Pentagon Fed. Credit Union v. McMahan

343 So.3d 485

PENTAGON FEDERAL CREDIT UNION

v.Susan R. MCMAHAN

1191075

Supreme Court of Alabama.

June 25, 2021

Paul T. Beckmann of Hand Arendall Harrison Sale LLC, Mobile, for appellant.

Franklin H. Eaton, Jr., of The Callaghan Law Office, Gulf Shores, for appellee.

Jason B. Tompkins, Jeremy L. Retherford, and Michael P. Taunton of Balch & Bingham, LLP, Birmingham, for amici curiae Alabama Bankers Association, League of Southeastern Credit Unions & Affiliates, Mortgage Bankers Association of Alabama, Inc., and Credit Union Coalition of Alabama, in support of the appellant.

MITCHELL, Justice.

Pentagon Federal Credit Union ("PenFed") purchased Susan R. McMahan's house at a foreclosure sale and sold it less than a year later. They disagree about how to divide the sales proceeds. In Pentagon Federal Credit Union v. McMahan, 308 So. 3d 496, 502 (Ala. 2020) (" PenFed I"), we reversed a judgment entered by the Baldwin Circuit Court in favor of McMahan, holding that the trial court had erred by not considering PenFed's unjust-enrichment argument. On remand, the trial court concluded that the doctrine of unjust enrichment did not apply and again entered judgment in favor of McMahan. PenFed appeals. We reverse and remand.

Facts and Procedural History ¹

In June 2005, McMahan and her now-deceased husband purchased a house in Loxley. To finance the purchase, the McMahans obtained a loan from Wells Fargo Bank, N.A., that was secured by a mortgage on the property. In September 2007, the McMahans obtained a loan from PenFed that was secured by a second mortgage on the property.

By 2015, McMahan's husband had died and she had defaulted on both loans. At a foreclosure sale in August 2015, PenFed purchased McMahan's property, taking title subject to Wells Fargo's senior lien. Although McMahan owed Wells Fargo approximately $112,000 on the first mortgage, Wells Fargo agreed to accept $91,256.54 from PenFed to satisfy the mortgage and to release its lien, paving the way for PenFed to resell the property in July 2016 for $157,525.

In December 2017, counsel for McMahan contacted PenFed, noting that the McMahans' first mortgage had been satisfied and asking for details about that process. In response, PenFed explained that it had sold the property for $157,525 and that, after subtracting the expenses associated with both the foreclosure sale and the resale (a combined $15,069.64), as well as the amounts required to pay off the McMahans' first mortgage ($91,256.54) and second mortgage ($47,714.16), there was a surplus in excess of $3,000 that PenFed would remit to McMahan once she signed a hold-harmless agreement. See generally Springer v. Baldwin Cnty. Fed. Sav. Bank, 562 So. 2d 138, 139 (Ala. 1989) (explaining that, when a mortgagee purchases a property at a foreclosure sale and then resells it within the statutory redemption period, any profit obtained must be applied "to the credit of the mortgagor").

McMahan declined to sign the hold-harmless agreement offered by PenFed and instead filed suit, arguing that PenFed was entitled to withhold from the $157,525 sales proceeds only an amount equal to its expenses and what was owed on the second mortgage. Everything else, McMahan argued -- including the $91,256.54 that PenFed withheld to reimburse itself for what had been paid to Wells Fargo to satisfy the first mortgage -- was surplus proceeds that rightfully belonged to her.

Because the essential facts were undisputed, the parties agreed to submit a stipulated statement of facts and exhibits to the trial court for it to decide how the funds should be allocated. In June 2019, the trial court entered a judgment in favor of McMahan for $94,741.20, holding that PenFed was entitled to recover only $15,069.64 for its expenses and $47,714.16 for what was owed on the second mortgage -- not the $91,256.54 it had paid to Wells Fargo -- from the proceeds received in the July 2016 sale. After PenFed appealed, we reversed that judgment and remanded the case for the trial court to rule on PenFed's unjust-enrichment argument, which, we explained, the trial court had erroneously deemed to be waived when it first considered the case. PenFed I, 308 So. 3d at 501-02.

On remand, the trial court accepted briefing on the doctrine of unjust enrichment and ultimately concluded that PenFed had "failed to prove the elements of unjust enrichment." Accordingly, the trial court reentered its June 2019 judgment awarding McMahan $94,741.20 as the final judgment of the court. PenFed appeals.

Standard of Review

We apply the same standard of review that we applied in PenFed I. Because the relevant facts are undisputed and the issues before us involve pure questions of law, the trial court's judgment carries no presumption of correctness, and we review those questions of law de novo. 308 So. 3d at 500.

Analysis

When this case was before us in PenFed I, we did not consider the merits of several issues raised by PenFed. We pretermitted a discussion of those issues so the trial court could rule on the merits of PenFed's unjust-enrichment argument. PenFed I, 308 So. 3d at 502 n.1. Now that the trial court has complied with our instructions in PenFed I, considered that argument, and entered another judgment in favor of McMahan, we have before us all the arguments PenFed has made in this appeal challenging the trial court's judgment. But it is ultimately necessary for us to consider only PenFed's argument invoking the doctrine of unjust enrichment. As explained below, that doctrine serves as a complete defense to the breach-of-contract claim and the other claims McMahan has asserted against PenFed, and it bars her from recovering the sum she seeks.

For PenFed to prevail on its unjust-enrichment argument, it must make two showings. First, it must establish that McMahan was "enriched" -- i.e., that she knowingly accepted and retained a benefit provided by PenFed, which had a reasonable expectation of compensation. Matador Holdings, Inc. v. HoPo Realty Invs., L.L.C., 77 So. 3d 139, 145 (Ala. 2011). If PenFed makes that showing, it must next demonstrate that McMahan would be "unjustly" enriched if she were awarded the disputed $91,256.54. Id. ² This second question turns on whether PenFed has acted under " ‘ "a mistake of fact or in misreliance on a right or duty." ’ " Id. at 146 (citations omitted). In the absence of such a mistake or misreliance, McMahan may have been enriched, but she would " ‘ "not [be] deemed to have been unjustly enriched." ’ " Id. (citations omitted).³ We examine below whether PenFed made the required showings.

A. Did McMahan knowingly accept and retain a benefit provided by PenFed, which had a reasonable expectation of compensation?

The trial court found, and McMahan does not dispute, that she has received a benefit provided by PenFed. The stipulated facts show that McMahan's debt to Wells Fargo was not discharged in her bankruptcy proceedings and that, but for PenFed's payment to Wells Fargo, she would have continued to owe Wells Fargo about $112,000. McMahan says that her lack of knowledge about PenFed's payment to Wells Fargo at the time that payment was made means that she did not "knowingly" accept the benefit, and, thus, she argues, the doctrine of unjust enrichment cannot apply. We disagree. It is undisputed that McMahan had knowledge of PenFed's payment to Wells Fargo well before she commenced this action, and there is no evidence that she has offered to reimburse PenFed for that payment. Under these circumstances, we are satisfied that McMahan has knowingly accepted and retained a benefit provided by PenFed. Compare Matador Holdings, 77 So. 3d at 146 (affirming a trial court's judgment rejecting an unjust-enrichment claim when the party that had received the benefit had offered to return it).

Moreover, it was reasonable for PenFed to expect that it would be compensated for the payment it made to Wells Fargo settling McMahan's debt. PenFed made that payment within the one-year period after the foreclosure sale during which McMahan had a statutory right to redeem the property. And if McMahan had exercised her right of redemption, she would have been required to reimburse PenFed for the payment under § 6-5-253(a)(4), Ala. Code 1975. As discussed below, PenFed says that, similarly, it believed that it would be entitled to reimbursement if a party other than McMahan purchased the property within that one-year period. The trial court ultimately rejected this argument, but we cannot say that PenFed's expectation was unreasonable.⁴

B. Did PenFed act in misreliance on a right when it paid off McMahan's debt to Wells Fargo?

Having established that McMahan has been enriched, we turn to the second part of the inquiry -- whether it would be unjust for her to receive and retain the $91,256.54 benefit that she now seeks. PenFed says that this result would be unjust because, it says, it acted " ‘ "in misreliance on a right" ’ " when it made the $91,256.54 payment to Wells Fargo. Matador Holdings, 77 So. 3d at 146 (citations omitted).

PenFed puts forth two bases for its belief that it had a right to be reimbursed for its payment to Wells Fargo -- § 6-5-253(a)(4) and Springer v. Baldwin County Federal Savings Bank, 597 So. 2d 677 (Ala. 1992) (" Springer II"). Section 6-5-253(a)(4) provides that a purchaser of a foreclosed property has a right to be reimbursed for any "lawful charges," including any "valid lien or encumbrance paid," if the property is later redeemed. McMahan did not exercise her right of redemption here, but her house was sold within the statutory redemption period, and PenFed argues that the principle underlying § 6-5-253(a)(4) should therefore apply. In Springer II, this Court permitted the purchaser of a foreclosed property that was later sold within the statutory redemption period to withhold the "necessary and ordinary expenses incurred in the...