Kenneth Dougherty v. Trustmark National Bank

• Court: Court of Appeals of Texas
• Decided: June 17, 2014
• Docket: 01-13-00474-CV
• Status: Published

Opinion

Opinion issued June 17, 2014

In The

Court of Appeals For The

First District of Texas ———————————— NO. 01-13-00474-CV ——————————— KENNETH DOUGHERTY, Appellant V. TRUSTMARK NATIONAL BANK, Appellee

On Appeal from the 333rd District Court Harris County, Texas Trial Court Case No. 2011-29227

MEMORANDUM OPINION

Appellant Kenneth Dougherty sued appellee Trustmark National Bank,

alleging that Trustmark wrongfully foreclosed on a third-party’s property in which

Dougherty had a superior security interest. The trial court granted summary

judgment in Trustmark’s favor. We affirm. BACKGROUND

This dispute involves loans made at different times by different parties to

different parties, but secured by the same collateral.

A. March 2008 Loans from Dougherty to DeArmas

On March 26, 2008, Brian DeArmas executed a note in the amount of

$292,800 payable to appellant Dougherty (“Dougherty Note 1”). On March 26,

2008, DeArmas executed a security agreement pledging certain items as collateral

for this note, which included equipment, machinery, vehicles, tools, and proceeds

of such property. In that security agreement, DeArmas represented, among other

things, that “Debtor owns the Collateral and has the authority to grant this security

interest.” On March 27, 2008, DeArmas executed a second note in the amount of

$135,000 payable to Dougherty (“Dougherty Note 2”). On March 19, 2008,

Daugherty filed a UCC Financing Statement with the Texas Secretary of State

evidencing his security interest in the collateral securing Dougherty Note 1.1

These Daugherty loans were associated with DeArmas’s purchase of

commercial real estate from Dougherty to relocate Pro Technik, an automobile-

repair business that DeArmas and a partner were purchasing from a third party.

DeArmas financed $1 million of the real-estate purchase price through a

commercial lender, paid $50,000 in cash as a down-payment, and the Dougherty

1 It is not clear from the record why the UCC Financing Statement was filed before the dates of the loan or security agreement. 2 notes represented the remainder of the purchase price. Once the Pro Technik

business was later purchased, Pro Technik leased this real property from DeArmas,

individually.

B. June 2008 Loans from Trustmark to Pro Technik

More than three months later, on June 30, 2008, DeArmas and his partner

executed a note on behalf of Pro Technik payable to appellee Trustmark in the

amount of $402,000 (“Trustmark Note 1”). On that same day, they executed a

second note on behalf of Pro Technik payable to appellee Trustmark in the amount

of $103,000 (“Trustmark Note 2”). Both notes were secured by Commercial

Security Agreements, also signed on June 30, 2008, granting a security interest in

property owned by Pro Technik, which included “All Inventory, Chattel Paper,

Accounts, Equipment, and General Intangibles.” In these security agreements,

DeArmas and his partner represented that the collateral was owned by Pro

Technik. Trustmark filed UCC Financing Statements to perfect its security

interests on September 8, 2008. Trustmark Note 1 was made to purchase the Pro

Technik business, inventory for that business, and improvements to the real

property that had previously been purchased from Dougherty. Trustmark Note 2

funded equipment purchases from Dougherty.

3 C. Pro Technik’s default on the Trustmark Notes 1 & 2 and foreclosure on its collateral

Pro Technik defaulted on both its notes with Trustmark. On November 29,

2010, Trustmark sent Pro Technik notice of default on Trustmark Note 1, as well

as its intent to accelerate the note if the default was not cured within ten days. The

notice also stated, “If payment is not tendered per this demand, demand is further

made for you to assemble all collateral securing this indebtedness, and make it

available for peaceable repossession by Trustmark.”

After Pro Technik failed to cure its default, Trustmark took possession of the

equipment and other collateral in December 2010. On January 22, 2011,

Trustmark provided notice to DeArmas and eleven other entities (including the

Internal Revenue Service and several other banks) of its intent to auction Pro

Technik’s collateral on February 2, 2011. In the meantime, although DeArmas

was also in default on his personal Dougherty Notes 1 & 2 secured by some of the

same property, DeArmas never notified Dougherty about the Trustmark’s notes or

about the foreclosure proceedings.

On January 25, 2011, DeArmas sent an email to Trustmark stating his belief

that the bank should also notify Mid South Bank, Bayview, and Ken Daugherty as

additional potential lienholders. Shortly thereafter, Daugherty learned of the

upcoming auction and sent a January 27, 2011 letter to Trustmark stating that

4 Trustmark should not sell Pro Technik’s collateral because DeArmas may have

given Daugherty an earlier security interest in the same property.

On January 31, 2011, Trustmark responded to Daugherty’s letter, stating that

Daugherty did not have a security interest in the collateral because Daugherty did

not perfect a security interest in the name of Pro Technik, Inc. Trustmark then

went forward with its auction, disposing of Pro Technik’s collateral and applying

the proceeds to its outstanding loans.

On May 16, 2011, Dougherty sued Trustmark for conversion, negligence,

violation of the Texas Theft Liability Act, and unjust enrichment, seeking actual

damages, exemplary damages, attorneys’ fees, and an accounting.

D. DeArmas’s Bankruptcy Proceedings and Dougherty’s Claim

DeArmas then filed for Chapter 7 bankruptcy protection, In re Brian

DeArmas, No. 11-36801-H3-7, in U.S. Bankruptcy Court, S.D. of Texas, Houston

Division. On October 28, 2011, Dougherty filed a Complaint Objecting to

Discharge of Debtor, Kenneth Dougherty v. Brian DeArmas, No. 11-30546. In that

complaint, Dougherty set forth details about the Dougherty Note 1, the related

security agreement and DeArmas’s default. The complaint also stated,

On October 24, 2011, Defendant was deposed pursuant to a Notice of Examination noticed by Trustmark National Bank (“Trustmark”). During that examination, Defendant provided testimony that established his knowledge that the property being pledged as security to Plaintiff was not owned by Defendant but was instead owned by his company, Pro Technik. This obvious fraud and deception was not

5 disclosed to Plaintiff who believing that Defendant was the actual owner of the property accepted that property as security for the loan. Defendant subsequently pledged the very same property to Trustmark as security for loans the bank made to Defendant. Unbeknownst to Plaintiff, Defendant’s secured loans with Trustmark, on behalf of ProTechnik Inc., were also in default. Trustmark took possession of the items listed in Plaintiff’s UCC financing statement in December, 2010, and prepared to auction the items to the public and proceeded to publicly auction the items on February 2, 2011.

Dougherty argued that these facts established that DeArmas committed fraud

to entice Dougherty to lend him money while knowing that he had no intention to

pay it back. Accordingly, he requested that DeArmas not be allowed to discharge

his debt. 11 U.S.C. § 523(a) (exempting from discharge debt obtained under

certain false pretenses).

E. The Bankruptcy Court’s Judgment

On December 13, 2012, the bankruptcy court entered an Agreed Judgment

on Dougherty’s claim. The judgment ordered that Dougherty recover $115,000

from DeArmas, which is not dischargeable. The judgment “further ORDERS that

as alleged in Plaintiff’s Objection to Discharge filed in this proceeding, Defendant

made false representations and committed actual fraud with the intent and result

being to entice Plaintiff into supplying Defendant money all the while knowing

that he had no intention of paying Plaintiff the monies owed.”

6 F. The Trial Court’s Summary Judgment

In the underlying case, Trustmark moved for traditional summary judgment

on Dougherty’s claims, arguing that Dougherty’s claims were all based upon the

“allegation that Trustmark repossessed and foreclosed a security interest in certain

collateral in disregard of Plaintiff’s perfected, first-priority interest in the

property.” According to Trustmark, its summary-judgment evidence “proves that

at the time [Dougherty] obtained the alleged security interest from DeArmas in the

collateral, DeArmas had no rights in the collateral.” Thus, because Dougherty

could not have obtained an enforceable security interest in the collateral,

Trustmark could not have owed Dougherty any legal duties with respect to the

collateral. Trustmark also argued that its affirmative defense of collateral estoppel

was proved as a matter of law because the ownership of the collateral issue was

resolved in the federal bankruptcy proceedings.

In response, Dougherty contended that summary judgment on Trustmark’s

collateral-estoppel affirmative defense was inappropriate because the issues in the

bankruptcy proceedings were settled by the parties’ agreement, rather than “fully

and fairly litigated” and because the relevant issues in the bankruptcy proceeding

were different.

Dougherty also argued that there were fact issues that precluded summary

judgment. Specifically, he argued that his UCC Financing statement evidencing

7 his security interest in the collateral together with evidence that Trustmark knew

about his interest provides some evidence that Trustmark acted wrongfully in

foreclosing on the collateral.

The trial court granted Trustmark’s summary judgment, and Dougherty

timely appealed.

ISSUES ON APPEAL

Dougherty brings two issues on appeal:

1. “Under Texas law, the doctrine of collateral estoppel does not apply unless an issue was ‘fully and fairly litigated’ in a previous proceeding. Here, Appellee claims that an unrelated issue in a bankruptcy proceeding was preclusive effect in this litigation. Can the trial court’s summary judgment be affirmed on this affirmative defense?” 2. “Appellee’s motion for summary judgment was predicated on statements of a third party with request to the ownership of certain property. In response, Appellant submitted sworn statements by the same third party that are entirely contradictory to the evidence offered by Appellee. No other evidence in the summary-judgment record addresses this issue. Does a genuine issue of material fact exist with regard to the ownership of the property?”

SUMMARY JUDGMENT We review a trial court’s summary judgment de novo. Travelers Ins. Co. v.

Joachim, 315 S.W.3d 860, 862 (Tex. 2010). If a trial court grants summary

judgment without specifying the grounds for granting the motion, we must uphold

the trial court’s judgment if any of the grounds are meritorious. Beverick v. Koch

Power, Inc., 186 S.W.3d 145, 148 (Tex. App.—Houston [1st Dist.] 2005, pet.

denied). The motion must state the specific grounds relied upon for summary 8 judgment. See TEX. R. CIV. P. 166a(c), (i); Timpte Indus., Inc. v. Gish, 286 S.W.3d

306, 310 (Tex. 2009). When reviewing a summary judgment motion, we must (1)

take as true all evidence favorable to the nonmovant, and (2) indulge every

reasonable inference and resolve any doubts in the nonmovant’s favor. Valence

Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005); Provident Life Accid.

Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003).

In a traditional summary judgment motion, the movant has the burden to

show that no genuine issue of material fact exists and that the trial court should

grant judgment as a matter of law. TEX. R. CIV. P. 166a(c); KPMG Peat Marwick v.

Harrison Cnty. Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999). A defendant

moving for traditional summary judgment must conclusively negate at least one

essential element of each of the plaintiff’s causes of action or conclusively

establish each element of an affirmative defense. Sci. Spectrum, Inc. v. Martinez,

941 S.W.2d 910, 911 (Tex.1997).

ANALYSIS

We need not reach the first issue of whether the Trustmark conclusively

established its affirmative defense of collateral estoppel because the summary-

judgment evidence demonstrates that there is no fact issue about DeArmas’s lack

of ownership interest in the collateral in which he pledged an interest to

Dougherty. We agree with Trustmark that the evidence demonstrates that

9 Dougherty could not have had a security interest in the collateral and, thus,

Trustmark could not have owed any duty to Dougherty with regard to that

collateral. Dougherty’s lack of ownership—and Trustmark’s corresponding lack

of duty to Dougherty—defeats Dougherty’s right of recovery under all his theories

of liability. Accordingly, the trial court properly granted summary judgment.

In arguing that summary-judgment was improper, Dougherty asserts that

Trustmark did not carry its burden of demonstrating that no fact issue existed about

the ownership of the collateral on March 26, 2008—when DeArmas granted a

security interest to Dougherty. Specifically, he contends that the summary-

judgment record consists of nothing more than inconsistent statements from the

same material witness, i.e., DeArmas, that only serve to create a fact issue:

To demonstrate its alleged ownership interest in the collateral, Trustmark directed the trial court to DeArmas’s unsworn security agreement [from Pro Technic to Trustmark], along with his deposition testimony in the bankruptcy proceeding three-and-a-half years later. In response, [Dougherty] offered the sworn security agreement from March 2008, in which DeArmas represented that he was the owner of the collateral. Inconsistent statements from the same material witness necessarily create a fact issue that requires a jury to make a determination of credibility and therefore, DeArmas’s statement cannot support a summary judgment. And because the summary- judgment record does not contain any evidence (other than DeArmas’s inconsistent ipse dixit) to establish the owner of the collateral at the time DeArmas signed the original security agreement with [Dougherty], Trustmark has not established that it is entitled to judgment as a matter of law.

10 In response, Trustmark asserts that the summary-judgment evidence proves

that Pro Technik, not DeArmas, owned the collateral such that a purported security

interest granted by DeArmas personally could not grant any interest. Trustmark

contends that the one piece of evidence Dougherty points to—i.e., the security

agreement in which DeArmas represented he owned the collateral and granted to

Dougherty a security interest—does not create a fact issue in light of the other

summary-judgment evidence. We agree with Trustmark that this document does

not create a fact issue in light of the remaining, uncontroverted summary-judgment

evidence.

Dougherty relies solely upon the March 26, 2008 security agreement in

which DeArmas personally pledged a security interest to Dougherty in the

collateral and represented that DeArmas owned the collateral. Trustmark

provided, as summary-judgment evidence, excerpts from DeArmas’s deposition in

which he explains that initially the plan was for the closings on his purchase of

Dougherty’s real estate and on the Pro Technik business to happen at the same

time. Because of delays in securing the Trustmark loans, however, the purchase of

Pro Technik did not happen until June 30, 2008—more than three months after

DeArmas executed the Dougherty notes and security agreement on March 26,

2008. DeArmas also testified in that deposition that he did not personally own

any of the collateral described in the security agreement executed in favor of

11 Dougherty. Rather, he testified, that collateral was owned by Pro Technik. When

asked why he signed the security agreement for Dougherty personally instead of in

the name of Pro Technik, DeArmas testified that he just signed what Dougherty

prepared and put in front of him.

In addition to relying upon DeArmas’s deposition, Trustmark included as

summary-judgment evidence Dougherty’s objection to discharge of the amounts

due under the Dougherty notes filed in DeArmas’s bankruptcy case. In that filing,

Dougherty cites the same DeArmas’s deposition testimony as “establish[ing] his

knowledge that the property being pledged as security to [Daugherty] was not

owned by [DeArmas] but instead owned by his company, Pro Technik.”

Dougherty argued to the bankruptcy court that DeArmas’s actions amounted to

“actual fraud with the intent and result being to entice [Dougherty] into supplying

[DeArmas] money all the while knowing that he had no intention of paying

Plaintiff the monies owed.” Trustmark also notes that Dougherty’s live pleading in

the underlying suit states that the “adversary proceeding was eventually settled

with an agreed judgment being entered wherein Mr. de Armas admitted to

defrauding Plaintiff.”

Dougherty’s argument that summary judgment was inappropriate rests on

the premise that DeArmas’s representation in the March 26, 2008 security

agreement that he owned the collateral on that date served to “controvert”

12 DeArmas’s later deposition testimony that he actually did not own the collateral on

that date and that instead Pro Technik (the entity that later granted a security

interest to Trustmark) was the entity that owned the collateral. But even if this

were enough in isolation to create a fact issue, the other uncontroverted evidence

establishes that DeArmas’s statement in the security agreement that he owned the

collateral in March 2008 could not have been true.

Specifically, the summary-judgment evidence demonstrates that the

Trustmark loans executed by DeArmas on behalf of Pro Technik (which were

secured with the same collateral) did not occur until June 2008. Dougherty did not

proffer controverting evidence (or even dispute) that it was the proceeds of these

later-in-time loans that DeArmas used to purchase the Pro Technik business,

equipment, and inventory. This clear, uncontroverted evidence that DeArmas did

not acquire ownership rights in Pro Technik until after DeArmas represented that

he personally owned the property owned by Pro Technik proves that Dougherty

could not have acquired an enforceable security interest in the collateral. See TEX.

BUS. & COMM. CODE § 9.203 (Vernon 2011) (security interest is enforceable “only

if” the debtor giving the security interest “has rights in the collateral or the power

to transfer rights in the collateral to a secured party”).

The fact that Daugherty did not acquire an enforceable security interest in

the collateral necessarily defeats his claim that Trustmark owed him a duty to not

13 dispose of the collateral owned by Pro Technik, pledged to Trustmark in Pro

Technik’s name, and foreclosed on under Trustmark’s properly perfected security

interest. The trial court thus correctly granted summary judgment.

CONCLUSION

We affirm the trial court’s summary judgment.

Sherry Radack Chief Justice

Panel consists of Chief Justice Radack and Justices Higley and Brown.