Villaje Del Rio, Ltd. v. Colina Del Rio LP et al

Filing 107

ORDER GRANTING 94 Motion for Summary Judgment on Claims for Fraudulent Conveyance. DBBM's counterclaims and third-party claims remain pending. Signed by Judge Xavier Rodriguez. (ep, )

In the United States District Court for the Western District of Texas
V IL L A J E DEL RIO, LTD. v. C O L IN A DEL RIO, LP, et al. § § § § §

Civil Action No. SA-07-CA-947-XR

ORDER O n this date the Court considered Defendant DB Berkshire Mortgage, I n c .'s Motion for Summary Judgment on Claims for Fraudulent Conveyance (d o c k e t no. 94). Summary of Facts T h e events leading to this lawsuit relate to a failed construction project a n d the subsequent bankruptcy of the project's owner and developer, Villaje Del R io , Ltd. ("Villaje"). The uncontroverted summary judgment evidence

e s ta b l is h e s the following. On February 13, 2003, Villaje executed a non-recourse d e e d of trust note in the amount of $26,747,700.00 payable to Berkshire M o r tg a g e Finance Limited Partnership, Defendant DB Berkshire Mortgage, I n c .'s (DBBM) predecessor ("Building Loan Agreement").1 The proceeds of the n o te were to be used to finance the construction of a large multi-use residential,

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Docket no. 94, Exh. 1.

o ffic e and retail development in San Antonio, Texas.2

The note was

u n d e r w r it t e n for project mortgage insurance by the Department of Housing and U r b a n Development ("HUD").3 Plaintiff George Geis 4 also personally loaned V illa je $1,500,000.00 to finance the project.5 V illa je agreed in the Building Loan Agreement to make monthly a p p l ic a t io n s for advances of mortgage proceeds from DBBM.6 Each application w a s to be for an amount roughly equal to the value of the work completed during t h e preceding month.7 On the same day, Villaje, DBBM, and Villaje's general c o n t r a c to r , Andres Holding Company ("Andres"), entered into a Construction L o a n Disbursement Agreement.8 The agreement established the specific process b y which Andres and Villaje would apply for advances of mortgage proceeds from D B B M . In essence, the agreement required Andres to prepare a Contractor's R e q u is it io n for Payment ("Contractor's Requisition") and to submit it to Villaje.

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See id. Id.

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George Geis, the sole principal of Villaje, purchased Villaje's claims from Villaje's trustee in bankruptcy. Geis thus assumed Villaje's position as the Plaintiff in this action. The fraudulent conveyance cause of action that is the subject of this Order, however, is asserted by Geis in his individual capacity as an unsecured creditor of Villaje.
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Docket no. 98, Exhs. 1, 1-A. Docket no. 94, Exh. 1.

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See id. ("Applications for advances with respect to construction items shall be for amounts equal to (i) the total value of classes of the work acceptably completed, plus (ii) the value of materials and equipment not incorporated in the work, but delivered to and suitably stored at the site; plus (iii) the value of components stored off-site in compliance with acceptable HUD requirements; less (iv) 10 percent (holdback) and less prior advances.").
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Id., Exh. 2.

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V i lla je was to prepare and sign an Application for Issuance of Mortgage Proceeds (" P r o c e e d s Application") and forward the application with the Contractor's R e q u is it io n to DBBM.9 DBBM would then review the forms, sign the Proceeds A p p lic a t io n , and advance the loan proceeds to Villaje.10 U n til approximately February of 2004, loan advances were made directly to a commercial bank account under the name "Villaje del Rio, Ltd."1 1 From this a cc o u n t, Villaje directed payment to Andres and other third parties, including G o ld b r ic k , Inc., Geis' construction company.1 2 After approximately February of 2 0 0 4 , DBBM began to advance loan proceeds through Alamo Title Company (" A la m o Title"), and Alamo Title subsequently disbursed the funds as directed b y Villaje and Andres.13 S o m e time after construction began, Villaje and Andres began to dispute p r o p o s e d variations to the construction plans and the amounts Andres was r e q u e s t i n g in its Contractor's Requisitions.1 4 Villaje claimed that the requests e x c e e d e d the value of work performed and contained requests for work for which A n d r e s had already billed and been paid.1 5 Villaje thus refused to approve the

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Id. Id. & Exhs. C, L. Id., Exh. L Id. Id.

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11

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See docket no. 18, Exh. K ¶¶ 4-6; Declaration of George Geis (docket no. 24) ("Geis Decl.") ¶ 4.
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Geis Decl. ¶ 4.

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r e q u e s ts or forward the requisitions to DBBM.1 6 As a result, DBBM ceased m a k in g loan disbursements, and Andres stopped receiving funds to cover its c o n s t ru c tio n costs.1 7 Geis claims that DBBM's representative eventually forced V illa je to approve Andres' requests by threatening otherwise to declare Villaje in default of the note and to transfer the note to HUD for foreclosure.1 8 V illa je subsequently approved multiple requests for funds from Andres, w h ic h Geis claims Villaje would not have approved but for the threat of default.1 9 S p e c ific a lly , Geis claims that the amounts requested continued to exceed the a m o u n ts for which Andres was entitled under the various contractual provisions w h ic h governed loan disbursements, threatening to put the loan "out of b a la n c e ."20 V illa je eventually terminated Andres from the project. 2 1 Villaje did not f i n d another general contractor, construction halted, Villaje failed to make r e q u ir e d interest payments on its loan, and DBBM declared Villaje in default of t h e note and assigned the note to HUD.2 2 HUD sold the note to Colina del Rio, L P ("Colina").2 3 Villaje eventually declared bankruptcy, and Colina foreclosed
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Docket no. 18, Exh. H at 283:6-11; Exh. K ¶¶ 5-6, 11. See id., Exh K ¶¶ 4-12, 17. Geis Decl. ¶¶ 5-6. Docket no. 18, Exh. K ¶¶ 15-19, 28; Geis Decl. ¶¶ 7, 9-10. Geis Decl. ¶¶ 4, 7, 9-10. Docket no. 18, Exh. K ¶ 26; Exh. 26. Docket no. 18, Exh. K ¶ 23, 26, 30; Exh. 33; Geis Decl. ¶ 11. Geis Decl. ¶ 11.

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o n the lien.24 Procedural Background P r io r to filing bankruptcy, Villaje instituted this lawsuit in state court, a s s e r tin g causes of action against multiple Defendants, including claims against D B B M for economic coercion and tortious interference of contract. 2 5 DBBM, in t u r n , asserted counterclaims against Villaje and third-party claims against G e o r g e Geis, Geis Construction, and Goldbrick, Inc. for fraud and misuse of f u n d s . DBBM also sued Geis under an alter-ego theory for the claims it asserts a g a in s t Villaje, Geis Construction, and Goldbrick, Inc. After Villaje declared b a n k r u p tc y , the case was removed to the bankruptcy court, wherein Geis p u r c h a s e d Villaje's litigation claims from Villaje's trustee in bankruptcy. The case eventually made its way to this Court, wherein Geis amended the c o m p la in t to assert, in his individual capacity as a creditor of Villaje, a claim a g a in s t DBBM for recovery of fraudulent conveyances under the Texas Uniform F r a u d u le n t Transfers Act (TUFTA), TEX. BUS. & COM. CODE §§ 24.001, et seq.2 6 G e is alleges that DBBM, by forcing Villaje to approve Andres's requests for p a y m e n ts , allowed Andres to be overpaid by more than $2.8 million, as m e a s u r e d by the percentage of construction Andres actually completed. Geis a s s e r ts that such overpayments constitute fraudulent conveyances under §

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Id.

On March 5, 2009, the Court granted summary judgment in favor of DBBM on these causes of action. See docket no. 82. Geis's motion to reconsider that ruling is pending before the Court. See docket no. 86.
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See Pl's First Am. Compl. (docket no. 31) ¶¶ 27-31.

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2 4 .0 0 5 (a )(2 ) because, by such payments, "Villaje incurred an obligation without V i lla je receiving reasonably equivalent value in exchange for the obligation, and V i lla je was engaged in a business or a transaction for which the remaining a s s e ts of Villaje were unreasonably small in relation to the business or t r a n s a c tio n , and/or Villaje incurred debts beyond its ability to pay as they b e c a m e due as a result of the obligations incurred to DBBM because there were n o t sufficient funds under the Note to complete construction." 2 7 Additionally, G e is asserts that such overpayments constitute fraudulent conveyances under § 24.006(a) because, by such payments, Villaje "failed to receive reasonably e q u iv a le n t value in exchange for the obligations incurred and/or ... the o b lig a tio n s were incurred at a time when Villaje became insolvent (in that it u lt im a te ly could not pay creditors as debts became due) as a result of the a d d i t io n a l obligations incurred." 2 8 Geis thus seeks judgment voiding such

o b lig a t io n s in an amount sufficient to pay Geis's unsecured claim against Villaje. T o summarize the claims pending in this action, Geis asserts claims for reco ve ry of fraudulent conveyances against DBBM. DBBM asserts

c o u n te r c la im s against Villaje and third-party claims against George Geis, Geis C o n s t r u c t io n , and Goldbrick, Inc. for fraud and misuse of funds. DBBM also s u e s Geis under an alter-ego theory for the claims it asserts against Villaje, Geis C o n s tr u c t io n , and Goldbrick, Inc.

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Id. ¶ 29. Id. ¶ 30.

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S u m m a r y Judgment Standard D B B M seeks summary judgment on Geis' fraudulent transfer claims. A s u m m a r y judgment movant must show by affidavit or other evidence that there is no genuine issue regarding any material fact. Celotex Corp. v. Catrett, 477 U .S . 317, 325 (1986). To establish that there is no genuine issue as to any m a te r ia l fact, the movant must either submit evidence that negates the e x is te n c e of some material element of the nonmoving party's claim or defense, o r , if the crucial issue is one for which the nonmoving party will bear the burden o f proof at trial, merely point out that the evidence in the record is insufficient to support an essential element of the nonmovant's claim or defense. Lavespere v . Niagra Machine & Tool Works, Inc., 910 F.2d 167, 178 (5th Cir. 1990), cert. d e n i e d , 510 U.S. 859 (1993). Once the movant carries its initial burden, the b u r d e n shifts to the nonmovant to show that summary judgment is in a p p r o p r ia te . See Fields v. City of S. Houston, 922 F.2d 1183, 1187 (5th Cir. 1 9 9 1 ). I n order for a court to conclude that there are no genuine issues of m a te r ia l fact, the court must be satisfied that no reasonable trier of fact could h a v e found for the nonmovant, or, in other words, that the evidence favoring the n o n m o v a n t is insufficient to enable a reasonable jury to return a verdict for the n o n m o v a n t. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 n.4 (1986). I n making this determination, the court should review all the evidence in the r e c o r d , giving credence to the evidence favoring the nonmovant as well as the

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" e v id e n ce supporting the moving party that is uncontradicted and unimpeached, a t least to the extent that evidence comes from disinterested witnesses" and d i s r e g a r d in g the evidence favorable to the nonmovant that the jury is not r e q u ir e d to believe. Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 1 5 2 (2000). A n a ly s is G e is seeks to avoid the obligations Villaje incurred to DBBM when DBBM m a d e successive disbursements of funds under the terms of the promissory note b e tw e e n June 21, 2004 and October 14, 2004.2 9 T h e Texas Uniform Fraudulent Transfers Act T h e purpose of TUFTA is to prevent debtors from defrauding creditors by p la c in g assets beyond their reach. Tel. Equip. Network, Inc. v. TA/Westchase P l a c e , Ltd., 80 S.W.3d 601, 607 (Tex. App.--Houston [1st Dist.] 2002, no pet.). T U F T A provides remedies to creditors of debtors who fraudulently transfer a s s e ts under certain circumstances. See TEX. BUS. & COM. CODE §§ 24.005-.006, .0 0 8 . In response to the motion for summary judgment, Geis contends that § 2 4 .0 0 6 ( a ) of the Texas Business & Commerce Code provides the appropriate c a u s e of action. Section 24.006(a) provides: A transfer made or obligation incurred by a debtor is fraudulent as t o a creditor whose claim arose before the transfer was made or the o b lig a t io n was incurred if the debtor made the transfer or incurred th e obligation without receiving a reasonably equivalent value in

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Docket no. 98 ¶5a.

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e x ch a n g e for the transfer or obligation and the debtor was insolvent a t that time or the debtor became insolvent as a result of the t r a n sfe r or obligation. Id . § 24.006(a). T h u s , in order to prove his claim under 24.006(a), Geis must show (1) his c la im arose before Villaje made the relevant transfers or incurred the relevant o b lig a tio n s ; (2) Villaje did not receive reasonably equivalent value in exchange fo r the transfers or obligations; and (3) Villaje was insolvent at the time of the t r a n s f e r s or obligations or became insolvent as a result of the transfers or o b lig a tio n s . Corpus v. Arriaga, No 01-07-00525-CV, 2009 WL 1493031, at *4 ( T e x . App.--Houston [1st Dist.] May 28, 2009, no pet h.). The parties dispute w h e th e r Villaje received reasonably equivalent value and whether Villaje was i n s o l v e n t at the time of the transfers or became insolvent as a result of the tr a n s fe r s . R e a so n a b ly Equivalent Value "TUFTA defines `reasonably equivalent value' as `without limitation, a t r a n s fe r or obligation that is within the range of values for which the transferor w o u ld have sold the assets in an arm's length transaction.' TEX. BUS. & COM. C ODE § 24.004. `Value is determined as of the date of the transfer.' Mladenka v. M la d e n k a , 130 S.W.3d 397, 407 (Tex. App.--Houston [14th Dist.] 2004, no pet.) (a n a ly z in g `reasonably equivalent value' in section 24.004) (citing In re Hinsley, 2 0 1 F.3d 638, 644 (5th Cir. 2000))." Corpus v. Arriaga, 2009 WL 1493031 at *5. G e is first contends that the issue of whether the debtor received

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r e a s o n a b ly equivalent value "is a jury question, which precludes entry of s u m m a r y judgment." While the issue is "largely a question of fact," In re Chase & Sanborn Corp., 904 F.2d 588, 593 (11th Cir. 1990), this does not preclude a c o u r t from deciding that issue on summary judgment where no genuine issue of m a t e r i a l fact exists. See, e.g., Yokogawa Corp. of America v. Skye Intern.

H o ld in g s , Inc., 259 S.W.3d 266, 271 (Tex. App.--Dallas 2005, no pet.) (affirming t r ia l court's grant of summary judgment in favor of defendant on issue of r e a s o n a b ly equivalent value). The Court may therefore consider whether

s u m m a r y judgment is appropriate on the issue of reasonably equivalent value. B e c a u s e Geis asserts in this action a fraudulent conveyance claim against D B B M , the Court analyzes the transfers Villaje made to DBBM and/or o b lig a t io n s it incurred to DBBM. It is undisputed that, in exchange for each of D B B M 's loan advances, Villaje incurred a corresponding obligation to repay the a m o u n t of the advance. It is also undisputed that, with each advance, DBBM o b t a in e d from Villaje a lien on the construction project in the amount of each lo a n advance. Thus, with each loan advance that Geis identifies, Villaje incurred a corresponding obligation of equal value and made a transfer ­ by creating a lie n 3 0 ­ of equal value. Villaje therefore received reasonably equivalent value in e x c h a n g e for each transfer made to DBBM and each obligation incurred. See, e . g ., First Nat'l Bank of Seminole v. Hooper, 104 S.W.3d 83, 84 ("[A]s a matter

As used in the TUFTA, "[t]ransfer means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, and creation of a lien or other encumbrance." TEX. BUS. & COM. CODE § 24.002(12).

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o f law, the value of an interest in an asset transferred for security is reasonably e q u iv a le n t to the amount of debt that it secures."); Yokogawa, 159 S.W.3d at 271 (" I n the securities and purchase agreement, Skye International, Moore, and T r o ja n agreed that $600,000 represented the fair market value of the loan. The v a lu e of the security interest granted to Moore and Trojan can be no more than $ 6 0 0 ,0 0 0 , the amount of the loan. See Hooper, 104 S.W.3d at 86. In total, Moore a n d Trojan loaned $600,000 to Skye International. Thus, Moore and Trojan gave r e a s o n a b ly equivalent value as a matter of law."). In discussing whether Villaje received reasonably equivalent value for e a ch obligation incurred or transfer made, the parties focus on whether and the e x t e n t to which the proceeds of each loan advance eventually were paid to A n d r e s in excess of the percentage of completion of the construction project. H o w e v e r , the parties' arguments analyze the wrong transfers. Specifically, the s u m m a r y judgment evidence indicates that Villaje and/or Alamo, and not D B B M , transferred to Andres loan proceeds received from DBBM, purportedly r e p r e s e n tin g the percentage of construction Andres completed during the p r e c e d in g month. To the extent Geis seeks to undo "overpayments" purportedly m a d e to Andres, he may have a cause of action against Andres, the transferee o f the purported fraudulent transfers.3 1 For purposes of this motion, however, t h e summary judgment evidence indicates merely that Villaje incurred

Indeed, Geis asserts a fraudulent transfer cause of action against Andres in another lawsuit. The claim is based on the same allegations as those that form the basis of Geis' claim against DBBM. See Geis v. Andres Holding Corp., Civil Action No. SA-09-CA-127-XR (W.D. Tex. filed April 6, 2009).

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o b lig a tio n s and made transfers to DBBM only in amounts Villaje received loan d is b u r s e m e n ts from DBBM. The uncontroverted summary judgment evidence thus indicates that V i lla je received reasonably equivalent value in exchange for the transfers made t o DBBM and the obligations incurred to DBBM. Therefore, summary judgment in favor of DBBM on Geis' fraudulent transfer claim is appropriate. Because t h is finding disposes of the cause of action, the Court need not consider the issue o f Villaje's solvency. C o n c lu s io n D e fe n d a n t 's Motion for Summary Judgment on Claims for Fraudulent C o n v e y a n c e (docket no. 94) is GRANTED. DBBM's counterclaims and thirdp a r ty claims remain pending. I t is so ORDERED. S I G N E D this 12th day of August, 2009.

_________________________________ X A V IE R RODRIGUEZ U N I T E D STATES DISTRICT JUDGE

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