The opinion
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
JEANETTE BENNETT, et al., ]
]
Plaintiffs, ]
]
v. ] CIVIL ACTION NO.
] 2:18-CV-00852-KOB
CIT BANK, N.A., et al., ]
]
Defendants. ]
MEMORANDUM OPINION
This case arrived in this court after what can only be described as, to borrow
the title of a renowned children’s book series, “a series of unfortunate events.”
See, e.g., Lemony Snicket (aka Daniel Handler), The Bad Beginning (A Series of
Unfortunate Events, 1st in the series) (Harper Collins) (1999). In A Series of
Unfortunate Events, the remarkable Baudelaire children, orphaned by a fire at their
parents’ mansion, must engage in a constant battle of wits against their guardian,
the dastardly Count Olaf, to retain their rightful inheritance. Not unlike the
Baudelaire children, the adult Plaintiffs in this case found themselves confronted
with the exigencies of the loss of a parent, the loss of a property, a fire, and issues
of inheritance.
But, the Plaintiffs’ situation in this case lacks any of the whimsy and humor
of the children’s books. Instead of detailing feats of cleverness to outwit a
villainous guardian, this case tells the tale of plaintiffs engaged in lengthy litigation
with financial institutions over an insurance payout. Additionally, it appears that
the unfortunate events besetting the Plaintiffs must continue because the Plaintiffs
cannot show entitlement to summary judgment, and, in fact, the Defendants can
show entitlement to summary judgment on all but one of the Plaintiffs’ claims.
The series of unfortunate events that led the Plaintiffs Jeanette Bennett and
Maggie Bell to court began when their mother, Catherine Getaw, took out a reverse
mortgage on her home. Ms. Getaw then passed away after devising her home to
the Plaintiffs. One of the Defendants in this case, CIT Bank, NA., notified the
Plaintiffs that it was going to foreclose on the house pursuant to the reverse
mortgage. But prior to the foreclosure sale, a fire damaged the property.
Before any insurance proceeds from the fire could be paid, the property sold
at foreclosure to another Defendant, the Federal National Mortgage Association
(“Fannie Mae”). Both the Plaintiffs and Fannie Mae—in concert with CIT—made
insurance claims for the fire damage. Eventually, Fannie Mae obtained an
insurance payout for the fire damage after CIT cashed a check made out to both
CIT (under the name “Financial Freedom”) and the estate of Ms. Getaw. CIT
remitted the funds to Fannie Mae after cashing the check; however, Fannie Mae
later sent around $11,000 of the payout back to CIT to refund to the Plaintiffs. CIT
refunded that portion of the insurance proceeds to Ms. Getaw’s estate, but Fannie
Mae still holds the majority of the insurance proceeds.
The Plaintiffs brought the instant lawsuit and filed an amended complaint
alleging that Fannie Mae, CIT, N.A., and CIT Group, Inc.,1 converted the
insurance proceeds and seeking a declaratory judgment of their entitlement to the
insurance proceeds. At this juncture, the case comes before the court on cross-
motions for summary judgment. The Plaintiffs seek summary judgment solely on
the issue of liability on their conversion claims, arguing that they are the only ones
entitled to the insurance proceeds at issue because Fannie Mae, with CIT’s help,
wrongfully converted them. (Doc. 96, doc. 97). Fannie Mae and CIT separately
move for summary judgment on all the Plaintiffs’ claims, arguing that the Plaintiffs
cannot establish conversion, punitive or emotional distress damages, or entitlement
to the insurance proceeds at issue in this case. (Doc. 119, doc. 125).
After considering the submissions of the parties and the evidence of the
record, the court will DENY the Plaintiffs’ motion for summary judgment because
they cannot meet the requirements to make a claim for conversion against any of
the Defendants; this court has already dismissed the conversion claims against
CIT, (doc. 103), and the Plaintiffs cannot show identifiable, convertible funds to
make a claim against Fannie Mae.
The court will GRANT IN PART and DENY IN PART Fannie Mae’s
1 Because the Plaintiffs allege the same facts against CIT, N.A. and CIT Group, Inc., the court will refer to them
collectively as “CIT.”
motion for summary judgment, because Fannie Mae is entitled to summary
judgment on the Plaintiffs’ conversion claim, but genuine issues of material fact
regarding who had an insurable interest in the property at issue preclude summary
judgment on the Plaintiffs’ claim for declaratory judgment. So, the court could
still potentially declare the Plaintiffs the rightful owners of the insurance proceeds.
Finally, the court will GRANT CIT’s motion for summary judgment because no
justiciable controversy exists between the Plaintiffs and CIT at this time, as CIT
claims no interest in the insurance claims at issue.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
The Plaintiffs are heirs of their mother Catherine Getaw and the personal
representatives of her estate. In November 2005, Ms. Getaw executed a
promissory note that was secured by a reverse mortgage that encumbered her home
in Birmingham, Alabama. A homeowner’s property insurance policy issued by
Foremost Insurance Company covered the house. The insurance policy named Ms.
Getaw as the insured and Financial Freedom, a division of OneWest, as mortgagee.
Before the foreclosure and insurance issues in this case arose, Financial Freedom
became part of CIT.
Ms. Getaw died in April 2015. Her will devised her home to the Plaintiffs
without limitations; so, under Ala. Code § 43-2-830(c), the Plaintiffs took the
home subject to the reverse mortgage.
CIT then sent a letter to the Plaintiffs that included the following option for
paying off the reverse mortgage loan:
[T]he mortgage will be released and no deficiency judgment will be
taken if the property has no junior liens and is sold for at least 95
percent of the appraised value with the net proceeds paid to the
investor, even if the debt is greater than the appraised value.
(Doc. 3 at ¶ 17) (emphasis in original).
In October 2015, CIT initiated foreclosure proceedings on the home. Then,
on October 28, 2015, a fire burned the home. Plaintiffs promptly notified CIT of
the fire and filed an insurance claim for fire damage with Foremost. (Doc. 3 at ¶¶
19–21).
On November 2, 2015, CIT sold the property to Fannie Mae at a foreclosure
sale. After the sale, Fannie Mae, through its attorney, contacted CIT regarding
insurance information for the home. Then, on February 11, 2016, Fannie Mae filed
an insurance claim with Foremost for the fire damage to the home.
Foremost responded by requesting evidence from Fannie Mae related to any
lien holder’s interest in the home, the insurance claim, and any resulting proceeds.
Fannie Mae then requested the same information from CIT, as well as information
regarding the foreclosure deed, mortgage, and assignments. (Doc. 3 at ¶¶ 29–32).
On February 22, 2016, Foremost sent a $62,262.13 two-party check to
Fannie Mae’s attorney made payable to
“Financial Freedom, a Division of Onew [sic]
Estate of Catherine Getaw”
(Doc. 3 at ¶¶ 17, 33).
Fannie Mae’s attorney forwarded the check to CIT, who cashed the check and later
remitted the funds to Fannie Mae. The Plaintiffs demanded that CIT and Fannie
Mae give all the proceeds to Plaintiffs. Fannie Mae and CIT released around
$11,000 of the insurance proceeds to the Plaintiffs, but kept the rest, purportedly to
offset remaining debt. This lawsuit followed.
Originally, the Plaintiffs brought claims against the Defendants for
declaratory judgment, conversion, fraud and wantonness—all regarding the
insurance proceeds. (Doc. 3). Fannie Mae and CIT both filed motions to dismiss,
and the court dismissed the Plaintiffs’ claims for fraud and wantonness as
inadequately pled. (Doc. 35, doc. 36).
Plaintiffs then filed an amended complaint against the Defendants with
causes of action for declaratory judgment, conversion, and for breach of contract
by Foremost. The court later dismissed the complaint against Foremost because
the Plaintiffs complaint did not adequately state a claim for breach of contract.
(See Doc. 102).
The remaining claims in the operative amended complaint center around the
allegation that CIT endorsed and deposited the insurance proceeds check into its
account without Plaintiffs’ signatures as personal representatives of their mother’s
estate, then transferred some or all of those funds to Fannie Mae. (Doc. 63 at ¶¶
103, 108). The Plaintiffs allege conversion of the insurance proceeds against both
CIT and Fannie Mae, including punitive and emotional distress damages, and seek
declaratory judgment regarding their entitlement to the proceeds.
CIT filed a partial motion to dismiss, arguing that the Plaintiffs had not
adequately stated a claim for conversion and had not stated any specific allegations
against CIT Group, as opposed to its wholly owned subsidiary CIT Bank, N.A.
(Doc. 73). The court granted CIT’s motion to dismiss the Plaintiffs’ conversion
claim against it because the Plaintiffs had not alleged that it wrongfully deposited
the check, as the check bore one of CIT’s names. (Doc. 103). But the court denied
the motion to dismiss the claims against CIT Group, as the Plaintiffs’ allegations
included both CIT Bank and its parent company, CIT Group. (Id.). The Plaintiffs
subsequently filed a motion for reconsideration, which this court denied. (Doc.
112; doc. 137; doc. 138).
While CIT’s motion for partial dismissal was pending before this court, the
Plaintiffs filed a motion for summary judgment on their conversion claims against
CIT and Fannie May. After the court issued its order of partial dismissal
dismissing the conversion claim against CIT, the Defendants each filed cross-
motions for summary judgment on all of the Plaintiffs’ remaining claims.
II. STANDARD OF REVIEW
Summary judgment allows a trial court to decide cases that present no
genuine issues of material fact such that the moving party is entitled to judgment as
a matter of law. Fed. R. Civ. P. 56. When a district court reviews a motion for
summary judgment, it must determine two things: whether any genuine issues of
material fact exist, and, if not, whether the moving party is entitled to judgment as
a matter of law. Id.
The moving party “always bears the initial responsibility of informing the
district court of the basis for its motion, and identifying those portions of ‘the
pleadings, depositions, answers to interrogatories, and admissions on file, together
with the affidavits, if any,’ which it believes demonstrate the absence of a genuine
issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)
(quoting Fed. R. Civ. P. 56).
Once the moving party meets its burden of showing the district court that no
genuine issues of material fact exist, the burden then shifts to the non-moving party
“to demonstrate that there is indeed a material issue of fact that precludes summary
judgment.” Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir. 1991).
Disagreement between the parties is not significant unless the disagreement
presents a “genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 251–52 (1986). But, inferences can create genuine issues of material
fact. Carlson v. FedEx Ground Package Systems, Inc., 787 F.3d 1313, 1318 (11th
Cir. 2015).
In response, the non-moving party “must do more than simply show that
there is some metaphysical doubt as to the material fact.” Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The non-moving party must
“go beyond the pleadings and by [its] own affidavits, or by the ‘depositions,
answers to interrogatories, and admissions on file,’ designate ‘specific facts
showing that there is a genuine issue for trial.’” Celotex, 477 U.S. at
324 (quoting Fed. R. Civ. P. 56(e)) (emphasis added).
The court must “view the evidence presented through the prism of the
substantive evidentiary burden,” to determine whether the non-moving party
presented sufficient evidence on which a jury could reasonably find for the
nonmoving party. Anderson, 477 U.S. at 254. The court must refrain from
weighing the evidence and making credibility determinations because these
decisions belong to a jury. See id. at 255.
Further, all evidence and inferences drawn from the underlying facts must be
viewed in the light most favorable to the non-moving party. Graham v. State Farm
Mut. Ins. Co., 193 F.3d 1274, 1282 (11th Cir. 1999). After both parties have
addressed the motion for summary judgment, the court must grant the motion only
if no genuine issues of material fact exist and if the moving party is entitled to
judgment as a matter of law. See Fed. R. Civ. P. 56.
III. ANALYSIS
A. Conversion
The Plaintiffs move for summary judgment for their conversion claims
against both CIT and Fannie Mae. (Doc. 96). But, because the court has dismissed
the Plaintiffs’ conversion claim against CIT, the court now focuses only on the
Plaintiffs’ motion for summary judgment regarding Fannie Mae’s alleged
conversion and Fannie Mae’s cross-motion for summary judgment on the same
issue.
In their brief in support of summary judgment, the Plaintiffs argue that they
were entitled to the insurance proceeds from the Foremost insurance policy on Ms.
Getaw’s home as Ms. Getaw’s heirs, but Fannie Mae converted the insurance
proceeds despite having no right to them and having no debt due from Ms. Getaw’s
estate. (Doc. 97). Specifically, the Plaintiffs argue that Fannie Mae was not a loss
payee under the insurance contract because Fannie Mae was not listed on the
insurance policy as a mortgagee, and, so, was not entitled to any payment under the
policy. The Plaintiffs add that, even if Fannie Mae had been a listed mortgagee
potentially entitled to payment, the foreclosure of Ms. Getaw’s home extinguished
any mortgage interest.
The Plaintiffs emphasize throughout their brief that Fannie Mae is not
entitled to the insurance proceeds because it was not listed on the Declarations
page of the insurance policy. The Plaintiffs assert that Fannie Mae wrongfully
took dominion over the insurance proceeds and continues to hold the proceeds to
the exclusion of the Plaintiffs’ ownership interest. The Plaintiffs note in their brief
that they do not seek summary judgment regarding damages for their conversion
claims.
In its cross-motion for summary judgment, Fannie Mae argues that the same
reasons that the court dismissed CIT’s conversion claim also apply to Fannie Mae;
that CIT did not convert the check at issue, so it could not have converted the
check either. (Doc. 120 at 28). Fannie Mae further asserts that the money that it
allegedly converted does not qualify as specific and identifiable, as required to
make a claim for conversion. Fannie Mae adds that both it and CIT had a
legitimate interest in the insurance proceeds, so they could not have converted
them. Fannie Mae also asserts that it should be entitled to summary judgment on
the Plaintiffs’ claims for punitive and emotional distress damages on their
conversion claim.
The Plaintiffs reply by repeating their arguments that Fannie Mae has no
right to the proceeds because Fannie Mae was not party to the insurance policy, but
continues to keep them from the Plaintiffs, so Fannie Mae has converted the
insurance proceeds. (Doc. 130). The Plaintiffs also repeat that Ms. Getaw was not
liable for any deficiency in her reverse mortgage after foreclosure, so the insurance
proceeds could not rightfully go to remedy any outstanding debt. The Plaintiffs
also argue that the insurance proceeds qualify as specific and capable of
identification because it was directly traceable, as it was referred to as “insurance
proceeds” throughout its trip though the banks. (Id. at 23). The Plaintiffs go on to
assert that material issues of fact preclude summary judgment on their damages
claims.
Fannie Mae filed a reply once again asserting, among other things, that the
insurance proceeds were not specific and identifiable. (Doc. 131).
To state a claim for conversion, a plaintiff must show “a wrongful taking or
a wrongful detention or interference, or an illegal assumption of ownership, or an
illegal use or misuse.” Ott v. Fox, 362 So. 2d 836, 839 (Ala. 1978). “The
Alabama Supreme Court has repeatedly held that an action for the conversion of
money is improper unless there is earmarked money or specific money capable of
identification.” Edwards v. Prime, Inc., 602 F.3d 1276, 1303 (11th Cir. 2010).
In this case, Foremost sent an insurance proceeds check for more than
$60,000 to Thomas Rutledge, an attorney for Fannie Mae. (Doc. 98-13 at 28–29).
Foremost had made out the check to both the estate of Ms. Getaw and “Financial
Freedom, a division of Onew.” (Id. at 29–30). CIT had previously acquired
OneWest, one of the named parties on the check. (Doc. 98-4 at 7–8). CIT
deposited the check into a Wells Fargo account owned by CIT, then transferred the
sum of the insurance proceeds to Fannie Mae. (Doc. 98-13 at 30; doc. 98-1 at 31).
Fannie Mae later sent roughly $11,000 back to CIT to remit to the estate of Ms.
Getaw. (Doc. 98-1 at 39). CIT sent that money on to Ms. Getaw’s estate.
As a preliminary matter, this court has already concluded that CIT did not
convert the insurance proceeds check. (Doc. 103). Specifically, the court found
that the Plaintiffs had not adequately alleged that CIT had converted the insurance
proceeds check because, pursuant to Alabama law and the UCC, CIT could
properly deposit a check made out alternatively to it and the Plaintiffs without the
Plaintiffs’ consent. Thus, the Plaintiffs had not alleged the requisite “wrongful”
exercise of dominion over the proceeds by CIT to constitute conversion. (Id. at 6,
8); Limbaugh v. Pierce, Fenner & Smith, Inc., 732 F.2d 859, 863 (11th Cir. 1984).
CIT, having obtained the funds without converting them, then transferred the
sum of the proceeds to Fannie Mae. So, the court cannot help but note that Fannie
Mae’s acquisition of the funds through CIT’s voluntary transfer also lacks the
hallmarks of a wrongful exercise of dominion over the proceeds. See Limbaugh v.
Pierce, Fenner & Smith, Inc., 732 F.2d at 863. Under Alabama law, “[t]he bare
possession of property without some wrongful act in the acquisition of possession,
or its detention, and without illegal assumption of ownership or illegal user or
misuser, is not conversion.” Standifer v. Best Buy Stores, L.P., 364 F. Supp. 3d
1286, 1297 (N.D. Ala. 2019) (citing Clardy v. Capital City Asphalt Co., 477 So. 2d
350, 352 (Ala.1985)). In this case, Fannie Mae did not wrongfully acquire the
funds because CIT voluntarily transferred the funds to Fannie Mae after rightfully
depositing the check without any conversion. Further, even if Fannie Mae’s
actions could be construed as wrongful detention or assumption of ownership, the
Plaintiffs still cannot make out a successful claim for conversion because the funds
were not separate and identifiable.
Alabama law interprets “specific money capable of identification” literally.
“Money is specific and capable of identification where, for example, it is ‘money
in a bag, coins or notes that have been entrusted to the defendant’s care, or funds
that have otherwise been sequestered, and where there is an obligation to keep
intact and deliver this specific money rather than to merely deliver a certain sum.’”
Edwards, 602 F.3d at 1304 (emphasis omitted) (quoting Gray v. Liberty Nat. Life
Ins. Co., 623 So. 2d 1156, 1160 (Ala. 1993)).
Specifically identifying a certain amount of money is not enough:
“[i]dentifiable amounts of money are one thing, specific money capable of
identification is another. . . . [A]n action for the conversion of money requires the
money itself, not just the amount of it, to be specific and capable of identification.”
Edwards, 602 F.3d at 1304. For example, “money directly traceable to a special
account is sufficiently identifiable to support an action for conversion.” Greene
Cty. Bd. of Educ. v. Bailey, 586 So. 2d 893, 899 (Ala. 1991). In some
circumstances, depending on the facts, “[c]hecks, and the property rights
represented thereby,” can be specific money capable of identification. Crown Life
Ins. Co. v. Smith, 657 So. 2d 821, 823 (Ala. 1994).
In arguing that the insurance proceeds in this case are separate and
identifiable, the Plaintiffs point to the fact that Fannie Mae referred to the money in
their own records as the “proceeds” from the policy, and the sum of the money
remained the same during the transfer from Foremost to CIT to Fannie Mae. To
support their argument, the Plaintiffs rely on multiple cases in which deposits into
accounts still constituted specific and identifiable funds. However, those cases
prove inapposite here.
The Plaintiffs cite two cases dealing with defendants committing conversion
by directly depositing into their own accounts checks drawn on accounts to which
they were not entitled. In one, the Alabama Supreme Court found that conversion
could exist where someone forged signatures on refund checks, received the funds,
and deposited the funds in his own account. Crown Life Ins. Co., 657 So. 2d at
823–24. In another, the Alabama Supreme Court held that “pre-authorized checks”
drawn against an insured’s checking account could qualify as identifiable for the
purposes of a conversion claim. Gray v. Liberty Nat. Life Ins. Co., 623 So. 2d
1156, 1160 (Ala. 1993). These situations defy analogy to the situation with Fannie
Mae. Fannie Mae did not deposit a check; Fannie Mae received funds transferred
willingly by CIT after CIT legally deposited a check. Thus, Fannie Mae’s
assertion of control over the funds lacks a check or other instrument to act as a
vehicle for the identification of specific funds. So, it is CIT’s actions, not Fannie
Mae’s that exhibit similarity to Crown and Gray; but, as discussed above, this
court has already found that CIT did not convert the check because it had the right
to deposit it. (Doc. 103 at 8); see also Ala. Code § 7-3-420. Where even CIT’s
actions do not qualify as conversion in light of Crown and Gray, Fannie Mae’s
actions do not qualify as conversion either.
The Plaintiffs also rely on cases where the identifiability of the funds hinged
on specific identification of the accounts that either provided the specifically
delineated source of the funds or the specific destination of the funds. In Crown,
the Alabama Supreme Court addressed another instance of conversion in which the
defendant took out loans against specific life insurance policies, which reduced the
value of the policies. Crown, 657 So. 2d at 824. The funds for the policies were
in one larger account of the insurer that also had funds for other policies, but the
court found that the funds were specific and identifiable because “the funds
available under each policy were specifically identified by the policy number and
could have been easily retrieved for the [victims] under the policy number. There
is no doubt that [the insurer], if called upon to do so, could easily identify the
specific value of each policy under the policy numbers.” Crown, 657 So. 2d at
824.
Similarly, though at the other end of the transactional timeline, the Alabama
Supreme Court held in another case that a plaintiff could state a claim for
conversion where “the defendants, through an intricate scheme involving bogus
invoices and checks and money orders, converted to their own use funds that had
been specifically deposited in” in a school lunchroom account. Greene Cty. Bd. of
Educ. v. Bailey, 586 So. 2d 893, 899–900 (Ala. 1991). The court specifically
emphasized the importance of the fact that the funds were “directly traceable to a
special account.” Id. at 900.
Both Crown and Greene show that money in an account can be specifically
identifiable for the purposes of conversion, but only where the money has been
somehow specifically segregated within an account or has been placed in a
separate, identifiable account that did not contain other funds. The money in those
cases had not become freely comingled so as to become “unidentifiable money in
[a company’s] checking account.” Citibanc of Alabama/Fultondale v. Tricor
Energies, Inc., 493 So. 2d 1344, 1348 (Ala. 1986).
Alternatively, courts have held that, under Alabama law, money that is
merely “a certain sum” rather than sequestered funds is not specific and
identifiable for the purposes of conversion. Edwards v. Prime, Inc., 602 F.3d
1276, 1304 (11th Cir. 2010). So, for instance, the Alabama Supreme Court held
that withholding wages did not qualify as conversion because the issue was the
return of an amount of money, not the specific, identical money. Lewis v. Fowler,
479 So.2d 725, 727 (Ala. 1985). Similarly, “[m]oney paid by an insurance
company to a hospital which had been assigned to the hospital by the plaintiff has
been determined as a matter of law not to be specific property which would
support an action of conversion.” Greene Cty. Bd. of Educ., 586 So. 2d at 898
(citing Humana of Ala., Inc. v. Rice, 380 So. 2d 862 (Ala. Civ. App. 1979), cert.
denied, 380 So. 2d 865 (Ala. 1980)). In short, an action “for the conversion of
money requires the money itself, not just the amount of it, to be specific and
capable of identification.” Edwards, 602 F.3d at 1304.
In this case, the insurance proceeds are not sufficiently specific and
identifiable to support a claim of conversion against Fannie Mae. The check from
Foremost likely constituted specific and identifiable money when it went to CIT
because it was money from the specific account for Ms. Getaw’s specific policy
that was embodied by the check. However, CIT then rightfully deposited the
check into a Wells Fargo account. The record reveals no indication that the money
was segregated or placed into a specific account as opposed to a general Wells
Fargo account owned by CIT. CIT then disbursed the sum of the insurance
proceeds—as opposed to passing along the specific check and the identical money
it represented—to Fannie Mae. So, the claim against Fannie Mae more closely
resembles the situation in Lewis than in Crown or Green County Board of
Education.
As in Lewis, the money in this case is not specific and identifiable and the
Plaintiffs cannot succeed on their claim for conversion against Fannie Mae. Even
viewing all of the facts and accompanying inferences of the claim in the light most
favorable to the Plaintiffs, no genuine issue of material fact precludes summary
judgment against the Plaintiffs because the Plaintiffs’ claim fails as a matter of
law. See, 193 F.3d at 1282; Fed. R. Civ. P. 56.
So, the court will DENY the Plaintiffs’ motion for summary judgment and
GRANT Fannie Mae’s cross-motion for summary judgment on the Plaintiffs’
conversion claim. Because the court finds Fannie Mae entitled to summary
judgment on the Plaintiffs’ conversion claim, the court need not address whether or
not the Plaintiffs can recover punitive or emotional distress damages for their
conversion claim.
B. Declaratory Judgment
In its motion for summary judgment, Fannie Mae briefly requests summary
judgment on the Plaintiffs’ declaratory judgment claim and seeks a declaration
from this court of its entitlement to the insurance proceeds, minus roughly $11,000
that it has already determined should be remitted to the Plaintiffs. (Doc. 119, doc.
120). The Plaintiffs respond that Fannie Mae has not provided the necessary
evidence to prove that it owned the mortgage or was entitled to the insurance
proceeds. (Doc. 130).
CIT also filed a motion seeking summary judgment on the Plaintiffs’
declaratory judgment claim. (Doc. 125). CIT argues, among other things, that the
court should not grant any declaratory judgment against them because no
justiciable controversy exists between CIT and the Plaintiffs at this point. The
Plaintiffs respond by again arguing that CIT has no entitlement to or interest in any
of the insurance proceeds. (Doc. 132). The Plaintiffs also challenge CIT’s right to
service the mortgage. CIT replies that no remaining controversy exists between
the parties because CIT holds none of the insurance proceeds and makes no claim
on the proceeds. (Doc. 136).
The Declaratory Judgment Act grants federal courts the discretion to declare
the rights of parties in actual controversies. Wilton v. Seven Falls Co., 515 U.S.
277, 286 (1995). The Act provides that, “[i]n a case of actual controversy within
its jurisdiction, [. . .] any court of the United States, upon the filing of an
appropriate pleading, may declare the rights and other legal relations of any
interested party seeking such declaration.” 28 U.S.C. § 2201(a).
Because the Declaratory Judgment Act limits the court’s jurisdiction to
actual controversies, “[i]n all cases arising under the [Act], the threshold question
is whether a justiciable controversy exists.” Atlanta Gas Light Co. v. Aetna Cas. &
Sur. Co., 68 F.3d 409, 414 (11th Cir. 1995). For an actual controversy to exist,
“the facts alleged, under all the circumstances, [must] show that there is a
substantial controversy, between parties having adverse legal interests, of sufficient
immediacy and reality to warrant the issuance of a declaratory judgment.”
Maryland Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941).
Even when an actual controversy exists, the court still has “unique and
substantial discretion in deciding whether to declare the rights of litigants.”
Wilton, 515 U.S. at 286. When determining whether to exercise its discretion, the
court considers practicality, judicial efficiency, and the “facts bearing on the
usefulness of the declaratory judgment remedy[] and the fitness of the case for
resolution.” Id. at 288–89.
1. CIT’s Motion for Summary Judgment
CIT argues, among other things, that the court should grant it summary
judgment on the Plaintiffs’ declaratory judgment claim because, as it makes no
claim to any portion of the insurance proceeds, no justiciable controversy exists
between CIT and the Plaintiffs. The court agrees.
Whether an actual case or controversy exists to support the court’s entry of a
declaratory judgment varies on a case-to-case basis based on the totality of the
circumstances. Atlanta Gas Light Co., 68 F.3d at 414. “The controversy must be
more than conjectural”; it must actually involve legal relations of parties that have
adverse legal interests, not hypothetical or academic facts. Id. A case can involve
an actual controversy at its inception and then later become moot “when it no
longer presents a live controversy with respect to which the court can give
meaningful relief.” Zinni v. ER Solutions, Inc., 692 F.3d 1162, 1166 (11th Cir.
2012) (internal quotation marks omitted). “A declaratory judgment devoid of
‘sufficient immediacy and reality’ cannot render a case justiciable.” Gagliardi v.
TJCV Land Tr., 889 F.3d 728, 735 (11th Cir. 2018) (citing Preiser v. Newkirk, 422
U.S. 395, 402 (1975)).
Here, the case originally involved a justiciable controversy between CIT and
the Plaintiffs over whether CIT converted the insurance proceeds from the
Foremost policy and whether CIT was wrongfully retaining any of the proceeds.
But, the controversy between the parties has since dissolved.
The court dismissed the conversion claim against CIT. Further, Fannie
Mae—not CIT—holds the insurance proceeds except for the more than $11,000 of
“excess insurance funds” that CIT released to Ms. Getaw’s estate by check. (Doc.
125-1 at 9, 73). CIT no longer holds any of the insurance proceeds and, in fact,
disclaims any interest. (Doc. 125). The Plaintiffs concede CIT’s lack of interest in
the proceeds, stating “CIT claims, and has, no interest in the Proceeds.” (Doc. 132
at 29); (see also Doc. 130 at 9).
Because the court has dismissed the Plaintiffs’ conversion claim and the
Plaintiffs admit that CIT no longer has any interest in the insurance proceeds at
issue, no actual legal controversy exists between the Plaintiffs and CIT; the
question of CIT’s claim to the proceeds has become merely academic and
conjectural rather than concrete and immediate. See Atlanta Gas Light Co., 68
F.3d at 414; Gagliardi, 889 F.3d at 735. Instead, the dispute over the proceeds
now lies only between Fannie Mae and the Plaintiffs. Because no controversy
remains between the Plaintiffs and CIT, the court finds that it lacks jurisdiction
over the Plaintiffs’ claim for declaratory judgment against CIT. See Atlanta Gas
Light Co., 68 F.3d at 414. Therefore, the court will GRANT CIT’s motion for
summary judgment and dismiss CIT Bank, N.A. and CIT Group, Inc. from this
case.
2. Fannie Mae’s Motion for Summary Judgment
On the other hand, the court finds that a justiciable controversy still exists
between the Plaintiffs and Fannie Mae over who should be entitled to the insurance
proceeds from the Foremost insurance policy. So, a claim for declaratory
judgment can survive. See 28 U.S.C. § 2201(a). Furthermore, genuine issues of
material fact prevent the court from granting summary judgment to Fannie Mae on
the Plaintiffs’ declaratory judgment claims against Fannie Mae.
Fannie Mae’s motion for summary judgment provides very little in the way
of explicit arguments as to why it should be granted summary judgment on
Plaintiffs’ declaratory judgment claim. But Fannie Mae’s brief shows that Fannie
Mae asserts that it is entitled to the insurance proceeds because it was the rightful
owner of and had an insurable interest in the reverse mortgage, so the proceeds
could rightfully go to satisfy outstanding indebtedness that was not resolved by the
foreclosure sale. (Doc. 120 at 32). Fannie Mae further contends that CIT had the
right to foreclose as the mortgagee of record and holder of the original note
endorsed in blank and had a right to collect the insurance proceeds on behalf of
Fannie Mae as a named mortgagee on the Foremost insurance property. (Id. at 34–
35).
The Plaintiffs, in response, generally argue that Fannie Mae was not a loss
payee for the insurance policy and that Fannie Mae had no interest in the insurance
proceeds. (Doc. 130). In reply, Fannie Mae again argues that it owned the loan
and that CIT, as the loan servicer, had a right to collect the insurance proceeds and
remit them to Fannie Mae. (Doc. 131 at 6). However, a genuine issue of material
fact exists regarding CIT’s authority to foreclose on the property and obtain the
insurance proceeds.
The policy language in Ms. Getaw’s Foremost insurance policy in this case
states that “[a]n insured loss will be payable to the mortgagees named on the
Declarations Page, to the extent of their interest and in order of precedence.” (Doc.
63-4 at 27). The policy lists “Financial Freedom, A Division of OneWest Bank
FSB ISAOA” on the policy declarations page as the mortgagee on the property.
(Id. at 4). The record shows and the parties do not dispute that Financial Freedom
now falls under the umbrella of CIT. Accordingly, to the extent that it had an
interest, CIT could recover under the Foremost insurance policy. (Doc. 63-4 at
27).
The lingering genuine issue of material fact in this case arises from the
question of whether CIT had a valid interest as a mortgagee that allowed it to
collect the insurance proceeds and pass them on to Fannie Mae. As an initial
matter, the evidence submitted by the parties shows conflicting information
regarding whether CIT had a valid, current assignment granting it the right to
service the mortgage note. CIT and Fannie Mae produced recorded notices of
assignment suggesting that CIT did in fact possess an interest in servicing the
mortgage at the time of foreclosure. (Doc. 125-1 at 34–43). The documents show
a train of transfers of servicing rights for the mortgage from Pacific Reverse to
Financial Freedom and eventually to OneWest—which became part of CIT—in
2015. But, the assignments do not clearly demonstrate the extent of CIT’s interest
and Fannie Mae’s records list “Mortgage Assets Management, LLC” as the
servicer of the loan during the time when the right to service the loan purportedly
belonged to CIT. (Doc. 98-2 at 34). Accordingly, a material question of fact
remains regarding the existence and extent of CIT’s interest in the mortgage.
Fannie Mae would be able to skirt the issue of the potentially tangled
assignment if no issue of fact existed regarding CIT’s possession of the original
mortgage note, endorsed in blank. Under Alabama law, a mortgage note qualifies
as a negotiable instrument governed by Alabama’s Uniform Commercial Code.
Summerlin v. Shellpoint Mortg. Servs., 165 F. Supp. 3d 1099, 1108 (N.D. Ala.
2016) (citing Sturdivant v. BAC Home Loan Servicing, LP, 159 So.3d 47, 55 (Ala.
Civ. App. 2013)). Pursuant to Alabama’s U.C.C., a “person entitled to enforce” an
instrument includes the holder of the instrument. Ala. Code § 7-3-301. A person
is a holder of a negotiable instrument if the person possesses an instrument that is
payable to the bearer, which includes an instrument endorsed in blank. Id. § 7–1–
201(21); Id. § 7–3–205(b). Possession of a note endorsed in blank thus can show
ownership. Thomas v. Wells Fargo Bank, N.A., 116 So. 3d 226, 233 (Ala. Civ.
App. 2012). But, in this case a genuine issue of material fact exists regarding
whether CIT was in possession of the mortgage note, endorsed in blank, at the time
of the foreclosure and the insurance payment.
Fannie Mae did produce a copy of the mortgage note endorsed in blank from
Financial Freedom. (Doc. 120-1 at 16). However, when asked about the original
note in deposition testimony, a corporate representative of CIT stated that “at some
point [the note] was held within Financial Freedom,” and that it was held by a
third-party custodian that the deponent could not name. (Doc. 98-4 at 23–24).
The deponent also stated that they did not know if the servicing agreement gave
permission to house the original note with a third-party custodian. (Id.). The
evidence suggests, but does not show with complete certainty, that CIT held the
original note, and therefore had an interest in Ms. Getaw’s property as a
mortgagee, at the time of foreclosure and the insurance payout. The Plaintiffs
argue that CIT did not hold the original note at the time of foreclosure and the
insurance payout, and the evidence does not conclusively refute that argument.
In light of the evidence, when viewed in the light most favorable to the
Plaintiffs, Fannie Mae has not shown entitlement to summary judgment on the
Plaintiffs’ claim for declaratory judgment because of the existence of genuine
issues of material fact regarding the ownership of the mortgage and rights to
foreclose. See Fed. R. Civ. P. 56. Accordingly, the court will DENY IN PART
Fannie Mae’s motion for summary judgment regarding the Plaintiffs’ declaratory
judgment claim.
IV. CONCLUSION
By separate order, the court will DENY the Plaintiffs’ motion for summary
judgment on their conversion claims. The court will GRANT IN PART and
DENY IN PART Fannie Mae’s motion for summary judgment. The court will
GRANT Fannie Mae’s motion for summary judgment as to the Plaintiffs’
conversion claim, but will DENY summary judgment as to Plaintiffs’ claim for
declaratory judgment because of remaining genuine issues of material fact.
Finally, the court will GRANT CIT’s motion for summary judgment, as no
justiciable controversy exists between the Plaintiffs and CIT at this time.
Therefore, the court will DISMISS both CIT Bank, N.A. and CIT Group, Inc. from
this case.
DONE and ORDERED this 27th day of August, 2020.
____________________________________
KARON OWEN BOWDRE
CHIEF UNITED STATES DISTRICT JUDGE