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Shawn Ibrahim, Inc. v. Houston-Galveston Area Local Development Corp.

Court of Appeals of Texas, First District

July 25, 2019


          On Appeal from the 113th District Court Harris County, Texas Trial Court Case No. 2016-40070

          Panel consists of Justices Keyes, Higley, and Goodman.


          Evelyn V. Keyes Justice.

         Appellees Houston-Galveston Area Local Development Corporation (CDC) and Sunnyland Development, Inc. (Sunnyland) were both involved in financing a construction project undertaken by appellants Shawn Ibrahim, Inc., Mahmood Akhtar, Ibrahim's president, and Muhammad Amin, another individual associated with Ibrahim (collectively, Ibrahim). Ibrahim sued both CDC and Sunnyland for breach of contract, fraud, and other causes of action, and the trial court granted summary judgment dismissing all of Ibrahim's claims. In two issues on appeal, Ibrahim argues that the trial court erred in granting summary judgment in favor of CDC and Sunnyland. We affirm.


         This case arises out of business relationships among Ibrahim, Sunnyland, and CDC entered into for the purpose of financing a construction project.

         A. The Project

         Starting in 2004, Ibrahim initiated a project to build a truck stop and restaurant complex in La Porte, Texas (the Project). Sunnyland was the Project developer, and a related company, Suncoast Environmental and Construction, Inc. (Suncoast), was the contractor. The total estimated cost of the Project was $3, 711, 000.

         As a small business, Ibrahim sought to take advantage of special financing available through the U.S. Small Business Association (SBA) pursuant to the Small Business Investment Act, which provides for a special loan program for the financing of fixed assets by small businesses made through local development companies (the 504 Loan Program). See 15 U.S.C. §§ 695-697g. As part of this program, the SBA identifies and approves certified development companies to participate in its lending program. Id. § 697e. Here, CDC was the certified development company that facilitated Ibrahim's SBA loan.

         The SBA agreed to provide $1, 012, 000 in secured funding for the Project through CDC. Ibrahim obtained private funding through Sterling Bank, which provided a loan for fifty percent of the Project costs and also provided a smaller "interim" loan to allow Ibrahim to complete construction on the Project until the loan through the SBA could close and be used to repay the interim loan. Additionally, Ibrahim itself was required to contribute more than $800, 000 to the funding of the Project. Ibrahim needed a "gap" loan of $200, 000 to cover its portion of the Project funding, and it obtained this loan from Sunnyland.

         The exact nature of the agreements and relationships between the parties is set out in the documents executed with regard to the Project and its funding.

         B. The Debenture Guarantee

         On July 28, 2005, the SBA executed its "Authorization for Debenture Guarantee (SBA 504 Loan)," guaranteeing, subject to certain conditions, "a 20 year Debenture ('Debenture') in the amount of $1, 012, 000.00 to be issued by CDC and used to fund a loan ('504 Loan') to assist" Ibrahim in its completion of the Project (Debenture Guarantee). The Debenture Guarantee identified the Project costs as totaling $3, 711, 000, and it stated that the SBA would provide a loan accounting for 26.45% of the Project costs plus certain administrative costs for a total "Debenture Amount" of $1, 012, 000.

         The Debenture Guarantee also identified several other sources of funding. It stated that Sterling Bank would provide $981, 652 in interim financing, to be "paid off by the Debenture" following completion of construction and closing on the 504 Loan through the CDC. It also contemplated that Sterling Bank would provide fifth percent of the Project costs, or $1, 855, 348, in "permanent project financing," and it placed certain conditions on Sterling Bank's note and loan documents, such as providing that Sterling Bank's loan could not "be cross-collateralized with other financing" and requiring Sterling Bank to execute an agreement confirming that its note and loan documents "do or will comply" with the SBA conditions.

         As a condition of authorizing the funds, the SBA required in the Debenture Guarantee that Ibrahim contribute 23.55% of the Project's costs, or approximately $874, 000, and it provided that the:

(1) Contribution may be in cash, land or other property acceptable to SBA;
(2) Contribution may come from [Ibrahim's] own resources, CDC, or another source;
(3) If any of the contribution is borrowed and secured by any of the Project Property, the resulting obligation must be expressly subordinate to the liens securing the Promissory Note ("Note") in favor of CDC and may not be repaid at a faster rate than the Note unless prior written approval is obtained from SBA. A copy of any debt instrument evidencing the obligation must be supplied to CDC at or prior to 504 Loan Closing.

         The Debenture Guarantee further provided, "At or prior to the 504 Loan Closing, the Borrower [Ibrahim] must execute a Note in favor of CDC. The CDC must assign the Note to SBA." The Debenture Guarantee also stated, "CDC must execute a satisfactory written assignment to SBA of its interest in the Note, lease and all collateral documents executed by the Borrower and guarantors."

         The Debenture Guarantee also anticipated the need for Ibrahim to obtain "gap" or "standby" financing from Sunnyland for a portion of its required contribution to the Project costs, providing:

At or prior to 504 Closing, CDC [is] to obtain Standby Creditor's Agreement from Sunnyland Development, Inc., for $200, 000.00, plus all accrued and future interest (Standby Debt). No payment of principal or interest is to be made on the Standby Debt during the term of the Loan. Standby Creditor [Sunnyland] must subordinate any lien rights in collateral securing the Loan to CDC's right in the collateral, and take no action against Borrower or any collateral securing the Standby Debt without CDC's consent. CDC must attach a copy of the Standby Note evidencing the Standby Debt to the Standby Creditor's Agreement.

         In August 2005, both CDC and Ibrahim executed an "Acceptance by Borrower and CDC" agreeing to fully comply with the terms and conditions of the Debenture Guarantee.

         C. Sunnyland Note

         As anticipated by the Debenture Guarantee, Ibrahim borrowed $200, 000 from Sunnyland as "standby" financing. Ibrahim executed the promissory note in favor of Sunnyland for the $200, 000 "Standby Debt" on December 19, 2005 (Sunnyland Note). The Sunnyland Note was personally guaranteed by Akhtar and Amin.

         The Sunnyland Note provided that "[t]he Principal Amount and interest are due and payable in equal monthly installments of TWO THOUSAND NINE HUNDRED THIRTY AND 04/100 DOLLARS ($2, 930.04), on the first day of each month, beginning July 1, 2006 and continuing until the unpaid principal and accrued, unpaid interest have been paid in full." The Sunnyland Note was secured by a deed of trust on a portion of the real property involved in the Project. The Sunnyland Note further provided that "[t]he liens securing this note are subordinate to the 2 liens securing two notes in the original principal amounts of [$1, 855, 000] and [$982, 000], respectively, both being of even date herewith, and executed by Shawn Ibrahim, Inc., payable to the order of Sterling Bank." The Sunnyland Note further enumerated conditions in which default would occur, including if Ibrahim failed to make a payment, and it provided for acceleration of the amount due and certain late fees and interest in the event of default.

         Thus, under the terms of the Sunnyland Note, Ibrahim's first payment to Sunnyland was due July 1, 2006. However, Ibrahim failed to make any monthly payments, beginning in July 2006.[1]

         D. 504 Loan Agreement & Standby Creditor's Agreement

         Construction of the Project was completed by January 2008, and, on January 24, 2008, the parties moved forward with closing the 504 Loan as contemplated by the Debenture Guarantee.

         The "504 Loan Agreement" was entered into between CDC as the lender and Ibrahim as the borrower "in participation with and for the benefit of the [SBA]." The recitals at the beginning of the 504 Loan Agreement stated, in relevant part:

Borrower [Ibrahim] applied to Lender [CDC] for a $1, 128, 000 loan (the "Loan") under the SBA 504 Loan Program. Lender has conditionally agreed to extend the Loan to the Borrower. The Loan will be used to finance or refinance a project described in the [Debenture Guarantee]. The Loan will be evidenced by the Note[2] and by the books and records of Lender and the [Central Servicing Agent appointed by Lender and accepted by Borrower in the Servicing Agent Agreement accompanying the closing documents]. The Loan will be secured by this Agreement and the other Loan Documents.[3]Lender will issue a debenture to fund the Loan. The debenture will be guaranteed by the SBA. The Note and all liens securing the Note will be transferred from Lender to the SBA to secure the SBA's guarantee of Lender's Debenture.

         Like the Debenture Guarantee, the 504 Loan Agreement provided that the Note and accompanying liens would be assigned by CDC to the SBA and that, "[a]fter said assignment, the SBA will be entitled to enforce the terms of the Note, this Agreement, and the rest of the Loan Documents." It further provided that CDC "will remain as a servicing agent for the Loan and will serve as such at the pleasure of the SBA."

         The 504 Loan Agreement further provided for the disbursement of loan proceeds, stating that the main portion of the loan would be disbursed to Sterling Bank to refinance the interim funding, and the remainder would be disbursed to cover the enumerated administrative costs. The 504 Loan Agreement provided for repayment of the loan over the next twenty years in monthly installments.

         The 504 Loan Agreement also identified conditions that would constitute a default, including that "[a] default will have occurred if Borrower [Ibrahim] does not make a payment when due under the Note [securing the 504 Loan]," if Ibrahim "[d]oes not disclose . . . any material fact to Lender [CDC] or SBA," or if Ibrahim "[b]ecomes the subject of a civil or criminal action that Lender believes may materially affect Borrower's ability to pay the [504] Note." The 504 Loan Agreement expressly referenced the Debenture Guarantee, stating, "It is the intention of the Borrower and Lender that this Agreement mirror the terms contained in the [Debenture Guarantee]. In the event of a conflict between the terms of this Agreement and the [Debenture Guarantee], the [Debenture Guarantee] will control."

         At the same time that the 504 Loan Agreement was executed, CDC and Sunnyland likewise executed the Standby Creditor's Agreement required by the Debenture Guarantee for the 504 Loan to close. The Standby Creditor's Agreement was signed by Ajaz Siddiqui, as the president of Sunnyland, and James Walsh as the CDC loan officer. Neither Ibrahim nor Akhtar or Amin personally was a party to this Agreement.

         The Standby Creditor's Agreement expressly referenced the 504 Loan made to Ibrahim, and it cited the "authorization" for the loan: "the Authorization for Debenture Guarant[ee], as amended, issued by the SBA in connection with the" 504 Loan made through CDC. The Standby Creditor's Agreement identified Shawn Ibrahim, Inc., as the "borrower" and "Standby Debtor"; it identified Sunnyland as the "Standby Creditor"; and it recognized CDC as the lender and certified development company authorized by the SBA. The Standby Creditor's Agreement also identified the "Standby Debt" as being the "$200, 000 promissory note attached (Sunnyland Note)." It further provided:

To induce CDC to make the CDC Loan to Borrower, and in consideration of the making by CDC of the CDC Loan, Standby Creditor hereby represents, warrants and covenants to and with CDC, its successors and assigns, as follows:
1. There is owing by Standby Debtor to Standby Creditor the amount of the Standby Debt.
2. Standby Creditor agrees:
a. To accept no further payments on the Standby Debt except as permitted in the [Debenture Guarantee].
b. To turn over to CDC, within 15 days of receipt, payments received by Standby Creditor from Standby Debtor in violation of this Agreement.
c. To take no action to enforce claims against Standby Debtor on the Standby Debt, without written consent from CDC, until ...

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