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United States ex rel. Houpt v. Wells Fargo Bank N.A.

United States District Court, D. Idaho

February 13, 2019

THE UNITED STATES OF AMERICA, ex rel. CHARLES W. HOUPT, Plaintiff,
v.
WELLS FARGO BANK, N.A., Defendant.

          MEMORANDUM DECISION AND ORDER

          Honorable Candy W. Dale United States Magistrate Judge

         INTRODUCTION

         The Court has before it four motions: (1) Plaintiff's Motion for Partial Summary Judgment (Dkt. 22); (2) Defendant's Motion for Summary Judgment (Dkt. 24); (3) Relator's 56(f) [sic] Motion for a Continuance of Defendant's Motion for Summary Judgment to Allow for Additional Discovery (Dkt. 30); and (4) Plaintiff's Motion for Order of Duces Tecum Deposition for Certain SBA Employees (Dkt. 32).

         Plaintiff/Relator Charles Houpt brings this action against Wells Fargo Bank National Association (Wells Fargo) pursuant to the False Claims Act (FCA), 31 U.S.C. § 3729 et. seq., and the Financial Institutions Reform and Enforcement Act (FIRREA), 12 U.S.C. § 1833a. Houpt alleges that Wells Fargo presented a false or fraudulent claim for payment to the Small Business Administration (SBA); made false statements to the SBA; and, withheld material information from the SBA related to an SBA loan secured by the Houpts' real and personal property. He seeks civil penalties under FIRREA for the bank's allegedly false claims.

         Having carefully considered the record, oral argument from both parties on January 23, 2019, and relevant authority, the Court will grant Defendant's motion for summary judgment and deny Plaintiff's motion for partial summary judgment, for the reasons explained below. And, Plaintiff's motion to continue and his motion to take the deposition of SBA employees will be denied.[1]

         FACTS

         1. Background - The SBA Loan and the State Court Litigation[2]

         The dispute between Relator Charles Houpt and Wells Fargo has a long history which began in 1993, when Gail and Charles Houpt executed a promissory note in the original principal amount of $312, 800 to American Bank of Commerce (“ABC”). The loan was secured by both personal property and real property commonly identified as 1954 S. Yellowstone Highway in Idaho Falls, Idaho (the “Property”). The Houpts granted a deed of trust to ABC as beneficiary, and to First American Title Company (“FATCO”) as Trustee, which was recorded in Bonneville County as Instrument Number 846613 on or about March 19, 1993. The loan was subject to the United States Small Business Administration (“SBA”) Guarantee under the ABC Note and Deed of Trust.[3]

         Between July of 1994 and April of 2001, several bank mergers occurred. These bank mergers eventually resulted in the ABC Note being assigned to Wells Fargo Bank Northwest National Association. On February 5, 2004, Wells Fargo purchased most of the assets and liabilities of Wells Fargo Bank Northwest, and by means of that transaction, Wells Fargo obtained ownership of the obligation owing under the ABC Note and ABC Deed of Trust. Houpt v. Wells Fargo, No. CV2012-3518 (Idaho, 7th Dist, Jan. 7, 2014) (Mem. Dec. and Order re: Motions for Summary Judgment). (Dkt. 27-1.) At the time of the asset purchase, Wells Fargo did not record an assignment of the ABC Deed of Trust. Houpt v. Wells Fargo Bank, Nat. Ass'n, 160 Idaho 181, 184, 370 P.3d 384, 387 (2016).[4]

         Beginning in November of 2007, the Houpts failed to make numerous payments on the ABC Note to Wells Fargo. Although they were able to bring their payments current on several occasions prior to November 10, 2009, they made no payment to Wells Fargo after November 10, 2009. Id.

         In or about May of 2010, following the Houpts' initial default on the ABC Note, Wells Fargo asked the SBA to pay the guaranteed portion of the loan balance. At that time, the balance due on the ABC Note was $69, 164.13. On May 4, 2010, the SBA paid the loan guarantee to Wells Fargo. Decl. of Glorfield ¶ 6. (Dkt. 26.) Wells Fargo received $56, 240.50. Houpt, 370 P.3d at 395.

         In October of 2010, Wells Fargo initiated non-judicial foreclosure proceedings against the Houpts' Property. On October 18, 2010, FATCO recorded a Notice of Trustee's Sale, indicating ABC was the beneficiary of the Deed of Trust. The sale date was set for February 17, 2011. On February 16, 2011, the Houpts filed a bankruptcy petition under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Idaho, No. 11-40182-JDP, which stayed the foreclosure proceedings.

         On February 14, 2012, the Bankruptcy Court granted stay relief to Wells Fargo, and the bank resumed foreclosure proceedings. On March 5, 2012, FATCO filed an Amended Notice of Default, Instrument No. 1411255, stating the ABC Note was in default with an unpaid principal balance of $62, 452.66, [5] accrued interest in the amount of $11, 338.06, and legal and other fees in the amount of $50, 381.82, for a total amount due of $124, 172.54. On March 15, 2012, FATCO filed a new Notice of Trustee's Sale, stating “Beneficial Interest is now held by Wells Fargo Bank, National Association, by merger agreement dated February 5, 2004.” The date of the new sale was set for July 17, 2012. Houpt, 370 P.3d at 388.

         On June 22, 2012, the Houpts filed a Complaint and Motion for Preliminary Injunction in the District Court of the Seventh Judicial District of the State of Idaho, in and for the County of Bonneville, against Wells Fargo, claiming, among other things, that Wells Fargo's actions constituted wrongful foreclosure. The Houpts sought to halt the sale of the Property.

         During the state court litigation, on August 24, 2012, Wells Fargo obtained a written assignment of the ABC Note and Deed of Trust from Wells Fargo Northwest, and recorded the assignment in the records of Bonneville County on September 4, 2012. On September 17, 2012, the state district court denied the Houpts' motion for preliminary injunction, noting that Wells Fargo had recorded the assignment of the Deed of Trust.

         Wells Fargo resumed foreclosure proceedings on the Property, but in June of 2013, the Houpts found a buyer for the Property outside of the foreclosure proceedings. On July 16, 2013, the Houpts and Wells Fargo filed a stipulation with the state district court to accommodate the sale, which provided that the Houpts could sell the Property, distribute $19, 156.65 of the proceeds to Wells Fargo to reimburse it for property tax payments, and deposit the remaining $139, 500.45 in anticipated sale proceeds with the Clerk of the Court to be distributed “according to the resolution of the priorities of valid liens or other considerations.” Id. The sale of the Property was completed per the terms of the parties' stipulation.

         Additional motion practice ensued, and the state district court issued two memorandum decisions. On January 7, 2014, the district court granted Wells Fargo's motion for summary judgment. The court ruled that the Houpts' claim for wrongful foreclosure was moot, because: (1) Wells Fargo had recorded a written assignment of the beneficiary's interest in the ABC Deed of Trust on September 4, 2012; and (2) the Houpts had voluntarily sold the Property outside the foreclosure proceedings.

         In its second memorandum decision issued on February 20, 2014, upon motions for reconsideration, the state district court reaffirmed that the Houpts' claims were moot because of the stipulated sale of the Property. The court determined also that Wells Fargo, by virtue of the earlier assignments due to the bank mergers and the 2004 asset purchase agreement, stepped into the shoes of ABC with respect to the priority date of the lien secured by the Property. The court noted that the failure to record the assignment of the ABC Deed of Trust did not affect the assignment's validity, nor Wells Fargo's first priority lien status as against other lien holders in the Property.

         The court ordered the sale proceeds of the Property to be paid to Wells Fargo and, after making certain deductions, awarded Wells Fargo its costs and attorney fees. The district court's award consisted of $62, 452.66 in principal, $17, 216.20 in interest, $20, 270.69 in costs, and $40, 111.50 in attorney fees. The court ordered the entirety of the $139, 500.45 on deposit with the court to be disbursed to Wells Fargo to satisfy the award of $140, 051.05.

         On March 4, 2014, the Houpts timely filed a notice of appeal. On March 9, 2016, the Idaho Supreme Court issued a written opinion affirming the district court's decision. The appellate court agreed that Wells Fargo's recording of the notice of assignment of beneficial interest on September 4, 2012, and the voluntary stipulated sale which occurred in June of 2013, mooted the Houpts' wrongful foreclosure claims against Wells Fargo. However, the court remanded for a determination of what effect, if any, the SBA loan guarantee payment made to Wells Fargo by the SBA on May 4, 2010, may have had on the interest and balance due under the ABC Note. Further, the court vacated the district court's grant of attorney fees and costs for a determination that would exclude all costs and fees incurred by Wells Fargo before it recorded the notice of assignment of beneficial interest in the ABC Note and Deed of Trust on September 4, 2012. Id. at 398. The court explained that Wells Fargo should not have been awarded attorney fees for the time expended during its initial improper initiation of foreclosure, before it had properly perfected its secured interest in the Property by recording the notice of assignment. Id. at 397-98.[6]

         During the proceedings upon remand, the Houpts argued that Wells Fargo's failure to follow the SBA's liquidation procedures relieved them of their obligation to pay the full balance remaining on the ABC Note, and should have prevented the bank from recovering attorney fees and reduced its recovery by the amount of the loan guarantee payment. The court disagreed. In a written memorandum issued on November 29, 2016, the court held that Wells Fargo's alleged failure to comply with SBA regulations did not alter the terms of the Note payable to Wells Fargo, and that Wells Fargo had the authority to collect the balance of the Note. The court found also that the SBA loan guarantee payment to Wells Fargo of $56, 240.86 to cover the guaranteed portion of the Houpts' loan had no bearing on the amount of interest or the loan balance owed. The court reduced the attorney fee award per the Idaho Supreme Court's directive and awarded $56, 908.00 for attorney fees incurred by Wells Fargo after September 3, 2012.

         The court entered judgment for Wells Fargo as follows: principal of $62, 452.66; interest through October 23, 2013, in the amount of $17, 216.20; interest from October 24, 2013, through April 7, 2014, of $1, 807.52; costs of $614.18; and attorney fees of $56, 908.00, for a total judgment of $138, 998.56. The court ordered Wells Fargo to return $501.90 of the $139, 500.46 previously distributed to it by the court.

         2. Undisputed Facts Relevant to the Motions for Summary Judgment

          Turning to the most facts relevant to the motions pending before the Court, the following facts contained in the record are undisputed, and some included above bear repeating to understand the timeline of the present dispute.

         On February 5, 2004, Wells Fargo purchased the assets and liabilities of Wells Fargo N.W., which included the ABC Note. Aff. of Hart Ex. A, Houpt v. Wells Fargo, No. CV2012-3518, Mem. Dec. at 3 (7th Dist. Idaho, Jan. 7, 2014). (Dkt. 27-1 at 3.) See also Aff. of Olsen Ex. C. (Aff. of Glorfield ¶ 8, Dkt. 23-7 at 3.) By November 1, 2007, the Houpts had failed to make “numerous payments on the ABC Note.” Id. On November 12, 2008, in response to a letter from Wells Fargo, the SBA sent a letter to Wells Fargo noting the Houpt Loan was in liquidation status, together with a packet of information setting forth SBA guidelines applicable to SBA loan liquidation proceedings. Compl. (Dkt 1-10 at 5 - 8);[7] Aff. of Olsen, Ex. C.[8] (Dkt. 23-8 at 1-27.)

         On November 10, 2009, the Houpts ceased making payments on the ABC Note. Aff. of Hart Ex. A, Houpt v. Wells Fargo, No. CV2012-3518, Mem. Dec. at 3 (7th Dist. Idaho, Jan. 7, 2014). (Dkt. 27-1 at 3.) On April 19, 2010, Gary Glorfield, the Vice President of Wells Fargo, requested the SBA purchase the guaranteed portion of the Houpts' loan. Aff. of Olsen Ex. C. (Dkt. 23-5 at 27.) Glorfield's letter to the SBA indicated that the bank included “copies of the collateral documents pertaining to” the Houpts' loan. Id. On May 4, 2010, the SBA paid Wells Fargo $56, 240.86, representing the guaranteed portion of the outstanding debt pursuant to the ABC Note. Id. (Dkt. 23-5 at 18.)

         On August 24, 2012, Wells Fargo N.W. executed an assignment of the ABC Note and Deed of Trust, assigning the same to Wells Fargo. Aff. of Hart Ex. A, Houpt v. Wells Fargo, No. CV2012-3518, Mem. Dec. at 4 (7th Dist. Idaho, Jan. 7, 2014); (Dkt. 27-1 at 4.) On September 4, 2012, Wells Fargo recorded the assignment of the Deed of Trust. Id.

         During the state court litigation the Houpts had commenced on June 22, 2012, against Wells Fargo, Houpt obtained documents from the SBA and discovery from Wells Fargo. On January 10, 2013, the Houpts (at their attorney's direction) requested documents from the SBA pursuant to the Freedom of Information Act. Decl. of Olsen ¶ 9, Exs. A, B, C. (Dkt. 31 at 3, 10-15.) Carol Hulme, attorney advisor to the SBA, responded to the Houpts' FOIA request on January 10, 2013. Id. Ex. A. (Dkt. 31 at 10.)[9]Later, on September 10, 2013, Carol Hulme responded to an inquiry by the Houpts' counsel concerning the earlier FOIA request, confirming that all SBA documents had been produced. Id. Ex. C. (Dkt. 31 at 15.) Also in September of 2013, the Houpts issued a subpoena to the SBA, after which the Houpts learned the SBA had paid the loan guarantee to Wells Fargo. Compl. ¶ 42. See also Aff. of Olsen ¶ 5 (Dkt. 23 at 2); Decl. of Olsen ¶ 9, Ex. B (Dkt. 31 at 13.) And on August 20, 2013, Wells Fargo answered the Houpts' requests for admission, wherein the Bank admitted that the SBA had paid to Wells Fargo the loan guarantee in May of 2010. Aff. of Olsen Ex. C. (Dkt. 23-7 at 28.)

         On February 20, 2014, the state court issued is memorandum decision and order on the Houpts' and Wells Fargo's respective motions to reconsider filed in the state court litigation. It awarded Wells Fargo $140, 051.05, and ordered the clerk to release the funds to Wells Fargo. Aff. of Hart Ex. B, Houpt v. Wells Fargo, No. CV2012-3518, Mem. Dec. at 31 (7th Dist. Idaho, Feb. 20, 2014); (Dkt. 27-2 at 31.) Compl. ¶ 46.

         On March 27, 2014, the Houpt loan was satisfied by Wells Fargo's receipt of the net proceeds from the voluntary sale of the Property. Decl. of Glorfield ¶ 7. (Dkt. 26.) In April of 2014, Wells Fargo repaid the loan guarantee to the SBA, shortly after Wells Fargo received the proceeds from the sale of the Property. Decl. of Glorfield ¶ 8; Decl. of Piccioni ¶ 3. (Dkt. 25, 26.) Neither Glorfield, who is the Vice President of and a custodian of records for Wells Fargo, nor Piccioni, who is an officer of the United States Small Business Administration and a custodian of records familiar with the Houpts' SBA loan file, included documentation of the loan guarantee repayment with their declarations. However, both Glorfield and Piccioni declared that their statements were based upon their own personal knowledge and made under penalty of perjury.

         On December 10, 2014, in response to a third email inquiry from the Houpts, Carol Hulme at the SBA confirmed there were no new documents in the SBA file, and that all documents related to the Houpts' SBA loan had been provided to the Houpts pursuant to their earlier FOIA request. Decl. of Olsen ¶ 9, Ex. C. (Dkt. 31 at 15.)

         On September 21, 2016, during the state court proceedings following the Idaho Supreme Court's remand, Wells Fargo produced its entire loan file, including its correspondence with the SBA, in response to the Houpts' requests for production of documents. Compl. ¶ 43. Aff. of Olsen Ex. C. (Dkt. 23-5 - 23-7.) See also Aff. of Hart Ex. C, Houpt v. Wells Fargo, No. CV2012-3518, Mem. Dec. at 6-10 (7th Dist. Idaho, Nov. 29, 2016); (Dkt. 27-3 at 6-10.)[10]

         On October 20, 2016, the Houpts deposed Gary Glorfield, Wells Fargo's 30(b)(6) designee. During his deposition, Glorfield testified he began working for Wells Fargo in January of 1996 and became familiar with the Houpt SBA loan upon its transfer to him on January 20, 2006. Aff. of Olsen Ex. C, Glorfield Depo. at 17. (Dkt. 23-4 at 6.) Glorfield was questioned about Wells Fargo's earlier production of documents. Glorfield Depo. at 25. (Dkt. 23-4 at 8.)[11] He also was asked whether certain documents, such as an SBA litigation plan, wrap-up report, and the like, were sent to the SBA, to which Glorfield testified that he either did not know the answer to the question, or that the document in question was not required to be completed. Glorfield Depo. at 43-82. (Dkt. 23-4 at 13-23.)

         On November 29, 2016, the state court issued its memorandum decision on the motions for summary judgment on remand from the Idaho Supreme Court. It found that Wells Fargo was due $138, 998.56, and must return approximately $500 of the money previously disbursed to the bank by the state court in 2014. Aff. of Hart Ex. C, Houpt v. Wells Fargo, No. CV2012-3518, Mem. Dec. (7th Dist. Idaho, Nov. 29, 2016). (Dkt. 27-3.)

         Charles Houpt, as relator, filed this lawsuit against Wells Fargo on September 11, 2017. On October 2, 2018, Houpt filed his motion for partial summary judgment. On October 23, 2018, Wells Fargo filed its motion for summary judgment. On November 13, 2018, Houpt filed a motion to continue the briefing on Wells Fargo's motion for summary judgment, together with a motion to take depositions of designated SBA employees, claiming he needs additional discovery. Nonetheless, Houpt responded to Wells Fargo's motion. (Dkt. 33.)

         DISPOSITION

         1. Summary Judgment Standard

          Federal Rule of Civil Procedure 56 provides, in pertinent part, that the “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). “Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). For summary judgment purposes, an issue must be both “material” and “genuine.” An issue is “material” if it affects the outcome of the litigation; an issue is “genuine” if it must be established by “sufficient evidence supporting the claimed factual dispute ... to require a jury or judge to resolve the parties' differing versions of the truth at trial.” Hahn v. Sargent, 523 F.3d 461, 464 (1st Cir. 1975) (quoting First Nat. Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 289 (1968)); see also British Motor. Car Distrib. v. San Francisco Auto. Indus. Welfare Fund, 883 F.2d 371, 374 (9th Cir. 1989). “Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

         When parties submit cross motions for summary judgment, a court independently searches the record for factual disputes. See Fair Hous. Council of Riverside Cnty., Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001). The filing of cross motions for summary judgment “where both parties essentially assert that there are no material factual disputes” does not vitiate a court's responsibility to determine whether disputes as to material facts are present. See id.

         In considering a motion for summary judgment, a court does not make findings of fact or determine the credibility of witnesses. See Anderson, 477 U.S. at 255. Rather, it must draw all inferences and view all evidence in the light most favorable to the nonmoving party. See Matsushita, 475 U.S. at 587-88; Whitman v. Mineta, 541 F.3d 929, 931 (9th Cir. 2008).

         Houpt asserts he is entitled to summary judgment on the issue of liability under the FCA and the FIRREA. He contends that Wells Fargo falsely represented to the SBA that it held a beneficial interest in the ABC Note such that it was not entitled to payment of the SBA loan guarantee. He claims that Wells Fargo's failure to submit required reports under applicable SBA regulations should subject the bank to penalties under a reverse false claim theory. And finally, he argues Wells Fargo is liable under the FIRREA because the bank wrongfully initiated foreclosure; retained the SBA loan guarantee payment; and failed to follow SBA reporting regulations.

         Wells Fargo asserts it is entitled to summary judgment on Houpt's causes of action brought under the FCA because Wells Fargo did not make a false statement to the SBA, and the bank is not subject to SBA regulations applicable to SBA supervised lenders, thereby excusing it from reporting requirements. Wells Fargo argues also that Houpt's cause of action under the FACA is barred by applicable statutes of limitation. As for Houpt's cause of action seeking civil penalties under the FIRREA, Wells Fargo argues Houpt has not established the bank committed criminal misconduct to support the claim.

         For the reasons explained below, the Court will grant Wells Fargo's motion for summary judgment on Houpt's FCA and FIRREA claims. Houpt has failed to establish the essential elements of a cause of action under the FCA, and even if he could do so, the claims are time barred by the applicable statutes of limitations. Nor is Houpt authorized to bring an action for civil penalties under the FIRREA under the plain language of the statute.

         2. ...


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