PlainsCapital Bank v. Nitin Jani

• Court: Court of Appeals of Texas
• Decided: November 19, 2015
• Docket: 02-14-00149-CV
• Status: Published

Opinion

COURT OF APPEALS SECOND DISTRICT OF TEXAS FORT WORTH

NO. 02-14-00149-CV

PLAINSCAPITAL BANK APPELLANT

V.

NITIN JANI APPELLEE

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FROM THE 211TH DISTRICT COURT OF DENTON COUNTY TRIAL COURT NO. 2009-30416-211

MEMORANDUM OPINION1

After Franklin Transfer, Inc. (Franklin Transfer) defaulted on a note

payable to Appellant PlainsCapital Bank, PlainsCapital sued Appellee Nitin Jani,2

1 See Tex. R. App. P. 47.4. 2 Jani’s counsel filed a suggestion of death advising this court that Jani died during the pendency of this appeal. Pursuant to rule 7.1(a), we “will proceed to adjudicate the appeal as if all parties were alive,” and our judgment “will have the same force and effect as if rendered when all parties were living.” Tex. R. App. P. 7.1(a). a guarantor of the note, to recover the amount due. After a jury trial, the trial

court entered a take-nothing judgment against PlainsCapital, and PlainsCapital

appealed. We affirm.

BACKGROUND

On January 15, 2008, Franklin Transfer3 executed a promissory note

payable to PlainsCapital for a revolving line of credit of up to $500,000. The note

was signed by Amanda Franklin as president of Franklin Transfer and Jani as

“co-president.” The note was secured by Franklin Transfer’s accounts

receivable. Amanda Franklin and Jani each signed a continuing guaranty

personally guaranteeing payment and performance of the note and any other

debt incurred by Franklin Transfer, including without limitation, principal, interest,

attorney’s fees, and collection costs.

The note expressly gave PlainsCapital the right of setoff. According to

Chris DeFrancisco, a senior vice president with PlainsCapital who assisted

Franklin Transfer in obtaining the loan, the right of setoff meant that PlainsCapital

could “[t]ake funds from the operating account to pay down the line [of credit].”

Five days prior to executing the note, Franklin Transfer opened a checking

account at PlainsCapital. The bank resolution by the corporation granted the

signatories on the account—Amanda Franklin and Jani—the power to sign and

authorize checks. It also stated that only one of their signatures was required on

3 Franklin Transfer was a freight and logistics brokerage company.

2 checks. The commercial signature card for the account provided that Amanda

Franklin and Jani were authorized signatories on the account and that only one

signature was required on transactions related to the checking account.

At trial, Jani testified that shortly after the loan documents were executed,

he requested that PlainsCapital require his and Amanda Franklin’s signatures on

all checks over $5,000 written on the account. Jani further testified that

DeFrancisco ordered checks with the legend “Two Signatures required over

$5,000” and with two signature lines. DeFrancisco told Jani that he would “have

the controls in place.”

DeFrancisco testified that Jani requested that two signature lines be

placed on the checks as an internal control to make sure that Amanda Franklin

was not using funds for personal use. DeFrancisco said he also explained to

Jani that the two-signature requirement was an internal control only because the

computer software that PlainsCapital used to clear checks could not confirm that

both signatures were on the checks and because no human being looked at the

checks when they cleared. DeFrancisco claimed that Jani understood that the

two-signature requirement was an internal control only and that Jani had stated

that PlainsCapital’s method of clearing the checks did not matter as he would

control the checkbook and handle Franklin Transfer’s payables. Jani, however,

testified that Amanda Franklin controlled the checkbook and that the bank

statements did not come to him. He further testified that on one occasion, he

received a telephone call from “one of the bank folks” asking him whether he

3 would like it to honor a check for over $5,000 that was signed only by Amanda

Franklin. After learning that the check was payable to a freight company, Jani

approved the check.

From February 2008 through November 2008, PlainsCapital advanced

Franklin Transfer $245,670.41 on the line of credit and deposited the money into

Franklin Transfer’s checking account.4 The evidence introduced at trial showed

that PlainsCapital honored fifteen checks written on Franklin Transfer’s checking

account that exceeded $5,000 and lacked Jani’s signature. These checks

totaled $154,195. Eleven checks, which totaled $114,495, were signed once by

Amanda Franklin. The remaining checks, which totaled $39,700, were signed

twice by Amanda Franklin.

When the note matured by its terms on January 15, 2009, it had a balance

of $245,670.41. Franklin Transfer executed a renewal note on January 15, 2009.

Amanda Franklin signed the renewal note as president of Franklin Transfer, and

Jani signed as vice president. Amanda Franklin and Jani each executed a

4 Contemporaneously with the note, Amanda Franklin and Jani, acting on behalf of Franklin Transfer in their capacities as president and “co-president” respectively, signed an authorization by the corporation, which authorized Amanda Franklin and Jani to conduct business with PlainsCapital on behalf of Franklin Transfer and stated, among other things, that the power to “obtain . . . financial accommodation” from PlainsCapital could be exercised only by Amanda Franklin and Jani and required both of their signatures. DeFrancisco testified that transferring sums from a line of credit into a checking account was a financial accommodation. Jani contended at trial that PlainsCapital improperly moved advances on the line of credit into Franklin Transfer’s checking account without the two required signatures.

4 second continuing guaranty personally guaranteeing payment and performance

of the renewal note and any other debt incurred by Franklin Transfer, including

without limitation, principal, interest, attorney’s fees, and collection costs. The

renewal note matured on March 15, 2009.

When Franklin Transfer failed to pay the balance due on the note by the

March 15, 2009 maturity date, Amanda Franklin, in her capacity as president,

signed another renewal note on behalf of Franklin Transfer; this renewal note

matured on May 15, 2009. Jani refused to sign the second renewal note and

another guaranty. Even though Jani did not sign the second renewal note,

PlainsCapital treated the note as renewed and considered May 15, 2009, as the

maturity date.

Franklin Transfer defaulted on the note. After default, PlainsCapital

permitted Amanda Franklin to wire $14,000 from Franklin Transfer’s checking

account to third parties. On June 22, 2009, PlainsCapital made demand on

Franklin Transfer for $245,670.41, plus $2,484 in accrued interest as of the date

of the demand. Internal bank documents admitted into evidence showed that in

June and July 2009, Franklin Transfer turned over approximately $235,000 in

uncollected invoices to PlainsCapital. DeFrancisco testified that PlainsCapital

sent out invoices totaling $60,000 and collected $40,000, which it credited to the

amount due on the note.

5 PlainsCapital sued Jani for breach of the guaranty.5 In his answer, Jani

alleged that PlainsCapital had failed to dispose of the collateral in a commercially

reasonable manner, see Tex. Bus. & Com. Code Ann. § 9.627 (West 2011),

which caused an inflated balance due on the guaranty. Jani also asserted

misrepresentation and breach of contract counterclaims against PlainsCapital.

Jani alleged that PlainsCapital had misrepresented that the controls put in place

would prevent checks written on Franklin Transfer’s checking account in amounts

greater than $5,000 from being honored without Jani’s approval and had

misrepresented that no checks in excess of $5,000 had been honored. In

support of his breach of contract claim, Jani alleged that PlainsCapital had

honored multiple checks over $5,000 without Jani’s signature.

The case was tried to a jury. DeFrancisco testified that the principal

amount due on the note it was attempting to collect from Jani was $205,061.07.

Pertinent to this appeal, the jury found in answer to question two that

PlainsCapital suffered $128,624 in damages as a result of Jani’s breach of the

guaranty; in answer to question four that PlainsCapital failed to dispose of

Franklin Transfer’s accounts receivable in a commercially reasonable manner;

5 Amanda Franklin filed for divorce in 2009. PlainsCapital intervened in the divorce proceeding to collect the sums due under the January 2009 renewal note and personal guaranty signed by Amanda Franklin. PlainsCapital severed its claims against Amanda Franklin. On November 5, 2010, the trial court entered an agreed final judgment against Amanda Franklin for $205,061.07 in principal and interest due on the note, $4,000 in attorney’s fees, and $363 in court costs, plus postjudgment interest at a rate of eighteen percent per annum.

6 and in answer to question five that the value of the accounts receivable at the

time they were received by PlainsCapital was $160,000. The jury further found

PlainsCapital’s reasonable and necessary attorney’s fees were $120,000 for

preparation and trial, $75,000 for an appeal to the court of appeals, and $30,000

for an appeal to the supreme court and found Jani’s reasonable and necessary

attorney’s fees were $75,000 for preparation and trial, $50,000 for an appeal to

the court of appeals, and $30,000 for an appeal to the supreme court.

In its motion for judgment, PlainsCapital asked the trial court to enter

judgment against Jani for $128,624, the amount of damages found by the jury in

response to question two, and its attorney’s fees as found by the jury, plus

prejudgment and postjudgment interest. Jani’s motion for judgment asked the

trial court to enter a take-nothing judgment against both parties. After a hearing,

the trial court offset the jury’s finding of the value of the accounts receivable

($160,000) against the jury’s damages finding ($128,624) and entered a take-

nothing judgment against PlainsCapital and Jani on their respective breach of

contract claims. The trial court also found that neither PlainsCapital nor Jani was

entitled to attorney’s fees because neither party was the prevailing party and

neither party “adequately proved each of the elements required to be entitled to

[attorney’s] fees.”

PlainsCapital filed a motion to reform the judgment, asking the trial court to

reform the judgment to reflect the jury’s findings of $128,624 in damages and

$120,000 in attorney’s fees. In the alternative, PlainsCapital asked the trial court

7 to reform the judgment “to reflect the only possible damage number that the law

and the evidence allow: $129,203”6 and to award PlainsCapital $120,000 in

attorney’s fees. In the further alternative, PlainsCapital asked for a new trial on

damages. After a hearing, the trial court denied the motion. PlainsCapital

appealed.

DISCUSSION

In its first issue, PlainsCapital argues that the trial court erred by offsetting

the jury’s answer to question five (the value of the collateral) against the jury’s

answer to question two (the damages resulting from Jani’s breach of the

guaranty), resulting in a take-nothing judgment against PlainsCapital.

PlainsCapital argues that the trial court should have disregarded the jury’s

answer to question five and entered judgment on the verdict for the full amount of

damages found by the jury in response to question two. In the alternative,

PlainsCapital argues that the trial court should have entered judgment in an

amount corrected for the jury’s “math errors.”

A trial court may disregard a jury finding if there is no evidence to support

the finding, which is not alleged here, or if the finding is immaterial. Tex. R. Civ.

P. 301; Spencer v. Eagle Star Ins. Co. of Am., 876 S.W.2d 154, 157 (Tex. 1994).

A jury question is considered immaterial when it should not have been submitted,

it calls for a finding beyond the province of the jury, or it has been rendered

6 PlainsCapital’s calculation method for arriving at $129,203 is explained below in footnote 7.

8 immaterial by other findings. Se. Pipe Line Co., Inc. v. Tichacek, 997 S.W.2d

166, 172 (Tex. 1999).

PlainsCapital complains that the trial court should have disregarded the

jury’s answer to question five and not offset the jury’s answer to question five

against its answer to question two because the jury took into account the

$160,000 it found was the value of the accounts receivable at the time they were

received by PlainsCapital when arriving at its finding that PlainsCapital was

damaged $128,624 as a result of Jani’s breach of the guaranty. Thus, the trial

court should have entered a judgment of $128,624 in favor of PlainsCapital.

PlainsCapital asks us to enter judgment in its favor for $128,624 or, in the

alternative, $129,203.7 We construe these contentions as an argument that jury

question five was rendered immaterial by the jury’s finding to question two.

“Article 9 of the Texas Uniform Commercial Code provides that when a

debtor defaults on an obligation, a secured party may take possession of

collateral, dispose of it, and apply the proceeds to help satisfy the obligation.”

Foley v. Capital One Bank, N.A., 383 S.W.3d 644, 647 (Tex. App.—Houston

[14th Dist.] 2012, no pet.) (citing Tex. Bus. & Com. Code Ann. §§ 9.609, 9.610,

7 In its motion to reform the judgment and on appeal, PlainsCapital claims this amount is owed on the note after crediting Jani $160,000 for the value of the collateral as found by the jury in response to question five. PlainsCapital arrives at this number by adding the principal due on the note ($245,670) plus accrued interest ($3,009), subtracting the value of the collateral determined by the jury in response to question five ($160,000), and adding what it claims to be the exact amount of the collected receivables it already applied to the debt ($40,533). We note that this calculation actually results in a total of $129,212.

9 9.615 (West 2011)). “If the proceeds are insufficient to satisfy the obligation, and

the secured party wishes to obtain a deficiency judgment for the amount still

owing on the obligation, ‘[e]very aspect of [the] disposition of collateral, including

the method, manner, time, place and other terms, must be commercially

reasonable.’” Id. (citing Tex. Bus & Com. Code Ann. § 9.610). When, as here,

the secured party’s compliance is placed in issue, it “has the burden of

establishing that the . . . disposition . . . was” commercially reasonable. Tex.

Bus. & Com. Code Ann. § 9.626(a)(2) (West 2011). The commercial

reasonableness of a sale is a question of fact to be determined by the jury.

Gordon & Assocs., Inc. v. Cullen Bank/Citywest, N.A., 880 S.W.2d 93, 96 (Tex.

App.—Corpus Christi 1994, no writ). When the secured party fails to prove that

the disposition of the collateral was commercially reasonable, the liability of a

debtor or secondary obligor for a deficiency is limited to an amount by which the

sum of the secured obligation, expenses, and attorney’s fees exceeds the

greater of (1) the proceeds of the disposition or (2) the amount of proceeds that

would have been realized had the noncomplying secured party disposed of the

collateral in a commercially reasonable manner. See Tex. Bus. & Com. Code

Ann. § 9.626(a)(3) (West 2011). “[T]he amount of proceeds that would have

been realized is equal to the sum of the secured obligation, expenses, and

attorney’s fees, unless the secured party proves that the amount is less than that

sum.” Id. § 9.626(a)(4) (West 2011).

10 It was apparent during the charge conference that the trial court was using

section 9.626 in formulating questions four and five. Question four asked if

PlainsCapital disposed of the accounts receivable in a commercially reasonable

manner. Question five, conditioned on a “no” answer to question four as found

by the jury, provided in part as follows:

What amount, stated in dollars and cents, represents the value of the Accounts Receivable at the time they were received by the Bank?[8]

It is a rebuttable presumption that the value of the Accounts Receivable is equal to $245,670.00 unless a different value is proven by a preponderance of the evidence.

The jury answered $160,000.

PlainsCapital does not complain on appeal that questions four and five do

not follow article 9 or that the trial court erred in its application of article 9 to the

jury’s findings. PlainsCapital speculates that the jury used the $160,000 it found

in question five in arriving at its answer to question two as to the amount of

damages and argues that, therefore, question five should be disregarded. But

question two—to which PlainsCapital did not object—included the instructions,

“Answer each question separately. Do not increase or reduce the amount in one

answer because of the instructions in or your answers to any other questions

about damages.” We presume that the jury followed the instructions in the

charge. See Columbia Rio Grande Healthcare, L.P. v. Hawley, 284 S.W.3d 851,

8 The instructions in the trial court’s charge instructed the jury that “Bank” referred to PlainsCapital.

11 862 (Tex. 2009) (citing Golden Eagle Archery, Inc. v. Jackson, 116 S.W.3d 757,

771 (Tex. 2003)). Accordingly, it is mere speculation that the jury—contrary to

both the instructions in question two and the presumption that it followed those

instructions—utilized its finding of $160,000 as the value of the collateral in

response to question five in arriving at its determination of the amount of

damages resulting from Jani’s breach of the guaranty found in response to

question two. Thus, we cannot conclude that the jury’s finding in response to

question five was rendered immaterial by the jury’s finding in response to

question two. And, therefore, the jury’s answer to question five was not required

to be disregarded, and the trial court did not err by offsetting the value of the

collateral as found by the jury in question five against the damages resulting from

Jani’s breach of the guaranty as found by the jury in question two. We overrule

PlainsCapital’s first issue.

In its second issue, PlainsCapital argues that upon this court’s reversal of

the trial court’s judgment and rendering judgment in its favor, it is entitled to

recover its attorney’s fees as the prevailing party. In light of our holding on

PlainsCapital’s first issue, we need not address its second. Moreover, the trial

court also found that PlainsCapital was not entitled to recover its attorney’s fees

because it had not “adequately proved each of the elements required to be

entitled to [attorney’s] fees.” PlainsCapital does not challenge this finding on

appeal. Accordingly, we overrule its second issue.

12 CONCLUSION

Having overruled both of PlainsCapital’s issues, we affirm the trial court’s

judgment.

/s/ Anne Gardner ANNE GARDNER JUSTICE

PANEL: DAUPHINOT, GARDNER, and WALKER, JJ.

DELIVERED: November 19, 2015