Richard Myers v. Hall Columbus Lender, LLC , 2014 Tex. App. LEXIS 7819 ( 2014 )

Reversed and Remanded and Opinion Filed July 17, 2014
S In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-12-01557-CV
RICHARD MYERS, Appellant
V.
HALL COLUMBUS LENDER, LLC, Appellee
On Appeal from the 298th Judicial District Court
Dallas County, Texas
Trial Court Cause No. 11-04295
OPINION
Before Justices FitzGerald, Fillmore, and Evans
Opinion by Justice FitzGerald
Appellee Hall Columbus Lender, LLC (Lender) sued appellant Richard Myers for
breaching contracts in which Myers promised to defend Lender against certain claims. In
response to Lender’s motion for summary judgment, Myers argued as a matter of contract
interpretation that he was not in breach because his duty to defend had not been triggered. The
trial judge granted a partial summary judgment for Lender and later signed a final judgment in
Lender’s favor. Agreeing with Myers’s interpretation of the contracts, we reverse and remand.
I. BACKGROUND
A. Facts
Most of the issues in this case were resolved on the motion for summary judgment filed
by appellee Lender. The following facts find support in the summary-judgment evidence.
In December 2006, Lender entered two loan agreements with NP Platinum Hotel, LLC
(Borrower) to finance the construction of a hotel in Ohio. These agreements contain clauses
obliging Borrower to defend and indemnify Lender against claims arising in connection with the
project. In January 2009, the loan agreements were amended, but no one contends the
amendments affected Borrower’s defense and indemnity obligations. At the same time,
appellant Myers signed two guaranty agreements in favor of Lender in which he generally
guarantied Borrower’s obligations under the amended loan agreements.
In the first half of 2010, Irwin F. Silverstein and others sued Myers, Lender, and others in
Texas state court on various claims arising from the plaintiffs’ investments in the hotel project.
The record does not contain the original or first amended Silverstein petition, but it does contain
the second amended Silverstein petition, which has a certificate of service dated May 7, 2010.
The claims asserted in that pleading include a claim against “one or more and maybe all”
defendants for real-estate and stock fraud under the Texas Business and Commerce Code. In that
same general time frame, 2009–2010, Borrower defaulted on various obligations under the loan
agreements. Lender, Borrower, Myers, and another guarantor called N.P. Limited Partnership
executed a forbearance agreement with an effective date of May 13, 2010. The forbearance
agreement, which is central to this appeal, amended the guaranty agreements in several respects
that will be discussed later.
In February 2011, Lender made a demand on Myers that he reimburse Lender for its
defense costs incurred in the Silverstein lawsuit and pay for Lender’s defense going forward. In
March 2011, Lender was nonsuited from the Silverstein lawsuit.
B. Procedural history
Lender sued Myers for breaching the guaranty agreements by failing to defend and
indemnify Lender in connection with the Silverstein lawsuit. Lender also sought a declaratory
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judgment that Myers owed Lender defense and indemnity obligations in connection with the
Silverstein lawsuit, and it sought to recover its attorneys’ fees. Myers filed an answer containing
a general denial and specific denials that certain conditions precedent had been fulfilled.
Lender filed a motion for summary judgment on the entire case, and Myers filed a
response. The trial judge signed an order granting Lender’s motion in part. The judge ruled that
Lender was entitled to summary judgment on its breach-of-contract claim in the amount of
$79,000, but that fact issues remained to be tried as to Lender’s request for attorneys’ fees. The
judge did not mention Lender’s declaratory-judgment claim. A one-day bench trial was later
held. The trial judge then signed a final judgment in favor of Lender. The judge awarded
Lender the $79,000 in damages previously assessed, plus trial-level attorneys’ fees and
conditional appellate attorneys’ fees. The judge also granted a declaratory judgment that “Myers
has a duty to defend [Lender] in the Silverstein Lawsuit.”
Myers timely appealed the final judgment
II. ANALYSIS
Myers asserts three issues on appeal. In his first issue, he challenges the partial summary
judgment on breach of contract. In his second issue, he challenges the award of attorneys’ fees.
And in his third issue, he challenges the award of declaratory relief.
A. Summary judgment
1. Standard of review, choice of law, and issue presented
We review a summary judgment de novo. Smith v. Deneve, 285 S.W.3d 904, 909 (Tex.
App.—Dallas 2009, no pet.). When we review a summary judgment in favor of a plaintiff, we
determine whether the plaintiff established every element of its claim as a matter of law.
Anderton v. Cawley, 378 S.W.3d 38, 46 (Tex. App.—Dallas 2012, no pet.). We consider the
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evidence in the light most favorable to the nonmovant, indulge every reasonable inference in
favor of the nonmovant, and resolve any doubts against the movant. Id.
Although the guaranty agreements contain Ohio choice-of-law clauses, Myers relies
entirely on Texas law in his appellate brief. Lender cites eighteen Texas cases and two Ohio
cases. Lender does not argue that Ohio law differs from Texas law on any material point, and it
asserts that Ohio and Texas law are the same on one point. Under these circumstances, we will
apply Texas law. See El Paso Mktg., L.P. v. Wolf Hollow I, L.P., 383 S.W.3d 138, 144 n.26
(Tex. 2012) (presuming that Texas law and New York law were the same because the parties
pointed to no material differences between them).
The elements of a claim for breach of contract are (1) a contract existed between the
parties, (2) the contract created duties, (3) the defendant breached a material duty under the
contract, and (4) the plaintiff sustained damages. Cadle Co. v. Castle, 913 S.W.2d 627, 631
(Tex. App.—Dallas 1995, writ denied) (en banc). Myers contends that Lender failed to carry its
burden of proving as a matter of law that Myers breached the contracts in question, namely the
guaranty agreements as amended by the forbearance agreement. Myers’s argument is one of
contract interpretation. That is, he does not dispute that he has neither defended nor indemnified
Lender against the Silverstein lawsuit. Rather, he contends that the contracts, properly
interpreted, do not require him to defend or indemnify Lender under the facts Lender proved on
summary judgment. Lender, of course, disagrees.
2. Essential contract provisions at issue
There are three sets of contracts involved in this case: the loan agreements between
Lender and Borrower, the guaranty agreements between Lender and Myers, and a forbearance
agreement that modifies the guaranty agreements. The loan agreements between Lender and
Borrower contain the following indemnification provision:
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Borrower shall indemnify Lender [and others] and defend and hold each
Indemnified Party harmless from and against all claims, injury, damage, loss and
liability, cost and expense (including reasonable attorneys’ fees, costs and
expenses) of any and every kind to any persons or property by reason of [three
enumerated matters] or (iv) any other matter arising in connection with the Loan,
Borrower, Guarantor, Pledgor or the Project.
Myers does not dispute that the claims against Lender in the Silverstein lawsuit come within this
clause.
In 2009, Myers executed two guaranty agreements relating to the loan agreements
between Borrower and Lender. Each guaranty agreement contains the same broad guaranty
clause in section 3: “Guarantor hereby unconditionally and irrevocably guarantees to Lender the
timely performance of the Guaranteed Performance Obligations.” Myers does not dispute that
Borrower’s duties to defend and indemnify Lender under the loan agreements are “Guaranteed
Performance Obligations” under the guaranty agreements. Each guaranty agreement also
contains a host of limitations on Myers’s guaranty obligations in section 4, entitled
“Limitations.”
The crux of the case is the 2011 forbearance agreement, in which Myers and Lender
amended section 4 of each of the guaranty agreements. Section 2.2 of the forbearance agreement
is entitled “Amendment of Guaranty Agreements,” and section 2.2(b) provides as follows:
Notwithstanding anything contained in this Agreement or the Loan
Documents to the foregoing [sic], Section 4 of each Guaranty Agreement
executed by Myers shall hereby be deleted, and is hereby amended and restated in
its entirety as follows:
“LIMITATIONS. Notwithstanding anything in this Guaranty or the other
Loan Documents to the contrary, and subject to the limitation described in
the paragraph below, Guarantor shall be obligated to pay in full the
Guaranteed Indebtedness and perform the Guaranteed Performance
Obligations only upon the occurrence of any of the following events on or
after the date hereof:
a. the filing by Borrower or Guarantor of any proceeding for relief
under any Debtor Relief Laws . . .
b. [omitted]
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c. fraud or intentional or material misrepresentation by the Borrower
or Guarantor related to the Project or to the Loan Documents or the
transactions contemplated thereby . . . .
[d. and e. omitted]; or
[f. omitted.]
. . .”
The proper interpretation of the above quoted language, and amended section 4(c) in particular,
is at the heart of this dispute. Myers argues that under a proper interpretation, Lender failed to
prove as a matter of law that the condition set forth in amended section 4(c) ever came to pass.
Lender argues that it successfully carried its burden.
3. Application of the law to the facts
If a guaranty agreement is unambiguous, we construe it under the usual rules of contract
interpretation. Moayedi v. Interstate 35/Chisam Rd., L.P., No. 12-0937, 2014 WL 2619524, at
*4 (Tex. June 13, 2014). Our primary concern is to ascertain the true intentions of the parties as
expressed in the contract. Id. We give terms their ordinary meanings unless the agreement
shows that some other meaning was intended. Id. And we examine the whole agreement,
endeavoring to harmonize and give effect to all provisions so that none will be rendered
meaningless. Id.
The plain meaning of section 2.2(b) of the forbearance agreement is that the original
language of section 4 in the guaranty agreements should be deleted entirely and replaced with the
new section 4 language that appears in section 2.2(b) inside the quotation marks. Thus, the
guaranty agreements as amended provide that Myers will owe Lender performance of the
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Guaranteed Performance Obligations—such as the duty to defend and indemnify Lender—“only
upon the occurrence of any of the [specified] events on or after the date hereof.”1
So, reading all the documents together, we see the following terms. Under the loan
agreements, Borrower (NP Platinum Hotel, LLC) has a duty to defend and indemnify Lender
against claims such as those alleged in the Silverstein lawsuit. Under the guaranty agreements,
as amended by the forbearance agreement, Myers as guarantor also owes Lender those duties if
certain conditions are met. Lender relies solely on the condition set forth in amended section
4(c). Under that provision, Myers’s duty to defend and indemnify was triggered “only upon the
occurrence of . . . fraud or intentional or material misrepresentation by the Borrower or
Guarantor related to the Project” on or after the specified date.
The questions presented are how to interpret the condition in amended section 4(c) in the
context of the contracts as a whole, and whether that condition was satisfied when the Silverstein
plaintiffs alleged fraud against Myers. Myers argues that the mere allegations in the Silverstein
pleadings are not enough to satisfy amended section 4(c). He focuses on the ordinary meaning of
“occurrence,” which is an incident or event, i.e., something that happens or takes place. See THE
NEW OXFORD AMERICAN DICTIONARY 1184 (2001) (definitions of “occurrence” and “occur”).
Giving “occurrence” its ordinary meaning, according to Myers, means that he owes Lender no
duty to defend or indemnify unless he (or Borrower) committed fraud or intentional or material
misrepresentation related to the hotel project on or after the relevant date. If the parties had
meant for Myers’s duties to be triggered by a mere allegation of fraud, argues Myers, they would
have said “allegation” instead of “occurrence.” According to Myers, the summary-judgment
evidence shows only that the Silverstein plaintiffs have alleged fraud, not that Myers actually
1
The parties dispute what the phrase “the date hereof” means. Myers argues it means the date of the forbearance agreement, but Lender
argues it means the effective date of the guaranty agreements. The dispute is not material to our disposition of the case, so we do not resolve it.
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committed fraud. There being no proof of an actual occurrence of fraud by Myers after the
specified date, Myers concludes, Lender failed to prove that his duty to defend and indemnify
was triggered or breached. Myers’s interpretation is, on its face, a reasonable one.
We turn to Lender’s arguments that we should interpret amended section 4(c) to provide
that Myers’s duties to defend and indemnify were triggered by the assertion of the fraud claim in
the Silverstein lawsuit against Myers. Lender’s first argument is that Myers is improperly
conflating the duty to indemnify and the duty to defend. Lender invokes the well-settled law of
insurance that a liability insurer’s duty to defend is triggered by an allegation of a covered claim
against its insured, but the duty to indemnify is triggered (or not) by the outcome of the case
against the insured. See generally Farmers Tex. Cnty. Mut. Ins. Co. v. Griffin, 955 S.W.2d 81,
82 (Tex. 1997) (per curiam). Lender argues that Myers’s duty to defend should work the same
way. But even in the insurance context, the duty to defend is a contractual duty that depends on
the precise terms of the contract. See Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., 279
S.W.3d 650, 655 (Tex. 2009) (“The duty to defend depends on the language of the policy setting
out the contractual agreement between insurer and insured.”) (footnote omitted); Wheelways Ins.
Co. v. Hodges, 872 S.W.2d 776, 786 (Tex. App.—Texarkana 1994, no writ) (“[A]bsent a
contract to defend, the insurer has no duty to defend.”). Thus, the determination of whether an
insurer’s duty to defend has been triggered cannot be decided by a universal rule because it
“should be driven by the contract language—language that obviously may vary from policy to
policy.” Don’s Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20, 30 (Tex. 2008).
Accordingly, the Silverstein allegations triggered Myers’s duty to defend Lender only if the
amended guaranties create a duty to defend that is triggered by such allegations. And as
discussed above, the plain language of amended section 4(c) requires an “occurrence” of fraud
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by Myers or Borrower to trigger Myers’s duties, not an “allegation.” Given the language of
amended section 4(c), Lender’s analogy to insurance law is unconvincing.
Lender argues that Myers’s interpretation of the agreements is unreasonable because it
renders the duty to defend indistinguishable from the duty to indemnify and, therefore,
meaningless. We disagree. There are circumstances that would trigger Myers’s duty to defend
without simultaneously triggering his duty to indemnify. For example, if a third party
successfully sues Myers for fraud related to the project and committed after the specified date,
the “occurrence of . . . fraud” condition in amended section 4(c) will be satisfied. If Lender is
subsequently sued on a covered claim, Myers will be obliged to defend Lender from the outset;
later, depending on the outcome of that suit, Myers may have to indemnify Lender as well.
Thus, Myers’s interpretation of the agreements does not render the duty to defend meaningless.
By contrast, Lender’s interpretation would require us to rewrite the amended section 4 by
replacing the word “occurrence” with “allegation.” This we may not do. See Lewis v. Foxworth,
170 S.W.3d 900, 903 (Tex. App.—Dallas 2005, no pet.) (“We may neither rewrite the contract
nor add to its language.”).
Next, Lender points out that the Silverstein lawsuit, which included a claim of fraud, was
already pending against Myers when Lender and Myers executed the forbearance agreement.
The forbearance agreement makes Myers’s duties conditional on the occurrence of fraud.
Therefore, Lender concludes, the parties intended that Myers would defend Lender in the
Silverstein lawsuit. This argument is unpersuasive. If the parties intended for Myers to defend
Lender in the already-pending Silverstein lawsuit, they could have used the word “allegation”
instead of “occurrence” in amended section 4—or, more obviously, they could have simply said,
“Myers will defend Lender against the Silverstein lawsuit,” or words to that effect. Instead, they
conditioned Myers’s duties on the occurrence of fraud or misrepresentation by Myers or
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Borrower, and the summary-judgment evidence before us contains no proof of such an
occurrence.
Lender points out that the forbearance agreement contains two specific references to the
Silverstein lawsuit. First, Lender points to section 2.2(a) of the forbearance agreement. That
section modified the guaranty obligations owed to Lender by a different guarantor, N.P. Limited
Partnership. Section 2.2(a) is generally similar to section 2.2(b) pertaining to Myers, but section
2.2(a) contains a specific exclusion stating that N.P. Limited Partnerhsip “shall have no liability
whatsoever in connection with” the Silverstein lawsuit. From this, Lender argues that the parties
must have intended Myers to defend Lender against the Silverstein lawsuit. But this argument
ignores the key language in section 2.2(b) providing that Myers has no duties to Lender at all
unless there is an occurrence after the specified date of one of the listed events, such as fraud by
Myers or Borrower. The mention of the Silverstein lawsuit in section 2.2(a) carries no
implications for the proper interpretation of section 2.2(b). N.P. Limited Partnership has no
duties relating to the Silverstein lawsuit, while Myers may have such duties if one of the listed
conditions is fulfilled.
The forbearance agreement also mentions the Silverstein lawsuit in section 6.3,
“Representations and Warranties of Lender.” In that provision, Lender warrants to Myers and
the other guarantor that Lender is not aware of any claims that it may have against the guarantors
except for the Silverstein lawsuit. Lender does not explain how this mention of the Silverstein
lawsuit should affect the proper interpretation of section 2.2(b), and we do not perceive any
interaction between the two. We conclude section 6.3 does not affect the proper interpretation of
section 2.2(b).
Finally, Lender relies on another provision in amended section 4 of the guaranty
agreements. At the end of amended section 4 is a proviso that if Myers’s duties are triggered
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under section 4(a) or section 4(c), and those triggering events relate to a specific lawsuit called
Bracket Builders, Inc. v. Lodging First, LLC et al., then Myers’s duties will be limited to the
extent of “actual monetary damages suffered by Lender as a result of such event or events.”
Lender argues that if the parties had intended for Myers’s duties to be triggered only by a finding
of fraud in the Silverstein lawsuit, they would have used similar language. The above-quoted
provision adds a special limitation on Myers’s exposure with respect to the claims in the Bracket
Builders lawsuit. But it does not change the overarching thrust of amended section 4: Myers’s
general duty to perform Borrower’s obligations is conditioned on the occurrence of one of the six
listed conditions after the specified date. The existence of extra limitations on that duty with
respect to the Bracket Builders lawsuit does not imply that the conditions should not be enforced
according to their terms as to the Silverstein lawsuit.
4. Conclusion
We conclude that Myers’s interpretation of the forbearance agreement is reasonable and
correct. Under the forbearance agreement and amended section 4(c) of the guaranties, Myers
owes Lender no duty to perform Borrower’s obligations unless there is an occurrence of fraud or
intentional or material misrepresentation on or after the specified date by Borrower or Myers
related to the project. Lender failed to adduce evidence proving as a matter of law that such an
occurrence ever took place. Accordingly, Lender failed to prove as a matter of law that Myers
breached the guaranties, and Lender was not entitled to summary judgment on its breach-of-
contract claim.
B. Other issues
We next consider Myers’s third issue in which he argues that the trial judge erred by
granting a declaratory judgment that “Myers has a duty to defend [Lender] in the Silverstein
Lawsuit.” The trial judge granted the declaratory relief in the final judgment after not
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mentioning the declaratory-judgment claim at all in the partial summary judgment order. Myers
argues that we should nevertheless treat the declaratory relief as having been granted on
summary judgment because the subsequent bench trial concerned only Lender’s claim for
attorneys’ fees. On the merits, he argues that the award of declaratory relief is erroneous for the
same reason the breach-of-contract judgment is erroneous, and he adds that Lender’s
declaratory-judgment claim is also not a justiciable controversy because Lender has been
nonsuited from the Silverstein lawsuit.
Lender does not dispute that the award of declaratory relief was predicated on Lender’s
summary-judgment motion. Indeed, Lender argues that Myers has waived any complaint about
the award of the declaratory relief because Myers did not respond to Lender’s summary-
judgment motion with respect to that claim. But a summary-judgment nonmovant can always
attack on appeal the legal sufficiency of the grounds presented in the summary-judgment motion,
even without filing a response. City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671,
678 (Tex. 1979). Myers’s argument on appeal satisfies the Clear Creek rule—he contends that
Lender’s summary-judgment proof on its face does not entitle Lender to declaratory judgment as
a matter of law that Myers will owe Lender a duty to defend if Lender is rejoined in the
Silverstein case. For the reasons stated in Part II.A above, we agree. The trial judge erred by
granting Lender declaratory judgment.
This leaves Myers’s second issue, in which he challenges the award of attorneys’ fees to
Lender. Having reversed the judgment in Lender’s favor on its claims for breach of contract and
declaratory judgment, we necessarily conclude that the award of attorneys’ fees must be reversed
as well. See Morton v. Nguyen, 412 S.W.3d 506, 512 (Tex. 2013).
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III. CONCLUSION
For the foregoing reasons, we reverse the trial court’s judgment in its entirety and remand
the case for further proceedings consistent with this opinion.
121557F.P05 /Kerry P. FitzGerald/
KERRY P. FITZGERALD
JUSTICE
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S
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
RICHARD MYERS, Appellant On Appeal from the 298th Judicial District
Court, Dallas County, Texas
No. 05-12-01557-CV V. Trial Court Cause No. 11-04295.
Opinion delivered by Justice FitzGerald.
HALL COLUMBUS LENDER, LLC, Justices Fillmore and Evans participating.
Appellee
In accordance with this Court’s opinion of this date, the judgment of the trial court is
REVERSED and this cause is REMANDED to the trial court for further proceedings consistent
with the opinion.
It is ORDERED that appellant Richard Myers recover his costs of this appeal from
appellee Hall Columbus Lender, LLC.
Judgment entered July 17, 2014
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