Salvagio et al v. Madison Realty Capital, L.P. et al, No. 4:2011cv02183 - Document 101 (S.D. Tex. 2012)
Court Description: 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)
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Salvagio et al v. Madison Realty Capital, L.P. et al Doc. 101 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, Dockets.Justia.com 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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