in Re Wells Fargo Bank, N.A., America's Servicing Company, Premiere Asset Services, Langley & Banack, Inc., Robert Carl Jones, and Albert Garcia

Citation: Not availableDocket: 04-09-00216-CV

Court: Court of Appeals of Texas; September 23, 2009; Texas; State Appellate Court

Original Court Document: View Document

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Relators, including Wells Fargo Bank, N.A. and associated parties, filed a petition for a writ of mandamus to compel the trial court to vacate its order denying their motions to compel arbitration in the case of Edward Huerta et al. v. Wells Fargo Bank et al., pending in the 229th Judicial District Court of Duval County, Texas. The underlying dispute stems from allegations of wrongful foreclosure on the Huertas' property related to a home equity loan secured by a Deed of Trust dated December 27, 2000. This Deed of Trust included an arbitration agreement allowing for binding arbitration of any disputes related to the loan documents. 

The Huertas obtained a loan of $33,600, but the property description in the Deed of Trust was incorrect, as it did not match the property they owned. After defaulting on the loan and subsequently filing for bankruptcy, the Huertas disputed Wells Fargo's claim to a lien on their actual homestead property, which was listed as 9.95 acres in their bankruptcy filings. No adversary proceeding was initiated regarding the lien, and the Huertas were discharged in bankruptcy in January 2006. Following this, Wells Fargo attempted a non-judicial foreclosure, purchasing the property at a foreclosure sale and subsequently hiring Garcia to evict the Huertas. The Huertas then filed suit against Wells Fargo and others in January 2008. The court conditionally granted the writ of mandamus, indicating a favorable view towards the relators’ request to enforce the arbitration agreement.

Langley, Banack and Wells Fargo responded to a lawsuit on specified dates in 2008, with the Huertas subsequently filing amended petitions to add additional parties, including America’s Servicing Company and Premiere Asset Services. Multiple motions to compel arbitration were filed by various defendants, while the Huertas contested the validity of the arbitration agreement on grounds including its applicability only to Wells Fargo Bank Texas, N.A., discharge by bankruptcy, merger by foreclosure, and claims of waiver due to the defendants' prior actions in court. The trial court denied all motions to compel arbitration without detailed reasoning. Subsequently, a writ of mandamus was sought, emphasizing that the Federal Arbitration Act (FAA) applied and asserting that denial of a motion to compel arbitration constitutes a clear abuse of discretion warranting mandamus relief. To succeed, the relators must demonstrate the existence of a valid arbitration agreement and that the claims are within its scope. The determination of the validity of the arbitration agreement is a legal question subject to de novo review, with a strong presumption favoring arbitration only arising once a valid agreement is established by the party seeking to compel arbitration.

Under the Federal Arbitration Act (FAA) and the Texas Arbitration Act (TAA), ordinary state contract law principles are utilized to determine the existence of a valid arbitration agreement. Once such an agreement is established, a presumption in favor of arbitration arises, placing the burden on the party opposing arbitration to provide a valid defense. The trial court's denial of motions to compel arbitration lacked specified reasons, necessitating consideration of all arguments from the Huertas regarding the validity of the arbitration agreement.

The first issue addressed is whether Wells Fargo Bank, N.A. has the right to enforce the arbitration agreement. The Huertas contended that Wells Fargo Bank, N.A. failed to prove it is the same entity as Wells Fargo Bank Texas, N.A., the lender identified in the arbitration agreement. Although the Huertas did not raise this issue on appeal, it remains pertinent as a potential basis for the trial court's decision. The Huertas consistently named Wells Fargo Bank, N.A. as the defendant and claimed their loan was from this entity. In response, Wells Fargo Bank, N.A. asserted its status as the successor by merger to Wells Fargo Bank Texas, N.A., supporting this with documentation from the Federal Reserve and the Comptroller of the Currency confirming the consolidation. Consequently, it was determined that Wells Fargo Bank, N.A. has the right to enforce the arbitration agreement.

Additionally, the Huertas argued that other relators, including America’s Servicing Company and others, who were nonsignatories to the arbitration agreement, lacked standing to enforce it. These nonsignatories claimed their right to compel arbitration is based on their agency relationship with Wells Fargo Bank, a signatory. Establishing a valid arbitration agreement requires proving that the party seeking arbitration was either a party to the agreement or had the right to enforce it. Federal courts recognize six theories under which nonsignatories may be bound to arbitration agreements: incorporation by reference, assumption, agency, alter ego, equitable estoppel, and third-party beneficiary.

Nonsignatories who are agents of a signatory to an arbitration agreement may invoke that agreement under certain conditions. Texas case law establishes that agents can sometimes enforce arbitration clauses even if they are not signatories themselves, particularly when disputes involve their actions as agents. The scope of an arbitration agreement can extend to claims against these agents if their actions are within the claims covered by the agreement. In the present case, the Huertas do not dispute that the nonsignatory relators acted as agents of Wells Fargo. The Fourth Amended Petition confirms that America’s Servicing is an assumed name for Wells Fargo Home Mortgage, which was authorized to act on behalf of Wells Fargo in this lawsuit. Langley, Banack was engaged by America’s Servicing and/or Wells Fargo as an agent, with Robert Carl Jones, an employee of Langley, Banack, directly responsible for actions leading to the plaintiffs' injuries. Additionally, Albert Garcia and his agents committed wrongful acts, including invasion of privacy, under the authorization of Wells Fargo. The court concludes that since the nonsignatories were acting as agents of Wells Fargo, they are entitled to enforce the arbitration agreement, making the trial court's denial of the motions to compel arbitration improper.

The document also addresses whether the arbitration agreement was discharged in bankruptcy. The Huertas claim that post-discharge, they owned the property as bona fide purchasers for value, arguing that federal law absolved them of pre-filing obligations, including those under the Arbitration Agreement. They reference the case In re Peebles, which supports the notion of a bankruptcy trustee having the status of a bona fide purchaser at the date of bankruptcy. However, the court finds the case Green Tree Servicing, which the Huertas cite, unpersuasive as it involved a foreclosure action initiated before the bankruptcy proceeding concluded.

Fisher counterclaimed against Green Tree, alleging a violation of the bankruptcy injunction. Green Tree responded by filing a motion to compel arbitration. The Oklahoma Court of Appeals ruled that Fisher's claims, which included attempts by Green Tree to collect non-existent debts and make prohibited phone calls, did not arise from contractual or statutory duties linked to the contract. The court noted that any alleged improper collection efforts occurred after the termination of the contractual relationship due to Fisher's bankruptcy discharge. Consequently, the court found the arbitration agreement inapplicable to Fisher's counterclaim.

Contrary to the Huertas' claims, the court did not rule that the arbitration agreement itself was discharged by bankruptcy; rather, it stated that Fisher's counterclaim was not related to the agreement. The Huertas failed to provide additional case law supporting their assertion of discharge. In contrast, relators argued that arbitration agreements survive contract termination and cited cases affirming that post-discharge, plaintiffs must still submit claims to arbitration. 

One cited case involved Hill, who, after his bankruptcy discharge, faced a motion to compel arbitration related to a credit agreement, which was initially denied. However, the Second Circuit reversed this denial, stating that arbitration would not jeopardize the concluded bankruptcy process. The relators assert that this illustrates the enforceability of arbitration agreements post-bankruptcy. Ultimately, the court found no merit in the Huertas’ argument regarding the discharge of the arbitration agreement, concluding that this was not a valid reason for denying the motion to compel arbitration. Additionally, the court did not address the relators' argument that the Huertas needed to file an adversary proceeding to contest Wells Fargo's lien.

The trial court addressed whether the arbitration agreement merged into the trustee’s deed, rendering it unenforceable. The Huertas contended that even if the arbitration agreement survived bankruptcy discharge, it became invalid due to the merger of the Deed of Trust into the trustee’s deed after foreclosure, citing case law that supports merger concepts. However, the court found these precedents unconvincing as they did not specifically address the merger of a deed of trust into a trustee’s deed post-foreclosure. The court noted the absence of any authority from the Huertas supporting that an arbitration agreement becomes unenforceable due to such a merger. The court referenced a previous case where an arbitration agreement was enforced after foreclosure, indicating that the arbitration obligations remained intact. The arbitration agreement explicitly states that its provisions survive the termination of related documents, further supporting the court's conclusion that the merger argument was unpersuasive and insufficient to deny the motion to compel arbitration.

Additionally, the court evaluated whether the minor children were bound by the arbitration agreement. The Huertas argued that their claims, unrelated to any contract, should exempt the minors from arbitration. However, the court highlighted that nonparties can be compelled to arbitrate if they seek a direct benefit from a contract containing arbitration provisions, emphasizing that the substance of the claims, rather than their phrasing, determines the necessity for arbitration. Claims must be linked to the contract for arbitration to be required.

Relators argue that the claims brought by the Huertas are fundamentally linked to the enforcement of loan documents, asserting that without these documents, no dispute would exist and the Huertas would have no claims. They emphasize that the Deed of Trust with Wells Fargo delineates the parties' rights, asserting that Wells Fargo lacks rights to the Huertas' property. The Huertas have raised several claims in court, including violations of the Texas Debt Collection Act, trespass, theft, invasion of privacy, wrongful post-foreclosure eviction, and have sought a declaratory judgment stating that Wells Fargo has no lien or rights to their 9.855 acres or any deficiency claims post-bankruptcy. Given that the Huertas' claims require a determination of the lien's validity, the court concludes that the claims, including those of the minor children, must proceed to arbitration. 

Regarding Margarita Huerta’s binding status to the arbitration agreement, the court indicates that although she signed the agreement "pro forma," she is still bound by it, similar to the minor children. The validity of the arbitration agreement is acknowledged, and the court assesses whether the Huertas' claims fall within its scope. While the Huertas argue that their claims pertain to tortious acts unrelated to the loan documents and assert that Wells Fargo lacked lien rights at the time of the alleged wrongful acts, relators contend that the arbitration agreement encompasses any disputes related to the loan documents and property. They argue that the Huertas’ claims center on the validity of the lien in the Deed of Trust, which relates directly to the alleged wrongful collection and eviction actions.

Relators assert that the Huertas' request for a declaratory judgment regarding the invalidity of Wells Fargo's lien supports their argument for arbitration. The court agrees, determining that the Huertas' claims, which relate to the Note or Loan Documents, fall within the arbitration agreement's scope. Consequently, the trial court's denial of motions to compel arbitration was inappropriate.

The discussion then shifts to whether relators waived their right to arbitration, guided by the principle that waiver occurs when a party substantially invokes the judicial process to the detriment of the other party. The Texas Supreme Court has established a strong presumption against such waiver, requiring a high threshold to be met, and has adopted a 'totality of the circumstances' analysis similar to federal courts. Key factors for consideration include the timing of the party's awareness of the arbitration clause, the extent of discovery conducted, and whether the party initiated discovery or sought judgment on the merits.

The Huertas argue that relators waived their arbitration rights by engaging in extensive discovery, filing motions, and incurring significant attorney fees. However, a notable portion of the discovery was conducted by the Huertas themselves. The court draws a parallel to a previous case (Vesta), highlighting that expenses incurred in obtaining discovery do not equate to prejudice against arbitration as compared to producing discovery. Ultimately, the court evaluates each relator's actions individually and concludes that Premiere Asset Services, America’s Servicing Company, and Garcia did not waive their right to compel arbitration.

Premiere Asset Services, America’s Servicing Company, and Garcia filed their answers to the suit in December 2008, October 2008, and November 2008, respectively. Following Langley, Banack, Inc.'s initial motion to compel arbitration, a joint motion to compel arbitration was submitted by America’s Servicing Company and Premiere Asset Services on January 30, 2009, with Garcia filing a similar motion shortly thereafter on February 3, 2009. The activities of Premiere Asset Services included only propounding requests for disclosure and filing a joint motion for summary judgment without opposing a trial setting. America’s Servicing Company similarly participated minimally, while Garcia filed a cross-claim and agreed to a docket control order without opposing the trial setting.

The limited involvement of these parties led to the conclusion that they had not waived their right to arbitration by substantially invoking the judicial process. The assessment then shifted to Wells Fargo, Langley, Banack, Inc., and Jones. Langley, Banack was the first defendant to respond on February 15, 2008, with its motion to compel arbitration filed on January 22, 2009. Wells Fargo answered on April 18, 2008, and filed its motion on January 30, 2009, while Jones answered on July 1, 2008, and filed a joint motion with Langley, Banack.

Wells Fargo engaged in various discovery activities, including requests for disclosure, production, interrogatories, and depositions, whereas Langley, Banack only issued basic discovery requests and there was no recorded individual discovery by Jones. The court referenced the Supreme Court's ruling in Vesta, which indicated that significant expenses and basic discovery did not constitute waiver of the right to compel arbitration. Unlike the Perry case, where waiver was found due to late actions, the current situation had not reached the trial phase, with a trial date set for October 2009 and further discovery pending.

Consequently, the court determined that Wells Fargo, Langley, Banack, and Jones did not substantially invoke the judicial process to waive their right to arbitration. Since the Huertas failed to prove significant invocation of judicial process, the issue of whether they experienced prejudice was deemed unnecessary, leading to the conclusion that the trial court improperly denied the motions to compel arbitration.

Relators were questioned on whether they demonstrated their contractual right to arbitration within a 'reasonable time' as stipulated in the arbitration agreement. The Huertas argued that the agreement requires timely demand for arbitration, citing a provision that allows any party to demand arbitration 'at any reasonable time' despite their involvement in judicial proceedings. They contended that the burden of proof for this compliance lies with the relators and is a prerequisite for compelling arbitration. However, it was concluded that this provision does not serve as a prerequisite but rather preserves the right to demand arbitration regardless of prior judicial participation. The agreement explicitly states that arbitration can be demanded at any time and compelled through court proceedings. Consequently, the trial court's denial of the motion to compel arbitration was deemed an abuse of discretion. A conditional writ of mandamus was granted, requiring the trial court to withdraw its denial within ten days and stay the underlying case pending arbitration. The prior stay from April 16, 2009, was lifted.