Oyster Creek Financial Corp. v. Richwood Investments, II, Inc., 07-96-0347-CV

• Decision Date: 01 December 1997
• Docket Number: No. 07-96-0347-CV,07-96-0347-CV
• Parties: OYSTER CREEK FINANCIAL CORP, Alfred Antonini, Trustee and U.S. Trust Company of Texas, N.A., Appellants, v. RICHWOOD INVESTMENTS II, INC. and Sarah Powers, Trustee, Appellees.
• Court: Texas Court of Appeals

Page 640

957 S.W.2d 640

OYSTER CREEK FINANCIAL CORP, Alfred Antonini, Trustee and U.S. Trust Company of Texas, N.A., Appellants, v. RICHWOOD INVESTMENTS II, INC. and Sarah Powers, Trustee, Appellees.

No. 07-96-0347-CV.

Court of Appeals of Texas Amarillo.

Dec. 1, 1997.

Rehearing Overruled Jan. 21, 1998.

Gary L. McConnell, Angleton, for appellants.

Barry A. Brown, James T. Liston, Houston, for appellees.

Before BOYD, C.J., and DODSON and REAVIS, JJ.

REAVIS, Justice.

Appellants, Oyster Creek Financial Corporation (Oyster Creek) and Alfred Antonini, individually and as Trustee, (Antonini), appeal from a judgment on jury findings decreeing that they take nothing on their action against the appellees, Richwood Investments II, Inc. (Richwood), and Sarah Powers, trustee, (Powers), and ordering that Richwood recover $567,477.15 together with post judgment interest in the amount of $244.28 per day against Alfred Antonini, Trustee, but not against Antonini individually, or Oyster Creek. Based upon the authorities cited and the rationale expressed herein, we will affirm in part and reverse and remand in part.

This appeal originated as a dispute between the maker of a promissory note (Antonini), and a subsequent holder (Richwood), over the amount of interest and attorney's fees owing on the note. Because the events producing the litigation are both complex, and controlling of the legal questions presented, a proper disposition of the appeal requires an extensive historical review.

On June 17, 1988, Antonini borrowed $900,000.00 from Columbia Savings & Loan Association (Columbia), for the purchase and renovation of a 256 unit apartment complex in Brazoria County, Texas. In connection with the loan, Antonini executed and delivered a $900,000.00 promissory note dated June 17, 1988, payable to Columbia, together with a deed of trust and a security agreement covering the apartments.

The note provided for the payment of interest at a variable rate, as opposed to a fixed rate, and provided for quarterly "interest only" payments for the first two years. ¹ Commencing July 16, 1990, the principal and interest became payable in monthly installments on the 16th day of each month until June 16, 1993, when the entire amount then unpaid became due.

Before the note was paid in full, Columbia failed. Following its demise, the note and deed of trust were assigned by the Resolution Trust Corporation to Bank of America National Trust & Savings Association (Bank of America) as bond trustee. In February 1994, Bank of America in turn engaged BEI Management, Inc. (BEI), its asset management company, to act as debt servicer of the note.

In October 1991, Antonini ceased making payments on the note, placing it in default. Antonini remained in default on the note for over two years. ² In March 1994, BEI's asset manager, Anthony Felker, began inquiring into the note's payment status, repayment prospects, and the condition of the apartments (the collateral). In response to Felker's inquiries, and in order to improve his own prospects of purchasing back his note for pennies on the dollar, in April 1994, Antonini began "devaluing" the note by informing Felker that the apartments were in bad condition, the taxes had not been paid, and that he, Antonini, was broke and near judgment proof.

Previously, in March 1993, Elaine Knight, the president of Richwood, offered to buy the apartments from Antonini for $1.6 million, but he refused the proposal. In early 1994 however, when Knight learned the apartments were subject to foreclosure, she contacted Felker, the asset manager for BEI, to explore the possibilities of Richwood acquiring the apartments by purchasing the note and deed of trust. On March 22, 1994, Felker offered to sell the note to Richwood for $1.17 million but Richwood declined to purchase it for that price at that time.

In December 1993, Antonini sold the apartments to James Lomonico as trustee for $3.7 million and in May 1994, Lomonico sold the apartments for $3.72 million to Oyster Creek, a corporation owned in part by Antonini. In March 1994, unbeknownst to either BEI or Bank of America, Antonini and Oyster Creek obtained a $5 million loan from Southeast Texas Housing Finance Authority secured by a second lien on the apartments. One million forty thousand dollars of the loan proceeds was held in escrow by the title company to protect the first lienholder (Bank of America), but the proceeds were not paid to Bank of America at that time.

By letter dated July 11, 1994, attorneys for Bank of America gave written notice to Antonini of the default and private foreclosure under the deed of trust. The notice advised Antonini that as of March 31, 1994, the balance owing was $1,233,270.08 which included $890,841.14 principal and $342,428.94 interest, accruing at a per diem of $358.81 and, that private foreclosure under the deed of trust would occur on August 2, 1994. However, on July 14, 1994, before the scheduled date of foreclosure, BEI, as the manager for Bank of America, agreed to sell the note and deed of trust to Richwood for $1.17 million, 95 percent of what BEI deemed to be the face value of the note and the same amount BEI originally offered to sell the note to Richwood for in March of that same year.

In late July 1994, Richwood purchased the note and deed of trust from Bank of America for $1,170,000.00. Among other provisions, the asset sale agreement provided that Richwood acquire "any and all claims able to be assigned" by Bank of America. Richwood thereafter entered into a 25 percent contingency fee agreement with legal counsel to enforce the note and foreclose on the apartments. By letter of July 25, 1994, Richwood's counsel notified Antonini that Richwood had acquired the note and would proceed with private foreclosure on August 2, 1994, as previously noticed by Bank of America. ³ The July 25, 1994 letter to Antonini did not indicate the balance owing as shown in Bank of America's notice of foreclosure to have been incorrect.

On August 1, 1994, one day before the scheduled private foreclosure, Antonini met with Knight, the president of Richwood, and Barry Brown, the attorney engaged by Richwood to foreclose on the note. At the meeting, Antonini offered to purchase the note for $25,000.00 over Richwood's cost but his offer was rejected. Instead, Antonini was presented with an unitemized written demand for $1,637,015.00, a figure which Brown had calculated. When Antonini pointed out that the new demand greatly exceeded the amount previously stated by Bank of America to be owing, Brown stated that BEI and Bank of America had used the wrong post maturity interest rate to calculate the amount owing on the note, but Brown did not present any interest calculations and Antonini declined to tender the new amount claimed to be due.

Because private foreclosure under the deed of trust was scheduled for August 2, 1994, Oyster Creek, Antonini and U.S. Trust Company of Texas, commenced two separate suits seeking a temporary restraining order enjoining the private foreclosure. In the action instituted by U.S. Trust Company of Texas as trustee, ⁴ Service Title Company, which held $1,040,000.00 in escrow to protect Bank of America as the first lienholder, tendered a check made payable to Richwood in the amount of $1,040,000.00 into the court's registry. On August 2, 1994, the trial court entered a temporary order restraining Richwood from conducting the private foreclosure and, on September 29, 1994, the temporary restraining order was extended by agreement into an injunction pending trial.

These two actions were consolidated by the trial court. By his pleadings, Antonini claimed that because Richwood made an "excessive demand" and charged him a usurious rate of interest, portions of the interest and all the attorney's fees claimed by Richwood to be owing on the note were excused. More specifically, Antonini and Oyster Creek claimed that Richwood charged usurious interest disguised as attorney's fees. Answering the suit, Richwood counterclaimed for principal, interest, and collection related attorney's fees due under the note and, asserting the assigned claims of Bank of America, Richwood also counterclaimed for fraud, fraudulent concealment, negligence, civil conspiracy to defraud a secured creditor, and violation of applicable penal statutes. In its amended pretrial order of June 12, 1995, the trial court severed all parties other than Antonini, Oyster Creek, Powers (the substitute trustee appointed by Richwood to conduct the private foreclosure), and Richwood.

Four days before trial, counsel for Antonini and Oyster Creek caused a subpoena duces tecum to be issued commanding Brown, the attorney for Richwood, to appear at trial and produce his calculations of the principal, interest, and attorney's fees which formed the basis of Richwood's August 1, 1994, demand for $1,637,015.00. On the first day of trial, Richwood filed a verified motion to quash the subpoena duces tecum claiming the calculations were privileged attorney "work product." The motion to quash asserted that the calculations involved Brown's subjective thought processes and, therefore, were sensitive attorney "work product." The handwritten calculations were tendered to the trial court for an in camera review, however, the trial court declined to rule on the motion to quash until the matter presented itself during trial. After the court heard brief arguments by counsel at trial, the court ruled that Brown's calculations were indeed "work product" and granted the motion to quash.

The jury found that: (1) the principal balance owing on the note was $890,841.14, the accrued interest was $419,682.90 which accrued at the rate of $646.28 a day, and Richwood was entitled to 15 percent of the amount of principal and interest owing on the note as attorney's fees, (2) Richwood had not charged Antonini usurious interest, (3) Richwood had charged Antonini $131,052.40 in...