ

Filed: 12/21/2015 12:27:48 PM

TABLE OF CONTENTS

Page

i

INTRODUCTION ......................................................................................................................... 1

BACKGROUND ........................................................................................................................... 3

I. Plaintiffs’ Mortgage Loan .................................................................................................. 3

II. The NC3 Trust and PSA .................................................................................................... 4

III. Plaintiffs’ Default............................................................................................................... 5

IV. Procedural History ............................................................................................................. 5

V. The Trial and Jury Verdict ................................................................................................. 7

STANDARD OF REVIEW ........................................................................................................... 8

ARGUMENT ................................................................................................................................. 9

I. PLAINTIFFS’ CLAIMS FAIL AS A MATTER OF LAW .............................................. 9

A. Plaintiffs’ Fraudulent Lien Claim Fails As A Matter Of Law ............................... 9

1. Plaintiffs, as mortgage borrowers, lack standing to assert violations of the PSA as a matter of law ................................................................... 10

2. Even if Plaintiffs had standing to assert violations of the PSA, they did not present at trial any evidence of a PSA violation .......................... 14

3. Even if there was evidence of a PSA violation, such a violation would have rendered the Transfer of Lien merely voidable, not void .......................................................................................................... 16

4. Even if the Transfer of Lien was void, an assignment cannot violate the fraudulent lien statute as a matter of law ............................... 19

5. Even if an assignment could violate the fraudulent lien statute, Plaintiffs failed to present any evidence of fraudulent intent .................. 21

6. Plaintiffs also lack standing to assert that the Transfer of Lien is fraudulent on other grounds ..................................................................... 24

7. Even if Plaintiffs had standing, they did not present any evidence at trial to support a finding that the Transfer of Lien is fraudulent .......... 26

B. Plaintiffs’ Remaining Claims Also Fail As A Matter of Law ............................. 27

1. Plaintiffs’ other claims are derivative of their fraudulent lien claim ....... 27

2. There is no evidence to support the elements of the remaining claims ....................................................................................................... 28

a. Negligence per se and gross negligence per se ........................... 28

b. Unjust enrichment and money had and received ......................... 30

c. Declaratory judgment .................................................................. 32

TABLE OF CONTENTS (continued)

Page

ii

II. THE VERDICT IS CONTRADICTORY ........................................................................ 33

III. THE EXEMPLARY DAMAGES AWARD IS IMPROPER AND DISPROPORTIONATE .................................................................................................. 34

IV. DEFENDANTS ARE ENTITLED TO FORECLOSE .................................................... 37

CONCLUSION ............................................................................................................................ 38

iii

TABLE OF AUTHORITIES

Page(s)

Cases

Abruzzo v. PNC Bank, N.A., 2012 WL 3200871 (N.D. Tex. 2012) .......................................................................................12

Akins v. Wells Fargo Bank, N.A., 2013 WL 4735581 (E.D. Tex. 2013) .......................................................................................21

Allstate Ins. Co. v. Michael Kent Plambeck, D.C., 2014 WL 1303000 (N.D. Tex. 2014) .................................................................................32, 34

Amoco Prod. Co. v. Smith, 946 S.W.2d 162 (Tex. App.—El Paso 1997, no pet.) ........................................................30, 31

Auriti v. Wells Fargo Bank, N.A., 2013 WL 2417832 (S.D. Tex. 2013) .......................................................................................12

BAC Home Loans Servicing, LP v. Tex. Realty Holdings, LLC, 901 F. Supp. 2d 884 (S.D. Tex. 2012) .....................................................................................12

Bagby Elevator Co., Inc. v. Schindler Elevator Corp., 609 F.3d 768 (5th Cir. 2010) ...................................................................................................31

Bank of Saipan v. CNG Fin. Corp., 380 F.3d 836 (5th Cir. 2004) ...................................................................................................30

Bank of N.Y. Mellon v. Gales, 982 N.Y.S.2d 911 (App. Div. 2014) ........................................................................................13

Bennett v. Reynolds, 315 S.W.3d 867 (Tex. 2010) ....................................................................................................37

Bernal v. Wilmington Fin., 2013 WL 2896892 (N.D. Tex. 2013) .......................................................................................12

Bierwirth v. BAC Home Loans Servicing, L.P., 2012 WL 3793190 (Tex. App.–Austin 2012, pet. denied) (mem. op.) ....................................12

Bircher v. Bank of N.Y. Mellon, 2012 WL 3245991 (N.D. Tex. 2012) .......................................................................................12

Bittinger v. Wells Fargo Bank NA, 744 F. Supp. 2d 619 (S.D. Tex. 2010) ...............................................................................13, 22

iv

Blair v. Deutsche Bank Nat’l Trust Co., 2013 WL 6628634 (W.D. Tex. 2013) ......................................................................................12

BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996) .................................................................................................................36

In re Bond, 2013 WL 1619691 (S.D. Tex. 2013) ...........................................................................12, 17, 20

Boswell v. Farm & Home Sav. Ass’n, 894 S.W.2d 761 (Tex. App.—Fort Worth 1994, writ denied) ...................................................8

Bravo v. MERSCORP, Inc., 2013 WL 4851697 (E.D.N.Y. 2013)........................................................................................13

Burgess v. Bank of Am, N.A., 2014 WL 5461803 (W.D. Tex. 2014) ....................................................................29, 30, 31, 32

Byers v. Bank of N.Y. Mellon, 2013 WL 2471588 (E.D. Tex. 2013) .......................................................................................12

Calderon v. Bank of Am. N.A., 941 F. Supp. 2d 753 (W.D. Tex. 2013)........................................................................12, 17, 24

Calvino v. Conseco Fin. Servicing Corp., 2013 WL 4677742 (W.D. Tex. 2013) ......................................................................................12

Campbell v. MERS, Inc., 2012 WL 1839357 (Tex. App.–Austin 2012, pet. denied) ......................................................22

Castillo v. Deutsche Bank Nat’l Trust Co., 2014 WL 279675 (W.D. Tex. 2014) ........................................................................................12

Cernosek Enters., Inc. v. City of Mont Belvieu, 338 S.W.3d 655 (Tex. App.–Houston [1st Dist.] 2011, no pet.) .............................................11

Cimerring v. Merrill Lynch Mortg., 2012 WL 2332358 (N.Y. Sup. Ct. 2012) .................................................................................13

Clouse v. Levin, 339 S.W.3d 766 (Tex. App.–Houston [14th Dist.] 2011, no pet.) ...........................................11

Colton v. U.S. Bank Nat’l Ass’n, 2013 WL 5903618 (N.D. Tex. 2013) .......................................................................................12

Colton v. U.S. Nat'l Bank Ass’n, 2013 WL 1934560 (N.D. Tex. 2013) .......................................................................................20

v

Darocy v. Chase Home Fin., LLC, 2012 WL 840909 (N.D. Tex. 2012) ...................................................................................22, 33

Dempsey v. U.S. Bank Nat’l Ass’n, 2012 WL 2036434 (E.D. Tex. 2012) .......................................................................................22

Edwards v. Ocwen Loan Servicing, LLC, 2012 WL 844396 (E.D. Tex. 2012) ...................................................................................12, 23

Farkas v. GMAC Mortg., L.L.C., 737 F.3d 338 (5th Cir. 2013) (per curiam)...............................................................................11

Felder v. Countrywide Home Loans, 2013 WL 6805843 (S.D. Tex. 2013) .................................................................................12, 18

Ferguson v. Bank of New York Mellon Corp., 2014 WL 2815487 (S.D. Tex. 2014) .......................................................................................20

Filgueira v. US Bank Nat. Ass’n, 734 F.3d 420 (5th Cir. 2013) ...................................................................................................32

Fort Bend County Drainage Dist. v. Sbrusch, 818 S.W.2d 392 (Tex. 1991) ......................................................................................................8

Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671 (Tex. 2000) ......................................................................................................32

Garcia v. Bank of New York Mellon, 2012 WL 692099 (N.D. Tex. 2012) .........................................................................................21

Gillespie v. BAC Home Loan Servicing, LP, 2013 WL 646383 (N.D. Tex. 2013) .........................................................................................24

Glaser v. Wells Fargo Bank, N.A., 2013 WL 676662 (E.D. Tex. 2013) .........................................................................................24

Glass v. Carpenter, 330 S.W.2d 530, 537 (Tex. App.—San Antonio 1959, writ ref’d n.r.e) .................................25

Golden v. Wells Fargo Bank, NA, 2012 WL 8019261 (W.D. Tex. 2012) ......................................................................................12

Golden v. Wells Fargo Bank, N.A., 557 F. App’x 323 (5th Cir. 2014) ............................................................................................20

Gray v. Entis Mech. Servs., L.L.C., 343 S.W.3d 527 (Tex. App.–Houston [14th Dist.] 2011, no pet.) ...........................................10

vi

Green v. Bank of Am., N.A., 2013 WL 3937070 (S.D. Tex. 2013) .......................................................................................18

Greer v. White Oak State Bank, 673 S.W.2d 326, 329 (Tex. App. – Texarkana 1984, no writ) ................................................31

Harley v. HSBC Bank USA Nat’l Ass’n, 2012 WL 8019262 (W.D. Tex. 2012) ......................................................................................12

Harris County, Texas v. MERSCORP, Inc., 791 F.3d 545 (5th Cir. 2015) ...................................................................................................28

Heartland Holdings, Inc. v. U.S. Trust Co. of Tex. N.A., 316 S.W.3d 1 (Tex. App.–Houston [14th Dist.] 2010, no pet.) ...............................................11

Herrera v. Wells Fargo Bank, N.A., 2013 WL 961511 (S.D. Tex. 2013) .........................................................................................12

Hosey v. Network Funding, LP, 2013 WL 5971061 (S.D. Tex. 2013) .......................................................................................12

HSBC Bank USA. v. Baksh, 2012 WL 952121 (N.Y. Sup. Ct. 2012) ...................................................................................13

HSBC Bank USA, Nat. Ass’n v. Mann, 2015 WL 6456042 (N.J. App. Div. 2015) ...............................................................................13

J.W.D., Inc. v. Fed. Ins. Co., 806 S.W.2d 327 (Tex. App.–Austin 1991, no writ) ...........................................................22, 23

Jaimes v. Fed. Nat'l Mortgage Ass‘n, 930 F. Supp. 2d 692 (W.D. Tex. 2013)....................................................................................20

James M. Clifton, I, Inc. v. Premillenium, Ltd., 2010 WL 2089655 (Tex. App.–Dallas 2010, no pet.) (mem. op.) ...........................................11

Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617 (Tex. 1986) ....................................................................................................28

John C. Flood of DC, Inc. v. SuperMedia, L.L.C., 408 S.W.3d 645 (Tex. App.–Dallas 2013, pet. denied) ...........................................................11

Johnson v. JPMorgan Chase Bank, N.A., 2013 WL 2554415 (E.D. Tex., June 7, 2013) ..........................................................................28

Juliette Fowler Homes, Inc. v. Welch Assocs., Inc., 793 S.W.2d 660 (Tex. 1990) ......................................................................................................9

vii

Karamath v. U.S. Bank, N.A., 2012 WL 4327613 (E.D.N.Y. 2012)........................................................................................13

Kelly v. JPMorgan Chase Bank, N.A., 2013 WL 874863 (N.D. Tex. 2013) .........................................................................................21

Kendig v. State, 2003 WL 23025209 (Tex. App.–Houston [14th Dist.] 2003, no pet.) .....................................23

Khan v. Wells Fargo Bank, N.A., 2014 WL 200492 (S.D. Tex. 2014) .........................................................................................12

Kiggundu v. MERS, Inc., 469 F. App’x 330 (5th Cir. 2012) (per curiam) .................................................................22, 23

Kirby Lumber Corp. v. Williams, 230 F.2d 330 (5th Cir. 1956) ...................................................................................................22

Kramer v. Fed. Nat’l Mortg. Ass’n, 2012 WL 3027990 (W.D. Tex. 2012) ................................................................................17, 22

Lall v. The Bank of New York Mellon, 2015 WL 5697480 (N.D. Tex. 2015) .......................................................................................12

Lambert v. First Nat’l Bank of Bowie, 993 S.W.2d 833 (Tex. App. – Fort Worth 1999, pet. denied) .................................................31

Lamell v. OneWest Bank, FSB, 2015 WL 7258685 (Tex. App.—Houston Nov. 17, 2015, no pet.) ...................................16, 26

Lawson v. Gibbs, 591 S.W.2d 292 (Tex. Civ. App.–Houston [14th Dist.] 1979, writ ref’d n.r.e.) ......................23

Lighthouse Church v. Tex. Bank, 889 S.W.2d 595 (Tex. App.–Houston [14th Dist.] 1994, writ denied) ....................................25

Livingston v. Wells Fargo Bank, N.A., 2014 U.S. Dist. LEXIS 128874 (E.D. Tex. 2014), Report and

Recommendation Adopted By 2014 U.S. Dist. LEXIS 127784 (E.D. Tex. 2014) ........................................................................................................................................18

Lusk v. Wells Fargo Bank, Nat’l Ass’n, 2012 WL 1836342 (E.D. Tex. 2012) .......................................................................................23

Marsh v. JPMorgan Chase Bank, N.A., 888 F. Supp. 2d 805 (W.D. Tex. 2012)..............................................................................19, 20

viii

Martin v. Wells Fargo Bank, N.A., 2013 WL 3809676 (N.D. Tex. 2013) .......................................................................................12

Martin v. Wells Fargo Bank, N.A., 2013 WL 694009 (E.D. Tex. 2013) .........................................................................................23

MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647 (Tex. 1999) ....................................................................................................10

Medcalf v. Ocwen Loan Servicing LLC, 2014 WL 2722325 (W.D. Tex. 2014) ......................................................................................20

Meiners v. Tex. Osage Co-op. Royalty Pool, Inc., 309 S.W.2d 898 (Tex. Civ. App.–El Paso 1958, writ ref’d n.r.e.) ...........................................25

Metcalf v. Deutsche Bank Nat’l Trust Co., 2012 WL 2399369 (N.D. Tex. 2012) .......................................................................................12

Milton v. U.S. Bank Nat. Ass’n, 508 F. App’x. 326 (5th Cir. 2013) ...........................................................................................29

Molin v. Fremont Inv. & Loan, 2013 WL 6732043 (S.D. Tex. 2013) .......................................................................................12

Morlock, L.L.C. v. Bank of N.Y., 448 S.W.3d 514 (Tex. App.—Houston 2014, pet. denied) ......................................................26

Morlock, LLC v. Bank of N.Y. Mellon, 2012 WL 5943469 (S.D. Tex. 2012), aff’d per curiam, 537 F. App’x 583 (5th Cir. 2013) .................................................................................................................................12

Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546 (Tex. 1985) ....................................................................................................29

Nobles v. Marcus, 533 S.W.2d 923 (Tex. 1976) ....................................................................................................25

Owens-Corning Fiberglas Corp. v. Malone, 972 S.W.2d 35 (Tex. 1998) ......................................................................................................34

Perdomo v. Fed. Nat’l Mortg. Ass’n, 2013 WL 1123629 (N.D. Tex. 2013) .................................................................................20, 21

Perkins v. Bank of Am., 2013 WL 1415159 (S.D. Tex. 2013) .......................................................................................20

Poag v. Flories, 317 S.W.3d 820 (Tex. App.–Fort Worth 2010, pet. denied) ...................................................25

ix

Pope v. Beauchamp, 219 S.W. 447 (Tex. 1920) ........................................................................................................22

Portwood v. Buckalew, 521 S.W.2d 904 (Tex. Civ. App.—Tyler 1975, writ ref’d n.r.e.) ..............................................9

Rajamin v. Deutsche Bank Nat’l Trust Co., 2013 WL 1285160 (S.D.N.Y. 2013) ........................................................................................13

Reinagel v. Deutsche Bank Nat’l Trust Co., 735 F.3d 220 (5th Cir. 2013) ........................................................................................... passim

Robeson v. Mortgage Elec. Registration Sys., 2012 WL 42965 (Tex. App.–Fort Worth 2012, pet. denied) (mem. op.) ................................12

Rodriguez v. Bank of Am., N.A., 2013 WL 1773670 (W.D. Tex. 2013) ......................................................................................23

Routh v. Bank of Am., N.A., 2013 WL 4040753 (W.D. Tex. 2013) ......................................................................................12

Rowland v. City of Corpus Christi, 620 S.W.2d 930 (Tex. Civ. App.—Corpus Christi 1981, writ ref’d n.r.e.) ...............................8

Saucedo v. Deutsche Bank Nat’l Trust Co., 2013 WL 656240 (W.D. Tex. 2013) ........................................................................................20

Schrader-Scalf v. CitiMortgage, Inc., 2013 WL 625745 (N.D. Tex. 2013) .........................................................................................12

Schumpert v. Wells Fargo Bank, N.A., 2013 WL 944935 (E.D. Tex. 2013) .........................................................................................32

Scott v. Bank of Am., N.A., 2013 WL 1821874 (W.D. Tex. 2013) ......................................................................................25

Sigaran v. U.S. Bank Nat’l Ass’n, 560 F. App’x 410 (5th Cir. 2014) ......................................................................................12, 18

Staats v. Miller, 243 S.W.2d 686 (Tex. 1951) ....................................................................................................31

Standiford v. CitiMortgage, Inc., 2015 WL 6831578 (Tex. App.—Austin Nov. 3, 2015, no pet.) (mem. op.) .....................25, 26

State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003) .................................................................................................................36

x

Stevens v. Deutsche Bank Nat. Trust Co., 570 F. App’x. 402 (5th Cir. 2014) .....................................................................................12, 17

Stine v. Stewart, 80 S.W.3d 586 (Tex. 2002) (per curiam) .................................................................................10

Summers v. PennyMac Corp., 2012 WL 5944943 (N.D. Tex. 2012) .......................................................................................12

Svoboda v. Bank of Am., N.A., 571 F. App’x 270 (5th Cir. 2014) ................................................................................12, 17, 18

Tamir v. Bank of N.Y. Mellon, 2013 WL 4522926 (E.D.N.Y. 2013)........................................................................................13

Temple v. Bank of Am., N.A., 2013 WL 6852372 (E.D. Tex. 2013) .......................................................................................12

Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299 (Tex. 2006) ..............................................................................................36, 37

Transportation Ins. Co. v. Moriel, 879 S.W.2d 10 (1994) ..............................................................................................................30

Tri-Cities Constr. v. Am. Nat’l Ins., 523 S.W.2d 426 (Tex. App.—Houston 1975, no writ) ............................................................17

Truitt v. Resmae Mortg. Corp., 2013 WL 841465 (E.D. Tex. 2013) .........................................................................................12

Tyler v. Bank of Am., N.A., 2013 WL 1821754 (W.D. Tex. 2013) ..........................................................................23, 33, 37

U.S. Bank Nat’l Ass’n v. Dumas, 144 So.3d 29 (La. Ct. App. 2014) ............................................................................................13

U.S. Bank, N.A. v. Madero, 2012 WL 5893625 (N.Y. Sup. Ct. 2012) aff’d 5 N.Y.S.3d 105 (App. Div. 2015) ........................................................................................................................................13

Van Duzer v. U.S. Bank Nat’l Ass’n, 2014 WL 357878 (S.D. Tex. 2014) .........................................................................................12

Vanderbilt Mortg. & Fin., Inc. v. Flores, 692 F.3d 358 (5th Cir. 2012) ...................................................................................................11

Vickery v. Wells Fargo Bank, N.A., 2013 WL 321662 (S.D. Tex. 2013) .........................................................................................24

xi

Walker & Assocs. Surveying, Inc. v. Roberts, 306 S.W.3d 839 (Tex. App.—Texarkana 2010) (no writ) .......................................................18

In re Walker, 466 B.R. 271 (Bankr. E.D. Pa. 2012) ......................................................................................13

Wells Fargo Bank, N.A. v. Ballestas, 355 S.W.3d 187 (Tex. App.–Houston [1st Dist.] 2011, no pet.) .............................................11

Wells Fargo Bank, N.A. v. Erobobo, 9 N.Y.S.3d 312 (App. Div. 2015) ............................................................................................13

Wells Fargo Bank, N.A. v. Wolf, 444 S.W.3d 685 (Tex. App.—Houston [14th Dist.] 2014, no pet.) ...........................................6

West v. First Baptist Church, 71 S.W.2d 1090 (Tex. 1934) ....................................................................................................22

Wheeler v. White, 314 S.W.3d 225 (Tex. App.–Houston [14th Dist.] 2010, pet. denied) ....................................11

Yasuda Fire & Marine Ins. Co. v. Criaco, 225 S.W.3d 894 (Tex. App.–Houston [14th Dist.] 2007, no pet.) ...........................................11

Statutes & Rules

Tex. Bus. & Com. Code § 3.205 ..............................................................................................23, 33

Tex. Civ. Prac. & Rem. Code Ann. § 41.003 ................................................................................35

Tex. Civ. Prac. & Rem. Code Ann. § 41.008 ................................................................................35

Tex. Civ. Prac. & Rem. Code § 12.001 .........................................................................................19

Tex. Civ. Prac. & Rem. Code § 12.002 ................................................................................. passim

Tex. Local Government Code § 192.007 .............................................................................6, 27, 28

Tex. Rule of Civil Pro. 301 .................................................................................................... passim

Other Authorities

U.S. Const. amend. XIV, § 1 .........................................................................................................36 Tex. Const. art I, § 19 ....................................................................................................................36 House Comm. on Crim. Jurisprudence, Bill Analysis, Tex. H.B. 1185, 75th Leg., R.S. (1997) ..............................................................................................................20

xii

Senate Jurisprudence Comm., Bill Analysis, Tex. H.B. 1185, 75th Leg., R.S. (1997) ..............................................................................................................20 4 McDonald & Carlson Tex. Civ. Prac. § 26.8 (2d ed.) .............................................................. 8-9

1

INTRODUCTION

Plaintiffs Mary Ellen Wolf and David Wolf assert various claims all based on a theory of

liability that Defendants Wells Fargo Bank, N.A., as Trustee for Carrington Mortgage Loan

Trust, Series 2006-NC3 Asset Backed Pass-Through Certificates (“Wells Fargo”) and Carrington

Mortgage Services, LLC (“Carrington” and, collectively, “Defendants” or “Defendants/Counter-

Plaintiffs”)1 allegedly lack authority to foreclose on Plaintiffs’ property. Plaintiffs argue that the

Note and Deed of Trust were not properly assigned into the relevant securitization trust under the

applicable Pooling and Servicing Agreement (“PSA”) and thus the transfer of the lien to Wells

Fargo (the “Transfer of Lien”) allegedly constitutes a “fraudulent lien.”

On November 4-10, 2015, the Court held a jury trial. The jury returned a verdict finding

that Wells Fargo is the holder of the Note. X3, Charge of the Court (“Verdict”), p. 15. The jury

further found that Plaintiffs failed to comply with their Note and owe $655,191.73. Id. pp. 13-

14. In addition, the jury found that Wells Fargo and Carrington are not holding any money in

equity or good conscience belonging to the Plaintiffs. Id. pp. 11-12. On these issues, the verdict

should be upheld.

The remainder of the jury verdict, however, should be overturned because it is contrary to

law, unsupported by any evidence, and internally contradictory. Plaintiffs’ fraudulent lien claim

fails as a matter of law for numerous reasons: (1) Plaintiffs lack standing to assert violations of

the PSA; (2) even if Plaintiffs had standing to assert PSA violations, they did not present any

1 Codefendant New Century Mortgage Corporation filed for bankruptcy in 2007 and sold its servicing business to Carrington (X18, Vol. 3, 18:14-18:18), and Plaintiffs stipulated to the dismissal of Codefendant Tom Croft during the trial (X19, Vol. 4, 56:11-56:22). In this brief, exhibits are listed in the attached Index of Exhibits and are designated by exhibit number as X__. Portions of the trial transcript are cited by volume, page, and line numbers as “Vol. __, __:__-__:__.” Plaintiffs’ trial exhibits are cited by exhibit and page number as “P__ at __.” Defendants’ trial exhibits are cited by exhibit and page number as “D__ at __.”

2

evidence at trial to support a finding that the PSA was violated; (3) even if Plaintiffs had

presented evidence of a PSA violation, such a violation would have rendered the Transfer of

Lien merely voidable, not void; (4) even if the Transfer of Lien had been void, an assignment

cannot violate the fraudulent lien statute as a matter of law; and (5) even if an assignment could

violate the fraudulent lien statute, Plaintiffs failed to present any evidence of fraudulent intent.

In addition, Plaintiffs lack standing to assert that the Transfer of Lien is otherwise fraudulent and

have not presented any evidence of fraud.

Plaintiffs’ other causes of action are entirely derivative of their fraudulent lien claim and

fail for the same reasons. Plaintiffs also failed to present any evidence to establish the

independent elements of those claims.

Furthermore, the jury’s verdict itself is inherently contradictory and contrary to

controlling law. Specifically, despite finding that Wells Fargo is the holder of the Note and that

Plaintiffs failed to comply with the Note and owe over $650,000, the jury found that Defendants

had made, presented or used a “fraudulent” lien, and that Defendants owe Plaintiffs $150,000 in

financial damages (X3, Verdict p. 6), $40,000 in damages for “mental anguish” (id. p. 7) and

$5,000,000 in “exemplary damages” (X3, Additional Instruction for Bifurcated Trial, p. 2). The

jury also found that Defendants were unjustly enriched, but that Defendants did not hold any

money in equity or good conscience belonging to the Plaintiffs and the “enrichment” was in the

amount of zero dollars. X3, Verdict, pp. 9-11.

Finally, even if the jury’s findings on liability were not otherwise unsustainable (which

they are), the award of “exemplary damages” is improper, and the amount awarded is grossly

disproportionate and thus violates Texas and federal law.

3

For all of these reasons, the Court should enter a judgment notwithstanding the verdict

pursuant to Texas Rule of Civil Procedure 301. The judgment should: (1) find against Plaintiffs

on all of their claims, (2) award Plaintiffs no relief, including no damages, exemplary damages or

attorneys’ fees, (3) enter judgment ordering a sheriff’s sale of the Property, (4) award Defendants

their costs of Court and all other relief to which they are entitled, and (5) award Defendants such

other relief as may be just and proper.

BACKGROUND

I. Plaintiffs’ Mortgage Loan

On or about April 17, 2006, Plaintiffs applied for a $400,000 home equity loan from New

Century Mortgage Corporation (“New Century”) to be secured by residential property located at

6404 Buffalo Speedway in Houston, Texas (the “Property”). X4, D1. Plaintiffs used the

proceeds of the loan to pay off a prior mortgage on the Property. X19, Vol. 4, 21:14-22:12. The

terms of the loan are set forth in a promissory note (“Note”) (X5, D2) and a Texas Home Equity

Security Instrument (“Deed of Trust”) (X6, D3). Plaintiffs signed the Note and Deed of Trust on

or about June 15, 2006. X5, D2, p.5; X6, D3, p.17; X19, Vol. 4, 22:13-22:23, 24:10-24:23.

Thereafter, New Century endorsed the Note in blank on the last page. X5, D2, p.5. On June 26,

2006, New Century executed a blank assignment, assigning the Deed of Trust to the holder of the

instrument. X16, D16.

Pursuant to the terms of the Note, Plaintiffs agreed, in relevant part: (i) to pay monthly

mortgage payments to the “Note Holder” (defined as “anyone who takes this Note by transfer

and who is entitled to receive payments under this Note”) and (ii) that Plaintiffs would be in

default if they did not timely pay the monthly loan payment. X5, D2, pp. 1, 3. Among other

things, the Deed of Trust authorizes the Note Holder to accelerate Plaintiffs’ repayment

4

obligation upon default and to foreclose on the lien “by a court order.” X6, D3, p.14. The Deed

of Trust further provides that “[t]he Note or a partial interest in the Note (together with this

Security Instrument) can be sold one or more times without prior notice to [Plaintiffs].” Id. p.12.

II. The NC3 Trust and PSA

After Plaintiffs executed the Note and Deed of Trust, the loan was assigned to Wells

Fargo in its capacity as Trustee for the Carrington Mortgage Loan Trust, Series 2006-NC3 (“the

NC3 Trust”). A Transfer of Lien document dated October 15, 2009 memorialized the transfer of

Plaintiffs’ Deed of Trust and Note from New Century to Wells Fargo. X11, D10.

The NC3 Trust was created by an August 1, 2006 Pooling and Servicing Agreement

(“PSA”). X17, P13. The PSA is governed by New York law. Id. at P02145. The PSA provides

for applicable mortgage loans to be placed in the NC3 Trust to be securitized for sale to

investors. Id. at P02051-P02060. The three parties to the PSA are New Century, Wells Fargo,

and Stanwich Asset Acceptance Company, LLC (“Stanwich”). Id. at P02002. Specifically, the

PSA designates New Century, or any successor, as the Servicer (id. at P02042), designates Wells

Fargo as the Trustee (id. at P02048), and designates Stanwich as the Depositor (id. at P02017).

In contrast, Plaintiffs and other borrowers whose loans were placed into the NC3 Trust are not

parties to the PSA. Id.2

New Century filed for bankruptcy in 2007. X7, D7. Through a Limited Power of

Attorney executed on June 18, 2007, Carrington was appointed as New Century’s true and lawful

attorney-in-fact to act in its name, place and stead. X8, D8; X19, Vol. 4, 111:3-113:4. The

Liquidating Trustee also executed a Limited Power of Attorney to Carrington. X9, D8A. In

2 The PSA itself only lists the “Swap Counterparty”—defined as “Swiss Re Financial Corporation” (X17, P13 at P02046)—as a recognized third-party beneficiary under the PSA. Id. at P02149. No other third party beneficiaries are enumerated. Id.

5

addition, Wells Fargo executed a Limited Power of Attorney dated October 22, 2007 appointing

Carrington as New Century’s attorney-in-fact “with full authority and power” to take actions

related to the notes and deeds of trust securitized into the NC3 Trust. X10, D9.

III. Plaintiffs’ Default

Plaintiffs stopped making payments on their loan as of January 2010 and have not paid

anything further to date. X14, D13; X19, Vol. 4, 26:16-26:18. Although Plaintiffs claim to be

confused as to who owns their loan and is entitled to payments (X18, Vol. 3, 26:1-26:21),

Plaintiffs concede that no one other than Carrington has demanded payment under the loan or

attempted to collect under the loan, and Plaintiffs have not made payments to any other entity

(X19, Vol. 4 at 32:16-34:3).

Since Plaintiffs ceased making payments, Carrington has paid property taxes and

insurance on the Property and has now advanced over $85,000. X15, D15. With unpaid

principal and interest, Plaintiffs now owe a total of $755,828.09 on their mortgage loan. Id.

On December 3, 2010, nearly a year after Plaintiffs ceased making payments, Carrington

sent Plaintiffs a notice of intent to foreclose, which included an opportunity to cure their default.

X12, D11. After Plaintiffs failed to cure the default, Wells Fargo, as trustee for the NC3 Trust,

filed an application to proceed with a non-judicial foreclosure sale and sent Plaintiffs a notice of

acceleration on February 3, 2011. X13, D12.

IV. Procedural History

After Wells Fargo filed the foreclosure application, Plaintiffs filed this suit as a putative

class action, claiming that Wells Fargo lacks the authority to foreclose on the Property because

the assignment of the Deed of Trust to Wells Fargo allegedly violated the PSA. The Court

initially granted summary judgment against Plaintiffs’ claims for damages on statute of

6

limitations grounds, but later reversed that decision.3 The Court also granted Plaintiffs’ motion

for class certification. Defendants appealed that order, and, in August 2014, the Court of

Appeals reversed and remanded for further proceedings. Wells Fargo Bank, N.A. v. Wolf, 444

S.W.3d 685 (Tex. App.—Houston [14th Dist.] 2014, no pet.).

Following remand, Plaintiffs filed their Fourth Amended Petition (“4AP”). X1.

Plaintiffs asserted six causes of action (none of which on a class-wide basis): (1) violation of

Section 12.002 of the Texas Civil Practice & Remedies Code (“CPRC”); (2) negligence per se

premised on alleged violation of CPRC Section 12.002 and Section 192.007 of the Texas Local

Government Code (“TLGC”); (3) gross negligence per se premised on alleged violation of

Section 12.002 and Section 192.007; (4) declaratory judgment; (5) unjust enrichment; and

(6) money had and received. X1, 4AP ¶¶ 106-140.

Plaintiffs’ claims were all premised on the theory that their Note and Deed of Trust “were

not properly transferred into the [] NC3 Trust.” Id. ¶ 21. Plaintiffs argued that the PSA requires

a “valid chain of title” showing assignments from the Originator to the Sponsor to the Depositor

into the NC3 Trust and that Wells Fargo allegedly “cannot prove a legal and valid chain of title.”

Id. ¶¶ 22-23. Plaintiffs thus argued that the Transfer of Lien constitutes a “fraudulent lien or

claim against real property or an interest in real property” in violation of Section 12.002 because

it allegedly “falsely represent[s] Defendants’ interest” in the Property. Id. ¶¶ 108-110. Plaintiffs

sought damages and attorneys’ fees and costs. Id. p. 42.

3 Defendants hereby reserve their right to re-assert any defenses raised in their prior summary judgment briefs, including their statute of limitations defenses, whether on appeal or otherwise as necessary.

7

On August 27, 2015, Defendants filed their Fourth Amended Answer and Third

Amended Counterclaim (“Answer”). X2. Defendants denied Plaintiffs’ claims and brought a

counterclaim seeking a judicial foreclosure on the Property. X2, Answer ¶¶ 35-37.

V. The Trial and Jury Verdict

During the trial, counsel for Defendants produced the original “blue ink” Note and Deed

of Trust. X19, Vol. 4, 221:6-222:6, 223:2-223:18. Plaintiffs presented no evidence—nor is there

any—to dispute that Defendants are the current holders of the original Note and Deed of Trust.

At the close of the evidence, counsel for Defendants moved for a directed verdict, which

the Court denied. X20, Vol. 5, 76:22-85:13. Prior to the submission of the verdict form to the

jury, Defendants’ counsel and Plaintiffs’ counsel raised objections to the content of the verdict

form, which also were overruled. Id. 86:1-93:11.

Following the trial, the jury returned a verdict on a form with 14 questions. The jury

found that:

• Wells Fargo is the Holder of the Note (X3, Verdict, p. 15);

• Plaintiffs failed to comply with the terms of the Note (id. p. 13);

• Plaintiffs owe $655,191.73 under the Note (id. p. 14);

• Defendants violated CPRC Section 12.002 (id. p. 5);

• Plaintiffs sustained $150,000 in total past financial injuries (id. p. 6),

• Plaintiffs sustained $40,000 total in “emotional distress” (id. p. 7);

• The Transfer of Lien was “void” (id. p. 17);

• Wells Fargo did not “own” the Note or Deed of Trust (id. p. 16);

• Defendants violated the PSA (id. p. 18);

• Plaintiffs are entitled to $190,000 total in attorneys’ fees (id. p. 19);

8

• Defendants were “unjustly enriched” but in the amount of zero dollars (id. pp. 9-10); and

• Defendants did not hold any money belonging to the Plaintiffs (id. p. 11).

After returning the verdict, the jury was given an additional question and found that

Plaintiffs are entitled to a total of $5,000,000 in “exemplary damages.” X3, Additional

Instruction for Bifurcated Trial, p. 2.

As explained below, the portions of the jury’s verdict in favor of Plaintiffs are contrary to

law, unsupported by the evidence, and internally contradictory. Accordingly, the Court should

grant judgment notwithstanding the verdict and enter a judgment as requested herein.

STANDARD OF REVIEW

Texas Rule of Civil Procedure 301 provides that upon motion and notice, the trial court

may “render judgment non obstante veredicto if a directed verdict would have been proper,” and

upon like motion and notice may “disregard any jury finding on a question that has no support in

the evidence,” or conversely, that the evidence establishes as a matter of law.

A motion for judgment notwithstanding the verdict is proper when: (1) a specified defect

in the opponent’s pleading makes it insufficient to support a judgment; (2) the evidence

conclusively establishes the right of the movant to judgment or negates the right of the opponent;

(3) the evidence is insufficient to raise a fact issue that must be established before the opponent

is entitled to judgment; or (4) the facts as proven do not constitute a recognized ground of

recovery or defense. Fort Bend County Drainage Dist. v. Sbrusch, 818 S.W.2d 392, 394 (Tex.

1991); Boswell v. Farm & Home Sav. Ass’n, 894 S.W.2d 761, 768 (Tex. App.—Fort Worth

1994, writ denied); Rowland v. City of Corpus Christi, 620 S.W.2d 930, 932-33 (Tex. Civ.

App.—Corpus Christi 1981, writ ref’d n.r.e.); see also 4 McDonald & Carlson Tex. Civ. Prac.

§ 26.8 (2d ed.) (“McDonald & Carlson”) (collecting cases).

9

Furthermore, a jury’s findings can be disregarded on a motion for judgment

notwithstanding the verdict when: (1) there is a complete absence of evidence of a vital fact;

(2) the court is barred by rules of law or evidence from giving weight to the only evidence

offered to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a

scintilla of evidence; or (4) the evidence establishes conclusively the opposite of a vital fact.

Juliette Fowler Homes, Inc. v. Welch Assocs., Inc., 793 S.W.2d 660, 666 n.9 (Tex. 1990); 4

McDonald & Carlson § 26.8. Jury findings that are immaterial are disregarded. Portwood v.

Buckalew, 521 S.W.2d 904, 913 (Tex. Civ. App.—Tyler 1975, writ ref’d n.r.e.); 4 McDonald &

Carlson § 26.8. Judgment notwithstanding the verdict is appropriate either when there was no

evidence to support an issue or the evidence established an issue as a matter of law and the jury

was not free to make contrary findings. Id.

ARGUMENT

I. PLAINTIFFS’ CLAIMS FAIL AS A MATTER OF LAW.

Plaintiffs’ primary claim is premised on Defendants’ alleged violation of the Texas

fraudulent lien statute, CPRC Section 12.002. X1, 4AP ¶¶ 106-114. As shown below, however,

that claim fails as a matter of law on a number of independent grounds. Plaintiffs’ remaining

claims fail because they are derivative of the fraudulent lien claim and because there is no

evidence to support the elements of the claims.

A. Plaintiffs’ Fraudulent Lien Claim Fails As A Matter Of Law.

Plaintiffs allege that Defendants violated Section 12.002 of the CPRC by publicly filing

the Transfer of Lien, which Plaintiffs allege is fraudulent. X1, 4AP ¶¶ 106-114. The jury found

that Defendants had violated CPRC Section 12.002. X3, Verdict, p. 5. As demonstrated below,

this finding is contrary to law and unsupported by the evidence.

10

In order to prove a violation of Section 12.002, Plaintiffs must present evidence

demonstrating that Defendants: (1) had “knowledge that [a] document or other record is ... a

fraudulent lien or claim against real ... property or an interest in real ... property”; (2) “inten[ded]

that the document ... be given the same legal effect as a court record ... evidencing a valid lien or

claim”; and (3) “intend[ed] to cause [Plaintiffs] to suffer” either “financial injury” or “mental

anguish or emotional distress.” Tex. Civ. Prac. & Rem. Code § 12.002(a); accord, e.g., Gray v.

Entis Mech. Servs., L.L.C., 343 S.W.3d 527, 530 (Tex. App.–Houston [14th Dist.] 2011, no pet.).

Plaintiffs’ claim fails on a number of independent grounds.

1. Plaintiffs, as mortgage borrowers, lack standing to assert violations of

the PSA as a matter of law.

Plaintiffs’ claims are entirely dependent on their allegation that the Transfer of Lien is

void and fraudulent because Defendants allegedly failed to comply with the PSA in transferring

the Note and Deed of Trust to the NC3 Trust. See, e.g., X1, 4AP ¶¶ 19-23 (arguing that “the

notes and mortgages of Plaintiffs were not properly transferred into the [] NC3 Trust” pursuant

to the PSA, and therefore the Transfer of Lien is allegedly void and fraudulent); ¶ 82 (“Plaintiffs’

note and mortgage loan were not properly transferred into the [] NC3 Trust.”). However,

Plaintiffs lack standing to assert a violation of the PSA.

Plaintiffs’ lack of standing to allege PSA violations flows from a bedrock principle of

Texas law. As the Texas Supreme Court has held, a person who is not party to a contract may

sue for a breach of the contract “only if the parties intended to secure a benefit to that third party,

and only if the contracting parties entered into the contract directly for the third party’s benefit.”

Stine v. Stewart, 80 S.W.3d 586, 589 (Tex. 2002) (per curiam); accord, e.g., MCI Telecomms.

Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 651 (Tex. 1999).

11

In this context, the term “standing” refers to contractual standing, not to statutory or

jurisdictional standing, which goes to the jurisdictional question whether the “plaintiff has

suffered a legally cognizable injury or wrong.” Vanderbilt Mortg. & Fin., Inc. v. Flores, 692

F.3d 358, 370 (5th Cir. 2012); accord Cernosek Enters., Inc. v. City of Mont Belvieu, 338 S.W.3d

655, 663 (Tex. App.–Houston [1st Dist.] 2011, no pet.). As Texas courts have explained,

“‘standing’ to sue on [a] contract[] is not the same as standing in the jurisdictional sense.”

Wheeler v. White, 314 S.W.3d 225, 229 (Tex. App.–Houston [14th Dist.] 2010, pet. denied).

Instead of asking whether the plaintiff suffered an injury, contractual “standing” applies

the rule that “an entity has no ‘standing’ to enforce a contract if that entity is not a party to the

contract or a third-party beneficiary of it.” Yasuda Fire & Marine Ins. Co. v. Criaco, 225

S.W.3d 894, 898 (Tex. App.–Houston [14th Dist.] 2007, no pet.). That analysis “goes to the

merits,” not to “jurisdiction.” Id.4 As a result, a party seeking to enforce a contract must show

“both” that it has jurisdictional “standing” and that it has the “capacity” to allege violations of

the contract. John C. Flood of DC, Inc. v. SuperMedia, L.L.C., 408 S.W.3d 645, 650-51 (Tex.

App.–Dallas 2013, pet. denied). Thus, even if Plaintiffs have jurisdictional standing, they can

nevertheless allege PSA violations only if they are parties to, or beneficiaries of, that agreement.

The U.S. Court of Appeals for the Fifth Circuit has recently, and repeatedly, applied that

rule to PSAs in similar cases, unequivocally holding that “borrowers, as non-parties to the PSA,

‘have no right to enforce its terms unless they are its third-party beneficiaries.’” Farkas v.

GMAC Mortg., L.L.C., 737 F.3d 338, 342 (5th Cir. 2013) (per curiam) (emphasis added)

4 Accord, e.g., Wells Fargo Bank, N.A. v. Ballestas, 355 S.W.3d 187, 192 (Tex. App.–Houston [1st Dist.] 2011, no pet.); Clouse v. Levin, 339 S.W.3d 766, 769 n.1 (Tex. App.–Houston [14th Dist.] 2011, no pet.); Heartland Holdings, Inc. v. U.S. Trust Co. of Tex. N.A., 316 S.W.3d 1, 6-7 (Tex. App.–Houston [14th Dist.] 2010, no pet.); James M. Clifton, I, Inc. v.

Premillenium, Ltd., 2010 WL 2089655, at *2 (Tex. App.–Dallas 2010, no pet.) (mem. op.).

12

(quoting Reinagel v. Deutsche Bank Nat’l Trust Co., 735 F.3d 220, 228 (5th Cir. 2013)); see also

Sigaran v. U.S. Bank Nat’l Ass’n, 560 F. App’x 410, 413 (5th Cir. 2014) (“We hold that under

either New York or Texas law, the [borrowers] do not have the right to challenge this violation

of the terms of the PSA.”); Svoboda v. Bank of Am., N.A., 571 F. App’x 270, 272-73 (5th Cir.

2014) (same); Stevens v. Deutsche Bank Nat. Trust Co., 570 F. App’x. 402, 403 (5th Cir. 2014)

(same).5 Countless other courts have reached the same result: Plaintiffs “lack[] standing to

challenge the assignment” of their deed of trust “on the ground[] that it was made in violation of

the … PSA.” Martin v. Wells Fargo Bank, N.A., 2013 WL 3809676, at *3 (N.D. Tex. 2013).6

5 “Federal authority is persuasive here because a great amount of home-mortgage litigation in Texas is tried in its federal courts, applying Texas foreclosure law.” Bierwirth v. BAC Home

Loans Servicing, L.P., 2012 WL 3793190, at *1, n.3 (Tex. App.–Austin 2012, pet. denied) (mem. op.) (citing Robeson v. Mortgage Elec. Registration Sys., 2012 WL 42965, at *4, n.4 (Tex. App.–Fort Worth 2012, pet. denied) (mem. op.)).

6 Accord, e.g., Lall v. The Bank of New York Mellon, 2015 WL 5697480, at *4 (N.D. Tex. 2015); Van Duzer v. U.S. Bank Nat’l Ass’n, 2014 WL 357878, at *8 (S.D. Tex. 2014); Castillo v.

Deutsche Bank Nat’l Trust Co., 2014 WL 279675, at *5 (W.D. Tex. 2014); Khan v. Wells Fargo

Bank, N.A., 2014 WL 200492, at *9 (S.D. Tex. 2014); Blair v. Deutsche Bank Nat’l Trust Co., 2013 WL 6628634, at *3 (W.D. Tex. 2013); Hosey v. Network Funding, LP, 2013 WL 5971061, at *4 (S.D. Tex. 2013); Felder v. Countrywide Home Loans, 2013 WL 6805843, at *18-19 (S.D. Tex. 2013); Molin v. Fremont Inv. & Loan, 2013 WL 6732043, at *2 n.13 (S.D. Tex. 2013); Calvino v. Conseco Fin. Servicing Corp., 2013 WL 4677742, at *5 (W.D. Tex. 2013); Routh v.

Bank of Am., N.A., 2013 WL 4040753, at *3 n.7 (W.D. Tex. 2013); Temple v. Bank of Am., N.A., 2013 WL 6852372, at *3 (E.D. Tex. 2013); Colton v. U.S. Bank Nat’l Ass’n, 2013 WL 5903618, at *3 (N.D. Tex. 2013); Bernal v. Wilmington Fin., 2013 WL 2896892, at *3 (N.D. Tex. 2013); Auriti v. Wells Fargo Bank, N.A., 2013 WL 2417832, at *9 (S.D. Tex. 2013); Byers v. Bank of

N.Y. Mellon, 2013 WL 2471588, at *4 (E.D. Tex. 2013); In re Bond, 2013 WL 1619691, at *9 (S.D. Tex. 2013); Herrera v. Wells Fargo Bank, N.A., 2013 WL 961511, at *9 (S.D. Tex. 2013); Calderon v. Bank of Am. N.A., 941 F. Supp. 2d 753, 766 (W.D. Tex. 2013); Schrader-Scalf v.

CitiMortgage, Inc., 2013 WL 625745, at *3 (N.D. Tex. 2013); Truitt v. Resmae Mortg. Corp., 2013 WL 841465, at *3 (E.D. Tex. 2013); Golden v. Wells Fargo Bank, NA, 2012 WL 8019261, at *2 (W.D. Tex. 2012); Morlock, LLC v. Bank of N.Y. Mellon, 2012 WL 5943469, at *2 (S.D. Tex. 2012), aff’d per curiam, 537 F. App’x 583 (5th Cir. 2013); Summers v. PennyMac Corp., 2012 WL 5944943, at *7 (N.D. Tex. 2012); Harley v. HSBC Bank USA Nat’l Ass’n, 2012 WL 8019262, at *2 (W.D. Tex. 2012); BAC Home Loans Servicing, LP v. Tex. Realty Holdings, LLC, 901 F. Supp. 2d 884, 907 (S.D. Tex. 2012); Bircher v. Bank of N.Y. Mellon, 2012 WL 3245991, at *6 (N.D. Tex. 2012); Abruzzo v. PNC Bank, N.A., 2012 WL 3200871, at *2 (N.D. Tex. 2012); Metcalf v. Deutsche Bank Nat’l Trust Co., 2012 WL 2399369, at *4 (N.D. Tex. 2012); Edwards

13

The New York courts have—like the Fifth Circuit—repeatedly held that borrowers “lack

standing to challenge [the] ownership of the Notes and [deeds of trust] ... based on non-

compliance with ... PSAs.” Rajamin v. Deutsche Bank Nat’l Trust Co., 2013 WL 1285160, at *3

(S.D.N.Y. 2013).7 Indeed, earlier this year, a New York appellate court issued a decision in a

materially identical case, reversing a trial court ruling that Plaintiffs previously relied upon in

this case. See Wells Fargo Bank, N.A. v. Erobobo, 9 N.Y.S.3d 312 (App. Div. 2015). The

borrower in Erobobo alleged that the “assignment of the note and mortgage to [Wells Fargo]

failed to comply with certain provisions of the pooling and servicing agreement … and was thus

void under New York law.” Id. at 313-14. The trial court held that the mortgagor presented “a

triable issue of fact as to whether the purported assignment of the note and mortgage to [Wells

Fargo] violated certain provisions of the PSA governing the trust, and was therefore void under

[New York law].” Id. at 314. However, the appellate court reversed, holding that the plaintiff,

“as a mortgagor whose loan is owned by a trust, does not have standing to challenge [Wells

Fargo’s] possession or status as assignee of the note and mortgage based on purported

noncompliance with certain provisions of the PSA.” Id.8

v. Ocwen Loan Servicing, LLC, 2012 WL 844396, at *5 (E.D. Tex. 2012); Bittinger v. Wells

Fargo Bank NA, 744 F. Supp. 2d 619, 625–26 (S.D. Tex. 2010); see also In re Walker, 466 B.R. 271, 284–85 & nn. 28–29 (Bankr. E.D. Pa. 2012) (noting the “judicial consensus” on this issue).

7 Accord Bank of N.Y. Mellon v. Gales, 982 N.Y.S.2d 911, 912 (App. Div. 2014); Bravo v.

MERSCORP, Inc., 2013 WL 4851697, at *3 n.6 (E.D.N.Y. 2013); Tamir v. Bank of N.Y. Mellon, 2013 WL 4522926, at *3 (E.D.N.Y. 2013); Karamath v. U.S. Bank, N.A., 2012 WL 4327613, at *7 (E.D.N.Y. 2012); U.S. Bank, N.A. v. Madero, 2012 WL 5893625 (N.Y. Sup. Ct. 2012), aff’d 5 N.Y.S.3d 105 (App. Div. 2015); Cimerring v. Merrill Lynch Mortg., 2012 WL 2332358, at *9 (N.Y. Sup. Ct. 2012); HSBC Bank USA v. Baksh, 2012 WL 952121, at *2 (N.Y. Sup. Ct. 2012).

8 Other states follow New York and Texas in holding that borrowers lack standing to challenge compliance with a PSA. See, e.g., HSBC Bank USA, Nat. Ass’n v. Mann, 2015 WL 6456042, at *2, 4 (N.J. App. Div. 2015) (mortgagor, “as a non-party to the trust’s Pooling and Service Agreement (PSA), lacked standing to assert any breach of the PSA”); U.S. Bank Nat’l

Ass’n v. Dumas, 144 So.3d 29, 38 n.3 (La. Ct. App. 2014) (reaching the same result; “[c]ourts of

14

At trial, Plaintiffs failed to present – or even argue – that they are third party beneficiaries

to the PSA at issue. Indeed, the terms of the PSA itself clearly demonstrate Plaintiffs are not

third party beneficiaries thereof. See, e.g., X17, P13 at P02149. Accordingly, Plaintiffs lack

standing under governing Texas and New York law to allege that Defendants violated the PSA.

Because all of their claims are premised on the allegation that the Transfer of Lien is void due to

alleged violations of the PSA, those claims fail as a matter of law.

2. Even if Plaintiffs had standing to assert violations of the PSA, they did

not present at trial any evidence of a PSA violation.9

Even if an alleged violation of the PSA could support a claim under Section 12.002 of the

CPRC, Plaintiffs failed at trial to present any evidence showing any such violation. Plaintiffs

argued at trial that Defendants violated the PSA by allegedly failing to transfer their loan into the

NC3 Trust prior to the August 2006 “Closing Date.” X18, Vol. 3, 10:20-11:2 (arguing that

Defendants violated the PSA by allegedly failing to timely transfer Plaintiffs’ loan into the NC3

Trust because “[t]here’s a closing date. After it closes, no mortgages in or out. That’s it.”).

Plaintiffs’ argument fails for two reasons. First, Plaintiffs’ loan was assigned into the

NC3 Trust, along with other loans, by virtue of the terms of the PSA itself. Section 2.01 of the

PSA is entitled “Conveyance of Mortgage Loans,” and constitutes a conveyance of the relevant

other states, including New York [the law of which governed the trust], that have considered alleged violations of a PSA trust agreement have held that a borrower obligated under a promissory note in the trust does not have standing to assert a claim for any such violations”).

9 Plaintiffs’ central argument in this case has always been that Defendants violated the PSA by failing to properly assign the Deed of Trust to the NC3 Trust under the PSA. X1, 4AP ¶¶ 21-24 (alleging that Plaintiffs’ Deed of Trust was “not properly transferred into the [] NC3 Trust”). However, the jury was not asked to find, and thus did not find, that Defendants failed to properly assign the Deed of Trust (or any other instrument) pursuant to the terms of the PSA. Instead, the jury was asked to decide whether Defendants “violate[d] the PSA” (X3, Verdict, p. 18) and whether the Transfer of Lien is “void” (id. p. 17). The jury’s findings on these points are thus too vague and indefinite to support a ruling in Plaintiffs’ favor on their theory. For this additional reason, the Court should grant the requested judgment notwithstanding the verdict.

15

loans into the NC3 Trust. X17, P13 at P02051. The PSA provides that, on the “Closing Date”—

which is defined as August 10, 2006 (id. at P02015)—Stanwich, as the Depositor, “will transfer,

assign, set over and otherwise convey to the Trustee [Wells Fargo] … all the right, title and

interest” in the relevant mortgage loans. Id. at P02051. The PSA further provides in Section

2.02 that “the assignment and transfer herein contemplated is absolute and constitutes a sale of

the Mortgage Loans, the related Mortgage Notes and the related documents, conveying good title

thereto free and clear of any liens and encumbrances…” Id. at P02055. See also PSA Section

2.06 (“The Trustee acknowledges the assignment to it of the Mortgage Loans. . . .”). Id. at

P02060.

Thus, the Note and Deed of Trust were assigned and conveyed to Wells Fargo as trustee

in August 2006 pursuant to the PSA. Plaintiffs have argued that any assignment in 2006

nonetheless violated the PSA because the assignment was not publicly recorded until the

Transfer of Lien was filed in October 2009. X1, 4AP ¶ 24 (arguing that assignment was not

recorded until Transfer of Lien was filed in October 2009); X18, Vol. 3, 9:20-11:2 (same). The

PSA makes clear, however, that “Assignments” made pursuant to the PSA “shall not be required

to be submitted for recording … unless [Wells Fargo] or [Stanwich] receives written notice that

failure to record would result in a withdrawal or downgrading by any Rating Agency of the

rating on any Class of Certificates” associated with the NC3 Trust. X17, P13 at P02052-P02053

(emphasis added); see also id. at P02006 (definition of “Assignment,” noting that the PSA does

“not … require[]” recordation of all assignments). Plaintiffs presented no evidence at trial

suggesting that Wells Fargo or Stanwich ever received such written notice under the PSA—

which means they have not identified, and cannot identify, any evidence suggesting that any

party had a duty to record the assignment of their Deed of Trust under the PSA.

16

Second, even if Plaintiffs had shown that their loan was not assigned into the NC3 Trust

prior to the Closing Date—which they have not—that still would not constitute a violation of the

PSA. This is because the PSA contemplates assignment of loans after the Closing Date.

Indeed, in a recent decision, the Texas Court of Appeals reached the same conclusion in

construing a similar PSA. Lamell v. OneWest Bank, FSB, 2015 WL 7258685, at *4-5 (Tex.

App.—Houston Nov. 17, 2015, no pet.). In Lamell, the borrower argued that the defendants had

violated the PSA by failing to assign a deed of trust before the applicable closing date. Id. at *4.

The court rejected that argument, noting that “the Pooling and Servicing Agreement

contemplates the delivery of loans into the trust after the closing date.” Id. The court cited

various provisions of the PSA in support, including a provision acknowledging that “parties may

need to purchase additional loans and place them into the trust at later dates in certain

situations.” Id. A materially similar provision appears at Section 2.03 of the PSA for the NC3

Trust. X17, P13 at P02055-P02057 (authorizing Servicer to request that any missing or defective

documents in a Mortgage File be replaced or cured by the Responsible Party and to substitute

loans for any loans deleted from a Mortgage File). Thus, even if Plaintiffs’ loan had not been

assigned at the Closing Date—which it was—there still would not be any evidence to support a

finding that the PSA was violated.

Accordingly, Plaintiffs failed to produce any evidence to support a finding that

Defendants violated the PSA. The jury finding to the contrary is unsupported and cannot stand.

X3, Verdict, p. 18. Plaintiffs’ fraudulent lien claim fails for this additional reason.

3. Even if there was evidence of a PSA violation, such a violation would

have rendered the Transfer of Lien merely voidable, not void.

The jury finding that the Transfer of Lien is “void” is contrary to law and of no help to

Plaintiffs. X3, Verdict, p. 17. To be sure, Texas cases hold that “the obligors of a claim may

17

defend [a] suit brought thereon on any ground which renders the assignment void, but may not

defend on any ground which renders the assignment voidable only.” Tri-Cities Constr. v. Am.

Nat’l Ins., 523 S.W.2d 426, 430 (Tex. App.—Houston 1975, no writ) (emphasis added). Those

cases, however, do not speak to the challenges Plaintiffs raise here, which assert offensive claims

for damages against Defendants. See, e.g., Bond, 2013 WL 1619691, at *10 (reading Tri-Cities

as speaking to only the defenses available in enforcement actions); Kramer v. Fed. Nat’l Mortg.

Ass’n, 2012 WL 3027990, at *5 (W.D. Tex. 2012) (same).10

More importantly, however, even if an offensive claim could be supported by a finding

that an assignment is void, Plaintiffs would still lack standing because the Transfer of Lien here

is not void. It is well established that an assignment made in violation of a PSA is voidable, not

void. As the Fifth Circuit held in Reinagel, even if the “assignments violated the PSA,” that fact

“would not render [them] void.” 735 F.3d at 228 (emphasis added); accord Svoboda, 571 F.

App’x at 272-73; Stevens, 570 F. App’x. at 403.

The same is true under New York law, which holds “that a beneficiary can ratify a

trustee’s ultra vires acts.” Calderon, 941 F. Supp. 2d at 766. The possibility that the beneficiary

could ratify “unauthorized transactions” by the trustee necessitates the conclusion that such

transactions are “voidable rather than void,” because “[a] void contract cannot be ratified.” Id.

at 766–67 (internal quotation marks omitted). Thus, when New York courts apply New York

10 The rule that defenses to a suit include “any ground which renders [an] assignment void” (Tri-Cities, 523 S.W.2d at 430) rests on a rationale that has no application here. Texas courts allow borrowers to raise such defenses in order to “insure ... that [they] will not have to pay the same claim twice.” Id. Not only is such an allegation lacking here, but it fails as a matter of law: if Wells Fargo foreclosed on Plaintiffs’ home under the deed of trust, no other entity could do so, because Plaintiffs would no longer own the property. There is no plausible “suggestion” that Plaintiffs could possibly “be[] put in a position where [they] will have to pay the same claim twice.” Kramer, 2012 WL 3027990, at *5; accord, e.g., Bond, 2013 WL 1619691, at *10. As a result, the purported rule that plaintiffs may raise arguments that would void an assignment is inapplicable here.

18

law, they “‘treat[] actions by trustees as voidable.’” Felder, 2013 WL 6805843, at *19 (quoting

Green v. Bank of Am., N.A., 2013 WL 3937070, at *3 (S.D. Tex. 2013)).

Indeed, a federal court recently applied these precise grounds in dismissing with

prejudice a virtually identical claim brought by the same law firm that represents Plaintiffs here.

Livingston v. Wells Fargo Bank, N.A., 2014 U.S. Dist. LEXIS 128874 (E.D. Tex. 2014), Report

and Recommendation Adopted By 2014 U.S. Dist. LEXIS 127784 (E.D. Tex. 2014). In

Livingston, the borrowers sued Wells Fargo and Carrington under Section 12.002 of CPRC

alleging that the assignments of their deed of trust were not made by the applicable closing date

in the PSA and thus were fraudulent. 2014 U.S. Dist. LEXIS 128874, at *4-5.

First, the court determined that the definition of “fraudulent” under Section 12.002

requires a demonstration that “the Defendants ‘knowingly misrepresented the truth’ or

‘concealed a material fact’ when the deed of trust assignments were recorded.” Id. at *13 (citing

Walker & Assocs. Surveying, Inc. v. Roberts, 306 S.W.3d 839, 849-50 (Tex. App.—Texarkana

2010) (no writ)). Next, the court cited recent Fifth Circuit decisions applying “New York law to

hold violations of a PSA are voidable--not void--and therefore susceptible of ratification.” Id. at

*15 (citing Sigaran, 560 F. App’x at 413; Svoboda, 571 F. App’x at 272-73). Finally, the court

found that the mortgagors had not shown that the assignments were never ratified or otherwise

“treated as lawful transactions under the trust by the beneficiaries.” Id. Accordingly, the court

found that the assignments “did not misrepresent or conceal any material fact” and were

“therefore not fraudulent for purposes of Section 12.002.” Id. at *15-16.

The same is true here. To the extent Plaintiffs allege that the assignment to Wells Fargo

violated the PSA, they have not introduced any evidence that such alleged violations were not

ratified or otherwise treated as lawful by the parties and beneficiaries of the NC3 Trust. Id. at

19

*15. Because any violation of the PSA would render the Transfer of Lien merely voidable and

not void, Plaintiffs cannot premise their claims on such alleged violations.

The jury’s finding that the Transfer of Lien is “void” is thus erroneous as a matter of law.

The jury was not presented with any evidence—nor is there any—to support a finding that the

instrument is void, instead of merely voidable. The jury’s finding is thus contrary to the myriad

New York and Texas law cited above and cannot stand.11

4. Even if the Transfer of Lien was void, an assignment cannot violate

the fraudulent lien statute as a matter of law.

Even if Plaintiffs could show that the Transfer of Lien was somehow void or fraudulent,

Plaintiffs still cannot bring a successful claim under Section 12.002 of CPRC because an

assignment cannot constitute a “fraudulent lien or claim” under Texas law.

The plain text of Section 12.002 applies only to “fraudulent lien[s] or claim[s] against,”

among other things, “real property ... or an interest in real ... property.” Tex. Civ. Prac. & Rem.

Code § 12.002. A “lien” for purpose of the statute is a specific type of claim: “‘a claim in

property for the payment of a debt [that] includes a security interest.’” Marsh v. JPMorgan

Chase Bank, N.A., 888 F. Supp. 2d 805, 813 (W.D. Tex. 2012) (quoting Tex. Civ. Prac. & Rem.

Code § 12.001(3)).

An assignment cannot constitute either a “lien” within that definition or any other type of

“claim” against real property. The reason is simple: An assignment merely “transfer[s]” a

preexisting “interest in property” instead of “purporting to create a lien or claim against real ...

11 Indeed, the jury was not provided with instructions regarding the relevant New York and Texas authorities and was not given any information to distinguish a “void” instrument from an instrument that is merely “voidable.” Instead, the jury was instructed only that “void” means “those documents that are of no effect whatsoever, and those that are an absolute nullity.” X3, Verdict, p. 17. This cursory description is insufficient to instruct the jury as to the correct standard for differentiating void and voidable instruments under governing law.

20

property.” Marsh, 888 F. Supp. 2d at 813 (internal quotation marks and emphasis omitted);

accord, e.g., Perkins v. Bank of Am., 2013 WL 1415159, at *4 (S.D. Tex. 2013); Perdomo v.

Fed. Nat’l Mortg. Ass’n, 2013 WL 1123629, at *5 (N.D. Tex. 2013). The assignment itself is

thus not the lien or claim; instead, it is the underlying deed of trust that “creates”—and therefore

constitutes—the “lien.”

“The plain and common meaning of the statute’s words” thus “do[es] not suggest the

Texas legislature intended to include mortgage assignments within the purview of Chapter 12.”

Marsh, 888 F. Supp. 2d at 813. Furthermore, “the legislative history of” the fraudulent lien

statute confirms that its “purpose ... was to ‘creat[e] a private cause of action against a person

who files fraudulent judgment liens or fraudulent documents purporting to create a lien or claim

against ... property.’” Id. (quoting House Comm. on Crim. Jurisprudence, Bill Analysis, Tex.

H.B. 1185, 75th Leg., R.S. (1997)) (emphasis in Marsh); accord Senate Jurisprudence Comm.,

Bill Analysis, Tex. H.B. 1185, 75th Leg., R.S. (1997).

The fact that a deed of trust assignment does not create a lien but instead merely

“transfer[s] an existing deed of trust from one entity to another” thus means that an assignment

cannot constitute a “fraudulent lien” under Texas law. Id.12

All of Plaintiffs’ claims are

12 Although there are a handful of outlier opinions, the overwhelming majority of courts have held that “a document assigning a deed of trust does not qualify as a ‘lien or claim’ under Section 12.002.” Golden v. Wells Fargo Bank, N.A., 557 F. App’x 323, 327 n.2 (5th Cir. 2014); see also Jaimes v. Fed. Nat'l Mortgage Ass‘n, 930 F. Supp. 2d 692, 697 (W.D. Tex. 2013) (Chapter 12 does not apply to mortgage assignments); Medcalf v. Ocwen Loan Servicing

LLC, 2014 WL 2722325, at *3 (W.D. Tex. 2014) (same); Saucedo v. Deutsche Bank Nat’l Trust

Co., 2013 WL 656240, at *5 (W.D. Tex. 2013) (an assignment “does not purport to create a lien or claim” against real property and, thus, is not subject to Chapter 12); Ferguson v. Bank of New

York Mellon Corp., 2014 WL 2815487, at *5 (S.D. Tex. 2014) (“The Fergusons’ § 12.002 claim also fails because MERS’s assignment to the Bank of New York did not create a lien, which is an element of the cause of action. To the contrary, the assignment simply transferred the lien.”); Perkins, 2013 WL 1415159, at *4 (same); Bond, 2013 WL 1619691, at *12 (same); Colton v.

U.S. Nat'l Bank Ass’n, 2013 WL 1934560, at *5 n.13 (N.D. Tex. 2013) (“[f]ederal district courts

21

premised on their allegations that the Transfer of Lien constitutes a “fraudulent lien,” and

therefore all of the claims fail as a matter of law.

5. Even if an assignment could violate the fraudulent lien statute,

Plaintiffs failed to present any evidence of fraudulent intent.

To prove a claim under Section 12.002 of CPRC, Plaintiffs must prove that, in filing the

allegedly invalid Transfer of Lien with the County Clerk’s Offices, Defendants knew that the

Transfer of Lien was fraudulent and also intended that the Transfer of Lien would cause

Plaintiffs to suffer some type of injury. See Tex. Civ. Prac. & Rem. Code § 12.002(a)(2)–(3).

No evidence was produced at trial showing that any Defendant filed the Transfer of Lien

knowing it to be fraudulent. Indeed, given the fact that – as shown above – the Transfer of Lien

was not in fact fraudulent, no such evidence of fraudulent intent could possibly exist.

Moreover, there is no evidence to support any finding of intent to cause harm. The

Transfer of Lien memorialized the assignment of Plaintiffs’ Deed of Trust from New Century to

Wells Fargo, but that assignment did not cause Plaintiffs to suffer any injury, nor could it.

Plaintiffs owed monthly payments under the Note and Deed of Trust. X5, D2, pp. 1, 3. That

obligation did not change when the Note and Deed of Trust were assigned. The only thing that

changed was the party entitled to those payments. Indeed, both the Note and Deed of Trust

specifically contemplate that the instruments could be assigned without prior notice to Plaintiffs.

have interpreted § 12.002(a) as applying only to fraudulent documents purporting to create a lien or claim against property, but not a document like an assignment, which merely transfers an existing claim”); Garcia v. Bank of New York Mellon, 2012 WL 692099, at *3 (N.D. Tex. 2012) (same); Akins v. Wells Fargo Bank, N.A., 2013 WL 4735581, at *3 (E.D. Tex. 2013) (same); Kelly v. JPMorgan Chase Bank, N.A., 2013 WL 874863, at *7 (N.D. Tex. 2013). And indeed, the majority rule on this issue is sound, in large part due to the considerations surrounding the void/voidable distinction previously discussed. Clearly the Texas legislature intended to allow homeowners a mechanism to recover damages from a party that creates a fraudulent lien, but whether damages should lie for a lien fraudulently transferred is a matter best resolved between the creator of the lien and the transferor of the lien – not the property owner, who remains subject to the legitimately created lien in any event.

22

X5, D2, p. 1 (defining “Note Holder” as “anyone who takes this Note by transfer and who is

entitled to receive payments under this Note”); X6, D3, p. 12 (providing that “[t]he Note or a

partial interest in the Note (together with this Security Instrument) can be sold one or more times

without prior notice to [Plaintiffs].”).

Nor did the Transfer of Lien—even if somehow defective—change Defendants’ ability to

foreclose on the Property following Plaintiffs’ default. Under Texas law, “a mortgage on real

estate ... ‘follow[s]’ the promissory note it secured.” J.W.D., Inc. v. Fed. Ins. Co., 806 S.W.2d

327, 330 (Tex. App.–Austin 1991, no writ) (citing, inter alia, West v. First Baptist Church, 71

S.W.2d 1090, 1099 (Tex. 1934); Pope v. Beauchamp, 219 S.W. 447, 449 (Tex. 1920)); accord,

e.g., Kiggundu v. MERS, Inc., 469 F. App’x 330, 332 (5th Cir. 2012) (per curiam); Campbell v.

MERS, Inc., 2012 WL 1839357, at *4 (Tex. App.–Austin 2012, pet. denied) (quoting J.W.D.,

Inc.). Moreover, “the ability to foreclose on a deed of trust is transferred when the note is

transferred.” Bittinger, 744 F. Supp. 2d at 625 (citing J.W.D., Inc., 806 S.W.2d at 329–30).13

Thus, the date on which “‘an assignment of deed of trust is either prepared or recorded’”

would not affect “‘the ability to foreclose.’” Darocy v. Chase Home Fin., LLC, 2012 WL

840909, at *10 (N.D. Tex. 2012) (quoting Bittinger, 744 F. Supp. 2d at 625). And “Texas courts

have affirmed and applied the ‘mortgage follows the note’ rule in cases where the mortgage

assignment was not recorded by the transferee and even when there was no actual separate

written assignment of the mortgage.” Dempsey v. U.S. Bank Nat’l Ass’n, 2012 WL 2036434, at

*4 (E.D. Tex. 2012) (citing Kirby Lumber Corp. v. Williams, 230 F.2d 330, 333 (5th Cir. 1956),

13 In other words, when the legal interest in a debt is transferred, the equitable interest in the deed of trust “is also automatically transferred.” Campbell, 2012 WL 1839357, at *4. That equitable interest permits the owner or holder of the note to foreclose under Texas law. See, e.g., Kramer, 2012 WL 3027990, at *7.

23

and J.W.D., Inc., 806 S.W.2d at 329–30); accord, e.g., Lusk v. Wells Fargo Bank, Nat’l Ass’n,

2012 WL 1836342, at *4 (E.D. Tex. 2012).

In particular, when a note is endorsed “in blank”—which is to say, when the note has an

“indorsement,” but does not “identif[y] a person to whom it makes the [note] payable”—the note

is “payable to bearer and may be negotiated by transfer of possession alone.” Tex. Bus. & Com.

Code § 3.205(a)–(b) (emphasis added). “[P]hysical possession of [such] a promissory note ...

establishes ownership” of the note and thus establishes authority to foreclose on the deed of trust.

Tyler v. Bank of Am., N.A., 2013 WL 1821754, at *4 (W.D. Tex. 2013); accord, e.g., Rodriguez

v. Bank of Am., N.A., 2013 WL 1773670, at *7 (W.D. Tex. 2013); Edwards, 2012 WL 844396, at

*5; Kendig v. State, 2003 WL 23025209, at *3 n.2 (Tex. App.–Houston [14th Dist.] 2003, no

pet.).

Plaintiffs’ Note is endorsed “in blank.” X5, D2, p.5. As the Holder of Plaintiffs’ Note,

Wells Fargo has the authority “to foreclose on [Plaintiffs’] property.” Kiggundu, 469 F. App’x at

332; accord, e.g., Tyler, 2013 WL 1821754, at *4; Lusk, 2012 WL 1836342, at *3–4; Lawson v.

Gibbs, 591 S.W.2d 292, 294 (Tex. Civ. App.–Houston [14th Dist.] 1979, writ ref’d n.r.e.). The

“validity of the assignment of the mortgage document” is thus “beside the point” in any

proceeding involving Wells Fargo’s authority to foreclose on, or otherwise enforce its interest in,

Plaintiffs’ mortgage. Kiggundu, 469 F. App’x at 332; accord, e.g., Martin v. Wells Fargo Bank,

N.A., 2013 WL 694009, at *4 (E.D. Tex. 2013). Because the Transfer of Lien merely

memorializes the transfer of secured interests from one entity to another, and because Defendants

did not intend it to cause any injury to Plaintiffs (nor did it cause any injury), Plaintiffs did not,

and cannot, prove the intent elements of their fraudulent lien claim.

24

Accordingly, the evidence at trial was insufficient to establish Plaintiffs’ right to relief

under Section 12.002. Therefore, Defendants are entitled to a judgment notwithstanding the

verdict and ruling in Defendants’ favor on Plaintiffs’ claim under Section 12.002.

6. Plaintiffs also lack standing to assert that the Transfer of Lien is

fraudulent on other grounds.

As shown above, Plaintiffs lack standing to assert that the Transfer of Lien is fraudulent

based on alleged violations of the PSA. Similarly, Plaintiffs lack standing to challenge the

Transfer of Lien on any other basis. The Transfer of Lien memorializes a transfer from New

Century to Wells Fargo. X11, D10. Plaintiffs are not parties to, nor beneficiaries of, the

assignment. And just as courts have consistently held that non-parties to PSAs may not allege

PSA violations, the “courts have” also “consistently held that a borrower does not have standing

to challenge [deed of trust] assignment[s] … to which the borrower was a non-party.” Glaser v.

Wells Fargo Bank, N.A., 2013 WL 676662, at *2 (E.D. Tex. 2013) (borrower plaintiffs “do[] not

have standing to challenge [the] assignment” of their deed of trust); accord Calderon, 941 F.

Supp. 2d at 764; Gillespie v. BAC Home Loan Servicing, LP, 2013 WL 646383, at *5 (N.D. Tex.

2013); Vickery v. Wells Fargo Bank, N.A., 2013 WL 321662, at *9 (S.D. Tex. 2013).

Accordingly, Plaintiffs lack standing to challenge the Transfer of Lien. For instance,

throughout the trial, Plaintiffs’ counsel argued that the Transfer of Lien was void because Tom

Croft allegedly signed the document as a Vice President of New Century when he was an

employee of Carrington and because New Century allegedly did not own the Note at the time.

See, e.g., X20, Vol. 5, 109:25-110:20. Even assuming for the sake of argument that Plaintiffs

were correct, they still would lack standing to bring that claim.

Indeed, in Reinagel, the Fifth Circuit heard a claim by a mortgagor challenging an

assignment of lien on the ground that the individual executed the assignment as “Vice President”

25

of an entity, Citi Residential Lending, Inc., “even though he was actually an employee of a third-

party contractor, Nationwide Title Clearing.” 735 F.3d at 226. The Fifth Circuit rejected that

argument, citing Texas Supreme Court precedent holding that “a contract executed on behalf of a

corporation by a person fraudulently pretending to be a corporate officer is, like any other

unauthorized contract, not void, but merely voidable at the election of the defrauded principal—

here, Citi.” Id. (citing Nobles v. Marcus, 533 S.W.2d 923, 925-26 (Tex. 1976)). Thus, even if

Croft had fraudulently misrepresented his title on the Transfer of Lien, Plaintiffs still would lack

standing to challenge the document on that basis. Id.

Nor can Plaintiffs challenge the Transfer of Lien on any other basis. As Texas courts

have explained, “[u]nder Texas law, deeds obtained by fraud ... are voidable rather than void.”

Scott v. Bank of Am., N.A., 2013 WL 1821874, at *5 (W.D. Tex. 2013) (emphasis added) (citing

Poag v. Flories, 317 S.W.3d 820, 826 (Tex. App.–Fort Worth 2010, pet. denied), and Nobles,

533 S.W.2d at 925); accord, e.g., Lighthouse Church v. Tex. Bank, 889 S.W.2d 595, 602 (Tex.

App.–Houston [14th Dist.] 1994, writ denied); Glass v. Carpenter, 330 S.W.2d 530, 537 (Tex.

App.—San Antonio 1959, writ ref’d n.r.e). Any “alleg[ation] that the assignment” at issue was

“fraudulent” can therefore be made only by “the defrauded party” to the assignments—which is

to say, either New Century or Wells Fargo, not Plaintiffs. Scott, 2013 WL 1821874, at *5;

accord, e.g., Lighthouse Church, 889 S.W.2d at 601; Meiners v. Tex. Osage Co-op. Royalty

Pool, Inc., 309 S.W.2d 898, 902 (Tex. Civ. App.–El Paso 1958, writ ref’d n.r.e.) (citing cases).

Indeed, the Third District of the Court of Appeals recently reached this result in a

substantially identical case. Standiford v. CitiMortgage, Inc., 2015 WL 6831578 (Tex. App.—

Austin Nov. 3, 2015, no pet.) (mem. op.). In Standiford, as in this case, the borrower brought

numerous claims arising out of the attempted foreclosure of his property, including a claim

26

alleging a fraudulent lien under CPRC Section 12.002. 2015 WL 6831578, at *1. The borrower

challenged an assignment of the lien from Mortgage Electronic Registration Systems, Inc.

(“MERS”) to CitiMortgage, Inc. (“CMI”), alleging that MERS was not listed in the deed of trust

and “was not authorized to assign his loan to CMI and that CMI did not have authority to

foreclose.” Id. at *4. The court rejected that theory:

[B]ecause Standiford’s allegations as to MERS’s lack of authority, even if true, would only render the deed-of-trust assignment from MERS to CMI voidable, not void, he does not have standing to challenge the assignment as a non-party, and his claims dependent on this challenge fail as a matter of law.

Id. The appellate court therefore upheld summary judgment for CMI.

Other recent decisions are in accord. See Lamell, 2015 WL 7258685, at *5 (mortgagor

could not bring argument that assignments “were fabricated” because “such a claim would

render the note merely voidable, not void”);14 Morlock, L.L.C. v. Bank of N.Y., 448 S.W.3d 514,

517 (Tex. App.—Houston 2014, pet. denied) (same).

Plaintiffs have not presented any evidence to support a claim that the Transfer of Lien (or

any other document) is void, rather than merely voidable. Accordingly, Plaintiffs lack standing

to challenge the validity of the Transfer of Lien.

7. Even if Plaintiffs had standing, they did not present any evidence at

trial to support a finding that the Transfer of Lien is fraudulent.

Even if Plaintiffs had standing to challenge the Transfer of Lien, they did not present any

evidence at trial to support a finding that the Transfer of Lien is fraudulent. Plaintiffs cannot rely

on their allegations that the individual who signed the Transfer of Lien, Tom Croft,

misrepresented that he was a Vice President of New Century. See, e.g., X20, Vol. 5, 109:25-

14 The Lamell court found that the borrower had jurisdictional standing to maintain suit (2015 WL 7258685, at *3), but lacked contractual standing to challenge the validity of the assignments at issue (id. at *5). Similarly here, even if Plaintiffs have standing to maintain suit, they are non-parties to the Transfer of Lien and thus lack standing to challenge that document.

27

110:20. As explained above, after New Century’s bankruptcy, Carrington was appointed as its

attorney-in-fact “with full authority and power” to take actions related to the notes and deeds of

trust securitized into the NC3 Trust. X10, D9. Because Croft was a Carrington employee (an

officer, in fact), he was authorized to execute the Transfer of Lien on New Century’s behalf. Id.

And, even if Croft had not been authorized to sign on behalf of New Century—which he was—

Plaintiffs could not challenge the Transfer of Lien on this basis. See Reinagel, 735 F.3d at 226

(contract signed “by a person fraudulently pretending to be a corporate officer is … not void, but

merely voidable”).

Accordingly, Plaintiffs did not introduce any evidence—nor could they—showing that

the Transfer of Lien was fraudulent. In the absence of any such evidence, the jury’s conclusion

that the Transfer of Lien violated CPRC Section 12.002 is inappropriate and the Defendants are

entitled to judgment as a matter of law with respect to all findings derived from that conclusion.

B. Plaintiffs’ Remaining Claims Also Fail As A Matter of Law.

Plaintiffs’ other claims also fail as a matter of law due to the lack of supporting evidence.

Each is derivative of Plaintiffs’ fraudulent lien claim and therefore fails for the same reasons.

Moreover, there is no evidence to support the elements of the other causes of action, so each

claim independently fails on the merits.

1. Plaintiffs’ other claims are derivative of their fraudulent lien claim.

As an initial matter, all of Plaintiffs’ claims are derivative of their claim under Section

12.002 of CPRC and fail for the same reason as that claim fails. Plaintiffs’ claims for negligence

per se and gross negligence per se are based on Defendants’ alleged violation of Section 12.002.

X1, 4AP ¶¶ 115-122.15 Likewise, Plaintiffs’ claims for unjust enrichment and money had and

15 Plaintiffs’ negligence and gross negligence counts also cite Section 192.007 of the Local Government Code. X1, 4AP ¶¶ 115-122. However, Section 192.007 does not provide a private

28

received both rely on the allegedly fraudulent Transfer of Lien that is the subject of Plaintiffs’

Section 12.002 claim. Id. ¶¶ 134, 139. Finally, Plaintiffs’ claim for declaratory judgment seeks

declarations specifically related to the Transfer of Lien. Id. ¶ 125. Accordingly, all of these

claims are derivative of Plaintiffs’ claim under Section 12.002 and fail for the same reasons as

that claim.

2. There is no evidence to support the elements of the remaining claims.

Plaintiffs’ other claims fail as a matter of law because there is no evidence to support the

elements of each claim.

a. Negligence per se and gross negligence per se.

Plaintiffs have failed to introduce evidence—nor is there any—to support the elements of

their claims for negligence per se (X1, 4AP ¶¶ 115-118) and gross negligence per se (id. ¶¶ 119-

122).

As an initial matter, Plaintiffs’ claims for negligence per se and gross negligence per se

are barred by the economic loss rule. Under well-settled Texas law, when the injury is only the

economic loss to the subject of a contract itself, the economic loss rule generally precludes

recovery in tort. Johnson v. JPMorgan Chase Bank, N.A., 2013 WL 2554415 at *13 (E.D. Tex.,

June 7, 2013). The Texas Supreme Court has held that the economic loss doctrine applies to real

estate transactions. Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986) (“When

the injury is only the economic loss to the subject of a contract itself, the action sounds in

contract alone.”). The economic loss rule thus bars Plaintiffs’ claim for negligence per se and

gross negligence per se.

right of action and, therefore, Plaintiffs have no standing to assert any alleged violation of Section 192.007 or have that statute form the basis of any claim. See Harris County, Texas v.

MERSCORP, Inc., 791 F.3d 545, 552-555 (5th Cir. 2015).

29

Even in the absence of the economic loss rule, to recover for negligence per se, Plaintiffs

must establish that: (1) they belong to the class of persons the statute was designed to protect,

and their alleged injury is of the type the status was designed to prevent; (2) the statute is one for

which tort liability may be imposed when violated; (3) Defendants violated the statute without

excuse; and (4) Defendants’ act or omission proximately caused the plaintiff’s injury. Nixon v.

Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 549 (Tex. 1985). Plaintiffs have not presented evidence

to support any of these elements.

Plaintiffs have not proven, nor could they prove, any facts indicating that there was a

special relationship between Defendants and Plaintiffs giving rise to a duty under Texas law.

Indeed, Texas law is just the opposite. See Milton v. U.S. Bank Nat. Ass’n, 508 F. App’x. 326,

329-330 (5th Cir. 2013) (finding that the plaintiff’s “negligence and gross negligence claims

fail[ed]” because under Texas law, there is “no special relationship between a mortgagor and

mortgagee” that would give rise to a stand-alone duty); see also Burgess v. Bank of Am, N.A.,

2014 WL 5461803, at *12 (W.D. Tex. 2014) (holding that mortgagor could not bring negligence

per se and gross negligence per se claims premised on alleged violation of Section 12.002

because “Plaintiff has failed to cite any authority that a mere violation of that statute constitutes

negligence per se.”).16

And even if Defendants had a legal duty to Plaintiffs—which they did not—Plaintiffs

have not introduced any evidence to show how Defendants breached that duty, much less how

they were damaged in any way that was not the direct result of their own default on the Note.

16 In addition, Section 12.002 imposes a civil penalty for an intentional act. As such, it is not possible to negligently violate the statute. If it were, then the “intentional” standard in Chapter 12 would be lessened to a negligence standard.

30

Further, to recover for gross negligence per se, Plaintiffs must establish that: (1) viewed

objectively from the standpoint of the actor, the act or omission involved an extreme degree of

risk, considering the probability and magnitude of the potential harm to others, and (2) the actor

had actual, subjective awareness of the risk involved, but nevertheless proceeded in conscious

indifference to the rights, safety, or welfare of others. Transportation Ins. Co. v. Moriel, 879

S.W.2d 10, 22 (1994). Even accepting the Plaintiffs’ argument that Defendants violated Section

12.002, the alleged conduct would not come close to establishing that Defendants acted with “an

extreme degree of risk” or that they had “actual, subjective awareness of the risk involved” or

proceeded “in conscious indifference to the rights, safety, or welfare of others.”

b. Unjust enrichment and money had and received.

Plaintiffs also failed to introduce evidence to support the elements of their claims for

unjust enrichment (X1, 4AP ¶¶ 133-137) and money had and received (id. ¶¶ 138-144).

A claim for money had and received is described as follows:

The question, in an action for money had and received, is to which party does the money, in equity, justice, and law, belong. All plaintiff need show is that defendant holds money which in equity and good conscience belongs to him. Again, it has been declared that a cause of action for money had and received is less restricted and fettered by technical rules and formalities than any other form of action. It aims at the abstract justice of the case, and looks solely at the inquiry, whether the defendant holds money, which belongs to the plaintiff.

Burgess, 2014 WL 5461803, at *12 (quoting Bank of Saipan v. CNG Fin. Corp., 380 F.3d 836,

840 (5th Cir. 2004)). “A cause of action for money had and received belongs conceptually to the

doctrine of unjust enrichment.” Id. (quoting Amoco Prod. Co. v. Smith, 946 S.W.2d 162, 164

(Tex. App.—El Paso 1997, no pet.)). “Unjust enrichment is not an independent cause of action

but rather characterizes the result of a failure to make restitution of benefits under circumstances

which give rise to an implied or quasi-contractual obligation to return the benefits.” Id. (quoting

Amoco Prod., 946 S.W.2d at 164).

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An action for money had and received is designed to prevent unjust enrichment in

circumstances in which the defendant holds money that, in equity and good conscience, belongs

to the plaintiff. See Staats v. Miller, 243 S.W.2d 686, 687-88 (Tex. 1951); Greer v. White Oak

State Bank, 673 S.W.2d 326, 329 (Tex. App. – Texarkana 1984, no writ). Proving ownership of

the proceeds is essential to the claim. Id.

Plaintiffs’ claims fail because they cannot demonstrate proof of ownership. Moreover,

Plaintiffs have presented no evidence showing that Defendants have been unjustly enriched. In

fact, the evidence shows that Plaintiffs have failed to make monthly payments for years, while

continuing to live for free on the Property. X14 D13; X19, Vol. 4, 26:16-26:18. Since Plaintiffs

ceased making payments, Defendants have paid property taxes and insurance on the Property and

have advanced over $85,000 during that time frame. X15, D15. With unpaid principal, interest

and taxes, Plaintiffs now owe a total of $755,828.09 on their mortgage loan. Id.

Accordingly, the evidence clearly shows that Plaintiffs have been unjustly enriched at

Defendants’ expense, not the other way around. It is a fundamental rule of law that he who seeks

equity must do equity. Bagby Elevator Co., Inc. v. Schindler Elevator Corp., 609 F.3d 768, 774

(5th Cir. 2010) (citation omitted); Lambert v. First Nat’l Bank of Bowie, 993 S.W.2d 833, 835-36

(Tex. App. – Fort Worth 1999, pet. denied). Because Plaintiffs come to the Court with unclean

hands—undisputedly in default on their contractual obligations—their claim for equitable relief

should be dismissed for this reason as well.

In addition, Plaintiffs cannot bring these sorts of quasi-contractual claims when an

express contract, evidenced by the Note and Deed of Trust, governs the subject matter at issue.

Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671, 684 (Tex. 2000) (“when a valid, express

contract covers the subject matter of the parties’ dispute, there can be no recovery under a quasi-

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contract theory”). Accordingly, there is no evidence to support Plaintiffs’ unjust enrichment and

money had and received claims. See also Burgess, 2014 WL 5461803, at *13 (dismissing same

claims in case raising materially similar allegations). Thus, to the extent the jury’s verdict found

that Defendants were liable on either theory, the verdict cannot stand.

In any event, the jury’s verdict itself forecloses any claim for money had and received or

unjust enrichment. The jury found (correctly) that Defendants do not hold any money that, in

equity and good conscience, belongs to Plaintiffs (X3, Verdict, p. 11) and that any “unjust

enrichment” was in the amount of zero dollars (id. p. 10). These findings preclude a finding of

liability for unjust enrichment. See Allstate Ins. Co. v. Michael Kent Plambeck, D.C., 2014 WL

1303000, at *6 (N.D. Tex. 2014) (entering judgment for defendants “because the jury answered

‘zero’ for all damages questions relating to Plaintiffs’ fraud and unjust enrichment claims”).

c. Declaratory judgment.

Plaintiffs’ last claim is for declaratory judgment. X1, 4AP ¶¶ 123-132. The claim is

derivative of Plaintiffs’ substantive causes of action and challenges Defendants’ use of the

Transfer of Lien and Defendants’ ability to foreclose. Id. Because Plaintiffs’ substantive claims

fail as a matter of law, they cannot maintain a declaratory judgment claim. See, e.g., Filgueira v.

US Bank Nat. Ass’n, 734 F.3d 420, 424 (5th Cir. 2013); Schumpert v. Wells Fargo Bank, N.A.,

2013 WL 944935 at *5 (E.D. Tex. 2013).

Accordingly, there is no evidence in the record to support any of Plaintiffs’ causes of

action. To the extent the jury found for Plaintiffs on any of their claims, Defendants are entitled

to judgment notwithstanding the verdict.

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II. THE VERDICT IS CONTRADICTORY.

The jury’s verdict also is deficient because it is inherently contradictory and contrary to

governing law. For this additional reason, the Court should grant judgment in favor of

Defendants notwithstanding the verdict.

As an initial matter, the jury found that Wells Fargo is the Holder of the Note (X3,

Verdict, p. 15), that Plaintiffs are in default under the Note (id. p. 13), and that Plaintiffs owe

over $650,000 under the Note (id. p. 14). However, the jury also found that Wells Fargo is not

the “Owner” of the Note or Deed of Trust. Id. p. 16. As explained above, however, Plaintiffs’

Note is endorsed “in blank.” X5, D2, p.5. Therefore, under Texas law, the Note is “payable to

bearer and may be negotiated by transfer of possession alone.” Tex. Bus. & Com. Code

§ 3.205(a)–(b) (emphasis added). “[P]hysical possession of [such] a promissory note ...

establishes ownership” of the note and thus establishes authority to foreclose on the deed of trust.

Tyler, 2013 WL 1821754, at *4. Thus, if Wells Fargo holds the Note—which it unequivocally

does (it produced the Note for the jury at trial)—then it “owns” the Note under Texas law. Id.

Because Wells Fargo holds and owns the Note, the Transfer of Lien evidencing the

assignment from New Century to Wells Fargo cannot be a fraudulent or false document. New

Century, Plaintiffs’ lender, undisputedly held the Note and Deed of Trust immediately following

execution of those documents. Wells Fargo now possesses and owns those documents, as proven

at trial. X19, Vol. 4, 221:6-222:6, 223:2-223:18; X5, D2; X6, D3. The Transfer of Lien merely

memorialized the transfer of the documents from New Century to Wells Fargo. Neither Texas

law nor the PSA required that those assignments be recorded. Darocy, 2012 WL 840909, at *10

(“under Texas law, the ability to foreclose on a deed of trust is transferred when the note is

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transferred, not when an assignment of deed of trust is either prepared or recorded”); X17, P13 at

P02052-P02053.

Accordingly, the jury’s findings that Defendants violated the PSA (X3, Verdict, p. 18),

used a fraudulent lien (id. p. 5), and caused damage to Plaintiffs (id. pp. 6-7) are all contradicted

by the (correct and indisputable) finding that Wells Fargo holds the Note. Thus, those findings

cannot stand and Defendants are entitled to judgment notwithstanding the verdict.

In addition, the jury wrongly found that Defendants were unjustly enriched (id. p. 9) but

found that the unjust enrichment was in the amount of zero dollars (id. p. 10). The jury also

found (correctly) that Defendants do not hold any money that, in equity and good conscience,

belongs to Plaintiffs. Id. p. 11. The latter two findings preclude a finding of liability for unjust

enrichment. See Michael Kent Plambeck, 2014 WL 1303000, at *6 (entering judgment for

defendants “because the jury answered ‘zero’ for all damages questions relating to Plaintiffs’

fraud and unjust enrichment claims”). Accordingly, the Court should correct the unjust

enrichment finding by granting judgment as a matter of law in favor of Defendants.

III. THE EXEMPLARY DAMAGES AWARD IS IMPROPER AND

DISPROPORTIONATE.

As shown above, the jury’s liability findings cannot stand. However, even if the jury

reached the correct decision on liability (which it did not), its award of $5,000,000 in “exemplary

damages” is improper under Texas law. It is also grossly disproportionate to the economic and

non-economic damages awarded and thus cannot stand for this additional reason.

The purpose of exemplary damages is to punish a party for outrageous, malicious, or

otherwise morally culpable conduct, and to deter similar acts in the future. Owens-Corning

Fiberglas Corp. v. Malone, 972 S.W.2d 35, 41-42 (Tex. 1998). Exemplary damages may be

awarded only if the claimant proves by clear and convincing evidence that the harm with respect

35

to which the claimant seeks exemplary damages results from fraud, malice, or gross negligence.

Tex. Civ. Prac. & Rem. Code Ann. § 41.003(a). The claimant must prove the elements of

exemplary damages by clear and convincing evidence. Id. This burden of proof may not be

shifted to the defendant, nor can it be satisfied by evidence of ordinary negligence, bad faith, or a

deceptive trade practice. Tex. Civ. Prac. & Rem. Code Ann. § 41.003(b).

As explained above, Plaintiffs’ fraudulent lien claim fails as a matter of law and thus

cannot support an award of exemplary damages. And, the jury was never even instructed on the

elements of gross negligence, fraud, or malice. Accordingly, there is no finding on which to rest

an award of exemplary damages.

In any event, even if the prerequisites for exemplary damages had been established

(which they have not), the amount of exemplary damages awarded is grossly disproportionate to

the other damages awarded and thus violates Texas law.17 In Texas, the amount of exemplary

damages awarded against a defendant may not exceed the greater of $200,000, or two times the

amount of economic damages plus an amount equal to any noneconomic damages found by the

jury, not to exceed $750,000. Tex. Civ. Prac. & Rem. Code Ann. § 41.008(b).

As explained above, there was no evidence to support any award of economic or non-

economic damages, so there is no basis for exemplary damages.18 However, even crediting the

jury’s erroneous findings, the jury found a total of only $150,000 in economic damages and

17 Section 12.002(b)(4) authorizes exemplary damages only “in an amount determined by the court.” There is no provision authorizing the jury to decide an amount of exemplary damages. Thus, it was erroneous to give this question to the jury.

18 Moreover, because the jury found that Plaintiffs are in default under the Note and owe over $650,000 on the Note and found that Defendants hold the Note (X3, Verdict, pp. 13-15), any amount of economic or non-economic damages should be offset against the amounts that Plaintiffs owe to Defendants, resulting in no economic or non-economic damages and thus no basis for exemplary damages.

36

$40,000 in non-economic damages. X3, Verdict, pp. 6-7. Accordingly, the award of $5,000,000

exceeds the statutory limit under Texas law.19

The Due Process Clauses in the Fourteenth Amendment to the U.S. Constitution and in

Article I, § 19 of the Texas Constitution also constrain the amount of exemplary or punitive

damages that may be awarded. As determined by the U.S. Supreme Court, “[t]he Due Process

Clause of the Fourteenth Amendment prohibits a State from imposing a ‘grossly excessive’

punishment on a tortfeasor.” BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 562 (1996). In

reaching its decision, the Court discussed the ratio of punitive damages to compensatory

damages. It noted:

The second and perhaps most commonly cited indicium of an unreasonable or excessive punitive damages award is its ratio to the actual harm inflicted on the plaintiff. The principle that exemplary damages must bear a “reasonable relationship” to compensatory damages has a long pedigree.

Id. at 580 (internal citations omitted).

Here, the exemplary damages awarded do not bear a “reasonable relationship” to the

economic and non-economic damages awarded. In fact, the jury awarded exemplary damages at

more than a 25-to-1 ratio. Both the U.S. Supreme Court and the Texas Supreme Court have

recognized that “few awards exceeding a single-digit ratio ... will satisfy due process.” Tony

Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 308 (Tex. 2006) (quoting State Farm Mut. Auto.

Ins. Co. v. Campbell, 538 U.S. 408, 425 (2003)). The Texas Supreme Court has further

recognized that awards for “mental anguish,” such as the $40,000 awarded here, “themselves

often include a punitive element.” Id.

19 Here, two times the amount of economic damages awarded is $300,000, and an amount equal to noneconomic damages awarded is $40,000. Accordingly, under Texas statutory law alone, exemplary damages may not exceed a maximum cap of $340,000. Regardless, as explained below, any such amount is still subject to constitutional proportionality limitations imposed by the Due Process Clause.

37

In Tony Gullo, the Texas Supreme Court held that a ratio of 4.33 to 1 “at least pushes

against, if not exceeds, the constitutional limits,” noting:

Pushing exemplary damages to the absolute constitutional limit in a case like this leaves no room for greater punishment in cases involving death, grievous physical injury, financial ruin, or actions that endanger a large segment of the public. On this record, Gullo Motors’ conduct merited exemplary damages, but the amount assessed by the court of appeals exceeds constitutional limits.

Id. at 310; see also Bennett v. Reynolds, 315 S.W.3d 867, 873-85 (Tex. 2010) (finding that

exemplary damages award violated due process and exceeded constitutional limits).

Accordingly, there is no basis in the jury’s verdict for any award of exemplary damages.

However, even if such a basis was established, the amount of exemplary damages awarded is

grossly disproportionate and thus subject to reversal under both Texas and federal law.

IV. DEFENDANTS ARE ENTITLED TO FORECLOSE.

Finally, the Court should grant judgment on Defendants’ counterclaim and order a

sheriff’s sale of the Property. As explained above, and proven at trial, Defendants hold both the

Note endorsed in blank and the Deed of Trust. X19, Vol. 4, 221:6-222:6, 223:2-223:18; X5, D2;

X6, D3. Under Texas law, “physical possession” of a note endorsed in blank “establishes

ownership” of the note and thus establishes authority to foreclose on the deed of trust. Tyler,

2013 WL 1821754, at *4. The jury expressly found that Wells Fargo is the Holder of the Note

and that Plaintiffs owe $655,191.73 under the Note. X3, Verdict, pp. 14, 15. Undisputed

evidence was presented at trial showing the Plaintiffs are in default. X14, D13; X19, Vol. 4,

26:16-26:18. Accordingly, Defendants are entitled to a judgment ordering a sheriff’s sale of the

Property to enforce their security interest.

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CONCLUSION

For the reasons set forth above, the Court should enter a judgment notwithstanding the

verdict pursuant to Texas Rule of Civil Procedure 301. The judgment should: (1) find against

Plaintiffs on all of their claims, (2) award Plaintiffs no relief, including no damages, exemplary

damages or attorneys’ fees, (3) enter judgment ordering a sheriff’s sale of the Property, (4) award

Defendants their costs of Court and all other relief to which they are entitled, and (5) award such

other relief to Defendants as may be just and proper.

Date: December 21, 2015 Respectfully submitted:

/s/ Peter C. Smart ‘

MAYER BROWN LLP CRAIN, CATON & JAMES Lucia Nale Peter C. Smart (pro hac vice application pending) State Bar No. 00784989 IL State Bar No. 6201684 1401 McKinney, Suite 1700 Thomas V. Panoff Houston, Texas 77010 (pro hac vice application pending) Tel: (713) 658-2323 IL State Bar No. 6283695 Fax: (713) 658-1921 Christopher S. Comstock psmart@craincaton.com (pro hac vice application pending) IL State Bar No. 6299333 71 South Wacker Drive Chicago, Illinois 60606 Tel: (312) 782-0600 Fax: (312) 701-7711 lnale@mayerbrown.com tpanoff@mayerbrown.com ccomstock@mayerbrown.com

Counsel for Defendants/Counter-Plaintiffs

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CERTIFICATE OF SERVICE

I certify that a true and correct copy of the foregoing was served on the following through the electronic filing manager and via regular mail this 21st day of December 2015:

William Craft Hughes Jarrett Lee Ellzey, Jr HUGHES ELLZEY LLP 2700 Post Oak Blvd, Suite 1120 Galleria Tower I Houston, TX 77056 Tel: (713) 554-2377 Fax: (888) 995-3335 Craft@hughesellzey.com Jarrett@hughesellzey.com Counsel for Plaintiffs

/s/ Peter C. Smart ‘ Peter C. Smart