Barry Nussbaum v. Builders Bank, an Illinois Banking Corporation

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-14-00304-CV
BARRY NUSSBAUM APPELLANT
V.
BUILDERS BANK, AN ILLINOIS APPELLEE
BANKING CORPORATION
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FROM THE 236TH DISTRICT COURT OF TARRANT COUNTY
TRIAL COURT NO. 236-265485-13
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OPINION
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I. INTRODUCTION
This appeal arises from competing summary-judgment motions filed in a
bill-of-review proceeding. The primary issue we address in this appeal is
whether a defendant’s failure to update a contractually-agreed-to address for
service of process––so that service of process is attempted via the Texas long-
arm statute at the old agreed-to address set forth in the contract––constitutes
fault or negligence on the part of the defendant contributing to the entry of a
default judgment against him. Because, for the reasons set forth below, we
resolve this issue affirmatively, we will affirm the trial court’s judgment.
II. FACTUAL AND PROCEDURAL BACKGROUND
Appellant Barry Nussbaum signed a guaranty agreement, guaranteeing
repayment of a $4,526,871.00 loan made by Appellee Builders Bank, an Illinois
Banking Corporation, to Meadowbrook 8B Limited Partnership (Borrower).
Borrower subsequently defaulted on the loan, and in due course, Builders Bank
sued Nussbaum for breach of the guaranty agreement. Nussbaum failed to
answer, and Builders Bank obtained a default judgment against Nussbaum.
Subsequently, Nussbaum timely filed a bill-of-review proceeding
challenging the default judgment. Nussbaum filed a traditional motion for
summary judgment in the bill of review proceeding, claiming that the summary-
judgment evidence conclusively established that he was not properly served with
process. Nussbaum argued that absent service of process, he was entitled to a
summary judgment setting aside the default judgment.
Builders Bank filed a cross-motion for summary judgment. Builders Bank
argued that the summary-judgment evidence conclusively established
Nussbaum’s own fault or negligence as at least a partial cause of entry of the
default judgment against him in the underlying lawsuit. Builders Bank asserted
that, in light of the summary-judgment evidence establishing that Nussbaum’s
fault and negligence had contributed to the entry of the default judgment against
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him, it had conclusively negated the third bill-of-review element and was
therefore entitled to summary judgment.
The trial court denied Nussbaum’s motion for summary judgment, granted
Builders Bank’s motion for summary judgment, and ordered Nussbaum’s bill-of-
review action dismissed with prejudice. Nussbaum perfected this appeal. He
raises one issue, challenging both the trial court’s denial of his motion for
summary judgment and the trial court’s granting of Builders Bank’s motion for
summary judgment.
III. STANDARD OF REVIEW
We review a traditional summary judgment de novo. Valence Operating
Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). To obtain summary judgment,
the movant must establish that there are no issues of material fact and that it is
entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c); Diversicare Gen.
Partner, Inc. v. Rubio, 185 S.W.3d 842, 846 (Tex. 2005); Nixon v. Mr. Prop.
Mgmt., 690 S.W.2d 546, 548 (Tex. 1985). “An appellate court reviewing a
summary judgment must consider all the evidence in the light most favorable to
the nonmovant, indulging every reasonable inference in favor of the nonmovant
and resolving any doubts against the motion.” Goodyear Tire & Rubber Co. v.
Mayes, 236 S.W.3d 754, 756 (Tex. 2007). When reviewing a summary
judgment, “[we] must consider whether reasonable and fair-minded jurors could
differ in their conclusions in light of all the evidence presented.” Id. at 755.
When both sides move for summary judgment and the trial court grants one
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motion and denies the other, the reviewing court should review both sides’
summary-judgment evidence, determine all questions presented, and render the
judgment that the trial court should have rendered. Gilbert Tex. Constr., L.P. v.
Underwriters at Lloyd’s London, 327 S.W.3d 118, 124 (Tex. 2010); FM Props.
Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000).
IV. THE SUMMARY-JUDGMENT EVIDENCE
The summary-judgment evidence included the guaranty agreement and
correspondence from Builders Bank. The May 20, 2005 guaranty agreement
executed by Nussbaum provided, in pertinent part,1
17. Notice. All notices, communications and waivers under this
Guaranty shall be in writing and shall be (i) delivered in person or (ii)
mailed, postage prepaid, either by registered or certified mail, return
receipt requested, or (iii) by overnight express carrier, addressed in
each case as follows:
....
to Guarantor: Barry Nussbaum
----- Via De La Valle, Suite ---
Del Mar, California 92014
with a copy to: Jesse Villarreal
BNC Real Estate
------- Emily Road, Suite ---
Dallas, Texas 75240
Or to any other address as to any of the parties hereto, as such
party shall designate in a written notice to the other party hereto.
1
We omit the numerical address from our opinion pursuant to rule 9.9(a)(3)
of the rules of appellate procedure. See Tex. R. App. P. 9.9(a)(3) (defining
sensitive data as including home addresses).
4
....
18. CONSENT TO JURISDICTION. TO INDUCE LENDER TO
ACCEPT THIS GUARANTY, GUARANTOR IRREVOCABLY
AGREES THAT, SUBJECT TO LENDER’S SOLE AND
ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN
ANY WAY ARISING OUT OF OR RELATED TO THIS GUARANTY
WILL BE LITIGATED IN COURTS HAVING SITUS IN TARRANT
COUNTY, TEXAS. GUARANTOR HEREBY CONSENTS AND
SUBMITS TO THE JURISDICTION OF ANY COURT LOCATED
WITHIN TARRANT COUNTY, TEXAS, WAIVES PERSONAL
SERVICE OF PROCESS AND AGREES THAT ALL SUCH
SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL
DIRECTED TO GUARANTOR AT THE ADDRESS STATED
HEREIN AND SERVICE SO MADE WILL BE DEEMED TO BE
COMPLETED UPON ACTUAL RECEIPT. [Italics added.]
Builders Bank sent a letter declaring the loan that Nussbaum had guaranteed to
be in default; the letter was mailed to Nussbaum at the above address set forth in
the guaranty agreement, and the letter shows a courtesy copy was mailed to
Jesse Villarreal at the address listed for him in the guaranty agreement.2
Builders Bank filed suit on January 14, 2009, alleging that Nussbaum was
a California resident doing business in Texas; Builders Bank’s original petition
recites that Nussbaum could be served with citation through the Texas Secretary
of State and states the above address as Nussbaum’s home or office address.
The summary-judgment evidence contains a Whitney3 certificate from the Texas
Secretary of State certifying that a copy of the citation and the original petition
2
An affidavit by Builders Bank’s Chief Executive Officer establishes that the
letters referenced herein were mailed by Builders Bank and sets forth the
addresses they were mailed to.
3
Whitney v. L & L Realty Corp., 500 S.W.2d 94 (Tex. 1973).
5
was received by that office on January 20, 2009; was forwarded on January 22,
2009, to Nussbaum at the address above; and was returned bearing the notation,
“No Forwarding Order on File.”
On May 19, 2009, Builders Bank filed a first-amended original petition,
which recites that Nussbaum may be served at the address above, except the zip
code of the address was changed to 94014 instead of 92014. The summary-
judgment evidence contains a second Whitney certificate from the Texas
Secretary of State certifying that a copy of the citation and first amended petition
was received by that office on May 22, 2009; was forwarded on May 26, 2009, to
Nussbaum at the address above––the Secretary of State’s return of service
recites the 92014 zip code; and was returned bearing the notation, “No
Forwarding Order on File.”
Nussbaum executed a summary-judgment affidavit stating that he had
moved from the Via De La Valle address listed in the guaranty agreement in
2006, that he did not ever receive citation in the underlying suit, and that he was
unaware of the default judgment entered against him until Builders Bank
attempted to domesticate the judgment in a proceeding in California. In his
deposition, Nussbaum testified that he never designated by written notice to
Builders Bank a current address for notice and service per the terms of the
guaranty.
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V. APPLICABLE LAW
A. Bill of Review
A bill of review is an equitable proceeding brought by a party seeking to set
aside a prior judgment that is no longer subject to challenge by a motion for new
trial or appeal. Ross v. Nat’l Ctr. for the Emp’t of the Disabled, 197 S.W.3d 795,
797 (Tex. 2006); Caldwell v. Barnes, 154 S.W.3d 93, 96–97 (Tex. 2004); Baker
v. Goldsmith, 582 S.W.2d 404, 406 (Tex. 1979). The fundamental policy that
finality must be accorded to judgments makes the grounds upon which a bill of
review will be granted narrow and restricted. See King Ranch, Inc. v. Chapman,
118 S.W.3d 742, 751 (Tex. 2003), cert. denied, 541 U.S. 1030 (2004). Bill-of-
review plaintiffs must ordinarily plead and prove (1) a meritorious defense to the
underlying cause of action; (2) which the plaintiffs were prevented from making
by the fraud, accident or wrongful act of the opposing party or official mistake; (3)
unmixed with any fault or negligence on their own part. Caldwell, 154 S.W.3d at
97.
A bill-of-review plaintiff claiming no service is relieved of the obligation to
prove the first two elements because a judgment entered without notice is
constitutionally infirm regardless of whether the plaintiff possesses a defense he
was prevented from making. Peralta v. Heights Med. Ctr., Inc., 485 U.S. 80, 84–
85, 108 S. Ct. 896, 899 (1988). A bill-of-review plaintiff alleging that he was not
served, however, is still required to prove the third bill-of-review element––that
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the judgment was rendered unmixed with any fault or negligence of his own.4
Caldwell, 154 S.W.3d at 97. This third element may be considered established if
the plaintiff proves that he was not served with process due to no fault or
negligence on his part because, generally, an individual who is not served cannot
be at fault in allowing a default judgment to be entered. Id. But a bill-of-review
plaintiff who is not served with process because of his own fault or negligence is
not entitled to relief in an equitable bill of review. See Campus Invs., Inc. v.
Cullever, 144 S.W.3d 464, 466 (Tex. 2004) (holding bill-of-review plaintiff not
served with process because of failure to update the address of registered agent
for service of process was not entitled to bill-of-review relief based on own fault
or negligence); Zuyus v. No’Mis Commc’ns, Inc., 930 S.W.2d 743, 746–47 (Tex.
App.––Corpus Christi 1996, no writ) (holding bill-of-review plaintiff not served
with process because of failure to “claim” service of process properly mailed to
him was not entitled to bill-of-review relief based on own fault or negligence); see
also Labra v. Labra, No. 04-13-00285-CV, 2014 WL 3611551, at *2 (Tex. App.—
San Antonio July 23, 2014, no pet.) (mem. op.) (holding bill-of-review plaintiff
who did not receive notice of dispositive hearing because of failure to update her
current address on file with the trial court was not entitled to bill-of-review relief
based on own fault or negligence).
4
To the extent that Nussbaum asserts the contrary proposition of law as
part of his sole issue, we overrule this portion of his issue.
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B. Right of Contract Concerning Notice and Service
As a fundamental matter, Texas law recognizes and protects a broad
freedom of contract. Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84, 95 (Tex.), cert.
denied, 132 S. Ct. 455 (2011). The Texas Supreme Court “has long recognized
Texas’[s] strong public policy in favor of preserving the freedom of contract.”
Fairfield Ins. Co. v. Stephens Martin Paving, LP, 246 S.W.3d 653, 664 (Tex.
2008) (upholding parties’ right to contract for insurance coverage of exemplary
damages for gross negligence in the workers’ compensation context). The
supreme court has repeatedly explained that
if there is one thing which more than another public policy requires it
is that men of full age and competent understanding shall have the
utmost liberty of contracting, and that their contracts when entered
into freely and voluntarily shall be held sacred and shall be enforced
by Courts of justice.
Nafta Traders, 339 S.W.3d at 95–96. Consequently, “[a]s a rule, parties have the
right to contract as they see fit as long as their agreement does not violate the
law or public policy.” In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 129–30
(Tex. 2004) (orig. proceeding) (holding parties may contract to waive right to jury
trial). “Parties are free, of course, to contract out of statutory default rules . . .
and may even contractually waive constitutional rights.” Solar Applications
Eng’g, Inc. v. T.A. Operating Corp., 327 S.W.3d 104, 112 (Tex. 2010).
Parties to a contract may agree in advance to submit to the jurisdiction of a
given court, to permit notice to be served by the opposing party, or even to waive
notice altogether. Nat’l Equip. Rental, Ltd. v. Szukhent, 375 U.S. 311, 315–16,
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84 S. Ct. 411, 414, (1964); In re AIU Ins. Co., 148 S.W.3d 109, 114 (Tex. 2004)
(orig. proceeding) (recognizing as issue of first impression that contractual forum-
selection clauses are enforceable). Parties who contractually agree to a
particular mode of notification of legal proceedings should be bound by a
judgment in which that particular mode of notification has been followed. See,
e.g., Lease Fin. Grp., LLC v. Moore, 2014 WL 300800, at *1–2 (N.Y. App. Div.
Jan. 28, 2014) (declining to set aside default judgment when service of process
was attained in accordance with provision of parties’ equipment finance
lease/guaranty agreement). When a party to a contract agrees or consents to a
certain manner of service and service is accomplished in that manner, “if there
has been any denial of due process, . . ., it is the result of a self-inflicted wound.”
Fin. Fed. Credit Inc. v. Brown, 683 S.E.2d 486, 491 (S.C. 2009) (holding Texas
default judgment on guaranty agreement was not void for lack of service of
process when nonresident defendant was served by Texas plaintiff in
accordance with service-of-process provisions defendant consented to in
guaranty agreement signed by defendant); Nat’l Equip. Rental, Ltd. v. Polyphasic
Health Sys., Inc., 490 N.E.2d 42, 46 (Ill. App. Ct. 1986) (explaining that Illinois
recognizes service of process through agreed means; the parties to a guaranty
agreed to the method of service).
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VI. APPLICATION OF THE LAW TO THE PRESENT FACTS
Nussbaum raises one issue and three subissues on appeal. We first
address Nussbaum’s second and third subissues asserting that the trial court
erred by granting Builders Bank’s motion for summary judgment. Builders Bank
moved for summary judgment on the ground that Nussbaum was not entitled to
bill-of-review relief because the summary-judgment evidence conclusively
negated the third bill-of-review element––that entry of the default judgment
against Nussbaum was not attributable to or mixed with Nussbaum’s fault or
negligence.
Viewing the summary-judgment evidence in the light most favorable to
Nussbaum, as the nonmovant, it conclusively establishes that on May 20, 2005,
Nussbaum signed a $4.5 million guaranty. Nussbaum agreed––per the terms of
the guaranty that he signed––that notices and service of process concerning the
guaranty could be mailed to him by certified or registered mail at the Via De La
Valle, Del Mar address. The parties to the guaranty were free to agree to this
contractual provision; it is not against any law and does not violate any public
policy. See Nat’l Equip. Rental, Ltd., 375 U.S. at 315–16, 84 S. Ct. at 414
(recognizing parties’ rights to contractually agree to terms of service of process);
Nafta Traders, 339 S.W.3d at 95; Solar Applications Eng’g, Inc., 327 S.W.3d at
112; Fairfield Ins. Co., 246 S.W.3d at 664; Prudential Ins. Co. of Am., 148
S.W.3d at 129–30; see also Fin. Fed. Credit Inc., 683 S.E.2d at 491; Nat’l Equip.
Rental, Ltd., 490 N.E.2d at 46. Although Nussbaum contractually agreed to
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service of process by certified mail or registered mail at the Via De La Valle, Del
Mar address, he moved from that address in 2006 and failed to provide, per the
terms of the guaranty, written designation to Builders Bank of an updated
address for notice and service of process concerning the guaranty.
Consequently, Builders Bank sent all notices required under the guaranty,
including notice of default of the underlying loan, to Nussbaum at the address
designated in the guaranty––the Via De La Valle, Del Mar address––and mailed
a copy to Jesse Villarreal at the address listed for him in the guaranty agreement.
Builders Bank’s petitions identified the Via De La Valle, Del Mar address as the
home address or home office address, and the Texas Secretary of State mailed
service of process to Nussbaum via certified mail to that address. See Tex. Civ.
Prac. & Rem. Code Ann. § 17.045(a) (West 2015). Thus, to the extent that
Nussbaum failed to receive notice or service of process concerning Builders
Bank’s suit against him for breach of the guaranty agreement he had signed,
such failure was the result of a self-inflicted wound based on his own fault or
negligence in failing to provide to Builders Bank a written designation of a current
address for service. See Campus Invs., Inc., 144 S.W.3d at 466; Labra, 2014
WL 3611551, at *2; Zuyus, 930 S.W.2d at 746–47; see also Fin. Fed. Credit Inc.,
683 S.E.2d at 491. Because the summary-judgment evidence conclusively
negates the third bill-of-review element Nussbaum bore the burden of
establishing––that the default judgment was rendered unmixed with his fault or
negligence––Builders Bank was entitled to summary judgment. See Campus
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Invs., Inc., 144 S.W.3d at 466; Labra, 2014 WL 3611551, at *2; Zuyus, 930
S.W.2d at 746–47. We hold that the trial court did not err by granting Builders
Bank’s motion for summary judgment; we overrule Nussbaum’s second and third
subissues.
Nussbaum’s issue and his first subissue complain that the trial court erred
by denying his motion for summary judgment because he was not served with
process. Because we have held that the summary-judgment evidence
conclusively negates the third bill-of-review element Nussbaum bore the burden
of establishing, even if Nussbaum was not served with process, he is still
precluded from obtaining bill-of-review relief because of the role his own fault or
negligence played in the entry of the default judgment against him. See Campus
Invs., Inc., 144 S.W.3d at 466 (holding bill-of-review plaintiff not served with
process not entitled to bill-of-review relief based on own fault or negligence);
Labra, 2014 WL 3611551, at *2 (same); Zuyus, 930 S.W.2d at 746–47 (same).
Consequently, we need not address whether proper service on Nussbaum was
established by the Whitney certificates from the Texas Secretary of State.5 See
5
We do note, however, that the following cases appear contrary to
Nussbaum’s position that he was not properly served. See Campus Invs., Inc.,
144 S.W.3d at 466 (holding that “[w]hen substituted service on a statutory agent
is allowed, the designee is not an agent for serving but for receiving process on
the defendant’s behalf”); Capitol Brick, Inc. v. Fleming Mfg. Co., 722 S.W.2d 399,
401 (Tex. 1986) (holding that absent fraud or mistake, the secretary of state’s
Whitney certificate is conclusive evidence that the Secretary of State, as agent
for the nonresident, received service of process and forwarded the service as
required by the statute); Dole v. LSREF2 APEX 2, LLC, 425 S.W.3d 617, 620–21
(Tex. App.—Dallas 2014, no pet.) (holding certificate from secretary of state
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Tex. R. App. P. 47.1 (requiring appellate court to address issues necessary for
final disposition of the appeal).
VII. CONCLUSION
Having overruled Nussbaum’s second and third subissues and having
determined that we need not address the remainder of his issue, we affirm the
trial court’s summary judgment for Builders Bank.
/s/ Sue Walker
SUE WALKER
JUSTICE
PANEL: LIVINGSTON, C.J.; WALKER and SUDDERTH, JJ.
SUDDERTH, J., dissents without opinion.
DELIVERED: July 2, 2015
indicating service was returned “unclaimed” conclusively established service
under long-arm statute); Mahon v. Caldwell, Haddad, Skaggs, Inc., 783 S.W.2d
769, 772 (Tex. App.––Fort Worth 1990, no writ) (“The fact that the certificate from
the Secretary of State evidenced that process was forwarded by certified mail
was sufficient to grant jurisdiction over the defendant.”); see also Williamson v.
State, Nos. 03-11-00786-CV, 03-12-00344-CV, 2013 WL 3336869, at *3–4 (Tex.
App.—Austin June 26, 2013, pet. denied) (mem. op.).
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