United States District Court, N.D. Texas, Fort Worth Division
MEMORANDUM OPINION AND ORDER
MCBRYDE, UNITED STATES DISTRICT JUDGE
for consideration the motion of defendant, Evanston Insurance
Company ("Evanston"), for summary judgment.
Plaintiffs, Surrey Oaks LLC, Stanley Xu ("Xu"), and
Nanling Chen ("Chen"), have filed a response, and
Evanston has filed a reply. Having considered the motion, the
response, the reply, the entire summary judgment record, and
applicable legal authorities, the court concludes that
Evanston's motion should be granted.
Oaks LLC initiated this action by filing an original
complaint in the 352nd Judicial District Court of Tarrant
County, Texas. On June 22, 2016, Evanston removed the action
to this court. Doc. 1. Plaintiffs' live pleading is their
third amended complaint filed January 30, 2017. In such
complaint, plaintiffs assert the following claims against
Evanston: (1) breach of contract; and (2) violations of
Chapter 542 of the Texas Insurance Code. As damages,
plaintiffs seek $211, 285.47 in insurance proceeds plus 18%
interest pursuant to the Texas Insurance Code, additional
prejudgment interest under Texas law, and reasonable
following is an overview of evidence pertinent to the motion
for summary judgment that is undisputed in the summary
Oaks LLC was a limited liability company formed under the
laws of the State of Washington on March 30, 2004. Doc. 58 at
1. Its managing members were Xu and Chen. See id. at
8-9. On July 15, 2004, Surrey Oaks LLC purchased property
located at 525 King George Drive, Fort Worth, Texas (the
"Apartments"). Doc. 38 at 2-3, 32. To finance the
purchase, Surrey Oaks LLC executed a promissory note and deed
of trust in favor of Citibank FSB ("Citibank") (the
"first Deed of Trust"). Doc. 58 at 28. Citibank
subsequently assigned all rights under the first Deed of
Trust to Fannie Mae effective June 20, 2008. Id. at
August 28, 2009, Surrey Oaks LLC sold the Apartments to
Management of Surrey Oaks LLC ("Management"),
id. at 70-71, by a deed that contained a
Vendor's Lien in favor of Surrey Oaks LLC, id.
Management gave a deed of trust to Surrey Oaks LLC to secure
notes given by Management to Surrey Oaks LLC as part of the
purchase price (the "second Deed of Trust").
Id. at 57. The second Deed of Trust required
Management to maintain insurance on the Apartments and to
name Surrey Oaks LLC as an additional insured. See
id. at 64. Management subsequently purchased an
insurance policy from Evanston, but the policy did not name
Surrey Oaks LLC as an additional insured. Id. at
428. Fannie Mae was named in the policy as a mortgage holder.
Id. at 429.
September 10, 2009, Chen filed a certificate of cancellation
of Surrey Oaks LLC with the Washington Secretary of State.
Id. at 75-76. The reason for cancellation was that
"[t]he property [the Apartments] was sold
recently." Id. at 76.
about May 25, 2011, the Apartments suffered a loss that was
covered by the Evanston insurance policy. Doc. 58 at 420-22.
As a result, Evanston issued a check dated May 23, 2012,
drawn on its account at SunTrust Bank ("SunTrust")
for $211, 285.47, naming "[the Apartments] and Fannie
Mae, ISAOA [Management]" as payees. Id. at 423.
SunTrust honored the check without the endorsement of Fannie
Mae. Doc. 38 at 274-75, Req. Admis. 5. After discovering that
the check had been issued, Xu made a claim to Evanston for
the insurance proceeds, which Evanston twice denied.
Id. at 34-35, ¶¶ 9-12.
March 27, 2013, after Surrey Oaks LLC defaulted on the
promissory note secured by the first Deed of Trust, Fannie
Mae filed an emergency application for the appointment of
receiver in the 256th Judicial District Court of Tarrant
County, Texas. Doc. 58 at 80. Fannie Mae filed an amended
petition on April 3, 2013 after discovering the second Deed
of Trust between Surrey Oaks LLC and Management. Id.
at 194. On November 21, 2013, the appointed receiver filed
his report of sale and motion to approve an agreement to sell
the Apartments and to confirm the sale of the Apartments.
Id. at 318. The receiver stated the following as to
the second Deed of Trust:
3. On or about September 3, 2009, [Surrey Oaks LLC] executed
and delivered a deed purportedly conveying its fee interest
in a portion of [Surrey Oaks Apartments] to [Management] in
exchange for the execution and delivery by [Management] to
[Surrey Oaks LLC] of a Deed of Trust securing a purported $2,
650, 000.00 indebtedness, recorded as Instrument No.
D209237361 in the Deed Records of Tarrant County, Texas (the
"[second Deed of Trust]"), pursuant to which
[Surrey Oaks LLC] ostensibly holds a security interest in and
to [the Apartments]. Both the deed purportedly conveying
[Surrey Oaks LLC's] fee interest in the Apartments] and
the [second Deed of Trust] were executed, delivered and
recorded in violation of the provisions of the [first Deed of
Id. at 319. The receiver requested that the state
court approve the agreement and confirm that the receiver was
authorized to sell the Apartments "including without
limitation [Surrey Oaks LLC's] purported security
interest under the [second Deed of Trust]." Id.
at 320. On December 5, 2013, the state court granted the
receiver's motion, and authorized him "to proceed
with the sale of [the Apartments], along with any and all of
[Surrey Oaks LLC's] and [Management's] interests
therein, including without limitation [Surrey Oaks LLC's]
purported security interest under the [second Deed of
Trust]." Id. at 415-16.
Grounds of Evanston's Motion
first argues that it is entitled to judgment as a matter of
law because Surrey Oaks LLC lacks capacity to sue and Xu and
Chen are not real parties in interest. Second, Evanston
contends that plaintiffs' breach of contract claim fails
for three independent reasons: (1) plaintiffs sold, conveyed,
and assigned away their rights to all policy proceeds under
the first Deed of Trust; (2) plaintiffs' substantive
rights to the policy proceeds, if any, were sold and conveyed
in the 2013 receivership proceeding in Tarrant County; and
(3) Evanston had no notice of the second Deed of Trust.
Finally, Evanston argues that plaintiffs' claims ...