RSS MSBAM2014C17-TX HAH, LLC v. Houston Airport Hospitality LP, Pacifica Host, Inc. and Pacifica Harbor View Two, L.P.

• Court: Court of Appeals of Texas
• Decided: August 30, 2024
• Docket: 01-21-00042-CV
• Status: Published

Opinion

Opinion issued August 30, 2024

In The

Court of Appeals For The

First District of Texas ———————————— NO. 01-21-00042-CV ——————————— RSS MSBAM2014C17-TX HAH, LLC, Appellant V. HOUSTON AIRPORT HOSPITALITY LP, PACIFICA HOSTS, INC., AND PACIFICA HARBOR VIEW TWO, L.P., Appellees

On Appeal from the 133rd District Court Harris County, Texas Trial Court Case No. 2018-06512

MEMORANDUM OPINION

This appeal is about a nonrecourse loan secured by a hotel. Among other

things, the loan required the borrower, Houston Airport Hospitality LP (“HAH”), to

(1) remain solvent and pay its liabilities only from its own funds, (2) make monthly

debt payments, (3) keep the hotel free from mold, and (4) avoid waste. About three years after it obtained the loan, HAH stopped making payments, defaulted on the

loan, voluntarily surrendered the hotel, and consented to foreclosure. Litigation

followed.

The lender, RSS MSBAM2014C17-TX HAH, LLC (“Lender”), sued HAH

and its guarantor, Pacifica Hosts, Inc. (“Hosts”), alleging that the loan became

recourse upon HAH’s breach of certain covenants and seeking a deficiency

judgment or, at least, repair costs. Lender alleged that HAH had breached the loan

covenants by failing to remain solvent, allowing the hotel to fall into disrepair, and

not using commercially reasonable efforts to fight mold in the hotel. Lender also

alleged that HAH had fraudulently transferred cash to its equity holders before

defaulting on the loan. And it sought to void the transfer to one transferee, Pacifica

Harbor View Two, L.P. (“Harbor”), under the Texas Uniform Fraudulent Transfer

Act (“TUFTA”).1 HAH, Hosts, and Harbor (collectively, “Appellees”) answered and

counterclaimed for declaratory judgment, conversion, and attorney’s fees.

The case went to a bench trial. At the close of Lender’s case-in-chief, the trial

court granted Appellees’ oral motion for judgment and dismissed all of Lender’s

claims. Later, the trial court granted the declaratory judgment counterclaim, denied

the conversion counterclaim, and awarded Harbor attorney’s fees for its successful

defense of the TUFTA claim.

1 See TEX. BUS. & COM. CODE §§ 24.001–.013. 2 In seventeen issues on appeal, Lender challenges the legal and factual

sufficiency of the evidence to support the trial court’s findings and conclusions that:

(1) HAH did not breach the loan’s covenant to remain solvent and pay its liabilities only from its own funds;

(2) HAH’s cash transfer to Harbor before defaulting on the loan was not actually or constructively fraudulent under TUFTA;

(3) HAH did not commit waste or fail to use commercially reasonable efforts to keep the hotel free of mold; and

(4) HAH did not commit waste by failing to repair or replace mechanical equipment at the hotel. Lender also challenges the declaratory relief awarded to Appellees and the TUFTA

attorney’s fees awarded to Harbor.

We reverse and remand as to the attorney’s fees but affirm the rest of the trial

court’s judgment.

I. Background

HAH is a special purpose entity formed by Hosts.2 In 2007, HAH bought a

414-room hotel, built in 1971, located near the George Bush Intercontinental Airport

in Houston, Texas (“Property”). A former hotel manager, C. Madden, described the

2 Special purpose entities protect lenders by isolating assets serving as collateral from the potential bankruptcy estate of the borrower. See Basic Cap. Mgmt., Inc. v. Dynex Com., Inc., 348 S.W.3d 894, 896 n.4 (Tex. 2011) (citing In re Gen. Growth Props., Inc., 409 B.R. 43, 49 n.15 (Bankr. S.D.N.Y. 2009)); see also In re Pacific Lumber Co., 584 F.3d 229, 250 (5th Cir. 2009) (“Special purpose entities are often used in securitized lending because they are bankruptcy-remote, that is, they decrease the likelihood that the originator’s financial trouble will affect the special purpose entity’s assets serving as collateral for the notes.”).

3 Property as in “poor” condition then, having worn carpets, “a lot of problems with

plumbing” and other infrastructure, and “mold and mildew issues.” To obtain a

franchise agreement with InterContinental Hotels Group (“IHG”) for operating the

Property as a Holiday Inn, Hosts undertook an $8-million property improvement

plan (“PIP”). The PIP brought the Property into compliance with the IHG brand

standards and included mold remediation and special product selection, like marine

drywall.

HAH obtains a nonrecourse mortgage loan on the Property

In June 2014, HAH pledged the Property as collateral for a $20,725,000

mortgage loan from Bank of America, N.A. (“Loan”). Bank of America and HAH

executed a Loan Agreement, Promissory Note, and Deed of Trust and Security

Agreement. Hosts guaranteed the Loan (“Guaranty”). And all three parties executed

an Environmental Indemnity Agreement (“Environmental Indemnity”). Together,

the Loan Agreement, Promissory Note, Deed of Trust and Security Agreement,

Guaranty, and Environmental Indemnity are the “Loan Documents.”

In connection with the Loan, Bank of America obtained property condition,

environmental, and market-value assessments of the Property. The property

condition report described the Property’s plumbing as in “good condition” and the

heating, ventilation, and air conditioning (“HVAC”) system as “vary[ing] in age”

but also “in generally good to fair condition.” The inspector “observed interior areas

4 of the subject building for the presence of mold, conditions conducive to mold, and

evidence of moisture in readily accessible areas of the building” but did not find any

“visual indications” of mold. The report explained:

No sampling was conducted as part of this assessment. This limited observation was conducted for overview purposes only; additional suspect areas may exist in concealed locations (behind walls and ceilings, etc.). The observations and conclusions are based on interviews with property personnel and conditions as observed in readily accessible areas of the building on the assessment date. Based on these observations, the report concluded that “the presence of mold is not

considered to be a concern to the [Property] and no further action is recommended

at this time.”

For the environmental report, the inspector performed “limited observations”

of “easily accessible areas” for “obvious signs of moisture, water intrusion, and

potential mold” at the Property and found “[n]o musty odors indicative of a moisture

problem” and “[n]o obvious visual evidence of mold, water intrusion, water damage,

or standing water.” The environmental report recommended “no further

investigation . . . at this time regarding moisture and mold.”

CBRE, Inc. appraised the Property. It concluded that, in March 2014, the

Property had an “as is” market value of $33,600,000, including $2,691,000 for

furniture, fixtures, and equipment (“FF&E”).

5 Through assignments, Lender succeeded to Bank of America’s interest in the

Loan Documents in 2017. Wells Fargo was appointed Master Servicer to administer

the Loan, and Rialto Capital (“Rialto”) was appointed Special Servicer.

The key Loan terms

The Loan Agreement required HAH to make principal and interest payments

on the first of each month. A failure to make a payment within five days of it being

due would be an event of default. Upon an event of default, Lender could declare

the debt immediately due and avail itself of any rights or remedies provided in the

Loan Documents.

The Loan was generally nonrecourse,3 meaning Lender could exercise

remedies against the Property and any other prearranged security but not against

3 “A recourse loan ‘allows the lender, if the borrower defaults, not only to attach the collateral but also to seek judgment against the borrower’s (or guarantor’s) personal assets.’” Pineridge Assocs. v. Ridgepine, LLC, 337 S.W.3d 461, 465 (Tex. App.— Fort Worth 2011, no pet.). Conversely, the maker of a nonrecourse loan “does not personally guarantee repayment of the note and will, thus, have no personal liability.” Fein v. R.P.H., Inc., 68 S.W.3d 260, 266 (Tex. App.—Houston [14th Dist.] 2002, pet. denied). “[A] nonrecourse note has the effect of making the note payable out of a particular fund or source, namely, the proceeds of the sale of the collateral securing the note, rather than having the maker of the note personally guarantee repayment.” Melton v. CU Members Mortg., 586 S.W.3d 26, 33 (Tex. App.—Austin 2019, pet. denied); accord Borman, LLC v. 18718 Borman, LLC, 777 F.3d 816, 819 (6th Cir. 2015) (“When a borrower defaults on a nonrecourse loan, the lender may foreclose on the asset and any other prearranged security, but the borrower and its guarantors do not become personally liable for any deficiency.”).

6 HAH or Hosts for any deficiency.4 But the nonrecourse provision was subject to

certain “carve outs” or exceptions under which Lender could recover more than the

security from HAH or Hosts, including indemnity for losses or damages suffered by

Lender because of a breach of certain covenants or any deficiency between the value

of the security and the Loan obligation.

Relevant here, the Loan Agreement would become fully recourse upon a

material breach of certain covenants in the single purpose entity clause that were not

cured within 15 days of notice from Lender or HAH’s knowledge of the breach.

Section 6.1 listed several covenants related to HAH’s status as a single purpose

entity and its separateness. One such covenant was the solvency covenant promising

that, until the debt was paid in full, HAH would not “fail to remain solvent or pay

its own liabilities (including, without limitation, salaries of its own employees) only

from its own funds.”

In addition, the Loan Agreement allowed Lender to hold HAH and Hosts

jointly and severally liable for losses from (1) “any act of actual waste” by HAH or

Hosts and (2) “the breach of any representation, warranty, covenant or

4 Specifically, Lender agreed to enforce the Loan obligations through foreclosure or an action for specific performance instead of a money judgment against HAH or Hosts. Any judgment in such proceedings would be enforceable “only to the extent of [HAH’s and Hosts’] interest in the Property, in the Rents, and in any other collateral given to Lender.” Lender agreed not to “seek or demand any deficiency judgment against [HAH] or [Hosts].” 7 indemnification set forth in Article 12 . . . concerning environmental laws,

hazardous substances and asbestos and any indemnification of Lender with respect

thereto in any document.”

In Article 12, HAH warranted that, except as stated in the environmental

report, “to the best of [its] knowledge . . . the Property is free of Mold.” “Mold” is a

defined term meaning:

any mold, fungi, bacterial or microbial matter present at or in the Property, including, without limitation, building materials which is in a condition, location or a type which will pose a risk to human health or safety or the environment, will result in damage to or would adversely affect or impair the value or marketability of the Property.

HAH had to “use commercially reasonable efforts” to keep the Property free of

Mold. A failure to do so expressly constitutes “bad faith waste” under the Loan

Agreement.

HAH defaults and turns the Property over to a receiver

According to HAH, several issues arose at the Property after it obtained the

Loan. The Property faced aging mechanical equipment and systems. And beginning

in 2014, the Property suffered air quality and mold issues, which HAH described as

typical in Houston’s environment. These issues coincided with a downturn in the

Houston economy because of falling oil prices, which hurt revenues from the

Property.

8 HAH worried that it might breach the Loan Agreement’s debt service

coverage ratio, allowing Wells Fargo to sweep the cash in HAH’s account for debt

payments.5 On January 26, 2017, S. Israni, Hosts’ Managing Partner, emailed J.

Cunningham, Hosts’ Finance Director, a draft letter addressed to T. Murphy at Wells

Fargo. The draft expressed the “challenges” at the Property because of “softening in

the Houston market” and loss of major corporate accounts, including an account with

Haliburton that had filled “anywhere from 70-30 rooms per night.” It also noted that

the IHG license would expire in May 2017. Although there was a new agreement

with IHG, it required a PIP with “extensive renovations” to meet new brand

standards. The draft outlined HAH’s cost-control measures but stated that “with the

Houston market depressed and the [Property] needing a renovation, cost control

alone will not solve the problem.” HAH requested the “deferral of principal

payments for the next two years” and waiver of the debt service coverage ratio to

avoid cash sweeps.

Three weeks later, in February 2017, Cunningham emailed Murphy about

some ways to free up funds for operations, including funds reserved for FF&E. In

5 The Loan Agreement defines the “Debt Service Coverage Ratio” as “the ratio, as determined by Lender, of (i) Net Operating Income to (ii) the aggregate amount of Debt Service which would be due for the same period assuming the maximum principal amount of the Loan is outstanding and calculated using a payment constant based on the Note Rate and an amortization period of thirty (30) years.” A cash sweep occurs when a borrower’s account is converted into a debt payment during the cash sweep period. 9 making the Loan, Bank of America had required HAH to keep eight percent of the

Property’s gross income in reserve for certain expenses, instead of the industry

standard four percent, knowing the IHG license would expire. Cunningham urged

that the reserve should be reduced because a new franchise agreement was in hand.

Not long after, Wells Fargo released about $330,000 from the FF&E reserve to

HAH. After receiving those funds, HAH turned off the auto debit that enabled Wells

Fargo to obtain monthly debt service from HAH’s operating accounts.

HAH did not make its $242,348.60 loan payment on March 1, 2017.

Cunningham told J. Stanton, director of loan workouts for special servicer Rialto,

that HAH could not make any more Loan payments. Although Cunningham first

testified that HAH could have paid the debt service, he later testified that he did not

know if HAH could have made such payments after March 2017 without a capital

call to its investors, which it never made.

Under the Loan Agreement, the failure to make a payment within five days is

an event of default. Three days before its missed payment would become an event

of default—on March 3—HAH issued $900,000 in checks to its equity holders, with

$787,230 going to Harbor.6 Israni acknowledged that HAH wanted to transfer the

funds while the Loan was current, before any default. HAH defaulted on March 6.

6 The additional $112,770 went to HAH’s other limited partners.

10 Around April 1, Lender advised HAH that it owed $489,819.78—the unpaid

March debt service, a late fee, and April debt service. HAH did not make the April

payment. On April 28, Lender notified HAH and Hosts that an event of default had

occurred and accelerated the Promissory Note, making the entire Loan balance due.

HAH continued to miss payments through August, when it agreed to turn the

Property over to a receiver, V. Cuce. Cuce took possession of the Property and

$32,112.29 in cash on August 21.

Condition of the Property

The Property’s condition when Cuce assumed control was disputed. S. Mazza,

one of Rialto’s real estate directors, visited the Property and noted out-of-order

rooms, flooded rooms, mold damage, and inoperable elevators. Twenty-three

terminal air conditioning (“PTAC”) units were missing. According to Cuce, the

Property needed 38 rooftop HVAC units, elevator repairs, and maintenance caused

by water intrusion. He replaced the rooftop AC motors, fixed the broken elevator,

and installed an extra water circulation pump to ensure a supply of hot water to

guests in one area of the Property.

According to Lender, the mold conditions on the Property were “dire,” and

HAH and Hosts had long refused to remediate the mold or address the

malfunctioning HVAC system. And this diminished the Property’s value. Lender

presented evidence that, in late 2014, Haliburton had expressed concerns about the

11 Property’s condition and demanded an air quality test. HAH did the testing. But its

general manager at the time, C. Madden, emailed people at Hosts, including Vice

President of Operations W. Feenan and Israni, that he had “gamed the test so [the

inspector] only sampled rooms on the 4th floor where the PTACs had been

professionally cleaned and the rooms had been inspected for presence of mold.”

Madden recommended hiring an environmental engineer “to help come up with a

solution” because Haliburton expected the issue to be resolved promptly.

In March 2015, Madden forwarded a proposal from Terracon Consultants,

Inc. (“Terracon”), to Feenan and Israni, for assessing the Property’s mechanical

systems and recommending repairs or upgrades. Madden’s email expressed concern

that if the HVAC issues were not addressed, “our renovation efforts will not inhibit

the mold and mildew issues alone.” In June 2015, HAH contacted a contractor to

replace rooftop HVAC units, but Hosts did not approve the work. Madden got

another bid in November 2015 to replace five rooftop air handlers, but that also was

not approved.

In July 2015, Madden sent Israni and Feenan pictures of two guest rooms with

mold on the ceilings and walls after the rooms were closed for a couple of weeks for

renovation. Replacement of the sheetrock and treatment with an antimicrobial spray

was recommended. One week later, Madden advised Israni that 15 rooms were

“affected by mold so badly that [the] staff cannot treat them.” In addition, mold had

12 spread behind vinyl wallpaper in guest bathrooms and contaminated at least eight

meeting rooms.

Around August 10, 2015, Terracon issued a report making more than 30

recommendations for the HVAC and other mechanical systems. Madden

commented: “As expected, most of the equipment in place has far outlived its

Expected Useful Life and needs to be replaced.” HAH replaced the HVAC systems

for one ballroom and the restaurant. But according to Lender’s expert, D. Daniele,

HAH did not implement most of Terracon’s recommendations.

In July 2016, Mold Inspection & Testing (“MI&T”), retained by Express Jets

in connection with potential bookings at the Property, prepared an air quality report.

MI&T concluded that elevated mold conditions existed, that professional

remediation was required, and that it was “imperative that any source of water

intrusion be addressed to ensure mold growth does not return.” During the 13 months

between this report and Cuce’s takeover, HAH retained no one to remedy these

issues. The root cause of the mold was not discovered.

According to HAH, however, the mold and mildew on the Property were

ordinary occurrences typical to Houston’s environment and removed by

housekeeping or maintenance employees. No guests stayed in rooms with visible

mold. And it undertook renovation efforts. HAH’s internal reports did not show that

any rooms were out of order because of mold in June 2014.

13 Between 2014 and mid-2017, HAH spent $2,675,072.98 in capital

expenditures, including repairs to some HVAC systems, electrical systems, and

plumbing systems, as well as upgrades and replacements. HAH cleaned PTAC units

using in-house maintenance employees and an outside contractor. HAH purchased

around 300 new PTAC units and placed dehumidifiers throughout the Property.

HAH also chose specific building materials to minimize mold at the Property.

When mold returned in different rooms in June 2016, HAH and Hosts

committed to combat the mold using protocols from a licensed contractor. HAH

never determined the cause or pattern of mold, but theories included dirty PTAC

units, clogged drain pans, and bathroom exhaust fans.7

HAH and Hosts pointed out that between April 2015 and February 2017,

Lender’s own inspection reports showed the Property was in normal condition for

its age, had general wear and tear, its major building components were functional,

and faced minimal deferred and routine maintenance—all of which had no impact

on marketability.8 HAH and Hosts also identified Hurricane Harvey—which struck

7 HAH’s Certificates of Mold Damage Remediation did not check the box certifying that “the underlying cause or causes of the mold that were identified for this project in the mold management plan or remediation protocol have been remediated.” 8 As an example, Appellees point to evidence that the mold did not affect hotel operations for the Super Bowl in February 2017. All but 9 of 414 rooms were rented for the event—a 98% occupancy rate. 14 Houston only a few days after Cuce assumed control of the Property, flooded some

rooms, and knocked out electrical power—as a potential source of mold.

Lender forecloses on the Property, then sues for the deficiency and losses

Lender eventually foreclosed on the Property in July 2018. At the foreclosure

sale, Lender bought the Property for a credit bid of $11,300,000, registering a

deficiency claim of more than $10 million. Lender elected to hold the Property rather

than sell it. Lender executed a new PIP with IHG for a full renovation of the Property

and hired contractors to remediate mold and make other repairs. Lender’s

construction manager identified the cause of the mold as inoperable PTAC units in

guest rooms, nonfunctioning exhaust fans in guest bathrooms, improper sealing of

the building’s exterior, and failure to paint and maintain the building’s vapor barrier.

After remediation, there was no recurrence of mold.

Six months after foreclosure, Lender sued HAH and Hosts, alleging: (1) HAH

breached the Loan Agreement by allowing Mold to grow throughout the Property

and failing to take commercially reasonable steps to prevent it; (2) Hosts was

therefore liable under the Guaranty; and (3) both HAH and Hosts were liable under

the Environmental Indemnity for the Mold infestation. Lender later added a claim

for a deficiency judgment against HAH and Hosts based on a breach of the

nonrecourse carveout for HAH’s failure to remain solvent or pay its liabilities from

its own funds. It also added Harbor as a defendant for its receipt of the allegedly

15 fraudulent transfer and sued HAH for fraudulent misrepresentations and warranties

made in the Loan Documents about the Property’s condition.

Appellees pleaded affirmative defenses and counterclaims for conversion and

declaratory relief. The conversion counterclaim alleged that Hosts owned two vans

turned over to the Receiver with the Property, which Lender refused to return or

reimburse. Appellees also requested attorney’s fees under the Texas Declaratory

Judgments Act.

The case proceeded to a bench trial. After five weeks of testimony, Lender

rested. Appellees moved for judgment, arguing that Lender had not presented legally

or factually sufficient evidence of its claims. The trial court granted the motion as to

all Lender’s claims, finding Lender failed to meet its burden of proof, and entered

an order that Lender take nothing against Appellees.

The trial court’s order did not address Appellees’ counterclaims for

conversion or declaratory judgment. The parties filed competing motions. Lender

moved for summary judgment on the declaratory judgment counterclaim, to sever

the conversion counterclaim, and for entry of a final judgment. Appellees moved for

judgment on both counterclaims, and Harbor requested attorney’s fees and costs

under TUFTA, instead of the Declaratory Judgments Act.

16 The trial court signed a final judgment:

(1) awarding Harbor attorney’s fees for trial and appeals;

(2) denying Hosts’ conversion counterclaim; and

(3) declaring that: (a) “On or about March 3, 2017, HAH was not in violation of [Article 6, Section 6.1(xviii)’s solvency clause] because it did not fail to remain solvent or pay its own liabilities;”

(b) “The March 3, 2017 transfers were not fraudulent (actual or constructive) transfers under Texas law;”

(c) “The March 3, 2017 transfers were not in violation of the terms of the Loan;” (d) “The Loan only makes HAH personally liable for Losses resulting from any breach of Section 15.1(b)(i)-(xii) . . . ;” and (e) “Any alleged breach of Article 5 of the Loan, by itself, does not make HAH or Pacifica Hosts personally liable for losses caused by any such breach.”

Lender timely requested findings of fact and conclusions of law, which the

trial court issued after an abatement of this appeal.

II. Standards of Review

After a plaintiff rests in a bench trial, a defendant may move for judgment.

See Est. of Ripley, No. 04-18-00968-CV, 2019 WL 4179128, at *1 (Tex. App.—San

Antonio Sept. 4, 2019, pet. denied) (mem. op.). When a trial court grants a motion

for judgment at the close of a plaintiff’s case-in-chief in a bench trial, we presume

that the trial court, acting as the factfinder, ruled not only on the sufficiency of the

evidence but also on its weight and the credibility of witnesses. Qantel Bus. Sys.,

17 Inc. v. Custom Controls Co., 761 S.W.2d 302, 303–05 (Tex. 1988); Huang v. Don

McGill Toyota, Inc., 209 S.W.3d 674, 677 (Tex. App.—Houston [14th Dist.] 2006,

no pet.). And we defer to the trial court’s balancing of the evidence. See City of

Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005); Golden Eagle Archery, Inc. v.

Jackson, 116 S.W.3d 757, 761 (Tex. 2003).

The trial court may make findings of fact and conclusions of law after it grants

a motion for judgment. Huang, 209 S.W.3d at 677. Conclusions of law and

application of law to the facts are reviewed de novo. Perry v. Del Rio, 66 S.W.3d

239, 257 (Tex. 2001). But the legal and factual sufficiency of the evidence

supporting the trial court’s fact findings may be challenged using the standards that

apply to jury verdicts. Id.; see Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex. 1994).

A party attacking the legal sufficiency of an adverse finding on which it had

the burden of proof must show that the evidence establishes, as a matter of law, all

vital facts in support of its proposed disposition. Huang, 209 S.W.3d at 677. We

review the evidence in the light most favorable to the challenged finding and indulge

every reasonable inference that would support it. Id. at 677–78.

A party attacking the factual sufficiency of an adverse finding on which it had

the burden of proof must show that the finding is against the great weight and

preponderance of the evidence. Id. at 678. We consider all the evidence and will set

aside the finding only if it is so contrary to the overwhelming weight of the evidence

18 as to be clearly wrong and unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986)

(per curiam); Huang, 209 S.W.3d at 678; see also Cropper v. Caterpillar Tractor

Co., 754 S.W.2d 646, 650 (Tex. 1988) (recognizing that appellate court may reverse

and remand when a failure to find is against the great weight and preponderance of

the evidence).

III. Lender’s Claims

In issues one through thirteen, Lender challenges the legal and factual

sufficiency of the evidence supporting the trial court’s findings rejecting its claims

for breach of the Loan Agreement’s solvency covenant, actual and constructive

fraudulent transfer, the existence of Mold at the Property, and HAH’s commitment

of waste. We address these issues, in turn, as necessary to dispose of the appeal.

A. Full recourse claim based on breach of solvency covenant9

Under the terms of the Loan Agreement, Lender’s promise not to pursue

recourse liability is “null and void” upon a material and uncured breach of any

covenant in Article 6. Lender sought full recourse liability against HAH and Hosts

9 Lender submitted an oral argument exhibit suggesting that the Loan also became fully recourse because HAH failed to maintain adequate capital in violation of a separate covenant in Article 6, Section 6.1. Neither Lender’s opening brief nor its reply challenge the trial court’s finding that Lender “elicited no credible evidence or insufficient credible evidence of the inadequacy of HAH’s capital.” Accordingly, to the extent Lender makes that argument now, it is waived. See Hutchison v. Pharris, 158 S.W.3d 554, 564 (Tex. App.—Fort Worth 2005, no pet.) (issue not raised in opening appellate brief is ordinarily waived); see also TEX. R. APP. P. 38.1(i) (appellant’s brief “must contain a clear and concise argument for the contentions made, with appropriate citations to authorities and to the record”). 19 based on breach of the solvency covenant in Article 6, Section 6.1(a)(xviii), which

provides that, “[u]ntil the Debt has been paid in full,” HAH will not “fail to remain

solvent or pay its own liabilities (including, without limitation, salaries of its own

employees) only from its own funds[.]” (Emphasis added.) The emphasized “or” is

a disjunctive term, alternative in its effect. Lyons v. Montgomery, 701 S.W.2d 641,

643 (Tex. 1985); see also Cmty. Bank of Raymore v. Chesapeake Exploration,

L.L.C., 416 S.W.3d 750, 755 (Tex. App.—El Paso 2013, no pet.) (“‘or’ expresses a

choice between two mutually exclusive possibilities”) (citing MERRIAM-WEBSTER’S

COLLEGIATE DICTIONARY 872 (11th ed. 2009)). Thus, under a plain reading of the

Loan Agreement, Lender had to show a breach of the solvency covenant through

evidence of HAH’s failure to (1) remain solvent or (2) pay its own liabilities only

from its own funds. See USAA Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479, 501

n.21 (Tex. 2018) (a breach of contract action requires proof of four elements, one of

which is breach by the defendant).

The trial court concluded that HAH did not breach Section 6.1 and that Lender

did not prove the claim by a preponderance of the evidence. Lender contends the

trial court erred because the evidence proved HAH’s failure to both remain solvent

and pay its own liabilities only from its own funds as a matter of law. Alternatively,

Lender says, the trial court’s refusal to find a breach of the solvency covenant was

against the great weight and preponderance of the evidence.

20 1. There is not conclusive or overwhelming evidence that HAH failed to remain solvent Although the Loan Agreement contains 15 pages of defined terms, it does not

define a “fail[ure] to remain solvent,” “solvent,” “solvency,” or antonyms

“insolvent” or “insolvency.” Under settled interpretive principles, a contract’s

meaning depends on the contract’s language. Exxon Mobil Corp. v. Ins. Co. of State,

568 S.W.3d 650, 656–57 (Tex. 2019); see URI, Inc. v. Kleberg Cnty., 543 S.W.3d

755, 763 (Tex. 2018) (interpretation of unambiguous contract is question of law

courts review de novo using well-settled contract-construction principles). Our

primary concern in construing a contract is to give effect to the written expression

of the parties’ intent. Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex.

1994). We afford the contract language its plain and ordinary meaning, unless the

instrument indicates terms have been used in a technical or specialized sense. Exxon

Mobil, 568 S.W.3d at 657. “Context is important, so we must examine the entire

writing and will endeavor to harmonize and give effect to all the provisions so that

none are rendered meaningless.” Id.

Lender contends that the phrase “will not . . . fail to remain solvent” must

mean “will not become insolvent,” and that we should apply the plain and ordinary

meaning of the antonym “insolvency” in measuring the evidence. As one Texas

court observed, the meaning of “insolvency” is “not definitely fixed” and “not

always used in the same sense.” Parkway/Lamar Partners, L.P. v. Tom Thumb

21 Stores, Inc., 877 S.W.2d 848, 849 (Tex. App.—Fort Worth 1994, writ denied).

Rather, the meaning depends on “the business or fact situation to which the term

applies.” Id.; cf. 7 COLLIER ON BANKRUPTCY ¶ 101.32[4] (16th ed. 2009) (observing

that litigation on the meaning of insolvency “generates a formidable and, on the

surface, not always consistent stream of adjudications”).

Referencing case law, a legal dictionary, and the statutory definitions in

TUFTA, Lender asserts that “insolvency” in this context has two principal meanings:

(1) an inability to pay debts as they become due (“cash flow insolvency”) or (2) a

balance sheet with liabilities greater than assets (“balance sheet insolvency”). See

D’Olivio v. Fox, No. 05-18-00868-CV, 2020 WL 4047868, at *10 (Tex. App.—

Dallas July 20, 2020, pet. denied) (mem. op.) (defining insolvency to mean “an

inability to pay debts as they mature”); Insolvency, BLACK’S LAW DICTIONARY (11th

ed. 2019) (defining insolvency to mean: “1. The condition of being unable to pay

debts as they fall due or in the usual course of business. 2. The inability to pay debts

as they mature.”); see also TEX. BUS. & COM. CODE § 24.003(a) (“A debtor is

insolvent if the sum of the debtor’s debts is greater than all of the debtor’s assets at

a fair valuation.”); id. § 24.003(b) (“A debtor who is generally not paying the

debtor’s debts as they become due is presumed to be insolvent.”). According to

Lender, no matter which meaning is applied, the evidence showed that HAH failed

22 to remain solvent until “the Debt [was] paid in full,” which Lender defines as at

foreclosure in July 2018.

While HAH and Hosts do not propose a different interpretation of the

solvency covenant, they respond that Lender’s argument fails because (1) expert

testimony on insolvency was required but not presented,10 and (2) the evidence was

not so overwhelming as to mandate reversal under the sufficiency standards of

review. We do not decide the necessity of expert testimony because, even assuming

it was not required, the trial court’s finding that HAH did not breach the solvency

covenant is supported by legally and factually sufficient evidence.

a. Cash flow insolvency

Lender contends that a few facts show that HAH could not pay its debts as

they came due and thus was insolvent under the cash flow test—namely, that HAH

did not make a Loan payment in March 2017 or thereafter, which was an event of

default, and Lender’s subsequent decision to accelerate the Note in April 2017,

which made the full amount of the Note due. In other words, Lender contends that

HAH’s failure to make payments on the Loan itself is a breach of the solvency

covenant that opens HAH and Hosts to full liability.

10 Generally, expert testimony is required when the subject concerns information or knowledge outside that of an ordinary layperson. Roark v. Allen, 633 S.W.2d 804, 809 (Tex. 1982). A failure of proof can result if expert testimony is required but not presented. See FFE Transp. Servs., Inc. v. Fulgham, 154 S.W.3d 84, 92–93 (Tex. 2004). 23 Under the rules of contract interpretation, courts must try to harmonize and

give effect to all provisions of a contract so that none are rendered meaningless.

Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). This means no

single provision controls, and all provisions must be considered with reference to

the entire instrument. Myers v. Gulf Coast Minerals Mgmt. Corp., 361 S.W.2d 193,

196 (Tex. 1962). Reading the Loan Agreement as a whole, a key element of a

nonrecourse loan the isolation of the asset being financed—here, the Property. This

is an essential bargain between a borrower and a lender that permits financing on a

nonrecourse basis: a lender agrees not to pursue recourse liability directly or

indirectly against a borrower or its owners so long as the lender can rely on the

assurance that the financed asset will be isolated from other endeavors, creditors,

and liens related to the borrower or its affiliates. To that end, the Section 6.1

covenants that may create full recourse liability—including the solvency covenant—

serve to preserve the borrower’s status as a single purpose entity and restrain the

borrower from certain behaviors that could put the financed asset at risk. Avasthi &

Assocs., Inc. v. Banik, 343 S.W.3d 260, 264 (Tex. App.—Houston [14th Dist.] 2011,

pet. denied) (“[C]ourts strive to construe a contract to promote mutuality and to

avoid a construction that makes promises illusory.”). In this context, we question

whether a failure to make a Loan payment can be considered a breach of the solvency

covenant and, if so, it would render the promise of a nonrecourse loan illusory. Cf.

24 Borman, LLC v. 18717 Borman, LLC, 777 F.3d 816, 819 (6th Cir. 2015) (“Many in

the [commercial mortgage-backed securities] loan industry intended solvency

covenants to serve as a promise against filing for bankruptcy or colluding in an

involuntary bankruptcy.”).

To prevail on appeal, Lender must point to conclusive or overwhelming

evidence that HAH missed the Loan payments because it was unable to pay. Cain,

709 S.W.2d at 176. With the above concerns in mind and considering the deference

we afford to the trial court’s fact findings, we disagree that the missed payments are

conclusive or overwhelming evidence of HAH’s cash flow insolvency because the

nonpayment evidence is susceptible to more than one reasonable inference. See City

of Keller, 168 S.W.3d at 815 (noting that conclusive evidence has only one logical

inference); Miranda v. Byles, 390 S.W.3d 543, 553 (Tex. App.—Houston [1st Dist.]

2012, pet. denied) (noting that, in a bench trial, trial court determines the credibility

of the witnesses and the weight to be given their testimony).

HAH disputed that it missed the March 2017 and subsequent payments

because it was unable to pay. HAH claimed that the nonpayment was a strategic

choice to force a renegotiation of the Loan’s structure. Lender calls that explanation

into question by pointing to other evidence that suggests HAH was unable to pay.

Specifically, Lender points to the statement from Cunningham, Hosts’ finance

director, to Stanton, Rialto’s loan-workout person, that HAH could not make any

25 further Loan payments and lacked the financial capability to do so. But

Cunningham’s statement was not free from contradiction. He acknowledged that he

did not know if HAH could have paid monthly debt service after March 2017. And

Israni, Hosts’ managing director, testified that it would have been possible for HAH

to make payments between March 2017 and August 2017, when Cuce took over as

receiver, through a capital call. There was also evidence that HAH continued making

capital expenditure payments after the March 2017 default and paid its other debts

as they came due. The trial court was free to believe HAH’s explanation of the

reasons for nonpayment over Lender’s. See Miranda, 390 S.W.3d at 552 (in

resolving factual disputes, the trial court may believe one witness and disbelieve

others).

The trial court could also consider the $1.2 million in reserve funds or the

Property’s multiple sources of revenue from ongoing hotel operations as evidence

of HAH’s ability to pay its debts as they came due. Although less revenue was being

generated because of the economic downturn, the hotel was operational and saw

boosts in connection with the Superbowl and Hurricane Harvey.

On this record, we cannot say Lender proved HAH’s cash flow insolvency as

a matter of law or that the trial court’s refusal to find a cash flow insolvency is against

the great weight and preponderance of the evidence.

26 b. Balance sheet insolvency

Lender’s theory of balance sheet insolvency—liabilities that exceed assets—

—also rests on acceleration of the Note. Lender asserts that when it accelerated the

Note, HAH’s liabilities grew to include the full Note balance of $22 million. But, in

Lender’s estimation, HAH’s only significant asset—the Property—was worth far

less, making HAH insolvent. In support, Lender points to the testimony of two

experts—C. Peckholdt and J. Jaeger—who valued the Property at no more than

$16.1 million, which was substantially less than the accelerated Note. Lender also

points out that HAH did not offer a competing expert opinion on valuation. Still, we

disagree that the expert opinions conclusively proved Lender’s balance sheet theory.

Jaeger’s opinion concerned the value of the Property after foreclosure. And

the trial court expressly found Peckholdt’s valuation was not credible. Peckholdt

testified that, after inspecting the Property, he used an income capitalization

approach to determine the Property’s value. As part of that approach, he estimated

that a buyer would have to spend $10 million in capital expenditures to restabilize

the Property’s occupancy level. Considering the anticipated future capital

expenditures and several other factors, Peckholdt concluded that, as of June 23,

2017, the Property’s fair market value was $16.1 million. He issued a second

appraisal of the Property as of May 22, 2018, again reflecting a value of $16.1

million. But Peckholdt admitted that he forgot to consider taxes in his calculation.

27 After being alerted to the error by Lender’s counsel, and without seeking to amend

his reports, he testified that the Property’s value should be reduced by 20% to $13.2

million.

The trial court was not required to accept Peckholdt’s valuation. Certainly, the

trial court’s credibility decision must be reasonable. City of Keller, 168 S.W.3d at

820 (noting that a trial court cannot ignore undisputed testimony that is clear,

positive, direct, otherwise credible, free from contradictions and inconsistencies, and

could have been readily controverted). Here, it was. While uncontroverted expert

testimony may be conclusive if the expert’s opinion is necessary and the evidence is

otherwise credible and free from contradictions and inconsistencies, Peckholdt’s

opinion was none of those things. See Truck Ins. Exch. v. Smetak, 102 S.W.3d 851,

855 (Tex. App.—Dallas 2003, no pet.) (citing Uniroyal Goodrich Tire Co. v.

Martinez, 977 S.W.2d 328, 338 (Tex. 1998)). He admitted to errors in his

calculation, and HAH’s cross-examination called into question whether he

(1) should have used a sales-comparison approach that would have yielded a higher

valuation and (2) overestimated future capital expenditures. On this record, we

cannot say that Lender established the Property’s value as a matter of law, and thus

we cannot say that Lender established HAH’s balance sheet insolvency as a matter

of law. See Broussard v. Moon, 431 S.W.3d 534, 537 (Tex. 1968) (witness’s

qualification as an expert does not preclude factfinder from exercising considerable

28 discretion in determining degree of reliance to afford expert’s opinion); Eggert v.

State Bar of Tex., 606 S.W.3d 61, 67 (Tex. App.—Houston [1st Dist.] 2020, no pet.)

(trial court as trier of fact was the exclusive judge of the witnesses’ credibility and

the weight to be given their testimony); Olin Corp. v. Smith, 990 S.W.2d 789, 797

(Tex. App.—Austin 1999, pet. denied) (“Opinion testimony does not establish any

material fact as a matter of law and is never binding on the trier of fact.”). Neither

can we say that the trial court’s refusal to find HAH’s insolvency based on Lender’s

balance sheet theory was against the great weight and preponderance of the

evidence.

2. There is not conclusive or overwhelming evidence that HAH failed to pay liabilities only from its own funds Lender argues that it can still prevail on the full recourse claim under the

solvency covenant’s second clause, prohibiting HAH from failing to pay its own

liabilities only from its own funds. Lender asserts that no view of the evidence

supports HAH’s ability to pay liabilities only from its own funds after the March

2017 event of default. Instead, Lender says, the evidence conclusively established

the opposite—“HAH was unable to pay its debt service from its own funds.”

We find this argument unavailing for two reasons. First, the argument rests on

an interpretation of the second clause of the solvency covenant that is functionally

the same as a cash-flow insolvency, which would render the clause duplicative and

thus meaningless. Settled interpretive principles preclude us from rendering part of

29 a contract meaningless. See, e.g., Pathfinder Oil & Gas, Inc. v. Great W. Drilling,

Ltd., 574 S.W.3d 882, 889 (Tex. 2019) (courts must read contract as a whole and try

to harmonize and give effect to all its provisions so that none will be rendered

meaningless).

Second, the argument rests on an interpretation of the solvency covenant that

reads the words “able to” or “ability” into the second clause where they do not

appear. That is, the solvency covenant does not provide that HAH will not fail to

remain solvent or be able to pay its own liabilities only from its own funds. It

provides that HAH will not “fail to remain solvent or pay its own liabilities . . . only

from its own funds.” (Emphasis added.) Because we cannot add words to the Loan

Agreement and must interpret it as is, we conclude the relevant inquiry under this

portion of the solvency covenant is not HAH’s ability to pay its own liabilities from

its own funds, but rather, whether it paid its liabilities using only its funds. See Fortis

Benefits v. Cantu, 234 S.W.3d 642, 649 n.41 (Tex. 2007) (stating that courts should

construe contracts “as is” and not insert language by “judicial fiat”). Lender has not

pointed to any evidence that HAH used someone else’s funds to pay its debts. And

thus, Lender has not shown that the evidence conclusively proved a breach of the

solvency covenant’s second clause or that the trial court’s failure to find a breach of

the solvency covenant’s second clause was against the great weight and

preponderance of the evidence.

30 We overrule Lender’s first through third and sixth issues on breach of the

solvency covenant.11

B. Fraudulent transfer claim

TUFTA prevents debtors from improperly moving assets beyond a creditor’s

reach. See TEX. BUS. & COM. CODE §§ 24.001–.013; Janvey v. Golf Channel, Inc.,

487 S.W.3d 560, 566 (Tex. 2016); see also KCM Fin. LLC v. Bradshaw, 457 S.W.3d

70, 89 (Tex. 2015) (TUFTA’s main goal is “to protect creditors from being

defrauded or left without recourse due to the actions of unscrupulous debtors”).

Consistent with its purpose, TUFTA provides a comprehensive statutory scheme

through which a creditor may seek recourse for a fraudulent transfer of assets or

property. See TEX. BUS. & COM. CODE §§ 24.008–.009; Tel. Equip. Network, Inc. v.

TA/Westchase Place, Ltd., 80 S.W.3d 601, 607 (Tex. App.—Houston [1st Dist.]

2002, no pet.). A transfer made with actual or constructive intent to defraud a creditor

may be avoided to the extent necessary to satisfy the creditor’s claim. See TEX. BUS.

& COM. CODE §§ 24.005(a)(1)–(2), .006(a); Janvey, 487 S.W.3d at 562. A trial court

may also award costs and reasonable attorney’s fees in proceedings under TUFTA.

See TEX. BUS. & COM. CODE § 24.013.

11 Given our holdings, we need not reach Lender’s fourth or fifth issues addressing other elements of the full recourse claim. See TEX. R. APP. P. 47.1. 31 In its seventh, eighth, and ninth issues, Lender argues that the trial court

should have voided the $787,230 transfer from HAH to Harbor because it violated

more than one TUFTA provision.

1. Actual fraud

Lender first argues that the transfer to Harbor was fraudulent under TUFTA

section 24.005(a)(1) because HAH made the transfer with the “actual intent to

hinder, delay, or defraud” Lender. TEX. BUS. & COM. CODE § 24.005(a)(1). Because

direct proof of a fraudulent intent is often unavailable, courts may consider

circumstantial evidence, including the nonexclusive factors listed in TUFTA and

commonly referred to as “badges of fraud.” Walker v. Anderson, 232 S.W.3d 899,

914 (Tex. App.—Dallas 2007, no pet.); Mladenka v. Mladenka, 130 S.W.3d 397,

405 (Tex. App.—Houston [14th Dist.] 2004, no pet.); see TEX. BUS. & COM. CODE

§ 24.005(b). The “badges of fraud” include whether:

(1) the transfer or obligation was to an insider; (2) the debtor retained possession or control of the property transferred after the transfer; (3) the transfer or obligation was concealed;

(4) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit; (5) the transfer was of substantially all the debtor’s assets;

(6) the debtor absconded; (7) the debtor removed or concealed assets;

32 (8) the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;

(9) the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred; (10) the transfer occurred shortly before or shortly after a substantial debt was incurred; and (11) the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

TEX. BUS. & COM. CODE § 24.005(b). “Evidence of a single ‘badge of fraud’ does

not conclusively demonstrate intent, but a confluence of several presents a strong

case of fraud.” Janvey, 487 S.W.3d at 566–67; see Flores v. Robinson Roofing &

Constr. Co., Inc., 161 S.W.3d 750, 755 (Tex. App.—Fort Worth 2005, pet. denied)

(observing that fraudulent intent is deduced from facts and circumstances “the law

considers as mere badges of fraud and not fraud per se,” so “these must be submitted

to the trier of fact, which draws the inferences as to the fairness or fraudulent

characterization of the transaction”).

Relevant here, the trial court concluded that Lender’s actual fraudulent

transfer claim under Section 24.005(a)(1) failed because Lender did not “establish

by a preponderance of the evidence that HAH’s liabilities exceeded its assets or that

HAH was generally not paying its debts as they came due at the time HAH

transferred $787,230 to Pacifica Harbor.” This conclusion relates to the insolvency

definitions in Section 24.003:

33 (a) A debtor is insolvent if the debtor’s debts is greater than all of the debtor’s assets at a fair valuation. (b) A debtor who is generally not paying the debtor’s debts as they become due is presumed to be insolvent.

TEX. BUS. & COM. CODE § 24.003(a), (b). Lender argues that the trial court’s conclusion is erroneous because Lender

did not have to prove HAH’s insolvency to show an actual fraudulent transfer.

Lender is correct. Insolvency is only one indicia of fraud, and Lender was not

required to prove every indicium. See id. § 24.005(b); Janvey, 487 S.W.3d at 566.

But any error in this regard is not dispositive because the trial court also found more

broadly that the HAH transfer to Harbor was not an actual fraudulent transfer.

Lender argues the broader finding is also erroneous because the evidence

showed that:

• HAH was concerned in December 2016 that it might fail its debt-service-coverage-ratio covenants, enabling Wells Fargo to sweep HAH’s cash;

• Three days before the transfer, HAH instructed its bank to turn off the auto debit that enabled Wells Fargo to debit monthly debt service from HAH’s operating account, which put the task of paying the March 2017 debt service in HAH’s hands;

• HAH failed to pay its March 2017 debt service;

• HAH wanted to ensure the transfer occurred before the default, while the Loan was current;

• The transfer was a partner distribution to an insider because Harbor is an 87.47% owner of HAH, see TEX. BUS. & COM. CODE § 24.002(7)(B);

34 • HAH did not tell Lender about the transfer;

• The transfer occurred shortly before HAH incurred a substantial debt— the acceleration of HAH’s debt on April 28, 2017—caused by HAH’s default on the Loan one business day after the transfer; and

• HAH did not receive reasonably equivalent value for the transfer. While this may be some evidence that the transfer was fraudulent in character,

implicating some “badges of fraud,” there was other evidence that supported the

opposite conclusion. As noted by HAH and Harbor, the trial court heard evidence

that the transfer was a partner distribution, like distributions HAH made monthly in

the past before postponing them to save for the upcoming PIP. There was also

evidence that HAH wanted to keep the Property and intended to work out an

agreement to continue making payments, which supported an inference that the

transfer was not actually intended to defraud Lender. Israni testified that HAH had

sufficient funds to pay the March 2017 debt service—due only one business day

after the transfer—but made a strategic decision not to pay to allow “a conversation

with the lender and get the loan restructured.” He also testified that from April

through August 2017, HAH and the other entities had the financial ability to fund

necessary cash through a capital call.

HAH kept making capital expenditure payments after missing the Loan

payment. As late as June 8, 2017, three months after the transfer, HAH and Hosts

kept negotiating with IHG for the final PIP design. Israni testified to his belief that,

35 at all times, HAH had enough money to successfully operate the Property and

perform the PIP. Finally, both Israni and Cunningham testified that there was

“absolutely” no intent on the part of HAH to “hinder, delay, or defraud” Lender.

Considering the conflicting evidence, we cannot say that Lender conclusively

proved that HAH made the transfer to Harbor with the “actual intent to hinder, delay,

or defraud” Lender or that the trial court’s failure to find that HAH had such intent

was so against the great weight and preponderance of the evidence that it is clearly

wrong and unjust. See TEX. BUS. & COM. CODE § 24.005(a)(1); see also In re J.M.T.,

519 S.W.3d 258, 267 (Tex. App.—Houston [1st Dist.] 2017, pet. denied) (in a bench

trial, trial court acts as factfinder in assessing credibility of witnesses, weighing

evidence, and arriving at fact findings).

We overrule Lender’s seventh and eighth issues.

2. Constructive fraud

Lender also contends the HAH transfer was constructively fraudulent. A claim

that a transfer was constructively fraudulent does not require proof that the debtor

actually intended to hinder, delay, or defraud a creditor. Esse v. Empire Energy III,

Ltd., 333 S.W.3d 166, 178 (Tex. App.—Houston [1st Dist.] 2010, pet. denied).

Under Section 24.006(a), HAH’s transfer was constructively fraudulent if (1) Lender

was HAH’s creditor at the time, (2) HAH did not receive a reasonably equivalent

value in exchange for the transfer, and (3) HAH was insolvent at the time or became

36 insolvent because of the transfer. See TEX. BUS. & COM. CODE § 24.006(a). To show

insolvency, Lender had to prove that the sum of HAH’s “debts [was] greater than all

of [its] assets at a fair valuation” or that HAH was “generally not paying [its] debts

as they became due.” TEX. BUS. & COM. CODE § 24.003(a)–(b). TUFTA frames the

latter inquiry as a presumption that “a debtor who is generally not paying [its] debts

as they become due” is insolvent.

According to Lender, the undisputed fact that HAH defaulted on the Loan by

failing to pay the March 2017 debt service is enough to show that HAH failed to pay

a debt when it became due and thus was actually or imminently insolvent for

purposes of constructive fraud under TUFTA. Although they acknowledge that

“generally not paying the debtor’s debts as they become due creates a presumption

of insolvency,” HAH and Harbor assert that a “failure to pay a single debt when it is

due does not establish insolvency as a matter of law.”

In support, HAH and Harbor rely on Janvey v. Dillon Gage, Inc. of Dallas,

856 F.3d 377 (5th Cir. 2017). In Janvey, the Fifth Circuit observed:

The question of insolvency is to be determined as of the time of the conveyance. Various factors are relevant to determine whether a debtor’s payment of its debts shows insolvency. Among them are the number and amount of the unpaid debts in relation to the size of the debtor’s operation; the age and number of unpaid debts; the total amount of indebtedness; and the number of unpaid creditors[.]

Id. at 387 (internal citations and quotations omitted). And it concluded that the

evidence there did not compel the jury to find that the debtor was insolvent at the

37 time of the allegedly fraudulent transfer. Id. at 387–88. The jury heard evidence from

which it could infer that the debtor was generally paying its debts as they came due.

Other than bills owed to the creditor, the evidence did not identify any other bills

that were owed and unpaid. Id. As for the creditor’s debt, the jury heard conflicting

evidence on the debtor’s payment history—there was evidence indicating that the

debtor (1) was a slow-payer, (2) timely paid its bills, (3) had made substantial

payments to its largest creditor. Id. at 383, 387–88.

Lender correctly points out that there are distinguishable facts here—namely,

that the creditor in Janvey was not a mortgagee holding more than 95% of the claims

against the debtor and that HAH ceased entirely paying the Loan beginning with the

March debt service. But other facts minimize the importance of those distinctions.

For instance, at the time of HAH’s transfer to Harbor, only one Loan payment had

been missed and the Loan had not yet been accelerated. HAH presented evidence

that its decision not to make the March payment was strategic—to trigger a

renegotiation of the Loan Agreement’s terms—and not because of an inability to

pay. The evidence also suggested that HAH could make a capital call if additional

funds were needed to pay the debt service. HAH otherwise had a good payment

history and, as the trial court found, was generally paying its other debts as they

came due. We thus cannot say that Lender conclusively proved that HAH was

insolvent at the time or became insolvent because of the transfer, as required under

38 TUFTA. See TEX. BUS. & COM. CODE § 24.006(a); see also In re J.M.T., 519 S.W.3d

at 267. Nor can we say that the trial court’s refusal to find constructive fraud under

TUFTA was against the great weight and preponderance of the evidence.

We overrule Lender’s ninth issue.

C. Breach of Loan Agreement based on Mold and commitment of waste

Despite its general nonrecourse nature, the Loan Agreement made HAH and

Hosts jointly and severally liable for “Losses” due to (1) “any act of actual waste”

by HAH or Hosts, and (2) “the breach of any representation, warranty, covenant or

indemnification set forth in Article 12 [of the Loan Agreement] . . . or in any other

Loan Document concerning environmental laws[.]” Article 12, Section 12.2 of the

Loan Agreement required HAH to (1) keep the Property free of Mold unless it was

“not in a condition, location, or of a type which may pose a risk to human health or

safety or the environment or which may result in damage to or would adversely

affect or impair the value or marketability of the Property” and (2) “use

commercially reasonable efforts” to do so. Any failure by HAH to perform these

obligations is “bad faith waste.”

Lender sought to hold HAH and Hosts liable for repair and remediation costs

under a waste theory based on allegations that HAH did not keep the Property free

of Mold. Lender argues, in its tenth through thirteenth issues, that the trial court erred

in rejecting these breach-of-contract claims because the evidence conclusively

39 established each element of the claims. Alternatively, Lender contends that the trial

court’s no-breach findings and failure to find breaches are against the overwhelming

weight of the evidence.

1. There is not conclusive or overwhelming evidence of Mold

As to Mold on the Property, the trial court found: (1) “HAH used

commercially reasonable efforts to manage mold,” and (2) Lender “failed to

establish by a preponderance of the evidence that any mold at the Property at any

point was ‘Mold,’ as defined in the Loan.” Lender says these findings must be set

aside because conclusive evidence, or the great weight and preponderance of the

evidence, showed the Property “suffered from extensive Mold infestation” and HAH

failed to “commit the resources necessary to diagnose and rectify the spread of

Mold.”

It is undisputed the Property suffered from mold. But whether the mold met

the contractual definition of Mold to create liability under the Loan Agreement and

whether HAH and Host used commercially reasonable efforts to combat it was hotly

contested. In Lender’s view, the testimony and exhibits showed that, “beginning in

August 2015 and for two years, HAH ignored consultants and its own employees,

allowing mold to proliferate and building systems to decay.” Specifically, Lender

points to:

40 • Madden’s email correspondence with Israni and others, in March 2015, expressing concern that the renovation of the Property during the initial PIP would not inhibit mold and mildew issues if the HVAC issues were not addressed.

• Madden’s testimony that he emailed Israni and others in November 2015 about replacing five roof-top air handlers but the work was not authorized during his tenure as general manager.

• The August 2015 Terracon Report recommending 30 items to address faulty HVAC and other mechanical systems and Madden’s testimony that he knew of only two recommendations that were adopted from the Terracon report—replacement of the HVAC systems for a ballroom and a restaurant at the Property.

• HAH’s failure to obtain mold-clearance certificates showing that the mold’s underlying cause was diagnosed and remediated.

• Testimony from the Property’s chief engineer that, after HAH spent $800,000 in 2015 to remediate mold in some hallways and guestrooms, mold persisted.

• The chief engineer’s testimony that HAH used in-house employees to clean the mold instead of outside contractors.

• The MI&T report stating that the mold problem “requires contracting a restoration company for professional remediation,” and that “[i]t is imperative that any source of water intrusion be addressed to ensure mold growth does not return.”

• Testimony that when Cuce took over as receiver in August 2017, 23 PTAC units were missing, 25-40 rooms were unrentable from mold, 38 roof-top air-conditioning units were not fully operational, and the Property suffered from water intrusion.

• Photographs of mold on the Property taken 15 days after Cuce took over.

• Expert testimony from (1) F. McEwen that the Property’s mold was not typical, (2) Daniele that a reasonably prudent hotel owner would not have allowed mold to develop as HAH and Hosts had, and (3) Jaeger

41 that the costs to remediate mold and rectify deferred maintenance reduce a hotel’s value. Even if, as Lender asserts, this is some evidence of Mold that could impair the

value and marketability of the Property and a lack of effort on HAH’s part to resolve

it, we cannot say the evidence is conclusive or even overwhelming, as the standard

of review requires. See Huang, 209 S.W.3d at 677–78. The trial court heard

conflicting evidence about how many rooms were out of order because of missing

FF&E or mold or mildew or both when Cuce assumed control of the Property. In

addition, there was evidence that HAH and Hosts spent $2.6 million to address the

Property’s condition between January 1, 2014 and August 21, 2017. Specifically,

there was evidence that:

• The Property had preexisting mold issues when HAH purchased it, which HAH addressed as part of the initial renovation in 2008.

• HAH chose building materials to minimize the mold both for the initial renovation and again in 2015.

• Madden was always looking for a solution to the mold problem, but the root cause was not discovered.

• HAH continued “fighting” the mold, with Israni testifying that he was committed to “work[ing] hard to take the necessary action to correct the mold/mildew issues.”

• While HAH and Hosts continued to look for—but did not find—the source of the mold issues, they sought to combat the mold with in-house personnel treating the rooms that had mold, through an $800,000 hallway mold remediation in 2015.

• HAH bought 300 new PTAC units between 2010 and early 2017.

42 • HAH retained COIT to clean the PTAC units on an ongoing basis.

• HAH caulked windows to mitigate moisture.

• HAH installed 50-pint dehumidifiers throughout the Property.

• HAH engaged licensed environmental-testing and mold-remediation firms to conduct air-quality tests, develop a remediation protocol, and remediate mold from Fall 2014 through 2015.

• The Property was well ranked among Houston-area hotels.

• No other professional mold remediation was done from the time the receivership began in August 2017 until foreclosure in July 2018.

In short, there was disputed evidence about whether HAH maintained the

Property in a similar condition to others in a hot and humid climate, HAH’s in-house

efforts to combat the mold were sufficient, HAH and Hosts ignored the observations

and recommendations of its employees and outside consultants, and HAH and Hosts

should have explored the cause of the mold further to remediate it more effectively.

Under the standard for sufficiency review, the trial court had discretion to believe or

disbelieve Lender’s evidence and assess the weight and credibility of the evidence.

See, e.g., In re J.P., 526 S.W.3d 770, 778 (Tex. App.—Houston [1st Dist.] 2017, no

pet.) (“In a bench trial, . . . the trial judge is in the best position to observe and assess

the witnesses’ demeanor and credibility, to sense the forces, powers, and influences

that may not be apparent from reading the record on appeal.”). Considering the

deference we must give the trial court’s resolution of underlying facts and credibility

determinations, we hold the evidence is legally and factually sufficient to support

43 the trial court’s findings rejecting Lender’s claim that HAH breached the Loan

Agreement by failing to keep the Property free of Mold and failing to use

commercially reasonable efforts to do so.

We overrule Lender’s tenth and eleventh issues.

2. There is not conclusive or overwhelming evidence of waste

Lender also sought damages for waste under Section 15.1 of the Loan

Agreement, which allows for recovery of “Losses due to . . . any act of actual waste

or arson by [HAH].” The trial court concluded that Lender did not prove by a

preponderance of the evidence that HAH or Hosts committed an act of actual waste

and that “HAH used commercially reasonable efforts to . . . repair, maintain, and

replace mechanical systems in the Property.”

Neither “waste” nor “an act of actual waste” is defined in the Loan Agreement,

and there is no indication the parties intended a technical or specialized meaning. In

rejecting Lender’s breach of contract claim based on waste, the trial court looked to

the common law. While the rules of interpretation require that the contracting

parties’ intent be determined from the language included in their contract, and not

by unexpressed definitions, “[s]ometimes contracts include terms that have common

law significance.” TEC Olmos, LLC v. ConocoPhillips Co., 555 S.W.3d 176, 181

(Tex. App.—Houston [1st Dist.] 2018, pet. denied). “A term’s common-law

meaning will not override the definition given to a contractual term by the

44 contracting parties.” Id. (citing Provident Life & Accident Ins. Co. v. Knott, 128

S.W.3d 211, 217–19 (Tex. 2003)). But we may consider common law rules to “fill

in gaps.” Id. There are gaps.

To establish a claim of waste, a party must show an injury to the reversionary

interest in land caused by the wrongful act of a tenant or other party rightfully in

possession. See R.C. Bowen Est. v. Continental Trailways, 256 S.W.2d 71, 72 (Tex.

1953); King’s Ct. Racquetball v. Dawkins, 62 S.W.3d 229, 232–33 (Tex. App.—

Amarillo 2001, no pet.); Erickson v. Rocco, 433 S.W.2d 746, 751 (Tex. App.—

Houston [14th Dist.] 1968, pet. denied). “Waste includes injury resulting from

failure to exercise reasonable care in preserving the property.” R.C. Bowen Est., 256

S.W.2d at 72; see also RESTATEMENT (THIRD) OF PROP.: MORTGAGES § 4.6(a) (1997)

(“Waste occurs when, without the mortgagee’s consent, the mortgagor:

(1) physically changes the real estate, whether negligently or intentionally, in a

manner that reduces its value.”). A mortgagee may bring an action for waste when

the value of the security is threatened. Taylor v. Brennan, 605 S.W.2d 657, 658 (Tex.

App.—Houston [1st Dist.] 1980), rev’d in part on other grounds, 621 S.W.2d 592

(Tex. 1981); Brader v. Ellinghausen, 154 S.W.2d 662, 665 (Tex. Civ. App.—Fort

Worth 1941, no writ).

In support of its contention that HAH committed waste by failing to

reasonably maintain the Property, Lender cites several cases for the proposition that

45 waste is shown when a property experienced mold, leaks, or broken and missing

appliances. See, e.g., Wells Fargo Bank, N.A. v. H.B. Regal Parc, LLC, 383 S.W.3d

253, 256, 258–59 (Tex. App.—Dallas 2012, no pet.) (waste found when property

suffered roof leaks and plumbing and electrical issues); White v. MLMT 2004-BPC1

Carlyle Crossing, LLC, No. 02-10-00233-CV, 2011 WL 3672022, at *3 (Tex.

App.—Fort Worth Aug. 18, 2011, pet. denied) (mem. op.) (waste found when “mold

had grown on the walls, carpets, and flooring” of the apartment complex, sheetrock

was missing, and air-conditioning units and other appliances were removed from

units); Fath v. CSFB 1999 C-1 Rockhaven Place Ltd. P’ship, 303 S.W.3d 1, 4, 8

(Tex. App.—Dallas 2009, pet. denied) (waste found when property suffered mold,

water leaks, broken appliances and some units were gutted).

As Lender points out, the trial court made relevant findings that, (1) as early

as Summer 2014 and into 2015, the Property experienced “air-quality and mold and

mildew issues along with operational problems associated with aged mechanical

equipment and systems,” and (2) “[t]he item included on [Lender’s] deferred

maintenance list were original equipment that were beyond their useful life or

impacted by normal wear and tear,” which seem to support a waste finding or at least

call into question the trial court’s refusal to find waste. But those findings must be

balanced against case law instructing that waste excludes ordinary wear and tear or

equipment that has merely reached the end of its useful life or suffered depreciation.

46 See, e.g., White, 2011 WL 3672022, at *3 (considering evidence that damage to

property was not attributable to ordinary wear in evaluating waste claim); Hill v.

Jarvis, No. 12-07-00091-CV, 2008 WL 2571753, at *3 (Tex. App.—Tyler June 30,

2008, pet. denied) (mem. op.) (acknowledging that “the term ‘waste’ does not

include ordinary depreciation due to age or use”); Gulf Oil Corp. v. Horton, 143

S.W.2d 132, 134 (Tex. Civ. App.—Amarillo 1940, no writ) (“The law imposes upon

a tenant or lessee the duty to take good care of the premises, wear and tear excepted,

and this obligation is implied where not expressly waived whether written into the

lease contract or not.”); accord Vogel v. Pardon, 444 N.W.2d 348, 350 (N.D. 1989)

(“[T]he object of an award of damages in an action for waste is to compensate

without unjust enrichment.”). Given the conflicting evidence of HAH’s efforts to

maintain the Property and its mechanical equipment and the trial court’s discretion

as factfinder to weigh that evidence and assess its credibility, see In re J.P., 526

S.W.3d at 778, we cannot say the record conclusively shows waste. Nor can we say

that the trial court’s failure to find waste was against the great weight and

preponderance of the evidence. See id.

We overrule Lender’s twelfth issue. Given this disposition, we do not reach

Lender’s thirteenth issue on damages for the waste claim. See TEX. R. APP. P. 47.1.

47 IV. Counterclaims

A. Declaratory judgment for appellees

In its fourteenth issue, Lender argues that the trial court erred by granting

relief on Appellees’ declaratory-judgment counterclaim because it merely

duplicated the issues raised by Lender. Generally, the Texas Declaratory Judgments

Act is not available to settle disputes already pending before a court. See Hous.

Aeronautical Heritage Soc’y, Inc. v. Graves, No. 01-12-006443-CV, 2013 WL

6506301, at *5 (Tex. App.—Houston [1st Dist.] Dec. 10, 2013, no pet.) (mem. op.)

(declaratory judgment statute cannot be relied on to convert all actions into

declaratory judgment actions); Universal Printing Co. v. Premier Victorian Homes,

Inc., 73 S.W.3d 283, 296 (Tex. App.—Houston [1st Dist.] 2001, pet. denied) (same).

While this general rule precludes a counterclaim that presents nothing more than a

denial of the plaintiff’s claim, a counterclaim seeking affirmative relief is allowed.

Graves, 2013 WL 6506301, at *5 (recognizing possibility that a defensive

declaratory judgment may present issues beyond those raised by plaintiff).

Without deciding which side of the rule Appellees’ declaratory-judgment

counterclaim fell on, we conclude that any error is harmless because the

counterclaim did not have any practical effect on the outcome. No attorney’s fees

were awarded on the declaratory-judgment counterclaim, and Appellees have

requested none on appeal. See Encore Int’l Inv. Funds, LLC v. 2608 Inwood, Ltd.,

48 No. 05-19-00070-CV, 2020 WL 1685420, at *3 (Tex. App.—Dallas Apr. 7, 2020,

no pet.) (mem. op.) (concluding that any error in allowing declaratory-judgment

claim was harmless because declarations “added nothing to what would be implicit

in a final judgment on the defenses raised”). Appellees thus received no additional

relief through declaratory judgment beyond what they would have obtained had the

trial court entered a final judgment based only on their defenses, absent the

declarations. See id.; see also TEX. R. APP. P. 44.1.

We overrule Lender’s fourteenth issue.

B. Attorney’s fees for Harbor

Lender’s fifteenth, sixteenth, and seventeenth issues challenge the trial court’s

decision to award Harbor attorney’s fees for successfully defending against Lender’s

TUFTA claim. Lender contends:

(1) Harbor’s live pleading did not request fees under TUFTA;

(2) Harbor’s post-trial motion for judgment, which requested fees under TUFTA for the first time, is not a proper trial amendment; (3) only a plaintiff may recover fees under TUFTA;

(4) the fees award is not equitable or just; (5) Harbor’s fees evidence exceeded the scope of the expert designation; and

(6) the amount awarded is not supported by legally or factually sufficient evidence because it includes fees for unrecoverable claims.

49 1. Pleading requirement

Generally, in Texas, each party must pay its own attorney’s fees. Rohrmoos

Venture v. UTSW DVA Healthcare, LLP, 578 S.W.3d 469, 483 (Tex. 2019).

However, there are certain circumstances in which a party may recover attorney’s

fees from the opposing party, such as when fee-shifting is authorized by statute or

contract. Id. at 484. TUFTA authorizes the shifting of attorney’s fees in certain

situations. Under Section 24.013, the trial court “may award costs and reasonable

attorney’s fees as are equitable and just.” TEX. BUS. & COM. CODE § 24.013.

Attorney’s fees under this statute are discretionary, not mandatory. See id.; see also

Tanguy v. Laux, No. 01-13-00501-CV, 2015 WL 3908186, at *6–7 (Tex. App.—

Houston [1st Dist.] June 25, 2015, pet. denied) (mem. op.) (citing Bocquet v.

Herring, 972 S.W.2d 19, 20–21 (Tex. 1998)). In the absence of a mandatory statute,

a judgment awarding attorney’s fees must be supported by proper pleadings or tried

by consent. In re Est. of Gaines, 262 S.W.3d 50, 60 (Tex. App.—Houston [14th

Dist.] 2008, no pet.).

No party argues that Lender tried the issue of Harbor’s fees under TUFTA by

consent. Instead, the parties’ dispute turns on Harbor’s pleadings. Harbor’s live

pleading at trial did not request attorney’s fees under TUFTA. Instead, it requested

attorney’s fees specifically under the Declaratory Judgments Act and generally for

“prosecuting” its counterclaim through trial and appeal. See TEX. CIV. PRAC. & REM.

50 CODE § 37.009. Harbor’s only counterclaim in the live pleading was for declaratory

relief, including declarations that the pre-default cash transfer from HAH was not

fraudulent under TUFTA. Harbor requested fees under TUFTA for the first time in

a motion for judgment filed seven months after trial. The trial court concluded that

the posttrial motion served as a trial amendment and granted it.

Trial amendments are governed by Texas Rule of Civil Procedure 66, which

provides that a trial court may allow amendments and shall do so when the

amendment would serve the presentation of the merits without prejudicing the

opposing party’s action or defense on the merits. See TEX. R. CIV. P. 66. Under the

rule, “[a] trial court has no discretion to refuse a trial amendment unless: (1) the

opposing party presents evidence of surprise or prejudice, or (2) the amendment is

prejudicial on its face because it asserts a new cause of action or defense, and the

opposing party objects to the amendment.” Tanglewood Homes Ass’n, Inc. v.

Feldman, 436 S.W.3d 48, 64 (Tex. App.—Houston [14th Dist.] 2014, pet. denied).

Trial amendments that are procedural in nature—such as conforming the pleadings

to the evidence at trial—must be allowed. Id. But substantive amendments—those

that change the nature of the trial—are discretionary. Id. The trial court’s decision

to allow or deny them may be reversed only for a clear abuse of discretion. Id.; see

also State Bar of Tex. v. Kilpatrick, 874 S.W.2d 656, 658 (Tex. 1994).

51 To determine prejudice, we evaluate a trial amendment in the context of the

entire case. Tanglewood Homes Ass’n, 436 S.W.3d at 64. An amendment asserting

a new cause of action is prejudicial on its face if (1) the amendment asserts a new

substantive matter that reshapes the nature of the trial itself; (2) the new matter is of

such a nature that the opposing party could not have anticipated the development

before the amendment was requested; and (3) the opposing party’s presentation of

its case would be detrimentally affected by the amendment. Id.

Consistent with this scheme, several courts of appeals have allowed a request

for attorney’s fees made after trial, but before judgment, to serve as a trial

amendment when the request did not assert a new cause of action and the opposing

party did not present evidence of surprise. See, e.g., Est. of Wright, 482 S.W.3d 650,

660–61 (Tex. App.—Houston [14th Dist.] 2015, pet. denied) (allowing posttrial,

prejudgment filing to serve as trial amendment for fees because party seeking them

included request for fees in proper pleadings and opposing party did not allege

surprise); Nisby v. Dentsply Int’l, Inc., No. 05-14-00814-CV, 2015 WL 2196627, at

*1 (Tex. App.—Dallas May 11, 2015, no pet.) (mem. op.) (holding, without

discussing surprise or prejudice, that post-verdict motion for judgment that requested

attorney’s fees supported fees award); Good v. Baker, 339 S.W.3d 260, 267 (Tex.

App.—Texarkana 2011, pet. denied) (holding posttrial, prejudgment motion for

attorney’s fees based on permissive statute was trial amendment supporting fees

52 award); Swate v. Medina Cmty. Hosp., 966 S.W.2d 693, 701–02 (Tex. App.—San

Antonio 1998, pet. denied) (holding post-verdict, prejudgment motion for fees

served as trial amendment supporting fees award).

Lender argues that, unlike the appellants in those cases, it proved surprise and

prejudice. Relying on this Court’s authority characterizing affirmative claims for

fees based on “preparation and prosecution of a defense” as counterclaims, see

Bacon Tomsons, Ltd. v. Chrisjo Energy, Inc., No. 01-15-00305-CV, 2016 WL

4217254, at *10 (Tex. App.—Houston [1st Dist.] Aug. 9, 2016, no pet.) (mem. op.),

Lender asserts that Harbor’s posttrial request for TUFTA fees asserted a new cause

of action that reshaped the nature of the trial. Lender asserts that it could not

anticipate that Harbor would make a claim for TUFTA fees because Harbor had

previously limited its fees requests to the Declaratory Judgments Act. And had

Lender known Harbor would ask for fees under TUFTA, it might have used a

different trial strategy:

Lender sought just $787,230 in damages in connection with its TUFTA claims, compared to $10 million-plus it sought for its full-recourse claim for HAH’s breach of the Solvency Covenants. Because . . . it cannot recover more than the Deficiency, [Lender] may have pursued only its breach-of-contract claims rather than also seeking relief under TUFTA that, if denied, could have warranted the award of attorney’s fees against Lender. (Citations omitted.) Prejudice exists, Lender says, because it lost the opportunity to

make that strategic decision.

53 We conclude that even if Harbor’s posttrial motion asserted a new cause of

action for fees under TUFTA, the trial court was not required to reject the

amendment. See Kilpatrick, 874 S.W.2d at 658; Tanglewood Homes Ass’n, 435

S.W.3d at 65 (“[A] discretionary trial amendment should not be rejected simply

because it alleges a new cause of action.”). Considering the context of the entire

case, the trial court could reasonably conclude that the trial amendment did not

prejudice Lender because it did not reshape the nature of the case. See Tanglewood

Homes Ass’n, 436 S.W.3d at 65.

Lender knew throughout the trial proceedings that it would have to defend

against a fees award to Harbor. Harbor requested fees in each of its pretrial pleadings

and designated an expert to testify about its fees. Lender agreed with Harbor to

resolve the fees issue after trial. The trial court also could reasonably conclude that

Lender could anticipate the trial amendment. See id. Although Harbor’s pretrial fees

requests were under the Declaratory Judgments Act, it sought declarations related to

TUFTA. And as explained below, TUFTA gives the trial court broad discretion to

award fees based on what it finds is equitable and just. See TEX. BUS. & COM. CODE

§ 24.013. Finally, the fact that the fees issue was resolved on the parties’

agreed-upon timeline and did not require Lender to address or rebut any new

witnesses could have led the trial court to reasonably conclude the amendment did

not detrimentally impact the presentation of Lender’s case. See Tanglewood Homes

54 Ass’n, 436 S.W.3d at 65. On this record, we cannot say that the trial court abused its

discretion by allowing Harbor’s posttrial motion for judgment to serve as a trial

amendment for TUFTA fees.

2. Statutory limitations on fees

Lender also argues that the fees award must be set aside because it does not

comply with certain statutory limitations on such awards. Specifically, Lender

contends: (1) Harbor cannot recover fees because it is not the intended beneficiary

of the TUFTA fees provision and (2) the fees award is not equitable or just.

Lender’s first argument rests on the premise that TUFTA does not allow

defendants who defeat fraudulent transfer claims to recover fees. Considering

TUFTA’s purpose “to prevent a debtor from defrauding its creditors by moving

assets out of reach,” Citizens Nat’l Bank of Tex. v. NXS Constr., Inc., 387 S.W.3d

74, 79 (Tex. App.—Houston [1st Dist.] 2012, pet. denied), Lender asserts that the

Legislature intended the fees provision “to make successful plaintiffs whole by

obtaining attorney’s fees they incurred in recovering fraudulent transfers.”

(Emphasis in original.) Whether attorney’s fees are available under a particular

statute depends on statutory construction, which is a question of law we review de

novo. See Holland v. Wal-Mart Stores, Inc., 1 S.W.3d 91, 94 (Tex. 1999) (per

curiam).

55 While the overriding goal of statutory construction is to discern the

Legislature’s intent, we identify that intent by looking to the statute’s plain language.

See Lippincott v. Whisenhunt, 462 S.W.3d 507, 509 (Tex. 2015) (per curiam);

TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432, 439 (Tex. 2011); see also

TEX. GOV’T CODE § 312.005. Section 24.013 of TUFTA provides that, “[i]n any

proceeding under this chapter, the court may award costs and reasonable attorney’s

fees as are equitable and just.” TEX. BUS. & COM. CODE § 24.013. This Court has

interpreted Section 24.013 as giving the trial court discretion to award fees or not.

See Tanguy v. Laux, No. 01-13-00501-CV, 2015 WL 3908186, at *6–7 (Tex. App.—

Houston [1st Dist.] June 25, 2015, pet. denied) (mem. op.). Considering the statute’s

plain language, we do not agree with Lender that the trial court’s discretion to award

fees is limited to plaintiffs.

Unlike other statutes, TUFTA does not use words requiring or limiting an

award of fees to a particular party. Compare TEX. BUS. & COM. CODE § 24.013, with

id. § 17.50(d) (“Each consumer who prevails shall be awarded court costs and

reasonable and necessary attorney’s fees.”); TEX. CIV. PRAC. & REM. CODE

§ 38.001(b) (“A person may recover reasonable attorney’s fees from an individual

or organization other than a quasi-governmental entity authorized to perform a

function by state law . . . .”); TEX. ELEC. CODE § 253.131(e) (“Reasonable attorney’s

fees incurred in the suit may be awarded to the defendant if judgment is rendered in

56 the defendant’s favor.”). That is, TUFTA does not say that a specific party “may

recover,” “shall be awarded,” or “is entitled to” attorney’s fees. See TEX. BUS. &

COM. CODE § 24.013. It says only that “the court may” award fees. See id. (emphasis

added). We will not add words to the statute. See ExxonMobil v. Coleman, 512

S.W.3d 895, 900–01 (Tex. 2017) (instructing that “[a] court may not judicially

amend a statute by adding words that are not contained in the language of the statute”

and must instead “apply the statute as written”).

In Bocquet v. Herring, the Texas Supreme Court considered nearly identical

language in the Declaratory Judgments Act providing that “the court may award

costs and reasonable and necessary attorney’s fees as are equitable and just.” 12 See

972 S.W.2d 19, 20–21 (Tex. 1998) (construing TEX. CIV. PRAC. & REM. CODE

§ 37.009). The Court explained that the statute “does not require an award of

attorney fees to the prevailing party,” but instead “affords the trial court a measure

of discretion in deciding whether to award attorney fees or not.” Id. at 20 (noting

“[t]he same is true of other statutes that provide a court ‘may’ award attorney’s

fees”). The Declaratory Judgments Act limits the trial court’s discretion only as to

12 The only difference is that the Declaratory Judgments Act references “reasonable and necessary attorney’s fees” whereas TUFTA references only “reasonable attorney’s fees.” Compare TEX. CIV. PRAC. & REM. CODE § 37.009, with TEX. BUS. & COM. CODE § 24.013. 57 the requirements that any fees awarded are reasonable and necessary, which are

matters of fact, and equitable and just, which are matters of law. Id.

We conclude the same is true under TUFTA as to the reasonableness, equity,

and justice of fees awards. See Tanguy, 2015 WL 3908186, at *7 (considering

whether trial court abused its discretion by awarding fees under TUFTA without

sufficient evidence that fees were reasonable or by awarding fees that were

inequitable or unjust”). And we decline to adopt an interpretation of Section 24.013

that limits the trial court’s discretion further by authorizing fees only for prevailing

plaintiffs and not prevailing defendants. Cf. Janvey v. Dillon Gage, Inc. of Dall., 856

F.3d 377, 393 (5th Cir. 2017) (referring to parties eligible for fees under TUFTA as

“prevailing plaintiffs” or “prevailing defendants”); Cypers v. Bankcard Cent., LLC,

No. 4:21-cv-00382, 2024 WL 1257482, at *2 (E.D. Tex. Mar. 25, 2004) (mem.

order) (describing TUFTA’s fees provision as allowing recovery by parties who

“either successfully bring or defend a TUFTA claim”).

Lender’s second argument—that the trial court erred by answering the legal

question of equity and justice in Harbor’s favor—rests on a multi-factor test from a

federal case. See Janvey, 856 F.3d at 393. In Janvey, the federal appeals court found

a number of factors “relevant to determining whether a fee award is ‘equitable and

just’ under TUFTA, including: (1) whether the case involved egregious conduct;

(2) whether an award of fees accomplishes the goals of TUFTA; (3) the evidence

58 heard by the trial court; and (4) ‘evidence of bad faith, vexation, wantonness,

oppression, or harassment relating to the filing or the maintenance of this action[.]’”

Id. (citations omitted). The court derived the factors from various authorities,

primarily bankruptcy cases. See id. (citing bankruptcy cases for first, second, and

fourth factors). Only one Texas case is cited. See id. (citing Citizens Nat’l Bank of

Tex., 387 S.W.3d at 87, in support of the third factor looking to “the evidence heard

by the trial court”). And notably, the Texas Supreme Court has not adopted the

Janvey factors.13

As an intermediate court of appeals, we decline to adopt a new standard for

determining whether an award of fees is “equitable and just” under Section 24.013.

Instead, we look again to the Texas Supreme Court’s guidance under the Declaratory

Judgments Act. See Jaster v. Comet II Constr., Inc., 438 S.W.3d 556, 563 (Tex.

2014) (to determine common, ordinary meaning of statutory language, courts look

to “a wide variety of sources, including, . . . the uses and definitions of the word in

other statutes”). In that context, whether it is “equitable and just” to award attorney’s

fees depends not on direct proof, but on the concept of fairness, considering all the

circumstances of the case. Ridge Oil Co. v. Guinn Invs., Inc., 148 S.W.3d 143, 162

13 We found only one Texas court—the Dallas Court of Appeals—that cited the Janvey factors, but that court never applied them. See Porter v. Summitbridge Nat’l Invs. III LLC, No. 05-19-01052-CV, 2020 WL 4815049, at *6 (Tex. App.—Dallas Aug. 19, 2020, no pet.) (mem. op.).

59 (Tex. 2004); see also Bocquet, 972 S.W.2d at 21 (“Matters of equity are addressed

to the trial court’s discretion. So is the responsibility for just decisions.” (citations

omitted)). Because nothing in the record makes the trial court’s finding that equity

and justice favored an award of reasonable fees to Harbor arbitrary or unreasonable,

we cannot conclude that the trial court erred. See id.; Bocquet, 972 S.W.2d at 20–21.

3. Fees expert designation

Lender argues that there is legally insufficient evidence to support the fees

award because Harbor’s expert was designated only for fees “incurred by

[Appellees] in prosecuting any counterclaims in this lawsuit,” not for fees incurred

in defending Lender’s claims.

Under the Texas Rules of Appellate Procedure, Lender’s brief must contain

“a clear and concise argument for the contentions made, with appropriate citations

to authorities and to the record.” TEX. R. APP. P. 38.1(i). While Lender cites the

relevant materials in the appellate record, it offers no legal authority for its

contention beyond a general citation to case law requiring attorney’s fees awards to

be supported by expert testimony. See Brown v. Traylor, 210 S.W.3d 648, 658 (Tex.

App.—Houston [1st Dist.] 2006, no pet.) (considering defendant’s argument that

neither plaintiff’s testimony nor fee statements admitted into evidence could

substitute for expert testimony proving up amount of fees). This citation does not

address Lender’s complaint that Harbor’s fees expert was not properly designated.

60 Lender clarifies in a reply brief footnote that it is complaining under the

“fundamental” rule that “an improperly designated expert must be stricken,” citing

Texas Rule of Civil Procedure 193.6. But neither of Lender’s briefs addresses Rule

193.6’s standard for exclusion of evidence.14 See TEX. R. CIV. P. 193.6 (testimony

from witness who is not timely identified must be excluded unless court finds

“(1) there was good cause for the failure to timely make, amend, or supplement the

discovery response; or (2) the failure to timely make, amend, or supplement the

discovery response will not unfairly surprise or unfairly prejudice the other parties”).

When an appellate issue is unsupported by argument, nothing is presented for our

review. See Guimaraes v. Brann, 562 S.W.3d 521, 538 (Tex. App.—Houston [1st

Dist.] 2018, pet. denied); Valadez v. Avita, 238 S.W.3d 843, 845 (Tex. App.—El

Paso 2007, no pet.).

4. Amount of attorney’s fees

Lender also argues that the trial court erred in awarding attorney’s fees to

Harbor because Harbor did not meet its burden to prove the amount of recoverable

fees.15 Again, each party must pay its own attorney’s fees unless a statute or contract

14 Lender has discussed surprise and prejudice as to the trial amendment allowing Harbor to request fees under TUFTA under TEX. R. CIV. P. 66, but not as to Harbor’s fees expert under TEX. R. CIV. P. 193.6. 15 We note Harbor’s argument that Lender waived this issue by objecting only generally to a lack of fee segregation. We find Lender’s objections that Harbor failed to segregate the fees it incurred for defending the “TUFTA claims and insolvency issues at the time of [the allegedly fraudulent transfer]” from HAH’s insolvency “at 61 authorizes fee-shifting. Rohrmoos Venture, 578 S.W.3d at 483–84. When

fee-shifting is authorized, the factfinder must determine the reasonable hours worked

multiplied by a reasonable hourly rate. Id. at 498. We presume this base lodestar

calculation is the reasonable and necessary amount of attorney’s fees to be shifted

to the opposing party, so long as the amount is supported by sufficient evidence. Id.

at 499. Sufficient evidence includes evidence of “(1) particular services performed;

(2) who performed those services; (3) approximately when the services were

performed; (4) the reasonable amount of time required to perform the services; and

(5) the reasonable hourly rate for each person performing such services.” Id. at 498.

The fee claimant bears the burden of proving the reasonableness of the amount

awarded. El Apple I, Ltd. v. Olivas, 370 S.W.3d 757, 762–64 (Tex. 2012). If the

opposing party wants to reduce the amount of attorney’s fees awarded, that party

must provide specific evidence to overcome the presumption of reasonableness.

Rohrmoos Venture, 578 S.W.3d at 501.

Because attorney’s fees are recoverable only when authorized by statute or

contract, a fee claimant must segregate attorney’s fees that are recoverable from

other periods” is sufficiently specific to preserve the issue for appellate review. Cf. Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 10 (Tex. 1991) (holding that the following objection was sufficient to preserve error: “[T]here has been no breakdown or allocation . . . of the fees incurred in connection with this defendant, as well as numerous other defendants, in order to show what is allocable as a reasonable amount for the prosecution of the suit against this defendant” (emphasis omitted)). 62 those that are not. Kinsel v. Lindsey, 526 S.W.3d 411, 427 (Tex. 2017); Tony Gullo

Motors I, L.P. v. Chapa, 212 S.W.3d 299, 310–11 (Tex. 2006). When a lawsuit

involves multiple parties, the fee claimant must also “segregate recoverable fees

from those incurred by parties or on claims for which fees are not recoverable.”

Clearview Props., L.P. v. Prop. Tex. SC One Corp., 287 S.W.3d 132, 143 (Tex.

App.—Houston [14th Dist.] 2009, pet. denied); see also French v. Moore, 169

S.W.3d 1, 17 (Tex. App.—Houston [1st Dist.] 2004, no pet.) (“A party seeking

attorney fees has a duty to segregate nonrecoverable fees from recoverable fees, and

to segregate the fees owed by different parties.”).

An exception to the rule on segregation exists “when the services for which

the fees are incurred ‘advance both a recoverable and unrecoverable claim,’ such

that the ‘fees are so intertwined that they need not be segregated.’” Transcor Astra

Grp. S.A. v. Petrobras Am., Inc., 650 S.W.3d 462, 482–83 (Tex. 2022) (quoting

Chapa, 212 S.W.3d at 313–14). But intertwined facts do not make otherwise

unrecoverable fees recoverable. Chapa, 212 S.W.3d at 313–14. “[I]t is only when

discrete legal services advance both a recoverable and unrecoverable claim that they

are so intertwined that they need not be segregated.” Id.

In making this determination, “we do not look at the legal work as a whole

but parse the work into component tasks, such as examining a pleading paragraph

by paragraph to determine which ones relate to recoverable claims.” Clearview

63 Props., 287 S.W.3d at 144; see Chapa, 212 S.W.3d at 313 (stating that when

plaintiff’s attorneys were “drafting [plaintiff’s] pleadings or the jury charge relating

to fraud, there is no question those fees were not recoverable”). Unrecoverable fees

are not rendered recoverable “merely because they are nominal.” Chapa, 212

S.W.3d at 313. The party seeking recovery of attorney’s fees must show that

segregation is not required. Sustainable Tex. Oyster Res. Mgmt., L.L.C. v. Hannah

Reef, Inc., 623 S.W.3d 851, 872 (Tex. App.—Houston [1st Dist.] 2020, pet. denied).

The need to segregate attorney’s fees is a question of law, and the extent to

which claims can or cannot be segregated is a mixed question of law and fact. Chapa,

212 S.W.3d at 312–13 (“how hard something was to discover and prove, how

strongly it supported particular inferences or conclusions, how much difference it

might make to the verdict, and a host of other details that include judgment and

credibility questions about who had to do what and what it was worth” may render

extent to which certain claims are subject to segregation a mixed question of law and

fact). When a fee claimant fails to properly segregate attorney’s fees, we may remand

the issue to the trial court for reconsideration. Kinsel, 526 S.W.3d at 428; Chapa,

212 S.W.3d at 314.

Several things are not disputed here. There is no dispute that only one claim

allowed for the recovery of attorney’s fees: the TUFTA claim against Harbor. See

TEX. BUS. & COM. CODE § 24.013. There is no dispute that the fees for the claims

64 against HAH and Hosts were not recoverable and that the fees for those claims

should have been segregated from the fees for the TUFTA claims to the extent

possible. And there is no dispute that Harbor segregated some fees. The dispute is

whether Harbor adequately segregated its attorney’s fees. Lender contends Harbor

did not adequately segregate the recoverable and the unrecoverable attorney’s fees,

making the amount awarded unreasonable. Harbor responds that it segregated the

fees that could be segregated, but the rest could not be segregated because they were

for legal services that advanced both recoverable and unrecoverable claims.

The same counsel represented all three Appellees. By affidavit, counsel

testified that he was engaged to represent HAH, Hosts, and Harbor in February 2019,

more than a year after HAH and Hosts were sued by Lender and about two months

after Lender amended its petition to include the TUFTA claims against Harbor.

Appellees incurred $1,778,314.50 in fees to defend “the entirety of [Lender’s] suit,”

$318,565.35 (or about 18%) of which counsel attributed to the defense of Lender’s

TUFTA claims. Counsel explained that the fees requested by Harbor for defense of

the TUFTA claim included those for the legal services he and other attorneys

performed to defend against Lender’s allegation that HAH was insolvent. According

to counsel,

To prevail on its fraudulent transfer claims, . . . [Lender had] to prove that HAH made the transfers when it was insolvent or when it reasonably should have believed it would incur debts that could not be paid when they became due. . . . [Lender] also had to prove HAH’s 65 insolvency to prevail on its full recourse claim under the Loan. As a result, attorneys’ fees expended on the insolvency issue necessarily advanced [Appellees’] successful defense of both the TUFTA claims and the full recourse claim under the Loan.

He set out the TUFTA-related fees in a table organized by category and description

of work, hours worked, and hourly rate. Counsel stated his opinion that the rates

were reasonable. And he attached to his affidavit redacted billing records detailing

dates, hours spent, hourly rate, and narrative description of the legal services that

advanced the TUFTA defense.

The trial court agreed with counsel and concluded that the fees incurred in

defending the allegation that HAH was insolvent advanced both the defense of the

TUFTA claims, for which fees were recoverable, and the defense of Lender’s full

recourse claim under the Loan Agreement, for which fees were not recoverable. And

thus, Harbor did not have to “segregate attorney’s fees relating to insolvency

between those claims.” The trial court awarded Harbor all the trial fees it requested.

Lender argues that the amount awarded was not reasonable because, although

Harbor segregated some unrecoverable fees, it did not segregate all unrecoverable

fees. In support, Lender asserts that insolvency was “a common element of proof”

for the full recourse and TUFTA claims only as to HAH’s status in March 2017,

when the alleged fraudulent transfer occurred. See TEX. BUS. & COM. CODE

§ 24.006(a) (requiring proof that “debtor was insolvent at the time [of the transfer]

or . . . became insolvent as a result of the transfer or obligation”). By failing to limit

66 the award to the fees related to defending HAH’s solvency around the time of the

transfer, Lender says, the trial court awarded fees for unrecoverable claims.

We agree with Lender that at least some of the work performed by counsel

related solely to unrecoverable claims. For example, Harbor requested fees to

prepare cross-examination of Lender’s valuation expert Jaeger. Jaeger opined on the

value of the Property in July 2018—more than 16 months after the alleged fraudulent

transfer—and whether costs to remediate mold and address deferred maintenance

reduced a hotel’s value. The value of the Property in July 2018 is unrelated to the

question of HAH’s solvency in March 2017. Harbor responds that counsel’s

preparation of Jaeger’s cross-examination advanced the defense of the TUFTA claim

because “the trial court struck Lender’s untimely solvency expert before trial,”

Lender tried to get around that ruling through the testimony of its other experts, and

Harbor needed to be ready to prevent the other experts, including Jaeger, from

testifying beyond their designations. But the example Harbor gives in support of this

concern relates to the reasonableness of PIP costs included in the July 2018

appraisal. This unrecoverable fee should have been segregated from the recoverable

fees.16 See Sustainable Tex. Oyster Res. Mgmt., 623 S.W.3d at 873 (“If any of the

component tasks relate solely to a cause of action for which legal fees are not

16 We are not suggesting that there are no additional attorney’s fees that may need to be segregated. We are using the unrecoverable fees incurred in preparing cross-examination only as an example. 67 recoverable, the claimant must segregate the fees.”); see also Hillegeist Fam.

Enters., LLP v. Hillegeist, 667 S.W.3d 349, 359–60 (Tex. App.—Houston [1st Dist.]

2022, no pet.) (party opposing fee award overcame presumptive reasonableness of

fee claimant’s base lodestar figure where fee claimant attempted to reduce incurred

fees by select units of time for unrecoverable but unrecoverable fees remained).

Still, Harbor provided at least some evidence of the amount of fees it should

be awarded. See Chapa, 212 S.W.3d at 314 (“Unsegregated attorney’s fees for the

entire case are some evidence of what the segregated amount should be.”). Its failure

to segregate some unrecoverable attorney’s fees does not preclude a recovery of

attorney’s fees. Kinsel, 526 S.W.3d at 428. The appropriate remedy is to remand the

issue to the trial court “for reconsideration with sufficiently detailed information for

a meaningful review of the fees sought.” Id.

We therefore sustain Lender’s complaint that Harbor failed to adequately

segregate its attorney’s fees. We overrule the rest of the complaints in Lender’s

fifteenth, sixteenth, and seventeenth issues on attorney’s fees.

V. Conclusion

We reverse the portion of the trial court’s judgment awarding attorney’s fees

to Harbor, affirm the remainder of the judgment, and remand the case to the trial

court for a new trial limited to the issue of Harbor’s reasonable attorney’s fees. See

TEX. BUS. & COM. CODE § 24.013; see also Sustainable Oyster Res. Mgmt., 623

68 S.W.3d at 876 (reversing portion of judgment awarding attorney’s fees based on

failure to segregate, affirming remainder of judgment, and remanding for new trial

limited to issue of attorney’s fees); Getty v. Perryman, No. 14-17-00887-CV, 2019

WL 1768604, at *6 (Tex. App.—Houston [14th Dist.] Apr. 23, 2019, no pet.) (mem.

op.) (same).

Sarah Beth Landau Justice

Panel consists of Justices Landau, Countiss, and Guerra.