Case: 18-10508   Document: 00514900831     Page: 1   Date Filed: 04/03/2019




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT     United States Court of Appeals
                                                                         Fifth Circuit

                                                                        FILED
                                 No. 18-10508                         April 3, 2019
                                                                     Lyle W. Cayce
                                                                          Clerk
MICHAEL GERMAIN,

             Plaintiff - Appellant

v.

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.
WIENER, Circuit Judge
                      I. FACTS AND PROCEDURAL HISTORY
      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.
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                                    No. 18-10508
      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
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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.
                                       II. DISCUSSION
              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


         1   Germain v. U.S. Bank Nat’l Ass’n, 

, at *1 (N.D. Tex. March 28,
2018).
        

         2

        McCoy v. City of Shreveport, 

, 556 (5th Cir. 2007) (citing Willis v. Coca
         3

Cola Enters., Inc., 

, 416 (5th Cir. 2006)).
      4 Fed. R. Civ. P. 56(a).
      5 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 

, 585–87 (1986).
      6 FDIC v. Dawson, 

, 1306 (5th Cir. 1993).
      7 Little v. Liquid Air Corp., 

, 1075 (5th Cir. 1994) (en banc).
      8 12 C.F.R. § 1024.41.

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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.



       9  12 C.F.R. § 1024.41(c)(1).
       10  12 C.F.R. § 1024.41(d).
        11 12 C.F.R. § 1024.41(i). The updated version, effective October 19, 2017, reads: “A

servicer must comply with the requirements of this section for a borrower’s loss mitigation
application, unless the servicer has previously complied with the requirements of this section
for a complete loss mitigation application submitted by the borrower and the borrower has
been delinquent at all times since submitting the prior complete application.”
        12 Germain, 

, at *6.

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                                        No. 18-10508
       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



       13  Fed. R. Civ. P. 8(c).
       14  Wright & Miller, Affirmative Defenses—Defenses Not Mentioned in Rule 8(c), 5
Fed. Prac. & Proc. Civ. § 1271 (3d ed.). “The rule refers to the nature of a defendant’s pleading:
A matter is an ‘avoidance or affirmative defense’ only if it assumes the plaintiff proves
everything he alleges and asserts, even so, the defendant wins. Conversely, if, in order to
succeed in the litigation, the defendant depends upon the plaintiff failing to prove all or part
of his claim, the matter is not an avoidance or an affirmative defense. A defendant does not
plead affirmatively when he merely denies what the plaintiff has alleged.” Hertz Commercial
Leasing Div. v. Morrison, 

, 835 (Miss. 1990).
        15 NewCSI, Inc. v. Staffing 360 Solutions, Inc., 

, 259 (5th Cir. 2017)

(quoting Lee v. United States, 

, 523–24 (5th Cir. 2014) (holding that the defense
was not waived when it was argued in multiple motions and the pretrial order)); see also
Simon v. United States, 

, 1159 (5th Cir. 1990) (holding that the defense was
waived when it contained more than a pure issue of law and would have changed plaintiff’s
trial strategy).
        16 Amarchand v. CitiMortgage, Inc., 

, at *2 (M.D. Fla. Mar. 9, 2016).

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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




       17 Wright & Miller, supra § 1271.
       18 Because § 1024.41(i) is merely an expansion of the Defendants’ denial, Germain was
not prejudiced by the Defendants’ failure to mention the specific provision until the summary
judgment stage.
       19 Germain, 

, at *6.
       20 The word retroactive does not appear in the district court’s opinion.

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       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 regulation has retroactive effect, “we then
apply the presumption against retroactivity by construing the [regulation] as
inapplicable to the event or act in question.” 25
       This court has not addressed the retroactivity of this provision, but some
of our district courts have held that the regulation’s requirements should not
be applied to loss mitigation applications submitted prior to the effective
date. 26 Applying basic retroactivity analysis, the Sixth Circuit, in Campbell v.
Nationstar Mortgage, held that the “January 10, 2014 effective date reflects an
intent not to apply it to conduct occurring prior to that date.” 27 In analyzing
whether § 1024.41’s prohibition on foreclosures when a borrower has submitted



       21   12 C.F.R. § 1024.41. An updated version of the regulation went into effect on October
19, 2017.
       22 Perez Pimentel v. Mukasey, 

, 326 (5th Cir. 2008).
       23 I.N.S. v. St. Cyr, 

, 321 (2001) (quoting Martin v. Hadix, 

,
357–58 (1999)); see also Lopez Ventura v. Sessions, 

, 314 (5th Cir. 2018).
       24 Perez 

(emphasis added) (quoting St. 

).
       25 Fernandez-Vargas v. Gonzalez, 

, 37–38 (2006) (quoting St. 

).
       26 See, e.g., Searcy v. Citimortgage, Inc., 

, at *4 (N.D. Tex. Sept. 16,

2015) (citing Campbell v. Nationstar Mortg., 611 F. App’x 288, 297 (6th Cir. 2015)).
       27 Campbell, 611 F. App’x at 297.

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a loss mitigation application should apply retroactively to a foreclosure that
was instituted six months prior to the regulation’s effective date, the Sixth
Circuit held that the regulation could not apply retroactively because doing so
“would impermissibly impose upon [the defendant] the duty not to foreclose on
Campbell’s house after she had submitted a loss mitigation package when the
foreclosure at issue in this case had been completed well before this duty ever
existed.” 28 The Sixth Circuit further reasoned that (1) in choosing the effective
date, the Consumer Financial Protection Bureau (“CFPB”) had balanced the
competing concerns of consumers and servicers, and (2) it was “unlikely that
the CFPB intended to retroactively apply the rule after establishing a later
effective date in large part based on industry concerns that compliance prior
to that date was not possible.” 29
      Here, the district court relied on its reasoning in Allen v. Wells Fargo
Bank, N.A. 30 In Allen, the court reasoned that a servicer’s conduct prior to the
effective date should count for application of § 1024.41(i) because “[t]o interpret
§ 1024.41 otherwise would in effect be to read . . . the limitation on ‘Duplicative
requests’ . . . out of the regulation for an entire category of borrowers, without
any clear intent from the Bureau of Consumer Financial Protection to do so.” 31
      Campbell and Allen are not inconsistent. On the one hand, we agree with
the Sixth Circuit that § 1024.41 is not retroactive. If it were, the regulation
would impose a duty on servicers before the duty existed and before servicers
were aware of its requirements. 32 Section 1024.41 does not require a servicer
to have complied with its requirements in response to a loss mitigation
application prior to the effective date. Campbell did not consider the situation


      28 

      29 

      30 

(N.D. Tex. Aug. 9, 2017).
      31 

      32 See Campbell, 611 F. App’x at 298.

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here, in which the servicer did comply with the regulation’s requirements but
did so before the regulation took effect. On the other hand, if the servicer
complied with the requirements of the provision prior to the effective date, that
compliance must be credited to the servicer because it need only comply with
such a requirement once. 33
       The apparent purpose of the regulation is not to make already compliant
servicers repeat their compliance actions, but rather to bring noncompliant
servicers into compliance. Section 1024.41 is a forward-looking provision, but
it accounts for a servicer’s past actions by requiring only one compliance per
requirement. “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.” 34
       In response to Germain’s February 2014 loss mitigation application, the
Defendants provided “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.” 35 This writing notified Germain that
(1) his “loan [was] evaluated for all loss mitigation options available,” (2) the
Defendants were not able to offer loan modification because the owner of his
loan did not allow modification, and (3) the Defendants were able to offer a




       33  See 12 C.F.R. § 1024.41(i).
       34  12 C.F.R. § 1024.41(i). The updated version, effective October 19, 2017, reads: “A
servicer must comply with the requirements of this section for a borrower’s loss mitigation
application, unless the servicer has previously complied with the requirements of this section
for a complete loss mitigation application submitted by the borrower and the borrower has
been delinquent at all times since submitting the prior complete application.” See also
Wentzell v. JPMorgan Chase Bank, 627 F. App’x 314, n.4 (5th Cir. 2015) (per curiam)
(remarking that while the plaintiffs had not alleged a violation of § 1024.41 they would not
have been able to state a claim under the regulation because the regulation “appl[ies] only to
a borrower’s first loss mitigation application” and their “claims relate[d] to later alleged loan
modifications”).
        35 12 C.F.R. § 1024.41(c)(1)(ii).

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                                      No. 18-10508
short sale as a loss mitigation option. 36 This notice satisfied the Defendants
obligations under 12 C.F.R. § 1024.41(c)(1).
       Although the February 2014 response does not repeat the name of the
owner of the mortgage note, that requirement is inapplicable in this limited
circumstance because (1) the servicer had previously provided the mortgagor
the name of the note owner and (2) that ownership had not changed. 37 It would
be absurd, and contrary to the provision regarding duplicative requests, to
require repeated compliance with this requirement. 38 The regulation builds in
sufficient protections for borrowers; repeated compliance is not necessary for
their protection in this case.
       The district court correctly ruled that Germain failed to raise a genuine
issue of material fact regarding the Defendants’ compliance with 12 C.F.R. §
1024.41 and properly dismissed his RESPA claims.
            C. Germain’s TDCA Claims
       Germain alleged that the Defendants violated the TDCA by (1)
“threatening to sell [his] Property at a foreclosure sale without complying with
RESPA,” and (2) “urging [him] to submit detailed loss mitigation applications,
although Defendants knew that [his] application would be treated as a loan
modification application which would be summarily denied without
consideration.” 39 The district court dismissed these claims, holding that (1) the
Defendants complied with RESPA and (2) Germain “fail[ed] to bring . . .



       36  This letter also notified Germain again that the owner of his loan did not allow
modification and provided other loss mitigation options.
        37 A previous notice had notified Germain that (1) the Defendants were not able to

offer loan modification because the owner of his loan did not allow modification, (2) Morgan
Stanley Mtg Trust MSM was the owner of his loan, and (3) the Defendants were able to offer
either a sale or deed-in-lieu as loss mitigation options.
        38 Of course, for subsequent applications, compliance with a requirement might be

completed if the relevant information has changed.
        39 Germain, 

, at *6.

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evidence showing that [the Defendants] intended to mechanically deny [his]
applications.” 40 Germain’s claim that the Defendants violated Tex. Fin. Code §
392.301(a)(8) is based on his allegations that they violated RESPA. Because
the district court did not err in dismissing Germain’s RESPA claims, neither
did it err in dismissing this TDCA claim.
      Germain’s second TDCA claim is based on Tex. Fin. Code §
392.304(a)(14), (19) which states:
            “a debt collector may not use a fraudulent, deceptive, or
      misleading representation that employs the following practices:
            ....
            (14) representing falsely the status or nature of the services
      rendered by the debt collector or the debt collector’s business;
            ....
            [or] (19) using any other false representation or deceptive
      means to collect a debt or obtain information concerning a
      consumer.”

      Germain argues that the Defendants violated these provisions “by
holding out the possibility of a [loan] modification” repeatedly, thereby
inducing him to submit loss mitigation applications and disclose his financial
information. Not so: The Defendants did not promise loan modification by
asking Germain for loss mitigation applications. Neither has Germain
demonstrated that the Defendants asked for these applications knowing that
they would be denied. To the contrary, Germain was offered several loss
mitigation options following his submission of those applications. Germain
thus has not raised a fact issue regarding the alleged false representations,
and the district court did not err in dismissing Germain’s second TDCA claim.




      40   

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         D. Germain’s Remaining Claims
      We also affirm the district court’s dismissal of Germain’s remaining
claims and requests for relief. They are based on the underlying RESPA or
TDCA claims and are therefore moot.
         E. Ad Hominem
      The history of this case demonstrates beyond cavil that Germain has
spent the last 10 years gaming the system through a series of applications for
loan modification, a flawed bankruptcy filing, and the institution of this
lawsuit. Doing so has enabled him to achieve his one overarching goal: The
prolonged occupancy of his residence with little or no payment on his mortgage
debt. With the help of cunning counsel, Germain used the intended shield of
RESPA, TDCA, and various state and federal laws as a sword to avoid (or at
least minimize) his mortgage payments while continuing the decade-long
occupancy of his encumbered house. Today’s termination of Germain’s abuse
of the system is long overdue. We caution Germain, and his present and future
counsel, if any, that further machinations to prolong this litigation or delay
foreclosure proceedings could and likely will be met with sanctions.
         F. Conclusion
      The dismissal with prejudice of Germain’s lawsuit is affirmed for the
forgoing reasons.
AFFIRMED




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