Robert R. Burchfield v. Prosperity Bank

Opinion issued July 9, 2013
In The
Court of Appeals
For The
First District of Texas
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NO. 01-12-00473-CV
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ROBERT R. BURCHFIELD, Appellant
V.
PROSPERITY BANK, Appellee
On Appeal from the 127th District Court
Harris County, Texas
Trial Court Case No. 2011-03085
OPINION
This is an appeal from a summary judgment in favor of a bank against a
guarantor on a note. The issue we consider is whether the bank is precluded from
suing a joint-and-severally liable co-guarantor for a deficiency on a note if the
bank already holds an uncollected judgment against another joint-and-severally
liable co-guarantor for the full amount of the deficiency. We answer that question
in the negative, and affirm the trial court’s summary judgment.
BACKGROUND
In August 2008, Appellee Prosperity Bank made two notes to American
Southern Real Estate Group, LLC—“Note A” for $603,772 and “Note B” for
$521,427—secured by real property in the Crown Ranch Subdivision. Four people
signed individual guarantee agreements for each note: appellant Robert Burchfield,
Paul Woodall, Raymond Waymel, and Robert Welkie. Southern Real Estate
Group defaulted on the notes and, in December 2010, Prosperity foreclosed on the
collateral properties. After applying the amounts Prosperity recovered by selling
the properties, a collective deficit of $245,010.84 remained on the notes.
Prosperity made a demand on the four guarantors to pay the deficiency
pursuant to their individual guarantee agreements. Prosperity then filed separate
lawsuits against two of the guarantors, Woodall and appellant Burchfield. Woodall
failed to answer, and Prosperity took a default judgment against him.
Prosperity entered into a settlement agreement with the other two guarantors,
Waymel and Welkie. Pursuant to that agreement, Waymel and Welkie paid
$135,000 towards the deficiency, and received an assignment of the default
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judgment against Woodall. Prior to the assignment, Prosperity did not collect any
money on the judgment from Woodall.
A. The Trial Court Proceedings
After entering into the settlement agreement with Waymel and Welkie,
Prosperity filed an amended petition in the underlying suit against Burchfield
reciting facts related to the settlement and reducing the amount sought from
Burchfield to $132,805.18 (representing the remaining deficiency after accounting
for the amount recovered from Waymel and Welkie, as well as accrued interest).
The parties filed cross-motions for summary judgment. Prosperity argued
that, given the language of the notes, the guarantee agreements, and the undisputed
facts, it was entitled to judgment against Burchfield on the remaining deficiency as
a matter of law. Burchfield’s motion stated he was moving on “affirmative
defenses of waiver, issue preclusion, claim preclusion, collateral estoppel, res
judicata and the one recovery rule (one satisfaction rule),” but actually provided
argument and authority only on a res judicata theory. The crux of his argument
was that once Prosperity obtained a default judgment against Woodall for the
entire deficiency, it was precluded from then seeking judgment against Burchfield
because any judgment against Burchfield would make Prosperity more than whole.
What Prosperity should have done, according to Burchfield, is sue each guarantor
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in the same suit to make the guarantors joint-and-severally liable for the deficiency
amount, but no more.
The trial court denied Burchfield’s motion for summary judgment and
granted summary judgment for Prosperity for the amount of the outstanding
deficiency on the notes. The court held a hearing on attorneys’ fees, and signed a
final judgment awarding Prosperity $132,805.18 on the notes and $20,000.00 for
attorneys’ fees. Burchfield timely appealed.
B. The Guarantee
The guarantee agreement between Prosperity and Burchfield contains the
following provisions:
Guarantors jointly and severally . . . absolutely and
unconditionally guarantee to the Lender . . . the prompt, complete and
full payment at maturity of all sums owing and to be owing upon the
Note, including interest and attorney’s fees as provided for therein.
....
Whenever any indebtedness, or any renewal thereof, guaranteed
hereunder, shall become due and remain unpaid, the Guarantors,
jointly and severally, will on demand . . . pay the amount due thereon
to the Lender . . . at HOUSTON, Texas; and it shall not be necessary
for the Lender . . . to first institute a suit, or exhaust its remedies
against Borrower, or others liable on such indebtedness, or to enforce
its rights against any security which shall have been given the Lender
...
The Lender . . . shall not be liable for failure to use diligence in
the collection of any indebtedness hereby guaranteed or in preserving
the liability of any person liable on said indebtedness . . . .
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It is specially agreed that the liability of each of the
Guarantors for the payment of each note . . . shall be joint and
several; and that suit may be brought against the Guarantors jointly
and severally and against any one or more of them, less than all,
without impairing the rights of the Lender . . . against the other of
the Guarantors; and that the Lender may compromise with any one
of the Guarantors for such sum or sums as it may see fit, and
release such of the Guarantors from all further liability to the
Lender for such indebtedness, without impairing the right of the
Lender to demand and collect the balance of such indebtedness from
others of the Guarantors not so released. It is agreed among the
Guarantors themselves, however, that such compromising and release
shall in no way impair the rights of the Guarantors as among
themselves.
In the event of default, . . . Guarantor(s) shall promptly pay the
amount due thereon to Lender without notice or demand . . . and it
shall not be necessary for Lender, in order to enforce such payment by
Guarantor(s), first to institute suit or exhaust its remedies against . . .
others liability on such Note . . .
(emphasis added).
ISSUE ON APPEAL
On appeal, Burchfield challenges both the trial court’s granting of
Prosperity’s motion for summary judgment and the denial of his motion for
summary judgment.
STANDARD OF REVIEW
We review a traditional summary judgment to determine whether the record
establishes there is no genuine issue of material fact and the movant is entitled to
judgment as a matter of law on a ground set forth in the motion. TEX. R. CIV. P.
166a(c); Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548–49 (Tex. 1985). In
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deciding whether the summary judgment record establishes the absence of a
genuine issue of material fact, we view as true all evidence favorable to the non-
movant and indulge every reasonable inference, and resolve all doubts, in its favor.
Nixon, 690 S.W.2d at 548–49. When both sides move for summary judgment and
the trial court grants one motion and denies the other, we review both sides’
summary judgment evidence and determine all questions presented. FM Props.
Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000); Jones v. Strauss,
745 S.W.2d 898, 900 (Tex. 1988). When reviewing cross-motions for summary
judgment, we may render the judgment that the trial court should have rendered.
FM Props. Operating Co., 22 S.W.3d at 872; Williamson v. State Farm Lloyds, 76
S.W.3d 64, 67 (Tex. App.—Houston [14th Dist.] 2002, no pet.).
RES JUDICATA
“Res judicata prevents parties and those in privity with them from
relitigating a case that a competent tribunal has adjudicated to finality.” Houtex
Ready Mix Concrete Materials v. Eagle Constr. & Envtl., 226 S.W.3d 516, 518
(Tex. App.—Houston [1st Dist.] 2006, no pet.) (citing Ingersoll–Rand Co. v.
Valero Energy Corp., 997 S.W.2d 203, 206 (Tex. 1999)). Res judicata bars claims
or defenses that, through diligence, should have been litigated in the earlier suit but
were not. Id. at 518–19. “Res judicata requires: (1) a prior final judgment on the
merits by a court of competent jurisdiction, (2) identity of parties or those in privity
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with them, and (3) a second action based on the same claims that were raised or
could have been raised in the first action.” Id. at 519 (citing Amstadt v. U.S. Brass
Corp., 919 S.W.2d 644, 652 (Tex.1996)).
Burchfield argues that “Texas law does not allow a Plaintiff to do what
[Prosperity] is attempting to do” because “[r]es judicata bars all claims which
previously have been litigated, including all claims which could have been
litigated, in the prior suit.” Burchfield quotes the following excerpt from the Texas
Supreme Court’s decision in Citizens Ins. Co. of Am v. Daccach, arguing that the
opinion prohibits banks from suing multiple guarantors in separate lawsuits and
obtaining double recovery:
The doctrine seeks to bring an end to litigation, prevent
vexatious litigation, maintain stability of court decisions, promote
judicial economy, and prevent double recovery. Barr [v. Resolution
Trust Corp.], 837 S.W.2d [627,] 629 [(Tex. 1992); Jeanes [v.
Henderson], 688 S.W.2d [100,] 105 [(Tex. 1985)].
Under the transactional approach followed in Texas, a
subsequent suit is barred if it arises out of the same subject matter as
the prior suit, and that subject matter could have been litigated in the
prior suit. Barr, 837 S.W.2d at 631. We explained in Barr that “a
final judgment on an action extinguishes the right to bring suit on the
transaction, or series of connected transactions, out of which the
action arose.” Id. at 631 (citing Restatement (Second) of Judgments §
24(1) (1982)). Determining the scope of the “subject matter” or
“transaction” of the prior suit requires “an analysis of the factual
matters that make up the gist of the complaint, without regard to the
form of action.” Id. at 630. This should be done pragmatically,
“‘giving weight to such considerations as whether the facts are related
in time, space, origin, or motivation, whether they form a convenient
trial unit, and whether their treatment as a trial unit conforms to the
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parties’ expectations or business understanding or usage.’” Id. at 631
(quoting RESTATEMENT (SECOND) OF JUDGMENTS § 24(2) (1982)).
“Any cause of action which arises out of those same facts should, if
practicable, be litigated in the same lawsuit.” Id. at 630.
217 S.W.3d 430, 449 (Tex. 2007).
In response, Prosperity argues that the trial court correctly concluded that the
doctrine of res judicata does not apply. Specifically, it argues that (1) “Burchfield
was not a party to the Woodall case and is not in privity with anyone from that
lawsuit,” and (2) “Prosperity Bank’s claims against Burchfield in this lawsuit were
not based on the same claims as were raised or could have been raised in the first
action.”
We agree with Prosperity that Burchfield cannot establish that res judicata
bars litigation of his obligation on the guarantee in the underlying case. In the
prior lawsuit, Prosperity sued—and obtained a default judgment against—Woodall
based upon the guarantee agreement entered into between Prosperity and Woodall.
In the underlying suit here, Prosperity sued Burchfield to collect under the
guarantor agreement entered into between Prosperity and Burchfield. Because
Burchfield was not a party to the prior suit, he must establish he was in privity with
a party to that lawsuit.
“There is no general definition of privity that can be automatically applied in
all res judicata cases; the circumstances of each case must be examined.” Caprock
Inv. Corp. v. Montgomery, 321 S.W.3d 91, 96 (Tex. App.—Eastland 2010, pet.
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denied) (citing Getty Oil Co. v. Ins. Co. of N. Am., 845 S.W.2d 794, 800
(Tex.1992)). “People can be in privity in at least three ways: (1) they can control
an action even if they are not parties to it; (2) their interests can be represented by a
party to the action; or (3) they can be successors in interest, deriving their claims
through a party to the prior action.” Amstadt v. U.S. Brass Corp., 919 S.W.2d 644,
653 (Tex. 1996).
Burchfield argues that privity here between co-guarantors is a given because
“the two lawsuits revolve around the same borrower, the same notes, the same
guarantors, the same breach, and the same damages.” But this argument does not
speak to the issue of privity; rather it conflates privity, which speaks to “identity of
parties,” with another separate and distinct element of res judicata, i.e., whether “a
second action based on the same claims that were raised or could have been raised
in the first action.” Many of the underlying facts in the Woodall action and the
underlying case are the same, as neither guarantor would be liable without a
threshold finding of default by Southern Real Estate Group on its note. But, as we
have previously admonished, “privity is not established by the mere fact that
persons may happen to be interested in the same question or in proving the same
state of facts.” Gaughan v. Spires Council of Co-Owners, 870 S.W.2d 552, 555
(Tex. App.—Houston [1st Dist.] 1993, no writ).
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In its suit against Burchfield, Prosperity did not seek to bind Burchfield to
any legal determination from its default judgment against Woodall. Woodall did
not answer or defend himself in the prior lawsuit, so he certainly cannot be deemed
to have represented Burchfield’s interest there. And, perhaps most importantly,
allowing Prosperity to proceed with the underlying suit has not subjected
Burchfield to two different lawsuits. See Barr, 837 S.W.2d at 631 (holding res
judicata applied to prevent relitigation of liability where defendant was subject to
two lawsuits under different theories of liability on the same note).1
While it would have been more efficient for Prosperity to sue Woodall and
Burchfield in the same lawsuit, we also note that the guarantee agreement
Burchfield signed permits Prosperity to pursue the guarantors separately:
It is specially agreed that the liability of each of the
Guarantors for the payment of each note . . . shall be joint and several;
and that suit may be brought against the Guarantors jointly and
severally and against any one or more of them, less than all, without
impairing the rights of the Lender . . . against the other of the
Guarantors.
1
The Restatement of Judgments—in a section entitled “Judgments Against One of
Several Persons Liable for the Same Loss”—specifically contemplates successive
suits so long as there is no double recovery. RESTATEMENT (SECOND) OF
JUDGMENTS § 49 (1982) (“A judgment against one person liable for a loss does
not terminate a claim that the injured party may have against another person who
may be liable therefore.”); see also id. § 49(b) & ill.3 (noting that a “judgment
against one obligor under a contract does not terminate the claim against another
obligor under the contract,” although the obligor in the original suit “has the right
to demand that his co-obligor be joined as a defendant”).
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(emphasis added). In other words, Burchfield expressly agreed that Prosperity’s
bringing suit against “less than all” of the guarantors (i.e., only Woodall) would
not impair Prosperity’s right against the other guarantors (i.e., Burchfield).
Allowing Burchfield to avoid liability by invoking res judicata would thus
contradict the terms of the agreement. See Gilbert v. Fireside Enter., Inc., 611
S.W.2d 869, 877 (Tex. Civ. App.—Dallas 1980, no writ) (recognizing “general
rule” that “a party may waive the defense of res judicata”); Cf. RESTATEMENT
(SECOND) OF JUDGMENTS § 26(1)(a) (parties can agree to waive rule against
plaintiff “claim splitting” against defendant in successive action).
While Burchfield cites cases explaining the general policies behind res
judicata, it cites no authority for holding co-guarantors situated as Woodall and
Burchfield in privity for purposes of res judicata based only on their having signed
personal guarantee agreements on the same note.
We conclude that the trial court correctly determined that Burchfield did not
raise an issue of fact as to his res judicata defense in response to Prosperity’s
motion for summary judgment.
DOUBLE RECOVERY
Burchfield next argues that for “the Bank to prevail on a breach of contract
claim, it has to plead and prove it has actual damages.” According to Burchfield,
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“the Bank was made whole in the prior lawsuit against Paul Woodall,” and “Texas
law does not allow a Plaintiff to obtain a judgment for more than its damages.”
Prosperity responds that the “one satisfaction rule” alluded to by
Burchfield’s argument does not apply because “a judgment does not equate to
collection.” Because Burchfield does not dispute that he is joint-and-severally
liable with the other guarantors, Prosperity argues that Texas law allows it a
judgment against Burchfield for the unsatisfied amount of the deficiency regardless
of any uncollected judgments against any other guarantor. We agree.
“A double recovery exists when a plaintiff obtains more than one recovery
for the same injury.” Waite Hill Servs., Inc. v. World Class Metal Works, Inc., 959
S.W.2d 182, 184 (Tex. 1998). The trial court entered summary judgment against
Burchfield for the amount of the deficiency on the notes after deducting the
amounts recovered by Prosperity in its settlement with Waymel and Welkie.
While Prosperity also obtained a default judgment against Woodall, it submitted
summary judgment evidence that it never recovered any money on the default
judgment.2
We recently addressed an analogous issue in the election-of-remedies
context. In Krobar Drilling v. Ormiston, the issue was “whether a plaintiff who
obtains a breach-of-contract judgment against one defendant is prohibited from
2
Nor can Prosperity collect on the judgment in the future, as the evidence shows
that it assigned that judgment to the Waymel and Welkie as part of a settlement.
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later bringing tort claims against other defendants for the same damage after it is
unable to collect on the breach-of-contract judgment.” No. 01-10-01016-CV, __
S.W.3d __, 2012 WL 1564160, at *1 (Tex. App.—Houston [1st Dist.] May 3,
2012, pet. denied). We rejected the defendants’ “double recovery” argument,
reasoning:
It is well-settled that an injured party may sue and proceed to
judgment against all joint tortfeasors together, or any number less than
all, or each one separately in successive suits; and that an unsatisfied
judgment recovered against one of them will not operate as a bar to an
action against another; provided, however, the plaintiff may finally
satisfy only one judgment.
Id. at *3; see also Ally v. The Bank & Trust of Bryan/College Station, No. 10-11-
00080-CV, 2012 WL 662324, at *11 (Tex. App.—Waco Feb. 29, 2012, no pet.)
(rejecting argument by joint-and-severally-liable appellant/co-guarantor that
uncollected judgment against another co-guarantor for full amount of note
precluded judgment against appellant, reasoning that any double recovery
argument was premature given that no “amounts have been paid by either party”).
Prosperity “acknowledges that it cannot collect more than it is owed,” but
contends that “it is still entitled to a judgment from Burchfield for the amount due
on the notes after the settlement with Waymel and Welkie.” Because Burchfield
does not allege that Prosperity has actually collected more than the deficiency on
the guaranteed notes, the principles of “one satisfaction” and “double recovery” are
not applicable here.
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CONTRACT LANGUAGE
Finally, Burchfield contends that “[a]ccording to the Note guarantee
agreements, the guarantors are to be sued ‘jointly and severally’ and in a single
‘suit.’” For reasons previously explained, we do not read the guarantee so
narrowly. The phrase “single suit” is not actually found in the language of the
guarantee agreement. The agreement does use the word “suit” in the singular
form, but in the context of stating that a “suit” may be brought against less than all
of the guarantors “without impairing the rights of the Lender” against the other
guarantors. We do not agree that using the singular form of the word suit—in this
context—contractually limits Prosperity’s ability to bring separate suits against the
co-guarantors.
CONCLUSION
We affirm the trial court’s judgment.
Sherry Radack
Chief Justice
Panel consists of Chief Justice Radack and Justices Higley and Brown.
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