Salvagio et al v. Madison Realty Capital, L.P. et al
Filing
101
MEMORANDUM AND ORDER. ORDERED that Defendant is entitled to a deficiency judgment against Plaintiff James D. Salvagio, as Trustee of Gulf Coast Arms, in the amount of TWO MILLION EIGHT HUNDRED NINETY THOUSAND ONEHUNDRED FIFTY-FIVE AND 90/100 DOLLARS ($2,890,155.90), plus simpleinterest accrued thereon at the default rate of 24% per annum fromthe foreclosure date of July 5, 2011, to the date hereof, in theamount of $927,383.72, for a total judgment of THREE MILLION EIGHTHUNDRED SEV ENTEEN THOUSAND FIVE HUNDRED THIRTY-NINE AND 62/100DOLLARS ($3,817,539.62).A Final Judgment separately will be entered in Madison's favorfor this sum, and the Notice of Lis Pendens is ordered DISSOLVED. (Signed by Judge Ewing Werlein, Jr) Parties notified.(chorace)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
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
§
§
§
§
§
§
MEMORANDUM AND ORDER
This case came on for trial on October 25, 2012, whereupon the
parties agreed to submit the case to the Court on one question of
law, namely, whether James Salvagio, as trustee of Gulf Coast Arms
("Gulf Coast"), effectively waived Gulf Coast's right to claim an
offset under Texas Property Code section 51.003,
in the offset
waiver language found in the Letter Agreement, the First Amendment
to Real Estate Lien Note,
the Forbearance Agreement,
First Amendment to Forbearance Agreement.
and/or the
The parties mutually
agreed and stipulated that if the Court finds that Gulf Coast made
no lawful and effective waiver, Defendant Madison Realty Capital,
L.P.
("Madison") is entitled to a deficiency judgment in the total
amount of $2,890,155.90, as of the date of the foreclosure sale,
plus a default interest rate of 24% per annum accruing from the
date of the foreclosure sale to the date of judgment.
The parties
further mutually agreed and stipulated that if the Court finds that
Gulf Coast did make a
entitled
to
a
$4,390,155.90,
lawful and effective waiver,
deficiency
judgment
in
the
total
as of the date of the foreclosure
Madison is
amount
sale,
of
plus a
default interest rate of 24% per annum accruing from the date of
the foreclosure sale to the date of judgment.
Madison agreed to
waive its claim to attorneys' fees incurred after the foreclosure
sale.
The parties further agreed that upon the entry of judgment
the Court should dissolve Plaintiff's Notice of Lis Pendens.
The
Court accepted the agreements made by the parties in open court.
Based on the agreements of the parties and the applicable law, the
Court concludes as follows.
I.
It
trustee
Discussion
is undisputed that James
of
Agreement,l
Gulf
the
Coast
Arms,
signed
First Amendment
Forbearance Agreement,
and
Salvagio,
and
to Real
the
First
in his capacity as
agreed
Estate
Amendment
to
the
Letter
Lien Note,
to
the
Forbearance
1 The
Letter Agreement was also signed by Fay Bourgeois, as
trustee. Document No. 45, ex. D.
2
Agreement. 2
The Letter Agreement dated March 30,
2007, extended
the maturity date of the Note, and recites:
Each of the Borrower and the Guarantor hereby acknowledges and agrees that neither the Borrower nor the
Guarantor has
any offsets,
defenses,
claims,
or
counterclaims against the Lender with respect to its
liabilities and obligations due and owing to the Lender
and that, to the extent the Borrower or the Guarantor has
or ever had any such offsets, defenses, claims, or
counterclaims, each of the Borrower and the Guarantor
hereby specifically WAIVES AND RELEASES any and all
rights to such offset, defenses, or counterclaims.
Document No. 45, ex. D (emphasis in italics addedi other emphasis
in original) .
The First Amendment to the Real Estate Lien Note,
signed February 15, 2008, contains a section entitled, "No claims,H
which states:
Borrower acknowledges, certifies, represents and warrants
that it has no claims, offsets or defenses in connection
wi th the Loan or any other sums heretofore paid or
payable pursuant to, or in connection with the Note,
mortgage or any other Loan Documents. Borrower waives,
releases, and forever discharges Lender, Lender's agents,
officers, directors, and employees, from .
(ii) all
rights of set-off, defenses, claims, causes of action and
any other bar to the enforcement of the Loan Documents or
this Amendment or the collection of any sums due and
payable pursuant thereto.
It was agreed in their Admissions of Fact in the Joint
Pretrial Order that these agreements were made.
Document No. 86
at 4.
They were exhibited to the Court in the summary judgment
record.
2
3
Id., ex. E (emphasis in italics added).
signed on May 2,
2008,
contains a
The Forbearance Agreement,
section entitled "Waiver of
Claims," which states:
The Borrower and Guarantor hereby acknowledge and agree
that
they have no offsets,
defenses,
claims,
or
counterclaims against the Lender or the Lender's
officers, directors, employees, attorneys, representati ves, predecessors, successors, and assigns with respect
to the Obligations, or otherwise, and that if the
Borrower or Guarantor now have, or ever did have, any
offsets, defenses, claims, or counterclaims against the
Lender or the Lender's officers, directors, employees,
attorneys, representatives, predecessors, successors, and
assigns, whether known or unknown, at law or in equity,
from the beginning of the world through this date and
through the time of execution of this Agreement, all of
them are hereby expressly WAIVED, and the Borrower and
Guarantor each hereby RELEASE the Lender and the Lender's
officers, directors, employees, attorneys, representatives, predecessors, successors, and assigns from any
liability therefor.
Id., ex. F (emphasis in italics added; other emphasis in original).
Finally, the First Amendment to the Forbearance Agreement, signed
on July 31, 2008, has a section entitled "Waiver," which states:
Borrower and Guarantor acknowledge, certify, represent
and warrant that they have no claims, offsets or defenses
in connection with the Debt or any other sums heretofore
paid or payable pursuant to, or in connection with the
Note, Mortgage or any other Loan Documents (as defined in
the Note).
Borrower and Guarantor waive, release, and
forever discharge Lender, Lender's agents, officers,
directors, and employees, from .
(ii) all rights of
set-off, defenses, claims, causes of action and any other
bar to the enforcement of the Loan Documents or this
Agreement or the collection of any sums due and payable
pursuant thereto.
In addition, Borrower and Guarantor
acknowledge and agree that all amounts paid to date to
4
Lender, including but not limited to payments at nominal
interest rate, default rate or late charges have been
duly earned by Lender without right of setoff, credit or
refund.
Id., ex. G (emphasis in italics added).
Plaintiff first argues that its agreement in these documents
was not effective to waive its right to claim an offset under Texas
Property Code section 51.003 because allowing such a waiver would
contravene public policy.
The Texas Property Code allows a party
against whom a deficiency judgment is sought to seek an offset
against the deficiency judgment "in the amount by which the fair
market
value,
less
the
amount
of
the
claim,
indebtedness,
or
obligation of any kind that is secured by a lien or encumbrance on
the real property that was not extinguished by the foreclosure,
exceeds the sales price."
2007).3
TEX. PROP. CODE ANN.
§
51.003(c)
(West
Plaintiff makes no cogent argument for his public policy
contention and, indeed, both the Fifth Circuit and Texas appellate
courts have rejected such a notion.
Ass'n v.
Sleutel,
289 F.3d 837,
See, e.g., LaSalle Bank Nat'l
839-42
(5th Cir.
2002)
(finding
that public policy did not prohibit contractual waiver of right to
offset under Texas Property Code
Road, L.P. v. Moayedi,
§
51.003)
i
Interstate 35/Chisam
--- S.W. 3d ---, 2012 WL 3125148, at *8-9
(Tex. App.--Dallas Aug. 2, 2012, no pet. h.)
(same)
i
Segal v. Emmes
The Court previously held that Texas law governs
issue, and neither party disputes that conclusion.
3
5
this
Capital,
L.L.C.,
155 S.W.3d 267,
Dist.]
2004, no pet. h.)
worded
§
278-81
(Tex.
App.--Houston[lst
(holding same with respect to similarly
51.005 and stating that, "[t]he Legislature thus knew how
to grant a non-waivable right in chapter 51, but chose not to do so
in sections 51.003 and 51.005, the provisions granting valuation
and offset rights to debtors and guarantors.
The omission of such
language in section 51.005 thus implies that the rights that it
confers are not so fundamental that they cannot be waived.") .
Plaintiff's
second
argument
is
that
the
documents
lack
specificity and therefore were not effective to waive Plaintiff's
right to seek an offset under
§
51.003.
The question here is
whether the waiver language employed in March 2007, and February,
May,
and July of 2008,
offset right under
§
was effective prospectively to waive an
51.003 that did not arise in Salvagio's favor
until July 6, 2011, when Madison sold the Property at foreclosure
for only $1 million.
None of the four documents on which Madison
relies purports to make a
forward-looking waiver of any future
offset that may accrue and, of course, none refers specifically to
waiving any offset that may arise under
Segal,
155
S.W.3d at
278-81
§
51.003.
Compare, e.g.,
(enforcing waiver of
"all
remedies, claims, and defenses based upon or related to
51.004,
and 51.005 of the Texas Property Code")
original).
§§
rights,
51.003,
(underlining in
Instead, as can be seen from the italicized language in
each of the pertinent excerpts from the four documents quoted at
6
pages 3 and 4 above, the references are to claims and offsets at
present
or
in
the
past,
referring
to
those
offsets
that
the
borrower or guarantor "has," or "has or ever had," and the like.
The borrower disclaims having any offsets,
and then waives and
releases them as well.
The expansive, declarative language of the
forbearance
signed May
agreement
2,
2008,
captures
best
what
Madison and Salvagio were agreeing in these documents: the borrower
agreed he had no offsets,
and that if he did have any offsets,
"whether known or unknown, at law or in equity, from the beginning
of the world through this date and through the time of execution of
this Agreement,
all of them are hereby expressly WAIVED,
"
(emphasis in original) .
In contrast, the cases relied on by Defendant involved waivers
not only to the date of execution but broad enough to encompass
offsets
that
"may"
accrue
prospectively,
such
as
that
under
§
51.003.
§
51.003 is specifically mentioned, but the other cases cited by
Segal,
cited above,
is a specific example in which
Defendant are also not limited to the present-tense and past-tense
language found in the documents signed by Salvagio.
also contemplate future setoffs.
(section
51.003
setoff
held
See LaSalle,
waived
by
clause
Instead, they
289 F.3d at 840
that
Guarantor
"expressly waives and relinquishes all rights and remedies now or
hereafter accorded by applicable law
Ozarks Inc.,
668 F.3d 196,
202
(5th Cir.
7
."); Haggard v. Bank of
2012)
(section 51.003
setoff waived by language precluding borrower from 'any defenses l
setoffs
I
or counterclaims which may be available to Borrower or any
other person or entityl
II);
Moayedi I
3125148 1 at *8-9 (waiving "any defense
or might have .
.11; Tran v.
S.W.
3d
2012
WL
. . that the Guarantor may
Compass Bank
l
No.
02-11-00189-CVI
2012 WL 117859 1 at *2 (Tex. App.--Fort Worth Jan. 121 2012 1 no pet.
h.)
(waiver of "any rights or defenses based l in whole or in part l
upon an offset by anyone or more of the Borrowers or Guarantors
against
any obligation or
effective to waive
§
Indebtedness now or hereafter owed
51.003 setoff).
ll
The waiver language used by
Defendant in its forbearances with Salvagio does not have the kind
of prospective l or forward-looking l or contingent waiver language
that would permit the Court to hold as a matter of law that the
parties mutually agreed that the borrower in 2008 waived a future
statutory offset that did not arise under Section 53.001 until
2011.
II.
Pursuant
to
the
Order
stipulation of
the
parties
I
and
for
the
foregoing reasons and the conclusion that Gulf Coast Arms did not
waive its right to an offset under Texas Property Code
§
51.003 1 it
is hereby
ORDERED that Defendant is entitled to a deficiency judgment
against Plaintiff James D. Salvagio l as Trustee of Gulf Coast Arms l
8
in the amount of TWO MILLION EIGHT HUNDRED NINETY THOUSAND ONE
HUNDRED FIFTY-FIVE AND 90/100 DOLLARS ($2,890,155.90), plus simple
interest accrued thereon at the default rate of 24% per annum from
the foreclosure date of July 5, 2011, to the date hereof,
in the
amount of $927,383.72, for a total judgment of THREE MILLION EIGHT
HUNDRED SEVENTEEN THOUSAND FIVE HUNDRED THIRTY-NINE AND
62/100
DOLLARS ($3,817,539.62).
A Final Judgment separately will be entered in Madison's favor
for this sum, and the Notice of Lis Pendens is ordered DISSOLVED.
The Clerk will enter this Order and provide a correct copy to
1H
all parties.
SIGNED at Houston, Texas, on this
9
~'d;;
of November, 2012.
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