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McCaig v. Wells Fargo Bank (Texas), N.A.

United States Court of Appeals, Fifth Circuit

June 10, 2015

DAVID MCCAIG, Individually and as the Representative of the Estate of Allie Vida McCaig; MARILYN MCCAIG, Plaintiffs - Appellees
WELLS FARGO BANK (TEXAS), N.A., Defendant - Appellant

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Appeal from the United States District Court for the Southern District of Texas.

For DAVID MCCAIG, Individually and as the Representative of the Estate of Allie Vida McCaig, Plaintiff - Appellee: Savannah Lina Robinson, Danbury, TX.

For Marilyn Mccai, Plaintiff - Appellee: Savannah Lina Robinson, Danbury, TX.

For Wells Fargo Bank (Texas), N.A., Defendant - Appellant: William Scott Hastings, Esq., Robert Thompson Mowrey, Kurt M. Wolber, Locke Lord, L.L.P., Dallas, TX; Daniel John Kasprzak, George A. Kurisky Jr., Esq., Johnson, Deluca, Kurisky & Gould, P.C., Houston, TX.

Before REAVLEY, JONES, and ELROD, Circuit Judges.


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REAVLEY, Circuit Judge

This judgment is based on a jury verdict finding violations of the Texas Debt Collection Act (" TCDA" ) by Wells Fargo and awarding damages and attorney's fees. Wells Fargo raises numerous issues on appeal. We affirm in large part but vacate the judgment and remand for entry consistent with this opinion.


In 2002, Allie Vida McCaig qualifised for a mortgage and purchased the home directly behind that of her son and his wife,

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David and Marilyn McCaig.[1] When Allie died, the McCaigs took over the mortgage payments, but the loan fell into default. Eventually, the McCaigs and Wells Fargo (the loan servicer) entered into settlement and forbearance agreements. While the contracting parties agreed the loan " remain[ed] in Default," Wells Fargo agreed not to foreclose on the property so long as the McCaigs followed a 35-month payment plan. More specifically, the settlement agreement provided:

the McCaigs are not obligors on the note, and the McCaigs are not personally liable for the Loan Agreement Debt. . . . Wells Fargo has agreed to accept payments from the McCaigs and to give the McCaigs an opportunity to avoid foreclosure of the Property; as long as the McCaigs make the required payments consistent with the Forbearance Agreement and the Loan Agreement.

Wells Fargo also " agreed to waive and forebear" the collection of certain fees and costs " conditioned upon the McCaigs [ sic] successful completion of, and performance under, this Agreement and the Forbearance Agreement."

The McCaigs adhered to the plan, but Wells Fargo made repeated mistakes in the servicing of the loan. Wells Fargo initiated the foreclosure process, dispatched multiple erroneous notices of default, and posted the property for a foreclosure sale. At least some of these notices constituted unjustified threats to foreclose. Additionally, Wells Fargo repeatedly sent statements indicating that, notwithstanding the parties' agreements, it was assessing late fees based on the continued delinquency of the loan. Wells Fargo never consummated a foreclosure sale, and when the McCaigs had finished paying under the payment plan, Wells Fargo brought the loan current and waived all late fees.

During the course of this prolonged dispute, David filed a complaint with the Texas Attorney General asserting " Wells Fargo ha[d] harassed [his] family for the past few months" and that it was wrongfully demanding payment of $13,000. Wells Fargo responded with a three-page letter asserting that the McCaigs had broken the forbearance plan, providing records to support the claim, and explaining what was being done to address the issue. Because Wells Fargo's records were mistaken, the claim that the McCaigs had broken the forbearance plan was also mistaken.

For over two years, the McCaigs were subjected to intermittent and repeated threats of foreclosure. Their attempts to correct the problems were met with misinformation at times, non-responsiveness at times, and at times, apologies--followed by still more of the same " mistakes." Eventually, they sued Wells Fargo in state court. Wells Fargo removed to federal court on the basis of diversity jurisdiction, and the case went to trial on breach of contract and TDCA claims. In addition to establishing the facts set forth above, the McCaigs testified that Wells Fargo's mistakes took a toll on their mental health. David and Marilyn testified on this issue, as did their son and an expert witness.

The jury found that Wells Fargo had breached the settlement and forbearance agreements and had violated multiple provisions of the TDCA. Based on the TDCA violations, the jury awarded David and Marilyn $75,000 each for mental anguish damages and $1,900 in expenses " sustained" by them. The jury also awarded them $500 each based on a finding that

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Wells Fargo violated the TDCA by representing to a third party that the McCaigs were willfully refusing to pay an uncontested debt. Further, the jury awarded the McCaigs $200,000 in attorney's fees.

The district court entered judgment in accordance with the jury's verdict except that the award for attorney's fees was reduced to $156,775. Wells Fargo then moved for a new trial and for judgment as a matter of law. The motions were denied, and Wells Fargo appealed.


A district court's denial of a motion for judgment as a matter of law is reviewed de novo under the same Rule 50(a) standard utilized by the district court. Heck v. Triche, 775 F.3d 265, 272 (5th Cir. 2014). To the extent the defendant challenges the sufficiency of the evidence after a case tried by a jury, our review is " especially deferential" to the verdict. Id. (quoting Flowers v. S. Reg'l Physician Servs. Inc., 247 F.3d 229, 235 (5th Cir. 2001)). We will uphold the verdict " unless there is no legally sufficient evidentiary basis for a reasonable jury to find as the jury did." Id. (quoting Foradori v. Harris, 523 F.3d 477, 485 (5th Cir. 2008)). " In conducting our review, we must draw all reasonable inferences in the light most favorable to the verdict and cannot substitute other inferences that we might regard as more reasonable." Eastman Chem. Co. v. Plastipure, Inc., 775 F.3d 230, 238 (5th Cir. 2014).

A district court's resolution of a motion for new trial is reviewed for abuse of discretion, and " [t]he district court abuses its discretion by denying a new trial only when there is an 'absolute absence of evidence to support the jury's verdict.'" Wellogix, Inc. v. Accenture, L.L.P., 716 F.3d 867, 881 (5th Cir. 2013) (quoting Seidman v. Am. Airlines, Inc., 923 F.2d 1134, 1140 (5th Cir. 1991)). Accordingly, if we find the evidence is legally sufficient, we must also find that the district court did not abuse its discretion in denying a motion for new trial. See Cobb v. Rowan Companies, Inc., 919 F.2d 1089, 1090 (5th Cir. 1991); see also Whitehead v. Food Max of Miss., Inc., 163 F.3d 265, 269 (5th Cir. 1998) (explaining that it is " far easier" to show a district court should have granted a motion for judgment as a matter of law than it is to show a district court abused its discretion by not granting a new trial).



Wells Fargo argues that neither Marilyn nor David had statutory standing to bring TDCA claims. " We review questions of statutory standing de novo." Janvey v. Brown, 767 F.3d 430, 437 (5th Cir. 2014).

Texas Financial Code section 392.403[2] creates a private right of action for TDCA violations and provides: " A person may sue for: actual damages sustained as a result of a violation of this chapter." Tex. Fin. Code § 392.403(a)(2). Because the Texas Supreme Court has not defined the scope of Section 392.403(a)(2) and statutory standing to bring TDCA claims, our job is to " predict" how the court will rule. See, e.g., Wisznia Co. v. General Star Indem. Co., 759 F.3d 446, 448 (5th Cir. 2014). In making this " Erie guess," we first examine precedents set by intermediate state appellate courts. Howe ex rel. Howe v. Scottsdale Ins. Co., 204 F.3d 624, 627 (5th Cir. 2000). " [W]e defer to intermediate state appellate court decisions 'unless convinced

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by other persuasive data that the highest court of the state would decide otherwise.'" Herrmann Holdings Ltd. v. Lucent Techs. Inc., 302 F.3d 552, 558 (5th Cir. 2002) (quoting First Nat'l Bank of Durant v. Trans Terra Corp. Int'l, 142 F.3d 802, 809 (5th Cir. 1998)).

" When we interpret a Texas statute, we follow the same rules of construction that a Texas court would apply--and under Texas law the starting point of our analysis is the plain language of the statute. " Wright v. Ford Motor Co., 508 F.3d 263, 269 (5th Cir. 2007). Section 392.403 " itself provides the framework for the standing analysis," and " [t]he standing analysis begins and ends with the statute itself." Marauder Corp. v. Beall, 301 S.W.3d 817, 820 (Tex.App. 2009). " The statute is broadly written." Id. Texas courts have recognized that Section 392.403's grant of standing is not limited to debtors. Monroe v. Frank, 936 S.W.2d 654, 660 (Tex.App. 1996) (" The Act provides for remedies for 'any person' adversely affected by prohibited conduct, not just parties to the consumer transaction." ); Campbell v. Beneficial Fin. Co. of Dallas, 616 S.W.2d 373, 374 (Tex.App. 1981) (holding that because " any person may maintain an action for actual damages sustained as a result of the violation of the Act, . . . persons other than the debtor may maintain an action for violations of the Act" ). The rule suggested by these cases and supported by a plain reading of the statutory text is that persons who have sustained actual damages from a TDCA violation have standing to sue. See Tex. Fin. Code § 392.403(a)(2).

Under Texas law, mental anguish is a form of " actual damages." See, e.g., Bentley v. Bunton, 94 S.W.3d 561, 604 (Tex. 2002). Here, the McCaigs alleged (and proved) mental anguish caused by Wells Fargo's TDCA violations. They therefore had standing to bring their claims.

Wells Fargo argues Marilyn's " lack of standing is indisputable" because she owns no interest in the [subject property], is " not a party to or obligor on the underlying Note and Deed of Trust," and was not an addressee on any of the objectionable Wells Fargo correspondences. It asserts her TDCA claims are " wholly derivative of her husband's" and that bystander liability is not permitted. Wells Fargo argues David lacks standing under the TDCA because he was not a party to Allie's loan and had no personal liability. Wells Fargo further argues David was not the " target of prohibited conduct." Wells Fargo's briefing entirely ignores Section 392.403(a) and does not cite any of the Texas intermediate appellate court decisions referenced above.

Whether Marilyn or David own an interest in the subject property or are parties or obligors on the subject debt is irrelevant for purposes of the standing inquiry. See, e.g., Monroe, 936 S.W.2d at 660 (holding that standing to bring TDCA claims extends beyond " parties to the consumer transaction" ); Campbell, 616 S.W.2d at 374 (" [P]ersons other than the debtor may maintain an action for violations of the [TDCA]." ).

Further, Wells Fargo's invocation of " bystander standing" is a red herring, and Wells Fargo inaccurately downplays Marilyn's connection to events. Marilyn was a signatory to the forbearance and settlement agreements and therefore was obligated to " make the required payments consistent with the Forbearance Agreement and the Loan Agreement." (Emphasis added.) Wells Fargo had at least constructive knowledge that its various mailings would be received by Marilyn. Indeed, at least two Wells Fargo correspondences to the " Estate of Allie Vida

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McCaig" were sent " C/o David and Marilyn McCaig." The threats that caused her harm were threats to take away a home. The misrepresentations that caused her harm concerned a loan agreement she had agreed to make payments in accordance with. This is not bystander standing. See Campbell, 616 S.W.2d at 374.

This analysis applies with even greater force to David, who was the addressee of much of the offending correspondence and personally dealt with Wells Fargo over the phone and through correspondence.

Wells Fargo urges a far narrower conception of TDCA standing than that provided for by Section 392.403(a)(2). According to Wells Fargo, " a TDCA plaintiff must have been the target of unlawful debt collection activity as defined in the statute in order to have standing to sue." Several district courts have applied such a rule.[3] In rejecting this rule, it is sufficient to observe that Section 392.403(a)(2) contains no targeting requirement and that the district courts that have adopted the rule did not base their standing analyses on the text of Section 392.403(a)(2). As a federal court sitting in diversity, our duty is to apply existing state law, not create it. See, e.g., Carnival Leisure Indus., Ltd. v. Aubin, 53 F.3d 716, 720 (5th Cir. 1995). The McCaigs had standing to bring their TDCA claims.


Wells Fargo argues the economic loss rule bars the McCaigs' TDCA claims because Texas courts have applied the economic loss rule to the similar Texas Deceptive Trade Practices Act (" DTPA" ) and because " mistakes in performance under a contract" should not " trigger recovery under the TDCA." [4] Whether the economic loss rule applies to the TDCA is a legal question we review de novo. See SMI Owen Steel Co., Inc. v. Marsh USA, Inc., 520 F.3d 432, 441 (5th Cir. 2008).

The economic loss rule " serves to provide a more definite limitation on liability than foreseeability can and reflects a preference for allocating some economic risks by contract rather than by law." LAN/STV v. Martin K. Eby Constr. Co., 435 S.W.3d 234, 235 (Tex. 2014). " [T]he rule is not generally applicable in every situation; it allows recovery of economic damages in tort, or not, according to its underlying principles." Id. at 235-36. Accordingly, " application of the rule depends on an analysis of its rationales in a particular situation." Id. at 245-46.

Breach of " an independent legal duty, separate from the existence of the contract itself," represents a particular situation where tort claims (based on that independent duty) may co-exist with ...

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