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Williams v. Wells Fargo Bank, N.A.

United States Court of Appeals, Fifth Circuit

February 26, 2018

S. JAY WILLIAMS, individually and as assignee of WNC Institutional Tax Credit Fund VII, L.P., WNC Housing, L.P., and Tracy Kennedy; SCII-GP, L.L.C., as assignee of Shelter Resource Corporation, Swis Investments, Limited, and SC-GP, Incorporated; SWIS INVESTMENTS, LIMITED; SWIS COMMUNITY, LIMITED, Plaintiffs-Appellants,
v.
WELLS FARGO BANK, N.A., doing business through its operating division Wells Fargo Commercial Mortgage Servicing; FANNIE MAE, also known as Federal National Mortgage Association; DAVID F. STAAS; MARK GLANOWSKI; COURTNEY DAVIS BRISTOW; WINSTEAD, P.C., Defendants-Appellees.

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

          Before REAVLEY, OWEN, and SOUTHWICK, Circuit Judges.

          PER CURIAM.

         S. Jay Williams, SCII-GP, L.L.C., Swis Investments, Limited, and Swis Community, Limited (the "Williams Parties") appeal the dismissal of their breach of contract claim. We affirm in part, reverse in part, and remand.

         I

         Williams formed Swis Community, Limited, which constructed a low-income housing project. Swis Community's general partner was Swis Investments, Limited, which was owned and controlled by Williams and W. Tracy Kennedy. Swis Community's special limited partner was WNC Housing, Limited Partnership. Swis Investments and WNC Housing each had a 0.01% interest in Swis Community. Swis Community's limited partner was WNC Institutional Tax Credit Fund VII, Limited Partnership (WNC Fund), which owned 99.98% of the partnership interest. WNC Fund's general partner was WNC & Associates (WNC) which held a 0.01% interest, and its limited partner was Key Investment Fund Limited Partnership X (Key Fund), which had a 99.99% interest in WNC Fund. Fannie Mae held a 99.90% interest in Key Fund, giving it a 99.87% interest in Swis Community.

         Arbor National Commercial Mortgage, L.L.C. ("Arbor") financed the project through a loan to Swis Community secured by a Deed of Trust. Arbor later assigned the note and Deed of Trust to Fannie Mae, and Wells Fargo Bank, N.A. ("Wells Fargo") ultimately became the loan servicer. Swis Community earned low income housing tax credits as a result of the project. These credits were then allocated to Swis Community's investors.

         After making payments on the loan for approximately a decade, Swis Community defaulted in November 2010 and made no further payments for five consecutive months. Fannie Mae elected to accelerate the note and institute non-judicial foreclosure proceedings pursuant to the Deed of Trust. Attorneys from Winstead, P.C. were appointed as substitute trustees. Upon request from one of the trustees for the "Borrower's, Key Principals' and Equity Investor's addresses, " a Wells Fargo employee provided the addresses from the Deed of Trust for Williams, Kennedy, and WNC Fund. Notices were sent to Williams and Swis Community at the address provided for Williams in the Deed of Trust. Notices were also sent to Swis Investments, WNC Fund, and Kennedy at their respective addresses. For some years Wells Fargo had treated the address for Williams as outdated and had been sending all correspondence to a different address. As a result, the notices of acceleration and foreclosure were sent to the wrong addresses and were not received by Swis Community, Williams, or Swis Investments. The parties dispute whether WNC received notice. The record shows that Kennedy did receive notice, though at a different address than the one listed on the original certified mail form, and the Williams Parties do not present contrary evidence in their briefing. The foreclosure sale proceeded, and Fannie Mae purchased the property. It then deeded the project to another corporation. As a result of the foreclosure, $1, 207, 617 in low income housing tax credits previously earned on the project were "recaptured" by the IRS. Fannie Mae repaid approximately $1, 206, 049, an amount that corresponded to its interest in the Swis Community project, to the IRS for the recaptured tax credits.

         Litigation ensued between the parties associated with Swis Community and WNC, which resulted in the assignment of WNC's and Kennedy's claims against Fannie Mae to Williams. The Williams Parties brought suit against Fannie Mae and Wells Fargo, seeking to recover the value of the recaptured tax credits and corresponding interest totaling approximately $1.7 million. The Williams Parties asserted claims against the defendants for breach of contract premised on a violation of the notice terms in the Deed of Trust, violations of the Texas Property Code, and wrongful foreclosure. They also asserted a claim for breach of fiduciary duty against the substitute trustees. The case was removed to federal court, and the district court declined to remand it. The defendants moved for summary judgment, asserting jointly that the notice was not improper, that the Williams Parties had not suffered recoverable damages for their wrongful foreclosure claim, and even if recoverable, those damages were primarily suffered by Fannie Mae. The defendants also asserted that the Williams Parties had no viable claim under the Texas Property Code. Wells Fargo filed a separate motion for summary judgment on the basis that it owed no contractual duty to the Williams Parties because it was not a party to the Deed of Trust.

         The Williams Parties filed a motion for partial summary judgment on their claims premised on the alleged violation of the Texas Property Code and for breach of contract premised on the Deed of Trust. The district court granted the motion for partial summary judgment in favor of the Williams Parties on the breach of contract claim and dismissed the remaining claims with prejudice. However, on a motion for reconsideration, the district court dismissed the breach of contract claim against both Fannie Mae and Wells Fargo, concluding that, having defaulted on the Deed of Trust, the Williams Parties could not maintain a cause of action based on the breach of that agreement.[1] The court based its decision on this court's opinion in Villarreal v. Wells Fargo Bank, N.A.[2] In the same order, the district court granted Wells Fargo's independent motion for summary judgment. The district court also dismissed the breach of fiduciary duty claim against the trustees. The Williams Parties appeal the dismissal of their breach of contract claims against Fannie Mae and the grant of summary judgment in favor of Wells Fargo. They do not appeal the dismissal of the breach of fiduciary duty claim against the substitute trustees.

         II

         The district court did not err in holding that Wells Fargo is not liable for breach of the Deed of Trust. The competent summary judgment evidence reflects that Wells Fargo was never a party to or an assignee of the Deed of Trust. The original Deed of Trust was entered into between Swis Community and the trustee, for the benefit of Arbor. Arbor then assigned the note and Deed of Trust to Fannie Mae. Wells Fargo was the loan servicer at the time of default, but once Fannie Mae was notified of default, Fannie Mae became the loan servicer. Fannie Mae then became the primary point of contact for Swis Community. Because the only claim on appeal is for breach of contract based on the Deed of Trust, and Wells Fargo was never a party to the Deed of Trust, Wells Fargo has no liability. Summary judgment in favor of Wells Fargo was appropriate.

         III

         As an initial matter, the Williams Parties contend that the district court should not have granted Fannie Mae's motion for reconsideration of its ruling that Fannie Mae had breached the deed of trust by failing to send notices to the correct addresses, contending that a motion for reconsideration is not a proper vehicle for asserting new arguments. We review a district court's grant of a motion for reconsideration for abuse of discretion.[3]

         Fannie Mae's affirmative defense of prior material breach was not raised in response to the Williams Parties' motion for summary judgment, and the Williams Parties motion for summary judgment did not squarely address it. Fannie Mae's motion for reconsideration framed the issue as a failure to allege facts supporting an element of the Williams Parties' claim for breach of contract, and the Williams Parties did not object to this characterization in their response. Nor did they raise the exceptions to the prior material breach defense they now present on appeal. The Williams Parties objected to the motion for reconsideration primarily on the grounds that Villarreal did not apply and that the defendants failed to raise new facts or legal arguments not previously presented. However, a court has ...


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