George M. Lee v. Galleria Loop Note Holder LLC

CourtCourt of Appeals of Texas
DecidedAugust 24, 2023
Docket01-22-00160-CV
StatusPublished

This text of George M. Lee v. Galleria Loop Note Holder LLC (George M. Lee v. Galleria Loop Note Holder LLC) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
George M. Lee v. Galleria Loop Note Holder LLC, (Tex. Ct. App. 2023).

Opinion

Opinion issued August 24, 2023

In The

Court of Appeals For The

First District of Texas ———————————— NO. 01-22-00160-CV ——————————— GEORGE M. LEE, Appellant V. GALLERIA LOOP NOTE HOLDER LLC AND TIG ROMSPEN US MASTER MORTGAGE LP, Appellees

On Appeal from the 269th District Court Harris County, Texas Trial Court Case No. 2020-12442

MEMORANDUM OPINION

This declaratory judgment action arises from the foreclosure of two senior

liens on a commercial property and the subsequent foreclosure sale of the property

to the senior lienholder, which resulted in the extinguishment of appellant George M. Lee’s junior lien on the property. The trial court granted summary judgment

against Lee on his claims seeking declarations that the foreclosure sale was invalid

because the senior liens merged with title to the property prior to the foreclosure sale

and that the substitute trustee’s deed was defective and void. On appeal, Lee raises

three issues: (1) the trial court erred by granting summary judgment because a

genuine issue of material fact existed on his alter-ego merger claim and the summary

judgment motion did not address all parts of this claim; (2) Lee’s affidavit in support

of his summary judgment response constituted competent evidence and was not a

sham affidavit; and (3) the substitute trustee’s deed was defective and void, the

defects could not be cured by a correction deed, and the deed therefore conveyed

nothing. We affirm.

Background

The real property that is the subject of this appeal is a commercial building

located in Houston (the “subject property”). In 2012 and 2014, the owner of the

subject property, 1001 West Loop, LP (“1001 West Loop”), obtained loans from

MidFirst Bank secured by deeds of trust and liens on the property. These two liens

were the senior liens on the property.

In July 2014, Lee loaned nearly $3 million to 1001 West Loop secured by a

deed of trust and lien on the subject property. The deed of trust expressly

2 subordinated Lee’s lien to MidFirst Bank’s two senior liens. The deed of trust was

signed by Ali Choudhri as president of 1001 West Loop’s corporate general partner.

By May 2019, 1001 West Loop had defaulted on the MidFirst Bank loans.

Appellee Galleria Loop Note Holder LLC (“Galleria”) decided to purchase the

defaulted loans. On May 30, Galleria’s sole member, appellee TIG Romspen US

Master Mortgage LP (“Romspen”), issued a written resolution stating that Galleria

and Romspen had entered into a loan agreement with Choudhri, and Romspen

appointed Choudhri as the chief executive officer of Galleria and authorized him to

take action to execute and deliver the loan documents.1 In a May 30 letter to Galleria,

Romspen committed to loaning Galleria the funds necessary to purchase the senior

liens on the subject property. Choudhri signed the letter accepting the loan on behalf

of Galleria, and he personally guaranteed the loan. On May 31, Romspen issued a

promissory note to Galleria for $18,500,000. The parties also entered into an

assignment of leases and rents. Also on May 31, Romspen, Galleria, and Choudhri

entered into a membership interest option agreement granting Choudhri a call option

to purchase 100% of the membership interest in Galleria. Finally, on May 31,

Galleria purchased the senior liens from MidFirst Bank, effectively making Galleria

the senior lienholder on the subject property.

1 Although various individuals and entities were involved in the transactions relevant here, the only parties to these proceedings are Lee, Galleria, and Romspen.

3 The following month, in June 2019, Galleria foreclosed on the senior liens

and posted notice of a substitute trustee’s sale on the subject property. The sale was

eventually held on September 3, 2019. Galleria was the only bidder on the subject

property at the foreclosure sale, and the substitute trustee conveyed the property to

Galleria by a substitute trustee’s deed. The record indicates that at least two

correction deeds were also filed.

Hours after Galleria made its winning bid, Choudhri exercised the option to

purchase all of the membership interest in Galleria. The following day, Galleria and

Romspen entered into a deed of trust securing Romspen’s loan to Galleria with a

lien on the subject property. However, no proceeds remained from the foreclosure

sale to pay off the junior liens, including Lee’s lien, and those liens were therefore

extinguished. See Kothari v. Oyervidez, 373 S.W.3d 801, 807 (Tex. App.—Houston

[1st Dist.] 2012, pet. denied) (“Under Texas law, generally, if, after a valid

foreclosure of a senior lien, a junior lien is not satisfied from the proceeds of a sale,

then the junior lien is extinguished.”).

In February 2020, Lee filed suit against Galleria alleging that both 1001 West

Loop—the pre-foreclosure owner of the subject property—and Galleria—the pre-

foreclosure senior lienholder and post-foreclosure owner of the subject property—

were alter ego entities used by Choudhri to perpetrate fraud on the junior creditors

of loans secured by the subject property, including Lee. Lee sought two declaratory

4 judgments. First, he requested a declaration that the foreclosure sale of the subject

property was void because prior to the sale, Choudhri, through alter-ego entities,

owned both legal title to the subject property and equitable title as the senior

lienholder, and therefore the two titles merged together and extinguished the senior

liens leaving nothing to foreclose on. Consequently, Lee alleged that his lien

remained as the superior lien on the subject property. Lee also sought a declaration

that the substitute trustee’s deed was fatally defective, could not be corrected by

correction deed, and therefore did not convey legal title of the subject property to

Galleria.

Galleria filed an answer denying Lee’s claims. Galleria also asserted a

counterclaim against Lee for a declaration that he has no valid lien on the property.

Romspen filed a petition in intervention and an application for temporary and

permanent injunctions. See TEX. R. CIV. P. 60. Romspen asserted two causes of

action against Lee for trespass to try title and suit to quiet title. Romspen also

requested that the trial court enjoin Lee from attempting to foreclose on or cloud title

to the subject property.

Romspen filed a combined no-evidence and traditional motion for summary

judgment on all of Lee’s claims and its suit for quiet title. Romspen argued that Lee

lacked any valid interest in the subject property because his lien had been

extinguished pursuant to a valid substitute trustee’s sale of the property following

5 foreclosure. It also argued that Lee had no evidence of several elements of the merger

doctrine or evidence that Choudhri used any entity as an alter ego. It further argued

that the alleged defects in the substitute trustee’s deed did not invalidate the

conveyance to Galleria. Finally, Romspen argued that it was entitled to summary

judgment on its suit to quiet title.

Romspen attached numerous documents in support of its motion. It attached

an affidavit from Wesley Roitman, the vice president of Romspen’s corporate

general partner, describing the details of the transactions in dispute here. Roitman

averred that Romspen financed Galleria’s purchase of the senior liens from MidFirst

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