Fugedi v. Initram, Inc.
| Decision Date | 29 August 2022 |
| Docket Number | 21-40365 |
| Parties | Nicholas Fugedi, in his capacity as Trustee Carb Pura Vida Trust, Plaintiff-Appellant, v. Initram, Incorporated; RJL Realty, L.L.C.; Eternal Investments, L.L.C.; Bruce Robinson; Dale Pilgeram, et al Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Appeal from the United States District Court for the Southern District of Texas USDC No. 3:19-CV-249
Before RICHMAN, Chief Judge, and CLEMENT and ENGELHARDT, Circuit Judges.
Nicholas Fugedi, as trustee for the CARB PURA VIDA Trust (the trust) filed suit to quiet title to real property in Houston, Texas. Both parties moved for summary judgment, and the district court granted Initram's motion. Because the court erred as a matter of law, we vacate and remand.
The district court's characterization of this case is accurate: [1] But despite the whirlwind of allegations and accusations, the claim on appeal is straightforward. Fugedi, as trustee for the trust, seeks to quiet title to property in Houston, Texas (the property) against the many named defendants (Initram).
Yale Development, LLC, executed and recorded a General Warranty Deed (the deed) in which it sold and conveyed the property to a grantee identified as the "CARB Pura Vida Trust." Although Fugedi is the trustee of the trust, he was not named in the deed. Little more than a week later, Fugedi filed this action to quiet title.[2] During the litigation and before summary judgment, Initram argued that the deed was invalid because it purported to convey directly to the trust, a nonentity under Texas law. To remedy this potential cloud on his title Fugedi executed a corrected deed with Yale Development, and he entered that deed and an affidavit from the closer of the original deed into the record. The corrected deed lists as the grantee, "Nicholas Fugedi in his capacity as Trustee of the CARB Pura Vida Trust, a Michigan trust," and the affidavit clarifies that Fugedi was always meant to take the property in his capacity as trustee and that it was a scrivener's error for the original deed to state otherwise.
Texas law allows for certain changes to be made under the deed correction statutes, Texas Property Code §§ 5.027-.030. Fugedi argued that the corrected deed made a nonmaterial change and that the affidavit satisfied the statute's requirements for making such a change. He contends that the correction merely clarified in what capacity the parties were acting,[3] and that because the change was nonmaterial, all the statute required was an affidavit from someone with personal knowledge, such as the closer of the original deed.[4] Fugedi also argued that because the trust is a Michigan trust, Michigan law should apply and that under Michigan law, trusts can hold property.
The district court disagreed. The court first decided that, as a matter of Texas law, (1) trusts are a relationship rather than a legal entity and are incapable of holding title to property; and (2) a deed must contain both a valid grantor and grantee in legal existence.[5] The court then concluded that because the trust is not a legal entity, the original deed was void because it purported to convey property to a grantee that was not in legal existence.[6]The court then decided that the corrected deed purported to correct a material-rather than nonmaterial-change because it attempted to substitute grantees.[7] The court characterized this decision as "a close call," distinguishing the substitution of grantees from corrections to "the capacity of the grantor and grantee."[8]
Because the court decided that the correction was a material change, it decided that § 5.029 of the deed correction statute applied. As a result, the corrective instrument needed to be "executed by each party to the recorded original instrument of conveyance . . . or, if applicable, a party's heirs, successors, or assigns."[9] The court concluded that because the original conveyance was signed by the trust and did not identify a legally recognizable trustee, it was invalid[10] and "[n]o amount of correction instruments filed . . . will change that."[11] The court added that, even if the statute allowed this type of error to be corrected, "it is simply impossible to comply with § 5.029 because the alleged grantee [the trust] can't sign the correction instrument."[12]
The court then quickly disposed of the remaining arguments. It decided that Texas law likely applied because the property was located in Texas and, in the alternative, that Michigan law was the same as Texas law in that a trust could not hold title to property.[13] Because Fugedi could not prove title in his trespass to try title claim, the court held that his quiet title and declaratory relief claims failed.[14] The court denied Fugedi's motion for summary judgment and granted Initram's cross-motion for summary judgment "to the extent that it requests [Fugedi] take nothing by this suit against Defendants, and Fugedi is adjudicated to possess no right, title, claim, or interest to the Property."[15] Fugedi timely appealed.
Once in this court, Initram moved to dismiss, seeking damages and an antisuit injunction. Initram argued that dismissal was appropriate "because the issues on appeal are no longer in controversy and [Fugedi] no longer has a legally cognizable interest in the outcome of the case" since new whistleblower evidence allegedly proved that the trust is a sham operated by Texas citizen Lloyd Kelley.
We review a grant of summary judgment de novo.[16] Summary judgment should be granted if there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.[17] We view the evidence in the light most favorable to the nonmoving party.[18] Vacatur and remand are appropriate if the district court misapplies a legal standard.[19] When determining Texas law, this court looks first to "the final decisions of the . . . Supreme Court [of Texas]."[20] If those decisions provide inadequate guidance, then this court can determine "how [the Supreme Court of Texas] would resolve the issue if presented with the same case."[21]
A
The district court erred when it concluded that the deed was null and void. The district court correctly concluded that a trust is a relationship, not a legal entity, and that a grantee must be in legal existence for a grant to be valid.[22] But no Texas court has gone so far as to hold that all deeds naming a trust as a grantee are null and void or that the error is not correctable under the deed correction statute. Indeed, there have been cases in which Texas courts have not voided a deed even when confronted with a trust holding property in its own name.23[] At most, the deed was invalid.
However, it appears that the deed is valid under Texas law. Texas courts have long recognized a certain amount of flexibility in naming the grantee, and Texas state court decisions indicate that courts would read the original deed to convey to Fugedi in his capacity as trustee rather than to the trust itself. [24] "If, from the whole instrument, a grantor and grantee can be ascertained . . . it is a deed which is legally effective as a conveyance."[25]
"[M]ere formalities are [not] necessary to [a deed's] validity," and Texas courts would have inferred that Fugedi was the grantee.[26] In Vineyard v. O'Connor,[27] for example, the Supreme Court of Texas inferred the identity of the grantee when none was listed.28[] That court would likely do the same here. The deed in this case does list a grantee, but the grantee is a nonentity incapable of holding property itself. As in Vineyard, this would seem not to satisfy the legal requirements for a conveyance. But Fugedi was the trustee at the time of the original deed and remains so today. As trustee, he was the only entity capable of holding property for the benefit of the trust. As in Vineyard, Texas courts may infer here that Fugedi was the party to be named as grantee. He is the obvious party that should have been named rather than the trust itself. Finally, the affidavit submitted as part of Fugedi's § 5.028 correction clarifies that Fugedi was indeed supposed to be the original grantee.
Initram argues that Vineyard is inapposite because the deed at issue in Vineyard made references to the eventual grantee even though it did not explicitly name that individual as the grantee.[29] This distinction is unavailing because, as Texas law makes clear, Fugedi is the only individual who could take the property for the benefit of the trust.[30] The identity of the proper grantee can be ascertained from context just as in Vineyard.[31]
B
Even assuming the Texas courts would not save the original deed by reading in Fugedi as grantee, Fugedi validly made a nonmaterial correction to the deed. The district court erred in concluding that the change was material.
Section 5.028 allows a party to a deed to make a nonmaterial correction to that deed so long as it submits an affidavit from someone with personal knowledge of the original deed explaining the correction.[32] The statute lists several different types of nonmaterial clarifications that a party can make under § 5.028.33[] Texas courts have recognized a clarification to the capacity of one of the parties to the deed to be nonmaterial.[34] The Supreme Court of Texas has even...
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