Cabot Capital Corporation and Cabot Estates, LLC, a Texas Limited Liability Company v. USDR, Inc. and John Robinson

Opinion

COURT OF APPEALS EIGHTH DISTRICT OF TEXAS EL PASO, TEXAS

CABOT CAPITAL CORPORATION and § CABOT ESTATES, LLC, No. 08-07-00202-CV § Appellants, Appeal from the § v. 96th Judicial District Court § of Tarrant County, Texas USDR, INC. and JOHN ROBINSON, § (TC# 096-203847-04) Appellees. §

OPINION

This is an appeal of a take-nothing judgment from a deficiency claim on secured loans

after foreclosure of real property, and a claim seeking equitable subrogation to tax liens upon

adjoining property for taxes paid in error by Cabot Capital to Tarrant County.

Appellant, Cabot Capital Corporation (“Cabot Capital”), is a California corporation that

acted as a loan servicing agent from November 2002 for certain lenders, which funded loans to

USDR, Inc. (“USDR”), a Nevada corporation licensed to do business in Texas. Cabot Estates,

LLC (“Cabot Estates”) is a Texas company, and is the successor in interest to the lenders and

current holder and owner of the notes made to USDR. USDR owned real property in Texas,

which was mortgaged to secure the loans. John Robinson is the majority shareholder, CEO, and

director of USDR. Mr. Robinson was guarantor for the loans made to USDR. All the loans had

matured by July 1, 2002, and at least one extension agreement was entered into. USDR did not

comply with the extension agreement by failing to make the March 2003 payment, and Cabot

Capital sent notice to USDR that it would foreclose on the property through nonjudicial foreclosure. Cabot Capital successfully bid $4,000,000 at the foreclosure sale on May 6, 2003.

USDR had failed to pay ad valorem taxes on the property, and Cabot Capital was required to pay

the amount due to halt foreclosure litigation that had been commenced by Mansfield Independent

School District and Tarrant County. While paying these taxes, Cabot Capital inadvertently paid

$8,380.06 after receiving a bill for past due taxes on a connected tract of land of 10.046 acres (the

“outparcel”), which was thought to be part of the mortgaged property. Cabot Capital discovered

the outparcel was not part of the mortgaged property after obtaining a complete survey of the

land. Cabot Capital inquired about receiving a refund for the mistakenly paid taxes, but would

not receive it until the taxes were paid by USDR. The trial court found that Cabot Capital was

entitled to be equitably subrogated to rights of the Tarrant County taxing authorities and their

liens on the outparcel. The trial court found USDR and Mr. Robinson owed Cabot Capital

$6,002,407.83 as of the date of foreclosure, and the property had a fair market value of

$7,609,800. The fair market value was reached by summing the value of the one building on the

property, $2,884,800 (72,120 sq. ft. × $40.00 per sq. ft.), and the value of the raw acreage,

$4,725,000 (135 acres × $35,000 per acre).

At trial, both sides produced appraisers to prove the value of the property. Jody Briggs, a

certified general real estate appraiser and member of the Appraisal Institute, was retained by the

Plaintiffs. In 2006, Mr. Briggs appraised the property for fee simple with an effective date of May

6, 2003. Mr. Briggs used the cost approach, the sales comparison approach, and the income

approach in valuing the property. Mr. Briggs did a retrospective appraisal and limited his

comparison sales to May through June of 2003. Mr. Briggs appraised the value of the property at

$3,500,000. Mr. Briggs testified that the property had significantly changed from the effective

-2- date of the appraisal to when he visited the site. There had been originally twelve buildings, but

when Mr. Briggs visited only one was left standing. Mr. Briggs was aware of the amount of the

foreclosure bid prior to appraising the property.

Ms. Misty Goodrich testified under subpoena for the Defendants. Ms. Goodrich is a

Texas certified general real estate appraiser, has a real estate broker’s license, and is a member of

the Appraisal Institute. Ms. Goodrich first appraised the property for Mr. Robinson in 1996. The

first appraisal is only for Building A in Research Park, which was the administrative building.

The appraisal value of the building by itself was $1,600,000. The second appraisal covered Phase

I of Research Park. The second appraisal valued the property at $8,050,000 on October 30,

1996. The second appraisal was a discounted present worth of the proposed property. The

second appraisal was of 161.5 acres of property. Plaintiffs’ objected to the admission of these

two appraisal reports based on relevancy and that the appraisals were not of the property at issue

since one was of a single building and the other included acreage that was no longer part of the

property at issue. Ms. Goodrich’s third appraisal was dated November 1, 2000 and was a

restricted use limited appraisal. The property was appraised using the sales comparison approach,

and using the income approach to analyze improved property. The appraisal covered 135.686

acres of land, and found a value range of $11,460,000 to $11,955,000. Ms. Goodrich’s fourth

appraisal was done for the purpose of developing an opinion of the market value of the leased fee

interest in the subject property as of September 1, 2001. The appraisal was conducted using the

sales comparison approach. The appraisal states the leased value of the property in use is

$7,437,000. However, Julie Seaman testified that the rent rolls used by Ms. Goodrich contained

incorrect dates, tenant names, and rental rates. The total value appraised was $11,500,000.

-3- Plaintiffs objected to this appraisal stating that the appraisal is too remote in time to be relevant,

and also the late production of the appraisal. The appraisal was produced three days before trial.

Ms. Goodrich testified on cross-examination that an appraisal nine and half years prior to

appraisal would not be a reliable indicator of value. Ms. Goodrich also testified that September

11, 2001 caused a significant negative impact on the economy and could have impacted her

opinion of the value.

Mr. Briggs testified in rebuttal to Ms. Goodrich’s testimony, and stated that the

comparable sales used were not comparable, and in fact were meaningless in comparison since the

other properties were in much more developed areas. Mr. Briggs also opined that the adjustments

made for the properties were improper. When asked by the trial court, Mr. Briggs testified the

building would be worth $35 to $40 per square foot in today’s dollars.

Marvin Donald Bergman, the president of Cabot Capital and manager of Cabot Estates,

testified that he had been involved with the USDR loans from the first one that was made.

Mr. Bergman believed the property to be worth $4,000,000 based on rental values of the

buildings, value of the land to be developed into residential property, and the costs to complete

the property based on the condition of the property at that time. It was also based on the county

tax appraisal value of $4,140,000 for 147 acres.

Mr. Robinson testified by way of having his deposition read in open court. Mr. Robinson

stated the property, had it not been foreclosed on, would have a market value of $11,406,000.

Plaintiffs objected to the lay opinion testimony. Mr. Robinson stated he did not know if he was

currently an officer of USDR, and did not believe he was currently the director of USDR.

Mr. Robinson stated that the county tax appraisals are not reliable, are usually two-thirds below

-4- what the price should be, and are always significantly lower than market values. When questioned

about when he acquired a stake in USDR, Mr. Robinson stated there were a number of USDR

companies and he was not sure which was which. He stated he has always been the majority

shareholder in all the companies. Mr. Robinson stated that his opinion was based on the appraisal

marked Deposition Exhibit 4, what the market was doing, what the property was like, and what

could be done with the undeveloped portion of the property. Defendant’s Exhibit 3 was admitted

during the testimony of Mr. Robinson based on Plaintiffs’ counsel referencing the appraisal

document during cross-examination. Mr. Robinson could not recall which tenants were still on

the property as of March 2003.

The trial court found no deficiency existed as a result of the foreclosure of the secured

property and entered a take-nothing judgment for the Plaintiffs. The trial court entered findings

of fact and conclusions of law. Plaintiffs moved to amend the court’s findings of fact and

conclusion of law and requested additional findings and conclusions, and filed a supplemental

request for additional findings and conclusions. These motions were overruled by the filing of the

judgment. Plaintiffs filed a motion to alter or amend the judgment and a motion for new trial,

which the trial court denied.

On appeal, Plaintiffs argue that the trial court erred: (1) as a matter of law in calculating

plaintiffs’ deficiency claim based on the court’s determination of market value of the mortgaged

property; (2) in admitting Defendants’ Exhibit 4 and permitting expert testimony on it; (3) as a

matter of law in granting the Defendants the benefit of Texas Property Code § 51.003 without

sufficient competent evidence; (4) in refusing to rule on Mr. Robinson’s waiver of the affirmative

defense under Texas Property Code § 51.003; (5) by finding a market value of the property that

-5- was against the great weight of the evidence; (6) in admitting the opinion testimony of

Mr. Robinson without any showing of competency under Texas Rule of Evidence 701; and (7) in

refusing to grant Plaintiffs an equitable lien on the outparcel.

We will address Issues Five and Six first. In Issue Five, Appellants argue the trial court’s

determination of market value of the mortgaged property was supported by no evidence, and in

the alternative, was against the great weight of the evidence. Findings of fact made by the trial

judge, sitting as the fact finder, are treated the same as findings from a jury. Anderson v. City of

Seven Points, 806 S.W.2d 791, 794 (Tex. 1991). Where the party with the burden of proof is

challenging the factual sufficiency of the findings, the appropriate complaint is that the adverse

findings are “against the great weight and preponderance of the evidence.” Tate v. Tate, 55

S.W.3d 1, 5 (Tex.App.--El Paso 2000, no pet.). When the party without the burden of proof

suffers an unfavorable finding, the challenge on appeal is one of “no evidence to support the

finding.” In re Estate of Livingston, 999 S.W.2d 874, 879 (Tex.App.--El Paso 1999, no pet.). A

no evidence, or legal insufficiency, point is a question of law which challenges the legal sufficiency

of the evidence to support a particular fact-finding. Serrano v. Union Planters Bank, N.A., 162

S.W.3d 576, 580 (Tex.App.--El Paso 2004, pet. denied). In reviewing a factual sufficiency point,

we must consider all of the evidence and determine whether the adverse finding was so against the

great weight and preponderance of the evidence that it was clearly wrong and unjust. Ortiz v.

Jones, 917 S.W.2d 770, 772 (Tex. 1996). An appellate court will sustain a legal sufficiency

challenge, if the records shows: (1) the complete absence of a vital fact; (2) that the court is

barred by rules of law or evidence from giving weight to the only evidence offered to prove a vital

fact; (3) that the evidence offered to prove a vital fact is no more than a scintilla; or (4) that the

-6- evidence establishes conclusively the opposite of the vital fact. City of Keller v. Wilson, 168

S.W.3d 802, 810 (Tex. 2005). We do not pass upon the witness’ credibility nor do we substitute

our judgment for that of the fact finder, even if evidence would clearly support a different result.

Maritime Overseas Corp. v. Ellis, 971 S.W.2d 402, 407 (Tex.), cert. denied, 525 U.S. 1017, 119

S.Ct. 541, 142 L.Ed.2d 450 (1998). In conducting a sufficiency review, we consider all the

evidence admitted at trial, even improperly admitted evidence. Moff v. State, 131 S.W.3d 485,

488 (Tex.Crim.App. 2004).

Fair market value is defined as the price the property will bring when offered for sale by

one who desires to sell, but is not obliged to sell, and is bought by one who desires to buy, but is

under no necessity of buying. City of Pearland v. Alexander, 483 S.W.2d 244, 247 (Tex. 1972).

In this case, the fair market value to be determined was the value of the property at the time of the

foreclosure. See TEX .PROP.CODE ANN . § 51.003(b), (c)(Vernon 2007). The burden of proof of

the fair market value was on Appellees since the offset under Texas Property Code § 51.003 is an

affirmative defense.

Mr. Briggs retrospectively appraised the value of the property at $3,500,000 at the time of

foreclosure. Ms. Goodrich provided four appraisals of the property. In her first appraisal,

Ms. Goodrich valued a building on the property to be worth $1,600,000. Her second appraisal,

which included a portion of the property that was subsequently sold, valued the property at

$8,050,000 on October 30, 1996. The third appraisal, which was a limited use appraisal, found a

value range of $11,460,000 to $11,955,000 on November 1, 2000. The fourth appraisal valued

the property at $11,500,000 as of September 1, 2001, but was based on incorrect rent rolls.

Ms. Goodrich’s fourth appraisal also showed comparable sales for $32,666-$35,081 per acre.

-7- Mr. Bergman testified he valued the property at the time of foreclosure to be $4,000,000.

Mr. Robinson testified that he believed the value of the property to be $11,406,000.

The trial court found the fair market value by summing the value of one building on the

property, $2,884,800, (72,000 sq. ft. × $40.00 per sq. ft.), and the value of the raw acreage,

$4,725,000 (135 acres × $35,000 per acre). Mr. Briggs had testified that in today’s dollars the

building would be worth thirty-five to forty dollars per square foot. The evidence conclusively

establishes that the trial court’s valuation was made using the value at the time of trial rather than

the market value at the time of foreclosure. Issue Five is sustained.

In Issue Six, Appellant argues the court erred in admitting opinion testimony of

Mr. Robinson without any showing of competency under Texas Rule of Evidence 701. Rule 701

states: “If the witness is not testifying as an expert, the witness’ testimony in the form of opinions

or inferences is limited to those opinions or inferences which are (a) rationally based on the

perception of the witness and (b) helpful to a clear understanding of the witness’ testimony or

determination of a fact issue.” TEX .R.EVID . 701. Appellants argue it was error for the court to

allow testimony from Mr. Robinson regarding the value of the mortgaged property. A property

owner is qualified to testify to the market value of his property. Redman Homes, Inc. v. Ivy, 920

S.W.2d 664, 669 (Tex. 1996). The testimony must indicate that the owner’s assessment is based

on the market and not on the intrinsic value of the property to him. Jabri v. Alsayyed, 145

S.W.3d 660, 667 (Tex.App.--Houston [14th Dist.] 2004, no pet.). The principal of a closely held

corporation may testify as to the value of land owned by the corporation. Maxey v. Texas

Commerce Bank of Lubbock, 571 S.W.2d 39, 46 (Tex.Civ.App.--Amarillo 1978, writ ref’d

n.r.e.). The sole shareholder and president of a closely held corporation has also been permitted

-8- to testify as to the value of property of a corporation. Bower v. Processor and Chemical Service,

Inc., 672 S.W.2d 30, 32 (Tex.App.--Houston [14th Dist.] 1984, no writ). Mr. Robinson was the

majority shareholder and sole director of USDR at the time of foreclosure. Mr. Robinson stated

the market value of the property was $11,406,000. This determination was based on knowledge

gained through experience in the purchase and sale of properties, review of privately

commissioned appraisals, and review of county tax appraisals. The opinion was based in part on

Ms. Goodrich’s limited use appraisal. The appraisal valued the properties using the leases that

were in existence at the time. The appraisal determined the property value to be $11,460,000.

However, Mr. Robinson also testified that he was not aware of which tenants were still on the

property and paying rent. When specifically questioned about USDR and the property,

Mr. Robinson could not recall the details. We find Mr. Robinson’s testimony should have been

excluded under Texas Rule of Evidence 701. Issue Six is sustained. Since Issues Five and Six are

dispositive, we do not address Appellants’ remaining issues. TEX .R.APP.P. 47.1.

We reverse the judgment of the trial court and remand for a new trial.

April 30, 2009 DAVID WELLINGTON CHEW, Chief Justice

Before Chew, C.J., McClure, and Rivera, JJ.

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