Sterling Property Management, Inc. v. Texas Commerce Bank, Nat. Ass'n

• Decision Date: 27 September 1994
• Docket Number: No. 93-2865,93-2865
• Citation: 32 F.3d 964
• Parties: STERLING PROPERTY MANAGEMENT, INC., et al., Plaintiffs-Appellants, v. TEXAS COMMERCE BANK, NATIONAL ASSOCIATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 964

32 F.3d 964

STERLING PROPERTY MANAGEMENT, INC., et al., Plaintiffs-Appellants, v. TEXAS COMMERCE BANK, NATIONAL ASSOCIATION, Defendant-Appellee.

No. 93-2865.

United States Court of Appeals, Fifth Circuit.

Sept. 27, 1994.

Rehearing Denied Nov. 18, 1994.

Gus E. Pappas, Dillard, LeBarron, Brashier & Pappas, Houston, TX, for appellants.

Nyria Roque-Jackson, J. Michael Solar, Solar & Ellis, Houston, TX, for appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before JONES, BARKSDALE and BENAVIDES, Circuit Judges.

BENAVIDES, Circuit Judge:

This case arises out of loan renewals granted by the Appellee, Texas Commerce Bank, National Association (TCB), to the Appellants, Sterling Texas Contractor, Inc. (Sterling) and Metro Draperies, Inc. (Metro). Sterling and Metro each executed a promissory note to TCB and guaranteed each other's note. Appellants seek reversal of the summary judgment denying relief on their claim of usury against TCB and granting TCB's counterclaims for non-payment of the two notes. Applying Texas law, the district court found that the plaintiffs had failed to raise a genuine issue of material fact as to their respective usury claims. The Appellants also challenge the award of attorneys' fees, claiming that the fees awarded were unreasonable and excessive. We affirm the summary judgment with respect to the usury claims and the non-payment of the notes. Finding a genuine issue of material fact as to the reasonableness of the attorneys' fees, we reverse and remand.

I. FACTS AND PROCEDURAL HISTORY

On December 12, 1989, Sterling executed a note for $50,000, with Metro giving an absolute guaranty of payment on the note. On the same date, Metro executed a note for $54,295.60, with Sterling providing the absolute guaranty of payment. Paul Nichols signed the documents in his capacity as president of Sterling. Paula Nichols signed the documents in her capacity as president of Metro. Prior to December 12, 1989, the only guarantor of the two promissory notes of Metro and Sterling was Paul Nichols.

On February 3, 1992, Sterling Property Management, Inc., Sterling, Metro, Paul Nichols, Paula Nichols, and Sterling Advertising filed a complaint against TCB in the 234th Judicial District Court of Harris County, Texas. Among the claims made was that the notes executed by Sterling and Metro were usurious. TCB filed a notice of removal based on federal question jurisdiction, and the entire action was removed to the United States District Court for the Southern District of Texas, Houston Division. TCB filed an answer containing compulsory counterclaims seeking recovery on the two notes and reasonable attorneys' fees. The plaintiffs filed a motion to remand, alleging improper notice of removal. The district court determined that there was no independent basis for federal jurisdiction over the plaintiffs' state law claims, and partially granted the motion, remanding most of the claims to state court. The court retained jurisdiction over the usury claim pursuant to the provisions of the National Bank Act, 12 U.S.C. sections 85 and 86, ¹ and TCB's counterclaim to recover on the notes.

TCB filed a motion for summary judgment, arguing that there was no genuine issue of material fact as to the usury claim and thus, it was entitled to judgment as a matter of law on its counterclaim for payment of the notes. The Plaintiffs argued that the motion should be denied, urging a factual dispute. The district court granted TCB's motion for summary judgment and ordered the plaintiffs to pay $127,582.87 in damages and accrued interest, $47,000 in attorneys' fees, and costs of court. Sterling and Metro now appeal, arguing that the two notes were usurious and disputing the reasonableness of the attorneys' fees.

II. STANDARD OF REVIEW

When a summary judgment is appealed, this Court evaluates a district court's decision to grant summary judgment by reviewing the record under the same standards that the district court applied to determine whether summary judgment was appropriate. Herrera v. Millsap, 862 F.2d 1157, 1159 (5th Cir.1989). Therefore, the summary judgment will be affirmed only when this Court is "convinced, after an independent review of the record, that 'there is no genuine issue as to any material fact' and that the movant is entitled to judgment as a matter of law.' " Id. (quoting Brooks, Tarlton, Gilbert, Douglas & Kressler v. United States Fire Ins. Co., 832 F.2d 1358, 1364 (5th Cir.1987) and Fed.R.Civ.P. 56(c)). Fact questions must be considered with deference to the nonmovant. Herrera v. Millsap, 862 F.2d at 1159. Accordingly, when a fact question is dispositive of a summary judgment motion, we "review the facts drawing all inferences most favorable to the party opposing the motion." Id. (citation and internal quotation marks omitted). Questions of law, however, are reviewed de novo. Id.

III. CLAIM OF USURY

As previously set forth, the district court granted TCB's motion for summary judgment finding that the usury claim failed as a matter of law and that TCB was entitled to judgment as a matter of law on its counterclaim for payment of the notes. The parties agree that Texas law governs the determination whether the transactions are usurious. Under Texas law, interest "is the compensation allowed by law for the use or forbearance or detention of money," and usury "is interest in excess of the amount allowed by law." Tex.Rev.Civ.Stat.Ann. art. 5069-1.01(a), (d) (Vernon 1983); see In re Casbeer The Appellants admit that the two promissory notes have not been paid in full. However, relying on Alamo Lumber Co. v. Gold, 661 S.W.2d 926 (Tex.1983), they claim that the notes are usurious. In Alamo Lumber, the Texas Supreme Court held "that a lender who requires as a condition to making a loan, that a borrower assume a third party's debt, as distinguished from a requirement that the borrower pay another one of his own debts, must include the amount of the third party's debt in the interest computation." Alamo Lumber, 661 S.W.2d at 928. Accordingly, the following requirements must be met for Alamo Lumber to apply: (1) a lender requires as a condition to making a loan to the borrower; (2) that the borrower assume a third party's debt.

793 F.2d 1436, 1444 (5th Cir.1986). Additionally, because the usury statute is penal in nature, it must be strictly construed. Texas Commerce Bank-Arlington v. Goldring, 665 S.W.2d 103, 104 (Tex.1984).

The Appellants argue that their situation essentially is identical to the one in Alamo Lumber. The court below assumed for purposes of the motion for summary judgment that TCB had required the guaranties as a condition of the loan renewals for Sterling and Metro. The district court further assumed, and TCB has not contested, that if Alamo Lumber is applicable to this scenario, the notes would be usurious.

Relying on Moore v. Liddell, Sapp, et al., 850 S.W.2d 291 (Tex.App.--Austin 1993, writ denied), TCB argues that Alamo Lumber does not apply to the facts of this case. In Moore, the Texas court of appeals held "that Alamo Lumber does not apply to the ... situation of a guaranty of another's debt as a condition for a loan." Moore, 850 S.W.2d at 294 (emphasis added). The Court of Appeals expressly refused to apply Alamo Lumber to a guarantor situation because a guarantor's liability is contingent on the borrower's default. Id. at 293-94. The Court explained that "[i]nclusion of a contingent liability as interest on the guarantor's separate obligation would go against the parties' expectations and greatly increase uncertainty in lending transactions." Moore, 850 S.W.2d at 294.

The Appellants point to the language in Moore referring to the guarantor's liability as "a contingent secondary obligation." Id. In contrast, the Appellants refer to their own guaranty agreements which provide that the guaranty is "unconditional and absolute." They claim such language renders them primarily liable. Thus, the Appellants argue that TCB's reliance on Moore is misplaced because that case dealt with a "contingent" liability. Therein lies the heart of this dispute--whether guaranties of payment, which unconditionally and absolutely guarantee payment, are contingent liabilities under Moore.

In other words, Appellants' position is that, as guarantors of payment, there were no contingencies on their liability. Appellants argue that because they became primarily liable for the debt, Alamo applies to them just as if they had assumed the debt. Appellants stress that they are "guarantors of payment" as opposed to "guarantors of collection." It is undisputed that the Appellants' guaranties are guaranties of payment and not of collection. "A guaranty of payment, which is also known as an absolute guaranty, requires the guarantor to pay immediately upon the principal obligor's default." In re Pulliam, 90 B.R. 241, 243 (Bkrtcy.N.D.Tex.1988). ² Accordingly, it is only after the borrower's default that a guarantor of payment becomes primarily liable. The liability of a guarantor of payment therefore is contingent on the borrower's...