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U.S. Bank National Association v. United States Small Business Administration

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

August 15, 2017

U.S. BANK NATIONAL ASSOCIATION PLAINTIFF
v.
UNITED STATES SMALL BUSINESS ADMINISTRATION DEFENDANT

          MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF U.S. BANK NATIONAL ASSOCIATION'S MOTION [38] FOR SUMMARY JUDGMENT AND GRANTING DEFENDANT U.S. SMALL BUSINESS ADMINISTRATION'S MOTION [40] TO DISMISS OR, IN THE ALTERNATIVE, FOR SUMMARY JUDGMENT

          HALIL SULEYMAN OZERDEN UNITED STATES DISTRICT JUDGE

         BEFORE THE COURT are the Motion [38] for Summary Judgment filed by Plaintiff U.S. Bank National Association, as Trustee for Structured Asset Securities Corporation, Mortgage Pass-through Certificates 2006-EQ1 (“Plaintiff” or “U.S. Bank”) and the Motion [40] to Dismiss or, in the Alternative, for Summary Judgment filed by Defendant United States Small Business Administration (“Defendant” or “SBA”). Both Motions are fully briefed. Having considered the submissions of the parties and relevant legal authority, the Court is of the opinion that Defendant's Motion [40] to Dismiss should be granted and Plaintiff's claims should be dismissed for lack of subject-matter jurisdiction. Plaintiff's Motion [38] for Summary Judgment should be denied as moot.

         I. BACKGROUND

         A. Factual Background

         This dispute centers on the proceeds of a foreclosure sale conducted by Defendant SBA. On May 3, 2006, Lee Vern Williams and Renee E. Williams (“the Williamses”) purchased a residence located in D'Iberville, Mississippi (“the Subject Property”). Am. Compl. [13] at 2. The Williamses borrowed $64, 950.00 from EquiFirst Corporation (“EquiFirst”), Plaintiff U.S. Bank's predecessor-in-interest, to finance the purchase.[1] Mem. Supp. U.S. Bank Mot. [39] at 1. According to Plaintiff, the EquiFirst loan proceeds were applied to pay off an existing first mortgage lien in favor of Regions Mortgage in the amount of $77, 886.84. Id. at 2-3; Ex. “D” Settlement Statement [13-4]. According to Plaintiff, “[b]y paying off the existing mortgage in favor of Regions Mortgage, EquiFirst Corporation fully intended to have a first priority lien against the Subject Property.” Am. Compl. [13] at 4.

         The Williamses executed a Deed of Trust (“the U.S. Bank Deed of Trust”) in favor of Mortgage Electronic Registration System (“MERS”), as nominee for EquiFirst, that was recorded in the Office of the Chancery Clerk of Harrison County, Mississippi, Second Judicial District, at 1:43 p.m. on May 23, 2006, as Instrument 2006 3778T-J2. Id.; Ex. “C” U.S. Bank Deed of Trust [13-3] at 1. On May 9, 2014, MERS assigned all of its rights under the U.S. Bank Deed of Trust to U.S. Bank, as Trustee for Structured Asset Securities Corporation, Mortgage Pass-Through Certificates, Series 2006-EQ 1. Am. Compl. [13] at 5; Ex. “H” Corporate Assignment of Deed of Trust [13-8].

         In addition to the EquiFirst mortgage, the Williamses secured a separate loan from Defendant SBA in the amount of $51, 600.00 in order to finance the purchase of the Subject Property. Am. Compl. [13] at 3. Defendant had initially agreed to provide the Williamses with $58, 000.00 in the form of a SBA disaster loan for the purpose of repairing or replacing their previous residence and its contents located at 364 Crawford Street in Biloxi, Mississippi, which was damaged during Hurricane Katrina in August 2005. Mem. Supp. SBA Mot. [41] at 2-3. However, the Williamses requested that Defendant allow them to use the disaster loan proceeds to purchase the Subject Property instead of repairing their damaged Biloxi residence. Id. at 3.

         The SBA approved the Williamses' request in April 2006, amending the prior loan agreement and reducing the loan amount to $51, 600.00. Id. Defendant calculated the reduced loan amount as the difference between the purchase price of the Subject Property, $129, 900.00, and the $78, 300.00 available to the Williamses, which the SBA determined to be the sum of $69, 300.00 in insurance proceeds and FEMA funds, plus $9, 000.00 in personal funds. Id. According to Defendant, the Williamses did not disclose to the SBA that they intended to obtain other financing for the purchase of the Subject Property, and Defendant had no knowledge of either the EquiFirst loan or the preexisting Regions Mortgage lien in place at the time of the sale. Id.; Sarra Decl. [49-1] at 2-3.

         The Williamses executed a Deed of Trust (“the SBA Deed of Trust”) on May 3, 2006, granting SBA a lien and security interest in the Subject Property. This Deed of Trust was recorded in the Office of the Chancery Clerk of Harrison County, Mississippi, Second Judicial District, on May 23, 2006, as Instrument 2006 3774T-J2 at 1:35 p.m., or eight minutes before the U.S. Bank Deed of Trust was recorded. Am. Compl. [13] at 4; Ex. “E” SBA Deed of Trust [13-5] at 1. As a result of the order in which the Deeds of Trust were recorded, Defendant SBA obtained a first priority lien position ahead of EquiFirst, Plaintiff U.S. Bank's predecessor-in-interest. Am. Compl. [13] at 4; see also Miss. Code Ann. § 89-5-5 (in Mississippi, the priority positions of deeds of trusts are “governed by the priority in time of the filing of the several instruments”).

         By early 2014, the SBA loan was in default.[2] Mem. Supp. SBA Mot. [41] at 6. After being unable to negotiate a workout plan, Defendant initiated foreclosure proceedings in November 2014. Id. In December 2014, Defendant appointed Underwood Law Firm PLLC (“Underwood”) as substitute trustee on the SBA Deed of Trust. Id. at 7. On January 31, 2015, Underwood published a Notice of Sale of the Subject Property and notified U.S. Bank, as junior lienholder, by letter of the scheduled foreclosure sale. Id.; Wright Decl. [40-2] at 2-3, 19. The foreclosure sale took place as scheduled on March 3, 2015. Mem. Supp. SBA Mot. [41] at 7. Underwood accepted the highest bid of $49, 042.00, which was sufficient to satisfy the SBA loan in full and resulted in excess proceeds of $1, 486.93. Id. at 8.

         B. Procedural History

         Plaintiff initiated this litigation by filing a Complaint [1-1] on July 11, 2016, in the Chancery Court of Harrison County, Mississippi, alleging that “[b]ecause the aforesaid Deeds of Trust were recorded out of order, the SBA erroneously obtained a first priority lien against the Subject Property, ” and that SBA was unjustly enriched by receipt of the sale proceeds from the foreclosure. Compl. [1-1] at 8. Defendant removed the case to this Court on August 12, 2016, pursuant to 42 U.S.C. § 1442(a)(1). Not. of Removal [1] at 2.

         Plaintiff subsequently filed an Amended Complaint [13] on December 2, 2016, which asserts claims for unjust enrichment, declaratory judgment, equitable subrogation, negligence, and equitable estoppel. Am. Compl. [13] at 6-11. Plaintiff seeks a monetary award in the amount of the $49, 042.00 Defendant received from the foreclosure sale and a declaratory judgment that the U.S. Bank Deed of Trust enjoys a first lien position under the doctrine of equitable subrogation. See Id. at 7.

         In its Motion [38] for Summary Judgment, Plaintiff urges the Court to apply the doctrine of equitable subrogation, under which Plaintiff's later-filed lien might be substituted into the primary lienholder position ahead of Defendant's lien. Mem. Supp. U.S. Bank Mot. [39] at 7. Plaintiff maintains that “[p]rior to the loan closing, EquiFirst instructed its closing agent that it required a good, valid, recorded, first deed of trust to secure the loan” and that the SBA Deed of Trust was erroneously recorded before the U.S. Bank Deed of Trust. Id. at 2. Plaintiff seeks a judgment as a matter of law that it is entitled to the foreclosure sale proceeds in the amount of $49, 042.00. Id. at 9.

         Defendant's Motion [40] to Dismiss or, in the Alternative, for Summary Judgment, raises sovereign immunity as a defense to all claims asserted against it. Mot. [40] at 1-2. Plaintiff apparently does not contest Defendant's argument that the Court lacks subject-matter jurisdiction over its negligence claim on grounds that Plaintiff did not present a written claim for damages to Defendant as required by the Federal Tort Claims Act (“FTCA”), 28 U.S.C. §§ 1346(b), 2671-2680. See Pl.'s Resp. to Req. for Adm. [40-4] at 2.

         Defendant argues that the remaining claims for unjust enrichment, equitable subrogation, equitable estoppel, and declaratory judgment are subject to dismissal because they do not fall within any waiver of sovereign immunity, depriving this Court of subject-matter jurisdiction. Mem. Supp. SBA Mot. [41] at 2. Alternatively, Defendant seeks summary judgment as to Plaintiff's remaining claims on the theory that ...


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