C & K Investments v. Fiesta Group, Inc.

• Decision Date: 02 August 2007
• Docket Number: No. 01-05-01113-CV.,01-05-01113-CV.
• Parties: C & K INVESTMENTS, Ken D. Parr a/k/a Kenneth Darwin Parr, Sr., Corine Thornton Parr, and Parr Family Limited Partnership d/b/a C & K Investments, Appellants, v. FIESTA GROUP, INC., Appellee.
• Court: Texas Court of Appeals

248 S.W.3d 234

C & K INVESTMENTS, Ken D. Parr a/k/a Kenneth Darwin Parr, Sr., Corine Thornton Parr, and Parr Family Limited Partnership d/b/a C & K Investments, Appellants, v. FIESTA GROUP, INC., Appellee.

No. 01-05-01113-CV.

Court of Appeals of Texas, Houston (1st Dist.).

August 2, 2007.

Mitchell Buchman, George, Buchman & Leigh, P.C., Michael C. O'Connor, O'Connor, Craig, Gould & Evans, P.C., Houston, TX, for C & K Investments.

Thomas Bray, Law Office of Thomas R. Bray, Edward J. Hennessy, Randall D. Wilkins, Hennessy, Garner & Barth, Houston, TX, for Fiesta Group, Inc.

Panel consists of Chief Justice RADACK and Justices JENNINGS and BLAND.

OPINION

TERRY JENNINGS, Justice.

Appellants/cross-appellees, C & K Investments, Ken D. Parr also known as Kenneth Darwin Parr, Sr., Corine Thornton Parr, and Parr Family Limited Partnership doing business as C & K Investments (the "Partnership") (collectively "the Parr defendants"), challenge the trial court's judgment, rendered after a jury verdict, awarding appellee/cross-appellant, Fiesta Group, Inc. ("Fiesta"), damages and attorneys' fees for the Parr defendants' contracting for, charging, and receiving usurious interest in violation of the Texas Finance Code.¹

In nine points of error, the Parr defendants contend that the evidence is legally and factually insufficient to support the jury's findings that the Partnership and Ken and Corine, as general partners, contracted for, charged, or received usurious interest; the judgment of $92,245.23 against the Partnership and Ken and Corine for charging usurious interest in violation of section 305.001 of the Finance Code; the judgment of $101,400 against the Partnership and Ken and Corine for charging and receiving usurious interest in violation of section 305.002 of the Finance Code; the judgment of $238,178.46 against Ken for contracting for usurious interest in violation of section 305.001 of the Finance Code; and the trial court's conditional award of appellate attorneys' fees to Fiesta.

In its first two cross-issues, Fiesta contends that its wrongful foreclosure claim was a separate cause of action for compensatory damages and not cumulative of its usury claim and that the trial court erred in dismissing its wrongful foreclosure claim without giving it the opportunity to amend its pleadings. In its third cross-issue, Fiesta contends that it "is entitled to the statutory post-judgment interest rate."

We affirm in part, reverse and render in part, and reverse and remand in part.

Factual and Procedural Background

Fiesta sued the Parr defendants for usury and wrongful foreclosure, alleging that Ken made two loans to Fiesta and that Ken required Fiesta to return a portion of the loan proceeds upon funding "as a condition" of making the loans. The loans were secured by properties owned by Fiesta and were evidenced by separate notes. Ken eventually assigned the notes to the Partnership. Fiesta later defaulted, and the Partnership accelerated the notes and foreclosed on Fiesta's properties. In its usury claim, Fiesta alleged that the Parr defendants "contracted for, charged and/or received interest and other charges" in excess of the amount authorized by law. Fiesta sought statutory penalties for the Parr defendants' violation of the Finance Code.

The trial court dismissed Fiesta's wrongful foreclosure claim, and Fiesta's usury claim was tried to a jury. The basic facts relevant to this appeal, which were established by the testimony of Ken Parr and Nicholas Rocha, Fiesta's president, and other documentary evidence presented at trial, are largely undisputed. On December 30, 1999, Ken made the first of two loans to Fiesta, evidenced by a "balloon note" of the same date. The note, with an interest rate of 18%, was executed by Rocha on behalf of Fiesta and payable to Ken, the principal amount was $174,000, and the original term was December 30, 1999 to December 30, 2004. It required monthly payments of $2,802.13, beginning on January 30, 2000 and ending in a balloon payment on December 30, 2004, and the loan was secured by a deed of trust in multiple properties owned by Fiesta.

On February 3, 2000, Ken made the second of two loans to Fiesta, evidenced by a "real estate lien note" of the same date. The note, with an interest rate of 18%, was executed by Rocha on behalf of Fiesta and payable to Ken, the principal amount was $101,400, and the original term was February 3, 2000 to February 3, 2007. It required monthly payments of $1,632.97, beginning on March 3, 2000 and ending in a balloon payment on February 3, 2007, and the loan was secured by a deed of trust in multiple properties owned by Fiesta.

Following each closing, Fiesta began making payments to Ken on each loan. On April 18, 2000, Ken assigned both notes to the Partnership, whose general partners were Ken and Corine. After the assignment, Fiesta defaulted on both loans. The Partnership sent Fiesta a notice of default and acceleration. Fiesta did not cure the default, and, on December 11, 2000, the Partnership sent Fiesta a notice of acceleration. The Partnership accelerated the maturity of both notes and provided notice of foreclosure. As stated in the Parr defendants' answers to interrogatories, which were introduced into evidence, the Parr defendants claimed that on the date of acceleration, the principal due on the first note was $172,593.03, plus interest of $11,409.76, and that the principal due on the second note was $100,702.49, plus interest of $6,458.42. Trustees deeds, which were introduced into evidence, established that the properties secured by the first and second notes were sold at a public sale on May 1, 2001, and that the sales proceeds equaled the balances due on both notes. Ken maintained a record of the payments made by Fiesta under each loan, which was introduced into evidence. Ken's record showed that Ken credited Fiesta's payments against the full face amount of the principal.

The specific evidence giving rise to the usury claims was disputed at trial. Rocha testified that as a condition for both loans, Ken told him that "he would charge [] 18%" and that "it would be a 10% fee for him to do the deal." Rocha, who stated that he was confused by the condition for the 10% fee, questioned why he was required to "giv[e] back ten," but ultimately agreed to the condition in light of his need for funds. Ken described the payments as a "fee," "commission," or "equity." The first loan closed on December 30, 1999, and, in light of the front-end payments, Rocha received only "a portion" of the principal. Pursuant to Ken's condition, Rocha instructed the title company to make two checks in the amount of $9,000 each, for a total of $18,000. Rocha then endorsed the checks "over to" Ken and gave them to him. Consequently, Fiesta actually received only $156,000 of the $174,000 stated principal of the loan. When Rocha asked Ken how he planned to cash the checks, Ken told him that he had connections at the bank. Fiesta introduced into evidence copies of both $9,000 checks, which were dated December 30, 1999, and made payable to and endorsed by Rocha.

In regard to the second loan for $101,400, Rocha testified that he and Ken followed a similar course of conduct. As "a prerequisite to the deal," Ken "wanted 10% back under the table." At the second loan's closing on February 3, 2000, Rocha had the title company make two checks in the amount of $5,070 each, for a total of $10,140. Rocha then endorsed these checks and gave them to Ken. Consequently, Fiesta actually received only $91,260 of the $101,400 stated principal of the loan. The $5,070 checks, which were also both introduced into evidence, were dated February 3, 2000, and made payable to and endorsed by Rocha.

Contrary to Rocha's testimony, Ken denied receiving the front-end payments at the closings. Ken agreed, however, that Rocha's endorsement and Ken's bank account numbers appeared on the back of the checks and that the checks were cashed or presented at Ken's bank shortly after the closings. However, Rocha testified that the bank account numbers did not appear on the checks at the closings and that he had no knowledge of Ken's bank account numbers. Fiesta asserted, thus that Ken's bank account numbers were placed on the checks by or at the direction of Ken and that Ken received the proceeds from the checks. Ken also agreed that he was familiar with banking regulations requiring banks to take certain reporting measures if checks in excess of $10,000 are cashed. Fiesta used this admission to suggest that Ken intentionally structured the transactions to avoid reporting the payments.

Although the parties presented conflicting testimony on the occurrence of the front-end payments, on appeal, Ken does not challenge the jury's finding that "as a condition to making the loans" he "request[ed] and receive[d] the proceeds" from all four checks. The record established that, despite these "front-end" payments, Fiesta made its monthly payments in accordance with the terms of the notes and that Ken and the Partnership credited Fiesta's monthly payments against the full face amount of the notes. The record further established that as a result of its foreclosure on Fiesta's properties, the Partnership received all amounts due on the notes, including unpaid principal and interest, based on the full face amount of the notes and without any credit for the front-end payments.

At the conclusion of the trial, the jury found that Ken requested and received the proceeds from the checks "as a condition to making the loans," the loans were accelerated on December 11, 2000, and Ken, both individually and as a general partner, and the Partnership contracted for, charged, or received interest greater than the amount authorized by law. Based on these findings, the trial court determined, as a matter of law, the applicable statutory usury penalties and the amounts of those penalties. See Duggan v. Marshall, 7 S.W.3d...