Parties may want to resolve trust disputes in arbitration. There are perceived cost savings associated with arbitration, and arbitration can be quicker than normal litigation....
Read MoreCourts generally review receiverships very closely, and a party requesting one should follow all required procedures. In Elliott v. Weatherman, parents created an irrevocable living...
Read MoreIn McDaniel v. HSBC Bank USA, NA, McDaniel appealed a trial court's granting a bank possession of real property purchased at a foreclosure sale. No. 05-11-00238-CV, 2013 Tex. App. LEXIS 1079 (Tex. App.—Dallas February 6, 2013, no pet. history). The deed of trust stated that the original mortgagee was "Mortgage Electronic Registration Systems, Inc.," ("MERS") and the foreclosure sale deed listed the current mortgagee as “HSBC Bank USA, NA.” McDaniel argued that the bank failed to show that it was entitled to enforce the deed of trust because it presented no evidence of a transfer of the deed of trust from MERS. The court of appeals affirmed the judgment of possession for the bank stating that the validity of a foreclosure sale may not be determined in a suit for forcible detainer and must be brought in a separate suit. To prevail in a forcible detainer action, a bank merely has to prove that it owned the property by virtue of a foreclosure sale deed, that the former owner became the tenant at sufferance when the property was sold under the deed of trust, that the bank gave notice to vacate the premises, and that the former owner refused to vacate the premises. Because the bank presented evidence to support these elements, the court affirmed the judgment.
In Abbott v. Liberty National Bank, Abbott obtained a money judgment against Scotty Norwood and had a writ of garnishment served on Liberty National Bank, who had an account owned by Scotty’s wife, in an attempt to collect on that judgment. No. 06-12-00020-CV, 2013 Tex. App. LEXIS 961 (Tex. App.—Texarkana February 21, 2013, no pet. history). Liberty denied having any of Scotty's accounts or property and did not freeze the wife’s account. Subsequently, Scotty and his wife, Treda, filed bankruptcy. Abbott later sued Liberty seeking a declaratory judgment that Scotty was also Liberty's customer at the time of the garnishment that Liberty should have frozen Treda's account. Before the garnishment action, Liberty had noticed that Scotty occasionally came to the bank and cashed some checks drawn from other banks. Under his endorsement of those checks, he wrote Treda’s account number. Scotty, however, had no account at Liberty. In order to protect the bank from future check cashing by Scotty, Liberty drafted, and Treda signed, a letter agreement giving Liberty recourse against Treda's account if any such check Scotty cashed at Liberty was ever returned. After that agreement was in place, Scotty cashed numerous checks payable to himself at the bank.
On appeal, Abbott contended that the trial court erred in granting a directed verdict for Liberty because Scotty was also a customer at the bank. The court noted that a signature card for a bank account is a type of contract. The name on an account is prima facie proof of ownership of the account. A bank is not required to inquire into ownership of the funds deposited. A bank is entitled to rely on its deposit agreement when determining to whom it is indebted. The court noted that Liberty did not have an account for Scotty, but it did have an account for Treda. It held that Treda's accounts did not become Scotty's account simply because Scotty deposited funds into them and affirmed the judgment for the bank.
In New Millennium Homes, Inc. v. Texas Community Bank, NA, a debtor appealed a summary judgment granted to a lender based on a deficiency claim. No. 09-12-00073-CV, 2013 Tex. App. LEXIS 1598 (Tex. App.—Beaumont February 21, 2013, no pet. history). The lender was the sole bidder at the foreclosure sale and purchased the property for $465,000. The loan was $800,000. The trial court used the foreclosure sales price in determining the deficiency. The debtor argued that the trial court erred in failing to calculate the deficiency using the fair market value of the property. The deed of trust had provision that stated:
"In the event and interest in any of the mortgaged property is foreclosed upon pursuant to a judicial or nonjudicial foreclosure sale, grantor agrees as follows, notwithstanding the provisions of Sections 51.003, 51.004, and 51.005 of the Texas Property Code, and to the extent permitted by law, grantor agrees that beneficiary shall be entitled to seek a deficiency judgment from grantor and any other party obligated on the note equal to the difference between the amount owing on the note and the amount for which the mortgaged property was sold pursuant to judicial or nonjudicial foreclosure sale. Grantor expressly recognizes that this section constitutes a waiver of the above-cited provisions of the Texas Property Code which would otherwise permit grantor and other persons against whom recovery of deficiencies is sought, or guarantor independently (even absent the initiation of deficiency proceedings against them) to present competent evidence of the fair market value of the mortgaged property as of the date of the foreclosure sale and offset against any deficiency, the amount by which the foreclosure sale price is determined to be less than such fair market value. Grantor further recognizes and agrees that this waiver creates an irrebuttable presumption that the foreclosure sale price is equal to the fair market value of the mortgaged property for purposes of calculating deficiencies owed by grantor, guarantor, and others against whom recovery of the deficiency is sought."
The guaranty agreements at issue also contained similar provisions waiving Texas Property Code provisions. The court of appeals noted that in several other cases, its sister courts had enforced provisions contained in loan documents as a waiver of the debtor's right to a judicial determination of a property's fair market value. The court concluded that because the debtor waived its statutory right to a judicial determination of fair market value, the deficiency "is calculated by subtracting the foreclosure sale price, not the fair market value, from the amount owed under the debt." Id. The court affirmed the judgment for the bank.
In Branch Banking and Trust Company v. TCI Luna Ventures, LLC, BB&T appealed a temporary injunction order prohibiting it from foreclosing on two properties owned by TCI Luna. No. 05-12-00653-CV, 2013 Tex. App. LEXIS 1745 (Tex. App. – Dallas, February 21, 2013, no pet. history). The bank owned a $10 million promissory note that was secured by deeds of trust on twelve properties, including the two that were subject of the temporary injunction order. TCI Luna went into default. BB&T foreclosed on three of TCI Luna's properties and sent notices of foreclosure for six more before TCI Luna filed for bankruptcy. While in bankruptcy, TCI Luna and BB&T discussed TCI Luna voluntarily requesting a dismissal of its bankruptcy with prejudice, deeds in lieu of foreclosure for some properties in return for lien releases on other properties, and BB&T obtaining and delivering to TCI Luna appraisals on each property as part of BB&T's foreclosure on any property. After TCI Luna obtained a voluntary dismissal of its bankruptcy, BB&T foreclosed on two properties and sent notices of foreclosure on four more properties, including the two made the basis of the injunction order.
TCI Luna responded by filing a lawsuit contending that the parties formed an enforceable agreement that limited BB&T's right to foreclose on the properties in exchange for TCI Luna requesting a dismissal of its bankruptcy proceeding. At the injunction hearing, TCI Luna's representative consistently stated that the parties agreed to meet after dismissal of the bankruptcy to try to resolve disputes that arised regarding property values. The parties never agreed to the amount of credit against the outstanding loan balance upon foreclosure. The parties agreed to meet after dismissal and attempt to agree on which properties would go to the bank and which would be kept by the borrower. There was no agreement before dismissal other than an agreement to meet in the future.
The court of appeals found that these statements were not sufficient to prove a valid or enforceable contract. They were merely an agreement to agree in the future that is unenforceable. The court of appeals reversed the trial court's temporary injunction because the plaintiff had not shown a probable right of recovery.
In Meisel v. U.S. Bank, Meisel was a customer of U.S. Bank who found an original signed payroll check dated several years earlier from his former employer. No. 05-11-01336-CV, 2013 Tex. App. LEXIS 1740 (Tex. App.—Dallas February 21, 2013, no pet. history). Having no recollection or record of depositing the check, he contacted the bank on which it was drawn, and that bank confirmed it had no record of clearing the check. He then deposited the check into his checking account with U.S. Bank. Four days later the customer's former employer marked the check and designating it as counterfeit after a computer program revealed that it had been previously deposited and paid. The next day, the former employer recanted its counterfeit designation and informed its bank. The deposited check, however, was returned to U.S. Bank because it had been previously paid. U.S. Bank closed his account and savings account and reported to ChexSystems, a consumer reporting agency, that the customer's accounts were closed and also entered a code "p-other trans,” which the parties agreed meant "transaction involving items or checks belonging to another party.” The customer then filed a lawsuit against U.S. Bank for libel due to the statements it made to ChexSystems.
Libel is a written defamation that tends to: (1) injure a person's reputation, exposing the person to public hatred, contempt or reticule, or financial injury, or (2) impeach a person's honesty, integrity, virtue, or reputation. A true statement, however, is not actionable as libel.
There were two versions of the former employer's check. The first version, referred to as an IRD (Image Replacement Document), had a statement: "This is a legal copy of your check. You can use it the same way you would use the original check." It was a substitute check under federal banking regulations. The second version of the check was the original and was the one deposited with U.S. Bank. The customer agreed that the second check he deposited belonged to his former employer because the former employer had already paid it. The customer, however, argued that because he was in possession of the check, he was a holder. The court held that whether someone is an owner of the check or whether someone is a holder of a check, are two separate issues. The court held that the customer had no ownership interest in the check because he had already been paid that sum by his former employer. U.S. Bank was entitled to summary judgment on the customer's libel claim on the grounds that the statements made to ChexSystems were true. The court also rejected the customer's contention that U.S. Bank's statements to ChexSystems falsely accused the customer of theft or fraud. U.S. Bank's statements were that the customer's accounts were closed for "transactions involving items or checks belonging to another party." It did not accuse the customer of theft or fraud or as having the intent to steal or defraud. The court affirmed summary judgment for the bank.
In Priester v. JPMorgan Chase Bank, N.A., homeowners sued for declaratory relief against their lender claiming that the lien on their home was void under the Texas Constitution. No. 12-40032, 2013 U.S. App. LEXIS 3097 (5th Cir. February 13, 2013). The plaintiffs alleged that the lender violated several provisions of Section 50(a)(6) of the Texas Constitution: that the lender did not give them a 12-day notice, that the lien agreement was closed in their living room, and that the lender did not cure when served with notice. The lender alleged that the plaintiffs' claim was barred by the statute of limitations. The court of appeals held that the residual four-year statute of limitations applied to the plaintiff's claim. It also held that limitations accrued at the time that the lien was created -- not later when notice of defect was served. The court affirmed the judgment for the lender.
In Richmont Holdings, Inc. v. Superior Recharge Sys., L.L.C., an asset purchase agreement included a binding arbitration clause. No. 12-0142, 2013 Tex. LEXIS 71 (Tex. January 25, 2013). The seller of the business signed an employment agreement with the acquiring company, but that agreement did not have an arbitration clause. The seller later sued for damages, alleging the acquiring company fraudulently induced him to enter into the asset purchase and employment agreements. The trial court denied a motion to compel arbitration. In the trial court, the employee did not contest the validity of the arbitration agreement and did not complain that the dispute was outside the scope of the agreement. But the court of appeals concluded that the arbitration provision had no application to the employee's lawsuit and that the claims were outside of the scope of the clause. The Texas Supreme Court reversed, holding that the court of appeals' conclusion that the arbitration provision had no application to the lawsuit was contrary to the parties' contentions and had no support in the record.
In settlements, we often request that the debtor enter into an agreed judgment, perhaps with a simultaneous forbearance agreement outlining a payment plan. Debtors are often reluctant to sign these and typically ask that the agreed judgment be held, and not submitted to the judge for signature, unless and until a default has occurred. Sometimes referred to as a “pocket" judgment, these are never a good idea from the creditor’s perspective.
An agreed judgment must be “agreed” at the time the judge signs it. So, if the debtor misses a payment, and the agreed judgment is then submitted to the court, all the debtor has to do is object to the entry and it is no longer “Agreed."
There are also jurisdictional concerns as to whether the court can retain plenary power to enter an agreed judgment if the case was dismissed at the time of settlement.
In University General Hospital, LP v. Siemens Medical Solutions USA, Inc., a debtor recently won an appeal on that very issue. No. 01-12-00174-CV, 2013 Tex. App. LEXIS ____ (Tex. App.--Houston [1st Dist.] February 28, 2013, no pet. history). The court of appeals declared a $5.5 million judgment void because the trial court no longer had the plenary power to sign the agreed judgment that the creditor submitted after the debtor allegedly defaulted under the settlement agreement.
Bottom line: If you are the creditor, never agree to a pocket judgment.
The Texas Supreme Court has recently held that while the property owner rule establishes that an owner is qualified to testify as to market value, the testimony must meet the same requirements as any other opinion evidence. See Natural Gas Pipeline Company of America v. Justiss, No. 10-0451, 2012 Tex. LEXIS 1054 (Tex. December 14, 2012). The Court further held that because property owner testimony is the functional equivalent of expert testimony, it must be judged by the same standards. Property valuations may not be based solely on a property owner’s ipse dixit. “An owner may not simply echo the phrase ‘market value’ and state a number to substantiate his diminished value claim; he must provide the factual basis on which his opinion rests.”
This opinion will favorably impact financial institutions that have to litigate the market value of property. Owners' bare assertions of value are no longer sufficient to support an award.
A court of appeals recently held that an indemnity agreement between an operator and a contractor placed the burden on the contractor to indemnify the operator for the operator's third-party indemnity obligations that arose from an injury to the contractor's employee. In Tutle & Tutle Trucking, Inc. v. EOG Resources, Inc., No. 10-11-00062-CV, 2012 Tex. App. LEXIS 9543 (Tex. App.—Waco November 15, 2012, no pet. hist.), EOG, an operator, had an agreement with Tutle, a trucking company, that contained an indemnity provision that stated in part:
Contractor agrees to protect, defend, indemnify and hold company … harmless from and against all damage, loss, liability, claims, de-mands and causes of action of every kind and character … without limit and without regard to the cause or causes thereof … in favor of contractor's agents, invitees and employees, and contractor's subcontractors and their agents, invitees and employees on account of damage to their property or on account of bodily injury or death.
Id. at *3. In a separate paragraph later in the agreement provided in part:
The terms and provisions of this Paragraph 6 shall expressly apply to claims or causes of action asserted against Company or Contractor by reason of any agreement of indemnity with a person or entity not a party to this Contract where such contractual indemnities are related to or ancillary to the performance of the work contemplated under the Agreement and or Company's project and are indemnities not uncommon in the industry.
Id. at *4. Tutle’s employee was later injured and sued Tutle and Frac Source, a different contractor, for his bodily injuries. See id. at *3-8. Frac Source demanded defense and indemnity from EOG, who in turn, demanded indemnity from Tutle under the parties’ agreement. See id. After Tutle refused to indemnify EOG, EOG filed suit. The trial court ruled for EOG, and Tutle appealed. See id. The court of appeals affirmed for EOG. See id. at *22.
The contractor argued that the indemnity provision was not enforceable because it did not pass the express negligence test: “Tutle asserts that paragraph 6E ‘is vague, ambiguous, and if enforced, violates the express[-]negligence test where there is nothing within [p]aragraph 6E that indicates that Frac Source is seeking to be indemnified by Tutle from the consequences of its own negligence.’” Id. at *14-15. The contractor also argued that pass-through indemnity obligations were extraordinary transfers of risk to which the express-negligence doctrine applied. See id. at *17. That is the same argument that both IADC and Nabors have raised in this case.
The operator argued: “the express-negligence doctrine does not apply when an indemnitee does not seek indemnity for its own negligence and that the ‘pass through’ indemnity provision in paragraph 6E is neither vague nor ambiguous.” Id. Citing the same authority that Encana has cited, the court noted that: “several courts … have stated that the express-negligence doctrine does not apply when an indemnitee, such as EOG here, does not seek indemnity for its own negligence.” Id. at *15-16, n.3. Assuming without deciding that a fair notice requirement existed for such a claim, the court held that: “we do not believe that the language of the provision is vague and ambiguous as to violate the express-negligence doctrine.” Id. at *17-18. This was so even though: 1) the provision did not expressly state that Tutle would have to indemnify EOG for the negligence of EOG’s other contractors; and 2) the operator group did not include contractors such as Frac Source. The court concluded that any alleged fair notice requirement did not have to meet the specificity that the contractor suggested. See id. at *20.
It should be noted that the one dissenting justice, who did not think that the case had been sufficiently developed factually for summary judgment, doubted whether any fair notice requirement would apply to this indemnity issue: “But I am not at all sure that the doctrine applies, because it is an indemnity of contractual indemnity, which may include a negligence claim but at the pass through level is only a contract claim.” Id. at *24.
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