The Financial Appellate Voice

The Financial Appellate Voice

The Intersection of Texas Courts & the Financial Services Industry

Contractual Venue Provision Was Enforceable

Posted in Cases Decided, Texas Supreme Court

In In re Mark Fisher and Reese Boudreaux, the Texas Supreme Court held that a contractual venue agreement was enforceable and overrode the statutory venue requirements for the plaintiff’s claims, including tort claims.  The Supreme Court had not previously addressed these issues.  This is an important holding to both transactional and litigation attorneys, given the frequent use of choice-of-venue provisions in parties’ agreements.

In May 2007, Richey sold his interests in Richey Oil to Nighthawk via a Stock Purchase Agreement, a Goodwill Agreement, and a $6.5 million promissory note.  Each contained a venue-selection clause designating Tarrant County as the venue for state court actions.  Richey became an investor in the new company along with two other investors.  After disputes arose, Richey sued the other investors in separate lawsuits in Wise County, where Richey resided, and Richey asserted several claims for defamation, breach of fiduciary duty, common law and statutory fraud, violations of the Texas Securities Act, negligent misrepresentation, and interference with prospective business relations.  The defendants moved to dismiss the lawsuits or to transfer venue to Tarrant County, which the trial court denied.

The Texas Supreme Court granted mandamus relief, holding that the trial court had erred in refusing to enforce the venue-selection clauses in the parties’ agreements.  The Court examined section 15.020 of the Texas Civil Practices & Remedies Code applicable to “major transactions,” which provides that an action may not be brought in a county if the party bringing the action has agreed in writing that an action arising from the transaction may not be brought in that county or that it must be brought in another county.  See TEX. CIV. PRAC. & REM. CODE ANN. § 15.020.

The Court first rejected Richey’s argument that his claims did not “arise from” the purchase of Richey Oil, applying a “common sense” examination of the allegations established by the Court in two earlier opinions.  See In re Lisa Laser USA, Inc., 310 S.W.3d 880, 883 (Tex. 2010) (per curiam); In re Int’l Profit Assocs., 274 S.W.3d 672 (Tex. 2009) (per curiam).  The Court determined that in substance, Richey was seeking to recover the $6.5 million owed to him under the Note and for actions flowing directly from the acquisition and actions anticipated to flow from it.  The Court clarified that section 15.020 does not require that an action arise out of a specific agreement, but rather it applies to an action “arising from a major transaction.”  Richey’s claim based on an unpaid note “arose” out of that major transaction and regardless of whether Richey signed that note or whether his claim specifically “arose” out of that note.

Second, the Court rejected Richey’s argument that the venue-selection provision was permissive rather than mandatory.  Where the phrase “non-exclusive jurisdiction” is in a venue-selection clause that also includes language reflecting intent that the venue choice is mandatory, the non-exclusive language does not necessarily control over the mandatory language.

Finally, the Court rejected Richey’s argument that venue was proper in Wise County under section 15.017 of the Texas Civil Practice & Remedies Code, the venue provision requiring suits for libel and slander to be brought in the county in which the plaintiff resided at the time the cause of action accrued.  While venue may be proper in multiple counties under different mandatory venue statutes, section 15.020’s application to any action arising from a major transaction “notwithstanding any other provision of this title” indicates that the Legislature intended for it to control over other mandatory venue provisions.

Suit To Modify Trusts Did Not Violate No Contest Clause

Posted in Cases Decided, Texas Court of Appeals

Texas courts narrowly construe no-contest clauses.  In Di Portanova v. Monroe, grandparents set up eight trusts for a grandchild that had a mental disability. No. 01-20-01019-CV, 2012 Tex. App. LEXIS 9859 (Tex. App.—Houston [1st Dist.], November 30, 2012, no pet.). The grandchild’s guardians filed suit to modify the terms of the trusts to consolidate them into one trust, which would have resulted in a savings of over $300,000 a year in trustees’ fees and other related expenses. Other members of the family argued that by seeking the consolidation of the trusts, the guardians had caused a forfeiture of the ward’s interest under the will pursuant to a no-contest or in terrorem clause. The grandparent’s will contained the following no-contest clause:

Should any beneficiary hereunder, or anyone duly authorized to act for such beneficiary, institute or direct, or assist in the institution or prosecution of, any action or proceeding of any kind in any court, at any time, for the purpose of modifying, varying, setting aside or nullifying any provision hereof relating to my Louisiana estate on any ground whatsoever, all interest of such beneficiary, and the issue of such beneficiary, to my Louisiana estate shall cease, and the interest of such beneficiary, and such beneficiary’s issue, in and to my Louisiana estate shall be paid, assigned, transferred, conveyed, and delivered to, or for the benefit of, those persons who would take such beneficiary’s interest in my Louisiana estate if such beneficiary died intestate, unmarried, and without issue on the date of the institution of the above described action or proceeding.

The trial court found that the guardians’ suit to modify the trusts did not violate the no-contest clause, and the other family members appealed.


The court of appeals stated that a no-contest clause in a will or a trust typically makes the gifts in the instrument conditional on the beneficiary not challenging or disputing the validity of the instrument. No-contest clauses are designed to dissuade beneficiaries from filing vexatious litigation, particularly as among family members, that may thwart the intent of the grantor. No-contest clauses allow the intent of the testator to be given full effect. If the intention of the suit is to thwart the settlor’s intent, the no-contest clause should be enforced. A violation of a no-contest clause will be found only when the acts of the parties clearly fall within the express terms. Thus, courts construe no-contest clauses to avoid forfeiture, while also fulfilling the settlor’s intent.

The guardians filed suit to modify the trust under the Texas Property Code, which provides that trustees and beneficiaries have the right to seek traditional modification of a trust and that a trust can be changed, the terms of the trust can be modified, the trustee can be allowed to do acts that are not authorized and/or forbidden by the terms of the trust, and the trustee can be prohibited from performing acts required by the terms of the trust, and the trust can be terminated in whole or in part if, because of circumstances not known or anticipated by the settlor, the order will further the purposes of the trust, or the modification of administrative, non-dispositive terms of a trust are necessary to prevent waste or avoid impairment of the trust’s administration.

The trial court found that consolidating the trust was appropriate because of circumstances not known or anticipated by the settlor as the original terms of the trusts would substantially impair the accomplishment of the purposes of the trusts in ways that the settlors could not have anticipated. The settlors could not have anticipated the expense and professional fees needed to care for the beneficiary and to manage assets placed in trusts for his benefit. The other relatives agreed that the trial court had discretion to consolidate the trusts; they argued, however, that by doing so the guardians violated the no-contest clause in the will.

The court of appeals disagreed. It stated that Texas courts have addressed a myriad of different types of lawsuits with similarly expansive no-contest clauses to determine whether the purpose of the suit was to thwart the settlor’s intent. Those courts concluded that the following suits do not trigger forfeitures: (1) to recover an interest in devised property; (2) to compel an executor to perform duties; (3) to ascertain a beneficiary’s interest under a will; (4) to compel the probate of a will; (5) to recover damages for conversion of estate assets; (6) to construe a will’s provisions; (7) to request an estate accounting or distribution; (8) to contest a deed conveying a beneficiary’s interest; (9) to determine the effect of a settlement; (10) to challenge an executor appointment; (11) to seek redress from executors who breach fiduciary duties; and (12) presenting testimony in a will contest brought by other beneficiaries.

The court agreed with this line of authority and held that filing the suit for judicial modification of the administrative terms of the trusts was not an action that was intended to thwart the settlor’s intent. The court noted that no provision in the wills, or in the trusts they created, forbid consolidation of the trusts. The court also noted that to hold otherwise would deprive the beneficiary of his statutory right to modify the trusts provided by the Probate Code, and that the wills did not express and intent to deprive anyone of that right. The court agreed that the no-contest clause did not deprive a beneficiary of a right afforded by statute related to trust administration when such administrative changes are not prohibited by the settlor in the will and no party is challenging the changes as one that defeats settlor’s intent. The court finally noted that the overarching purpose of all of these trusts is to provide for the needs of the current income beneficiary and that the suit for modification furthered that purpose. The court affirmed the trial court’s order.

It should be noted that there is a recent statute that protects beneficiaries from no-contest clauses. Section 64 of the Texas Probate Code states: “A provision in a will that would cause a forfeiture of or void a devise or provision in favor of a person for bringing any court action, including contesting a will, is unenforceable if: (1) just cause exists for bringing the action; and (2) the action was brought and maintained in good faith.” TEX. PROB. CODE ANN. § 64. The Legislature will soon amend this provision to clarify that it is the beneficiary’s duty to prove just cause and good faith. This will be recodified in the new Estate’s Code.


C. Court Did Not Abuse Discretion In Denying Attorney’s Fees To Successful Beneficiary In Declaratory Judgment Action

Posted in Cases Decided, Knowledge Library, Texas Court of Appeals

In Estate of Richardson, a remainder beneficiary of a trust filed a declaratory judgment action to declare that the trust would terminate five years after its creation. No. 14-12-00516-CV, 2013 Tex. App. LEXIS 2664 (Tex. App.—Houston [14th Dist.], March 14, 2013, no pet.). After the trustee filed a general denial, the beneficiary filed a motion for summary judgment. The trustee did not file a response to the motion and later conceded that the trust would terminate five years from inception. The trustee argued, however, that the remainder beneficiary was not entitled to any attorney’s fees sought in connection an uncontested matter. The trial court agreed and denied the remainder beneficiary’s request for attorney’s fees.

The court of appeals stated that in a declaratory judgment action, the trial court may award reasonable and necessary attorney’s fees that are equitable and just. The court held that identifying the amount of attorney’s fees that are “reasonable and necessary” presents a question of fact, but determining the amount of those fees that it is “equitable and just” to award is a question of law for the trial court’s sound discretion. It is within the trial court’s discretion to conclude that it is not equitable or just to award even reasonable and necessary fees. Whether it is equitable and just to make a reduced award or none at all “is not a fact question because the determination is not susceptible to direct proof, but is rather a matter of fairness in light of all circumstances.” Id. The court of appeals held that it would not reverse a trial court’s denial of a request for attorney’s fees unless the complaining party showed a clear abuse of discretion. The court of appeals affirmed the denial of attorney’s fees because the trial court could reasonably have determined that it was equitable and just to not award those fees where the fees may have exhausted the funds in the trust, which would divert the funds from the trust’s current beneficiaries.


Court Issues Opinion On Home Equity Lending And Agency Determinations

Posted in Cases Decided, Texas Supreme Court

In The Finance Commission of Texas v. Norwood, the Texas Supreme Court determined that an agency’s interpretation of legislation was not outside the review of the courts. No. 10-0121, 2013 Tex. LEXIS 491 (Tex. June 21, 2013). The Court reviewed several important statutory provisions. My partners, Mike O’Neal and Brian Morris, have the following comments regarding this important decision.


Before addressing the substantive issues, the Court confirms it has jurisdiction to review the interpretations and that the Plaintiffs have standing to prosecute the action.


The Court then addresses the three remaining issues –


1. Fee Cap – Section 50(a)(6)(E) caps “fees to any person that are necessary to originate, evaluate, maintain, record, insure, or service the extension of credit” at three percent of principal. Did the Commissions correctly give “interest” the same meaning as Section 301.002(a)(4) of the Texas Finance Code, which includes fees paid to the lender, thereby removing lender fees from the cap?


Held: Interest does not include fees paid to the lender. “We conclude that consistent with the history, purpose, and text of Section 50(a)(6)(E), ‘interest’ as used in that provision means the amount determined by multiplying the loan principal by the interest rate.”


Rationale: The functions of “interest” in applying the constitutional fee cap for home equity loans and in prohibiting usury are inversely related. If the word is given the same meaning in both contexts, then including lender-charged fees in “interest” strengthens usury laws and weakens the fee cap, though both are designed to protect consumers. That this was the intent of the framers and ratifiers of Section 50(a)(6)(E) is simply implausible.


Note. The Court’s conclusion raises an issue with discount points and pre-paid interest. Lenders should review their practices. In this context, Footnote 104 provides: “This narrower definition of interest does not limit the amount a lender can charge for a loan; it limits only what part of the total charge can be paid in front-end fees rather than interest paid over time. In so doing, it incentivizes lenders to determine borrowers’ creditworthiness more carefully and helps borrowers better assess the costs of credit.”


2. Closing Location/Power of Attorney – Section 50(a)(6)(N) provides that a loan may be “closed only at the office of the lender, an attorney at law, or a title company.” The Commissions interpreted this provision to allow a borrower to mail a lender the required consent to having a lien placed on his homestead and to attend closing through his attorney-in-fact.


Held: A loan may be closed only at the office of the lender, an attorney at law, or a title company. “We conclude that the Commissions’ interpretations of Section 50(a)(6)(N) contradict the purpose and text of the provision and are therefore invalid.”


Rationale: Closing a loan is a process. It would clearly be unreasonable to interpret Section 50(a)(6)(N) to allow all the loan papers to be signed at the borrower’s house and then taken to the lender’s office, where funding was finally authorized. Closing is not merely the final action, and in this context, to afford the intended protection, it must include the initial action. Executing the required consent or a power of attorney are part of the closing process and must occur only at one of the locations allowed by the constitutional provision.


3. Notice/Presumption – Section 50(g) requires that a loan not be closed before the 12th day after the lender “provides” the borrower the prescribed notice. Did the Commissions correctly interpret Section 50(g) to permit a rebuttable presumption that notice is received, and therefore provided, three days after it is mailed?


Held: Yes, the interpretation is a reasonable procedure for establishing compliance with Section 50(g).


Rationale: In giving meaning to “provides”, the Commissions have determined there is a rebuttable presumption that notice is received three days after it is mailed. The Homeowners insist that a lender must establish actual receipt of notice in each case.

But the Commissions’ interpretation does not impair the constitutional requirement; it merely relieves a lender of proving receipt unless receipt is challenged. We agree with the court of appeals that the interpretation is but a reasonable procedure for establishing compliance with Section 50(g).

The most important aspect of this opinion is that it makes all discount points and pre-paid interest for Texas home equity loans subject to the 3% cap.

All points and closing charges must be less than 3%.


The cap limits fees that are required.

An argument still exists that if discount points are optional and paid at the election of the borrower (i.e. the borrower could have obtained the loan at a higher rate without paying points), the points are not required and fall outside the cap.

However, there will be a fact issue in each case.


The opinion should only apply to new loans originated after the mandate is issued.


Court Issues Opinion Holding That Parties Can Enforce Arbitration Clauses In Trust Documents

Posted in Cases Decided, Texas Supreme Court

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. But one of the main benefits is that the proceeding is confidential. A settlor of trust may genuinely not want the world to know about the trust, its assets, or the trustee’s actions in administering the trust. Should the settlor’s desire that all trust disputes be resolved in arbitration be enforced?

 Historically, other jurisdictions have not enforced these agreements. But recently, the Texas Supreme Court held that arbitration clauses in trust documents are enforceable in Texas.

 In Rachal v. Reitz, a beneficiary sued a trustee for failing to provide an accounting and otherwise breaching fiduciary duties. 347 S.W.3d 305 (Tex. App.—Dallas 2011, pet. granted). The trustee filed a motion to compel arbitration of those claims due to an arbitration provision in the trust instrument. After the trial court denied that motion, the trustee appealed.

 The court of appeals affirmed the trial court’s refusal to compel arbitration. The court of appeals held that arbitration is a matter of contract law, and that the trustee had the burden to establish the existence of an enforceable arbitration agreement. The court noted that it was undisputed that neither the trustee nor the beneficiary signed the trust document. Further, the court held that the trust document solely expressed the settlor’s intent and not the intent of the trustee or beneficiary. The court stated: “Rachal did not establish how the settlor’s expression of intent satisfied all of the required elements of a contract or how this expression of the settlor’s intent transformed the trust provision into an agreement to arbitrate between Rachal and Reitz.” Id. at 309-10.

 The Texas Supreme Court reversed the court of appeals and held that the arbitration clause was enforceable. See Rachel v. Reitz, No. 11-0708, 2013 Tex. App. LEXIS 348 (May 3, 2013). The Court did so for two primary reasons: 1) the settlor determines the conditions attached to her gifts, which should be enforced on the basis of the settlor’s intent; and 2) the issue of mutual assent can be satisfied by the theory of direct-benefits estoppel, so that a beneficiary’s acceptance of the benefits of a trust constitutes the assent required to form an enforceable agreement to arbitrate. See id.

 The Court stated that generally in Texas courts strive to enforce trusts according to the settlor’s intent, which courts should divine from the four corners of unambiguous trusts. The Court noted that the settlor intended for all disputes to be arbitrated via the following language: “Despite anything herein to the contrary, the sole and exclusive remedy” for “any dispute of any kind involving this Trust or any of the parties or persons connected herewith (e.g., beneficiaries, Trustees)” was arbitration. Id.

 The Court then looked to the Texas Arbitration Act, which provides that a “written agreement to arbitrate is valid and enforceable if the agreement is to arbitrate a controversy that: (1) exists at the time of the agreement; or (2) arises between the parties after the date of the agreement.” Id. (citing TEX. CIV. PRAC. & REM. CODE 171.001(a)). The Court noted that the statute also uses the term “contract” in another provision, and that the Legislature intended for the terms to be different. As the statute does not define the term “agreement,” the Court defined it as “a mutual assent by two or more persons.” Id. Thus, a formal contract is not required to have a binding agreement to arbitrate.

 The Court resolved the issue of mutual assent by looking to the theory of direct-benefits estoppel. Because the plaintiff had accepted the benefits of the trust for years and affirmatively sued to enforce certain provisions of the trust, the Court held that the plaintiff had accepted the benefits of the trust such that it indicated the plaintiff’s assent to the arbitration agreement. The Court ordered the trial court to grant the trustee’s motion to compel arbitration.

 Texas now takes the minority position that arbitration clauses in trust documents are enforceable. The reasoning of the Texas Supreme Court’s opinion would seem to apply to estate disputes as well. A beneficiary of a will may be compelled to arbitrate disputes with an estate representative if the beneficiary accepts any benefits from the estate or sues to enforce a provision of the will where the will contains a sufficiently broad arbitration provision.


Court Reverses The Appointment Of A Receiver Over Trust Property

Posted in Cases Decided, Texas Court of Appeals

Courts generally review receiverships very closely, and a party requesting one should follow all required procedures.  In Elliott v. Weatherman, parents created an irrevocable living trust and designated their three adult children as co-trustees. No. 03-12-00346-CV, 2013 Tex. App. LEXIS 1301 (Tex. App.—Austin February 8, 2013, no pet. history). The daughters sued their brother, asserting that he had violated the terms of the trust, breached his fiduciary duties, and converted trust property. Due to the discord among the co-trustees, the trial court appointed a receiver over the trust property at the request of the brother. The brother had not pled for a receivership, and there was nothing in the record suggesting that the daughters otherwise had notice prior to the hearing that the brother would request such relief. The court of appeals reversed the trial court’s order appointing the receiver because the daughters were not provided a hearing after three days’ notice, which is required for a receivership. Moreover, the evidence was insufficient to justify the appointment of a receiver because there were less intrusive remedies that would have been sufficient, such as injunctive relief.

The brother should have filed a formal request for a receivership and provided sufficient notice of a hearing on same.  At the hearing, the brother should have provided specific evidence that there were no other remedies available that would have been sufficient.

Former Owner Cannot Challenge Foreclosure Procedure In Forcible Detainer Action

Posted in Cases Decided, Texas Court of Appeals

In 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.

A Bank Can Solely Look To Its Account Agreement To Determine The Ownership Of Funds In An Account

Posted in Cases Decided, Texas Court of Appeals

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.


Court Upheld A Waiver Of Property Code Rights And Affirmed A Deficiency Judgment Based On The Foreclosure Price

Posted in Cases Decided, Texas Court of Appeals

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.


Bank Did Not Alter Right To Foreclose By Agreeing To Work With The Debtor After Bankruptcy Dismissal

Posted in Cases Decided, Texas Court of Appeals

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.