    Case: 15-50180    Document: 00513547583     Page: 1   Date Filed: 06/14/2016




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

                                                                         FILED
                                 No. 15-50180                        June 14, 2016
                                                                    Lyle W. Cayce
                                                                         Clerk


In the Matter of: JOE JESSE MONGE; ROSANA ELENA MONGE,
                                           Debtors.


JOE JESSE MONGE; ROSANA ELENA MONGE,
                                           Appellants,
versus
ALICIA ROJAS; FRANCISCO JAVIER JAYME,
                                           Appellees.




                Appeal from the United States District Court
                     for the Western District of Texas




Before SMITH, BARKSDALE, and COSTA, Circuit Judges.
JERRY E. SMITH, Circuit Judge:

      Joe and Rosana Monge appeal the district court’s judgment that adopted
in part the bankruptcy court’s proposed findings of fact and conclusions of law.
Finding no error, we affirm.

      This adversary matter arises out of the Monges’ Chapter 11 bankruptcy
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                                     No. 15-50180
proceeding. 1 Aside from defunct corporations, the remaining defendants are
Alicia Rojas and her husband, Francisco Jayme. Rojas is an attorney and
licensed mortgage broker who, from late 2005 through 2008, was a mortgage
broker for the Monges. Jayme is a licensed real estate agent who, during the
same period, served as a real estate agent for the Monges. The adversary pro-
ceeding concerns mainly the sale and leasing of a house in New Mexico known
as the Thoroughbred Property.

       Jayme originally obtained title to the Thoroughbred Property in 2002
through a general warranty deed filed in Dona Ana County, New Mexico.
Almost immediately, however, he went into arrears on the property. To avoid
foreclosure, he filed a series of four Chapter 13 bankruptcy cases in New Mex-
ico and Texas. Each was dismissed, and Jayme’s mortgage lender, Citibank,
foreclosed on November 1, 2005. A New Mexico state court approved the fore-
closure sale on January 9, 2006, and a Special Master’s deed confirming the
foreclosure (effective to November 1, 2005) was filed and recorded on Janu-
ary 19, 2006. That deed noted that Jayme retained a one-month statutory
right to redeem the foreclosed property.

       Sometime in late 2005, the Monges became acquainted with Rojas and
Jayme and, in December 2005, executed a purchase agreement to buy the
Thoroughbred Property from Rojas and Jayme for $775,000. To finance the
purchase, the Monges obtained from America’s Wholesale Lender a mortgage
loan for $697,000 that was arranged by Rojas as the mortgage broker. The
closing took place on February 3, 2006. A general warranty deed conveying
the property from Jayme to the Monges, along with the Thoroughbred mort-
gage, was first recorded in Dona Ana County on February 6, 2006.


      1  We base our summary of the facts on the findings adopted by the district court and
not challenged on appeal.
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                                 No. 15-50180
      Jayme used the proceeds to redeem the Thoroughbred Property from
Citibank on February 8, 2006, just one day before his statutory right of re-
demption was set to expire. It was not until June 27, 2006, however, that
Citibank executed a quitclaim deed conveying the property back from Citibank
to Jayme. The quitclaim deed was recorded in Dona Ana County on July 28,
2006. That same day, shortly after the quitclaim deed was recorded, the gen-
eral warranty deed from Jayme to the Monges and the Thoroughbred mortgage
originally recorded on February 6, 2006, were re-recorded.

      In theory, the Thoroughbred Property was being sold to the Monges so
that Rojas and Jayme could obtain an estimated $300,000 in equity from the
sale. Rojas and Jayme planned to use that equity to purchase and develop the
Country Cove Subdivision, a new real estate venture between them and the
Monges. The anticipated equity, however, never materialized, because Jayme
ended up receiving zero dollars in cash from the sale. Partially as a result, the
Country Cove venture was a failure.

      On the same day as the closing of the sale of the Thoroughbred Property
to the Monges, i.e., on February 3, 2006, Rojas signed a residential lease with
an option to purchase the Thoroughbred Property. Under the terms of the
agreement, Rojas would lease the property from the Monges for one year with
a one-year option to purchase it. The term of the lease was from February 2,
2006, through January 31, 2007, with the rent equal to the amount of the
Monges’ monthly mortgage payment to America’s Wholesale Lender. Rojas
and Jayme, however, were unable to make most of the rental payments and
have paid no rent since April 2008, despite continuing to live on the property.
Rojas and Jayme never exercised the option to repurchase the Thoroughbred
Property; the option expired in January 2007.

      Because of Rojas and Jayme’s failure to pay rent, the Monges eventually

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                                       No. 15-50180
defaulted. To avert foreclosure on the Thoroughbred Property, they filed for
bankruptcy in 2009. They initiated the instant adversary proceeding against
Rojas and Jayme in June 2010. After a bench trial, the bankruptcy court on
September 5, 2014, submitted the proposed findings and conclusions (178
pages) to the district court for de novo review. On September 18, the Monges
timely filed objections. Rojas and Jayme did not respond. On January 27,
2015, the district court overruled all of the objections, adopted the proposed
findings in part, and entered a final judgment from which the Monges appeal.

                                              I.
       We review “the decision of a district court, sitting as an appellate court,
by applying the same standards of review to the bankruptcy court’s findings of
fact and conclusions of law as applied by the district court.” 2 Here, however,
the bankruptcy court submitted only proposed findings of fact and conclusions
of law to the district court pursuant to 28 U.S.C. § 157(c)(1), so the district
court did not sit as an appellate court. 3 Unlike the district court, then, this
court does not review the bankruptcy court’s proposed findings of fact and
conclusions of law de novo but, instead, we review the district court’s findings
of fact for clear error and its conclusions of law de novo. 4

                                             II.
       The Monges urge that the district court should have sustained their



       2 First Nat’l Bank v. Crescent Elec. Supply Co. (In re Renaissance Hosp. Grand Prairie
Inc.), 713 F.3d 285, 294 (5th Cir. 2013) (quoting In re Gerhardt, 348 F.3d 89, 91 (5th Cir.
2003)).
       3 See 28 U.S.C. § 157(c)(1) (requiring district court to review bankruptcy court’s pro-
posed findings of fact and conclusions of law de novo).
       4Cf. Tasch, Inc. v. Diamond Offshore Drilling, Inc. (In re Tasch, Inc.), No. 01-31363,
2002 WL 1973464, at *2 (5th Cir. July 31, 2002) (reviewing, for clear error, findings of fact
proposed by the bankruptcy court and adopted by the district court).
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                                  No. 15-50180
objections to the proposed findings because the objections were unopposed.
Under Rule 9033(b) of the Federal Rules of Bankruptcy Procedure, each party
has fourteen days to file objections to the bankruptcy court’s proposed findings
of fact and conclusions of law and another fourteen days to respond to objec-
tions submitted by other parties. The Monges filed their objections within the
time period, but Rojas and Jayme neither filed objections nor responded to the
Monges’ objections. For that reason, the Monges argue, Rojas and Jayme
waived their right to appeal the proposed findings, and the district court should
have sustained all of the Monges’ objections.

      We disagree. In accordance with 28 U.S.C. § 157, Rule 9033(d) explicitly
instructs the district court to “make a de novo review upon the record or, after
additional evidence, of any portion of the bankruptcy judge’s findings of fact or
conclusions of law to which specific written objection has been made in accord-
ance with this rule” and authorizes the district court to “accept, reject, or
modify the proposed findings of fact or conclusions of law.” No statute or rule
prohibits the district court from considering or ruling on the merits of an un-
opposed objection just because it is unopposed. By failing to file objections or
to respond to the Monges’ objections, Rojas and Jayme have waived their right
to appeal the proposed findings and to present any legal issues in opposition to
them. That waiver, however, has no impact on the district court’s authority to
consider the merits of the objections. The district court need not sustain the
Monges’ objections merely because they are unopposed; it may overrule the
objections if they lack merit, as the district court indeed found.

                                       III.
      The district court overruled the Monges’ objection to the bankruptcy
court’s proposed finding that they must have realized there was no equity in
the Thoroughbred Property. Of the multiple Forms HUD-1 in the record,

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                                 No. 15-50180
several show Rojas and Jayme as receiving some equity in the property. At
least one HUD-1 from the day of the closing, however, shows them as receiving
no cash from the sale. Under these circumstances, we cannot say that the dis-
trict court clearly erred in concluding that the Monges knew or should have
known, by the closing date, that Rojas and Jayme would receive no equity in
the Thoroughbred Property. Consequently, we affirm the district court’s adop-
tion of the bankruptcy court’s finding.

                                      IV.
      The Monges maintain that the district court erred in overruling their
objection to the bankruptcy court’s proposed finding that Rojas and Jayme did
not misrepresent to the Monges that Rojas and Jayme expected to make their
rental payments solely from the equity received through the sale of the Thor-
oughbred Property. The bankruptcy court, however, never proposed such a
finding, the district court never adopted such a finding, the Monges never
raised this issue in the district court, and the Monges do not adequately brief
it on appeal. The Monges’ argument is thus both meritless and waived. See
In re Bradley, 501 F.3d 421, 433 (5th Cir. 2007).

                                          V.
      To qualify for financing to purchase the Thoroughbred Property and a
separate parcel of real estate, Rojas helped the Monges complete loan applica-
tions, to each of which were attached fictitious leases. The bankruptcy court
declined to propose, and the district court refused to make, a finding as to
whether the Monges signed the fictitious leases. The Monges assert that this
was error. We disagree, because the evidence was ambiguous, and the Monges
failed to introduce expert testimony that their signatures were forged.




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                                  No. 15-50180
                                       VI.
      In addition to maintaining that the district court should have found that
the Monges did not sign the fictitious leases, the Monges claim that the district
court erred in overruling their objection to the bankruptcy court’s proposed
finding that it could not be determined whether Rojas and Jayme created the
fictitious leases. The Monges, however, never raised this issue in their objec-
tions to the proposed findings, and the district court never considered the issue.
Consequently, it has been waived. See id. at 433.

                                      VII.
      The district court overruled the Monges’ objection to the bankruptcy
court’s proposed conclusion that they were not entitled to punitive damages
based on violation of the automatic stay. In so doing, it committed no error.

      The court may award punitive damages for willful violation of an auto-
matic stay “in appropriate circumstances,” 11 U.S.C. § 362(k)(1), which we
have held requires “egregious conduct.”       Young v. Repine (In re Repine),
536 F.3d 512, 521 (5th Cir. 2008). In Young, we found the violator’s conduct
egregious because she violated a stay despite repeated warnings and bank-
ruptcy court admonishments not to do so. Id. According to the district court,
Rojas and Jayme’s refusal to relinquish possession of the Thoroughbred Prop-
erty was not egregious, because there was no evidence that the Monges ever
notified Rojas and Jayme that their conduct violated the automatic stay as dis-
tinguished from the lease agreement. We agree, both for this reason and be-
cause Rojas and Jayme believed that they had the right to possess the Thor-
oughbred Property. See Proposed Findings, Monge v. Rojas, No. 10-03019-hcm,
at 83 (Bankr. W.D. Tex. Sept. 5, 2014).

      The Monges also assert that Rojas and Jayme willfully violated the auto-
matic stay by attempting to “sell” the property to themselves in 2012. Like the
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                                 No. 15-50180
district court, we find the evidence for this alleged attempted fraudulent sale
of the Thoroughbred Property to be ambiguous. For that reason and in the
absence of any proposed finding on the matter by the bankruptcy court, we
refuse to award punitive damages on this basis.

      Finally, the Monges argue that they are entitled to punitive damages for
breach of contract. Under New Mexico law, punitive damages are available for
breach of contract where there is “evidence of . . . a culpable mental state or
other form of overreaching, malicious, or wanton conduct.” Constr. Contracting
& Mgmt., Inc. v. McConnell, 815 P.2d 1161, 1165 (N.M. 1991). The district
court concluded that the Monges had failed to meet their burden of proving a
culpable mental state. We agree. It was foolish or at least overly optimistic of
Rojas and Jayme to think that they could make the higher rental payments to
the Monges under the lease when they could not even make the far lower
monthly mortgage payments to Citibank. But foolishness or over-optimism is
not a culpable mental state, and mere breach of a contract, without more, is
not “overreaching, malicious, or wanton conduct.” Id.

                                     VIII.
      To succeed on a claim for fraud under New Mexico law, the Monges must
prove three elements: (1) “a misrepresentation of a fact,” (2) “known to be
untrue by the maker,” and (3) “made with an intent to deceive and to induce
the other party to act upon it with the other party relying upon it to his injury
or detriment.” Unser v. Unser, 526 P.2d 790, 795–96 (N.M. 1974). The district
court determined that two of those three elements were not satisfied. There
may not “necessarily” have been a misrepresentation of a fact, because Jayme
possessed a statutory right of redemption, and “even if [Rojas and Jayme] did
make a false statement, there is no indication that their intent was to deceive.”
Order, Monge v. Rojas, No. EP-14-CV-385-PRM, at 25 (W.D. Tex. Jan. 27,

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                                     No. 15-50180
2015). On appeal, the Monges advance numerous arguments as to why there
was in fact a misrepresentation. We decline to consider these arguments, how-
ever, because the district court’s finding that Rojas and Jayme did not intend
to deceive is not clearly erroneous and, without proof of this element, the
Monges are not entitled to recover for fraud. 5

                                           IX.
      The Monges maintain that the district court erred in overruling their
objection to the bankruptcy court’s proposed conclusion that Jayme did not
commit fraud by non-disclosure in the sale and conveyance of the Thorough-
bred Property. Under New Mexico law, a claim of fraud by non-disclosure
requires a showing that a party to a transaction knew of material facts, had a
duty to disclose those material facts, and remained silent. Krupiak v. Payton,
561 P.2d 1345, 1346 (N.M. 1977). A duty to disclose may arise from knowledge
that the other party to a transaction is “acting under a mistaken belief” or from
the defendant’s possession of “superior knowledge that is not within the reach
of the other party or could not have been discovered by the exercise of reason-
able diligence.” Id. The Monges contend that Rojas and Jayme had a duty to
disclose to them the fact that the Thoroughbred Property was in foreclosure
and that Jayme had filed for bankruptcy. The district court disagreed because
the Monges could have discovered those facts through a title search and exam-
ination of public records.

      We agree with the district court that there was no duty to disclose and



      5  The Monges never objected to the bankruptcy court’s proposed conclusions that they
did not rely upon Jayme’s (mis)representations concerning good title and that even if they
did, they suffered no damages as a result, because Jayme later corrected the problems with
title and because they had title insurance. Proposed Findings at 99–100. Consequently,
those issues are waived, and the Monges could obtain no actual relief even if we found that
they did satisfy the requirements for a claim for fraud.
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                                       No. 15-50180
hence that the Monges have no claim for fraud by non-disclosure. The Monges
cite no relevant cases in support of their position. 6 And their notion that they
did in fact exercise “reasonable diligence” is flawed. They assert that they
exercised reasonable diligence by having a title company perform a title search.
They assert that the company discovered the non-disclosed information but
failed to inform them of the results of the title search. Aside from any action
they could bring against the title company (a matter as to which we express no
opinion), the fact remains that the non-disclosed information was in fact dis-
coverable through the exercise of reasonable diligence, even if it was not actu-
ally discovered by them.

                                             X.
       The Monges maintain that the district court erred in overruling their
objection to the bankruptcy court’s proposed conclusion that Rojas and Jayme
did not breach a duty of good faith and fair dealing. Unlike Texas, 7 New Mexico
imposes a duty of good faith and fair dealing on parties to a contract. Watson
Truck & Supply Co. v. Males, 801 P.2d 639, 642 (N.M. 1990). To prevail on
this claim, the Monges must show “bad faith” or that Rojas and Jayme “wrong-
fully and intentionally used the contract to the detriment of the other party.”
Cont’l Potash, Inc. v. Freeport-McMoran, Inc., 858 P.2d 66, 82 (N.M. 1993).
This requirement is met if the Monges show that Rojas and Jayme entered into
a contract without any intention of honoring it. See Romero v. Mervyn’s,



       6 The decisions in Daly v. Bernstein, 28 P. 764, 766 (N.M. 1892) and Steadman v. Tur-
ner, 507 P.2d 799 (N.M. Ct. App. 1973), are inapposite because they deal with fraud by affirm-
ative misrepresentation. The opinion in Wirth v. Commercial Res., Inc., 630 P.2d 292 (N.M.
Ct. App. 1981), is distinguishable because it deals with failure to disclose information about
a physical aspect of the property (the availability of water) rather than with legal title.
       7 “Texas law does not impose a generalized contractual duty of good faith and fair
dealing and, in fact, rejects it in almost all circumstances.” Hux v. S. Methodist Univ., 819
F.3d 776, 781 (5th Cir. 2016) (citing English v. Fischer, 660 S.W.2d 521, 522 (Tex. 1983)).
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                                   No. 15-50180
784 P.2d 992, 1001 (N.M. 1989).

      The district court concluded that the Monges had failed to show that
Rojas and Jayme never intended to honor the lease agreement because Rojas
and Jayme paid some rent during the term of the lease. 8 District Court Order
at 29. “Had [Rojas and Jayme] subjectively intended to live on the property
‘rent free’ the whole time, they likely would not have paid [the Monges] any
rent.” Id. This is correct.

      The Monges object that the district court’s reasoning rests on an errone-
ous factual basis, but they have waived the argument. The bankruptcy court
proposed finding that Rojas and Jayme paid $12,568 in rent during the term
of the lease agreement. Proposed Findings at 39. And the district court
adopted that proposed finding, to which the Monges never objected in the dis-
trict court. They have thus waived any challenge to this finding, which, in any
event, we would uphold as not clearly erroneous.

      The judgment of the district court is AFFIRMED.




      8 According to proposed findings adopted without objection, Rojas and Jayme made
$61,134 in rental payments after the expiration of the lease.
                                         11
