Salvagio et al v. Madison Realty Capital, L.P. et al

Filing 84

MEMORANDUM AND ORDER on Pending Motions and Reset of Docket Call DENYING 54 Opposed MOTION for Extension of Time For Plaintiff's counsel to response to Defendant's motion for summary judgment, GRANTING 62 Opposed MOTION for Extension of Time to Respond to Defendant's Motion for Summary Judgment, DENYING 58 Opposed MOTION for Leave to File Plaintiff's Third Amended Complaint, GRANTING 45 MOTION for Summary Judgment, DENYING 78 Opposed MOTION to Compel Mediation, GRANTING 80 Opposed MOTION to Reset Docket Call ( Docket Call RESET for 10/12/2012 at 04:00 PM in Courtroom 11D before Judge Ewing Werlein, Jr)(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-II-2183

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

Motion for Leave to Amend Complaint
carefully

considering

the

motions,

No.

45)

and

(Document No.
responses,

Plaintiff's
58).1

reply,

After
and

the

applicable law, the Court concludes as follows.

1 Plaintiff's Motion to Enlarge Time for Plaintiff to File His
Response to Defendant's Motion for Summary Judgment (Document
No. 54) is DENIED, inasmuch as the Court previously enlarged the
time for Plaintiff's response by more than 30 days, and Plaintiff
has failed to show good cause for an additional enlargement of
time.
See FED. R. CIV. P.
6 (b) (1) .
Plaintiff's Motion for
Enlargement of Time to File a 15-Minute Late Response to Defendant
Madison Realty Capital, L.P.'s Motion for Summary Judgment
(Document No. 62) is GRANTED.
Plaintiff's Motion to Compel
Mediation (Document No. 78) is DENIED.

I.

Background

Plaintiff James Salvagio ("Plaintiff"), acting in his capacity
as trustee of Gulf Coast Arms ("Gulf Coast")

brought this action

,2

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

Bourgeois,

2006,

20,

for

value

as trustees of Gulf Coast,

received,

Plaintiff

and

executed and delivered to

Defendant a Real Estate Lien Note (the "Note") payable to Defendant
in the principal

sum of

provided in the Note. 3

$4

million,

plus

interest

thereon as

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

Development

favor
("HUD"). 5

of

the

Department

of

Housing

and

Urban

The Note had an original maturity date of

2 Fay M.
Bourgeois ("Bourgeois") was originally included in
this lawsuit also acting as a trustee on behalf of Gulf Coast Arms.
Document No.1.
Plaintiff's Second Amended Complaint removed
Bourgeois as a complainant, leaving Trustee Sal vagio as sole
Plaintiff. Document No. 42.

3

Document No. 45, ex. A at 1-7.

4

1d., ex. I -B.

5
1d., ex. I -B at 14.
James Sal vagio also executed a
Guaranty, personally guaranteeing payment of the Note.
Judge

2

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, 200B.
Defendant

later agreed further

to

forbear

rights under the Note and Deed of Trust
pursuant

to

a

May

2,

200 B Forbearance

from exercising
until

July 31,

Agreement

its

200B,

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, 200B.7
December

31,

Defendant agreed to forbear even longer, until

200B,

in

the

First

Amendment

to

Forbearance

Agreement. 8
After Gul f 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).

Gulf Coast,

On April 29,

2011, pursuant to an agreement of HUD,

and Defendant,

the Bankruptcy Court dismissed Gulf

Melinda Harmon of this Court last year entered a Final Judgment
against Salvagio on his personal guaranty.
Id., ex. I-C; Madison
Realty Capital, L.P. v. Salvagio, Civ. A. No. H-09-355B, 2011 WL
666507 (S.D. Tex. Feb. 14, 2011) (Harmon, J.).
6 Id., ex. I-A at 2; ex. I-D.
7

I d., ex. I - F .

8

Id.,

ex. I-G.

9 Plaintiff never made any principal or interest payments on
the Note after November 200B.
Id., ex. I-P.

3

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
2011 foreclosure sale. 11

(the "TRO")

enj oining the June 7,

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,

10

Document No. 10, ex. T.

11

Document No. 1, exs. B

12

Document No. 17.

13

Document No. 45, ex. 1-0.

&

C.

4

pursuant to

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. Crv. P. 15 (a) (2), 16 (b) (4)

Inc. v. Trendsetter Realty,
Tex. 2009)

(Rosenthal, J.)

LLC,

655 F.

i

see also RE/MAX Int'1,

Supp.

2d 679,

695

(S.D.

(finding that when a motion to file an

amended complaint comes after the deadline for such amendments, the
Court

first

instance,
Amended

looks

to Rule

16 and then to Rule

Plaintiff - -who already was
Complaint

amending- -has

not

after

the

shown good

allowed

December
cause

to

15,
file

to

2011,
yet

15).
file

a

Second

deadline
another

amendment nor has he shown that justice requires such.

5

In this

for

tardy

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,
Texas,

on March 30, 1970.

evidently 24 C.F.R.

The regulation upon which he relies,

200.85(a),

§

Harris County,

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

§

200.71;

/I

The regulation on its face constrains Plaintiff's conduct,
Defendant's.

not

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,
theory

of

his

2012,

lawsuit

two

and to allow Plaintiff to change the
months

afterward would

prejudicial and not serve the interests of justice.

6

~--"-'-----

be

unfairly

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 rej ected.

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.
Savagio unsuccessfully made the identical argument

Moreover,

that he now

wants to plead in this case when he sought to avoid liability on
his personal Guaranty of the Note.
theory as a matter of law.
666507, at *5, 7.

Judge Harmon rej ected his

See Madison Realty Capital,

2011 WL

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,
would be a futile amendment.

leaving Plaintiff $4 million richer,
For all of the foregoing reasons,

7

FED. R. CIV. P.

Plaintiff's Motion for Leave to Amend is DENIED.
16 (b) (4)

i

15 (a) (2) .
III.

A.

Summary Judgment

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

mat ter of law."
this

burden,

and the movant
FED. R. CIV. P.

is entitled to judgment as a

56 (a) .
to

the burden shifts

Once the movant carries
nonmovant

the

summary judgment should not be granted.

to

show that

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."

"A party asserting that

a

fact

cannot

genuinely disputed must support the assertion by:
particular parts of materials in the record .

(A)

be or is
citing to

., or (B) showing

that the materials cited do not establish the absence or presence
of a

genuine dispute,

or that

an adverse party cannot produce

admissible evidence to support the fact."

8

FED. R. CIV. P. 56 (c) (1).

"The court need consider only the cited materials,
consider other materials in the record."

but

it may

Id. 56 (c) (3)

In considering a motion for summary judgment,

the district

court must view the evidence "through the prism of the substantive
evidentiary burden."
2505, 2513 (1986).

Anderson v. Liberty Lobby, Inc., 106 S. Ct.

All justifiable inferences to be drawn from the

underlying facts must be viewed in the light most favorable to the
nonmoving party.

Matsushita Elec.

Corp.,

1348, 1356

106 S. Ct.

Indus.

(1986)

Co.

v.

Zenith Radio

"If the record, viewed in

this light, could not lead a rational trier of fact to find" for
the nonmovant, then summary judgment is proper.

Kelley v. Price-

Macemon, Inc., 992 F.2d 1408, 1413 (5th Cir. 1993).

On the other

hand, if "the factfinder could reasonably find in [the nonmovant' s]
favor, then summary judgment is improper."
B.

Id.

Objections to Summary Judgment Evidence
Defendant objects to several of the documents provided by

Plaintiff

as

summary

judgment

evidence. 14

responded to any of these objections.
Document Nos.

59-3,

59-4,

59-13,

Plaintiff

has

not

Defendant's objections to

59-14,

and 60

are

sustained.

Plaintiff did not authenticate any of these documents nor did he
provide a certified copy of the Assignment of Leases and Rents
(Document No. 59-3).

14

Defendant's objection to Document No. 59-II,

Document No. 69 at 2.
9

the Regulatory Agreement between HUD and Gulf-Coast, is overruled
because that document has the signature and seal of the Harris

See FED.

County Clerk, and thus appears to be self-authenticating.
R. Crv. P. 902.

Defendant does not provide any reason as to why the

Court should doubt the veracity of this document.
C.

Declaratory Judgment and Wrongful Foreclosure Claims
Plaintiff seeks a declaratory judgment

Trust

was

assigned

without

a

(1)

corresponding

underlying Note, and therefore is void;

that the Deed of

assignment

of

the

(2) that the Deed of Trust

is no longer enforceable because the statute of limitations barred
the claim on and after March 20,

2011;

and

(3)

that the Court

determine "who is the rightful and correct holder in due course of
the Note," contending that because DD 2010 Finance LLC, rather than
Defendant,

appears

to be

the holder of

the Note. 15

Plaintiff

further asserts a claim of wrongful foreclosure.
1.
In

Defendant's Right to Enforce the Note and Deed of Trust
response

to

Defendant's

Motion

for

Summary

Judgment,

Plaintiff offers no evidence sufficient to raise a fact issue and
makes no argument in support of his pleading that the Deed of Trust
is void because it was assigned without a corresponding assignment
of the underlying Note.

15

In his response to Defendant's Motion for

Document No. 42 at 4.
10

Summary Judgment,

Plaintiff says only that he

"incorporates by

reference as if fully set forth herein, the evidence and arguments
presented to the Court in its briefing submitted in support of its
application for temporary injunctive relief."

That evidence and

those arguments were thoroughly considered by the Court and were
found to be without merit in the Court's Order signed June 27,
2011.

The documents

in Defendant's summary judgment evidence,

which the Court also examined during the preliminary injunction
hearing,

demonstrate

that

Defendant

in April

2006

executed an

allonge to the Note to a third party as collateral for Defendant's
independent obligations to the third party, and later assigned the
Deed of Trust as additional collateral, to be reassigned to Madison
when Madison's obligations to the third party were fulfilled.

When

Madison had fulfilled those obligations, the third party and its
successor

in

Defendant.

interest
The

concurrence

and

third

executed
party

authority

allonges

to

the

Note

successor-in-interest,

of

DD

2010

(which

back

to

with

the

evidently

had

mistakenly received an assignment of the mortgage), also assigned
the mortgage back to Defendant,

which assignment

was

recorded

April 21, 2011.
Madison's pledging of the Note and Deed of Trust to secure its
own obligations,

after which

returned to Madison,
Madison.

did not

the Note
"void"

and Deed of

Trust

were

Plaintiff's obligations to

Although Texas law governs Madison's foreclosure under

11

the Deed of Trust,

as well as Plaintiff's causes of action,

the

Note by its express choice of law clause is to be "governed by, and
construed and enforced in accordance with, the internal laws of the
State of New York."
conditional

An indorsement as collateral constitutes a

assignment

(i.e.,

a

pledge)

under

New

York

law,

pursuant to which Madison, as the conditional assignor, or pledgor,
retained the right to enforce the Note.

See Miller v. Wells Fargo

Bank Intern. Corp., 540 F. 2d 548, 559 (2d Cir. 1976)
York law)
assignment

("Thus,
for

the essential feature of a valid 'conditional

purposes

collateral

(applying New

is

of

security'

retained by the

is

that

assignor

title

to

the

subject

to

his

performance of an independent obligation owed to the assignee.") i
Maloney v. John Hancock Mut. Life Ins. Co., 271 F.2d 609, 614 (2d
Cir.

1959)

(noting

that

"numerous

decisions

of

this

circuit

recognize the validity of conditional assignments under New York
law," and that such an assignment constitutes "a transfer by way of
security for a loan of claims to become payable in the future,
[and]

transfer

is

conditioned upon the

repayment of the loan

.") i

assignor's

default

and

accord Sheehan v. Mun. Light &

Power Co., 151 F.2d 65, 70 (2d Cir. 1945)

(applying New York law to

determine that a former holder of notes who had "endorsed the notes
in blank without recourse and pledged them to secure a loan" from
another party could, upon regaining possession of the notes from
the other party, properly bring suit upon them)

12

The

same

rule

applies

under Texas

law.

See

Randolph v.

Citizens Nat'l Bank of Lubbock, 141 S.W.2d 1030, 1034-35 (Tex. Civ.
App.--Amarillo 1940, writ dism'd judgm't cor.)
the pledgee of commercial paper holds

("As a general rule

it as a

trustee for the

pledgor and, as such trustee, it is his duty to collect it when it
becomes due

It does not follow, however, that the pledgor

is not permitted to collect the indebtedness, enforce the security
and file suit if necessary under an agreement with the pledgee
which entitles him to do so."); accord McAllen State Bank v. Tex.
Bank & Trust Co., 433 S.W.2d 167, 171 (Tex. 1968)

(stating elements

of a pledge of property, including that "possession of the pledged
property pass[es] from the pledgor to the pledgee," and that "legal
title of the pledged property remain[s] in the pledgor")

In sum,

Plaintiff has not raised a genuine issue of material fact,

and

argues no law, to support his claim that the Deed of Trust is void
by reason of its prior assignments as collateral for Madison's
third party obligations.

Likewise,

DD 2010 is the holder of the Note or,

there

is no evidence that

for that matter,

Note was ever assigned to such an entity.

that the

Accordingly, Defendant

is entitled to summary judgment denying Plaintiff's first and third
requests for declaratory judgment.

13

2.

Statute of Limitations

Plaintiff's remaining request for declaratory judgment is that
the Court declare that the Deed of Trust is no longer enforceable
because the statute of limitations expired on March 20, 2011, four
years after maturity of the Note.

Plaintiff has made no argument

in its response to Defendant's Motion for Summary Judgment on his
limi tations claim except to

"incorporate []

by reference,

as

if

fully set forth herein, the evidence and arguments presented to the
Court in its briefing submitted in support of its application for
temporary

injunctive

relief."

The

Court

considered at

length

Defendant's submissions at the hearing on preliminary injunction
and found

that

without merit.

Plaintiff's

statute

of

limitations

argument

is

It is uncontroverted that by letter agreement, at

Plaintiff's request, Madison agreed on March 30, 2007, to extend
the maturity date of the Note from March 20,
2008. 16

2007,

to March 20,

That document alone was sufficient to extend the statute

16 Plaintiff argued in the preliminary injunction hearing that,
because Madison's signature does not appear on the letter agreement
exhibited on Madison's letterhead, and even though Salvagio signed
it twice, both as Trustee for Gulf Coast and Individually, that the
extension was therefore not effective.
The summary judgment
evidence, however, is uncontroverted that Plaintiff accepted the
benefits of the extension letter and Plaintiff is estopped now to
reject it. See Eckland Consultants, Inc. v. Ryder, Stilwell Inc.,
176 S.W.3d 80, 87 (Tex. App.--Houston [1st Dist.] 2004, no pet.)
(Hanks, J.) (noting that "quasi -estoppel forbids a party from
accepting the benefits of a transaction and then subsequently
taking an inconsistent position to avoid corresponding obligations
or effects," and holding that the appellant, a party to a contract,
was estopped from arguing that another entity was neither a party

14

.

_._---_._----

of limitations date to March 20, 2012, well after the foreclosure
sale conducted on July 5,

2011.

Moreover,

it is uncontroverted

that Madison and Plaintiff entered into a First Amendment to Real
Estate Lien Note dated February 15, 2008, in which Plaintiff, among
other things,

expressly agreed that the Note and Loan Documents

continued in full force and effect and Plaintiff expressly ratified
and confirmed the same.

Further,

Madison and Plaintiff entered

into a forbearance agreement in which Madison agreed to forbear
from exercising its rights under the Note until July 31, 2008, in
order to give Gulf Coast an opportunity to obtain financing to pay
the loan;

and on or about July 31,

2008,

Madison and Plaintiff

entered into a First Amendment to Forbearance Agreement wherein
Madison agreed to extend its forbearance until December 31, 2008.
The Court finds from the uncontroverted summary judgment evidence
that

Madison

was

not

barred

by

the

four

years

statute

of

limitations from enforcing its rights under the Deed of Trust by
selling the Property at foreclosure on July 5, 2011.
3.

Wrongful Foreclosure

Plaintiff's wrongful foreclosure claim is premised upon the
"defect" that "Defendant possessed no legal authority to foreclose
the property" because Defendant pledged the Note and Deed of Trust

nor a third-party beneficiary of the contract where the appellant
"accepted the benefits of its contract" with respect to the other
party) .
15

to secure

for

a

while

its own third party obligations.

elements of a wrongful foreclosure claim are:
foreclosure

sale proceedings;

price;

(3)

and

a

(2)

a

(1) a defect in the

grossly inadequate selling

causal connection between the defect

grossly inadequate selling price."

"The

and the

Sauceda v. GMAC Mortg. Corp.,

268 S.W.3d 135, 139 (Tex. App.--Corpus Christi 2008, no pet.).
the reasons set forth above,

For

Defendant's pledge of the Note and

Deed of Trust to secure for a while its own third party obligations
did not

invalidate or

"void"

the Note and Deed of Trust,

nor

prevent Defendant from foreclosing in accordance with the terms of
those documents.

There is no summary judgment evidence to raise a

fact issue of any defect in the foreclosure sale proceeding and
hence,

no

causal

connection between a

grossly inadequate selling price.
whether

the

sales

price

at

defect

and

any

alleged

A separate issue is raised on

foreclosure

was

equivalent

to

the

Property's fair market value, but that question--even if sold for
a

grossly

inadequate

price--does

not

constitute

a

wrongful

foreclosure in the absence of some connection to a defect in the
foreclosure proceedings.
781, 788

See Terra XXI, Ltd. v. Harmon, 279 S.W.3d

(Tex. App.--Amarillo 2007, pet. denied)

("Evidence must

exist that the irregularity caused or contributed to the sale of
property for a grossly inadequate price
Ass'n of Houston v.

Musick,

ll

)

(citing Am. Sav. & Loan

531 S.W.2d 581,

Plaintiff's argument fails as a matter of law,

16

587

(Tex.

1975)).

and Defendant is

entitled

to

summary

judgment

denying

Plaintiff's

wrongful

foreclosure claim.
D.

Deficiency Judgment and Offset
Defendant moves for summary judgment on its counterclaim for

a deficiency judgment,

and Plaintiff replies that Gulf Coast is

entitled to an offset because the Property was sold for less than
its

fair

market

value

and

judgment for a deficiency.

that

fact

issues

preclude

summary

Texas law requires that:

If the court determines that the fair market value is
greater than the sale price of the real property at the
foreclosure sale, the persons against whom recovery of
the deficiency is sought are entitled to an offset
against the deficiency 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.
Tex. Prop. Code Ann.

§

51.003

(c)

(West 2007).17

Defendant provides evidence that on the date of foreclosure
sale the total principal due on the Note was $3,150,000.00,

the

total interest due was $2,112,266.68, for a total of $5,262,266.68,

17 Texas law governs this issue because under New York law,
\\[a] motion for deficiency judgment is part of, and not separate
from, the foreclosure action,
Steuben Trust Co. v. Buono, 677
N.Y.S.2d 852 (N.Y. App. Div. 1998), which action is governed by
Texas law under the terms of the Deed of Trust. Document No. 45,
ex. I-A at ~ 6; ex. I-b at ~ 15.
II

17

pI us

interest

testimony
includes

accruing. 18

supporting
attorneys'

Defendant

$127,889.31
fees

in

provides

collection

Defendant

.19

foreclosure for $1 million.

also

sold

affidavit

costs,

the

which

Property

at

For purposes of its motion for summary

judgment, however, Defendant asks the Court to find a fair market
value of $4.5 million.
Plaintiff's

The latter value is based on the opinion of

designated

expert,

whose

opinion

Defendant--not

Plaintiff--placed in the summary judgment record.

Defendant seeks

a deficiency based on the difference between a market value of
$4.5 million and an indebtedness,
$5,390,155.99,

including attorney's fees,

of

resulting in a claimed deficiency of $890,155.99,

plus accruing interest.
Plaintiff points

to evidence of

Sal vagio' s

estimated fair

market value of $5.5 million given by him under penalty of perjury
in Gulf Coast's bankruptcy proceeding on December 20, 2010.
Court,

when

it

denied

Plaintiff's

motion

for

This

preliminary

injunction, made a finding of fact that Plaintiff had reported the
Property to have that value, which is part of the record properly
considered on the present motion. 20

Valuation of real property is

inherently a fact question, and an owner ordinarily may express an
opinion on value.

See LaCombe v. A-T-O,

Inc.,

679 F.2d 431, 434

18

Document No. 45, ex.

19

Document No. 46, ex. I I .

20

Finding of Fact No. 33, Document No. 17, at 7, 8.

I

at 7-8, ex. I-P.

18

n. 4 (5th Cir. 1982)

("the testimony of an owner as to the value of

his property is admitted under the Federal Rules of Evidence under
Fed. R. Evid. 702").

It appears, therefore, that the fair market

value of the Property on the date of the foreclosure sale has not
been established as a matter of law.
There is also uncertainty--which concomitantly suggests fact
issues- -on the amounts of

indebtedness or obligations that are

secured by liens or encumbrances that were not extinguished by the
foreclosure.

See

§

51.003(c).

Defendant concedes that as of the

foreclosure date, even Madison itself "was not clear as to whether
HUD considered the Flex Subloans to be secured obligations under
HUD's first lien Deed of Trust or unsecured obligations of GCA to
HUD."

Document No. 45 at 20.
Given the presence of an inherently factual issue--which is

contested with at least some evidence--as to the fair market value
of the Property on the date of the $1 million foreclosure sale, and
the admitted unknowns as to whether roughly $2 million in HUD Flex
Subloans were secured or were unsecured obligations to HUD,
hence

whether

they were

extinguished by

the

foreclosure

and

sale,

Defendant/Counter-Plaintiff has not shown by uncontroverted summary
judgment evidence the specific amount of deficiency, after allowing
for any statutory offsets to which Plaintiff is entitled under
§

51.003(c), for which Defendant/Counter-Plaintiff is entitled to

judgment.

19

---_._----_._--_._--_._-------

E.

Wrongful Injunction: Claim on Bond
Plaintiff on June 6,

2011, obtained from the 125th Judicial

District Court of Harris County,

Texas,

a temporary restraining

order enjoining a foreclosure sale of the Property, the condition
for which was the deposit of a $3,000 Bond. 21

The Court is advised

by the Clerk of Court that Plaintiff filed a cash bond of $3,000
into the Registry of the State Court, and the District Clerk of
Harris County advises that the $3,000 cash bond remains in the
Registry and has accrued interest of $46.05.
wrongfully

issued

and

was

dissolved

when

The TRO proved to be
this

Plaintiff's motion for preliminary injunction. 22
however,

the

wrongfully

issued TRO

Court

denied

In the meanwhile,

issued by the

state

court

prevented Defendant from conducting its foreclosure sale posted for
June 7, 2011, which resulted in further delay, losses, and costs to
Defendant.

Because Plaintiff was not

entitled to a

temporary

restraining order, which Plaintiff caused to be wrongfully issued,
Defendant is entitled to recover the amount of the bond, and all
interest accrued thereon.
S.W.2d 670,

685-86

(Tex.

See DeSantis v. Wackenhut Corp.,

1990)

(superceded by statute on other

grounds) .

21

Document No. 47, ex. II-E.

22

Document No. 17.
20

..

793

__._-_ _--..

IV.

Order

For the foregoing reasons, it is
ORDERED that Plaintiff's Motion for Leave to Amend Complaint
(Document No.

58)

is DENIED i

Defendant Madison Realty Capital,

L.P.'s Motion for Summary Judgment

(Document No. 45)

is GRANTED,

except for the request for a deficiency judgment in the amount of
$890,155.99,

plus

accruing

interest i

and

Plaintiff

shall

TAKE

NOTHING and its claims are DISMISSED WITH PREJUDICE, except only
for its claim to an offset based upon TEX. PROP. CODE ANN.

§

51.003 (c)

as to the amount of Defendant's requested deficiency judgment.

It

is further
ORDERED that Counter-Plaintiff Madison Realty Capital, L.P.
shall have and recover the full cash bond in the sum of $3,000.00,
plus

all

interest

accrued

thereon,

which

Bond

was

filed

by

Plaintiff in the Registry of the 125th Judicial District Court of
Harris County, Texas,

in Cause No. 2011-33626, James D. Salvagio

and Fay M. Bourgeois,

as Trustees of Gulf Coast Arms v. Madison

Realty Capital,

William G.

L.P.,

Lawhon,

Stephen C.

Paine,

and

Beverly Veal, each as Substitute Trustees, where the Bond remains
on deposit, and the District Clerk of Harris County, Texas may rely
on this Order to pay over such cash Bond of $3,000.00 and all
accrued interest thereon to Defendant Madison Real ty Capital, L. P. ,
upon a proper receipt being given therefor.

21

Remaining for trial are the amount of the deficiency, if any,
to which Defendant/Counter-Plaintiff Madison is entitled to have
judgment against Plaintiff/Counter-Defendant, and the amount of the
offset, if any, to which Plaintiff may be entitled under TEX. PROP.
CODE ANN.

§

51.003 (c) .

These issues are ready to be tried,

Defendant has pending its Motion to Reset Docket Call
No. 80), which Plaintiff opposes.

and

(Document

After careful consideration of

the submissions, it is
ORDERED that Docket Call is RESET as follows:

Date:
Time:

October 12, 2012
4:00 p.m.

United States Courthouse
Courtroom 11D
515 Rusk Avenue
Houston, Texas 77002
The Clerk will enter this Order and provide a correct copy to
all parties.

J/)

711-_

SIGNED at Houston, Texas, on this ~ ~y of October, 2012.

WING WERLEIN, JR.
D STATES DISTRICT JUDGE

22

-