American Home Mortgage Servicing v Lender Processing Services

8/4/2019 American Home Mortgage Servicing v Lender Processing Services

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CAUSE NO.

AMERICAN HOME MORTGAGE §

SERVICING, INC., §

§Plaintiff, §

§

v . §

§LENDER PROCESSING SERVICES, §

INC., and DOCX, LLC, §

§

Defendants. §

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IN THE DISTRICT COURT oir') ,~/,:'

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DALLAS COUNTY, TEXAS

JUDICIAL DISTRICT

PLAINTIFF'S ORIGINAL PETITION

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

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

LLC ("DOCX" and collectively with LPS, "Defendants"), based upon AHMSI's personal

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

I. PRELIMINARY STATEMENT

ARMSI brings this action seeking redress tor the millions of dollars in losses it has

suffered, and continues to suffer, as a result of Defendants' 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 AHMSI's knowledge or

consent, they improperly 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, ARMSI collects mortgage, tax, and

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

PLAINTIFF'S ORIGINAL PETITION -



with homeowners who default on their mortgages to find acceptable alternatives to foreclosure,

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

not successful in curing a default, AHMSI initiates 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, AHMSI's board

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 terms of

the board resolutions appointing them.

Defendants acted outside this limited grant of authority. Without AHMSI's knowledge

or approval and in violation of their contract with AHMSI, Defendants engaged in a practice they

have described as "surrogate signing" in which persons not authorized by AHMSI's board

executed assignments of mortgage by signing 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 foreclosure proceedings. AHMSI did not learn of these practices until late 2009

when Defendants admitted the "surrogate signing" practice 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 country. It also

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

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

PLAINTIriF'S ORIGINAL PETITION -



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

have refused to reimburse or indemnify AHMSI for the costs it has incurred due to Defendants'

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

AHMSI, Defendants for the first time claimed that they had no duty to indemnify AHMSI,

purportedly because the contract pursuant to which Defendants executed the unauthorized

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

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

Defendants conveniently ignore that they created tens 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.I

brings this action seeking (1) a declaratory judgment that the written contract between the parties,

as amended, is binding and effective; (2) an order compelling Defendants to arbitrate AH1vlSI's

claims for breach of contract and indemnification; and (3) as to AHMSl'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 AHMSI.

II. INTRODUCTION

A. Discovery Control Plan-Level 3

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

Civil Procedure 190.4.

IGiven their position concerning the contract, A HM SI believes that D efendants will r eje ct AHMSI's

demand to arbitrate that is based on an express arbitration provision in that contract. Nonetheless, AHM SI has

s er ve d D e fe nd an ts w ith a d em an d fo r a rb itra tio n th at is a tta ch ed h ere to as Exhibit A.




B. Parties

2. Plaintiff ARMSI is a Delaware corporation that services residential mortgages

primarily for the securitization trusts that own the loans. ARMSI 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-either independently or

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

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

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

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

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

Corporation, which is located at 350 North s t. Paul Street, Suite 2900, in Dallas, Texas 75201.

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

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

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

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

C. Jurisdiction and Venue

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

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 (b) because this action arises

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

releases, assignments, and other mortgage-related documents that it, or its agents, filed in county

recording offices throughout the state, including in Dallas County.

PLAINTIFF'S ORIGIN,\L PETITION -



7. The Court has personal jurisdiction over DOCX (a) because it has engaged in

continuous and systematic activities within the State of Texas, and (b) because this action arises

from and relates to DOCX's contacts with the State of Texas. Inparticular, DOCX processed

lien releases, assignments, and other mortgage-related documents that it , or its agents, filed in

county recording offices throughout the state, including in Dallas County.

8, Venue is proper in this Court under (a) Section 15.002(a)(1) of the Texas Civil

Practice and Remedies Code because Defendants recorded a substantial number of assignments

in Dallas County, or, alternatively under (b) Section lS.002(a)(4) because AHMSI resides in

Dallas County.

III. FACTUAL BACKGROUND

A. AHMSI's Residential Loan Servicing Business

9. AHMSI is engaged in the business of servicing home loans, the majority of which

are held in residential mortgage-backed securitization trusts. When an individual takes out a

loan to buy a home, the originating lender will often pool the loan with others and sell its interest

in the loans to investors through the creation of securitization trusts. As part of this process, an

agent of the trust, known as a "servicer," obtains the right to service the pool of loans and agrees

to act as the trust's agent in doing so.

10. As the servicer, AHMSI provides a wide array of services to the securitization

trusts, including, but not limited to, collecting principal, interest, tax, and insurance payments

from homeowners and, when necessary, initiating foreclosure proceedings on behalf of the trust

that owns the loan.

B. Defendants Agreed To Execute Assignments for AHMSI

11. DOCX began providing document processing services to AHMSI in April 2008

when a Professional Services Agreement (the "PSA") between predecessors Option One




Mortgage Corporation ("Option One") and DOCX, was assigned by Option One to ARMS I 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, for 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.

(lei. 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, state and local laws, rules,

regulations and requirements in regard to all Services provided under this Agreement." (Id., ~ 1,

16.)

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

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

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

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

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

claim that the assignment of the PSA from Option One to AHMSI was ineffective or otherwise

invalid.

PLAINTIFF'S ORJGINAL PETITION -

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 ("Amendment

1"). (Exhibit C.) Amendment 1 also contained a "Statement of Work" by which Defendants



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

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

division ofa division [sic] ofLPS, formally executed Amendment 1 on October 10,2008. (Id.)

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

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

signature authority to execute documents pursuant to Amendment 1. Inparticular, on August 13,

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

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

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.

"duly authorized signator[ies]" for the purpose of executing assignments of mortgage on

AHMSI's behalf. (Exhibit D.) The resolution charged the Special Officers with the limited

authority to

(Jd)

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

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

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

AHMSI. (fd) The resolution did not permit any delegation or designation of the Special

Officer's authority to other employees.

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 other

mortgage-related documents. (Exhibit E.)




19. Amendment 1 formalized what AHMSI and Defendants had been doing, and

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

AHMSI's local foreclosure counsel would review a title report to determine whether an

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

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

lender to the securitization trust. If so, foreclosure 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 for review. If local counsel

approved, the Special Officers appointed by AHMS! 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-carry 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 Defendants suggest that

21. Without AHMSI's knowledge or consent and by their own admission, Defendants

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

C. Defendants Acted Outside Their Autbority In Executing Certain Assignments for

AHMSI

allowed employees other than those appointed as Special Officers of AHMSr to execute certain

I'LAINTIFF'S ORIGINAL PETITION -



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

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

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 to surrogates exceeded the scope of the

Defendants' authority under AHMSI's corporate 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 AHMSI resolutions in at least

one notable respect. 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 and/or their designees." (Exhibit F (emphasis added).)

23. It was not 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

Defendants 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 with

them in short order. (Exhibit G.)




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

I

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

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

Special Officers to the ministerial act of executing mortgage assignments arid other designated

documents, the delegation of that signature authority to surrogates, without AHMSI'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 ARMSI that they

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

practice. The scope of this unauthorized practice, however, was tar greater than Defendants

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

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

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

District of Columbia.

would no longer execute documents on behalf of its clients, including ARMSI. (Exhibit I.)

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

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

AHMSI

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 ~ 16.) In

addition, in Paragraph 1 of the PSA, "DOCX represents and warrants that it shall use its best

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




provide such Services ... in accordance with industry and state regulatory standards." (ld. 11.)

Defendants' 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

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

being challenged in foreclosure actions, causing harm to AHMSI.

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

[Defendants] shall indemnify, defend, and hold harmless [AHMSI],

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 misconduct of (Defendants] and/or its employees; (iii) any

failure of [Defendants J to perform any of its covenants or

obligations under this Agreement; (iv) any acts by [Defendants] or

[their] employees, subcontractors and/or agents beyond the scope

of authority under this Agreement

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

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

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

(Exhibit B ~ 8.)

I 'LAINTIFF'S ORIGINAL PETITION - Page I !

30. Further, because the use of surrogate signers deviated from AHMSI's limited

delegation of signature authority and thereby exposed AHMSI to additional litigation and/or

potential liability, Defendants had an affirmative obligation to inform AHMSI of the practice



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

assignments had been executed, notarized and recorded before informing AHMSI of the issue.

E. AHMSI Has Undertaken Substantial Remediation Efforts

31. AHMSI has undertaken significant efforts to identify the loans that were affected

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

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

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 millions of dollars in

expenses and other costs in connection with these remediation efforts.

F. Defendants Have Refused To Indemnify AHMSI for Its Losses

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

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

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

indemnify AHMSI for whatever losses it suffered as a result ofthe surrogate signing practices.

33. On February 22,2010, AHMSI made a written demand for 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, defend and hold harmless AHMSI, its officers, agents,

employees, affiliates, 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, anyjudgment or decision against AHMSI, or any settlement agreement

arising out of the material 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 PETITION - P ag e 12



(Exhibit J.)

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

of "a change in a business process," certain 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 terms of the agreement between the parties:' (Jd.) For the first time, LPS

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

contract for over a year, even though Defendants had executed Amendment 1 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

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

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

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

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

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

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

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

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

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

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

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

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

agreement was extended nor that the agreement was expressly assigned to ARMSI." (Ie!.) LPS

I'LAINTIFF'S ORIGINAL PETITION --



thus concluded that "there exists no contractual right to indemnity." (Id) 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." (Id.) LPS also refused

to consider any reimbursement of consequential damages.

36. Notwithstanding Defendants' contractual obligations and their repeated promises

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

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

G. Defendants Have Refused to Arbitrate AHMSI's Claims

37. Paragraph 18 of the PSA requires the parties to arbitrate "[a]ny disputes arising

under [the] Agreement." (Exhibit B 118.) 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 tenus 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, AHMS! seeks (1) a judgment declaring the amended PSA,

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

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

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

relief in the form of full indemnity of all 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 law or in equity.

COUNTI-DECLARATORYJUDGMENT

39. AHMSI repeats the preceding allegations.

PL\INTIFF'S ORIGINAL PETITION -



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

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

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

indemnification clauses, 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.

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 (1) the PSA had

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

and (2) Amendment 1, which governs assigmnent processing services, was never signed by

AHMSI.

COUNT 2-0RDER COMPELLING ARBITRATION


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

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

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

Practice and Remedies Code.

45. There is a binding agreement to arbitrate under Paragraph 18 of the PSA because

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

46. AHMSI'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 AHMSL Nonetheless,

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

PLAINTIFF'S ORIGINAL PETITION - Page [5



the extent that Defendants refuse to arbitrate as AHMSr expects, AHMSI willpromptIy file a

motion to compel arbitration.

COUNT 3-BREACH OF CONTRACT


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

not subject to arbitration, AHMSI 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. AHMSI is a proper party to sue for breach of the PSA and Amendment 1 thereto

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

52. AHMSI performed 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" assignments 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 AHMSI to engage in an expensive remediation program to

address the implications of the surrogate-signed assignments.

COUNT 4-NEGLIGENT PERFORMANCE OF AN UNDERTAKING


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

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




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

performance of a voluntary undertaking.

57. Defendants voluntarily undertook to execute mortgage assignments on AHMSI's

behalf

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

59. Because demonstrating the chain of title is necessary for successfully completing

foreclosure actions, Defendants knew Of 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 AHMSI's

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

assignments. Because AHMSI 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 determined 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 for negligent supervision.




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

byDefendants to execute mortgage assignments on AHMSI' 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 AHMSI's knowledge or consent,

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

Officers' conduct constitutes negligent performance of a voluntary undertaking. Defendants

knew or should have known that the use of unauthorized 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 AHMSI has sustained. Accordingly, AHMSI seeks

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

68. To the extent Defendants' acts were willful, wanton, malicious, and without

lawfuljustification or excuse, ARMSI seeks punitive damages in an amount to be determined by

the trier of fact.

COUNT 6-QUASI-CONTRACT FOR UNJUST ENRICHMENT

69. AHMSr 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, AHMSI brings this count, in the alternative, requesting that the Court enforce a quasi-

contract between the parties because Defendants have been unjustly enriched.

PLAINTIFF'S ORIGINAL PETrnON -



71. ARMSI compensated Defendants for processing assignments that had been

executed and notarized utilizing unauthorized surrogate signors. Because ARMSI paid

Defendants for processing these assignments, Defendants knowingly received a benefit to which

theywere not entitled.

72. Defendants voluntarily accepted and retained that benefit.

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

compensating ARMS!. Accordingly, AHMSI is entitled to recover the value it paid Defendants

for executing and processing the surrogate-signed mortgage assignments.

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

extensive remediation efforts. Defendants avoided the costs of taking their own corrective

action.

75. Defendants voluntarily accepted and retained the benefit of AHMSI's remediation

efforts without compensating AHMSI.

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

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

remedy the surrogate-signed assignments processed by Defendants.

IV. JURY DEMAND

77. AHMSI demands a jury trial and tenders the appropriate fee with this Original

Petition.

V. CONDITIONS PRECEDENT

78. All conditions precedent to AHMSI's claims for relief have been performed or

have occurred.

VI. PRAYER FOR RELIEF

WHEREFORE, ARMSI respectfully requests that this Court:




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

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

B. Compel Defendants to arbitrate AHMSI's breach of contract and indemnification

continued dealings and course of performance.

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

C. Award AHMS! 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 liability company and hold

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

E. Award AHMSI reasonable attorneys' fees and court costs.

F. Award all other relief, in law or in equity, to which ARMSI is entitled.

DATED: August 23,2011

R ; p e h l Y SUbm~

hd_/~/l/. . . .Weston C. Loegenng

State Bar No. 12481550

Keith C. McDole

State Bar No. l3533740

Evan P. Singer

State Bar No. 24037501

JONES DAY

2727N. Harwood Street

Phone: 214-220-3939

Fax: 214-969-5100

Attorneys for Plaintiff American HomeMortgage Servicing, Inc.

DU-6364226v6


American Home Mortgage Servicing v Lender Processing Services

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