Kenneth Dougherty v. Trustmark National Bank ( 2014 )

Opinion issued June 17, 2014
In The
Court of Appeals
For The
First District of Texas
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NO. 01-13-00474-CV
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KENNETH DOUGHERTY, Appellant
V.
TRUSTMARK NATIONAL BANK, Appellee
On Appeal from the 333rd District Court
Harris County, Texas
Trial Court Case No. 2011-29227
MEMORANDUM OPINION
Appellant Kenneth Dougherty sued appellee Trustmark National Bank,
alleging that Trustmark wrongfully foreclosed on a third-party’s property in which
Dougherty had a superior security interest. The trial court granted summary
judgment in Trustmark’s favor. We affirm.
BACKGROUND
This dispute involves loans made at different times by different parties to
different parties, but secured by the same collateral.
A. March 2008 Loans from Dougherty to DeArmas
On March 26, 2008, Brian DeArmas executed a note in the amount of
$292,800 payable to appellant Dougherty (“Dougherty Note 1”). On March 26,
2008, DeArmas executed a security agreement pledging certain items as collateral
for this note, which included equipment, machinery, vehicles, tools, and proceeds
of such property. In that security agreement, DeArmas represented, among other
things, that “Debtor owns the Collateral and has the authority to grant this security
interest.” On March 27, 2008, DeArmas executed a second note in the amount of
$135,000 payable to Dougherty (“Dougherty Note 2”). On March 19, 2008,
Daugherty filed a UCC Financing Statement with the Texas Secretary of State
evidencing his security interest in the collateral securing Dougherty Note 1.1
These Daugherty loans were associated with DeArmas’s purchase of
commercial real estate from Dougherty to relocate Pro Technik, an automobile-
repair business that DeArmas and a partner were purchasing from a third party.
DeArmas financed $1 million of the real-estate purchase price through a
commercial lender, paid $50,000 in cash as a down-payment, and the Dougherty
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It is not clear from the record why the UCC Financing Statement was filed before
the dates of the loan or security agreement.
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notes represented the remainder of the purchase price. Once the Pro Technik
business was later purchased, Pro Technik leased this real property from DeArmas,
individually.
B. June 2008 Loans from Trustmark to Pro Technik
More than three months later, on June 30, 2008, DeArmas and his partner
executed a note on behalf of Pro Technik payable to appellee Trustmark in the
amount of $402,000 (“Trustmark Note 1”). On that same day, they executed a
second note on behalf of Pro Technik payable to appellee Trustmark in the amount
of $103,000 (“Trustmark Note 2”). Both notes were secured by Commercial
Security Agreements, also signed on June 30, 2008, granting a security interest in
property owned by Pro Technik, which included “All Inventory, Chattel Paper,
Accounts, Equipment, and General Intangibles.” In these security agreements,
DeArmas and his partner represented that the collateral was owned by Pro
Technik. Trustmark filed UCC Financing Statements to perfect its security
interests on September 8, 2008. Trustmark Note 1 was made to purchase the Pro
Technik business, inventory for that business, and improvements to the real
property that had previously been purchased from Dougherty. Trustmark Note 2
funded equipment purchases from Dougherty.
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C. Pro Technik’s default on the Trustmark Notes 1 & 2 and foreclosure on
its collateral
Pro Technik defaulted on both its notes with Trustmark. On November 29,
2010, Trustmark sent Pro Technik notice of default on Trustmark Note 1, as well
as its intent to accelerate the note if the default was not cured within ten days. The
notice also stated, “If payment is not tendered per this demand, demand is further
made for you to assemble all collateral securing this indebtedness, and make it
available for peaceable repossession by Trustmark.”
After Pro Technik failed to cure its default, Trustmark took possession of the
equipment and other collateral in December 2010. On January 22, 2011,
Trustmark provided notice to DeArmas and eleven other entities (including the
Internal Revenue Service and several other banks) of its intent to auction Pro
Technik’s collateral on February 2, 2011. In the meantime, although DeArmas
was also in default on his personal Dougherty Notes 1 & 2 secured by some of the
same property, DeArmas never notified Dougherty about the Trustmark’s notes or
about the foreclosure proceedings.
On January 25, 2011, DeArmas sent an email to Trustmark stating his belief
that the bank should also notify Mid South Bank, Bayview, and Ken Daugherty as
additional potential lienholders. Shortly thereafter, Daugherty learned of the
upcoming auction and sent a January 27, 2011 letter to Trustmark stating that
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Trustmark should not sell Pro Technik’s collateral because DeArmas may have
given Daugherty an earlier security interest in the same property.
On January 31, 2011, Trustmark responded to Daugherty’s letter, stating that
Daugherty did not have a security interest in the collateral because Daugherty did
not perfect a security interest in the name of Pro Technik, Inc. Trustmark then
went forward with its auction, disposing of Pro Technik’s collateral and applying
the proceeds to its outstanding loans.
On May 16, 2011, Dougherty sued Trustmark for conversion, negligence,
violation of the Texas Theft Liability Act, and unjust enrichment, seeking actual
damages, exemplary damages, attorneys’ fees, and an accounting.
D. DeArmas’s Bankruptcy Proceedings and Dougherty’s Claim
DeArmas then filed for Chapter 7 bankruptcy protection, In re Brian
DeArmas, No. 11-36801-H3-7, in U.S. Bankruptcy Court, S.D. of Texas, Houston
Division. On October 28, 2011, Dougherty filed a Complaint Objecting to
Discharge of Debtor, Kenneth Dougherty v. Brian DeArmas, No. 11-30546. In that
complaint, Dougherty set forth details about the Dougherty Note 1, the related
security agreement and DeArmas’s default. The complaint also stated,
On October 24, 2011, Defendant was deposed pursuant to a Notice of
Examination noticed by Trustmark National Bank (“Trustmark”).
During that examination, Defendant provided testimony that
established his knowledge that the property being pledged as security
to Plaintiff was not owned by Defendant but was instead owned by his
company, Pro Technik. This obvious fraud and deception was not
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disclosed to Plaintiff who believing that Defendant was the actual
owner of the property accepted that property as security for the loan.
Defendant subsequently pledged the very same property to Trustmark
as security for loans the bank made to Defendant. Unbeknownst to
Plaintiff, Defendant’s secured loans with Trustmark, on behalf of
ProTechnik Inc., were also in default. Trustmark took possession of
the items listed in Plaintiff’s UCC financing statement in December,
2010, and prepared to auction the items to the public and proceeded to
publicly auction the items on February 2, 2011.
Dougherty argued that these facts established that DeArmas committed fraud
to entice Dougherty to lend him money while knowing that he had no intention to
pay it back. Accordingly, he requested that DeArmas not be allowed to discharge
his debt. 11 U.S.C. § 523(a) (exempting from discharge debt obtained under
certain false pretenses).
E. The Bankruptcy Court’s Judgment
On December 13, 2012, the bankruptcy court entered an Agreed Judgment
on Dougherty’s claim. The judgment ordered that Dougherty recover $115,000
from DeArmas, which is not dischargeable. The judgment “further ORDERS that
as alleged in Plaintiff’s Objection to Discharge filed in this proceeding, Defendant
made false representations and committed actual fraud with the intent and result
being to entice Plaintiff into supplying Defendant money all the while knowing
that he had no intention of paying Plaintiff the monies owed.”
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F. The Trial Court’s Summary Judgment
In the underlying case, Trustmark moved for traditional summary judgment
on Dougherty’s claims, arguing that Dougherty’s claims were all based upon the
“allegation that Trustmark repossessed and foreclosed a security interest in certain
collateral in disregard of Plaintiff’s perfected, first-priority interest in the
property.” According to Trustmark, its summary-judgment evidence “proves that
at the time [Dougherty] obtained the alleged security interest from DeArmas in the
collateral, DeArmas had no rights in the collateral.” Thus, because Dougherty
could not have obtained an enforceable security interest in the collateral,
Trustmark could not have owed Dougherty any legal duties with respect to the
collateral. Trustmark also argued that its affirmative defense of collateral estoppel
was proved as a matter of law because the ownership of the collateral issue was
resolved in the federal bankruptcy proceedings.
In response, Dougherty contended that summary judgment on Trustmark’s
collateral-estoppel affirmative defense was inappropriate because the issues in the
bankruptcy proceedings were settled by the parties’ agreement, rather than “fully
and fairly litigated” and because the relevant issues in the bankruptcy proceeding
were different.
Dougherty also argued that there were fact issues that precluded summary
judgment. Specifically, he argued that his UCC Financing statement evidencing
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his security interest in the collateral together with evidence that Trustmark knew
about his interest provides some evidence that Trustmark acted wrongfully in
foreclosing on the collateral.
The trial court granted Trustmark’s summary judgment, and Dougherty
timely appealed.
ISSUES ON APPEAL
Dougherty brings two issues on appeal:
1. “Under Texas law, the doctrine of collateral estoppel does not apply unless
an issue was ‘fully and fairly litigated’ in a previous proceeding. Here,
Appellee claims that an unrelated issue in a bankruptcy proceeding was
preclusive effect in this litigation. Can the trial court’s summary judgment
be affirmed on this affirmative defense?”
2. “Appellee’s motion for summary judgment was predicated on statements of
a third party with request to the ownership of certain property. In response,
Appellant submitted sworn statements by the same third party that are
entirely contradictory to the evidence offered by Appellee. No other
evidence in the summary-judgment record addresses this issue. Does a
genuine issue of material fact exist with regard to the ownership of the
property?”
SUMMARY JUDGMENT
We review a trial court’s summary judgment de novo. Travelers Ins. Co. v.
Joachim, 315 S.W.3d 860, 862 (Tex. 2010). If a trial court grants summary
judgment without specifying the grounds for granting the motion, we must uphold
the trial court’s judgment if any of the grounds are meritorious. Beverick v. Koch
Power, Inc., 186 S.W.3d 145, 148 (Tex. App.—Houston [1st Dist.] 2005, pet.
denied). The motion must state the specific grounds relied upon for summary
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judgment. See TEX. R. CIV. P. 166a(c), (i); Timpte Indus., Inc. v. Gish, 286 S.W.3d
306, 310 (Tex. 2009). When reviewing a summary judgment motion, we must (1)
take as true all evidence favorable to the nonmovant, and (2) indulge every
reasonable inference and resolve any doubts in the nonmovant’s favor. Valence
Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005); Provident Life Accid.
Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003).
In a traditional summary judgment motion, the movant has the burden to
show that no genuine issue of material fact exists and that the trial court should
grant judgment as a matter of law. TEX. R. CIV. P. 166a(c); KPMG Peat Marwick v.
Harrison Cnty. Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999). A defendant
moving for traditional summary judgment must conclusively negate at least one
essential element of each of the plaintiff’s causes of action or conclusively
establish each element of an affirmative defense. Sci. Spectrum, Inc. v. Martinez,
941 S.W.2d 910, 911 (Tex.1997).
ANALYSIS
We need not reach the first issue of whether the Trustmark conclusively
established its affirmative defense of collateral estoppel because the summary-
judgment evidence demonstrates that there is no fact issue about DeArmas’s lack
of ownership interest in the collateral in which he pledged an interest to
Dougherty. We agree with Trustmark that the evidence demonstrates that
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Dougherty could not have had a security interest in the collateral and, thus,
Trustmark could not have owed any duty to Dougherty with regard to that
collateral. Dougherty’s lack of ownership—and Trustmark’s corresponding lack
of duty to Dougherty—defeats Dougherty’s right of recovery under all his theories
of liability. Accordingly, the trial court properly granted summary judgment.
In arguing that summary-judgment was improper, Dougherty asserts that
Trustmark did not carry its burden of demonstrating that no fact issue existed about
the ownership of the collateral on March 26, 2008—when DeArmas granted a
security interest to Dougherty. Specifically, he contends that the summary-
judgment record consists of nothing more than inconsistent statements from the
same material witness, i.e., DeArmas, that only serve to create a fact issue:
To demonstrate its alleged ownership interest in the collateral,
Trustmark directed the trial court to DeArmas’s unsworn security
agreement [from Pro Technic to Trustmark], along with his deposition
testimony in the bankruptcy proceeding three-and-a-half years later.
In response, [Dougherty] offered the sworn security agreement from
March 2008, in which DeArmas represented that he was the owner of
the collateral.
Inconsistent statements from the same material witness
necessarily create a fact issue that requires a jury to make a
determination of credibility and therefore, DeArmas’s statement
cannot support a summary judgment. And because the summary-
judgment record does not contain any evidence (other than
DeArmas’s inconsistent ipse dixit) to establish the owner of the
collateral at the time DeArmas signed the original security agreement
with [Dougherty], Trustmark has not established that it is entitled to
judgment as a matter of law.
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In response, Trustmark asserts that the summary-judgment evidence proves
that Pro Technik, not DeArmas, owned the collateral such that a purported security
interest granted by DeArmas personally could not grant any interest. Trustmark
contends that the one piece of evidence Dougherty points to—i.e., the security
agreement in which DeArmas represented he owned the collateral and granted to
Dougherty a security interest—does not create a fact issue in light of the other
summary-judgment evidence. We agree with Trustmark that this document does
not create a fact issue in light of the remaining, uncontroverted summary-judgment
evidence.
Dougherty relies solely upon the March 26, 2008 security agreement in
which DeArmas personally pledged a security interest to Dougherty in the
collateral and represented that DeArmas owned the collateral. Trustmark
provided, as summary-judgment evidence, excerpts from DeArmas’s deposition in
which he explains that initially the plan was for the closings on his purchase of
Dougherty’s real estate and on the Pro Technik business to happen at the same
time. Because of delays in securing the Trustmark loans, however, the purchase of
Pro Technik did not happen until June 30, 2008—more than three months after
DeArmas executed the Dougherty notes and security agreement on March 26,
2008. DeArmas also testified in that deposition that he did not personally own
any of the collateral described in the security agreement executed in favor of
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Dougherty. Rather, he testified, that collateral was owned by Pro Technik. When
asked why he signed the security agreement for Dougherty personally instead of in
the name of Pro Technik, DeArmas testified that he just signed what Dougherty
prepared and put in front of him.
In addition to relying upon DeArmas’s deposition, Trustmark included as
summary-judgment evidence Dougherty’s objection to discharge of the amounts
due under the Dougherty notes filed in DeArmas’s bankruptcy case. In that filing,
Dougherty cites the same DeArmas’s deposition testimony as “establish[ing] his
knowledge that the property being pledged as security to [Daugherty] was not
owned by [DeArmas] but instead owned by his company, Pro Technik.”
Dougherty argued to the bankruptcy court that DeArmas’s actions amounted to
“actual fraud with the intent and result being to entice [Dougherty] into supplying
[DeArmas] money all the while knowing that he had no intention of paying
Plaintiff the monies owed.” Trustmark also notes that Dougherty’s live pleading in
the underlying suit states that the “adversary proceeding was eventually settled
with an agreed judgment being entered wherein Mr. de Armas admitted to
defrauding Plaintiff.”
Dougherty’s argument that summary judgment was inappropriate rests on
the premise that DeArmas’s representation in the March 26, 2008 security
agreement that he owned the collateral on that date served to “controvert”
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DeArmas’s later deposition testimony that he actually did not own the collateral on
that date and that instead Pro Technik (the entity that later granted a security
interest to Trustmark) was the entity that owned the collateral. But even if this
were enough in isolation to create a fact issue, the other uncontroverted evidence
establishes that DeArmas’s statement in the security agreement that he owned the
collateral in March 2008 could not have been true.
Specifically, the summary-judgment evidence demonstrates that the
Trustmark loans executed by DeArmas on behalf of Pro Technik (which were
secured with the same collateral) did not occur until June 2008. Dougherty did not
proffer controverting evidence (or even dispute) that it was the proceeds of these
later-in-time loans that DeArmas used to purchase the Pro Technik business,
equipment, and inventory. This clear, uncontroverted evidence that DeArmas did
not acquire ownership rights in Pro Technik until after DeArmas represented that
he personally owned the property owned by Pro Technik proves that Dougherty
could not have acquired an enforceable security interest in the collateral. See TEX.
BUS. & COMM. CODE § 9.203 (Vernon 2011) (security interest is enforceable “only
if” the debtor giving the security interest “has rights in the collateral or the power
to transfer rights in the collateral to a secured party”).
The fact that Daugherty did not acquire an enforceable security interest in
the collateral necessarily defeats his claim that Trustmark owed him a duty to not
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dispose of the collateral owned by Pro Technik, pledged to Trustmark in Pro
Technik’s name, and foreclosed on under Trustmark’s properly perfected security
interest. The trial court thus correctly granted summary judgment.
CONCLUSION
We affirm the trial court’s summary judgment.
Sherry Radack
Chief Justice
Panel consists of Chief Justice Radack and Justices Higley and Brown.
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