Opinion
NO. 01-14-00931-CV
01-05-2016
COUNTRY TITLE, L.L.C., Appellant v. MORENIKE JAIYEOBA, Appellee
On Appeal from the 268th District Court Fort Bend County, Texas
Trial Court Case No. 07-CV-159705
MEMORANDUM OPINION
This case arises from a failed home purchase. The buyer, Morenike Jaiyeoba, believed that the sale was complete and she was the new owner of the home. However, the escrow agent, Country Title, failed to pay off the seller's mortgage. It also failed to record the deed listing Jaiyeoba as the new owner. These errors led to a series of events that culminated with Jaiyeoba losing the home, being denied a loan to purchase a different house, and being sued by the seller's mortgage company.
Jaiyeoba sued Country Title. She asserted contract and tort claims and sought exemplary damages on the theory that Country Title placed its own interest above hers by demanding indemnity from Jaiyeoba before agreeing to release her loan proceeds held in its escrow account. Country Title stipulated that it breached its contractual duties to Jaiyeoba and to $2,800 in contractual damages. The court found that Country Title, in its role as escrow agent, owed Jaiyeoba fiduciary duties and had breached those duties. The jury awarded $30,000 in loss-of-credit-reputation damages and $100,000 in gross-negligence exemplary damages.
Jaiyeoba did not submit any other measure of actual damages to the jury. The jury was only asked about past damage to Jaiyeoba's credit reputation.
Country Title appeals the judgment, raising three issues. First, Country Title argues that the evidence was insufficient to support the $30,000 loss-of-credit-reputation damages. Second, Country Title contends that the trial court erred by awarding exemplary damages because Jaiyeoba waived her underlying negligence claim or, alternatively, because the economic-loss rule bars recovery of negligence and gross-negligence damages on contractual claims. Third, Country Title contends that the trial court erred by allowing Jaiyeoba to introduce evidence of settlement discussions. Jaiyeoba raises a cross-issue, arguing that the trial court erred by excluding various other documents she offered to prove that Country Title had demanded indemnity and, thereby, breached its fiduciary duties.
Because we sustain Country Title's issue concerning the loss-of-credit-reputation damages, we vacate the award of $30,000 in actual damages and $100,000 in exemplary damages. We affirm the judgment as modified.
Background
Morenike Jaiyeoba, a California resident, sought to purchase a rental home in Sugar Land as an investment property. The sellers of the property, the Allis, had fallen behind in their payments to their mortgage company, World Savings Bank (WSB), but the home was not yet in foreclosure. The home already had a tenant who planned to remain in the home and pay rent to Jaiyeoba.
A. Country Title as escrow agent
Country Title was the escrow agent for the sale. Under the terms of the written escrow agreement, Country Title had contractual duties to (1) forward the escrowed funds Jaiyeoba borrowed from her lender, EMC, to the Allis' lender to retire the Allis' loan and release the lien and (2) record the deed listing Jaiyeoba as the new owner. Both actions were to occur after the closing, but Country Title did neither. Because of Country Title's mistakes, WSB was unaware that the Allis purported to sell the property to Jaiyeoba. WSB continued to have a lien on the property as well as the ability to foreclose for non-payment.
Country Title's mistakes continued. According to its chief operating officer, Tome Berry, Country Title was required to perform monthly audits of its escrow accounts, which should have revealed that the funds Jaiyeoba borrowed from EMC were still in the account. Nonetheless, the funds remained undetected for four months. In the meantime, Jaiyeoba began making mortgage payments to EMC, unaware that Country Title had not released her escrowed loan proceeds or recorded her deed and that she had no ownership interest in the property.
B. WSB forecloses on property
Five months after the closing date, WSB foreclosed on the property for non-payment by the Allis. Because Country Title never recorded Jaiyeoba's deed, she received no notice of the foreclosure. WSB immediately evicted Jaiyeoba's tenant. The tenant called Jaiyeoba that same day and told her about the eviction. Then—and only then—did Jaiyeoba begin to discover Country Title's multiple mistakes.
Jaiyeoba called the Country Title escrow agent. Jaiyeoba complained of the loss of rent from her now-evicted tenant, rent she stated she needed to pay her mortgage. She also complained that WSB's foreclosure deprived her of any ownership interest in the property. The escrow agent responded that she did not know what to do and told Jaiyeoba "please don't say a word about this."
C. Jaiyeoba is sued and demands that Country Title act
Without informing Jaiyeoba of its plan, Country Title attempted to "fix" the situation by recording Jaiyeoba's deed to the already foreclosed property. But its actions only complicated matters for Jaiyeoba. Because WSB was the record owner of the property and its title was prior in time to Jaiyeoba's, WSB sued Jaiyeoba to clear the title to the property.
Jaiyeoba demanded that Country Title correct its errors by purchasing the property from WSB and making her mortgage payments on her loan until the title issue could be resolved. Although Country Title still had Jaiyeoba's loan proceeds in its escrow account, it did neither. Nor did it return the money to the lender, EMC.
Jaiyeoba timely paid her $1,300 monthly mortgage payment the first month after her tenant was evicted, but she did not make the next four payments. The following month, Country Title returned Jaiyeoba's loan proceeds to EMC, extinguishing Jaiyeoba's debt. According to Jaiyeoba, the negative credit history that resulted from the four missed mortgage payments caused her to not qualify for a subsequent, slightly smaller loan that she applied for shortly after the failed purchase of the Allis' house.
D. Jaiyeoba's suit against Country Title
Jaiyeoba sued Country Title for breach of contract and asserted various tort theories, including negligence and breach of fiduciary duty. She sought punitive damages.
1. Stipulated damages for breach of contract
Before trial began, Country Title stipulated that it breached its contractual duties to pay off the Allis' mortgage and record Jaiyeoba's deed. It agreed that it owed contractual damages of $1,300 to reimburse Jaiyeoba her escrow fees (which it had never returned) and $1,500 to reimburse lost rental profits ($300 profit for each of the five months that Jaiyeoba owed mortgage payments after her tenant was evicted). Jaiyeoba's other damage claims were unresolved.
2. Directed verdict on breach of fiduciary duty
At trial, Tom Berry acknowledged that Country Title had a duty to pay off the Allis' existing mortgage, verify that the wire transfer to WSB was successfully completed and the funds were received, reconcile its escrow accounts on a monthly basis to determine if any escrow errors had occurred, and tell Jaiyeoba when it failed to record the paperwork to release the WSB lien and kept her loan funds in its escrow account for five months without authorization. Country Title admittedly failed each of these duties. Berry admitted that Country Title's failure to notify Jaiyeoba that WSB was not paid "certainly indicates incompetence."
Berry also admitted that filing Jaiyeoba's deed while WSB still held title to the property created a cloud on the title. He acknowledged that Country Title had a duty to not knowingly cloud the title to property that was the subject of a transaction for which it acted as escrow agent. He agreed that Country Title "knew or reasonably should have known that World Savings Bank would file suit to remove that cloud on title." And he stated that filing the deed in this circumstance "was at least negligence."
Berry was asked about Country Title's efforts to fix its errors after it filed the deed. He confirmed that, in connection with attempting to purchase the property from WSB post-foreclosure, Country Title requested that Jaiyeoba release and indemnify Country Title for any claims against it. She refused. Berry testified that he did not "believe" that Country Title was conditioning the purchase of the home on Jaiyeoba signing an indemnification agreement. He stated that Country Title did make one offer to WSB, without Jaiyeoba's indemnity, but WSB refused its offer because the home was valued higher than the amount Country Title offered. No other offers were made.
At that time, the Allis, as the sellers, also had a potential breach-of-contract claim against Country Title because the Allis' credit may have been damaged by the foreclosure of the home that was still in their name.
The trial court granted Jaiyeoba's motion for a directed verdict on her breach-of-fiduciary-duty claim. Damages were left for the jury's consideration.
3. Jaiyeoba's testimony regarding credit-reputation damages
Jaiyeoba testified that she was denied a home loan after the failed home purchase. She attributed the denial to the credit damage caused by Country Title's actions. Supporting that theory, she testified that she had successfully obtained three home loans before this one; had never been rejected for credit, delinquent on any note, or turned down for credit; and previously had "very good" credit, with credit scores ranging from the very high 600s to the low 700s.
However, Jaiyeoba did not present any evidence of her new credit score. Nor did she present evidence from the second lender explaining its denial of her loan application. She likewise failed to offer evidence that would discount the possibility that there may have been other causes for the denial. For example, she testified that, after the failed transaction, she and her husband divorced and she moved several times. Yet, she did not offer any evidence of when the divorce occurred in relation to the denied loan application or the state of her finances at the time of the denial. She could not recall the date she applied for the loan or when it was denied. She also did not present any evidence regarding any specific losses she attributed to the loan denial, such as evidence that the loan was to purchase a replacement rental property that would have earned rental income. Instead, she argued that her loss-of-reputation damages equaled the full amount of the loan she was denied: $197,000.
4. The jury's findings and an additional directed verdict
Because Country Title had stipulated that it breached the contract and the trial court had granted a directed verdict on breach of fiduciary duty, those liability questions were omitted from the court's charge. Instead, it asked only three questions. The first question asked the jury to consider a single measure of damages: past damage to credit reputation. The jury awarded $30,000. The second question asked whether Country Title acted with malice. The jury answered no. The third question asked whether Country Title was grossly negligent. The jury answered yes.
Because the court bifurcated the punitive damages phase of the trial, the court and parties conferred about the significance of the jury findings. Country Title objected—as it had during the charge conference—to a question on gross negligence without a predicate finding of negligence. At that point—after the jury had found gross negligence but before it was asked to determine the amount of exemplary damages to assess against Country Title—the trial court stated, for the first time, that it had found negligence as a matter of law.
Jaiyeoba had included a negligence claim in her live pleading but did not submit it to the jury. --------
The jury found that Country Title should be assessed exemplary damages of $100,000 for its gross negligence. The trial court denied Country Title's motion for new trial and entered a final judgment in Jaiyeoba's favor for the stipulated damages and the damages found by the jury. Jaiyeoba did not seek attorney's fees for her contract claim. Country Title timely appealed.
Credit-Reputation Damages
Country Title raises a legal sufficiency argument, contending that the $30,000 damages award "is not supported by any evidence of actual loss" and is "insufficient as a matter of law to support an award of damages for injury to credit reputation."
A. Standard of review
When reviewing the legal sufficiency of the evidence, we consider the evidence in the light most favorable to the challenged finding and indulge every reasonable inference that would support it. City of Keller v. Wilson, 168 S.W.3d 802, 824 (Tex. 2005). We credit favorable evidence if reasonable jurors could and disregard contrary evidence unless reasonable jurors could not. See id. at 827. We determine whether the evidence at trial would enable reasonable and fair-minded people to find the facts at issue. See id. Jurors are the sole judges of witness credibility and the weight to give to testimony. See id. at 819.
We sustain a no-evidence contention only if: (1) the record reveals a complete absence of evidence of a vital fact; (2) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a mere scintilla; or (4) the evidence conclusively establishes the opposite of the vital fact. Id. at 810; Volkswagen of Am., Inc. v. Ramirez, 159 S.W.3d 897, 903 (Tex. 2004).
B. Evidence of injury
Country Title relies on St. Paul Surplus Lines Insurance Co. v. Dal-Worth Tank Co., 974 S.W.2d 51 (Tex. 1998), to argue that evidence of a denied loan is no evidence of loss of credit reputation. In Dal-Worth, the Texas Supreme Court stated that "a plaintiff does not suffer actual damage merely from the inability to obtain a loan. There must be a showing that such inability resulted in injury and proof of the amount of that injury." Id. at 53. Country Title argues that the denial of Jaiyeoba's $197,000 loan after this failed transaction is nothing more than an "inability to obtain a loan." But Country Title's argument is inconsistent with the holding in Dal-Worth.
The plaintiff in Dal-Worth proffered evidence that its credit score was reduced and its credit limit lowered but admitted that it never intended to access its line of credit. See id. In that context, it did not have a loan "actually denied," it only had an unrealized "inability to obtain a loan" in excess of its new, lower credit limit. Id.
The Dal-Worth court held that suffering a lower credit score but never being denied a loan as a result fails to establish actual damages. Id. Harm to one's credit rating establishes nominal damages only. Id. By contrast, when a plaintiff actually attempts to obtain a loan and is denied, actual damages result. Id. Proof that "a loan is actually denied" or "a higher interest rate [is actually] charged" meets the requirement for demonstrating an actual injury. Id.; see Tex. Mut. Ins. v. Ruttiger, 265 S.W.3d 651, 672 (Tex. App.—Houston [1st Dist.] 2008), rev'd on other grounds, 381 S.W.3d 430 (Tex. 2012) (holding that, to recover damages for loss of credit reputation, plaintiff must show that loan was actually denied or higher interest rate was charged); Pourmemar v. Chase Home Fin., L.L.C., No. 01-10-00474-CV, 2011 WL 5026189, *3 (Tex. App.—Houston [1st Dist.] Oct. 20, 2011, no pet.) (mem. op.) (citing Dal-Worth and Ruttiger and concluding that plaintiff failed to establish loss-of-credit-reputation damages on evidence that his "credit score went down" because no evidence loan was actually denied or higher interest rate was charged).
Jaiyeoba testified that she had never been denied a loan before this failed transaction, had never been delinquent before these events, and had a "very good" credit score until this occurred. She further testified that she was denied the $197,000 loan after going into default on the $198,000 EMC loan and that the denial occurred shortly after default but within that same year. We conclude that Jaiyeoba's testimony that she applied for but was denied the loan presented more than a scintilla of evidence from which the factfinder could conclude that Jaiyeoba suffered an injury to her credit reputation caused by Country Title's breach.
C. Evidence of amount of injury
While we agree that the denied loan meets the initial threshold requirement of an injury, Dal-Worth requires more than an injury; it also requires "proof of the amount of that injury." 974 S.W.2d at 53 ("There must be a showing that such inability resulted in injury and proof of the amount of that injury."). Jaiyeoba had the burden to demonstrate identifiable, measurable damages arising from her injury. Id.
Jaiyeoba requested as loss-of-credit-reputation damages the full amount of the denied loan: $197,000. But the amount of the denied loan is not the proper measure of damages: a loan must be repaid. Cf. Discover Bank v. Morgan, 363 S.W.3d 479, 498-99 (Tenn. 2012) (concluding that plaintiff failed to lay sufficient foundation to allow factfinder to assess damages based on denied credit card applications because she could not recover purchase price of things she would have bought on credit and did not establish how denial of credit harmed her). Jaiyeoba did not lose the ability to have a $197,000 property unburdened by a mortgage. Instead, her damages would have been whatever losses she suffered by not being approved for the $197,000 loan and owning the property subject to a mortgage. She offered no evidence of those damages. She did not testify regarding whether the property was intended to be an investment property or a residence or how the loss of the property impacted her financially.
Without that minimum amount of information, we cannot evaluate how the jury determined the past loss-of-credit-reputation damages of $30,000 that it awarded. See Tex. Mut. Ins. v. Morris, 287 S.W.3d 401, 429 (Tex. App.—Houston [14th Dist.] 2009) (concluding that evidence was legally insufficient to support damages for loss of credit reputation because plaintiff pointed to no "identifiable, measurable damages" and no witness "put a dollar amount on the injury" he claimed to have sustained because of denied loans), rev'd on other grounds, 383 S.W.3d 146 (Tex. 2012). We therefore conclude that there was no evidence to support this $30,000 damage award.
We sustain Country Title's third issue. Because Jaiyeoba offered legally insufficient evidence to support her loss-of-credit-reputation damages, the actual damages awarded in the judgment are reduced by the $30,000 the jury awarded for that measure of damages. Her remaining actual damages are those stipulated for breach of contract: $2,800.
Gross-Negligence Damages
Country Title also contends that the trial court erred by awarding gross-negligence damages because Jaiyeoba waived her underlying negligence claim and the economic-loss rule prohibited the award.
Because the evidence was legally insufficient to support the loss-of-credit-reputation damages, Jaiyeoba's only remaining damages are her stipulated $2,800 breach-of-contract damages. Gross-negligence damages are not recoverable for breach-of-contract claims. Safeshred, Inc. v. Martinez, 365 S.W.3d 655, 659 (Tex. 2012) ("While exemplary or punitive damages may generally be awarded for torts involving malicious or grossly negligent conduct, they are not available for breach of contract claims."); see Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986) (holding that contract breach cannot support exemplary damages award even if conduct involves gross negligence). Therefore, we reverse the award of exemplary damages.
We sustain Country Title's first issue.
Evidentiary Rulings related to Fiduciary Claim
Country Title further contends that the trial court erred by admitting evidence of settlement discussions, citing Texas Rule of Evidence 408, which prohibits admission of evidence of attempts to compromise a claim to prove liability for the claim or its amount. TEX. R. EVID. 408. Through a cross-appeal, Jaiyeoba also challenges some of the trial court's evidentiary rulings excluding various documents from evidence that would have supported her contention that Country Title sought indemnity before releasing her escrowed funds. This evidence was relevant to the breach-of-fiduciary-duty claim.
The elements of a breach-of-fiduciary-duty claim are (1) a fiduciary relationship between the parties, (2) a breach by the defendant of his fiduciary duty to the plaintiff, and (3) injury to the plaintiff or benefit to the defendant resulting from the breach. Plotkin v. Joekel, 304 S.W.3d 455, 479 (Tex. App.—Houston [1st Dist.] 2009, pet. denied). The only measure of damages sought by Jaiyeoba related to her breach-of-fiduciary-duty claim was her past loss-of-credit-reputation damages. She did not seek fiduciary-duty damages based on any other losses she suffered or any benefits received by Country Title.
We have concluded that Jaiyeoba's credit-reputation damages are not supported by legally sufficient evidence and the award must be reversed. In this context, without legally sufficient evidence to establish damages, the issue of whether the trial court erred by admitting or excluding evidence relevant only to the breach element of the claim, i.e., whether Country Title demanded indemnity, is moot. See TEX. R. APP. P. 47.1 (requiring appellate court to address only issues necessary to disposition of appeal); cf. Columbia Med. Ctr. of Denton Subsidiary v. DFW Super Grp. II, No. 02-12-00507-CV, 2013 WL 5658185, at *3 (Tex. App.—Fort Worth Oct. 17, 2013, pet. denied) (mem. op.) (citing Rule 47.1 and declining to address various appellate issues given court's determination that "legally insufficient evidence exists concerning the only element of damages submitted to the jury").
Conclusion
The awards of $30,000 in loss-of-credit-reputation damages and $100,000 in exemplary damages are reversed. The remainder of the judgment is affirmed, as modified.
Harvey Brown
Justice Panel consists of Chief Justice Radack and Justices Massengale and Brown.