PNC Bank National Association v. BHMDF Ltd et al

Filing 39

MEMORANDUM OPINION AND ORDER: No genuine issue of material fact exists as to liability and default under the Brownsville and Fort Worth Loans. No genuine issue of material fact exists to support the claim that there was a release of Riva Cano Smith 's guaranty. However, genuine issues of material fact exist as to the amount owed on the guaranty contract. Plaintiff's 20 Motion for Summary Judgment is GRANTED IN PART and DENIED IN PART. A bench trial will be held on 11/14/2016, to address the details of the amount owed on each Loan. (Ordered by Chief Judge Barbara M.G. Lynn on 10/12/2016) (twd)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
PNC BANK, NATIONAL ASSOCIATION,
Plaintiff,
v.
BHMDF, LTD., a Texas Limited Partnership;
ARMADILLO ENTERTAINMENT
CONCEPTS, INC.; RMADILO, INC.; RIVA
CANO SMITH; and ROBERT E. SMITH,
Defendants.

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No. 3:15-cv-01765-M

MEMORANDUM OPINION AND ORDER
Before the Court is Plaintiff’s Motion for Summary Judgment [ECF No. 20]. For the
reasons stated below, the Motion is GRANTED IN PART and DENIED IN PART.
I.

BACKGROUND

PNC Bank (“PNC”) brought suit to recover on defaulted promissory notes and guaranty
agreements. BHMDF, Ltd. borrowed money from BMC Capital, LP (“Lender”) in two
agreements executed on March 28, 2007. The first agreement included: 1) a promissory note for
$975,000.00 in principal bearing 7.95% annual interest; 2) a deed of trust to Lender on property
in Brownsville, Texas; 3) an assignment granting Lender a security interest in rents on the
Brownsville Property; and 4) a commercial security agreement granting Lender a security
interest in furniture and fixtures on the Brownsville property. These documents together
constitute the “Brownsville Loan.” The Brownsville Loan was guaranteed by four guaranty
contracts executed on March 28, 2007, by Armadillo Entertainment, RMADILO, Riva Cano
Smith, and Robert E. Smith (collectively “Guarantor Defendants”). Speeds Plus, Inc., also
executed a separate guaranty contract on the Brownsville Loan.
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The second agreement included: 1) a promissory note for $1,950,000.00 in principal
bearing 7.95% annual interest; 2) a deed of trust on property in Fort Worth, Texas; 3) an
assignment granting Lender a security interest in rents on the Fort Worth property; and 4) a
commercial security agreement granting Lender a security interest in furniture and fixtures on
the Fort Worth Property. These documents together constitute the “Fort Worth Loan.” The Fort
Worth Loan was also guaranteed by guaranty contracts executed on March 28, 2007, by the
Guarantor Defendants.
BMC Capital assigned its interests to Red Mortgage Capital, Inc., which, in turn, on
December 19, 2009, assigned its interests to PNC. BHMDF failed to pay the monthly
installment due on the Brownsville Loan in November of 2012. In September of 2013, Speeds
Plus filed a bankruptcy petition under Chapter 11 of the United States Bankruptcy Code. In re
Speeds Plus, Inc., Case No. 3:13-BK-34901 (Bankr. N.D. Tex.). BHMDF’s failure to pay and
one guarantor’s bankruptcy constituted defaults under the Brownsville Loan documents. The
bankruptcy court confirmed Speeds Plus’ bankruptcy plan on March 14, 2014. On April 30,
2014, BHMDF sold the Brownsville property. On May 12, 2014, BHMDF executed an
agreement with PNC and the Guarantor Defendants, other than Riva Cano Smith, by which they
agreed to release all liens against the Brownsville property in exchange for a partial payment
from the proceeds of the sale of that property (“lien release agreement”). PNC retained an
unsecured deficiency claim against the Guarantor Defendants for the remaining amount owed
under the Brownsville Loan pursuant to the guaranty agreements.
BHMDF failed to pay the monthly installment due on the Fort Worth Loan in December
of 2012. In July of 2015, instead of making payments as required by the Fort Worth Loan,
BHMDF, Ltd. filed a bankruptcy petition under Chapter 11 of the United States Bankruptcy

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Code. In re BHMDF, Ltd., Case No. 15-BK-42657 (Bankr. N.D. Tex.). The failure to pay and
filing of bankruptcy constituted defaults under the terms of the Fort Worth Loan. On March 21,
2016, the bankruptcy court entered an order confirming BHMDF’s bankruptcy plan. Pursuant to
the plan, the Fort Worth property was sold and the proceeds of the sale were applied as a partial
payment of sums due under the Fort Worth Loan. PNC retained an unsecured deficiency claim
against the Guarantor Defendants for the remaining amount owed under the Fort Worth Loan
pursuant to the guaranty contracts.
PNC alleges the Guarantor Defendants defaulted on the guaranty contracts, and PNC
seeks from them $795,694.50, plus interest and attorney’s fees. The Guarantor Defendants argue
that PNC has not properly calculated amounts due, because PNC did not include all credits,
payments, and offsets. The Guarantor Defendants also argue that as part of the May 6, 2014,
Brownsville lien release agreement, PNC released Riva Cano Smith of any and all liability. On
June 24, 2016, PNC filed a Motion for Summary Judgment on liability, the amounts owed, and
on the issue of whether or not Smith was released by the lien release agreement. (ECF No. 20).

II.

LEGAL STANDARD

Under Fed. R. Civ. P. 56, summary judgment is proper “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). A factual “issue is material if its resolution could affect the outcome
of the action.” Weeks Marine, Inc. v. Fireman’s Fund Ins. Co., 340 F.3d 233, 235 (5th Cir.
2003). “A factual dispute is ‘genuine,’ if the evidence is such that a reasonable [trier of fact]
could return a verdict for the non-moving party.” Crowe v. Henry, 115 F.3d 294, 296 (5th Cir.
1997). If the moving party seeks summary judgment as to his opponent’s claims or defenses,

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“[t]he moving party bears the initial burden of identifying those portions of the pleadings and
discovery in the record that it believes demonstrate the absence of a genuine issue of material
fact, but is not required to negate elements of the non-moving party’s case.” Lynch Props., Inc.
v. Potomac Ins. Co., 140 F.3d 622, 625 (5th Cir. 1998). “Once the moving party meets this
burden, the non-moving party must set forth”—and submit evidence of—“specific facts showing
a genuine issue for trial and not rest upon the allegations or denials contained in its pleadings.”
Id.
The Court is required to view all facts and draw all reasonable inferences in the light
most favorable to the non-moving party and resolve all disputed factual controversies in favor of
the non-moving party—but only if both parties have introduced evidence showing that an actual
controversy exists. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Boudreaux v.
Swift Transp. Co., Inc., 402 F.3d 536, 540 (5th Cir. 2005); Lynch Props., 140 F.3d at 625.
“Unsubstantiated assertions, improbable inferences, and unsupported speculation are not
sufficient to defeat a motion for summary judgment,” Brown v. City of Hous., 337 F.3d 539, 541
(5th Cir. 2003), and neither will “only a scintilla of evidence” meet the non-movant's burden.
Little v. Liquid Air. Corp., 37 F.3d 1069, 1075 (5th Cir. 1994). Rather, the non-moving party
must “set forth specific facts showing the existence of a ‘genuine’ issue concerning every
essential component of its case.” Morris v. Covan World Wide Moving, Inc., 144 F.3d 377, 380
(5th Cir. 1998). If, “after the non-movant has been given an opportunity to raise a genuine
factual issue,” “the record, taken as a whole, could not lead a rational trier of fact to find for the
non-moving party, then there is no genuine issue for trial.” DIRECTV, Inc. v. Minor, 420 F.3d
546, 549 (5th Cir. 2005); Steadman v. Texas Rangers, 179 F.3d 360, 366 (5th Cir. 1999). “Rule
56 does not impose upon the district court a duty to sift through the record in search of evidence

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to support a party’s opposition to summary judgment,” and “[a] failure on the part of the nonmoving party to offer proof concerning an essential element of its case necessarily renders all
other facts immaterial and mandates a finding that no genuine issue of fact exists.” Adams v.
Travelers Indem. Co. of Conn., 465 F.3d 156, 164 (5th Cir. 2006).
III.

ANALYSIS
A.

LIABILITY

There is no genuine issue of material fact with respect to liability under the guaranty
contracts. Plaintiff demonstrates that the Guarantor Defendants are in default and are liable for
both the Brownsville Loan and the Fort Worth Loan. In order to recover on a guaranty contract
as a matter of law, Plaintiff must prove “1) the existence and ownership of the guaranty contract;
2) the terms of the underlying contract by the holder; 3) the occurrence of the conditions upon
which liability is based; and 4) the failure or refusal to perform by the guarantor.” Wasserberg v.
Flooring Servs. of Tex., LLC, 376 S.W.3d 202, 206 (Tex. App.—Houston [14th Dist.] 2012, no
pet.). A guarantor may require that the terms of the guaranty be strictly followed. Id.
Evidence presented by PNC satisfies the four elements a plaintiff must prove to recover
on a guaranty contract. On March 28, 2007, BHMDF entered into the Brownsville Loan and the
Fort Worth Loan. PNC is the successor in interest to Red Mortgage Capital, Inc., which is the
successor in interest to BMC Capital, LP.1 PNC is the current owner of the promissory notes
issued in the Brownsville and Fort Worth Loans.2 On March 28, 2007, the Guarantor Defendants
executed guaranty contracts on both loans, promising to “absolutely and unconditionally
Guaranty full and punctual payment and satisfaction of the Indebtedness [defined in each
Guaranty] of BHMDF, Ltd. to Lender, and the performance and discharge of all BHMDF Ltd.’s

1
2

Ex. A at ¶ 5; App. at 36-37, 127-128 [ECF No. 22-1].
Id.; Ex. A at ¶ 41.

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obligations.”3
PNC offered the sworn affidavit of Rick Wendell, Vice President of the Asset Resolution
Team at PNC Bank. Wendell’s affidavit proves the following: 1) the existence and ownership of
the guaranty contracts on the Brownsville and Fort Worth Loans executed by the Guarantor
Defendants;4 2) by the guaranty contracts, the Guarantor Defendants guaranteed payment of the
Brownsville and Fort Worth Loans;5 3) PNC has an unsecured deficiency claim against the
Guarantor Defendants on both the Brownsville and Fort Worth Loans;6 and 4) amounts due to
PNC under the terms of the guaranty contracts have not been paid by the Guarantor Defendants.7
The guaranty contracts and Wendell’s affidavit satisfy Plaintiff’s burden of proof on the issue of
liability. Am. 10-Minute Oil Change, Inc. v. Metro. Nat. Bank-Farmers Branch, 783 S.W.2d
598, 601 (Tex. App.—Dallas 1989, no writ) (holding an affidavit made on personal knowledge
of a bank officer and which identified the notes and guaranty and recited the principal and
interest due was sufficient evidence to support a summary judgment motion on the issue of
liability).
The Guarantor Defendants do not contest liability on either Loan or the guaranty
contracts.8 Instead, they only argue the amount claimed is incorrect because Plaintiff has not
applied all credits, payments, and offsets in their favor. Because there is no genuine issue of
material fact as to liability on the guaranty contracts, Plaintiff’s Motion for Summary Judgment
on liability is GRANTED.

3

Ex. A-8, A-9, A-10, A-11, A-23, A-24, A-25, A-26, App. at 61-72, 153-164.
Ex. A ¶¶ 13-16, 29-32.
5
Id.
6
Id. ¶¶ 36-40.
7
Id. ¶¶ 41-43.
8
Defendants admit default and liability in their Response. (ECF No. 29 at 8-9).
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B.

AMOUNT OWED

Genuine issues of material fact exist with respect to how much Guarantor Defendants
owe PNC on the Brownsville and Fort Worth Loans. Plaintiff argues it is owed $193,317.24 on
the Brownsville Loan and $602,377.26 on the Fort Worth Loan, with interest continuing to
accrue daily.9 To support these allegations, PNC relies on Wendell’s affidavit, which separates
the amounts owed into principal, interest, late fees, and other miscellaneous fees, but PNC does
not sufficiently explain how the amounts were calculated.10 PNC does not provide sufficient
evidence of how interest or late fees were calculated, or the basis for various miscellaneous fees.
Plaintiff cites American 10-Minute Oil Change to support the notion that a bank officer’s sworn
affidavit is sufficient to support summary judgment, but here, however, unlike the affidavit in
that case, the details of the calculations are not provided. 783 S.W.2d at 601.
The Guarantor Defendants present loan and payment histories that were provided by PNC
during discovery, but the Court cannot discern their meaning from the record before it. 11
However, because Plaintiff has not proven to the Court’s satisfaction that the amount owed is, as
a matter of undisputed fact, equal to what is claimed, Plaintiff’s Motion for Summary Judgment
on the amount owed is DENIED.
C.

RELEASE

There is no genuine issue of material fact with respect to release of the Riva Cano Smith
guaranty contract executed on March 28, 2007, on the Brownsville Loan.12 On May 6, 2014,
PNC signed a lien release agreement with guarantors Armadillo Entertainment Concepts, Inc.,

9

Ex. A ¶¶ 39-40. (ECF No. 22-1) PNC breaks down the claimed amount owed on the Brownsville Loan as follows:
$81,174.52 of principal, $101,135.58 in interest, $7,824.25 in late fees, and $3,182.89 in miscellaneous fees. PNC
breaks down the claimed amount owed on the Fort Worth Loan as follows: $170,864.34 of principal, $408,205.04 in
interest, $11,955.29 in late fees, and $11,352.95 in miscellaneous fees.
10
Id.
11
(ECF No. 30 at 12-21, 47-51).
12
Ex. A-10 App. pp. 67-69 (ECF No. 22-1).

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RMADILO, Inc., and Robert E. Smith, stating that liens against the Brownsville property would
be released in exchange for partial payment of $793,754.87, which was applied to amounts owed
on the Brownsville Loan.13 The parties to the lien release agreement acknowledged and agreed
that all other obligations and personal liability of the guarantors who signed the lien release
agreement would continue.14 Ms. Smith signed the agreement as a general partner of BHMDF
and the president of RMADILO, Inc., but refused to sign it in her individual capacity, and was
not defined in the lien release agreement as one of the “Guarantors.”15 To satisfy its burden of
proof for summary judgment that Ms. Smith remains liable, Plaintiff cites the plain language of
the lien release agreement and Ms. Smith’s guaranty contract.
Ms. Smith alleges that her exclusion from the May 6, 2014, lien release agreement was
the result of negotiations between PNC and the other guarantors, and that Ms. Smith understood
the negotiations to discharge and release her guaranty contract obligations. Her affidavit claims
PNC orally agreed “to release Ms. Smith from her guaranty obligations under the Brownsville
Loan and accordingly excluded her from transactions related thereto.”16 This assertion is
contrary to the plain language of both the lien release and Ms. Smith’s guaranty contract, and
foreclosed by the parol evidence rule and the statute of frauds.
Ms. Smith’s guaranty contract states that “Release of any other guarantor or termination of
any other guaranty of the Indebtedness shall not affect the liability of Guarantor under this
Guaranty,” “[n]o alteration of or amendment to this Guaranty shall be effective unless given in
writing and signed by the party or parties sought to be charged or bound by the alteration or
amendment,” “[l]ender shall not be deemed to have waived any rights under this Guaranty unless

13

Ex. A-14 App. pp. 89-108 (ECF No. 22-1).
Id.
15
Id. A-14 App. P. 89.
16
(ECF No. 29 at 10).
14

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such waiver is given in writing and signed by Lender,” and that “[n]o delay or omission on the part
of Lender in exercising any right shall operate as a waiver of such right or any other right.”17 Ms.
Smith presents no evidence to support the notion that the lien release agreement can be construed
to release her guaranty contract obligations.
First, the plain text of the lien release agreement unambiguously preserves her guaranty
obligation, as the defined term “Loan Documents” includes Ms. Smith’s guaranty contract:
Borrower and each of the Guarantors hereby expressly agree and understand that
nothing in this Agreement shall in any way or manner affect Lender’s ability to
fully exercise all of the rights and remedies granted or available to Lender in
connection with, under or pursuant to the Loan, the Loan Documents and/or at law
or in equity in connection with any existing or future violation or default under the
Loan Documents, including without limitation, the default by the Borrower, AASA,
Speeds Plus or Guarantors on any of their obligations to Lender which obligations
include, without limitation, those contained in the Loan Documents and the
Bankruptcy plan. (Emphasis added). 18
Second, the lien release agreement expressly acknowledges the continued existence of Cano
Smith’s guaranty contract.19 Third, the guaranty contract requires a waiver to be in writing.
Fourth, the lien release agreement states that an omission in exercising one right does not waive
any other right. There is no evidence in the lien release agreement or otherwise to support Ms.
Smith’s belief that omitting her from the lien release discharged her guaranty contract
obligations. Finally, Ms. Smith did not sign the lien release in her individual capacity, so any
alteration to her guaranty is invalid.
Next, Ms. Smith’s reliance on negotiations allegedly resulting in an agreement that
released her from liability and changed her obligations under the Brownsville guaranty
agreement violates the parol evidence rule.20 The lien release agreement contains a valid

17

Ex. A-10 App. Pp 67-69 (ECF No. 22-1) Emphasis added.
Id.
19
Ex. A-14 App at 93.
20
(ECF No. 30) at Ex. 3.
18

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integration clause.21 When parties have a valid integrated agreement, the parol evidence rule
precludes enforcement of inconsistent prior or contemporaneous agreements. F.D.I.C. v.
Wallace, 975 F.2d 227, 229 (5th Cir. 1992). When “the contract’s execution presumes that all
prior negotiations and agreements relating to the transaction have been merged into the contract,”
the contract will be enforced as written, and cannot be added to or varied by parol evidence.
Bandera Drilling Co. v. Sledge Drilling Corp., 293 S.W.3d 867, 871 (Texas App.—Eastland
2009, no pet.). The plain language of the lien release agreement unambiguously acknowledges
the existence of Ms. Smith’s guaranty contract and that PNC retains its right to pursue all
obligations under the Brownsville Loan. The May 12, 2014, lien release agreement did not
change Ms. Smith’s guaranty obligations in any way. Therefore, the oral agreement Ms. Smith
refers to would be an inconsistent prior or contemporaneous agreement, which would violate the
parol evidence rule.
Finally, even if the Court credited Riva Cano Smith’s claim of oral negotiations allegedly
resulting in release of her liability, such a release would be unenforceable under the Texas statute
of frauds. In Texas, an agreement “by one person to answer for the debt, default, or miscarriage
of another person” must be in writing. Tex. Bus. & Com. Code Ann. § 26.01(b)(2). Ms. Smith’s
guaranty contract is therefore subject to the statute of frauds. When a written agreement is
governed by the statute of frauds, it cannot be materially modified by subsequent oral agreement.
Dracopoulas v. Rachal, 411 S.W.2d 719, 721 (Tex. 1967); see also United Cent. Bank v. Yoon,
3:13-CV-857-P, 2015 WL 11120516, at *6 (N.D. Tex. Mar. 4, 2015) (holding an alleged oral
agreement did not constitute a waiver or release guarantors from liability because it was
unenforceable). If PNC’s alleged oral agreement eliminated all liability under Ms. Smith’s

21

Ex. A-14 App. at 100 (ECF No. 22-1).

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guaranty contract, it would constitute a material modification, and thus be legally unenforceable.
Therefore, there is no genuine issue of material fact, and Plaintiff’s Motion for Summary
Judgment as to the alleged release of Ms. Smith’s guaranty is GRANTED.
IV.

CONCLUSION

No genuine issue of material fact exists as to liability and default under the Brownsville
and Fort Worth Loans. No genuine issue of material fact exists to support the claim that there
was a release of Riva Cano Smith’s guaranty. However, genuine issues of material fact exist as
to the amount owed on the guaranty contract. Plaintiff’s Motion for Summary Judgment is
therefore GRANTED IN PART and DENIED IN PART. A bench trial will be held on
November 14, 2016, to address the details of the amount owed on each Loan.
SO ORDERED.
October 12, 2016.

_________________________________
BARBARA M. G. LYNN
CHIEF JUDGE

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