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Branch Banking & Trust Company v. Seideman

Court of Appeals of Texas, Fifth District, Dallas

June 21, 2018

BRANCH BANKING & TRUST COMPANY, Appellant & Cross-Appellee
v.
SCOTT SEIDEMAN, Appellee & Cross-Appellant, AND L&S INVESTMENT PARTNERS, LLC, Appellee ROBERT LEMELIN, LEO LEMELIN, AND BRIAN LEMELIN, Appellants
v.
BRANCH BANKING & TRUST COMPANY, Appellee

          On Appeal from the 95th Judicial District Court Dallas County, Texas Trial Court Cause No. DC-14-12543

          Before Justices Lang, Fillmore, and Schenck

          MEMORANDUM OPINION

          ROBERT M. FILLMORE, JUSTICE.

         L&S Investment, LLC (L&S) borrowed over eight million dollars from Colonial Bank, N.A. to finance the purchase of 6.72 acres of land in San Bernardino County, California, and the construction of a building (the Property). Robert Lemelin (Robert), Leo Lemelin (Leo), Brian Lemelin (Brian), and Scott Seideman personally guaranteed the loan. After Colonial Bank failed, Branch Banking & Trust Company (the Bank) acquired the L&S loan from the Federal Deposit Insurance Corporation (the FDIC). L&S defaulted on the loan, and the Property was sold at a nonjudicial foreclosure sale. The Bank then filed this action seeking to recover from L&S and the four guarantors the deficiency between the outstanding balance on the loan and the foreclosure sale price. After a bench trial, the trial court rendered judgment that the Bank take nothing from L&S and Seideman, but recover from the Lemelins, jointly and severally, actual damages of $5, 070, 172.22, attorneys' fees of $179, 230.95, expenses of $13, 170.37, and three-fifths of the court costs. The trial court also ordered that, if Robert, Leo, or Brian unsuccessfully appealed the trial court's judgment, that person would be responsible for additional appellate attorneys' fees.

         The Bank appealed the trial court's judgment in favor of L&S and Seideman, Seideman filed a cross-appeal, and the Lemelins appealed the trial court's judgment in favor of the Bank. In its appeal, the Bank asserts in four issues that the trial court erred by ordering the Bank take nothing on its claims against L&S and Seideman because (1) Seideman contractually waived all pleaded affirmative defenses, (2) the Bank provided proper notice of the foreclosure sale to L&S and Seideman, (3) L&S's and Seideman's affirmative defenses of fraud, waiver, and estoppel were barred by the statute of frauds and, alternatively, the evidence was legally and factually insufficient to support those defenses, and (4) the California anti-deficiency statute does not bar the Bank's claims against L&S. Seideman, in a cross-issue, and the Lemelins, in the first issue of their appeal, argue the trial court erred by determining the California anti-deficiency statute does not bar the Bank's claims against the guarantors. In an additional issue, the Lemelins contend the trial court erred by entering judgment against them on their affirmative defenses of fraud, waiver, and estoppel because those defenses were based on the same facts as Seideman's affirmative defenses and, alternatively, the evidence was legally and factually insufficient to support the trial court's judgment.

         We conclude the California anti-deficiency statute does not bar the Bank's claims against L&S or the guarantors. We further conclude the statute of frauds bars the affirmative defenses of fraud, waiver, and estoppel and Seideman contractually waived any defense based on lack of notice of the foreclosure sale. Accordingly, we affirm the trial court's judgment against the Lemelins and reverse the trial court's judgment in favor of L&S and Seidman. We render judgment that the Bank recover its actual damages of $5, 070.172.22 from the Lemelins, L&S, and Seidman, jointly and severally. Because we have significantly changed the trial court's judgment, we reverse the trial court's judgment as to the assessment of attorneys' fees, expenses, and court costs and remand this case to the trial court for reassessment of the parties' liability for those fees and expenses.

         Background

         L&S is a California limited liability company owned by Seideman and the Lemelins. In 2007, Seideman, an attorney, was licensed to practice and lived in Texas. Further, Seideman's law firm had a "rather extensive banking relationship" with Colonial Bank in Texas. Effective June 29, 2007, L&S borrowed $8, 870, 524 from Colonial Bank. Robert, as L&S's manager, and the Lemelins and Seideman, as guarantors, signed a Loan Agreement that required L&S to execute a promissory note (the Note) and a deed of trust (the DOT) for the Property that secured the Note and required Seideman and the Lemelins to execute guaranty agreements. Under the Loan Agreement, an "event of default" included L&S's failure to pay when due any installment of principal or interest or any other monetary obligation arising under the Note. The Loan Agreement provided that:

THE NOTE AND THIS AGREEMENT ARE EXECUTED AND DELIVERED IN CONNECTION WITH A LENDING TRANSACTION NEGOTIATED AND CONSUMMATED IN DALLAS COUNTY, TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.

         The parties agreed the Loan Agreement "embodie[d] the entire agreement between the parties relating to the subject matter hereof" and could be amended only by a written instrument executed by both L&S and Colonial Bank.

         The Note required L&S to make monthly payments of principal and interest at Colonial Bank's offices in Dallas or Collin County, Texas, unless a different place was designated by Colonial Bank in writing. The Note provided that L&S and any guarantor of the Note waived presentment for payment, demand, notice of nonpayment or nonperformance, protest, notice of protest, notice of intent to accelerate, notice of acceleration, grace, diligence in collecting the Note or enforcing any security for the Note, or "any other notices" or action. The Note stated:

THIS NOTE IS EXECUTED AND DELIVERED IN CONNECTION WITH A LENDING TRANSACTION NEGOTIATED AND CONSUMMATED IN DALLAS COUNTY, TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.

         Section fourteen of the DOT gave the trustee a power of sale in the event L&S defaulted under the Note or the Loan Agreement. The foreclosure sale was required to be conducted in California, and the trustee was required to give notice of the sale "in accordance with applicable laws in the State of California in effect at the time such notice is given." Section fourteen of the DOT also specified notice was to be served, at least twenty days preceding the sale, by certified mail on "each debtor obligated to pay the debt secured hereby according to the records" of Colonial Bank. Section thirty-six of the DOT stated the instrument was executed in Texas and "shall be governed by and construed in accordance with the laws of the State of Texas, except to the extent such laws have been preempted by federal laws, in which case federal laws as applied in Texas shall govern."

         The Lemelins and Seideman each signed a Guaranty Agreement, in which they "unconditionally, absolutely and irrevocably" guaranteed the prompt payment when due of "any and all indebtedness or other liability, fixed or contingent, which [L&S] may now or at any time hereafter owe" Colonial Bank. The guarantors waived diligence on the part of Colonial Bank in the collection of the indebtedness as well as "presentment, protest, dishonor, notice of acceptance of [the guaranties], notice of non-performance, notice of acceleration, demands for performance and approval of any modifications, renewals or extensions of the indebtedness" that might be granted to L&S. Each guarantor agreed the guaranty would not be "discharged, impaired or affected" by "any defense (other than the full payment of the indebtedness hereby guaranteed in accordance with the terms hereof) that [he] may or might have" and that "each and every such defense" was waived. Each guarantor also waived all rights and remedies he might have under chapter 34 of the Texas Business and Commerce Code or under sections 51.003, 51.004, and 51.005 of the Texas Property Code, including the "right to seek an offset of any deficiency judgment based on the fair market value" of the Property. Each guarantor agreed the contract was "performable in the City of Dallas, Dallas County, Texas."

         Finally, Jeff Chase, as Colonial Bank's City President-Frisco, Robert, as L&S's manager, the Lemelins, and Seideman signed a "Statute of Frauds Notice." The notice specifically referred to "several instruments, agreements and documents relating to, among other things, a certain $8, 870, 524.00 commercial real estate loan from [Colonial Bank] to [L&S] which is guaranteed by [the Lemelins and Seideman]." The parties agreed the "written documents, agreements and instruments referred to" represented the "final agreements between the parties and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties" and that "[t]here [were] no unwritten oral agreements between the parties."

         In 2009, Colonial Bank was determined to have insufficient capital, and the FDIC was appointed as the receiver for Colonial Bank. On August 14, 2009, the Bank and the FDIC entered into a Purchase and Assumption Agreement pursuant to which the Bank acquired the Note.

         L&S began having difficulty making payments on the Note and, in October 2012, Robert Holmes, a senior vice president in the Bank's Problem Loan Administration Department, met with the Lemelins at the Property. The Lemelins testified that, at the meeting, Holmes told them the options for resolving the situation included judicial foreclosure, nonjudicial foreclosure, and the short sale[1] of the Property. According to the Lemelins, Holmes stated that, if the Bank pursued either nonjudicial foreclosure or approved a short sale, it would not seek to recover the deficiency between the balance owed on the Note and the sale or purchase price from either L&S or the guarantors. Brian and Robert testified Holmes also told them that it would assist the Bank if the Property was vacant. At the time, Lexxiom, Inc., a company owned by the Lemelins, and Seideman's California law office were tenants of L&S at the Property. In reliance on Holmes's statements, Lexxiom and Seideman's law firm moved out of the Property by March 2013. The Property was subsequently vandalized and significantly damaged. After consultation with Holmes, L&S filed a claim on its insurance policy and the damage to the Property was repaired.

         Although a number of short-sale offers were made for the Property, the Bank did not approve any of the sales. Instead, in August 2013, the Bank appointed First American Title Insurance Company as the substitute trustee under the DOT. David Bark, an attorney employed by First American, testified that, on August 28, 2013, a notice of default and election to sell the Property was mailed to L&S and the guarantors. Bark further testified that, on December 11, 2013, a notice of sale was mailed to L&S and the guarantors. The record indicates these documents were mailed to the addresses in the Note and the guaranties. The Property was sold at a foreclosure sale on February 10, 2014. After crediting the net proceeds from the foreclosure sale to the principal amount owed on the Note, the Bank filed this lawsuit, seeking to recover the outstanding balance of principal and interest from L&S and the guarantors.

         Seideman testified he did not receive either the notice of default or the notice of sale and did not learn of the foreclosure sale until after it had occurred. According to Seideman, he no longer lived at the address specified in the guaranty, the Bank was aware he no longer lived at that address, and the Bank had sent statements relating to the Note to his business address. Seideman believed he informed the Bank of his new address through the financial statements he was required to file periodically. He conceded, however, that the guaranty required any change of address to be sent by certified mail, and he could not recall if he provided the Bank with notice of his new address by certified mail. According to Seideman, if he had known the Bank was going to foreclose on the Property, he would have brought the loan current to prevent the foreclosure.

         After a bench trial, the trial court rendered judgment that the Bank recover the deficiency from the Lemelins, but take nothing from L&S or Seidman. In response to the Bank's request, the trial court made findings of fact and conclusions of law as to the Bank's claims against Seideman.[2]As relevant to this appeal, the trial court found neither the Bank nor the substitute trustee provided notice of the foreclosure sale to Seideman, preventing Seideman from protecting his interest as a guarantor. Further, Seideman and other of the building's tenants voluntarily vacated the Property based on Holmes's representations that, if they did so, the Bank would engage in a short sale and would not seek to recover any deficiency from L&S or the guarantors. The trial court found that, if the Bank had told Seideman the truth, he would not have voluntarily vacated the premises. The trial court concluded the Bank's claims against Seideman were barred because it failed to provide proper notice of the foreclosure sale as required by the DOT and because Seideman established his affirmative defenses of fraud, waiver, and estoppel.

         The trial court also made findings of fact and conclusions of law in response to the Lemelins' request. The trial court concluded that Texas law applied to the "transactions that form the basis of the case and [the Bank's] claims," but California law applied "to the foreclosure of the Property in California." The trial concluded the foreclosure of the Property was done in compliance with California law and the DOT, and the Lemelins failed to comply with their obligations to the Bank under the guaranties.

         Standard of Review

         In an appeal from a bench trial, the trial court's findings of fact carry the same weight as a jury verdict upon questions. Anderson v. City of Seven Points, 806 S.W.2d 791, 794 (Tex. 1991); Scott Pelley P.C. v. Wynne, No. 05-15-01560-CV, 2017 WL 3699823, at *8 (Tex. App.-Dallas Aug. 28, 2017, pet. denied) (mem. op.). We thus review findings of fact by the same standards that are applied in reviewing the legal and factual sufficiency of the evidence supporting a jury finding. Anderson, 806 S.W.2d at 794; Scott Pelley P.C., 2017 WL 3699823, at *8. Unchallenged findings of fact are binding on this Court unless the contrary is established as a matter of law or there is no evidence to support the finding. Walker v. Anderson, 232 S.W.3d 899, 907 (Tex. App.-Dallas 2007, no pet.); see also Tenaska Energy, Inc. v. Ponderosa Pine Energy, LLC, 437 S.W.3d 518, 526 (Tex. 2014) (concluding unchallenged findings supported by some evidence were binding on appellate court); McGalliard v. Kuhlmann, 722 S.W.2d 694, 696 (Tex. 1986).

         We review the trial court's conclusions of law de novo. BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 794-95 (Tex. 2002); Credit Suisse AG v. Claymore Holdings, LLC, No. 05-15-01463-CV, 2018 WL 947902, at *4 (Tex. App.-Dallas Feb. 20, 2018, no pet. h.) (mem. op.). We may not reverse a trial court's conclusion of law unless it is erroneous as a matter of law. Credit Suisse AG, 2018 WL 947902, at *4. We will uphold the trial court's judgment if it can be sustained on any legal theory supported by the evidence. Villages of Sanger, Ltd. v. Interstate 35/Chisam Rd., L.P., No. 05-16-00366-CV, 2018 WL 703327, at *2 (Tex. App.-Dallas Feb. 5, 2018, no pet.) (mem. op.) (citing Marchand, 83 S.W.3d at 794).

         Impact of California Anti-Deficiency Statute on the Bank's Claims

         The first possible basis for the trial court's judgment is that the California anti-deficiency statute barred the Bank's claims against the borrower, L&S, but did not bar the Bank's claims against the guarantors. In its fourth issue, the Bank asserts the trial court erred by determining the California anti-deficiency statute barred its claims against L&S, while Seideman, in his cross-issue, and the Lemelins, in their first issue, argue the trial court erred by determining the California anti-deficiency statute did not bar the Bank's claims against the guarantors.

         California has enacted an "elaborate and interrelated set of foreclosure and antideficiency statutes relating to the enforcement of obligations secured by interests in real property." All. Mortg. Co. v. Rothwell, 900 P.2d 601, 606 (Cal. 1995). Pursuant to the statutory scheme, foreclosure, either judicial or nonjudicial, is the "one form of action" for the "recovery of any debt or the enforcement of any right secured by a mortgage or deed of trust." Id. In a nonjudicial foreclosure, or "trustee's sale," such as occurred in this case, a trustee exercises the power of sale given by a deed of trust. Id. at 606-07. Following a nonjudicial foreclosure, the creditor may not seek to recover a deficiency judgment. Id. at 607.

         In 2007, when L&S and the guarantors signed the loan documents, and in 2013, when the Bank instituted the nonjudicial foreclosure process, section 580d of the California Civil Code provided, as relevant to this appeal:

No judgment shall be rendered for any deficiency upon a note secured by a deed of trust or mortgage upon real property or an estate for years therein hereafter executed in any case in which the real property or estate for years therein has been sold by the mortgagee or trustee under power of sale contained in the mortgage or deed of trust.

1989 Cal. Legis. Serv. ch. 698, § 13.[3] Section 580d prohibits a creditor who elects to conduct a nonjudicial foreclosure from seeking to recover from a borrower any deficiency between the amount of the debt owed by the borrower and the sale price. Id.; Yvanova v. New Century Mortg. Corp., 365 P.3d 845, 850 (Cal. 2016) ("Generally speaking, the foreclosure sale extinguishes the borrower's debt; the lender may recover no deficiency."). Texas does not have a similar anti-deficiency law. See Tex. Prop. Code Ann. § 51.003(a) (West 2014) ("If the price at which real property is sold at a foreclosure sale under Section 51.002 is less than the unpaid balance of the indebtedness secured by the real property, resulting in a deficiency, any action brought to recover the deficiency must be brought within two years of the foreclosure sale and is governed by this section."); PlainsCapital Bank v. Martin, 459 S.W.3d 550, 555 (Tex. 2015) (concluding that section 51.003 governs suit against borrower "after real property is sold at a foreclosure sale. . . and judgment is sought against the borrower because the foreclosure sales price is less than the amount owed").

         The parties agreed that Texas law would apply to the Note and the guaranties would be performed in Texas. The DOT also stated that it was executed in Texas and would be "governed by and construed in accordance with the laws of the State of Texas, except to the extent such laws have been preempted by federal laws[.]" The DOT also stated, however, that California law applied to any sale of the Property by a trustee under the power of sale, specifically providing that "notice of the time, place and terms of said sale, and of the property to be sold [will be provided] in accordance with applicable laws in the State of California in effect at the time such notice is given." The parties do not dispute that the foreclosure sale was conducted pursuant to California law and have not challenged the validity of that sale. The issue, therefore, is whether California law applies beyond the foreclosure sale to prevent the enforcement of the Note and the guaranties pursuant to Texas law.

         Generally, parties may resolve uncertainty as to which jurisdiction's laws will govern their performance under a multi-jurisdictional contract by including a choice-of-law provision in the agreement. DeSantis v. Wackenhut, Corp., 793 S.W.2d 670, 677 (Tex. 1990); Gator Apple, LLC v. Apple Tex. Rests., Inc., 442 S.W.3d 521, 532 (Tex. App.-Dallas 2014, pet. denied). However, parties "cannot require that their contract be governed by the law of a jurisdiction which has no relation whatever to them or their agreement" and "cannot by agreement thwart or offend the public policy of the state the law of which ought otherwise to apply." DeSantis, 793 S.W.2d at 677; see also Exxon Mobil Corp. v. Drennen, 452 S.W.3d 319, 324 (Tex. 2014).

         Both Texas and California follow the principles in the Restatement (Second) of Conflict of Laws in determining the enforceability of contractual choice-of-law provisions. See Drennen, 452 S.W.3d at 324; Nedlloyd Lines B.V. v Superior Court, 834 P.2d 1148, 1151 (Cal. 1992). Pursuant to section 186 of the Restatement, "[i]ssues in contract are determined by the law chosen by the parties in accordance with the rule of § 187 and otherwise by the law selected in accordance with the rule of § 188." Restatement (Second) Conflict of Laws § 186 (1971); see also Sonat Exploration Co. v. Cudd Pressure Control Inc., 271 S.W.3d 228, 231 (Tex. 2008).

         Section 187(1) of the Restatement provides that the law of the state chosen by the parties will be applied to govern their contractual rights and duties if the specific issue was "one which the parties could have resolved by an explicit provision in their agreement directed to that issue." Restatement § 187(1). Examples of issues that cannot be resolved by contractual choice-of-law provisions include capacity, enforceability, formalities, and validity. See id. § 187 cmt. d; DeSantis, 793 S.W.2d at 678. Issues that can be resolved by agreement include construction, conditions precedent and subsequent, and performance. See Restatement § 187 cmt. c; Gator Apple, LLC, 442 S.W.3d at 532.

         In this case, L&S and the guarantors argue the Note and the guaranties are not enforceable under California law. Whether a contract is enforceable is not an issue the parties could resolve by explicit agreement. See DeSantis, 793 S.W.2d at 678; Chesapeake Operating, Inc. v. Nabors Drilling USA, Inc., 94 S.W.3d 163, 170 n.11 (Tex. App.-Houston [14th Dist.] 2002, no pet.) (en banc) (noting parties could not have resolved issue of validity of indemnity by express agreement because Louisiana law (if applicable) would make agreements void).[4] Accordingly, section 187(1) does not control the analysis in this case.

         Section 187(2) of the Restatement provides that the law of the state chosen by the parties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to the issue, unless either:

(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or
(b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.

Restatement § 187(2).[5] "[P]arties will be held to their choice when 'the state of the chosen law [has] a sufficiently close relationship to the parties and the contract to make the parties' choice reasonable.'" Drennen, 452 ...


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