Vill. Place, Ltd. v. VP Shopping, LLC

• Decision Date: 21 May 2013
• Docket Number: No. 01–12–00364–CV.,01–12–00364–CV.
• Citation: 404 S.W.3d 115
• Court: Texas Court of Appeals
• Parties: VILLAGE PLACE, LTD. and Bob Yari, Appellants v. VP SHOPPING, LLC, Appellee.

404 S.W.3d 115

VILLAGE PLACE, LTD. and Bob Yari, Appellants

v.VP SHOPPING, LLC, Appellee.

No. 01–12–00364–CV.

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

May 21, 2013.

Reagan W. Simpson, Marc S. Tabolsky, Scott Keller, Logan E. Johnson, Yetter Coleman LLP, Austin, TX, Kenneth P. Held, Schiffer Odom Hicks & Johnson PLLC, Houston, TX, for Appellants.

Talmage Boston, Winstead PC, Gregory D. May, Dallas, TX, Amy N. Howell, Yetter Coleman LLP, Austin, TX, for Appellee.

Panel consists of Chief Justice RADACK and Justices HIGLEY and BROWN.

OPINION

HARVEY BROWN, Justice.

Village Place, Ltd. purchased the Village Shopping Center with a non-recourse promissory note secured by a deed of trust pledging the property as collateral. The deed of trust included provisions that under certain circumstances created exceptions to the non-recourse nature of the loan. Bob Yari guaranteed the loan. When Village Place defaulted, VP Shopping, LLC (VPS), the noteholder at the time, foreclosed on the pledged shopping center, leaving an unpaid balance of over $1.8 million. After subtracting the foreclosure proceeds, the remaining unpaid principal and interest on the loan was $379,234. VPS did not seek to recover this unpaid loan balance ¹ because the loan was non-recourse; instead, it sought and obtained a judgment holding Village Place and Yari jointly and severally liable for, generally speaking, two categories of damages it claims it suffered as a result of Village Place's failure to comply with obligations created by the exceptions to the non-recourse provisions: (1) $109,720.90 for its out-of-pocket expenses and (2) $554,258.60 for the reduction in value of the collateral, primarily Village Place's failure to maintain the property. The trial court awarded both measures of damages and entered judgment awarding VPS $663,979.50 in damages, attorney's fees, and court costs.

On appeal, Village Place contends that the trial court erroneously awarded “a windfall” of almost $300,000 more than the unpaid loan balance.² Village Place raises five issues but primarily argues that the trial court's damages award was wrong for two reasons: (1) recovery under the portion of the indebtedness that was converted from non-recourse to recourse under the provisions of the loan documents creating exceptions to the non-recourse nature of the loan was limited or capped by the amount of the unpaid loan balance (i.e., $379,234) and (2) it was entitled to an offset for the fair market value of the pledged shopping center rather than an offset for the foreclosure price. VPS contends that it seeks to collect the amount of “full recourse carveout liabilities” created by the exceptions to nonrecourse provisions in the loan documents and those amounts are not capped at the amount of the unpaid loan balance. Alternatively, VPS contends that the price it paid at foreclosure represented the shopping center's fair market value.

We conclude that the carveout-liabilities provisions reinstate the personal liability that was removed by the non-recourse provisions of the loan documents for the amount of VPS's covered out-of-pocket expenses. For VPS's claim for reduction in value damages, however, the reinstated personal liability is capped at an amount equal to the unpaid loan balance. We further conclude that Village Place is entitled under Texas Property Code section 51.003 to have the property's fair market value determined and offset against VPS's claim.

On VPS's claims against Yari as the guarantor, we hold that Yari did not waive the statutory right to an offset granted to Village Place under Texas Property Code section 51.003.

We reverse in part the judgment's awards for damages and attorney's fees and remand for a new trial on the reversed portions of the award.

Background

In May 1999, Village Place executed a promissory note payable to non-party Salomon Brothers Realty Corp. in the principal amount of $2.6 million to finance its purchase of the Village Place Shopping Center in Houston. The loan provided for monthly payments for ten years and a final balloon payment on June 1, 2009. Village Place also executed a deed of trust pledging the property as collateral for the note. Besides imposing on Village Place the obligation to “promptly pay when due the principal and interest on the indebtedness evidenced in the Note” (section 1), the deed of trust imposed several additional obligations, including: payment by monthly installments for annual taxes, insurance premiums, and “other Funds for other taxes, charges, premiums, assessments and impositions ... which Lender shall reasonably deem necessary to protect Lender's interests,” with such payments deposited into a fund maintained by the lender (section 2); an obligation to “not commit waste or permit impairment or deterioration of the Property” (section 6); an obligation “to restore or repair promptly and in a good and workmanlike manner all or any part of the Property to the equivalent of the Pre-existing Condition” (section 6); and an assignment of rents and revenues generated from the property (section 26). The note and deed of trust generally were non-recourse with respect to Village Place's obligations; however, the instruments indicated several exceptions, or carveout liabilities, under which Village Place could become personally liable.³

Simultaneous with the signing of the note and deed of trust, Yari executed a document entitled “Exceptions to Non–Recourse Guaranty.” In this guaranty, Yari agreed to personally pay the amounts for which Village Shopping had liability under the exceptions to non-recourse liability. Furthermore, Village Place and Yari signed an Environmental Indemnity Agreement (EIA) that obligated them to indemnify the noteholder against any damages arising from the presence of hazardous materials on the property.

When the note matured in June 2009, Village Place made several payments but defaulted on the obligation to pay the entire remaining loan balance. The loan was not reinstated, renewed, or otherwise refinanced. One year later, in June 2010, the note, deed of trust, guaranty, and EIA were assigned to VPS.⁴ Soon thereafter, VPS purchased the shopping center through a foreclosure, having made the highest bid of $1.5 million. At the time of foreclosure, VPS's pre-foreclosure collection costs, accrued unpaid interest, and principal totaled $1,879,234. Thus, after subtracting the foreclosure purchase price, the remaining unpaid loan balance owed by Village Place was $379,234. Approximately ten months later, VPS sold the property to a third party for a gross price of $1,950,000.

VPS sued Village Place and Yari for breaches of the note, deed of trust, guaranty, and EIA. VPS alleged that Village Place and Yari personally were liable because some of the note's and deed of trust's exceptions to non-recourse liability had been triggered and, further, that they personally were liable under the EIA for certain environmental related costs.

In response, Village Place and Yari asserted that under Texas Property Code section 51.003 they were entitled to offset the property's fair market value against the “deficiency” on the loan. They also filed a “Motion to Determine the Fair Market Value of the Property and for Offset” pursuant to Texas Property Code section 51.003. Based on a report prepared by a certified general real estate appraiser, they asserted that the property's fair market value was $3,184,002.50 at the time of foreclosure. They requested that the trial court offset this amount “or such other amount as the Court may determine is the fair market value of the Property” against VPS's claims.

VPS replied that its suit was “ not a suit for a deficiency following foreclosure” but rather sought the amounts due under the loan documents' exceptions to non-recourse liability. Therefore, VPS argued, these amounts are independent of the unpaid loan balance, section 51.003 was inapplicable, and the amounts should not be offset by either the value of the property or the foreclosure price. Alternatively, VPS argued that Yari's guaranty waived his rights to offset under section 51.003. In any event, VPS contended, the best evidence showed that the property's fair market value was $1.5 million, the same figure for which it sold at foreclosure.

After a pre-trial hearing on the motion for offset, the trial court denied the motion without explanation. The case proceeded to a three-day bench trial. At the outset of the second day of trial, the court altered course on the admissibility of the evidence on the property's value and announced that it would “go ahead and allow some testimony on this issue about valuation.” Subsequently, the parties presented some evidence regarding the property's value at the time of the foreclosure. At the close of trial, the court rendered judgment awarding VPS damages amounting to $663,979.50 against Village Place and Yari jointly and severally, plus interest, attorney's fees, and court costs. The court additionally ordered that Village Place and Yari take nothing on their counterclaims.

The court subsequently entered findings of fact and conclusions of law. The findings relevant to the $109,720.90 awarded for VPS's out-of-pocket expenses included the following:

• After receiving notices of default, Village Place failed in its obligation to turn over to VPS security deposits and rents from the property totaling $17,397.34 and $17,189.52, respectively.

• Village Place failed to pay $38,909.88 in taxes and $4,624.94 in insurance premiums, which VPS ended up paying.

• In breach of the EIA, Village Place failed to pay $12,997.50 for the costs of environmental testing reports.

• Village Place is liable for VPS's out-of-pocket expenses of $18,601.72 arising from various breaches of the loan documents, specifically, $10,164.51 in “miscellaneous expenses,” $500 for a “REMIC opinion,” $5,200 for a survey, and $2,737.21 for inspection/travel by VPS's representatives.

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