Brandon v. Wells Fargo Bank, N.A.

• Decision Date: 28 May 2020
• Docket Number: NUMBER 13-18-00393-CV
• Parties: DAVID KEITH BRANDON, Appellant, v. WELLS FARGO BANK, N.A., AS TRUSTEE FOR THE REGISTERED HOLDERS OF LASALLE COMMERCIAL MORTGAGE SECURITIES, INC. 2007-MF5, COMMERCIAL MORTGAGE SERIES 2007-MF5, AND MIDLAND LOAN SERVICES, Appellees.
• Court: Texas Court of Appeals

DAVID KEITH BRANDON, Appellant, v. WELLS FARGO BANK, N.A.,

AS TRUSTEE FOR THE REGISTERED HOLDERS OF

LASALLE COMMERCIAL MORTGAGE SECURITIES, INC. 2007-MF5,

COMMERCIAL MORTGAGE SERIES 2007-MF5,

AND MIDLAND LOAN SERVICES, Appellees.

NUMBER 13-18-00393-CV

COURT OF APPEALS THIRTEENTH DISTRICT OF TEXAS CORPUS CHRISTI - EDINBURG

May 28, 2020

On appeal from the 156th District Court of San Patricio County, Texas.

MEMORANDUM OPINION

Before Chief Justice Contreras and Justices Longoria and Hinojosa

Memorandum Opinion by Justice Hinojosa Appellee and cross-appellant, Wells Fargo Bank, N.A.¹ (Wells Fargo), by and through appellee and cross-appellant, Midland Loan Services (Midland), filed suit against appellant and cross-appellee David Keith Brandon alleging that Brandon defaulted on commercial notes held by Wells Fargo and serviced by Midland (collectively, the lenders). While the case was pending, the trial court appointed a receiver, the collateral securing the notes was sold, and the balances on the notes were paid with the sale proceeds. Brandon later filed a counter-petition against Wells Fargo and a third-party petition against Midland, disputing the lenders' handling of the excess sale proceeds, and alleging various causes of action. Following a bench trial, the trial court signed a final judgment awarding Brandon $245,109.20 in actual damages, $245,109.20 in exemplary damages against each Midland and Wells Fargo, and $125,000 in attorney's fees plus additional contingent appellate attorney's fees.

In twelve issues, which we have grouped into four issues,² Brandon argues that: (1) the loan balances were not established by legally sufficient evidence and, therefore, Brandon should have been awarded all of the proceeds from the sale of the collateral; (2 and 3) there was legally insufficient evidence supporting the trial court's findings that Brandon did not suffer consequential damages and that the excess sale proceeds wereonly $188,577.86; and (4) the trial court's award of exemplary damages was insufficient.

In five issues, which we treat as six, the lenders argue: there is legally insufficient evidence supporting Brandon's causes of action for (1) conversion and (2) breach of contract; (3) the trial court erred in finding that the lenders were alter egos of each other and, therefore, the lenders cannot be jointly and severally liable; (4) the trial court's damages award constitutes an impermissible double recovery; and (5 and 6) the trial court's attorney's fees and exemplary damages awards are erroneous. We affirm in part and reverse and render in part.

I. BACKGROUND

A. The Notes, Deed of Trust, and Servicing Agreement

In December 2006, Brandon executed two promissory notes in favor of LaSalle Bank which were secured by a deed of trust on the Sun Valley Apartments (the collateral) located in Portland, Texas. The maturity date for the notes was January 1, 2012, at which point Brandon was required to pay the remaining principal balance. The first note, which the parties refer to as the A-Note, was in the amount of $2,640,000. The A-Note was later assigned to Wells Fargo.³ The second note, or B-Note, was in the amount of $165,000 and was later assigned to CBA-Mezzanine Capital Finance, LLC (CBA-Mezzanine).

Both notes contained the following language concerning default:

If any installment under this [note] or any other loan agreements or financing arrangements between the undersigned and the holder hereof now existing or hereafter entered into is not paid when due, the entire principal amount outstanding hereunder and accrued interest thereon shall at once become due and payable, at the option of the holder hereof. The holder hereof may exercise this option to accelerate during any default by the undersignedregardless of any prior forbearance. In the event of any default in the payment of this [note], and if the same is referred to an attorney at law for collection or any action at law or in equity is brought with respect hereto, the undersigned shall pay the holder hereof alI expenses and costs, including, but not limited to, attorney's fees.

If any installment under this [note] is not received by the holder hereof within fifteen (15) calendar days after the Installment is due, the undersigned shall pay to the holder hereof a late charge of five percent (5.00%) of such installment, such late charge to be immediately due and payable without demand by the holder hereof. If any installment under this [note] remains past due for thirty (30) calendar days or more, the outstanding principal balance of this [note] shall bear interest during the period in which the undersigned is in default at a "Default Rate of Interest" equal to three percent (3%) per annum over the Interest Rate in effect from time to time during the period of default. If such Default Rate of Interest may not be collected from the undersigned pursuant to applicable law, this [note] shall bear interest during the period of default at the maximum per annum rate of interest, if any, permitted pursuant to such applicable law.

The deed of trust instrument provided the following with respect to the options available to the lenders in the event of default:

In the event Lender elects to seek the appointment of a receiver for the Property upon Borrower's breach of any covenant or agreement of Borrower in this Instrument, Borrower hereby expressly consents to the appointment of such receiver. Lender or the receiver shall be entitled to receive a reasonable fee for so managing the Property.

. . . .

ACCELERATION; REMEDIES. Upon Borrower's breach of any covenant or agreement of Borrower in this Instrument, or in any other loan agreements or financing arrangements now existing or hereafter entered into between Borrower and Lender, the Note, [the Guaranty of Payment executed by David Keith Brandon, in favor of Lender dated on or about the date hereof] and the other agreements and documents executed by Borrower in favor of lender in connection with the Note (the "Loan Documents") including, but not limited to, the covenants to pay when due any sums secured by this Instrument, Lender at Lender's option may declare all of the sums secured by this Instrument to be immediately due and payable without further demand and may invoke the power of sale and any other remedies permitted by applicable law or provided herein. Borrower acknowledges thatthe power of sale herein granted may be exercised by lender without prior judicial hearing to the extent permitted by applicable law. Lender shall be entitled to collect all costs and expenses incurred in pursuing such remedies, including, but not limited to, attorney's fees, costs of documentary evidence, abstracts and title reports. Borrower acknowledges that this Mortgage is granted to Lender with a power of sale to the extent permitted by applicable law.

. . . .

The proceeds of the sale shall be applied in the following order; (a) to all costs and expenses of the sale, including, but not limited to, attorney's fees and costs of title evidence; (b) to all sums secured by this Instrument in such order as Lender, in Lender's sole discretion, directs, and (c) the excess, if any, to the clerk of the Circuit Court, of the county in which the sale is held.

Pursuant to a "Pooling and Servicing Agreement" (Servicing Agreement), the duties of collecting note payments, holding and disbursing escrow funds, and performing most of the routine administrative functions regarding the notes were delegated to a Master Servicer and a Special Servicer. The Master Servicer for the A-Note was Midland, and the Master Servicer for the B-Note was Wells Fargo. The Master Servicer services the Note until there is a default or default is imminent, at which time the servicing duties are transferred to the Special Servicer. Midland was the Special Servicer for both notes.

B. Brandon Defaults

Midland sent Brandon notices in the months prior to the loan's maturity date, reminding him that he was required to pay the loan in full or he would be subject to interest or other charges as specified by the loan documents. The December 2, 2011 notice indicated an outstanding principal balance of $2,475,110.86. Brandon did not pay the notes' balances by the maturity date, at which time Midland became the Special Servicer for both notes. Midland sent Brandon a notice of default for the A-Note on February 2,2012, and it later communicated with Brandon concerning his default on the B-Note. Midland instructed Brandon to continue sending payments as he had done prior to default, by sending the A-Note payments to Midland and the B-Note payments to Wells Fargo.

In April 2012, Wells Fargo deposited Brandon's $24,787.41 payment for the A-Note, but Brandon's note was not credited. Wells Fargo maintained at trial that Brandon mistakenly sent the check directly to it, rather than to Midland, the servicer of the note, and that it did not discover the payment was for the A-Note until years after suit was filed. Brandon testified that he sent the payment to Midland.

C. Lawsuit

The lenders filed the instant suit on April 30, 2012, alleging that Brandon defaulted on the notes by failing to pay all amounts due at maturity and by failing to maintain the collateral in good condition and repair. The lenders requested that the trial court appoint a receiver, contending that they had the right to do so pursuant to the loan documents.

The trial court signed an agreed order granting the lenders' application for appointment of a receiver. The order authorized the receiver to take control of the collateral and to secure a buyer. In October 2012, the receiver filed a report of sale and agreed motion to approve the sale of the collateral for $3,200,000. The motion prayed that the trial court confirm the sale of the collateral and authorize the receiver to distribute the net proceeds from the sale to the lenders by and through the receiver. The trial court signed an agreed order granting the receiver's motion,...