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Germain v. US Bank National Association

United States Court of Appeals, Fifth Circuit

April 3, 2019

MICHAEL GERMAIN, Plaintiff - Appellant
US BANK NATIONAL ASSOCIATION, as Trustee for Morgan Stanley Mortgage Loan Trust 2006-7, Mortgage Pass-Through Certificates, Series 2006-7; OCWEN LOAN SERVICING, L.L.C., Defendants - Appellees

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

          Before WIENER, DENNIS, and OWEN, Circuit Judges.



         In 2005, Plaintiff-Appellant Michael Germain ("Germain") executed a deed of trust in favor of Morgan Stanley to refinance his home loan. Defendant-Appellee Ocwen Loan Servicing, LLC ("Ocwen") began servicing his loan in 2012. In 2014, U.S. Bank N.A., as Trustee for Morgan Stanley Mortgage Loan Trust 2006-7, Mortgage Pass-Through Certificates, Series 2006-7 ("U.S. Bank"), became the holder of the note secured by that mortgage (Ocwen and U.S. Bank are collectively "the Defendants"). Germain has been in and out of default since 2009 and made his last loan payment in 2014.

         After becoming the loan servicer on July 7, 2012, Ocwen wrote to Germain outlining his loan assistance options. Ocwen did not receive a response from Germain, so it scheduled the property for foreclosure.

         In August 2012, after Ocwen had initiated the foreclosure, Germain submitted his first of four loss mitigation applications. Ocwen denied Germain's initial request for loan modification because the owner of the loan did not allow modification. Germain subsequently made a "significant" payment that brought the loan out of default, so Ocwen stopped processing that loss mitigation application.

         By August 2013, Germain was again in default, so he filed a second loss mitigation application. Ocwen again denied Germain's request for loan modification, alerted him that he might be eligible for other options, and identified Morgan Stanley as the owner of the loan. Germain filed for bankruptcy the following month. Ocwen placed him on a repayment plan and stopped processing his second loss mitigation application. Germain's bankruptcy was later dismissed.

         Yet again in default, Germain filed a third loss mitigation application in February 2014. Ocwen again denied Germain's request for loan modification and again informed him that he was eligible for other loss mitigation options, including a short sale. Germain did not take advantage of any of those options.

         More than a year later, Ocwen accelerated the loan and scheduled the property for foreclosure in May 2015. Germain filed suit in state court to prevent the foreclosure, and the Defendants removed the suit to federal court. In his fourth amended complaint, Germain alleged the following claims against the Defendants: (1) violations of the Real Estate Settlement Procedure Act ("RESPA"); (2) violations of the Texas Debt Collection Act ("TDCA"); (3) promissory estoppel; and (4) violation of the federal Declaratory Judgment Act. Germain sought actual, statutory, and exemplary damages or declaratory and injunctive relief.[1] The district court granted the Defendants' motion for summary judgment and dismissed all of Germain's claims.[2] He now appeals that grant of summary judgment.


         A. Standard of Review

         We review the grant of summary judgment de novo and apply the same standard as the district court.[3] Under Federal Rule of Civil Procedure 56, summary judgment is proper "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."[4] If the moving party meets that burden, the non-moving party must show the existence of a genuine issue for trial.[5] The evidence and all inferences must be viewed in the light most favorable to the non-movant.[6]Conclusional allegations, unsubstantiated assertions, and a mere "scintilla" of evidence are insufficient to defeat summary judgment.[7]

         B. Germain's RESPA Claims

         Section 1024.41 of the Code of Federal Regulations describes the procedures that mortgage servicers must follow when processing loss mitigation applications.[8] Germain alleged that the Defendants violated § 1024.41(c) and (d). Section 1024.41(c) states that, on receipt of a complete loss mitigation application more than 37 days before a foreclosure sale, the loan servicer must (1) "[e]valuate the borrower for all loss mitigation options available to the borrower" and (2) "[p]rovide the borrower with a notice in writing stating the servicer's determination of which loss mitigation options, if any, it will offer to the borrower on behalf of the owner or assignee of the mortgage."[9]

         Section 1024.41(d) states:

If a borrower's complete loss mitigation application is denied for any trial or permanent loan modification option available to the borrower pursuant to paragraph (c) of this section, a servicer shall state in the notice sent to the borrower pursuant to paragraph (c)(1)(ii) of this section the specific reason or reasons for the servicer's determination for each such trial or permanent loan modification option and, if applicable, that the borrower was not evaluated on other criteria.[10]

Additionally, § 1024.41(i) states: "A servicer is only required to comply with the requirements of this section for a single complete loss mitigation application for a borrower's mortgage loan account."[11]

         The district court dismissed Germain's RESPA claims. The court held that the Defendants (1) were not required to plead § 1024.41(i) as an affirmative defense, (2) had complied with § 1024.41 over the life of Germain's loan, and (3) were required to comply with each of the requirements of § 1024.41 only once.[12]

         On appeal, Germain first alleges that the district court erred in holding that § 1024.41(i) is not an affirmative defense. That is an issue of first impression for this court.

         Rule 8(c) of the Federal Rules of Civil Procedure requires parties to "affirmatively state any avoidance or affirmative defense."[13]

[T]he rule's reference to "an avoidance or affirmative defense" encompasses two types of defensive allegations: those that admit the allegations of the complaint but suggest some other reason why there is no right of recovery, and those that concern allegations outside of the plaintiff's prima facie case that the defendant therefore cannot raise by a simple denial in the answer.[14]

         A defendant that fails to raise an affirmative defense in its responsive pleading generally waives it "unless the 'defendant raises the issue at a pragmatically sufficient time' and 'the plaintiff is not prejudiced in its ability to respond.' The prejudice inquiry focuses on 'whether the plaintiff had sufficient notice to prepare for and contest the defense.'"[15]

         Germain relies on Amarchand v. CitiMortgage, Inc., a case out of the Middle District of Florida, contending that § 1024.41(i) is an affirmative defense because it is a matter of avoidance. The Amarchand court stated, on a motion to dismiss, that the defendants § 1024.41(i) contention was "better raised as an affirmative defense."[16] Germain maintains that he was prejudiced by the Defendants' assertion of § 1024.41(i) for the first time on summary judgment because he had already completed discovery without having received fair notice of that defense.

         When "a particular issue arises by logical inference from the well-pleaded allegations in the plaintiff's complaint," that issue is generally not an affirmative defense because "a simple denial of the allegations in the complaint relating to a necessary or intrinsic element of the plaintiff's claim is sufficient to put those matters in issue."[17] Here, Germain alleged that the Defendants did not comply with § 1024.41. The Defendants denied this allegation, insisting that they had complied with that section. That is a denial or direct contradiction of Germain's claim, not an affirmative defense. The Defendants did not expressly rely on § 1024.41(i) in their answer, but the use of § 1024.41(i) in their motion for summary judgment is merely an expansion of the denial in their answer.[18] The Defendants essentially argued that they could not have violated RESPA by failing to comply with § 1024.41 because they did, in fact, comply with that section. These are the reasons why we agree with the district court's determination that the Defendants were not required to plead § 1024.41(i) as an affirmative defense.

         Second, the district court held that the Defendants only had to comply with the regulation for one loss mitigation application.[19] Germain insists that this holding is in error because it makes § 1024.41 retroactive.[20]

         Section 1024.41 became effective on January 10, 2014.[21] To determine whether a regulation may be applied retroactively, (1) "a reviewing court . . . examines whether the regulation clearly expresses whether it is to be applied retroactively," and, (2) "[i]f there is no clear expression as to retroactivity, the court then considers whether the regulation would have a retroactive effect."[22]This determination "demands a commonsense, functional judgment about whether the new provision attaches new legal consequences to events completed before its enactment."[23] "There is a retroactive effect when the new regulation 'takes away or impairs vested rights . . . creates a new obligation, imposes a new duty, or attaches a new disability, in respect to transactions or considerations already past.'"[24] If a ...

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