1001 McKinney Ltd. v. Credit Suisse First Boston Mortgage Capital, Credit Suisse First Boston LLC, Situs, Inc., Situs Capital Services, Inc., Situs Realty Services, Inc., and Situs Servicing Inc.

• Court: Court of Appeals of Texas
• Decided: November 23, 2005
• Docket: 14-04-00844-CV
• Status: Published

Opinion

Reversed and Remanded in Part; Affirmed in Part; Majority and Concurring and Dissenting Opinions filed November 23, 2005

Affirmed in Part, Reversed and Remanded in Part, and Majority and Concurring and Dissenting Opinions filed November 23, 2005.

In The

Fourteenth Court of Appeals

____________

NO. 14-04-00844-CV

1001 McKINNEY LTD., Appellant

V.

CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL,

CREDIT SUISSE FIRST BOSTON LLC, SITUS, INC.,

SITUS CAPITAL SERVICES, INC., SITUS REALTY SERVICES, INC.,

AND SITUS SERVICING INC., Appellees

On Appeal from the 165th District Court

Harris County, Texas

Trial Court Cause No. 01-62097

M A J O R I T Y   O P I N I O N

Appellant, 1001 McKinney, Ltd., filed suit against Credit Suisse First Boston LLC and Situs Services to enforce an alleged oral loan agreement.  The trial court granted summary judgment in favor of Credit Suisse First Boston and the Situs defendants.  We reverse and remand in part and affirm in part.

I.  Background

In the late 1990's, Larry Levine formed a partnership to renovate a downtown office building at 1001 McKinney.  He named the partnership 1001 McKinney, Ltd. (the partnership).  To fund the renovation, the partnership sought and obtained a loan in excess of $39 million from Credit Suisse First Boston (CSFB).^[1]  The $39 million represented ninety percent of the funds needed to renovate the building.  The remaining ten percent was provided by the individuals who made up the partnership.

In the process of renovation, the partnership discovered it needed an additional $7.5 million to complete the project.  The partnership asserts the additional funds were needed to build extra office and retail space on the lower floors of the building.  Levine and other representatives of the partnership met with Tony Poll and Mark Finerman of CSFB and discussed the partnership=s need for additional funds.  In his affidavit before the trial court, Levine stated that Poll and Finerman told him CSFB had Ano problem@ lending additional funds to the partnership.  According to Levine, at a meeting in Las Vegas in November 1999, Poll and Finerman promised that CSFB would fund an additional $6.75 million and that the loan would be documented by January.  In January, 2000, CSFB informed the partnership it would not lend the additional $6.75 million.

The partnership subsequently filed suit against CSFB Mortgage Capital, the entity that funded the original loan; CSFB LLC, its affiliate; and the Situs companies.  The partnership alleged causes of action for (1) statutory and common law fraud, (2) civil conspiracy, (3) negligent misrepresentation, and (4) breach of oral contract.  In its third amended petition, the partnership added a plea of promissory estoppel.

CSFB and the Situs defendants filed a motion for summary judgment in which they asserted that the statute of frauds codified in section 26.02 of the Texas Business and Commerce Code bars enforcement of the oral agreement as a matter of law.  In its reply to the partnership=s response, CSFB added the contention that the one-year statute of frauds codified in section 26.01(b)(6) of the Business and Commerce Code also barred enforcement of the oral agreement.  The trial judge denied the motion for summary judgment. 

Before trial, CSFB filed a motion for reconsideration of its prior motion for summary judgment.  In that motion, CSFB renewed its argument that sections 26.01 and 26.02 of the Texas Business and Commerce Code barred enforcement of the agreement.  The trial court granted summary judgment in favor of CSFB and Situs as follows:

Defendant=s Motion for Summary Judgment is GRANTED as to Defendant Credit Suisse First Boston Mortgage Capital because Texas Bus. & Com. Code ' 26.02, and ' 26.01(b)(6) bars [sic] Plaintiff=s action.

Defendants= Motion for Summary Judgment is GRANTED as to Defendant Credit Suisse First Boston LLC because there is no evidence that any actions were taken by an agent or representative of, at the direction of, or on the behalf of Credit Suisse First Boston LLC.

Defendants= Motion for Summary Judgment is GRANTED as to Defendants Situs, Inc., Situs Capital Services, Inc., Situs Realty Services, Inc., and Situs Servicing Inc.

Appellant does not appeal the judgment in favor of the Situs defendants.

II.  Standard of Review

Under the traditional standard for summary judgment, the movant has the burden to show there is no genuine issue of material fact and that judgment should be granted as a matter of law. Tex. R. Civ. P. 166a(c); KPMG Peat Marwick v. Harrison County Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999).  In reviewing a grant of summary judgment, we take as true all evidence favorable to the nonmovant and make all reasonable inferences in the nonmovant=s favor.  Nixon v. Mr. Property Mgmt. Co., 690 S.W.2d 546, 549 (Tex. 1985). A defendant, as movant, is entitled to summary judgment if it (1) disproves at least one element of the plaintiff's theory of recovery or (2) pleads and conclusively establishes each essential element of an affirmative defense, thereby rebutting the plaintiff=s cause of action.  Am. Tobacco Co. v. Grinnell, 951 S.W.2d 420, 425 (Tex. 1997).

A no‑evidence motion for summary judgment is proper when there is a complete absence of evidence of one or more essential elements of a claim or defense on which an adverse party has the burden of proof at trial.  Tex. R. Civ. P. 166a(i); Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193, 207 (Tex. 2002).

III.  Summary Judgment Grounds

In its first sub-issue, appellant contends the trial court erred in granting summary judgment on a ground that was not expressly presented in the motion for summary judgment.  Appellant contends appellees did not raise the issue of the one-year statute of frauds found in section 26.01(b)(6) in their motion for summary judgment.  Appellees raised the issue of the one-year state of frauds in their reply to the appellant=s response to motion for summary judgment and in the motion for reconsideration. 

Rule 166a requires the motion for summary judgment to state the specific grounds therefor, and the moving party is entitled to judgment as a matter of law on the issues expressly set out in the motion or in an answer or any other response.  Tex. R. Civ. P. 166a(c).  A motion for summary judgment must itself expressly present the grounds upon which it is made.  McConnell v. Southside Ind. Sch. Dist., 858 S.W.2d 337, 341 (Tex. 1993).  In the absence of the nonmovant=s consent, a movant may not raise a new ground for summary judgment in a reply to the nonmovant=s response.  Sanders v. Capitol Area Council, 930 S.W.2d 905, 911 (Tex. App.CAustin 1996, no writ).

Appellees contend appellant had actual notice of the ground twenty-one days in advance of submission of the motion for reconsideration.  Notice, however, is not the only purpose behind the supreme court=s strict interpretation of Rule 166a(c).  The standard set forth in McConnell does not require a showing that the nonmovant was given appropriate notice or that the opposing party was misled concerning the grounds for summary judgment.  Coastal Cement Sand Inc. v. First Interstate Credit Alliance, Inc., 956 S.W.2d 562, 566 (Tex. App.CHouston [14th Dist.] 1997, pet. denied).  The standard is simply whether the grounds are explicitly stated in the motion itself.  Id.  Accordingly, the judgment of the trial court is incorrect in that it recites section 26.01(b)(6) as a bar to appellant=s action.  Because appellees did not raise section 26.01(b)(6) as a bar in their motion for summary judgment, we will address only the trial court=s ruling that section 26.02 bars appellant=s action.^[2]   

IV.  Statute of Frauds

Appellant contends that the trial court erred in granting summary judgment on the ground that the statute of frauds prevents enforcement of the alleged loan agreement.  The trial court found that sections 26.02 and 26.01(b)(6) of the Texas Business and Commerce Code bar appellant=s claim against CSFB Mortgage Capital.             Section 26.02(b) states: AA loan agreement in which the amount involved in the loan agreement exceeds $50,000 in value is not enforceable unless the agreement is in writing and signed by the party to be bound or by that party=s authorized representative.@  Tex. Bus. & Com. Code Ann. ' 26.02(b).  Loan agreement is defined as:

one or more promises, promissory notes, agreements, undertakings, security agreements, deeds of trust or other documents, or commitments, or any combination of those actions or documents, pursuant to which a financial institution loans or delays repayment of or agrees to loan or delay repayment of money, goods, or another thing of value or to otherwise extend credit or make a financial accommodation.

 Tex. Bus. & Com. Code Ann. ' 26.02(a)(2).  Because the alleged oral promise of Poll and Finerman to lend $6.75 million constitutes a loan agreement that exceeds $50,000, the trial court found the agreement unenforceable. 

Appellant contends that section 26.02 does not apply to this transaction because A[t]he CSFB Defendants are not >financial institutions=@ as defined in the statute.  Financial institution is defined as:

a state or federally chartered bank, savings bank, savings and loan association, or credit union, a holding company, subsidiary, or affiliate of such an institution, or a lender approved by the United States Secretary of Housing and Urban Development for participation in a mortgage insurance program under the National Housing Act (12 U.S.C. Section 1701 et seq.).  

Tex. Bus. & Com. Code Ann. ' 26.02(a)(1).  Appellant contends that appellees failed to prove that they are chartered by a United States federal or state banking authority or approved by the Department of Housing and Urban Development (HUD) for participation in a mortgage insurance program under the National Housing Act.

In their reply to appellant=s response, appellees attached the affidavit of Thomas M. Zingalli, the director in the Controller=s Division of CSFB LLC.  In his affidavit, Zingalli stated that the Controller=s Division maintains the books and records of CSFB, including information regarding licenses and government approvals held by CSFB and its related companies.  Zingalli stated that he had been an employee of CSFB since 1985 and that during his tenure as director in the Controller=s Division he became familiar with the licenses and government approvals held by CSFB.  Zingalli stated that during the time period from at least June 1998 through June 19, 2001, CSFB Mortgage Capital LLC was approved by the United States Department of Housing and Urban Development as a lender in the HUD/FHA Title I program and as a mortgagee in the HUD/FHA Title II program.  Zingalli further listed the HUD Mortgagee numbers for CSFB.  Attached to Zingalli=s affidavit was a letter from the director of the Lender Approval and Recertification Division of the Department of Housing and Urban Development in which the director certified that CSFB Mortgage Capital LLC was a HUD/FHA approved mortgagee or lender as of August 16, 1984, and that approval remained in effect as of the date of the letter, which was June 19, 2001.

Appellant argues that (1) appellee=s summary judgment proof shows no approval by the secretary of HUD, (2) Zingalli=s affidavit is conclusory, and (3) the letter from HUD is hearsay.  On motion for summary judgment, appellant did not raise the issue of approval by the secretary of HUD.

A.  Zingalli Affidavit

Appellant contends that appellees= summary judgment proof was insufficient to show that CSFB is a financial institution because Zingalli=s affidavit is conclusory.  Rule 166a(f) requires that Asupporting and opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein.@  Tex. R. Civ. P. 166a(f).  Conclusory statements in an affidavit unsupported by facts are insufficient to support or defeat summary judgment.  Wadewitz v. Montgomery, 951 S.W.2d 464, 466 (Tex. 1997).  A conclusory statement is one that does not provide the underlying facts to support the conclusion.  Rizkallah v. Conner, 952 S.W.2d 580, 587 (Tex. App.CHouston [1st Dist.] 1997, no writ).

Zingalli=s affidavit is sufficiently supported by underlying facts to show that CSFB is a financial institution within the meaning of section 26.02.  Zingalli established that he had personal knowledge that CSFB Mortgage Capital was approved by HUD as a lender in the mortgage insurance program under Titles I and II of the National Housing Act.  Zingalli=s personal knowledge resulted from his employment as director of the Controller=s Division of CSFB, which keeps records of all licenses and government approvals held by CSFB.  Zingalli listed HUD mortgagee license numbers for CSFB.  Zingalli also attached the letter from HUD as further support of his knowledge.  Zingalli=s affidavit was sufficient to establish that CSFB Mortgage Capital is a financial institution.  It is not conclusory; rather, it contains logical conclusions based on underlying facts.

B.  HUD Letter

Appellant challenges the letter from HUD as improper summary judgment proof because it is hearsay.  Appellees respond that the letter is admissible under the public records exception to the hearsay rule.  The public records exception to the hearsay rule provides, among other things: ARecords, reports, statements or data compilations, in any form, of public offices or agencies setting forth (A) the activities of the office or agency ....@ are not excluded by the hearsay rule.  Tex. R. Evid. 803(8).  Rule 803 (8) does not require a formal predicate to be laid through a witness, but the offered document must be shown to satisfy the requirements of the rule.  State v. Foltin, 930 S.W.2d 270, 272B73 (Tex. App.CHouston [14th Dist.] 1996, writ denied).

The HUD letter is admissible as an exception to the hearsay rule because it meets the threshold requirements of Rule 803(8).  First, the record reflects the letter from HUD is a report Asetting forth the activities of the office or agency.@  Second, the circumstances do not indicate a lack of trustworthiness.  Rule 803(8) creates a presumption of admissibility, with the burden being placed on the party opposing the admission of the report to show its untrustworthiness.  Beavers v. Northrup Worldwide Aircraft Services Inc., 821 S.W.2d 669, 675 (Tex. App.CAmarillo 1991, writ denied).  The trial judge=s ruling on the tender of such a report is reviewed under an abuse of discretion standard.  Id. 

Appellant contends that the letter lacks trustworthiness because it appears to have been created for purposes of litigation.  We disagree with this characterization.  The letter is dated June 19, 2001, almost six months before the filing of appellant=s suit in December 2001.  Further, the question of whether appellees were financial institutions within the meaning of the statute of frauds was not raised until appellant=s response to the motion for summary judgment filed September 15, 2003.  The record does not support the contention that the letter was created for the purpose of this litigation.  Therefore, the trial court did not abuse its discretion in admitting the HUD letter under the public records exception to the hearsay rule.  The uncontroverted evidence establishes that the Department of Housing and Urban Development approved CSFB Mortgage Capital for participation in programs under the National Housing Act.

C. The Alleged Loan Agreement

Appellant alleges that Poll and Finerman were employees of CSFB LLC at the time they made the oral promise to lend $6.75 million.  Appellant argues that because appellees presented evidence that CSFB Mortgage Capital is a financial institution, but not CSFB LLC, the statute of frauds does not apply to CSFB LLC. 

Levine stated in his affidavit that Poll and Finerman agreed to lend the additional funds with terms similar, if not identical, to the original loan agreement.  It is undisputed that the original loan was funded by CSFB Mortgage Capital.  There is no evidence that any representative of appellant thought the loan would be funded by CSFB LLC.   Because the alleged agreement was oral, the statute of frauds prohibits proof of the agreement.  See Tex. Bus. & Com. Code Ann. ' 26.02(b).  Therefore, summary judgment on the breach of oral contract cause of action is appropriate as to all defendants.

V.  Tort causes of action

In addition to breach of the oral contract, appellant alleged statutory fraud, negligent misrepresentation, and conspiracy causes of action.  Appellant contends even if the statute of frauds prohibits enforcement of the alleged oral agreement, it can maintain the tort causes of action.

To determine whether the tort actions can be maintained, we look to the substance of the cause of action rather than the manner in which it was pleaded.  Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 617B18 (Tex.1986).  Tort obligations are those imposed by law when a person breaches a duty that is independent from promises made between the parties to a contract; contractual obligations are those that result from an agreement between parties, which is breached.  Southwestern Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494 (Tex. 1991).  If the defendant=s conduct would give rise to liability only because it breaches the parties= agreement, the plaintiff=s claim ordinarily sounds only in contract.  Id.  If the defendant=s conduct would give rise to liability independent of the fact that an agreement exists between the parties, the plaintiff=s claim may also sound in tort.  Id.

Each tort claim alleged in appellant=s petition arises from the alleged oral agreement.  When the injury is only the economic loss to the subject of the contract itself, the action sounds in contract alone.  Reed, 711 S.W.2d at 617B18.  Where, as here, a plaintiff is seeking to recover what he would have gained had the promise been performed, the gist of his cause of action is the breach of the promise.  Haase v. Glazner, 62 S.W.3d 795, 799 (Tex. 2001).  Because appellant=s tort causes of action for statutory fraud, negligent misrepresentation, and conspiracy arise from the alleged oral agreement, summary judgment on those claims is proper.

VI. Promissory Estoppel

Appellant contends that appellees are estopped from claiming the statute of frauds as a defense to their breach of contract claim because Poll and Finerman promised to prepare and sign written agreements to document the new loan.  For promissory estoppel to create an exception to the statute of frauds, there must have been a promise to sign a written agreement that had been prepared and that would satisfy the requirements of the statute of frauds.  Nagle v. Nagle, 633 S.W.2d 796, 800 (Tex. 1982).  It is the promise to sign a written agreement or enter into a written agreement that is determinative.  Southmark Corp. v. Life Investors, Inc., 851 F.2d 763, 769 (5th Cir. 1988).  Promissory estoppel sufficient to remove a contract from the statute of frauds requires that the promisor agree to sign a document that had already been prepared or Awhose wording had been agreed upon@ that would satisfy the statute of frauds.  Id. at 766.  A mere promise to prepare a written contract is not sufficient.  Beta Drilling, Inc. v. Durkee, 821 S.W.2d 739, 741 (Tex. App.CHouston [14th Dist.] 1992, writ denied).

Here, Levine testified that Poll and Finerman promised to make the additional loan under the same terms as the original loan.  Poll and Finerman promised to prepare and sign written agreements to document the new loan.  No documents were prepared.  Further, Levine testified in his deposition that the parties never agreed on the wording of the loan document.  Appellant presented no evidence that a written agreement had been prepared or that the parties had agreed on the wording of the agreement.  Therefore, appellant failed to raise the essential elements of its claim of estoppel.

VII.  Common Law Fraud

Appellant also asserted a cause of action for common law fraud.  Appellant contends its fraud claim may not contravene the statute of frauds to the extent it seeks out-of-pocket damages incurred in reliance on appellees= alleged misrepresentations.  See Haase, 62 S.W.3d at 799.  In its petition, appellant alleges it continued to renovate the building and enter into lease agreements in reliance that appellees would lend the additional $6.75 million.  The summary judgment record reveals the partnership relied on the alleged promise to lend additional funds and continued construction of the entire available office and retail space in the building.  Reliance damages, such as money spent on additional construction, are not part of the benefit of the alleged bargain between the parties.  See Haase, 62 S.W.3d at 800. (holding that despite the fact that the statute of frauds prevents enforcement of the agreement, a plaintiff can recover out-of-pocket damages incurred in reliance on the alleged false representation).  Therefore, appellant raised a fact issue with regard to recovery of out-of-pocket damages incurred in reliance on the alleged misrepresentation.

To prevail on its fraud claim, appellant must show that it actually and justifiably relied on the representation and thereby suffered injury.  Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001).  Appellees contend that even if appellant can show reliance damages, it cannot show that it justifiably relied on the alleged promises made by Poll and Finerman.  Appellees argue that Levine and his partners were sophisticated developers and knew that any oral loan agreement would not be enforceable.  Appellant, on the other hand, presented summary judgment proof that it had a business relationship with appellees and was justified in relying on the alleged promise to fund the additional loan.

In the context of common law fraud, courts have uniformly treated the issue of justifiable reliance as a question for the factfinder.  Coston v. Bank of Malvern, 991 F.2d 257, 260 (5th Cir. 1993); Hall v. Harris County Water Control & Improvement Dist. No. 50, 683 S.W.2d 863, 868  (Tex. App.CHouston [14th Dist.] 1984, no writ) (whether plaintiff reasonably relied on promise is generally a question of fact).  In this case, appellant presented evidence that it relied on appellees= promise by leasing office space and entering into agreements with tenants for improvements that could not otherwise be made without the additional funding.  Appellees, on the other hand, presented evidence that appellant is a sophisticated developer and was not justified in relying on an oral promise to lend money.  The question of justifiable reliance depends heavily on the relationship between the parties and their relative sophistication. 

Viewing the facts most favorably to appellant, we believe that a genuine issue of material fact exists as to whether appellant reasonably relied to its detriment on appellees= promises.  Any justifiable reliance the jury may find on retrial stems from the verbal representation made in Las Vegas in November, 1999.  Therefore, on remand, out-of-pocket damages are limited to those expenses incurred between the date of the alleged oral agreement in November 1999 and the date in January 2000 when appellees informed appellant they would not fund the loan.  Therefore, to the extent appellant seeks out-of-pocket damages that occurred after the alleged oral agreement to lend additional money, in reliance on the alleged oral promise, summary judgment is not proper.

VIII.  Conclusion

Under the facts of this case, to the extent that appellant seeks to recover the benefit of the bargain damages related to an alleged oral agreement that is unenforceable under the statute of frauds, the statute bars appellant=s tort and contract causes of action.  Appellant=s common law fraud claim for out-of-pocket damages incurred in reliance on the alleged promise survives the statute of frauds.  Accordingly, we reverse the trial court=s judgment insofar as it finds the statute of frauds precludes appellant=s fraud claim for out-of-pocket damages and remand to the trial court for proceedings consistent with this opinion.  We affirm the summary judgment with regard to appellant=s remaining causes of action.

/s/        Adele Hedges

Chief Justice

Judgment rendered and Majority and Concurring and Dissenting Opinions filed November 23, 2005.

Panel consists of Chief Justice Hedges, Justice Frost, and Senior Chief Justice Murphy.^[3]  (Frost, J., concurring and dissenting.)

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^[1]  Credit Suisse First Boston Mortgage Capital funded the loan.

^[2]  Appellees contend appellant waived any error in the judgment by failing to advise the trial court that it had granted summary judgment on grounds that were not presented in the motion.  For this proposition, appellees cite GXG, Inc. v. Equitable Bank, 1997 WL 51210 (Tex. App.CDallas 1997, no writ), in which the court of appeals held that a trial court=s granting of more relief than requested in the motion for summary judgment is not fundamental error and is waived unless raised in the trial court.  Appellees have not cited, nor have we been able to find, any other court that has followed the reasoning in GXG.  The supreme court found in McConnell that a non-movant is not required to except to a movant=s failure to assert specified grounds in the motion for summary judgment.  858 S.W.2d at 342.  We therefore decline to require such an exception.

^[3]  Senior Chief Justice Paul C. Murphy sitting by assignment.