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Ishee v. Federal National Mortgage Association

United States District Court, S.D. Mississippi, Eastern Division

February 6, 2015

PORTIA B. ISHEE, Plaintiff,
v.
FEDERAL NATIONAL MORTGAGE ASSOCIATION, et al., Defendants.

MEMORANDUM OPINION AND ORDER

KEITH STARRETT, District Judge.

For the reasons stated below, the Court grants the Motion for Summary Judgment [212] filed by Defendant Federal National Mortgage Association, grants the Motion for Summary Judgment filed by Defendant Green Tree Servicing, LLC, and denies the Motions for Partial Summary Judgment [214, 223, 225, 226, 228, 231] filed by Plaintiff.

I. BACKGROUND

This dispute arises from the servicing of a mortgage loan. Plaintiff signed a promissory note in November 2006, in favor of GMAC Mortgage, LLC ("GMAC"), and in the principal amount of $100, 000. The note was secured by a deed of trust encumbering Plaintiff's property. Defendant Federal National Mortgage Association ("Fannie Mae") bought the note in December 2006, but GMAC continued to service the loan.

On September 23, 2010, Plaintiff's home was destroyed by a fire. At the time of the fire, it was insured under a policy issued by Alfa Insurance Corporation ("Alfa"). On November 4, 2010, Alfa issued a check to GMAC in the amount of $99, 623.48 - the payoff amount provided by GMAC to Alfa's adjuster. GMAC received the check, but instead of applying the funds to the note, it deposited them to escrow.

Throughout this time period, GMAC continued to charge Plaintiff for payoff requests and site inspections, despite the property having been destroyed and the insurer having paid an amount in excess of the payoff amount. GMAC also force-placed insurance on the property, even though it was vacant and destroyed. As a result of the force-placed insurance and various other charges, the principal on the note ballooned past what it was when Plaintiff's insurer provided the payment. Plaintiff made multiple requests for GMAC to apply the insurance funds as they should have been applied in November 2010, but it failed to do so. GMAC went bankrupt in May 2012.

In November 2012, Defendant Green Tree Servicing, LLC ("Green Tree") acquired GMAC's right to service Plaintiff's note, effective February 1, 2013. Fannie Mae consented to the transfer of rights. After receiving the loan information from GMAC, Green Tree tried to contact Plaintiff, but she failed to respond. In late August 2013, she finally contacted Green Tree and asked them to apply the insurance funds to the loan as they should have been applied in November 2010. After a brief investigation, Green Tree applied the funds to the loan, canceled the deed of trust, refunded the excess funds to Plaintiff, and otherwise fixed the mess that GMAC had created - almost three years after the insurance funds had first been paid. At present, Plaintiff's note is paid in full, her property is released from the deed of trust, and she was refunded $1, 474.56.

Plaintiff brought this lawsuit against Fannie Mae and Green Tree, asserting the following claims: breach of contract, willful breach of contract, conversion, fraud, breach of the duty of good faith and fair dealing, intentional infliction of emotional distress, defamation, violations of the Fair Debt Collection Practices Act ("FDCPA"), [1] and violations of the Mississippi S.A.F.E. Mortgage Act ("SAFE Act").[2] Plaintiff also alleged that Fannie Mae is liable for the actions of its loan servicers, GMAC and Green Tree, under theories of respondeat superior and ratification, and that Green Tree is liable for GMAC's actions as a successor in interest. She demanded actual damages, emotional damages, punitive damages, interest, and attorney's fees.

The parties filed a variety of dispositive motions. Each Defendant filed its own Motion for Summary Judgment [212, 217]. Plaintiff filed several Motions for Partial Summary Judgment [214, 22, 225, 226, 228, 231]. The Court will now address each issue raised in the parties' motions.

II. STANDARD OF REVIEW

Rule 56 provides that "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a); see also Sierra Club, Inc. v. Sandy Creek Energy Assocs., L.P., 627 F.3d 134, 138 (5th Cir. 2010). "An issue is material if its resolution could affect the outcome of the action." Sierra Club, Inc., 627 F.3d at 138. "An issue is genuine' if the evidence is sufficient for a reasonable jury to return a verdict for the nonmoving party." Cuadra v. Houston Indep. Sch. Dist., 626 F.3d 808, 812 (5th Cir. 2010).

The Court is not permitted to make credibility determinations or weigh the evidence. Deville v. Marcantel, 567 F.3d 156, 164 (5th Cir. 2009). When deciding whether a genuine fact issue exists, "the court must view the facts and the inference to be drawn therefrom in the light most favorable to the nonmoving party." Sierra Club, Inc., 627 F.3d at 138. However, "[c]onclusional allegations and denials, speculation, improbable inferences, unsubstantiated assertions, and legalistic argumentation do not adequately substitute for specific facts showing a genuine issue for trial." Oliver v. Scott, 276 F.3d 736, 744 (5th Cir. 2002).

III. FANNIE MAE'S LIABILITY FOR ITS SERVICERS' ACTIONS [212, 228]

The first issue presented by the parties' motions is the extent of Fannie Mae's liability for the actions of its loan servicers. Plaintiff argues that Fannie Mae is liable under theories of respondeat superior and ratification. She further argues that Fannie Mae had a non-delegable duty to properly service the loan, and that it is judicially estopped from denying liability for its loan servicers' actions.

A. Judicial Estoppel

Plaintiff contends that Fannie Mae is judicially estopped from arguing that it can not be liable for the acts of its loan servicers because it took a directly contradictory position in GMAC's bankruptcy proceeding. She claims that Fannie Mae executed a stipulation in which it accepted payment from GMAC in exchange for taking on its liabilities.

"The doctrine of judicial estoppel prevents a party from asserting a claim in a legal proceeding that is inconsistent with a claim taken by that party in a previous proceeding." Reed v. City of Arlington, 650 F.3d 571, 573-74 (5th Cir. 2011). The doctrine has three elements: "(1) the party against whom the judicial estoppel is sought has asserted a legal position which is plainly inconsistent with a prior position; (2) a court accepted the prior position; and (3) the party did not act inadvertently." Id. at 574.

Plaintiff's judicial estoppel argument rests upon a false premise. Fannie Mae and GMAC executed a stipulation [230-5] in which Fannie Mae accepted $297, 600, 000.00 to cure GMAC's own defaults under its servicing agreements with Fannie Mae. The stipulation says nothing about GMAC's liabilities or obligations to third parties. Furthermore, Plaintiff provided no evidence that "a court accepted the prior position." Id. For these reasons, her judicial estoppel argument has no merit.

B. Respondeat Superior

Plaintiff argues that Fannie Mae is responsible for the actions of GMAC and Green Tree - its loan servicers - under a theory of respondeat superior. This Court previously discussed the same issue in a different case. See Neel v. Fannie Mae, No. 1:12-CV-311-HSO-RHW, 2014 U.S. Dist. LEXIS 28891, at *15-*23 (S.D.Miss. Mar. 6, 2014). The question hinges on whether GMAC and Green Tree were Fannie Mae's employees or independent contractors.

"Generally, an employer is liable for the negligent acts of its employees done in the course and scope of his employment under the doctrine of respondeat superior, but an employer is not liable for the negligence of an independent contractor." McKee v. Brimmer, 39 F.3d 94, 96 (5th Cir. 1994). Fannie Mae's 2012 Servicing Guide [212-7] provides that its loan servicers are "independent contractors and not... agents, assignees, or representatives of Fannie Mae...." However, "an employer [can not] escape liability by drafting a contract which labels its employee an independent contractor, but retains employer-like control over him." Id. at 98.

The Mississippi Supreme Court provided a non-exhaustive list of factors to consider:

[1] Whether the principal master has the power to terminate the contract at will; [2] whether he has the power to fix the price in payment for the work, or vitally controls the manner and time of payment; [3] whether he furnishes the means and appliance for the work; [4] whether he has control of the premises; [5] whether he furnishes the materials upon which the work is done and receives the output thereof, the contractor dealing with no other person in respect to the output; [6] whether he has the right to prescribe and furnish the details of the kind and character of work to be done; [7] whether he has the right to supervise and inspect the work during the course of employment; [8] whether he has the right to direct the details of the manner in which the work is to be done; [9] whether he has the right to employ and discharge the subemployees and to fix their compensation; [10] and whether he is obliged to pay the wages of said employees.

Richardson v. APAC-Mississippi, 631 So.2d 143, 148-49 (Miss. 1994) (quoting Kisner v. Jackson, 132 So. 90, 90 (Miss. 1931)); see also Woodring v. Robinson, 892 F.Supp.2d 769, 776 (S.D.Miss. 2012). "The overarching inquiry in the factoring analysis is whether the employer exhibited the requisite amount of control over the engaged party to categorize the party as an employee." Woodring, 892 F.Supp.2d at 776. "When the facts are undisputed, determining the type of relationship is a legal question." Id.

The evidence regarding Fannie Mae's relationships with the two loan servicers is virtually identical. Therefore, the Court will address both GMAC and Green Tree at the same time, as the parties did in briefing.

1. Whether Fannie Mae Could Terminate Its Servicers' Contracts at Will

Fannie Mae's contract with GMAC [230-4] provided that GMAC could "terminate the provisions of [the] Contract covering the servicing of mortgages... by giving us notice at any time." Likewise, Fannie Mae could terminate the contract's servicing provisions "for any reason, by giving [GMAC] notice of the termination."

The 2012 Servicing Guide [212-7] - which pertains to both GMAC and Green Tree - provided that either the servicer or Fannie Mae "may terminate the servicing arrangement without cause." However, the Guide also provides that a "servicer may not terminate its servicing rights for less than all of the mortgage loans... it is servicing for Fannie Mae, " without Fannie Mae's written consent. Likewise, the 2012 Guide provides certain procedures that Fannie Mae must follow in order to terminate the servicing relationship without cause, potentially including the payment of a termination fee.

The evidence discussed above demonstrates that either Fannie Mae or its loan servicer may terminate the relationship for any reason. The 2012 Servicing Guide places procedural requirements on both parties before termination. Therefore, this factor weighs in favor of finding that GMAC and Green Tree were independent contractors. See Neel, 2014 U.S. Dist. LEXIS 28891 at *16-*17 (citing Walker v. McClendon Carpet Serv., 952 So.2d 1008, 1010 (Miss. Ct. App. 2006)).

2. Whether Fannie Mae Had Power to Fix the Price or Control the Manner or Time of Its Servicers' Payment

The 2012 Servicing Guide [212-7] provides: "As compensation for servicing mortgage loans for Fannie Mae, Fannie Mae pays the servicer servicing fees and allows it to retain late charges, fees charged for special services, yield differential adjustments, and, in some cases, either a share or all of any applicable prepayment premiums...." Fannie Mae's 30(b)(6) representative [215-7] clarified that it pays its servicers a servicing fee whenever they collect a payment. Therefore, if a borrower does not make any payments, the servicer would not receive any fees for servicing that loan - creating an incentive for the servicer to keep its loans current. The servicer has the freedom, however, to propose and execute modifications and workouts under certain circumstances, for which they can receive fees. The servicer likewise has the freedom to impose late charges and other special fees on the borrower, for which it also receives a servicing fee.

As this Court has previously observed, Fannie Mae's servicers possess substantial control over the conditions of their payment, as they are "paid based on the loans [they are] able to keep current and the delinquent loans [they are] able to salvage." Id. at *17. If they elect to impose a late charge or other special charge on a borrower, they receive a servicing fee. Therefore, because they have "as much, if not more, control over these conditions [of payment] as Fannie Mae, " this factor weighs in favor of finding that GMAC and Green Tree were independent contractors. Id.

3. Whether Fannie Mae Furnished Means or Appliances for its Servicers' Work

Fannie Mae's 30(b)(6) representative testified [215-7] that its loan servicers provide their own facilities, buildings, equipment, printers, office furniture, fax machines, and printers. However, Fannie Mae provided its loan servicers with proprietary software for managing loan portfolios. This factor weighs in favor of finding that GMAC and Green Tree were independent contractors. Id. at *18 (citing Walker, 952 So.2d at 1010 (where carpet cleaner used chemicals provided by alleged employer but used its own van and equipment, the factor weighed in favor of independent contractor status)).

4. Whether Fannie Mae Controlled Its Servicers' Premises

Fannie Mae's 30(b)(6) representative provided undisputed testimony [215-7] that Fannie Mae does not control its loan servicers' premises, and that it must receive permission from its servicers before visiting their facilities. Fannie Mae's 2011 Servicing Guide [348] requires servicers to maintain records according to "sound and generally accepted accounting principles, " and Fannie Mae retains the right to conduct "periodic procedural reviews during visits to the servicer's office or the document custodian's place of business...." The 2012 Servicing Guide [309-3] imposes the same requirements.

The right to review records, however, does not necessarily imply control of the premises upon which the records are stored. The Court concludes that this factor weighs in favor of finding that GMAC and Green Tree were independent contractors. Woodring, 892 F.Supp.2d at 777 (job sites controlled by the independent contractor); Neel, 2014 U.S. Dist. LEXIS 28891 at *18-*19; Hill v. City of Horn Lake, No. 2012-CA-01748-SCT, 2015 Miss. LEXIS 15, at *11 (Miss. Jan. 15, 2015) ("[T]he right to inspect, in itself, is not sufficient to trigger a master-servant relationship.").

5. Whether Fannie Mae Furnished Materials to Its Servicers for Work or Received Output Thereof

The Court doubts that this factor is applicable here, as this case does not involve the provision of raw materials and output of a finished product. However, according to Fannie Mae's 30(b)(6) representative [215-7], its loan servicers report to credit agencies, force place insurance, refer loans for foreclosure, hire and fire legal counsel for foreclosure, apply hazard loss proceeds, assign deeds of trust, and release deeds of trust at their own discretion. These are arguably forms of "output." See Neel, 2014 U.S. Dist. LEXIS 28891 at *19. However, Fannie Mae also imposes certain reporting requirements on its servicers [309-4], another form of "output." The Court concludes that this factor is either inapplicable or neutral.

6. Whether Fannie Mae Had the Right to Proscribe and Furnish the Details of the Kind and Character of Work to Be Done

Fannie Mae provides Servicing Guides [212-7], which "set forth broad parameters under which servicers should use their sound professional judgment as mortgage servicers in the performance of their duties." Fannie Mae specifically prescribes that its servicers "maintain the discretion to apply appropriate judgment in dealing with borrowers and mortgage loans on a case-by-case basis, consistent" with its broad servicing policies. While it requires loan servicers to maintain "established written procedures that are consistent with [its] servicing policies, " it does not specify the contents of those procedures or the manner in which servicers are required to implement them. Fannie Mae's loan servicers may collect late charges and other fees as they wish, consistent with the loan documents and applicable law [212-7]. Servicers may also propose loan modifications under certain circumstances [212-6].

Plaintiff argues that Fannie Mae exercises "just short of absolute" control over its servicers' work, citing the table of contents from the Servicing Guides. However, this factor concerns "details." Although the Servicing Guides address a wide variety of subject matter, they only provide general goals and parameters, rather than specific details regarding the servicing of each loan. Accordingly, this factor weighs in favor of independent contractor status. Id. at *20 (citing Kossuth Trucking, Inc. v. Caterpillar, Inc., 941 So.2d 903, 910 (Miss. Ct. App. 2006) (where manufacturer provided shop with service manuals and guides, that did not constitute control over the details of the work)); Chisolm v. MDOT, 942 So.2d 136, 141-42 (Miss. 2006) (while MDOT provided specifications for work, the construction company retained control over performance of specific aspects of the work).

7. Whether Fannie Mae Had the Right to Supervise and Inspect the Work

Fannie Mae has the right to examine and audit its loan servicers' records at any time [309-3]. Specifically, it may monitor monthly accounting reports, conduct periodic procedural reviews, audit internal records and operating procedures, and perform underwriting reviews of loans on a random sample basis. Fannie Mae's 30(b)(6) representative testified [215-7] that Fannie Mae had an "audit group, " but he denied that Fannie Mae supervises its servicers' operations. He also testified that Fannie Mae has limited access to some servicers' electronic data systems.

The Court finds that, on the whole, Fannie Mae does not supervise its servicers' work, but it does inspect their work. This factor is neutral. Cf. Neel, 2014 U.S. Dist. LEXIS 28891 at*20-*21; Hill, 2015 Miss. LEXIS 15 at *11 ("[T]he right to inspect, in itself, is not sufficient to trigger a master-servant relationship.").

8. Whether Fannie Mae Had the Right to Direct the Details of the Manner in Which Its Servicers Worked

The Court discussed the evidence relevant to this factor in subsection 6, above. The record demonstrates that Fannie Mae provides broad guidelines which its loan servicers must follow, but it does not dictate the details of their day-to-day work. The Servicing Guides only provide general parameters, rather than specific details regarding the servicing of each loan. Accordingly, this factor weighs in favor of independent contractor status. Neel, 2014 U.S. Dist. LEXIS 28891 at *21-*22; Kossuth Trucking, 941 So.2d at 910 (where manufacturer provided shop with service manuals and guides, that did not constitute control over the details of the work); Chisolm, 942 So.2d at 141-42 (while MDOT provided specifications for work, the construction company retained control over performance of specific aspects of the work).

9. Whether Fannie Mae Had the Right to Employ, Discharge, or Fix Compensation for Its Servicers' Employees

Fannie Mae's 30(b)(6) representative provided undisputed testimony [215-7] that Fannie Mae does not have the right to employ, discharge, or fix compensation for its loan servicers' employees. Therefore, this factor weighs in favor of independent contractor status. Neel, 2014 U.S. Dist. LEXIS 28891 at *22.

10. Whether Fannie Mae Was Obligated to Pay Its Servicers' Employees

Fannie Mae's 30(b)(6) representative provided undisputed testimony [215-7] that Fannie Mae does not pay its loan servicers' employees. Therefore, this factor weighs in favor of independent contractor status. Neel, 2014 U.S. Dist. LEXIS 28891 at *22.

11. Conclusion

After consideration of the factors outlined in Richardson v. APAC-Mississippi, 631 So.2d 143, 148-49 (Miss. 1994), the Court concludes that GMAC and Green Tree were independent contractors of Fannie Mae. Most of the factors weigh in favor of independent contractor status. On the whole, the record does not demonstrate that Fannie Mae exercised the sort of detail-oriented, day-to-day control over the loan servicers' work that is required for employee status. At best, Fannie Mae provided broad guidelines under which GMAC and Green Tree were required to function - not the sort of substantial control exercised in an employer-employee relationship. Therefore, the Court finds that GMAC and Green Tree were Fannie Mae's independent contractors, rather than its employees or agents. Neel, 2014 U.S. Dist. LEXIS 28891 at *23.

C. Ratification

Plaintiff also argues that Fannie Mae is liable for the actions of its loan servicers, GMAC and Green Tree, because it ratified their actions. Mississippi law defines ratification as "the affirmance by a person of a prior act which did not bind him but which was done or proffesedly done on his account, whereby the act, as to some or all persons is given effect as if originally ...


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