Cazaubon et al v. PHH Mortgage Corporation

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UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
COURTNEY CAZAUBON
GUIDROZ, ET AL.,
Plaintiffs
CIVIL ACTION
VERSUS NO. 25-824
PHH MORTGAGE CORPORATION,
Defendant
SECTION: “E” (3)
ORDER AND REASONS
Before the Court is a Motion for Partial Summary Judgment filed by Plaintiffs
Courtney Cazaubon, individually and as Trustee of the Evan Cazaubon and Leslie Richard
Cazaubon, Jr. Trusts and Independent Administratrix of the Succession of Janet
Cazaubon; Leslie Cazaubon, Jr.; and Evan Cazaubon.1 Plaintiffs seek summary judgment
in their favor that Defendant PHH Mortgage Corporation (“PHH”) is liable to them for
the tort of conversion.2 PHH filed an opposition to the motion,3 and Plaintiffs filed a
reply.4
BACKGROUND
I. Factual Background
Plaintiffs request the Court grant summary judgment in their favor on their claim
that the Defendant converted their funds, under Louisiana law, because they are entitled
to insurance proceeds paid under a policy covering a house and vacant lot, that served as
security for a reverse mortgage.5 Plaintiffs claim Defendant applied $37,900.32 in
1 R. Doc. 15.
2 Id.
3 R. Doc. 35.
4 R. Doc. 36.
5 R. Doc. 15.
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insurance proceeds to the remaining debt owed on the reverse mortgage rather than
transferring the funds to them.6
The Court briefly sets forth the undisputed material facts relevant to the instant
motion. Plaintiffs’ now-deceased parents (sometimes collectively referred to as
“Borrowers”) executed a reverse mortgage which, at the time of foreclosure and sale, was
serviced by Defendant.7 Plaintiffs’ parents obtained a homeowner’s policy on the house
from State Farm Fire and Casualty Company (“State Farm”).8
In addition to its Response to Plaintiffs’ Amended Statement of Undisputed
Material Facts, Defendant submitted its own statement of facts it contends are undisputed
and material.9 According to Defendant’s statement of undisputed material facts,10 the
reverse mortgage required the insurance policy to include a loss-payable clause in favor
of the mortgagee.11 Under that clause, if a covered loss occurred and repair was not
economically feasible or if disbursement of the proceeds would impair the mortgagee’s
security interest, the insurer would first pay the proceeds to the lender to satisfy any
outstanding mortgage balance before any funds were paid to the borrower.12 Plaintiffs did
not dispute these facts in their reply.13 In fact, the reverse mortgage attached to Plaintiffs’
Motion reflects the same.14
6 R. Doc. 17 at p. 5 ¶ 22.
7 R. Doc. 2-1 at pp. 1-2 ¶ 3; R. Doc. 7 at p. 2 ¶ 3.
8 R. Doc. 2-1 at p. 2 ¶ 4; R. Doc. 7 at p. 2 ¶ 4.
9 R. Doc. 35-23.
10 Id.
11 R. Doc. 35-23 at p. 3 ¶ 3.
12 Id.
13 R. Doc. 36.
14 R. Doc. 15-3 at pp. 3-4.
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After the reverse mortgage was executed, Plaintiffs’ father passed away.15 On
August 29, 2021, Hurricane Ida struck the property and caused “moderate damage,”16
after which Plaintiffs submitted a claim to State Farm under the policy.17 After reviewing
the claim, State Farm tendered a check made payable to Janet E. Cazaubon & the Estate
of Richard Cazaubon & Champion Mortgage Company its Successors and Assigns.18 The
Cazaubons endorsed the check and mailed it to Nationstar Mortgage LLC d/b/a
Champion Mortgage Company (“Nationstar”) for the purpose of holding and disbursing
the funds as repairs were made.19 Approximately five months later, Defendant PHH
became servicer of the note.20 Shortly thereafter, Plaintiffs’ mother died.21 State Farm
then cancelled the policy and issued a check covering the costs of the remaining repairs,
made payable to the Estate of Janet E. Cazaubon, the Estate of Richard Cazaubon,
Courtney Guidroz, and PHH.22 While the home was still under repair, Mortgage Assets
Management, LLC, the then-holder of the note, initiated foreclosure proceedings due to
the deaths of the Borrowers.23 The house was then sold at a sheriff’s foreclosure sale for
$301,000.00.24
15 R. Doc. 2-1 at pp. 1-2 ¶ 3; R. Doc. 7 at p. 2. ¶ 3.
16 R. Doc. 17 at p. 3 ¶ 8; R. Doc. 35-22 at p. 4 ¶ 8.
17 R. Doc. 17 at p. 2 ¶ 9, p. 3 ¶ 16; R. Doc. 35-22 at p. 4 ¶ 9, p. 6 ¶ 16.
18 R. Doc. 17 at p. 3 ¶ 10; R. Doc. 35-22 at p. 4 ¶ 10.
19 R. Doc. 17 at p. 3 ¶ 11; R. Doc. 35-22 at p. 4 ¶ 11. Nationstar was not the first nor the last entity involved
with the note. Coast Bank and Trust Company initially held the Note. R. Doc. 35-2 at p. 2. Gulf Coast Bank
and Trust Company then assigned the Note to Generation Mortgage Company by allonge. R. Doc. 35-4 at
p. 2. Generation Mortgage Company subsequently assigned the Note to Nationstar Mortgage LLC d/b/a
Champion Mortgage Company (“Nationstar”) by allonge. R. Doc. 35-5 at p. 2. Nationstar then assigned the
Note to Mortgage Assets Management, LLC by allonge, while continuing to service the Note. R. Doc. 35-7
at p. 2. Finally, Nationstar transferred servicing of the Note to PHH. R. Doc. 35-14 at p. 2.
20 R. Doc. 17 at p. 3 ¶ 13; R. Doc. 35-22 at p. 5 ¶ 13.
21 R. Doc. 17 at p. 3 ¶ 14; R. Doc. 35-22 at p. 5 ¶ 14.
22 R. Doc. 17 at pp. 3-4 ¶¶ 15-17; R. Doc. 35-22 at pp. 6-7 ¶¶ 15-17.
23 R. Doc. 17 at p. 4 ¶ 19; R. Doc. 35-22 at p. 7 ¶ 19.
24 R. Doc. 17 at pp. 4-5 ¶ 21; R. Doc. 35-22 at p. 7 ¶ 21. Both parties acknowledge in their arguments that the
foreclosure and sheriff’s sale was completed without appraisal. R. Doc. 18 at p. 4; R. Doc. 35 at pp. 7-8.
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It is unclear whether there is a dispute with respect to whether there was a
remaining balance due on the note after the sheriff’s sale. Defendant claims that, after
deducting the sheriff’s commission and costs of sale, $282,614.77 in proceeds remained
and these funds were applied toward the outstanding loan balance, leaving a balance of
$45,987.77.25 Plaintiffs neither allege in their petition, nor do they state in their statement
of undisputed material facts, that there was no outstanding loan balance after the funds
from the sheriff’s sale were applied. Instead, Plaintiffs argue it is Defendant’s burden to
establish that an outstanding loan balance remains.26
Plaintiffs do contend that, at the time of the sheriff’s sale, PHH held $37,900.32 in
remaining insurance proceeds in an escrow account and applied those proceeds toward
the loan balance rather than transmitting them to Plaintiffs.27 Defendant disputes that
amount and asserts that the actual amount of remaining insurance proceeds is
$32,116.79.28
II. Procedural Background
Plaintiffs initiated the instant action by filing a Petition for Damages in the 24th
Judicial District Court for the Parish of Jefferson, asserting claims against Defendant for
breach of contract, conversion, negligence, fraud, and violations of the Real Estate
Settlement Procedures Act (“RESPA”).29 The Petition for Damages was served on
Defendant, which then removed the action to the Eastern District of Louisiana, alleging
the Court had federal question jurisdiction over the RESPA claim and supplemental
25 R. Doc. 35-22 at pp. 7-9 ¶¶ 21-22; R. Doc. 35-1 at pp. 4-5 ¶¶ 28-33.
26 R. Doc. 18 at p. 7.
27 R. Doc. 17 at p. 5 ¶ 22; R. Doc. 35-22 at pp. 7-8 ¶ 22; R. Doc. 35-1 at p.5 ¶ 33.
28 R. Doc. 35-23 at p. 5 ¶ 26.
29 R. Doc. 2-1.
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jurisdiction over the remaining state-law claims.30 Defendant later filed its Answer and
Affirmative Defenses to the Petition for Damages, generally denying liability and denying
most of Plaintiffs’ allegations.31
Plaintiffs later filed the Motion for Partial Summary Judgment now before the
Court, seeking summary judgment only on their conversion claim.32 Plaintiffs argue it is
an undisputed fact they own the remaining insurance proceeds and are therefore entitled
to judgment as a matter of law.33 To address deficiencies in Plaintiffs’ original filings, the
Court directed Plaintiffs to file an amended statement of undisputed material facts and
an amended memorandum in support of their motion for partial summary judgment.34
Plaintiffs timely complied.35
LEGAL STANDARD
I. Summary Judgment Standard
Summary judgment is appropriate only “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.”36 “An issue is material if its resolution could affect the outcome of the action.”37
When assessing whether a material factual dispute exists, the Court considers “all of the
evidence in the record but refrain[s] from making credibility determinations or weighing
the evidence.”38 All reasonable inferences are drawn in favor of the nonmoving party.39
30 R. Doc. 2.
31 R. Doc. 7.
32 R. Doc. 15.
33 Id.
34 R. Doc. 16.
35 R. Doc. 17 (Amended Statement of Undisputed Material Facts); R. Doc. 18 (Amended Memorandum in
Support of Motion for Partial Summary Judgment).
36 FED. R. CIV. P. 56; see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
37 DIRECTV Inc. v. Robson, 420 F.3d 532, 536 (5th Cir. 2005).
38 Delta & Pine Land Co. v. Nationwide Agribusiness Ins. Co., 530 F.3d 395, 398 (5th Cir. 2008); see also
Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150-51 (2000).
39 Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994).
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There is no genuine issue of material fact if, even viewing the evidence in the light most
favorable to the nonmoving party, no reasonable trier of fact could find for the nonmoving
party, thus entitling the moving party to judgment as a matter of law.40
If the dispositive issue is one for which the moving party will bear the burden of
persuasion at trial, the moving party “must come forward with evidence which would
‘entitle it to a directed verdict if the evidence went uncontroverted at trial.’”41 If the
moving party fails to carry this burden, the motion must be denied. If the moving party
successfully carries this burden, the burden of production then shifts to the nonmoving
party to direct the Court’s attention to something in the pleadings or other evidence in the
record setting forth specific facts sufficient to establish that a genuine issue of material
fact does indeed exist.42
On the other hand, if the dispositive issue is one on which the nonmoving party
will bear the burden of persuasion at trial, the moving party may satisfy its burden of
production by either (1) submitting affirmative evidence that negates an essential element
of the nonmovant’s claim, or (2) demonstrating there is no evidence in the record to
establish an essential element of the nonmovant’s claim.43 When proceeding under the
first option, if the nonmoving party cannot muster sufficient evidence to dispute the
40 Smith v. Amedisys, Inc., 298 F.3d 434, 440 (5th Cir. 2002).
41 Int’l Shortstop, Inc. v. Rally’s, Inc., 939 F.2d 1257, 1263-64 (5th Cir. 1991) (quoting Golden Rule Ins. Co.
v. Lease, 755 F. Supp. 948, 951 (D. Colo. 1991)).
42 Celotex, 477 U.S. at 322-24.
43 Id. at 331-32 (Brennan, J., dissenting); see also St. Amant v. Benoit, 806 F.2d 1294, 1297 (5th Cir. 1987)
(citing Justice Brennan’s statement of the summary judgment standard in Celotex, 477 U.S. at 322-24, and
requiring the Movers to submit affirmative evidence to negate an essential element of the nonmovant’s
claim or, alternatively, demonstrate the nonmovant’s evidence is insufficient to establish an essential
element); Fano v. O’Neill, 806 F.2d 1262, 1266 (5th Cir. 1987) (citing Justice Brennan’s dissent in Celotex,
and requiring the movant to make an affirmative presentation to negate the nonmovant’s claims on
summary judgment); 10A CHARLES ALAN WRIGHT, ARTHUR R. MILLER & MARY KAY KANE, FEDERAL PRACTICE
AND PROCEDURE § 2727.1 (2016) (“Although the Court issued a five-to-four decision, the majority and
dissent both agreed as to how the summary-judgment burden of proof operates; they disagreed as to how
the standard was applied to the facts of the case.” (internal citations omitted)).
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movant’s contention that there are no disputed facts, a trial would be useless, and the
moving party is entitled to summary judgment as a matter of law.44 When, however, the
movant is proceeding under the second option and is seeking summary judgment on the
ground that the nonmovant has no evidence to establish an essential element of the claim,
the nonmoving party may defeat a motion for summary judgment by “calling the Court’s
attention to supporting evidence already in the record that was overlooked or ignored by
the moving party.”45 Under either scenario, the burden then shifts back to the movant to
demonstrate the inadequacy of the evidence relied upon by the nonmovant.46 If the
movant meets this burden, “the burden of production shifts [back again] to the
nonmoving party, who must either (1) rehabilitate the evidence attacked in the moving
party’s papers, (2) produce additional evidence showing the existence of a genuine issue
for trial as provided in Rule 56(e), or (3) submit an affidavit explaining why further
discovery is necessary as provided in Rule 56(f).”47 “Summary judgment should be
granted if the nonmoving party fails to respond in one or more of these ways, or if, after
the nonmoving party responds, the court determines that the moving party has met its
ultimate burden of persuading the court that there is no genuine issue of material fact for
trial.”48
Still, “unsubstantiated assertions are not competent summary judgment evidence.
The party opposing summary judgment is required to identify specific evidence in the
record and to articulate the precise manner in which that evidence supports the claim.
44 First Nat’l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 288-89 (1980); Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 249-50 (1986).
45 Celotex, 477 U.S. at 332-33.
46 Id.
47 Id. at 332-33 n.3.
48 Id.; see also First Nat’l Bank of Ariz., 391 U.S. at 289.
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‘Rule 56 does not impose upon the district court a duty to sift through the record in search
of evidence to support a party’s opposition to summary judgment.’”49
LAW AND ANALYSIS
I. Plaintiffs have not come forward with evidence that would entitle them
to a directed verdict if it went uncontroverted at trial or that would
show they are entitled to summary judgment as a matter of law.
Plaintiffs seek summary judgment only on their conversion claim.50 They argue it
is undisputed Plaintiffs own the remaining insurance proceeds and that Defendant’s
application of the insurance proceeds toward the outstanding loan balance remaining
after the sheriff’s sale constituted an unlawful withholding of property from its owners,
entitling Plaintiffs to judgment as a matter of law on their claim for conversion.51
To prevail on a cause of action for conversion under Louisiana law, a plaintiff must
prove that: (1) he owned, or had the right to possess, certain property; (2) the defendant’s
possession or misuse of the property was inconsistent with plaintiff’s ownership rights;
and (3) the defendant’s possession or misuse constituted a wrongful taking.52 The
property at issue in this case is insurance proceeds paid by State Farm under a policy
insuring property, owned by the Borrowers, that served as security for a reverse
mortgage.53 The Fifth Circuit and Louisiana courts have recognized that money allegedly
owed pursuant to an agreement—such as the funds at issue in the present action—may
constitute a property interest sufficient to support a conversion claim.54
49 Ragas v. Tenn. Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998) (first citing Celotex, 477 U.S. at 324;
then citing Forsyth v. Barr, 19 F.3d 1527, 1537 (5th Cir. 1994); and then quoting Skotak v. Tenneco Resins,
Inc., 953 F.2d 909, 915-16 & n.7 (5th Cir. 1992)).
50 R. Doc. 15.
51 Id.
52 Rahman v. Allstate Insurance Co., 644 F.Supp.3d 231, 239 (E.D. La. Oct. 25, 2022) (citing Chrysler
Credit Corp. v. Perry Chrysler Plymouth, Inc., 783 F.2d 480, 484 (5th Cir. 1986)).
53 R. Doc. 35-22 at p. 1 ¶ 1, pp. 1-2 ¶ 2, p. 4 ¶ 9, pp. 8-9 ¶ 22.
54 See, e.g., Chrysler Credit Corp., 783 F.2d at 484; La. Health Care Grp., Inc. v. Allegiance Health Mgmt.,
Inc., 32 So. 3d 1138, 1142-43 (La. App. 3 Cir. 2010).
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To obtain summary judgment, Plaintiffs, as the movants, must demonstrate “that
there is no genuine issue as to any material fact and [they are] entitled to judgment as a
matter of law.”55 Because Plaintiffs will bear the burden of proof at trial on their
conversion claim, they may satisfy their summary judgment burden only by coming
forward “with evidence which would ‘entitle [them] to a directed verdict if the evidence
went uncontroverted at trial.’”56 If Plaintiffs fail to carry this burden, the motion must be
denied.
Plaintiffs will bear the burden of proving at trial the elements of their cause of
action. 57 Thus, to meet their initial burden on summary judgment, Plaintiffs must first
show it is an undisputed fact they own the insurance proceeds. The Court therefore begins
by determining whether Plaintiffs have established it is an undisputed fact that they own,
or at a minimum have the right to possess, those proceeds.
Federal Rule of Civil Procedure 56 requires that
[a] party asserting that a fact cannot be or is genuinely disputed must support the
assertion by: (A) citing to particular parts of materials in the record, including
depositions, documents, electronically stored information, affidavits or
declarations, stipulations (including those made for purposes of the motion only),
admissions, interrogatory answers, or other materials; or (B) showing that the
materials cited do not establish the absence or presence of a genuine dispute, or
that an adverse party cannot produce admissible evidence to support the fact.58
Local Rule 56.1 provides “[e]very motion for summary judgment must be
accompanied by a separate and concise statement of the material facts which the moving
55 FED. R. CIV. P. 56; see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
56 Int’l Shortstop, Inc. v. Rally’s, Inc., 939 F.2d 1257, 1263-64 (5th Cir. 1991) (quoting Golden Rule Ins. Co.
v. Lease, 755 F. Supp. 948, 951 (D. Colo. 1991)).
57 Rahman v. Allstate Insurance Co., 644 F.Supp.3d 231, 239 (E.D. La. Oct. 25, 2022) (citing Chrysler
Credit Corp. v. Perry Chrysler Plymouth, Inc., 783 F.2d 480, 484 (5th Cir. 1986)).
58 FED R. CIV. P. 56(c).
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party contends present no genuine issue.”59 The Court’s Scheduling Order60 likewise
requires that “every motion for summary judgment must be accompanied by: (1) A
separate and concise statement of the material facts which the moving party contends
present no issue,”61 and further requires each party to “make specific reference to record
evidence supporting its statement . . . of material facts.”62
To comply with these rules, Plaintiffs must assert it is an undisputed fact that they
are the owners of the remaining insurance proceeds and cite to particular materials in the
record supporting that assertion. Plaintiffs’ Statement of Undisputed Material Facts
contains no separate, concise assertion that it is an undisputed fact they are the owners
of the remaining insurance proceeds.63 Nor do Plaintiffs cite any materials in the record
showing it is undisputed that they own the remaining insurance proceeds.64 Plaintiffs also
make no statement that the proceeds from the sheriff’s sale were sufficient to satisfy the
outstanding loan balance, or even whether any outstanding loan balance remained after
the proceeds from the sheriff’s sale were applied.65
Plaintiffs have failed to comply with Rule 56, Local Rule 56.1, or the Court’s
Scheduling Order. As a result, Plaintiffs have failed to establish they will be able to prove
even the first element of their conversion claim at trial. That failure is compounded by the
59 LR 56.1.
60 R. Doc. 8. The Court later vacated the original Scheduling Order because Defendant PHH’s counsel of
record was employed at a firm that had voted to wind down operations and dissolve, rendering compliance
with the deadlines functionally impossible. R. Doc. 29 at pp. 1–2. After new counsel enrolled, the Court
issued a new Scheduling Order. R. Doc. 38. The Court quotes and cites the original Scheduling Order here
because it governed when the instant motion was fully submitted. The Court further notes that the later-
issued Scheduling Order used updated language imposing more detailed requirements for summary-
judgment filings. R. Doc. 38 at pp. 4–6.
61 R. Doc. 8 at pp. 4-5.
62 Id. at p. 5.
63 R. Doc. 17.
64 Id.
65 Id.
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Plaintiffs’ failure to do so even after they were afforded an opportunity to file an amended
statement of material facts.66 Plaintiffs’ Motion for Summary Judgment fails on this basis
alone.
Plaintiffs attempt to cure this deficiency by placing the burden on the non-moving
Defendant to establish that an outstanding balance remains due on the note.67 At trial,
Plaintiffs will bear the burden of proving they own the funds. As a result, as the moving
parties on the motion for summary judgment, Plaintiffs—not Defendant—must first
establish it is undisputed fact that they own the funds. Plaintiffs have failed to do so.
Even if Plaintiffs had met their burden, Defendant’s opposition and the affidavit
attached thereto establish that ownership of the funds remains disputed because the
parties disagree as to whether any amount remained due on the note after application of
the proceeds from the sheriff’s sale. Plaintiffs argue the affidavit submitted by Defendant
to show that a genuine dispute of fact exists as to whether an outstanding balance remains
due on the note is deficient.68 Specifically, Plaintiffs argue the affidavit is not competent
summary judgment evidence because it was not made under oath, is conclusory, and is
unsupported by record evidence.69 Federal Rule of Civil Procedure 56 requires affidavits
submitted as summary judgment evidence “be made on personal knowledge, set out facts
that would be admissible in evidence, and show that the affiant or declarant is competent
to testify on the matters stated.”70 There is no dispute that the affidavit satisfies the
requirements of Rule 56. Defendant submitted an affidavit from its Senior Loan Analyst71
66 R. Doc. 16. The Order granting Plaintiffs leave to amend also quoted and cited the same language from
the Scheduling Order the Court quotes above. Id. at p. 1.
67 R. Doc. 18 at pp. 6-8; R. Doc. 36 at pp. 1-2.
68 R. Doc. 36 at pp. 1-2.
69 Id.
70 FED R. CIV P. 56(c)(4).
71 R. Doc. 35-1.
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that was made on his personal knowledge. The affidavit set out facts that would be
admissible into evidence, and the Senior Loan Analyst is competent to testify on the
matters stated.
Plaintiffs next argue the affidavit is conclusory and insufficiently supported to
establish a genuine dispute of material fact as to whether an outstanding balance
remained on the loan.72 In particular, Plaintiffs argue the affidavit is insufficient to create
a genuine dispute because the affiant failed to describe the documents he reviewed to
support his statement that “[a]fter application of the $282,614.51 in proceeds from the
sheriff’s sale, $45,987.77 remained outstanding on the [l]oan.”73 The Court disagrees. The
affidavit contains a lengthy and detailed explanation of the business records Defendant
maintains when servicing a loan, including ““electronic date compilations, imaged
documents, and physical documents and records pertaining to the loan [it] services.”74
The affiant also states that, in preparing the affidavit, he reviewed those “relevant
business records.”75 In addition, the affiant provides a detailed description of the
onboarding process used when PHH takes over servicing a loan, including how PHH
incorporates records from prior servicers when it becomes the current servicer.76 Taken
together, these statements sufficiently establish that, at a minimum, a genuine dispute of
material fact exists as to whether any outstanding balance remained on the loan.77
Finally, Plaintiffs argue they are entitled to summary judgment on their conversion
claim based on the Louisiana Supreme Court’s decision in Rushing v. Dairyland Ins. Co.78
72 R. Doc. 36 at pp. 1-2.
73 Id. at p. 2; R. Doc. 35-1 at p. 4 ¶ 32
74 R. Doc. 35-1 at p. 1 ¶ 2.
75 Id. at p. 2 ¶ 3.
76 Id. at p. 2 ¶ 4.
77 R. Doc. 35-1.
78 456 So. 2d 599 (La. 1984); R. Doc. 18 at p. 6.
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In Rushing, the Louisiana Supreme Court held that, under the Louisiana Deficiency
Judgment Act (“LDJA”), a mortgagee that extinguishes a mortgage through foreclosure
and sale without appraisal forfeits its interest in pending insurance proceeds.79 The court
in Rushing reasoned that, under the plain language of the LDJA, termination of a
mortgage through foreclosure and sale without appraisal extinguishes the debtor’s
personal obligation by operation of law, regardless of any contrary provision in the
mortgage.80 Plaintiffs argue that, because the mortgagee elected to extinguish the
Borrowers’ debt through foreclosure and sale of the property without appraisal, Rushing
extinguished the mortgagee’s ownership interest in the insurance proceeds as a matter of
law and, in turn, establishes Plaintiffs’ ownership interests in those proceeds.81
Defendant points out that the holding of Rushing was overturned by the 1986
amendment to the LDJA, which specifically permits mortgagees to recover insurance
proceeds under a mortgage containing a standard loss payable clause, even when the debt
has been extinguished through foreclosure and sale without appraisal.82 In support,
Defendant cites the Fifth Circuit’s decision in BHNO Partners, Ltd. V. Canterbury Joint
Venture,83 in which the Fifth Circuit upheld the district court’s holding that:84 (1) the
terms of the mortgage vested the mortagee with an ownership interest in the insurance
proceeds, and (2) the 1986 amendment to the LDJA expressly provides that foreclosure
and sale without appraisal does not necessarily extinguish a mortgagee’s ownership
79 Rushing v. Dairyland Ins. Co., 456 So.2d 599 (La. 1984).
80 Id.
81 R. Doc. 18 at pp. 7-8.
82 R. Doc. 35 at p. 7.
83 114 F.3d 1183 (5th Cir. 1997).
84 BHNO Partners, Ltd. v. Canterbury Joint Venture, No. 96-2498, 1996 WL 531832 (E.D. La. Sept. 13,
1996).
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interest in insurance proceeds.85 Specifically, the district court judge in BHNO Partners
explained that a standard loss payable clause vests the mortgagee with a contractual
ownership interest in the insurance proceeds, even after foreclosure and sale without
appraisal.86 Such a clause creates an independent insurance contract between the insurer
and the mortgagee, allowing the mortgagee to recover insurance proceeds even if the
underlying debt has been extinguished through foreclosure and sale without appraisal.87
Defendant cites the terms of the reverse mortgage which contains a standard loss
payable clause, specifically reading:
The insurance policies and any renewals shall be held by Lender and shall include
loss payable clauses in favor of, and in a form acceptable to Lender.
In the event of Loss, Borrower shall give Lender immediate notice by mail. Lender
may make proof of loss if not made promptly by Borrower. Each insurance
company concerned is hereby authorized and directed to make payment for such
loss to Lender instead of to Borrower and Lender jointly. Insurance proceeds shall
be applied to restoration or repair of the damaged Property, if the restoration or
repair is economically feasible and Lender’s interest is not lessened. If the
restoration or repair is not economically feasible or Lender’s security would be
lessened, the insurance proceeds shall be applied first to the reduction of any
indebtedness under a Second Note and Second Security Instrument held by the
Secretary on the Property and then to the reduction of the indebtedness under the
Note and this Security Instrument. Any excess insurance proceeds over an amount
required to pay all outstanding indebtedness under the Note and this Security
Instrument shall be paid to the entity legally entitled thereto.88
Defendant contends these provisions mirror the type of standard loss-payable clause
recognized in BHNO Partners as creating a vested contractual interest in insurance
proceeds in favor of the mortgagee.89 In Defendant’s view, because the reverse mortgage
required the policy to be held by the mortgagee, required loss-payable clauses in the
85 Id.
86 BHNO Partners, Ltd. v. Canterbury Joint Venture, 1996 WL 664872 (E.D. La. 1996).
87 Id. at *1.
88 R. Doc. 35-3 at pp. 4-5. Plaintiffs also attached the reverse mortgage to their Motion. R. Doc. 15-3.
89 R. Doc. 35 at p. 10.
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mortgagee’s favor, directed the insurer to pay the mortgagee directly, and authorized
application of the proceeds to the underlying debt under specified circumstances, the
mortgage vested ownership rights in the insurance proceeds in Defendant rather than
Plaintiffs.90
The Court agrees with Defendant that the holding of Rushing was overturned by
the 1986 amendment to the LDJA, which specifically permits mortgagees to recover
insurance proceeds under a mortgage containing a standard loss payable clause, even
when the debt has been extinguished through foreclosure and sale without appraisal.91
Even assuming Rushing remains relevant in some circumstances, the reverse mortgage
itself contains the kind of standard loss payable language that, under the post-1986
framework and the reasoning discussed in BHNO Partners, preserves the mortgagee’s
vested contractual interest in insurance proceeds notwithstanding foreclosure and sale
without appraisal.
Further, the mortgage explicitly provided that Defendant could apply the
insurance proceeds to the outstanding balance if repair was not economically feasible or
if the lender’s security interest would be lessened.92 The Court agrees with Defendant that
applying insurance proceeds to repair a home that no longer serves as security for the loan
would lessen Defendant’s security interest and that, under the terms of the reverse
mortgage, the insurance proceeds instead were to be applied to the outstanding debt.
Plaintiffs have failed on all grounds to establish it is an undisputed fact that they
own, or have the immediate right to possess, the remaining insurance proceeds for
purposes of their conversion claim. As a result, Plaintiffs have not carried their initial
90 Id. at pp. 6-11.
91 Id. at pp. 7-8.
92 R. Doc. 35-3 at pp. 4-5 ¶ 3.
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summary-judgment burden of coming forward with evidence that would entitle them to
a directed verdict at trial. Even if they had, Defendant’s opposition and supporting
evidence suffice to create a genuine dispute as to this material fact.
Accordingly,
IT IS ORDERED that Plaintiffs’ Partial Motion for Summary Judgment93 is
DENIED.
New Orleans, Louisiana, this 27th day of March, 2026.
____________ ___________________
SUSIE MORGAN
UNITED STATES DISTRICT JUDGE
93 R. Doc. 15.
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