PlainsCapital Bank v. Nitin Jani ( 2015 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-14-00149-CV
PLAINSCAPITAL BANK APPELLANT
V.
NITIN JANI APPELLEE
----------
FROM THE 211TH DISTRICT COURT OF DENTON COUNTY
TRIAL COURT NO. 2009-30416-211
----------
MEMORANDUM OPINION1
----------
After Franklin Transfer, Inc. (Franklin Transfer) defaulted on a note
payable to Appellant PlainsCapital Bank, PlainsCapital sued Appellee Nitin Jani,2
1
See Tex. R. App. P. 47.4.
2
Jani’s counsel filed a suggestion of death advising this court that Jani died
during the pendency of this appeal. Pursuant to rule 7.1(a), we “will proceed to
adjudicate the appeal as if all parties were alive,” and our judgment “will have the
same force and effect as if rendered when all parties were living.” Tex. R. App.
P. 7.1(a).
a guarantor of the note, to recover the amount due. After a jury trial, the trial
court entered a take-nothing judgment against PlainsCapital, and PlainsCapital
appealed. We affirm.
BACKGROUND
On January 15, 2008, Franklin Transfer3 executed a promissory note
payable to PlainsCapital for a revolving line of credit of up to $500,000. The note
was signed by Amanda Franklin as president of Franklin Transfer and Jani as
“co-president.” The note was secured by Franklin Transfer’s accounts
receivable. Amanda Franklin and Jani each signed a continuing guaranty
personally guaranteeing payment and performance of the note and any other
debt incurred by Franklin Transfer, including without limitation, principal, interest,
attorney’s fees, and collection costs.
The note expressly gave PlainsCapital the right of setoff. According to
Chris DeFrancisco, a senior vice president with PlainsCapital who assisted
Franklin Transfer in obtaining the loan, the right of setoff meant that PlainsCapital
could “[t]ake funds from the operating account to pay down the line [of credit].”
Five days prior to executing the note, Franklin Transfer opened a checking
account at PlainsCapital. The bank resolution by the corporation granted the
signatories on the account—Amanda Franklin and Jani—the power to sign and
authorize checks. It also stated that only one of their signatures was required on
3
Franklin Transfer was a freight and logistics brokerage company.
2
checks. The commercial signature card for the account provided that Amanda
Franklin and Jani were authorized signatories on the account and that only one
signature was required on transactions related to the checking account.
At trial, Jani testified that shortly after the loan documents were executed,
he requested that PlainsCapital require his and Amanda Franklin’s signatures on
all checks over $5,000 written on the account. Jani further testified that
DeFrancisco ordered checks with the legend “Two Signatures required over
$5,000” and with two signature lines. DeFrancisco told Jani that he would “have
the controls in place.”
DeFrancisco testified that Jani requested that two signature lines be
placed on the checks as an internal control to make sure that Amanda Franklin
was not using funds for personal use. DeFrancisco said he also explained to
Jani that the two-signature requirement was an internal control only because the
computer software that PlainsCapital used to clear checks could not confirm that
both signatures were on the checks and because no human being looked at the
checks when they cleared. DeFrancisco claimed that Jani understood that the
two-signature requirement was an internal control only and that Jani had stated
that PlainsCapital’s method of clearing the checks did not matter as he would
control the checkbook and handle Franklin Transfer’s payables. Jani, however,
testified that Amanda Franklin controlled the checkbook and that the bank
statements did not come to him. He further testified that on one occasion, he
received a telephone call from “one of the bank folks” asking him whether he
3
would like it to honor a check for over $5,000 that was signed only by Amanda
Franklin. After learning that the check was payable to a freight company, Jani
approved the check.
From February 2008 through November 2008, PlainsCapital advanced
Franklin Transfer $245,670.41 on the line of credit and deposited the money into
Franklin Transfer’s checking account.4 The evidence introduced at trial showed
that PlainsCapital honored fifteen checks written on Franklin Transfer’s checking
account that exceeded $5,000 and lacked Jani’s signature. These checks
totaled $154,195. Eleven checks, which totaled $114,495, were signed once by
Amanda Franklin. The remaining checks, which totaled $39,700, were signed
twice by Amanda Franklin.
When the note matured by its terms on January 15, 2009, it had a balance
of $245,670.41. Franklin Transfer executed a renewal note on January 15, 2009.
Amanda Franklin signed the renewal note as president of Franklin Transfer, and
Jani signed as vice president. Amanda Franklin and Jani each executed a
4
Contemporaneously with the note, Amanda Franklin and Jani, acting on
behalf of Franklin Transfer in their capacities as president and “co-president”
respectively, signed an authorization by the corporation, which authorized
Amanda Franklin and Jani to conduct business with PlainsCapital on behalf of
Franklin Transfer and stated, among other things, that the power to
“obtain . . . financial accommodation” from PlainsCapital could be exercised only
by Amanda Franklin and Jani and required both of their signatures. DeFrancisco
testified that transferring sums from a line of credit into a checking account was a
financial accommodation. Jani contended at trial that PlainsCapital improperly
moved advances on the line of credit into Franklin Transfer’s checking account
without the two required signatures.
4
second continuing guaranty personally guaranteeing payment and performance
of the renewal note and any other debt incurred by Franklin Transfer, including
without limitation, principal, interest, attorney’s fees, and collection costs. The
renewal note matured on March 15, 2009.
When Franklin Transfer failed to pay the balance due on the note by the
March 15, 2009 maturity date, Amanda Franklin, in her capacity as president,
signed another renewal note on behalf of Franklin Transfer; this renewal note
matured on May 15, 2009. Jani refused to sign the second renewal note and
another guaranty. Even though Jani did not sign the second renewal note,
PlainsCapital treated the note as renewed and considered May 15, 2009, as the
maturity date.
Franklin Transfer defaulted on the note. After default, PlainsCapital
permitted Amanda Franklin to wire $14,000 from Franklin Transfer’s checking
account to third parties. On June 22, 2009, PlainsCapital made demand on
Franklin Transfer for $245,670.41, plus $2,484 in accrued interest as of the date
of the demand. Internal bank documents admitted into evidence showed that in
June and July 2009, Franklin Transfer turned over approximately $235,000 in
uncollected invoices to PlainsCapital. DeFrancisco testified that PlainsCapital
sent out invoices totaling $60,000 and collected $40,000, which it credited to the
amount due on the note.
5
PlainsCapital sued Jani for breach of the guaranty.5 In his answer, Jani
alleged that PlainsCapital had failed to dispose of the collateral in a commercially
reasonable manner, see Tex. Bus. & Com. Code Ann. § 9.627 (West 2011),
which caused an inflated balance due on the guaranty. Jani also asserted
misrepresentation and breach of contract counterclaims against PlainsCapital.
Jani alleged that PlainsCapital had misrepresented that the controls put in place
would prevent checks written on Franklin Transfer’s checking account in amounts
greater than $5,000 from being honored without Jani’s approval and had
misrepresented that no checks in excess of $5,000 had been honored. In
support of his breach of contract claim, Jani alleged that PlainsCapital had
honored multiple checks over $5,000 without Jani’s signature.
The case was tried to a jury. DeFrancisco testified that the principal
amount due on the note it was attempting to collect from Jani was $205,061.07.
Pertinent to this appeal, the jury found in answer to question two that
PlainsCapital suffered $128,624 in damages as a result of Jani’s breach of the
guaranty; in answer to question four that PlainsCapital failed to dispose of
Franklin Transfer’s accounts receivable in a commercially reasonable manner;
5
Amanda Franklin filed for divorce in 2009. PlainsCapital intervened in the
divorce proceeding to collect the sums due under the January 2009 renewal note
and personal guaranty signed by Amanda Franklin. PlainsCapital severed its
claims against Amanda Franklin. On November 5, 2010, the trial court entered
an agreed final judgment against Amanda Franklin for $205,061.07 in principal
and interest due on the note, $4,000 in attorney’s fees, and $363 in court costs,
plus postjudgment interest at a rate of eighteen percent per annum.
6
and in answer to question five that the value of the accounts receivable at the
time they were received by PlainsCapital was $160,000. The jury further found
PlainsCapital’s reasonable and necessary attorney’s fees were $120,000 for
preparation and trial, $75,000 for an appeal to the court of appeals, and $30,000
for an appeal to the supreme court and found Jani’s reasonable and necessary
attorney’s fees were $75,000 for preparation and trial, $50,000 for an appeal to
the court of appeals, and $30,000 for an appeal to the supreme court.
In its motion for judgment, PlainsCapital asked the trial court to enter
judgment against Jani for $128,624, the amount of damages found by the jury in
response to question two, and its attorney’s fees as found by the jury, plus
prejudgment and postjudgment interest. Jani’s motion for judgment asked the
trial court to enter a take-nothing judgment against both parties. After a hearing,
the trial court offset the jury’s finding of the value of the accounts receivable
($160,000) against the jury’s damages finding ($128,624) and entered a take-
nothing judgment against PlainsCapital and Jani on their respective breach of
contract claims. The trial court also found that neither PlainsCapital nor Jani was
entitled to attorney’s fees because neither party was the prevailing party and
neither party “adequately proved each of the elements required to be entitled to
[attorney’s] fees.”
PlainsCapital filed a motion to reform the judgment, asking the trial court to
reform the judgment to reflect the jury’s findings of $128,624 in damages and
$120,000 in attorney’s fees. In the alternative, PlainsCapital asked the trial court
7
to reform the judgment “to reflect the only possible damage number that the law
and the evidence allow: $129,203”6 and to award PlainsCapital $120,000 in
attorney’s fees. In the further alternative, PlainsCapital asked for a new trial on
damages. After a hearing, the trial court denied the motion. PlainsCapital
appealed.
DISCUSSION
In its first issue, PlainsCapital argues that the trial court erred by offsetting
the jury’s answer to question five (the value of the collateral) against the jury’s
answer to question two (the damages resulting from Jani’s breach of the
guaranty), resulting in a take-nothing judgment against PlainsCapital.
PlainsCapital argues that the trial court should have disregarded the jury’s
answer to question five and entered judgment on the verdict for the full amount of
damages found by the jury in response to question two. In the alternative,
PlainsCapital argues that the trial court should have entered judgment in an
amount corrected for the jury’s “math errors.”
A trial court may disregard a jury finding if there is no evidence to support
the finding, which is not alleged here, or if the finding is immaterial. Tex. R. Civ.
P. 301; Spencer v. Eagle Star Ins. Co. of Am., 876 S.W.2d 154, 157 (Tex. 1994).
A jury question is considered immaterial when it should not have been submitted,
it calls for a finding beyond the province of the jury, or it has been rendered
6
PlainsCapital’s calculation method for arriving at $129,203 is explained
below in footnote 7.
8
immaterial by other findings. Se. Pipe Line Co., Inc. v. Tichacek, 997 S.W.2d
166, 172 (Tex. 1999).
PlainsCapital complains that the trial court should have disregarded the
jury’s answer to question five and not offset the jury’s answer to question five
against its answer to question two because the jury took into account the
$160,000 it found was the value of the accounts receivable at the time they were
received by PlainsCapital when arriving at its finding that PlainsCapital was
damaged $128,624 as a result of Jani’s breach of the guaranty. Thus, the trial
court should have entered a judgment of $128,624 in favor of PlainsCapital.
PlainsCapital asks us to enter judgment in its favor for $128,624 or, in the
alternative, $129,203.7 We construe these contentions as an argument that jury
question five was rendered immaterial by the jury’s finding to question two.
“Article 9 of the Texas Uniform Commercial Code provides that when a
debtor defaults on an obligation, a secured party may take possession of
collateral, dispose of it, and apply the proceeds to help satisfy the obligation.”
Foley v. Capital One Bank, N.A., 383 S.W.3d 644, 647 (Tex. App.—Houston
[14th Dist.] 2012, no pet.) (citing Tex. Bus. & Com. Code Ann. §§ 9.609, 9.610,
7
In its motion to reform the judgment and on appeal, PlainsCapital claims
this amount is owed on the note after crediting Jani $160,000 for the value of the
collateral as found by the jury in response to question five. PlainsCapital arrives
at this number by adding the principal due on the note ($245,670) plus accrued
interest ($3,009), subtracting the value of the collateral determined by the jury in
response to question five ($160,000), and adding what it claims to be the exact
amount of the collected receivables it already applied to the debt ($40,533). We
note that this calculation actually results in a total of $129,212.
9
9.615 (West 2011)). “If the proceeds are insufficient to satisfy the obligation, and
the secured party wishes to obtain a deficiency judgment for the amount still
owing on the obligation, ‘[e]very aspect of [the] disposition of collateral, including
the method, manner, time, place and other terms, must be commercially
reasonable.’” Id. (citing Tex. Bus & Com. Code Ann. § 9.610). When, as here,
the secured party’s compliance is placed in issue, it “has the burden of
establishing that the . . . disposition . . . was” commercially reasonable. Tex.
Bus. & Com. Code Ann. § 9.626(a)(2) (West 2011). The commercial
reasonableness of a sale is a question of fact to be determined by the jury.
Gordon & Assocs., Inc. v. Cullen Bank/Citywest, N.A., 880 S.W.2d 93, 96 (Tex.
App.—Corpus Christi 1994, no writ). When the secured party fails to prove that
the disposition of the collateral was commercially reasonable, the liability of a
debtor or secondary obligor for a deficiency is limited to an amount by which the
sum of the secured obligation, expenses, and attorney’s fees exceeds the
greater of (1) the proceeds of the disposition or (2) the amount of proceeds that
would have been realized had the noncomplying secured party disposed of the
collateral in a commercially reasonable manner. See Tex. Bus. & Com. Code
Ann. § 9.626(a)(3) (West 2011). “[T]he amount of proceeds that would have
been realized is equal to the sum of the secured obligation, expenses, and
attorney’s fees, unless the secured party proves that the amount is less than that
sum.” Id. § 9.626(a)(4) (West 2011).
10
It was apparent during the charge conference that the trial court was using
section 9.626 in formulating questions four and five. Question four asked if
PlainsCapital disposed of the accounts receivable in a commercially reasonable
manner. Question five, conditioned on a “no” answer to question four as found
by the jury, provided in part as follows:
What amount, stated in dollars and cents, represents the
value of the Accounts Receivable at the time they were received by
the Bank?[8]
It is a rebuttable presumption that the value of the Accounts
Receivable is equal to $245,670.00 unless a different value is
proven by a preponderance of the evidence.
The jury answered $160,000.
PlainsCapital does not complain on appeal that questions four and five do
not follow article 9 or that the trial court erred in its application of article 9 to the
jury’s findings. PlainsCapital speculates that the jury used the $160,000 it found
in question five in arriving at its answer to question two as to the amount of
damages and argues that, therefore, question five should be disregarded. But
question two—to which PlainsCapital did not object—included the instructions,
“Answer each question separately. Do not increase or reduce the amount in one
answer because of the instructions in or your answers to any other questions
about damages.” We presume that the jury followed the instructions in the
charge. See Columbia Rio Grande Healthcare, L.P. v. Hawley, 284 S.W.3d 851,
8
The instructions in the trial court’s charge instructed the jury that “Bank”
referred to PlainsCapital.
11
862 (Tex. 2009) (citing Golden Eagle Archery, Inc. v. Jackson, 116 S.W.3d 757,
771 (Tex. 2003)). Accordingly, it is mere speculation that the jury—contrary to
both the instructions in question two and the presumption that it followed those
instructions—utilized its finding of $160,000 as the value of the collateral in
response to question five in arriving at its determination of the amount of
damages resulting from Jani’s breach of the guaranty found in response to
question two. Thus, we cannot conclude that the jury’s finding in response to
question five was rendered immaterial by the jury’s finding in response to
question two. And, therefore, the jury’s answer to question five was not required
to be disregarded, and the trial court did not err by offsetting the value of the
collateral as found by the jury in question five against the damages resulting from
Jani’s breach of the guaranty as found by the jury in question two. We overrule
PlainsCapital’s first issue.
In its second issue, PlainsCapital argues that upon this court’s reversal of
the trial court’s judgment and rendering judgment in its favor, it is entitled to
recover its attorney’s fees as the prevailing party. In light of our holding on
PlainsCapital’s first issue, we need not address its second. Moreover, the trial
court also found that PlainsCapital was not entitled to recover its attorney’s fees
because it had not “adequately proved each of the elements required to be
entitled to [attorney’s] fees.” PlainsCapital does not challenge this finding on
appeal. Accordingly, we overrule its second issue.
12
CONCLUSION
Having overruled both of PlainsCapital’s issues, we affirm the trial court’s
judgment.
/s/ Anne Gardner
ANNE GARDNER
JUSTICE
PANEL: DAUPHINOT, GARDNER, and WALKER, JJ.
DELIVERED: November 19, 2015
13