Calhoun/Holiday Place, Inc., Artisan/ American Corp., Vernon Young and Elizabeth Young v. Wells Fargo Bank, N.A., Successor-By-Merger to Wachovia Bank, National Association ( 2016 )

Opinion issued June 14, 2016
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-14-00872-CV
———————————
CALHOUN/HOLIDAY PLACE, INC., ARTISAN/AMERICAN CORP.,
VERNON YOUNG AND ELIZABETH YOUNG, Appellants
V.
WELLS FARGO BANK, N.A., SUCCESSOR-BY-MERGER TO
WACHOVIA BANK, NATIONAL ASSOCIATION, Appellee
On Appeal from the 55th District Court
Harris County, Texas
Trial Court Case No. 2011-56876
MEMORANDUM OPINION
Calhoun/Holiday Place, Inc., Artisan/American Corp., Vernon Young, and
Elizabeth Young (appellants) appeal from a final judgment, rendered upon trial to
the jury and to the bench, in favor of appellee, Wells Fargo Bank, N.A.,
successor-by-merger to Wachovia Bank, National Association (Wells Fargo). In
three issues, appellants argue that (1) the trial court erred by admitting evidence of
Wells Fargo’s sale of the property in May 2013 for $675,000; (2) there is legally and
factually insufficient evidence to support the jury’s finding that the property had a
fair market value of $800,000 on the foreclosure date; and (3) the trial court erred
by awarding attorney’s fees to Wells Fargo. We affirm.
Background
Vernon Young and his wife Elizabeth formed Calhoun/Holiday Place, Inc.
(Calhoun) for the purpose of developing a gated, 120-unit residential subdivision in
Houston known as Holiday Place. Calhoun purchased an undeveloped 6.371 acre
tract of land located in central Houston for $950,000 and borrowed $1,590,000 from
Wells Fargo’s predecessor in interest to develop the project for detached townhomes
in 2006 (the Note). The Note was secured by a deed of trust on the undeveloped tract
(the Property) and guaranteed by Artisan/American Corp., and the Youngs.
The infrastructure was in place and the Property’s lots were ready for home
construction by the fall of 2008. Unfortunately, environmental contamination on an
adjacent industrial property owned by CES Environmental Services thwarted
construction plans on the Property for several years. Local, state and federal actions
ultimately led to the closing of CES and its bankruptcy in 2010. Appellants filed a
lawsuit against CES in 2009 to recover damages caused by this delay in the
2
development of the project. Vernon Young testified that he would have been able to
begin marketing and constructing town homes on the Property in mid to late 2011,
except for the fact that Wells Fargo decided to proceed with the foreclosure in
September 2011.
On September 22, 2011, Wells Fargo sued Calhoun for breach of the Note and
Artisan/American and the Youngs for breach of their guaranty agreements. Wells
Fargo foreclosed on November 1, 2011, and purchased the Property with a credit bid
of $532,570 at the foreclosure sale, leaving a deficiency of $1,415,652. Wells Fargo
later amended its petition and sought to recover on this deficiency amount. Wells
Fargo eventually sold the Property to a neighboring charter school for $675,000 in
May 2018, approximately eighteen months after the foreclosure sale.
Appellants answered and filed three counterclaims seeking a declaratory
judgment with respect to Wells Fargo’s interest in the proceeds of appellants’ lawsuit
against CES and a valuation of the Property pursuant to the Texas Property Code,
and asserting a claim for wrongful foreclosure with respect to any recovery in the
CES lawsuit. The appellants’ declaratory judgment and wrongful foreclosure claims
were resolved in September 20121 and the only issue remaining to be tried was the
fair market value of the Property on the date of the foreclosure sale.
1
The CES lawsuit was settled, and the net proceeds of the suit, $629,786.44, were
deposited in the registry of the court subject to Wells Fargo’s security interest.
3
Before trial, the parties stipulated that:
(1) the Note matured on January 23, 2009 and that appellants failed to pay
the outstanding amounts due and owing under the Note;
(2) Wells Fargo foreclosed on the Property and sold it at auction on
November 1, 2011;
(3) Wells Fargo purchased the Property at the foreclosure sale for a credit
bid of $542,570; and
(4) Appellants owed Wells Fargo $1,948,187.72 on November 1, 2011,
including all applicable interest and fees.
Three witnesses testified about the Property’s fair market value on November
1, 2011: Wells Fargo’s appraiser, Phillip Barletta; appellants’ appraiser, William
Forrest; and Vernon Young.
Vernon Young testified that the Property had a fair market value of
$2,400,000 on November 1, 2011. Young based his valuation on his experience as a
homebuilder, and specifically, what he thought the townhomes could sell for in the
future, if they were built at all, and “what it would have cost” to develop the lots in
November 2011. Appellants’ appraiser, Forrest, prepared a 2012 report in which he
assessed the Property’s fair market value to be $1.71 million as of the foreclosure
date, based on his analyses of comparable sales of homes and residential lots. Wells
Fargo’s appraiser, Barletta, prepared three reports in which he assessed the
Property’s fair market value to be $550,000 as of August 20, 2010, $590,000 as of
August 26, 2011, and $650,000 as of May 2013. Barletta also prepared an October
2013 report critiquing Forrest’s 2012 appraisal. Based on his 2011 and 2013
4
appraisals, Barletta opined at trial that the fair market value of the Property on
November 1, 2011 was between $590,000 and $650,000.
Forrest’s and Barletta’s appraisals of the Property share several similarities.
Although Forrest and Barletta differed in their choice of comparable sales and their
adjustments to those sales, their valuations of the individual lots was relatively
close—Barletta valued the lots at $14,500 each and Forrest valued them at $20,800
each. Both experts also recognized that because lots in a subdivision sell over an
extended period of time, they had to project the time it would take to sell all of the
lots, i.e., the absorption rate, and then discount those future sales to a present value,
as of November 1, 2011. The primary difference between the two appraisals is that
Barletta projected that it would take several years longer to sell all of the lots than
Forrest. In addition to using a longer absorption rate, Barletta also used a higher
discount rate because he perceived the Property’s future development to be riskier
than Forrest.
In his October 2013 report, Barletta criticized Forrest’s appraisal on a number
of grounds. Specifically, Barletta took issue with Forrest’s comparison of the
Property’s small townhome lots with the sale of single–family homes in residential
subdivisions. According to Barletta, not only did the single–family homes used by
Forrest have lot sizes that were two to three and one half times larger than the
Property’s lots, but the pool of buyers for single–family residences is traditionally
5
much greater than the pool of buyers for townhomes. Barletta also noted that
although Forrest “concede[d] that the [Property] is ‘stigmatized’” in his report and
acknowledged that it usually takes ten years before stigmatized properties reclaim
their previous values, Forrest “never consider[d] such ‘stigma’ in [his] actual
analyses” or made any adjustments to his aggressive absorption projections based
on stigma.
On cross-examination, Forrest testified that he based his appraisal of $1.7
million on his assumption that, as of November 1, 2011, the Property was clear of
any environmental contamination and was no longer stigmatized by CES’s
environmental problems. He further testified that although it takes approximately
ten years before a property regains its pre-stigma value, the “stigmatism is usually
over [after] three to four years and then [the] value starts continuing to rise.” Forrest
also acknowledged that although it is important to use sales data comparable to the
subject property when performing an appraisal, none of the sales he used to calculate
the Property’s value were for similarly-sized townhome lots. Forrest testified that
his appraisal “did not take into consideration that [the Property] is adjacent to a
property that was previously contaminated.” He also testified that he did not know
if any of the residential subdivisions he included in his analysis were adjacent to an
industrial property or a recently contaminated property.
6
Barletta’s 2010 and 2011 appraisals, Forrest’s 2012 appraisal, and Barletta’s
report criticizing Forrest’s appraisal were all admitted into evidence without
objection. Although appellants objected to Barletta’s 2013 appraisal based on the
report’s discussion of the May 2013 sale, the trial court overruled the objection.
At the conclusion of the testimony, the jury was asked to answer one question:
“What was the Fair Market Value of the Property as of November 1, 2011?” “Market
Value” was given its usual definition, without reference to the types of competent
evidence described in the Texas Property Code. The trial court instructed the jury as
follows:
You are instructed that ‘Fair Market Value’ is the price the property
will bring when offered for sale by one who desires to sell, but is not
obligated to sell, and is bought by one who desires to buy, but is under
no necessity of buying.
November 1, 2011 is date Wells Fargo foreclosed on the Property. The jury
answered: $800,000.
The issue of attorney’s fees was subsequently tried to the bench. After the
bench trial, the trial court signed a final judgment awarding Wells Fargo
$1,148,187.72, which is the amount of debt stipulated to by the parties, minus the
$800,000 fair market value of Property as found by the jury, plus $249,809.73 in
prejudgment interest and post-judgment interest. The trial court also awarded Wells
Fargo $180,163.50 in attorney’s fees, $32,493.44 in expenses, and an additional
$40,000 in conditional appellate attorney’s fees.
7
This appeal followed.
Property Code Section 51.003
Texas Property Code § 51.003 provides in part as follows:
(b) Any person against whom such a recovery is sought by motion may
request that the court in which the action is pending determine the fair
market value of the real property as of the date of the foreclosure sale.
The fair market value shall be determined by the finder of fact after the
introduction by the parties of competent evidence of the value.
Competent evidence of value may include, but is not limited to, the
following: (1) expert opinion testimony; (2) comparable sales; (3)
anticipated marketing time and holding costs; (4) cost of sale; and (5)
the necessity and amount of any discount to be applied to the future
sales price or the cashflow generated by the property to arrive at a
current fair market value.
TEX. PROP. CODE ANN. § 51.003(b) (West 2014).
Admission of Evidence
In their first issue, appellants argue that the trial court erred by admitting
references to the sales price of Wells Fargo’s post-foreclosure sale in Barletta’s trial
testimony and his July 19, 2013 appraisal report. Appellants argue that the evidence
should not have been admitted because the sale was not made under ordinary market
conditions. Specifically, appellants contend that the Property was not marketed for
its highest and best use as a developed subdivision, and instead, was sold to a
non-profit school for expansion of its facilities.
Appellants filed a motion in limine seeking to exclude all evidence of the
post-foreclosure sale, arguing that the evidence was inadmissible because there was
8
no evidence showing the circumstances of the sale or how the Property was
marketed, and there was no evidence regarding the comparability of market
conditions. See Village Place, Ltd. v. VP Shopping, LLC, 404 S.W.3d 115, 134 (Tex.
App.—Houston [1st Dist.] 2013, no pet.) (holding subsequent sale of property
ordinarily is not evidence of value on earlier date, absent evidence that later sale was
made under similar market conditions). The trial court explained that it was denying
the motion in limine because Wells Fargo’s post-foreclosure sales price was the type
of evidence that appraisal experts relied upon when forming an opinion on the fair
market value of a given property. Appellants made the same objection to the
admission of Barletta’s May 2013 appraisal that referred to the post-foreclosure sale.
The trial court overruled the objection and admitted the appraisal.
If the price at which real property is sold at a foreclosure sale is less than the
unpaid balance of the indebtedness secured by the property, resulting in a deficiency,
an action may be brought to recover the deficiency. See TEX. PROP. CODE ANN.
§ 51.003(a) (West 2014). Any person sued for recovery of such a deficiency may
ask the court to determine the property’s fair market value as of the foreclosure-sale
date and if the property’s fair market value is greater than the sale price, the person
being sued is entitled to an offset. See id. § 51.003(b), (c) (West 2014). Section
51.003(b) states that the property’s fair market value shall be determined by the
factfinder after the parties introduce competent evidence of value. Id. § 51.003(b).
9
The Texas Supreme Court recently held that section 51.003(b) contemplates
the use of a post-foreclosure sales price as competent evidence of fair market value.
See PlainsCapital Bank v. Martin, 459 S.W.3d 550, 556 (Tex. 2015). Appellants
argue that the supreme court’s opinion in PlainsCapital should not be applied
retroactively to “justify [the trial court’s] ruling after the fact.” It is well-established
that a Texas Supreme Court decision “operates retroactively unless [the] Court
exercises its discretion to modify that application.” Bowen v. Aetna Cas. & Sur. Co.,
837 S.W.2d 99, 100 (Tex. 1992). Because the Court did not indicate that its holding
in PlainsCapital was intended only to operate prospectively, we will apply it
retroactively.2
Appellants also contend that PlainsCapital’s exception to the common
definition of “fair market value” is inapplicable here because the Property was not
marketed for its highest or best use. PlainsCapital expressly declined to hold that
“the future sales price” requires a “showing of comparable market conditions
between the foreclosure sale and the future sale” because that “would be adding
words to § 51.003.” PlainsCapital, 459 S.W.3d at 556. In reaching its decision, the
2
Appellants also contend that we should disregard the Texas Supreme Court’s
opinion in PlainsCapital for purposes of our analysis because the exception to the
common definition of “fair market value” created in that opinion was not raised in
the trial court, and, instead, the jury was instructed to determine the Property’s fair
market value based on the commonly understood definition. Neither point, however,
is relevant to the question presented by appellants’ first issue—whether the trial
court abused its discretion by admitting evidence of the post-foreclosure sale.
10
court held that evidence of a future sales price “will support a fair market value
finding under [Property Code section 51.003] even though that type of evidence
might not otherwise be competent in the common or historical fair market value
construct.” Id. at 556–57. Accordingly, evidence of a property’s post-foreclosure
sales price is admissible for purposes of section 51.003, regardless of the
circumstances of the sale. See id.
In light of the Supreme Court’s decision in PlainsCapital, we cannot say that
the trial court abused its discretion when it admitted evidence of the post-foreclosure
sale. See id. at 556; see generally Barnhart v. Morales, 459 S.W.3d 733, 742 (Tex.
App.—Houston [14th Dist.] 2015, no pet.) (holding appellate court can uphold
evidentiary ruling on any legitimate basis, even if that basis was not raised in trial
court).
We overrule appellants’ first issue.
Legal and Factual Sufficiency
In their second issue, appellants argue that the evidence is legally and factually
insufficient to support the jury’s finding that the Property had a fair market value of
$800,000 on the date of the foreclosure sale. A section 51.003 offset operates as an
affirmative defense to a deficiency claim, and therefore, appellants bore the burden
of proof on this issue. See PlainsCapital, 459 S.W.3d at 557.
11
A. Standard of Review
A party attacking the legal sufficiency of an adverse finding on an issue on
which that party bears the burden of proof must demonstrate on appeal that the
evidence establishes, as a matter of law, all vital facts in support of the issue, and it
may prevail on appeal only if no evidence supports the adverse finding and the
contrary position is conclusively established. See PlainsCapital, 459 S.W.3d at 557;
Dow Chem. Co. v. Francis, 46 S.W.3d 237, 241 (Tex. 2001); see also City of Keller
v. Wilson, 168 S.W.3d 802, 815–16 (Tex. 2005) (explaining nature of conclusive
evidence). We consider all of the evidence in the light most favorable to the verdict,
and indulge every reasonable inference that would support it. City of Keller, 168
S.W.3d at 822. In determining whether legally sufficient evidence supports the
finding under review, we consider evidence favorable to the finding, if a reasonable
fact finder could consider it, and disregard evidence contrary to the finding, unless
a reasonable fact finder could not disregard it. Id. at 827.
When a party attacks the factual sufficiency of an adverse finding on an issue
on which he has the burden of proof, he “must demonstrate on appeal that the adverse
finding is against the great weight and preponderance of the evidence.” Dow Chem.
Co., 46 S.W.3d at 242. In reviewing a factual sufficiency challenge, we consider all
of the evidence and set aside a verdict only if the evidence is so weak that the finding
is clearly wrong and unjust. Id.
12
The jury is the sole judge of the credibility of the witnesses and the weight of
their testimony. City of Keller, 168 S.W.3d at 819. The jury may believe one witness
and disbelieve another as it resolves inconsistencies in the testimony. Id. at 819–20.
B. Analysis
Appellants argue that the only evidence supporting the jury’s finding that the
Property had a fair market value of $800,000 on the date of foreclosure is Wells
Fargo’s post-foreclosure sale of the Property, which is inadmissible, and Barletta’s
appraisals valuing the Property between $590,000 and $650,000, which are
insufficient to support a judgment.3
At trial, appellants presented evidence that the Property had a fair market
value of between $1.71 million and $2.4 million on November 1, 2011.4 Wells Fargo
introduced Barletta’s October 2013 report criticizing Forrest’s appraisal into
evidence, and presented testimony that the Property was sold in May 2013 for
$675,000. The testimony and evidence before the jury was uniform in agreeing that
some stigma had attached to the Property because of prior environmental
3
Wells Fargo responds that even if this evidence is excluded, there is sufficient
evidence to support the jury’s finding of fair market value. We agree. Accordingly,
we will not consider Barletta’s appraisals of the Property, or his testimony valuing
the Property between $590,000 and $650,000, as competent evidence of the
Property’s fair market value for purpose of our sufficiency analysis.
4
Although Wells Fargo argues that Vernon Young’s testimony is incompetent
evidence of the Property’s fair market value, it is not necessary for the Court to
address this issue in order to dispose of the appeal.
13
contamination problems on the adjacent tract. There was extensive testimony
explaining the different discounts to be applied to the value of the Property as a result
of this stigma.
In light of our resolution of appellants’ first issue, we conclude that evidence
of the May 2013 sale is “competent evidence” of the Property’s fair market value on
November 1, 2011, the date of foreclosure. See TEX. PROP. CODE ANN. § 51.003(b);
PlainsCapital, 459 S.W.3d at 556–57. Thus, the jury’s finding of $800,000 was
within the range of fair market values permitted by the evidence ($675,000 to
$2,400,000). As the sole judge of the credibility of the witnesses and the weight of
their testimony, it was within the jury’s province to credit Forrest’s appraisal of
$1,710,000, but then reduce that value to $800,000 in light of the factors Barletta
raised in his October 2013 report, or points Forrest testified to on cross-examination.
See City of Keller, 168 S.W.3d at 819
After considering the evidence in the light most favorable to the verdict, and
indulging every reasonable inference that would support it, we conclude that there
is legally sufficient evidence to support the jury’s finding that the Property had a fair
market value of $800,000 on November 1, 2011. See PlainsCapital, 459 S.W.3d at
557; see also Waterways on Intercoastal, Ltd. v. State, 283 S.W.3d 36, 46–47 (Tex.
App.—Houston [14th Dist.] 2009, no pet.) (holding evidence legally and factually
sufficient to support jury’s fair market value finding because finding was within
14
range of evidence presented at trial). In light of the entire record, we cannot say that
the finding is against the great weight and preponderance of the evidence. See
PlainsCapital, 459 S.W.3d at 557; see also Preston Reserve, L.L.C. v. Compass
Bank, 373 S.W.3d 652, 666 (Tex. App.—Houston [14th Dist.] 2012, no pet.),
abrogated in part on other grounds by PlainsCapital, 459 S.W.3d at 553 n.1 (stating
factfinder is allowed to set fair market value at any amount between lowest and
highest values supported by evidence).
We overrule appellants’ second issue.
Attorney’s Fees
In their third issue, appellants argue that the trial court erred by awarding
attorney’s fees to Wells Fargo. Appellants contend that the attorney’s fee award
should be reversed because Property Code sections 51.003(b) and 51.005(b) do not
authorize an award of attorney’s fees, Wells Fargo was not a “prevailing party”, and
Wells Fargo failed to segregate its fees between claims for which attorney’s fees are
recoverable and claims for which they are not.
A. Standard of Review and Applicable Law
We review attorney’s fees awards for an abuse of discretion. Ridge Oil Co.,
Inc. v. Guinn Invs., Inc., 148 S.W.3d 143, 163 (Tex. 2004). To recover attorney’s
fees under section 38.001, a party must prevail on a cause of action for which
attorney’s fees are recoverable and recover damages. See Intercontinental Grp.
15
P’ship v. KB Home Lone Star L.P., 295 S.W.3d 650, 653 (Tex. 2009); see also Green
Int’l, Inc. v. Solis, 951 S.W.2d 384, 390 (Tex. 1997). “Parties are free to contract for
a fee-recovery standard either looser or stricter than Chapter 38’s . . . .” KB Home,
295 S.W.3d at 653. In such cases, the language of the contract, not the statute,
governs. See id.
Generally the party seeking attorney’s fees must segregate its fees between
claims for which attorney’s fees are recoverable and claims for which they are not.
Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 311 (Tex. 2006). Whether a
party needs to segregate its fees is a question of law. Id. at 312–13. A party
recovering attorney’s fees pursuant to a contractual agreement only needs to
segregate its claims to the extent required by the contract language. See generally
Fitzgerald v. Schroeder Ventures II, LLC, 345 S.W.3d 624, 630–31 (Tex. App.—
San Antonio 2011, no pet.) (holding prevailing party entitled to recover attorney’s
fees for tort claims because contractual provision authorizing fee recovery was broad
enough to encompass tort claims).
In construing a written contract, the primary concern is to ascertain and give
effect to the parties’ intentions as expressed in the document. Italian Cowboy
Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 333 (Tex. 2011); Frost
Nat’l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310, 311–12 (Tex. 2005). Contract
terms will be given their plain, ordinary, and generally accepted meanings unless the
16
contract itself shows them to be used in a technical or different sense. Valence
Operating Co. v. Dorsett, 164 S.W.3d 656, 662 (Tex. 2005). If, after applying the
pertinent contract construction rules, the contract can be given a certain or definite
legal meaning or interpretation, then it is not ambiguous, and we will construe the
contract as a matter of law. Frost Nat’l Bank, 165 S.W.3d at 312.
B. Analysis
Wells Fargo pleaded for attorney’s fees under Civil Practice and Remedies
Code section 38.001 and the contractual attorney’s fee provisions in the Note and
guaranty agreement. See TEX. CIV. PRAC. & REM. CODE 38.001.
The Note’s attorney’s fees provision states:
If any holder of this note retains an attorney in connection with any
default or to collect, enforce or defend this note or any of the Loan
Documents in any lawsuit or in any probate, reorganization, bankruptcy
or other proceeding, or if Maker sues any holder in connection with this
note or any of the Loan Documents and does not prevail, then Maker
agrees to pay to each such holder, in addition to principal and interest,
all reasonable costs and expenses incurred by such holder in trying to
collect this note or in any such proceeding, including reasonable
attorney’s fees.
Thus, the Note obligates appellants to pay Wells Fargo “all reasonable costs and
expenses incurred” “in any such proceeding, including reasonable attorney’s fees,”
if (1) Wells Fargo retains an attorney to collect on or enforce the Note or any of the
guarantees5 in any lawsuit or other proceeding; or (2) appellants sue Wells Fargo “in
5
The guaranty agreement is a “Loan Document.”
17
connection with this note or any of the Loan Documents and does not prevail.” The
contract does not condition Wells Fargo’s recovery of costs, expenses, and
attorney’s fees on Wells Fargo being a prevailing party in the lawsuit. Accordingly,
the Note governs Wells Fargo’s right to recovery of attorney’s fees. See KB Home,
295 S.W.3d at 653 (indicating when contract provision sets forth looser fee-recovery
standard than Chapter 38, contract language governs).6
This suit for breach of contract to recover the deficiency due on the Note is
the type of lawsuit contemplated by the fee-recovery provision. Furthermore, the
Note’s fee-recovery provision entitles Wells Fargo to recover reasonable costs,
expenses, and attorney’s fees “incurred . . . in trying to collect this note or in any
such proceeding.” This language is broad enough to encompass all of appellants’
counterclaims and affirmative defenses in the underlying lawsuit. Accordingly, there
is no need to segregate the attorney’s fees in question. We hold that the Note’s
unambiguous fee-recovery provision entitles Wells Fargo to recover all of its
attorney’s fees incurred in the underlying lawsuit.
We overrule appellants’ third issue.
6
The guaranty agreement also contains a similarly broad fee and expense recovery
provision that is less restrictive than Chapter 38.
18
Conclusion
We affirm the trial court’s judgment.
Russell Lloyd
Justice
Panel consists of Justices Massengale, Huddle, and Lloyd.
19