Cleveland Partners, L.P. took out a $520,000 loan from Live Oak State Bank to finance the purchase of an apartment building. The loan was personally guaranteed by the defendant in this case, Josiah Cleveland. The guaranty included a waiver of virtually all of the borrower’s defenses on the debt, including “any setoff available” against the lender. The borrower defaulted, and the bank purchased the property for $415,000 at the resulting foreclosure sale. The bank then sued the guarantor for the deficiency, with the guarantor arguing that the property sold for less than its fair market value. The trial court granted summary judgment for the bank.

On appeal, the guarantor argued that the waiver was “massively overbroad . . . unconscionable and unenforceable.” That issue was easily dispatched, with the court citing three of its four recent opinions holding that borrowers can validly waive their right to claim offset under Chapter 51 of the Texas Property Code. See Interstate 35/Chisam Road, L.P. v. Moayedi, 377 S.W.3d 791 (Tex. App.-Dallas 2012, pet. filed); King v. Park Cities Bank, 2012 WL 3144881 (Tex. App.-Dallas 2012, no pet.); Toor v. PNC Bank, N.A., 2012 WL 3637284 (Tex. App.-Dallas 2012, no pet.); see also Smith v. Town North Bank, 2012 WL 5499406 (Tex. App.-Dallas 2012, pet. denied). Bound by those precedents, the court concluded that Cleveland had validly waived his right to offset the difference between the foreclosure price and the fair market value of the property, rendering irrelevant his claim that he had raised a fact issue as to the property’s fair market value.

Perhaps notably, the petition for review in the Moayedi decision has already drawn some amicus support. If there are any further developments in this area, we’ll keep you updated.

Cleveland v. Live Oak State Bank, No. 05-11-00665-CV

The court affirmed a judgment in favor of FNMA in this forcible detainer action. After Henning defaulted on a promissory note, FNMA purchased the property in foreclosure and demanded that Henning vacate. FNMA filed a forcible detainer proceeding and received a judgment awarding it possession.

After losing on appeal to the county court at law, Henning appealed to the district court arguing that the lower courts lacked jurisdiction because this was a suit over title to land. The court noted that a forcible detainer action only determines immediate right to possession. Further, a separate lawsuit to determine title does not deprive a court of jurisdiction over a forcible detainer action unless determining who has the right to immediate possession necessarily requires resolution of the title dispute. Because it was not necessary for the trial court to determine whether the foreclosure was valid and to resolve the title dispute before awarding possession to FNMA, it had jurisdiction.

Henning v. Federal National Mortgage Association, No. 05-12-00726-CV

In 2001, the Dunmores bought two adjacent lots (Lots 8 & 9) in Lancaster, Texas from Rolene Long, but the Deed of Trust, the Warranty Deed and other related documents only referenced Lot 9.   Eight years later, in 2009, a slew of local taxing authorities sued Long to collect back taxes on Lot 8, which they assumed she had just failed to pay.  The Dunmores and Chicago Title Insurance (the title insurer for the 2001 transaction) were joined in the lawsuit, and the Dunmores filed cross-claims against Chicago Title for breach of contract, negligence, DTPA violations, and breach of fiduciary duty.  As of the appeal, these two were the only parties left in the lawsuit.

The trial court granted Chicago Title’s motion for summary judgment on its statute of limitations’ affirmative defense, and the Dunmores appealed. The Court of Appeals affirmed the trial court’s decision.  In doing so, it held that the four-year statute of limitations for the Dunmores’ causes of action had run and that the Dunmores could not be rescued by their argument that the limitations period was tolled because Chicago Title’s mistakes were undiscoverable.  To the contrary, the Court of Appeals made clear that they were charged with knowledge of the contents of those legal documents as of 2001, and, as such, the mistake was not inherently undiscoverable.

Dunmore v Chicago Title Ins Co

In 1998, the McNutt Group leased one of its properties in downtown Dallas to Landry’s Crab Shack for a 20-year term.  Ten years later, Landry’s assigned its lease to Cadillac Bar, in accordance with the lease provisions that allowed such an assignment.  As part of the transaction, McNutt signed an estoppel certificate, thereby giving its consent to the assignment.  Cadillac Bar paid rent for a year, but then stopped.  McNutt sued Landry’s and Cadillac Bar for breach, and Landry’s sued Cadillac Bar.  Each of the parties moved for summary judgment, which the court (1) granted with respect to McNutt; (2) denied with respect to Cadillac Bar; and (3) did not rule on with respect to Landry’s.  Cadillac Bar appealed.

On appeal, Cadillac Bar argued that Landry’s couldn’t assert a breach of contract claim because the parties didn’t perform all the conditions associated with the assignment, and thus there was no assignment in the first place.  Specifically, Cadillac Bar claimed that McNutt conditioned his assent to the assignment on (1) having the estoppel certificate signed by all parties and (2) his receipt of attorney fees, neither of which ever actually happened.  The court of appeals rejected this argument, holding that the Cadillac Bar could not take advantage of conditions McNutt had imposed on his own consent to the assignment because those conditions were for McNutt’s sole benefit.  Thus, the court found that “Cadillac Bar cannot avoid its own obligations under the Lease by identifying what is, at most, McNutt’s waived injury.”  The court also explained that the doctrine of quasi-estoppell also thwarted Cadillac Bar’s argument.  Under this doctrine, Cadillac Bar couldn’t now assert that an assignment never occurred when, previously, it had benefited from the assignment.

Cadillac Bar v Landry’s

The district court granted summary judgment in favor of the defendants in a dispute over the termination of a Gold’s Gym franchise. The defendants were listed as personal guarantors of the franchise agreements, but part of their defense was the claim that the signatures on the guaranties were forged. The court of appeals reversed summary judgment on that issue, concluding that the conflicting opinions of the two sides’ handwriting experts created a fact issue that would need to be tried. However, the court of appeals rejected Gold’s Gym’s contention that the defendants had ratified the agreements even if they were forged, concluding (1) that the defendants were never listed as parties to the franchise agreement, and therefore they could not have ratified it through their actions on behalf of their company that was the actual franchisee, and (2) that Gold’s Gym had not produced any summary judgment evidence showing that the defendants ratified the guaranties where they had consistently refused to pay Gold’s demands on the basis that the signatures had been forged.

Gold’s Gym Franchising, LLC v. Brewer, No. 05-11-00699-CV

When the defendant has filed an answer but doesn’t appear for trial, the plaintiffs have to prove up all elements of their claim in order to obtain a default judgment. In this case, the plaintiffs had previously obtained a temporary restraining order and temporary injunction against their stepfather. When they appeared for trial on their request for a permanent injunction, the stepfather did not show up. The plaintiffs’ lawyer then asked the trial court to take judicial notice of the court file, and the lead plaintiff testified that she was asking the court to convert the temporary injunction into a permanent one. On appeal, the court of appeals sided with the stepfather. While the plaintiffs had asked the court to take judicial notice of the file, there had been no ruling on that request, nor had the plaintiffs pointed to any particular materials in the file. Moreover, the elements of a temporary injunction are different from a permanent injunction in any event, particularly the requirement of no adequate remedy at law in order to obtain a permanent injunction. Accordingly, the case was reversed and remanded to the trial court for further proceedings.

Young v. Smith, No. 05-10-01294-CV

The court reversed a judgment in favor the Texas Historical Commission and the City of Dallas related to demolition of a historical building and rendered a take nothing judgment for TWE. In March 2006, the City granted TWE a permit to demolish an historical Railway freight station in the West End of Dallas. The City later determined that the permit was improperly issued and revoked it. The City contended that they told TWE of the revocation and placed notice at the property. TWE proceeded with demolition. The City and THC sued TWE under the Local Government Code for demolishing a historic building without proper municipal approval and for fraud. The jury found against TWE on all claims, but the trial court granted TWE’s motion to disregard, in part, and awarded only civil penalties and damages under the Government Code.

The Government Code provides a cause of action for a city against someone who adversely affects a historic structure, but only if the City has already filed a verified listing of historic structures with the county clerk. The Code goes on to provide a cause of action for the THC if the city fails to pursue the cause of action under that same section. On appeal, the court held that the THC’s cause of action also required that the City file the required listing, which was not done, and therefore the THC’s action failed. Also, the statutes under which the City sought civil penalties did not specifically provide civil penalties. One allowed the City to adopt such penalties, which it never did, and the second addressed the enforcement of health and safety ordinance, not historical structure zoning. Thus, the trial court erred by assessing penalties against TWE.

TWE v. City of Dallas and Texas Historical Commission, No. 05-11-00582-CV

In a lengthy opinion arising from a legal malpractice case, the court of appeals has reversed the judgment of the district court striking the plaintiffs’ experts and granting judgment for the defendants due to the lack of expert testimony. The experts had been struck after the plaintiff’s attorney had missed two previous disclosure deadlines, then failed to provide expert reports as required by the trial court’s amended scheduling order. The plaintiff argued that the trial court had issued improper “death penalty” sanctions, and the court of appeals agreed. There was nothing in the record indicating that the plaintiff herself bore any responsibility for her attorney’s failure to timely designate the experts, so there was no direct relationship between the plaintiff’s conduct and the sanction imposed. The court of appeals also held that the sanctions were excessive in any event, because the trial court had not previously awarded any lesser sanctions for the previous failures to timely designate the experts. It was not enough, the court of appeals held, for the trial court to simply recite that no lesser sanction would suffice because this was not the type of egregious and exceptional discovery abuse that would make death penalty sanctions “clearly justified” and “fully apparent.” However, the court of appeals also affirmed the trial court’s denial of the plaintiff’s motion for leave to file an amended petition after the pleading deadline, where the petition sought to add new claims and causes of action to the case.

Gunn v. Fuqua, No. 05-11-00162-cv

The Court affirmed a summary judgment in favor of Frost Bank on counterclaims related to a loan default. TAM failed to pay off a loan it received from Frost by the maturity date stated in the written loan agreement. Frost setoff part of the amount due with money from TAM’s operating account and sued for the remainder. TAM counterclaimed, alleging that Frost had orally extended the maturity date in a meeting with TAM’s representative and that Frost’s wrongful setoff caused TAM significant damage. Frost moved for, and TAM failed to challenge, traditional summary judgment on its breach of contract claims, which the court granted based primarily on the written loan agreement. It then granted no-evidence summary judgments dismissing TAM’s counterclaims related to the alleged oral extension. TAM appealed, challenging the trial court’s judgment on TAM’s counterclaims for breach of contract, promissory estoppel, negligent misrepresentation, fraud, conversion, and wrongful setoff.

On appeal, the court held that because TAM did not challenge the traditional summary judgment on Frost’s breach of contract claim, the trial court’s judgment as to the enforceability of the written agreement between TAM and Frost was binding. Thus, TAM’s corresponding counterclaims for breach of contract, negligent misrepresentation, and fraud, which were based on the alleged oral extension, failed due to the written agreement’s enforceability. The court agreed that there was no evidence that TAM relied on the alleged oral extension in its decision to deposit more money into the operating account, so TAM’s promissory estoppel claim also failed. And because TAM’s conversion and wrongful setoff claims required that TAM be entitled to possession of the funds in the operating account, and thus relied on the success of at least one of TAM’s other failed counterclaims, those claims likewise failed.

Trevino & Associates Mechanical v. Frost National Bank, No. 05-11-00650-CV

When the trial court granted summary judgment against Tiffiney Cottledge on a breach of contract claim brought against her, Ms. Cottledge decided to appeal the ruling pro se.  Her main argument on appeal consisted of a complaint that the evidence does not support the trial court’s ruling, and that the trial court was biased in its findings.  On her first argument, the Court found that the appellee had presented seven exhibits supporting his motion for summary judgment and Cottledge did not present any discussion or analysis about why the exhibits could not support the trial court’s ruling.  On her second argument, the Court found that the issue was inadequately briefed because Cottledge failed to include appropriate citations to the record or to applicable authorities.  According to the Court, “[o]ur appellate rules have specific briefing provisions that require appellant to state concisely her complaint and provide an understandable, succinct, and clear argument for why her complaint has merit in fact and law, and cite and apply applicable law together with appropriate record references.”

Cottledge v. Roberson

The court affirmed a summary judgment in favor of Citibank in a suit to recover a credit card debt. Citibank sued Aymett, alleging breach of contract and account stated, and moved for summary judgment. Citibank supported its motion with account statements and excerpts from Aymett’s deposition, in which Aymett admitted using the credit card and making payments for some time and agreed that he has no dispute as to the amount claimed to be due and owing on the account. The trial court granted summary judgment and Aymett appealed.

On appeal, Aymett complained that Citibank did not present a copy of a written contract and that there was no evidence he actually received any of the account statements mailed to him. The court held that a claim for account stated does not require a written contract, but only an agreement to pay an amount owed. Additionally, the summary judgment evidence demonstrated that Citibank mailed, to the same address for Aymett each time, monthly statements and that Aymett responded to the statements by making regular monthly payments until he finally stopped paying. Finally, the trial court did not err in granting summary judgment on an implied contract just because Citibank claimed an express contract based upon the same transaction, as there was no determination that Citibank was entitled to recover on both an express and an implied contract.

Aymett v. Citibank, No. 05-11-00451-CV

In February, the court of appeals reversed a district court’s temporary injunction prohibiting a lender from foreclosing on the borrower’s properties, concluding that the testimony only established an agreement to negotiate, not an enforceable agreement to forebear from foreclosure. The court has now issued an updated opinion in that case that clarifies the standard of review. In the original opinion, the court wrote that “the trial court abuses its discretion when it misapplies the law to established facts or when the evidence does not reasonably support the trial court’s determination of the existence of a probable injury or a probable right of recovery.” In the revised opinion, the court states that an abuse of discretion occurs when the trial court “misapplies the law to established facts or when there is no evidence that supports the trial court’s determination of the existence of a probable injury or a probable right of recovery.” The difference between those two standards yielded no difference in the outcome of the case, but anyone appealing a temporary injunction should be sure to cite the correct standard of review.

Branch Banking & Trust Co. v. TCI Luna Ventures, LLC, No. 05-12-00653-CV

Phytel, Inc. brought an interlocutory appeal after the district court denied its motion to compel arbitration of its former CEO’s claim that his noncompete agreement was unenforceable. The arbitration clause was contained in the CEO’s termination agreement, which also reaffirmed the noncompete provision in his original employment agreement. However, a subsequent agreement for the repurchase of the CEO’s stock did not contain a separate arbitration clause, although it reaffirmed the terms and conditions of the earlier termination agreement and modified the noncompete provision. The court of appeals concluded that the reincorporation of the prior contact necessarily encompassed the dispute resolution provisions of that agreement, and further held that the arbitration requirement applied to the validity of the noncompete because its subject matter related to all three of the parties’ agreements. The court rejected the CEO’s contention that a merger clause in the third contract worked to exclude the arbitration provision of the second contract because the incorporation of the second agreement by reference resulted in it becoming an inherent part of the subsequent document. Finally, the court of appeals also rejected the claim that Phytel had waived its right to invoke arbitration, holding that waiting two months after the lawsuit was filed and exchanging one set of discovery and initial disclosures did not substantially invoke the judicial process to the prejudice of the CEO. The court of appeals therefore reversed and rendered the trial court’s denial of the motion to compel arbitration.

Phytel, Inc. v. Snyder, No. 05-12-00607-CV

Gregory Strange worked at HRsmart for over 5 years designing and developing software designed to help companies manage human resources.  As part of his employment with HRsmart, Strange signed a non-competition agreement in which he consented not to work for a competing business for one year following his termination of employment.  The agreement defined “competing business” as one “which provides the same or substantially similar products and services” as HRsmart.  Shortly after he left HRsmart, Strange and another former co-worker developed a new program called ClearVision, which was a human resources program aimed at small businesses with less than 200 employees.  In developing this new program, Strange felt that he had not run afoul of his non-competition agreement because, in his view, HRsmart did not aim to serve small businesses.  HRsmart, of course, disagreed and sued Strange.  The trial court granted HRsmart’s request for a temporary injunction, and, later, HRsmart’s motion for summary judgment.  Strange appealed.

On appeal, Strange pointed out all of the differences between the products designed and marketed by HRsmart and what Strange sought to do with ClearVision.  First, ClearVision sought to serve a niche market of “micro businesses” with less than 200 employees, whereas HRsmart targeted businesses with more than 500 employees.  Second, ClearVision was “less function” and could not be “configured,”but HRsmart’s products were “fully customizable.”  Finally, ClearVision is a single product, while HRsmart includes seven interconnected HR modules.  On this record, the Court of Appeals concluded that fact questions exist regarding whether HRsmart actually competes with ClearVision, and reversed and remanded the trial court’s decision.

Strange v. HRsmart

A short memorandum opinion from the court of appeals highlights the importance of timely objecting even in unusual circumstances. At a status conference on July 26, the trial court directed the parties to file any motions, responses, or replies by August 10, and stated that the court would rule on those motions the week of August 15. Nobody objected to that timetable. Both parties filed motions for summary judgment on August 10, and on August 16 the trial court granted Ford’s motion and denied Crear’s — without benefit of either a response or a hearing on Ford’s motions. The court of appeals rejected Crear’s claim that the trial court had abused its discretion by summarily ruling in accordance with that schedule, holding that Crear had failed to preserve any issue for appellate review because he had not objected to either the schedule or the lack of a hearing on Ford’s motion.

Crear v. Ford Motor Co., No. 05-11-01363-CV

The Dallas City Code contains certain provisions governing the activities of “Alternative Financial Establishments.”  Under this section of the code, these establishments are defined to include “car title loan business[es], check cashing business[es], or money transfer business[es]” but not businesses that “provide financial  services that are accessory to another main use.”  Last year, the City informed Texas EZPAWN that its loan service business qualified as an alternative financial establishment under the code.  EZPAWN disagreed and filed a lawsuit seeking a declaration that its loan services business did not fall within the code’s definition.  The City filed a plea to the jurisdiction, arguing that governmental immunity barred EZPAWN’s suit and that the Uniform Declaratory Judgments Act did not apply because the governmental immunity waiver in that ordinance only applies to suits challenging the validity of a ordinance whereas EZPAWN’s suit merely seeks a construction or interpretation of the ordinance.   The Court of Appeals agreed with the City, finding that the UDJA does not waive the City’s governmental immunity because EZPAWN did not seek to invalidate the provision.  It therefore reversed the trial court’s judgment and dismissed the petition with prejudice.

City of Dallas v Texas EZPawn

The court reversed a trial court’s judgment in favor of PlainsCapital Bank for damages and attorney’s fees resulting from Martin’s loan default based on Chapter 51 of the Property Code. In 2008 Martin defaulted and the Bank foreclosed upon and purchased the underlying property at auction for $539,000. Martin owed the Bank nearly $800,000. In 2009, over a year later, the Bank sold the property for $599,000 and sued Martin for the deficiency. Martin sought a damages offset under Property Code § 51.003 based on the value of the property, introducing expert testimony at trial that the property’s fair market value at the time of foreclosure was $850,000. The Bank argued that § 51.003 did not apply because it was not seeking to apply the foreclosure sale price as a credit but instead what the Bank actually received from the property: the 2009 sales price. The trial court agreed, holding § 51.003 inapplicable and crediting Martin $599,000 toward the deficiency.

On appeal, the court held that § 51.003 applies, regardless of the lender’s requested measure of damages, when (1) §51.002 foreclosure sale occurs, (2) the foreclosure sale price is less than the debt, and (3) an action is brought to recover the “deficiency,” or the amount owed on the debt after application of the collateral’s value. The court noted that the lender may not receive the benefit of a § 51.002 foreclosure sale but then “opt out” of § 51.003’s offset to the borrower. Additionally, the price received in the 2009 sale was legally insufficient evidence under § 51.003 because the Bank failed to link that price to the property’s value on the date of foreclosure. The court refused to render judgment based on Martin’s evidence, however, noting that the Bank refuted this value with its own expert testimony but indicating that the 2009 sales price was not evidence of the property’s fair market value at foreclosure.

It should be noted that the court did not hold that a later sales price of property can never be evidence of its fair market value. Rather, it is important for the lender to tie the actual sales price closely to § 51.003’s definition of fair market value, including a showing how it reflects the property’s value on the date of foreclosure.

Martin v. PlainsCapital Bank, No. 05-10-00235-CV