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Alexander House, Ltd. v. Arbor Commercial Mortgage, LLC

Court of Appeals of Texas, First District

December 5, 2019

ALEXANDER HOUSE, LTD., Appellant
v.
ARBOR COMMERCIAL MORTGAGE, LLC and ARBOR COMMERCIAL FUNDING, LLC, Appellees

          On Appeal from the 113th District Court Harris County, Texas Trial Court Case No. 2015-68985

          Panel consists of Justices Kelly, Hightower, and Countiss.

          MEMORANDUM OPINION

          RICHARD HIGHTOWER, JUSTICE

         Appellant Alexander House, Ltd. sued Appellees Arbor Commercial Funding, LLC (Arbor Funding) and Arbor Commercial Mortgage, LLC (Arbor Mortgage) for breaches of contract and fiduciary duty and other claims after their loan commitment to refinance the debt on Alexander House's apartment complex fell through. Alexander House decided not to go forward with the loan just before closing when the final loan documents included what Alexander House considered to be cost-prohibitive, recourse requirements to the otherwise non-recourse loan.

         After a bench trial, the trial court entered a take-nothing judgment against Alexander House on its claims against Arbor Funding and Arbor Mortgage. Alexander House appeals, asserting in three issues that the trial court erred in (1) enforcing a jury waiver and (2) concluding there was no fiduciary duty and (3) that the evidence is legally and factually insufficient to support the trial court's adverse fact findings. We affirm.

         Background

         Alexander House is the owner and operator of a large Houston apartment complex. It had owned the apartment complex since 1993, and in November 2005, it mortgaged the complex with a ten-year conduit loan. That loan's terms gave Alexander House a two-month window before the loan matured-between September 11, 2015 and November 1, 2015-to refinance its mortgage without having to pay a penalty. With the knowledge that the loan process can take several months, Alexander House began searching for refinancing in early 2015 with the assistance of its mortgage broker, Jim Adams of Berkadia Commercial Mortgage, LLC.

         By late March 2015, Alexander House had received quotes from several lenders, including MC-Five Mile Commercial Mortgage Finance, LLC. Alexander House ultimately decided to pursue a refinance loan from the Federal Home Loan Mortgage Corporation (known as "Freddie Mac"), which prompted Adams to contact Arbor Funding in May 2015 because it was an approved seller and servicer of Freddie Mac loans. Alexander House and Arbor Funding then began discussions regarding refinancing with a Freddie Mac Small Balance Loan (SBL) in the principal amount of $4 million.

         Alexander House executed a Small Balance Loan Letter of Interest with Arbor Funding (the letter of interest agreement) dated May 22, 2015 and paid Arbor Funding a $12, 500 application fee. On August 31, 2015, Alexander House executed a loan commitment agreement (the loan commitment agreement) with Arbor Mortgage. The loan commitment agreement provided that Arbor Mortgage would, subject to certain conditions, fund a loan to Alexander House on specified terms and then sell that loan to Freddie Mac. It was expressly understood that Freddie Mac's loan documents were non-negotiable. Alexander House paid Arbor Mortgage a $40, 000 good-faith deposit and an application fee of $4, 000. The loan was scheduled to close on September 11, 2015.

         Freddie Mac's final loan documents included repair riders that Alexander House considered to be cost-prohibitive, recourse obligations to an otherwise non- recourse loan. After Arbor Mortgage was either unable or unwilling to get Freddie Mac to revise the repair riders, Alexander House notified Arbor Mortgage that it would not close on the loan. It then sought and obtained refinancing with MC-Five Mile and incurred additional expenses and interest.

         The crux of Alexander House's claims against Arbor Funding and Arbor Mortgage are that they agreed but failed to timely furnish all the Freddie Mac loan documents-specifically the repair riders-to Alexander House and that, if they had timely done so, Alexander House would not have pursued the Freddie Mac SBL loan.

         Alexander House originally sued Arbor Mortgage on November 18, 2015, asserting claims for breach of contract and for fraud arising out of the letter of interest agreement and the loan commitment agreement. Arbor Mortgage asserted a counterclaim for indemnity based on Alexander House's failure to perform under the loan commitment. In its first amended petition, Alexander House added a claim against Arbor Mortgage for negligent misrepresentation. Alexander House also filed a jury demand. In its second amended petition, Alexander House added claims for negligence and breach of fiduciary duty against Arbor Mortgage and deleted its fraud claim.

         Arbor Mortgage filed a motion to strike Alexander House's jury demand, asserting that the loan commitment contained a valid jury waiver. After Alexander House responded in opposition and a hearing was held, the trial court granted the motion. Alexander House then filed a third amended petition that added Arbor Funding as a defendant and asserted claims arising out of its letter of interest agreement with Arbor Funding.

         After a bench trial, the trial court entered a take-nothing judgment against Alexander House and a take-nothing judgment against Arbor Mortgage on its counterclaim. The trial court also made and filed findings of fact and conclusions of law. Specific to this appeal, the trial court found that Alexander House did not prove its breach of contract claim and concluded that Arbor Funding did not owe Alexander House a fiduciary duty.

         Jury Waiver

         In its first issue, Alexander House asserts that the trial court erred in striking its jury demand because the jury waiver is limited to claims arising from the loan commitment with Arbor Mortgage and that it should have had a jury trial on its claims arising from its earlier letter of interest agreement with Arbor Funding. It also argues that it was entitled to a jury trial on its claims against Arbor Funding.

         The loan commitment agreement between Alexander House and Arbor Mortgage contains a New York choice-of-law provision and the following jury-waiver provision:

42. WAIVER OF TRIAL BY JURY. BORROWER AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS CONDITIONAL COMMITMENT OR THE RELATIONSHIP BETWEEN THE PARTIES AS LENDER AND BORROWER THAT IS TRIABLE OF RIGHT BY A JURY AND WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT EXISTS NOW OR IN THE FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN BY BORROWER KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COMPETENT LEGAL COUNSEL.[1]

         The loan commitment defines "Lender" as "Arbor Commercial Mortgage, LLC, a New York limited liability company (together with its successors and assigns)" and "Borrower" as "Alexander House, Ltd." Alexander House's letter of interest agreement with Arbor Funding does not have a jury-waiver provision.

         The trial court struck Alexander House's jury demand on the motion of Arbor Mortgage before Alexander House added Arbor Funding as a defendant. After adding Arbor Funding as a defendant, Alexander House did not request a jury trial on its claims against Arbor Funding. By failing to request a jury trial on its claims against Arbor Funding, Alexander House has not preserved its complaint for appellate review as to Arbor Funding. See Tex. R. App. P. 33.1(a); see also Tex. R. Civ. P. 216(a) (providing that "[n]o jury trial shall be had in any civil suit, unless a written request for a jury trial is filed").

         Regarding the scope of the contractual jury waiver in the loan commitment with Arbor Mortgage, Alexander House argues that its claims against Arbor Mortgage arising out of the letter of interest agreement with Arbor Funding are outside the waiver's scope, which it contends is limited ...


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