110823 - ahmsi v lps and docx

Document SOhJtion$ GroLlI' Sutrog.\uc Signer P"olky

The followIng internal procedure, have been e.$tabllshed 1.0 minimize lass effe'tlv~nen cue to a tow number of In" bouse authorized COfponlte signers al vllnous times. Thes& procedures are 10 desi8n.:tte in!crnal svHogate signets and cortt'lpondlng responSjbdltie;, To m.ltntilin maximum Inteff\al control and limit risk, CII.prcss limited $urrogl)te signature authOJ""i!y jsgranted undt,- 'pstlfle conditions and wll! be administeted in a contrO!lIed envlrenmtnt.

Definltiom: as aPQlfCa.bfe to these prOCedure:. AUlhorlu:d 'M,'Wu,e - A slinature by -I ,..Mu.on Wlltl iliJtl\:;lrlty ~nd POW<!:( to repra,cllt and le,.l!y bind a party tl) a written at;teemtnt, ,

SurtoAAttl- *nature - A lUrropte ~'flltU(t l.I ill ,ip1i1tuf;;! Jigneti by S(lmrone other than the person Ml'M<l. !Wtho!iuuihl.M( - An authOtll~d signer Is: ont who isauthori.i,d to tisn on behalf of an tntily. iJllOal1¥ a rorpor.tIOl1. $1lf!uw*n~C ... A SYfT08-1le11g1Vtt"It QIl\l whO has-teel1 glventKPres-s p1!fml»loo to "1&n the l\III"neof anDtMr petS011, SlI!nlnc mcm- The slenil1a rool't! Il;an area pre...<Jelig:late:d by NNg~ment in whlth surl'Qljate slgn!'ll ma't O«llf.

VoRtr maragem¢nt - Document SoIutlQm Qlrectc:If, Viet.! Pntslde:nt, or Pr~,jdel1t,

Authortty.. 8y my signature below Iha, idmtifled SlIrrogilte signer. is granted ell.pres.!i authorIty to sign my na!l':e ils a corpora.eauthorlzed "gner SiW.I.lundcfthe ort,g;nal term, and coru.tltions of m'( authorilV aran'~d, u'iu.IIIV restricted to spedtic set of documents in a restricted manner. Documents conve'lin, propelty or as: restricted bV Stale- or Federal laws afe 1'tQI loctuded In this authorIty,

R4t\fOJ(.ltlcmof Authority: Authority may be teYok'ed at any Hme for any reason by the ilulhorlted Signet" OR \,Ipper management. AutOI'l'UIU<: tevt!<at\on wlU occur if these procedure-s are not fOllow.d. if there is any il\dlcatlQn or misuse of tbis: autho6ty, or upon the tetminatlon of emplQyment l'lorunUJry or inyoluntary~ with Document SokJlioru Gtoup,

Trmes: All surroCate lignatufK are to be admfnjstered at times n specified in the terms of the author!zed signers mgrarded"authotllyOR as specifIed by upper m;Jnagetrnli1"1t,

t.oeaUon: AN 5.urrogate SiGnatures are to be admiOister~ in (ne ~l£nlng room. unless otherwise instructed by upper m;~aseme:nt This will only hapl=len under extenuating cmcfKency Iype clrcumslanc~s,

Signature qtquiretMnu: The surro,atesignature mus:t irn:lude all nMn&S used by the authO.i:red signer as a represe"talion oftneir sienaturel spel!ed correctly. lind with accurate punc;tllatlon.

$u(rOlate S!enature: The below signa ur@isan@)(amI'HeOI the signature;:o De used by the S\.Ittogate signer.

These procedures .re to be .slg~d by and strtct/y adhered to b'J the below mentioned authorlred stgner and their deslgnate:f $urtOS.te signer.

I, Linda Green. the authorized Signer IU:VR teild and will comply with Oocument SolUtions: Group's Surrogate Signer Polk.,. I era fity '0 the telaw listed Surtogate SJiner 11'1 my cJlpaclty.

_". (lpr h(we rea(l and will oomplywith [loc\,.lment solution .. Group's surrosat€ Signer Pofl~V,

51fi1l0""e -:-,-'I"'!fC-______________ oa"'_:1:(d_-:::dfI-"'. __ _ 'tins

Confidential Treatment Requested by lender Processing Services, Inc. NVAG·LPS·V2·0001979

AMERICAN HOME MORTGAGE SERVICING, INC.,

Plaintiff,

l / , , ; f'r . .. , ,

IN THE DISTRICT COURT of;'

~', ;

/!

v.

§ § § § § § § § § § §

~ '~,"i :;

LENDER PROCESSING SERVICES, INC., and DOCX LLC , ,

Defendants.

DALLAS COUNTY, TEXAS

"'''',. ,"". ' ,hj.""U"~'-. '_ JUDICIAL DISTRICT

PLAINTIFF'S ORIGINAL PETITION

Plaintiff American Home Mortgage Servicing, Inc, ("AHMSI") files this Original

Petition against defendants Lender Processing Services, Inc. ("LPS") and its division, DOCX,

LLC ("!20CX" and collectively with LPS, "Defendants"), based upon AHMSl's personal

knowledge as to its own acts and upon information and belief as to all other allegations.

I. PREUMINARY STATEMENT

AHMS! brings this action seeking redress for the miUions of dollars in losses it has

suffered, and continues to sutfer, as a result of Detimdnnts' unauthorized execution and

notarization of assignments affecting more than 30,000 residential mortgages in Texas and

throughout the Unites States. Defendants do not dispute that, without AHMS!'s knowledge or

consent, they impl'Operly executed, notarized, and recorded thousands of assignments upon

which AHMSI relied in the course of pursuing foreclosure proceedings on behalf of the

securitization trusts that owned the loans: nonetheless, Defendants deny any legal responsibility

to AHMSI, and have refused to indemnifY AHMSI for the damages they have caused.

As part of its residential loan servicing business, AHMSI collects mortgage, tax, and

insurance payments from homeowners on mortgages held by securitization trusts. It also works

PlAI~IIIIF'S QRIGf:'i:\'t PEnTlON - Page I

'I! '(

with homeowners who detault on their mortgages to Hnd acceptable alternatives to foreclosure,

such as loan modil1cation, deeds in lieu of foreclosure, and short sales. When these efforts are

not successful in curing a delimIt, AHMSI initiate. foreclosure proceedings on behalf of the

owner of the loan.

AHMSI retained Defendants to prepare, notarize, and record assignments of mortgage in

connection with those foreclosure proceedings. To facilitate Defendants' work, AHMSl's hoard

of directors appointed various employees of Defendants as "Special Officers" of AHMSI,

providing them with the limited authority to execute assignments in accordance with the tenus of

the hoard resolutions appointing them.

Defendants acted outside this limited grant of authority, Without AHMSl's knowledge

or approval and in violation of their contract with ARMS I, Defendants engaged in a pmctice they

have descrihed as "surrogate signing" in which persons not authorized by ARMS!' s board

executed assignments of mortgage by 'igning the names of the Special Officers who were

explicitly authorized, Defendants then caused these unauthorized signatures to be witnessed and

notarized, thereafter recording the assignments in the local real property records in connection

with the related fureclosure proceedings, AHMSI did not learn of these practices tmtillate 2009

when Defendants admitted the "surrogate signing" pmctice to AHMSI, at which time AHMSI

ceased using LPS to prepare, notarize and record assignments of mortgage.

Defendants' practice of "surrogate signing" mortgage assignments has forced AHMSI to

address a myriad of legal issues, problems and proceedings in venues around the COlin try. It also

caused AHMSI to undertake, at substantial expense, an extensive remediation elfort to identify

and, where necessary, remedy any sUITogato-signed assignments of mortgage.

Despite their contractual obligations und express promises to the contrary, Defendants

have refused to reimburse or indemnify AHMSllor Ihe costs it has incurred due to Defendants'

practice of"surrogate signing." Indeed, only fiVe months after expressly promising to indemnify

AHMSl, Defendants tor the first time claimed that they had no duty to indemnify AHMS!,

purpo!tedly because the contract pursuant to which Defendants executed the unauthorized

assignments had expired before they had executed any assigmnents on AHMSI's behalf,

Defendants conveniently ignore that they created lens of thousands of assignments of mortgage

and accepted hundreds of thousands of dollars in payment in accordance with the terms of a

supposedly non-existent contract.!

Because of Defendants' failure to comply with their obligations to AHMSl, ARMSl now

brings this action seeking (I) a declaratory judgment that the written contract between the parties,

as amended, is binding and efiective; (2) an order compelling Defendants to arbitrate AHMSl's

claims for breach of contract and indemnification; and (3) as to AHMSI's non-arbitrable claims,

an award of damages sufficient to reimburse AHMSI for the millions of dollars in losses caused

by Defendants executing, notarizing, and recording unauthorized, surrogate-signed assignments

on behalf of AHMSL

II. INTRODUCTION

A. Discovery Control Plan-Level 3

1. AHMS! intends to conduct discovery under Level 3 pursuant to Texas Rule of

Civil Procedure 190.4.

I Given their position <:onceming lhe contract, AHMSI beJ!eves that Defendants will reje<:t AHMSl's demand to arbitrate that is based on an express arbitration provision in that contract. Nonetheless. AHMSI has served Defendants with a demand f()r arbilration that is attached hereto as Exhibit A.

PI.A!NTIFF'S OIUGfN,\L PETITtON -- Page 3

B. Parties

2. Plaintitf AHMSI is " Delaware corporation that services residential mortgages

primarily for the securitization trusts that own the loans. AHMSI is registered in Texas and

maintains its headquarters and principal place of business at 1525 S. Beltline Road, Coppell,

Texas 75019.

3. Defendant LPS is a Delaware corporation that provides-eithcr independently or

through ils affiliates--mortgage document processing services, settlement services, mortgage

perionnance analytics, and mortgage default services to lenders and mortgage servicing

companies. LPS registered to do business in Texas in March 2009 !lIld maintains its

headquarters and principal place of business at 601 Riverside Avenue, Jacksonville, Florida

32204. LPS may be served with process through ils Texas-based registered agent, CT

Corporation, which is located at 350 North SI. Paul Street, Suile 2900, in Dallas, Texas 7520 I.

4. Defendant DOCX is a Georgia limited liability company that provides document

processing services for lenders and mortgage servicing companies. DOCX is a division ofLPS,

and its principal place of business is at 601 Riverside Avenue, Jacksonville, Florida 32204.

DOCX may be served with process by serving the Texas Secrelary of State.

C. .Jurisdiction and Venue

5. The Court has jurisdiction over the subject matter of this action under Seclions

24,007 and 24.008 of the Texas Government Code.

6. The Court has personal jurisdiction over LPS (a) because it has engaged in

continuous and systematic activities within the State of Texas, and (bJ because Ihis action arises

from and relates to LPS's contacts with the Stale of Texas. In particular, LPS processed lien

releases, assignments, and other mortgage-related documents that it, or its agents, ftled in connty

recording offices throughout Ihc state, including in Dallas County.

PLAiN'TtH'S ORIGIN,\L PETITION ~~ Page 4

Mortgage Corporation ("Option One") and DOCX, was assigned by Option One to AHMSI as

part of a larger asset acquisition. (Exhibit B.)

12. Option One originally had entered into the PSA with DOCX over two years

earlier, on January 9, 2006. DOCX had agreed to process lien releases and related documents,

including assignments of mortgage, tor Option One pursuant to a "Description of Services and

Fees"-also known as a "Statement of Work"-which was attached as Exhibit A to the PSA.

(/,t. at 8-13.)

13. Among other things, the PSA required DOCX to "use its best efforts and

judgments in performance of all Services and duties under this Agreement," to "provide such

Services in an efficient, timely and professional manner, in accordance with industry and state

regulatory standards," and "to comply with all applicable federal, stale and local laws, rules,

regulations and requirements in regard to all Services provided under this Agreement." (ld., 111,

16.)

14. Notwithstanding the PSA's stated one-year term (which expired on January 9,

2007), Option One and DOCX continued performing under the Stafement of Work until April

30, 2008, when Option One assigned its contractual rights and obligations to AHMSI. At that

time, DOCX began processing lien releases and related documents, including certain

assignments of mortgage, for ARMSl, as it had done for Option One. At no time did Defendants

claim that the assignment of the PSA from Option Oue to ARMS! was ineffective or otherwise

invalid.

15. Citing both the PSA and its assignment by Option One to AHMSI, on August 1,

2008, the PSA was amended to include additional assignment processing services ("Amen<Lmenl

I"). (Exhibit C.) Amendment I also contained a "Statement of Work" by which Defendants

PLAINTlfF"S ORIGINAL PETITION ~

agreed to prepare and execute assignments of mortgage on AHMSl's behalf and to record the

assignments in the appropriate jurisdiction, Lorraine Brown, President of Document Solutions, a

division ofa division [sic] of LPS, formally executed Amendment I on October 10, 2008, (Id,)

16. Though AHMSI never signed Amendment 1, its boord of directors promptly

approved the corporate resolution required by Amendment 1 to provide Defendants with

signature authority to execute documents pursUlUlt to Amendment 1, In particular, on August 13,

2008, AHMSr s board of directors authorized certain employees of Defendants, whom the board

had already appointed as "Special OtTIcers" of AHMSI in a July 1, 2008 resolution, to act as

"duly authorized signator[ies)" for the porrose of executing assignments of mortgage on

AHMSl's behalf. (Exhibit D,) The resolution chorged the Special Officers with the llmited

authority to

(ld.)

execute any and all reasonable and necessary documents required in connection with the assignment of mortgages or deeds of trust in connection with the repurchase of the loan secured therebY Or upon the repayment thereof in connection with the refinancing thereof, including the execution of the assignment of the related promissory note and the execution of any endorsements or allonges thereto,

17, Importantly, the authority of each authorized Special Officer was "specifically

and strictly limited" to acting "solely in his or her capacity as an authorized signatory" of

AHMSI. (Id,) The resolution did not perrnir any delegation or designation of the Special

Officer s authority to other employees.

18. AHMSI's board provided other similar resolutions, induding a Unanimous

Written Consent dated October 27. 2009 that appointed employees or contractors of LPS and

DOCX as Special Officers of AHMSI for purposes of processing assignments and olher

mortgage-related documents. (Exhibit E.)

PL.UNTIFF'S OIU( .. INAL PETITION ~

19. Amendment I !ormalized what AHMS[ ond De!endants had been doing, and

continued to do, under the PSA. Before initiating a foreclosure action for a particular property.

AHMSl's loca! foreclosure counsel would review a title report to detennine whether an

assignment of mortgage needed to be recorded in the local land records at some point during a

loreclosure proceeding in order to memorialize the transfer of ownership from the originating

lender to the securitization trust. If so, loredosure counsel would request an assignment on

LPS's computerized foreclosure tracking system known as "LPS Desktop." Upon receiving this

request. Defendants prepared the assignment based on the relevant jurisdiction's requirements

and, through the system, notified local counsel that it was ready lor review. If local counsel

approved, the Special Officers appointed by AHMSI were authorized to sign for the assignor,

and Defendants' representatives then notarized the completed assignments. When completed,

Defendants would send the executed assignment documents, as well as the recording fee, to an

abstractor in the relevant jurisdiction, who would hand-can'}' the items to the county recorder

with instructions to return the recorded assignments to Defendants. Defendants employed this

process to prepare, execute and record thousands of assignments for AHMSI throughout the

United States, including in Texas.

20. For more than a year, Defendants provided assignment processing services tor

which they were compensated by AHMS[ in accordance with the terms and rates provided in

Amendment l's Statement of Work. At no time during that period did Detendants suggest that

the PSA or Amendment 1 thereto had expired or was otherwise invalid.

C. Defendants Acted Outside Their Authority In Executing Certain Assignments for AFlMSI

21. Without ,\HMSl's knowledge or consent and by their OWn admission. Defendants

allowed employees other thun those appointed as Special Officers of AHMSI to execute certain

PLAINTiff'S ORIGINAL PETnlON -

assignments on the Special Officers' behalf. Instead of signing their own names, the surrogates

signed the names of the Special Onicers, meaning that the person whose name appeared on tbe

assignment documentation was not the person who appeared before the witness or notary,

Notaries working under Defendants' direction and control improperly notarized the assignments

containing signatures of surrogates rather than the Special Officers authorized by AHMSI to sign

the documents. The delegation of signing authority 10 surrogates exceeded the scope of the

Detimdants' authority under AHMSl's corporale resolutions. As a consequence, the assignments

executed by the surrogates did not comply with Defendants' contractual obligations.

22. On November 12, 2009, Clay Cornett, the president of LPS Loan Servicing

Solutions-Default Division, contacted Norton Wells, AHMSI's chief operating officer, to

request another corporate resolution appointing Special Officers and ratifying the actions

previously taken by those officers. Shortly thereafter, Sheryl Newman, chief litigation counsel

for LPS, sent Wells a proposed resolution that deviated from prior AHMSr resolutions in at least

one notable respecr. Unlike prior resolutions, which ratified "all actions previously taken by the

officers hereby appointed," LPS's proposed resolution sought to ratify "all actions previously

taken by the foregoing officers amI/or their designees." {Exhibit F (emphasis added),)

23. It was 1I0t unusual for an officer or employee of LPS, such as Mr. Cornett or Ms.

Newman, to contact AHMSI concerning the mortgage assignment services performed by

Detendants pursuant to the PSA. By way of example only, on November 12, 2009, Deon

Kammerath from LPS emailed Norton Wells and Jim Davis at AHMSI to tell them that Dave

Holt had recently been named President of DOCX and that Mr. Holt would be in contact witti

them in short order. (Exhibit G.)

PlMNTlFF1S ORIGiN'\{, PETITION -

I

24. On November 16,2009, AHMSI's board approved the resolution requested by

LPS, but consistent with previous resolutions, the board ratified "all actions previously taken by

the Special OrtIcerS hereby appointed" that were "consistent with the foregoing resolution."

(Exhibit H.) Because the resolution "specifically and strictly limited" the authority of the

Special Omcers to the ministerial act of executing mortgage assignments and other designated

documents, the delegation of that signature authority to surrogates, without AHMSl's knowledge

or consent, was not consistent with the resolution, nor was it consistent with Defendants'

contractual obligations to AHMSI.

25. In late November 2009, Defendants for the first time advised AHMSI that they

had executed assigmnents of mortgage through their now discontinued "surrogate signor"

practice. The scope of this unauthorized practice, however, was far great~r than Defendants

initially represented. Altogether, by Defendants' admission, Defendants' agents surrogate-

signed more than 30,000 assignments of mortgage relating to properties in all 50 states and the

District of Columbia.

26, On December 2, 2009, LPS announced that, effective December 31, 2009, it

would no longer execute documents on behalf of its clients, including AHMSL (Exhibit L)

D. Defendants Breached Their Contractual and Other Common Law Duties To AHMSI

27. By processing surrogate-signed assigrunents, Defendants violated their

contractual obligations under the PSA. For example, in paragraph 16 of the PSA Defendants

agreed "to comply with all applicable federal, state and local laws, rules, regulations and

requirements in regard to all Services provided under this Agreement." (Exhibit B 1 16.) III

addition, in Paragraph I of the PSA, "DOCX represents and warrants that it shall use il, best

efforts and judgment in performance of all Services and duties under this Agreement and shall

PLAINTIff'S ORJGlN>\L rt:.-nnON -

provide such Services ... in accordance with industry and state regulatory standards." (Id. 1 1.)

Detendants' practice of employing unauthorized surrogates to sign the names of the appointed

Special Officers while the witnesses and the notaries attested that the surrogates appearing before

them were the persons whose names appeared on the assignments did not comply with these

provisions of the PSA. And many of these surrogate-signed assignments have been or are now

being challenged in foreclosure actions, causing harm to AHMSL

28. Because of Defendants' breach of their obligations to AHMSI, thousands of

foreclosure actions were delayed or restarted while AHMSI identified the affected assignments

and undertook remedial action, as appropriate. AHMSI has incurred millions of dollars in direct

and indirect costs as a result, including, but not limited to, legal fees and costs associated with

correcting the surrogate-signed assignments, and amending the foreclosure pleadings.

29. Defendants also have breached their obligation to indemnify AHMSI for any

losses or expenses it incurred as a result. Paragraph 8 of the PSA provides in relevant part:

[Dej,mdantsj shall indemnify, defend, and hold harmless [AHMSIJ. its officers, agents, employees, affiliates, authorized personnel and authorized users from and against all losses, damages, liabilities, costs, and expenses (including but not limited to attorneys' fees) relating to or resulting from any pending or threatened action, suit, claim, demand, or proceeding, whether or not well grounded, any judgment or decision against [AHMSI], or any settlement agreement arising out of ... (ii) the negligent acts Or omissions or willful miscondu!.'1 of [Defendants] andlor its employees; (iii) any failure of [Defendants] to perform any of its covenants 01'

obligations under this Agreement; (tv) any acts by [Defendants 1 or [their] employees, subcontractors andlor agents beyond the scope of authority under this Agreement.

(Exhibit B ~ 8.)

30. [iunher, because the use of surrogate signers deviated from AHMS[,s limited

delegation of signature authority and thereby e.xposed AHMS[ to additional litigation andlor

potential liability, Defendants had on affinlliltive obligation to inlonn AHMSI of the practice

when it was first implemented, Instead, Defendants waited until thousands of surrogate signed

assignments had been executed, notarized and recorded betore intonning AHMSI of the issue,

E. AlIMSllIas Undertaken Substantial Remediation Efforts

31, AHMSI has urdertaken significant efforts to identify the loans that were alTected

by Defendants' surrogate-signing practice, and to detennine what corrective action, if any, was

necessary in each jurisdiction, For example, some jurisdictions required AHMSI to liIe

corrected assignments and to amend the foreclosure pleadings, while others required AHMSI to

restart pending foreclosure actions altogether or, if the foreclosure had already been completed,

to rescind the foreclosure and restart the process, AHMSI has incurred miUions of dollats in

expenses and other costs in connection with these remediation efforts,

F. Defendants lIave Refused To Indemnify AlIMSI for Its Losses

32, As discussed, paragraph 8 of the PSA requires Defendants to indemnify AHMSI

for the costs incurred by their surrogate-signed assignments. In addition, after disclosing their

"surrogate signing" practices to AHMS! in late 2009, Defendants expressly promised to

indemnify AHMS! for whatever losses it suffered as a result of the surrogate signing practices,

33, On February 22, 2010, AHMSI made a written demand fOf indemnification upon

LPS, which stated:

You [LPS] have agreed, in accordance with, but not limited to, the indemnification duties contained in Paragraph 8 of the PSA, to indemnify, delend and hold harmless AHMSI, its officers, agents, employees, amliates, investors, authorized personnel and authorized users from and against all losses, damages, liabilities, costs and expenses (including but not limited to attorneys' fees) relating to or resulting from any pending or threatened action, suit, claim, demand or proceeding, whether or not well grounded, any judgment or decision against AHMSI, Of any settlement agreement arising out of the materia! breaches described herein, whether those breaches be characterized as negligent acts or omissions, willful misconduct or failure to perform the obligations arising out of the PSA-

PLAiNTIFF'S ORIGINAL. P[i:TITION -

(Exhibit 1.)

34. LPS responded to AHMSl's demand on May 19,2010. It admitted that, because

of "'a change in a business process," celtain assignments executed by DOCX "contained a

notarization error." (Exhibit K.) LPS also claimed that DOCX had corrected the error and that

LPS endeavored to work with AHMSI to address AHMSI's concerns, "notwithstanding the

expiration of the tenns of the agreement between the parties." (ld.) For the first time, LPS

claimed that the PSA was not legally binding even though the parties had perfonned under the

contract for over a year, even though Defendants had executed Amendment I after the stated

term of the PSA ended, and even though AHMSI had repeatedly referenced it in corporate

resolutions and in other communications without objection from Defendants. Moreover, during

thai time LPS had accepted payment from AHMSI pursuant to the fee schedule articulated by the

PSA. Nevertheless, in response to ARMS!'s formal demand, LPS only agreed on behalf of

DOCX "to promptly review any request made by AHMSI for defense, indemnity or

reimbursement on a case by case basis, with respect to any demand tor actuallosse, sustained by

AHMSI that are directly related to the change in business process." (111.)

35. At various times in late 2010, AHMSI sought reimbursement from LPS for the

damages AHMSI sustained due to the surrogate-signed assignments of mortgage. (Exhibit L

(group exhibit).) In response, LPS acknowledged that certain .ssigrunents processed by DOCX

"may have contained errors in Iheir execution" and that LPS corrected those errors, but denied

that DOCX provided the services under any contract. (Exhibit M.) Specitlealiy, LPS noted that

the PSA "expired within one year per its terms and was expressly limited to lien release

services." (ld) It further noted that "there is no documentation indicating the initial tenn of the

agreement was extended nor that the agreement was expressly assigned to AHMSI." (Id.) LPg

PLAINTlrr'S ORIGINAL J'ET1Tl0~ ... Pnge 13

thus concluded that "there exists no contractual right to indemnity." (ld.) Although denying any

contractual obligation to reimburse AHMSI, LPS stated that it would consider reimbursement of

only direct damages "upon receipt of appropriate documentation evidencing the amount of such

damages and details connecting those damages to the services provided." (ld.) LPS also refused

to consider any reimbursement of consequential damages.

36. Notwithstanding Defendants' contractual obligations and their repeated promises

to indemnify AHMS!, Defendants have not reimbursed AHMSI for any of its losses arising from

their "change in a business process." (Exhibit K.)

G. Defendants Rave Refused to Arbitrate ARMS},. Claims

37. Paragraph 18 of the PSA requires the parties to arbitrate "[aJny disputes arising

under [the] Agreement." (Exhibit B 1118.) Given that Defendants have denied the existence of

the contract, it is clear that they will not agree to arbitrate the claims that: (1) Defendants

breached the terms of the amended PSA, including that they were contractually obligated to

indemnify AHMSI. Attached as Exhibit A hereto is AHMSI's letter demanding arbitration.

38. Because Defendants refuse to acknowledge the existence of the contract under

which AHMSI demands arbitration, AHMSI seeks (I) a judgment declaring the amended PSA,

induding its arbitration clause, valid and enforceable at the relevant time of performance; (2) an

order compelling Defendants to arbitrate AHMS!'s breach of contract and indemnification

claims; or, as to all claims not subject to binding arbitration, and (3) an order granting AHMSl

relief in the lorm of full indemnity of aU costs and expenses resulting from the acts or omissions

cited above, as well as, any and all other direct, indirect, special andlor consequential damages to

which ARMSI may be entitled at !aw or in equity.

COUNT !-DECLARA TORY JUDGMENT

39. AHMSI repeats the preceding allegations.

PL\INTIFf'S ORIGJNt\l PETITION ~

40. AHMSI brings this count against Defendants lor declaratory judgment.

41. Under Sections 37.001 ro 37.011 of the Texas Civil Practice and Remedies Code,

AHMS] seeks a declaration that the PSA, as amended, including the arbitration and

indemnification clauses, was valid and enfonoeable at the time of performance because the

parties mutually assented to its terms by their continued dealings and course of performance.

42. There is an actual and justiciable controversy regarding these issues because

Defendants deny that the amended PSA is legally binding on the grounds that (I) the PSA had

already expired by the time Defendants performed assignment processing services for AHMSI

and (2) Amendment 1, which governs assignment processing serviees, was neVer signed by

AHMSl.

COUNT 2 ORDER COMPIELUNG ARBITRATION

43. AHMSl repeats the preceding allegations.

44. AHMSI brings this count against Defendants for an order compelling them to

arbitrate AHMSI', breach of contract and indemnification claims, as well as any other claims

encompassed by the PSA's arbitration dause, pursuant to Section 171.021 of the Texas Civil

Practice and Remedies Code.

45. There is a binding agreement to arbitrate under Paragraph 1& of the PSA because

the parties have mutually assented by their course of performance to all of the PSA's terms.

46. AHMSl's breach of contract and indemnification claims fall within the PSA's

arbitration clause.

47. AHMSI expects that Defendants will refuse to arbitrate under the PSA because

they deny its existence. Specifically, they assert that the PSA had already expired at the time of

performance and that Amendment 1 to the PSA was not signed by AHMS!. Nonetheless,

AHMSI served Defendants with an arbitration demand that is attached as Exhibit A hereto. To

PLArI'lTlFF's ORIGIN,\L f'I':TlTION -

the extent that Defendants refuse to arbitrate as AHMS[ expecls, AHMSI will promptly file a

motion to compel arbitration.

COUNT 3-BREACH OF CONTRACT


49. To the extent that the Court determines that AHMSl's breach of contract claim is

not subject to arbitration, AHMS! brings this count, pled in the alternative, against Defendants

for breach of the PSA and Amendment 1 thereto.

50. At all relevant times, the PSA and Amendment 1 thereto were valid and

enforceable contracts.

51. AHMS! is a proper party to sue for breach of the PSA and Amendment I thereto

because Option One assigned its interests in the PSA to AHMSI on April 30, 2008.

52. AHMSI perfonned its obligations under the PSA and Amendment 1 thereto.

53. Defendants breached their obligations under the PSA and Amendment 1 thereto

by engaging in a practice of "surrogate signing" assigmnents of mortgages, which assignments

were improperly notarized and recorded in local real property records in connection with

foreclosure proceedings brought by AHMSI in its role as the servicer of the relevant loan.

54. Defendants' surrogate-signed assignments of mortgage have damaged AHMSI

by, among other things, requiring AIflI,1S1 to engage in an expensive remediation program to

address the implications of the surrogate-signed assignments.

COUNT 4---NEGLIGENT PERFORMANCE OF AN UNDERTAKING

55. AHMS I repeats the preceding allegations.

56. Should the Court find that the amended PSA was not binding on the parties at the

time Defendants executed and notarized assignments on AHMSJ's behalf using surrogate

PI,"'\[NliFF'S OI{IGt:''(·'l PETITION ~ Page J 6

signors, AHMSI brings this count, in the alternative, against Defendants for negligent

perfonnance of a voluntary undertaking.

behalf.

57.

58.

59.

Detendants voluntarily undertook to execute mortgage assignments on AHMSI's

AHMSI relied upon Defendants to execute assignments on ARMSI's behalf.

Because demonstrating the chain of title is necessary for successfully completing

foreclosure actions, Defendants knew or should have known that the proper execution of

mortgage assignments was necessary to protect AHMSI's (and its clients') interests in the

distressed properties.

60. Defendants failed to exercise reasonable care by using, without AHMSl's

knowledge or consent, unauthorized surrogates to execute tens of thousands of mortgage

assignments. Because ARMSI had not appointed the surrogates to execute the assignments on

its behalf and because their signatures were not correctly witnessed or notarized, the surrogate

signed assignments necessitated extensive remediation efforts at great expense to AHMSI.

61. Defendants' negligence was the proximate cause of the substantial losses AHMSI

has sustained. Accordingly, AHMSI seeks monetary damages from Defendants in an amount to

be detennined by the trier of fact.

62. To the extent Defendants' acts Were willful, wanton, malicious, and without

lawful justification or excuse, AHMSI seeks punitive damages in an amount to be determined by

the trier of fact.

COUNT 5-NEGLIGENT SUPERVISION


64. AHMSI brings this count against Defendants tor negligent supervision.

PLAIN'fJl"F'S ORI(IINAL PETITIO~ -

65. Defendants owed AffivIS! a legal duty to control the Special Officers employed

by Defendants to execute mortgage assignments on AHMSl's behalf.

66. Defendants breached that duty by failing to exercise reasonable supervisory

control over the execution of assignments by the Special Officers. In particular, Defendants

knew that the Special Officers were using, without AHMSrs knowledge or consent,

unauthorized surrogates to execute mortgage assignments on AHMSI's behalf. The Special

Offieers' conduct constitutes negligent performance of a voluntary undertaking, Defendants

knew or should have known that the use of unauthori7.ed surrogates to execute mortgage

assignments could harm AHMSI. Nevertheless, Defendants made no effort to prohibit or

prevent the Special Officers from using surrogates until thousands of surrogate-signed

assignments had already been executed and processed,

67. Defendants' negligent failure to supervise the Special Officers they employed was

the proximate cause of the substantial losses ARMSI has sustained. Accordingly, AHMS] seeks

monetary damages directly from Defendants in an amount to be determined by the trier of fact.

6&, To the extent Defendants' IlCts were willful, wanton, malicious, and without

lawful justification or excuse, AHMS[ seeks punitive damages in an amount to be detennined by

the trier of fac!.

COUNT 6-0UASI-CONTRACT FOR UNJUST ENRICHMENT

69, AfiMSI repeats the preceding allegations,

70. Should the Court find that the amended PSA was not binding on the parties at the

time Defendants executed and notarized assignments on AHMSI's behalf utilizing surrogate

signors, AHMS! brings this count, in the alternative, requesting that the Court eniorce a quasi

contract between the parties because Defendants have been unjustly enriched,

fLAIN'f'IJi'f'S ORIGJ~AI. ff.flnON -

71. AHMSI compensated Defendants t'Or processing assignments that had been

executed and notarized utilizing unauthorized surrogate signors. Because AHMS[ paid

Defendauts fur processing these assignments, Detendants knowingly rece; ved a benelit to which

they were not entitled.

72. Defendants voluntarily accepted and retained that benefit.

73. It would be unconscionable for Defendants to retain the benefit without

compensating AHMSI. Accordingly, AHMSI is entitled to recover the value it paid Delendants

for executing and processing the surrogate-signed mortgage assignments.

74. Defendants were also unjustly enriched based upon their acceptance of AHMSl's

extensive remediation eflorts. De!lmdants avoided the costs of taking their own corrective

action.

75. Defendants voluntarily nccepted and retained the benefit of AHMS!'s remediation

efforts without compensating AHMS!.

76. [t would be unconscionable for them to retain the benefit without compensating

AHMSJ. Accordingly, AHMSI is entitled to recover some or all of the costs it incurred to

remedy the surrogate-signed assignments processed by Defendauts.

IV. JURY DEMAND

77. AHMSl demands a jury trial and tenders the approprinte tee with this Original

Petition.

v. CONDITIONS PRECEDENT

78. All conditions precedent to ARMS),s claims for relief have been performed or

have occurred.

VI. PRAYER FOR RELIEF

WHEREFORE, AHMSI respectfully requests that this Court:

PLA!NJlFf'S QRIGISAL PETfTlON -

A. Declare that the PSA, as amended, including the arbitration dause, was valid and

enforceable at the time of performance because the parties mutually assented to its terms by their

continued dealings and course of performance.

B. Compel Deflmdants to arbitrate AHMSl's breach of contract and indemnification

claims, as well as any other claims encompassed by the arbitration clause.

C. Award AH:vtSI general damages, special or consequential damages, exemplary

damages, punitive damages, and pre-judgment and post-judgment interest on its non-arbitrable

claims.

D. If necessary, disregard DOCX's status as a limited liabUJty company and hold

LPS liable for damages and any other obligations incurred by DOCX.

E. Award AHMSI reasonable attorneys' fees ,md court costs.

F. Award all other reJief, in law or in equity, to which AHMSr Is entitled.

DATED: August 23, 2011

DU..63642Jfiv6

PL,\INl'IFF'S OR[GINAl PETITION -

E~< Weston C. Loegerlng "" State Bar No. 12481550 Keith C. McDole State Bar No. 13533740 Evan P. Singer State Bar No. 24037501 JONES DAY 2727 N. Harwood Street Phone: 214·220·3939 Pa,,: 214-969·5100

Attorneys for Plaintitf American Home MOl1gage Servicing, Inc.