Salvagio v. Madison Realty Capital, L.P.

Decision Date10 October 2012
Docket NumberCIVIL ACTION NO. H-11-2183
PartiesJAMES D. SALVAGIO and FAY M. BOURGEOIS, AS TRUSTEES OF GULF COAST ARMS, Plaintiffs, v. MADISON REALTY CAPITAL, L.P, WILLIAM G. LAWHON, STEPHEN C. PAINE and BEVERLY VEAL, EACH AS SUBSTITUTE TRUSTEES, Defendants.
CourtU.S. District Court — Southern District of Texas

JAMES D. SALVAGIO and FAY M. BOURGEOIS,
AS TRUSTEES OF GULF COAST ARMS, Plaintiffs,
v.
MADISON REALTY CAPITAL, L.P, WILLIAM G. LAWHON, STEPHEN C. PAINE
and BEVERLY VEAL, EACH AS SUBSTITUTE TRUSTEES, Defendants.

CIVIL ACTION NO. H-11-2183

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

Filed: October 10, 2012


MEMORANDUM AND ORDER ON PENDING MOTIONS
AND RESET OF DOCKET CALL

Pending, among other motions ruled on herein, are Defendant's Motion for Summary Judgment (Document No. 45) and Plaintiff's Motion for Leave to Amend Complaint (Document No. 58).1 After carefully considering the motions, responses, reply, and the applicable law, the Court concludes as follows.

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I. Background

Plaintiff James Salvagio ("Plaintiff"), acting in his capacity as trustee of Gulf Coast Arms ("Gulf Coast"),2 brought this action to prevent Defendant Madison Realty Capital, L.P.'s ("Defendant" or "Madison") foreclosure of a HUD-subsidized apartment complex located at 6603 Hirsch Road, Houston, Texas 77026 (the "Property"), owned by Gulf Coast.

On March 20, 2006, for value received, Plaintiff and Bourgeois, as trustees of Gulf Coast, executed and delivered to Defendant a Real Estate Lien Note (the "Note") payable to Defendant in the principal sum of $4 million, plus interest thereon as provided in the Note.3 Payment was secured by a Deed of Trust of even date with the Note, which was recorded in the Official Real Property Records of Harris County, Texas on March 24, 2006.4 The Deed of Trust is subject to a prior first mortgage lien on the Property in favor of the Department of Housing and Urban Development ("HUD") .5 The Note had an original maturity date of

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March 20, 2007. In response to Gulf Coast's request for an extension,6 Defendant by letter agreement dated March 30, 2007 (the "Letter Agreement") extended the maturity date to March 20, 2008. Defendant later agreed further to forbear from exercising its rights under the Note and Deed of Trust until July 31, 2008, pursuant to a May 2, 2008 Forbearance Agreement between the parties, which acknowledged that Gulf Coast had defaulted on the Note by failing fully to repay the Loan on its new maturity date of March 20, 2008.7 Defendant agreed to forbear even longer, until December 31, 2 0 08, in the First Amendment to Forbearance Agreement.8

After Gulf Coast defaulted,9 Defendant posted the Property for foreclosure sale on December 7, 2010, but Gulf Coast on the eve of that sale filed for Chapter 11 bankruptcy. See In re Gulf Coast Arms, a Non-Profit Trust, No. 10-40929-H1-11 (Bankr. S.D. Tex. Apr. 29, 2011) . On April 29, 2011, pursuant to an agreement of HUD, Gulf Coast, and Defendant, the Bankruptcy Court dismissed Gulf

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Coast's bankruptcy case with prejudice to re-filing in bankruptcy for 180 days. Id.10 With the Note still in default, Defendant again posted the Property for a foreclosure sale set for June 7, 2011, and Plaintiff again forestalled foreclosure by filing this action against Defendant in state court on June 6, 2011, obtaining a Temporary Restraining Order (the "TRO") enjoining the June 7, 2 011 foreclosure sale.11 Defendant removed the case to this Court and, after an evidentiary hearing, the Court denied a preliminary injunction.12 The Property was sold at foreclosure for $1 million to 6603 Hirsch Road Houston LLC, a Texas limited liability company set up to take title to the apartments.13

II. Plaintiff's Motion for Leave to Amend Complaint

Plaintiff, who by February 2, 2012, had already filed three complaints in this case, including his Second Amended Complaint that the Court permitted to be filed at least six weeks after the cut-off date to amend pleadings, now moves to file a Third Amended Complaint long after the deadline for amended pleadings. The evident purpose of this proposed iteration of a fourth complaint is to add allegations that the Note and Deed of Trust, pursuant to

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which Plaintiff received for his benefit $4 million, were void for the ostensible reason that they contravene certain HUD regulations which, he says, are identified in the Deed of Trust Gulf Coast signed with HUD. HUD, Plaintiff contends, requires HUD approval before Gulf Coast could further encumber the Property and, alleging that HUD did not approve, Plaintiff contends that the Madison loan instruments are void. Plaintiff also argues this as the reason to deny Defendant's Motion for Summary Judgment, which motion was filed two months before Plaintiff moved to change the theory of his case with another complaint.

Plaintiff is required to show good cause for modifying a deadline in the Docket Control Order and further must show that, at such a late date, justice requires that leave be granted to file an amendment that adds a new substantive claim never before pled or argued. Fed. R. Civ. P. 15(a)(2), 16(b)(4); see also RE/MAX Int'l, Inc. v. Trendsetter Realty, LLC, 655 F. Supp. 2d 679, 695 (S.D. Tex. 2009) (Rosenthal, J.) (finding that when a motion to file an amended complaint comes after the deadline for such amendments, the Court first looks to Rule 16 and then to Rule 15) . In this instance, Plaintiff--who already was allowed to file a Second Amended Complaint after the December 15, 2011, deadline for amending--has not shown good cause to file yet another tardy amendment nor has he shown that justice requires such.

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First, the proposed new allegations and new theory of his lawsuit are based entirely upon facts well known to Plaintiff from the beginning. He argues that the HUD regulatory agreement was recorded in the public records of real property, Harris County, Texas, on March 30, 1970. The regulation upon which he relies, evidently 24 C.F.R. § 200.85(a), requires that his HUD mortgage "contain a covenant against the creation by the mortgagor of liens against the property superior or inferior to the lien of the mortgage except for such inferior lien as may be approved by the Commissioner in accordance with provisions of § 2 00.71; . . . ." The regulation on its face constrains Plaintiff's conduct, not Defendant's. Plaintiff knew of his alleged obligations to HUD when he borrowed $4 million from Madison in March, 2006. If he contends that his failure to comply with HUD regulations voids his Loan Documents with Madison, he could have pled that claim when he filed this suit or proposed it in his First or Second Amended Complaints. But it is way too late now, after expiration of the deadline for amendments, the deadline for the identification of experts, and even two months after the deadline for the filing of motions for summary judgment. Defendant did timely file its Motion for Summary Judgment on March 2, 2012, and to allow Plaintiff to change the theory of his lawsuit two months afterward would be unfairly prejudicial and not serve the interests of justice.

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Second, Plaintiff's proposed new allegations that the Note and Deed of Trust are void because of Plaintiff's violation of a HUD regulation is a contention that HUD itself has never made and that this Court has expressly rejected. In Plaintiff's bankruptcy proceeding, HUD filed a motion to join in full support of Madison's motion to dismiss Plaintiff's bankruptcy case--a motion that was based entirely on Madison having an interest in the Property as the beneficiary of a valid Deed of Trust securing payment of the Note. It was the Bankruptcy Court's Order dismissing Plaintiff's bankruptcy case--which HUD requested and agreed to--that caused the automatic stay to be lifted and permitted Madison to conduct its foreclosure sale under the same Deed of Trust that Plaintiff now wants to allege was void because of a HUD regulation. Moreover, Savagio unsuccessfully made the identical argument that he now wants to plead in this case when he sought to avoid liability on his personal Guaranty of the Note. Judge Harmon rejected his theory as a matter of law. See Madison Realty Capital, 2 011 WL 666507, at *5, 7. Given that exactly the same, identical facts are present in this case, and the identical legal argument is advanced here as Savagio argued before Judge Harmon, the doctrine of stare decisis would preclude any different result. Thus, an amendment to allege that Plaintiff's own violation of a HUD regulation voided the Note and Deed of Trust, leaving Plaintiff $4 million richer, would be a futile amendment. For all of the foregoing reasons,

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Plaintiff's Motion for Leave to Amend is DENIED. FED. R. CIV. P. 16(b)(4); 15(a)(2).

III. Summary Judgment

A. Standard

Rule 56(a) provides that "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Once the movant carries this burden, the burden shifts to the nonmovant to show that summary judgment should not be granted. Morris v. Covan World Wide Moving, Inc., 144 F.3d 377, 380 (5th Cir. 1998) . A party opposing a properly supported motion for summary judgment may not rest upon mere allegations or denials in a pleading, and unsubstantiated assertions that a fact issue exists will not suffice. Id. "[T]he nonmoving party must set forth specific facts showing the existence of a 'genuine' issue concerning every essential component of its case." Id. "A party asserting that a fact cannot be or is genuinely disputed must support the assertion by. (A) citing to particular...

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