Preview
Filed 13 September 10 A9:33
Chris Daniel - District Clerk
Harris County
ED101J017703423
By: Shanelle L. Taylor
CAUSE NO. 2013-37599
KB HOME Lone Star Inc. § IN THE DISTRICT COURT OF
§
Plaintiff §
§
v. § HARRIS COUNTY, TEXAS
§
GCKM Limited Partnership; KL-5, LLC; §
CY Kings Lake Estates, LLC; §
Prabhaker Guniganti; and Chowdury §
Yalamanchili §
§
Defendants § 11TH JUDICIAL DISTRICT
KB HOME LONE STAR, INC.’S RESPONSE TO KL-5 DEFENDANTS’ BENCH BRIEF
COMES NOW Plaintiff/Counterclaim Defendant, KB HOME Lone Star, Inc., and
files this Response to GCKM Defendants’ Bench Brief, and as grounds therefore, would
respectfully show the following
A. There Is No Sufficient Evidence to Support KL-5’s Claim that KB HOME
Engineered the May 22 Title Opinion.
As this Court has already recognized, it was neither in KB HOME’s interest to dos
so nor is there any evidence to suggest that the addition of the lis pendens to Schedule C
on the date of closing was engineered by KB HOME.
The evidence is that Stewart Title was asked to confirm that there were no issues
with a lis pendens affecting the KL-5 Tract. Neither Dana Duncan nor Nedra Smith
recalled with any certainty who it was who asked them to double check the title, but both
of them named Thad Floyd. Regardless of who asked, the evidence supports the finding
that Nedra Smith was asked to perform the check because the original adjuster was on
vacation. She either had a different opinion or saw something that the other adjuster did
not. But in either event, she added the lis pendens to the title opinion. DX 7 (KL-5).
There is nothing nefarious about a difference in opinion. Not even KL-5’s witness
Sandra Lee testified that Nedra Smith’s concerns were unreasonable. She also agreed
that she was not an adjuster and that different adjusters could have different opinions
about the existence of an encumbrance on title. The evidence does not support KL-5’s
conspiracy theory.
II. KB HOME is Agnostic on the Question of Covenant or Condition.
Whether the conditional closing is a covenant or a condition is a red herring.
Under either interpretation, KL-5 has an obligation to comply with its agreement and
await the satisfaction of the terms of paragraph 7(e) before insisting that KB HOME
purchase the KL-5 Tract.
KL-5’s caselaw discusses conditions that result in forfeiture, not as the term is
used in the Purchase and Sale Agreement.
Since forfeitures are not favored, courts are inclined to construe the
provisions in a contract as covenants rather than as conditions. If the terms
of a contract are fairly susceptible of an interpretation which will prevent a
forfeiture, they will be so construed.
Hohenberg Bros. Co. v. George E. Gibbons & Co., 537 S.W.2d 1, 3 (Tex. 1976). In
Hohenberg, the seller was attempting to terminate the contract due to the failure of a
condition precedent. Id. at 5.1 The Supreme Court chose the interpretation that enforced
the sale.
1
See also Sturges v. System Parking, Inc., 834 S.W.2d 472, 474 (Tex. App.—Houston [14th Dist.] 1992,
writ dism’d) (refusing to void a contract to pay a commission); SLT DealerGroup, Ltd. v. AmeriCredit Financial
2
KB HOME is not asking this Court to modify or terminate the contract. KL-5 is
asking the Court to modify the contract to separate the purchase of the two properties and
terminate the contract if KB HOME does not purchase the KL-5 Tract alone.
Furthermore, the condition on closing is not indefinite; it specifies an end. See
Pearcy v. Envtl. Conservancy of Austin and Cen. Tex., Inc., 814 S.W.2d 243, 246 (Tex.
App.—Austin 1991, writ denied). KB HOME is obligated to close with KL-5 when the
conditions for closing on the GCKM Tract are satisfied. KB HOME cannot postpone
closing in its own self-interest. When the conditions are satisfied, KB HOME is just as
bound by the obligation to close as is KL-5.
KL-5’s caselaw is simply inapplicable, but to the extent it informs the Court’s
decision, it supports enforcement of the contract.
III. The Condition on Closing Is Not an Unreasonable Restraint.
A condition that imposes a restraint on the transfer of property is enforceable if it
advances a “socially desirable result.” Mattern v. Herzog, 367 S.W.2d 312, 320 (Tex.
1963). In Mattern, the restraint was a device to allow an estate to be closed. Id. at 318.
In the case at hand, the purpose of the condition on closing is to allow the development of
raw land which is landlocked and of much less value (indeed, it is of no value to KB
HOME) unless it has access to the West Lake Houston Parkway through the GCKM
Tract.
The condition on closing also imposes an incentive on Dr. Guniganti, who is a
major interest-holder in both entities involved, to ensure that the transactions occur
Servs., Inc., 336 S.W.3d 822, 830 (Tex. App.—Houston [14th Dist.] no pet.)(refusing to void a contract to
repurchase a note);
3
together. Without the conditional closing, it is entirely in Dr. Guniganti’s self-interest to
force the immediate sale of the landlocked property (the KL-5 Tract) in order to
renegotiate KB HOME’s price for the front property (the GCKM Tract), which would put
more money in his pocket. Dr. Guniganti is playing both sides against the middle. The
Court was correct to view his outrage skeptically.
What KL-5 is asking the Court to do is to redistribute the risk by improperly
modifying its contractual obligation to delete the requirement that both properties close.
Ultimately, this contract ‘constitute[s] the allocation by market participants
of risks and benefits’ regarding the [transaction]. ‘The Court’s role is not to
redistribute these risks and benefits but to enforce the allocation that the
parties previously have agreed upon’
See El Paso Field Servs., L.P. v. MasTec N. Am., Inc., 389 S.W.3d 802 (Tex. 2012)
(internal citations omitted). KB HOME agreed to pay a higher price for the KL-5 Tract
in combination with the GCKM Tract than it otherwise would have paid for the KL-5
Tract alone. Now, KL-5 wants the higher price without the obligation to wait for both
sales to close. This is a reallocation of the risk that Texas law does not condone.
Even assuming that the factors identified by KL-5 apply in this case, the condition
on closing in the Purchase and Sale Agreement is reasonable. See Meduna v. Holder,
2003 WL 22964270, *4 (Tex. App.—Austin Dec. 18, 2003, pet. denied). First, the
condition is limited in duration; it expires on the date that the conditions in the GCKM
sale are satisfied. A limit to the lifetime of the promisee is reasonable; the time period in
this case is not a lifetime. Id.
4
Second, the only person who is bound by the restriction is KL-5. This is not a
condition that will attach to the land and continue to bind later owners. Id. (expressing
concern that later unnamed heirs or interest owners would be burdened by the obligation).
Third, the testimony established that the condition increased the value of the KL-5
Tract by making it possible to access the property through the GCKM Tract and develop
it for single family dwellings. Again, the KL-5 Tract is landlocked. Any development on
the land must have access to the West Lake Houston Parkway to be economically viable.
KB HOME has no interest (i.e., would pay nothing) for the KL-5 Tract alone. Whereas,
with the GCKM Tract, KB HOME contracted to pay over $2.8 million.
Finally, the condition is imposed on a property (the KL-5 Tract) that is not readily
marketable. As noted above and in the testimony, the KL-5 Tract cannot be developed
without the front property (the GCKM Tract). The condition on closing is all that makes
the property marketable.
The condition on closing, if it is a restraint, is reasonable.
PRAYER
WHEREFORE, PREMISES CONSIDERED, Plaintiff/Counterclaim Defendant
KB HOME Lone Star Inc. respectfully requests that this Court hold that the lis pendens
encumbering the KL-5 tract has been effectively released and is expunged, cancelled and
rendered void and that the Agreements are valid and enforceable and that Sellers are in
default. KB HOME also requests that this Court order specific performance as outlined
in its Motion for Judgment and/or as described above and grant the permanent injunction
as requested therein. Furthermore, KB HOME requests its reasonable attorneys’ fees.
5
Finally, KB HOME requests all such other and further relief to which it may be justly
entitled.
Respectfully submitted,
JOHNSON, TRENT, WEST & TAYLOR, L.L.P.
By: /s/ Lawrence J. West
Lawrence J. West
State Bar No. 21202600
Joshua W. Mermis
State Bar No. 24039055
919 Milam, Suite 1700
Houston, Texas 77002
(713) 222-2323 – Telephone
(713) 222-2226 – Facsimile
ATTORNEYS FOR PLAINTIFF
KB HOME LONE STAR INC.
6
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the above and foregoing instrument
has been served upon the following in accordance with the Texas Rules of Civil
Procedure on this 10th day of September, 2013.
Fred Stumpf
BoyerShort
Nine Greenway Plaza, Suite 3100
Houston, TX 77046
Attorneys for GCKM, Ltd.;
CY Kings Lake Estates, LLC; and
Chowdury Yalamanchili
H. Fred Cook
Wilson, Cribbs & Goren, P.C.
2500 Fannin
Houston, Texas 77002
Attorneys for KL-5 LLC and
Prabhaker Guniganti
/s/ Joshua W. Mermis
Joshua W. Mermis
250997.1-09092013
7
Preview
Filed 13 September 10 A9:33 Chris Daniel - District Clerk Harris County ED101J017703423 By: Shanelle L. Taylor CAUSE NO. 2013-37599 KB HOME Lone Star Inc. § IN THE DISTRICT COURT OF § Plaintiff § § v. § HARRIS COUNTY, TEXAS § GCKM Limited Partnership; KL-5, LLC; § CY Kings Lake Estates, LLC; § Prabhaker Guniganti; and Chowdury § Yalamanchili § § Defendants § 11TH JUDICIAL DISTRICT KB HOME LONE STAR, INC.’S RESPONSE TO KL-5 DEFENDANTS’ BENCH BRIEF COMES NOW Plaintiff/Counterclaim Defendant, KB HOME Lone Star, Inc., and files this Response to GCKM Defendants’ Bench Brief, and as grounds therefore, would respectfully show the following A. There Is No Sufficient Evidence to Support KL-5’s Claim that KB HOME Engineered the May 22 Title Opinion. As this Court has already recognized, it was neither in KB HOME’s interest to dos so nor is there any evidence to suggest that the addition of the lis pendens to Schedule C on the date of closing was engineered by KB HOME. The evidence is that Stewart Title was asked to confirm that there were no issues with a lis pendens affecting the KL-5 Tract. Neither Dana Duncan nor Nedra Smith recalled with any certainty who it was who asked them to double check the title, but both of them named Thad Floyd. Regardless of who asked, the evidence supports the finding that Nedra Smith was asked to perform the check because the original adjuster was on vacation. She either had a different opinion or saw something that the other adjuster did not. But in either event, she added the lis pendens to the title opinion. DX 7 (KL-5). There is nothing nefarious about a difference in opinion. Not even KL-5’s witness Sandra Lee testified that Nedra Smith’s concerns were unreasonable. She also agreed that she was not an adjuster and that different adjusters could have different opinions about the existence of an encumbrance on title. The evidence does not support KL-5’s conspiracy theory. II. KB HOME is Agnostic on the Question of Covenant or Condition. Whether the conditional closing is a covenant or a condition is a red herring. Under either interpretation, KL-5 has an obligation to comply with its agreement and await the satisfaction of the terms of paragraph 7(e) before insisting that KB HOME purchase the KL-5 Tract. KL-5’s caselaw discusses conditions that result in forfeiture, not as the term is used in the Purchase and Sale Agreement. Since forfeitures are not favored, courts are inclined to construe the provisions in a contract as covenants rather than as conditions. If the terms of a contract are fairly susceptible of an interpretation which will prevent a forfeiture, they will be so construed. Hohenberg Bros. Co. v. George E. Gibbons & Co., 537 S.W.2d 1, 3 (Tex. 1976). In Hohenberg, the seller was attempting to terminate the contract due to the failure of a condition precedent. Id. at 5.1 The Supreme Court chose the interpretation that enforced the sale. 1 See also Sturges v. System Parking, Inc., 834 S.W.2d 472, 474 (Tex. App.—Houston [14th Dist.] 1992, writ dism’d) (refusing to void a contract to pay a commission); SLT DealerGroup, Ltd. v. AmeriCredit Financial 2 KB HOME is not asking this Court to modify or terminate the contract. KL-5 is asking the Court to modify the contract to separate the purchase of the two properties and terminate the contract if KB HOME does not purchase the KL-5 Tract alone. Furthermore, the condition on closing is not indefinite; it specifies an end. See Pearcy v. Envtl. Conservancy of Austin and Cen. Tex., Inc., 814 S.W.2d 243, 246 (Tex. App.—Austin 1991, writ denied). KB HOME is obligated to close with KL-5 when the conditions for closing on the GCKM Tract are satisfied. KB HOME cannot postpone closing in its own self-interest. When the conditions are satisfied, KB HOME is just as bound by the obligation to close as is KL-5. KL-5’s caselaw is simply inapplicable, but to the extent it informs the Court’s decision, it supports enforcement of the contract. III. The Condition on Closing Is Not an Unreasonable Restraint. A condition that imposes a restraint on the transfer of property is enforceable if it advances a “socially desirable result.” Mattern v. Herzog, 367 S.W.2d 312, 320 (Tex. 1963). In Mattern, the restraint was a device to allow an estate to be closed. Id. at 318. In the case at hand, the purpose of the condition on closing is to allow the development of raw land which is landlocked and of much less value (indeed, it is of no value to KB HOME) unless it has access to the West Lake Houston Parkway through the GCKM Tract. The condition on closing also imposes an incentive on Dr. Guniganti, who is a major interest-holder in both entities involved, to ensure that the transactions occur Servs., Inc., 336 S.W.3d 822, 830 (Tex. App.—Houston [14th Dist.] no pet.)(refusing to void a contract to repurchase a note); 3 together. Without the conditional closing, it is entirely in Dr. Guniganti’s self-interest to force the immediate sale of the landlocked property (the KL-5 Tract) in order to renegotiate KB HOME’s price for the front property (the GCKM Tract), which would put more money in his pocket. Dr. Guniganti is playing both sides against the middle. The Court was correct to view his outrage skeptically. What KL-5 is asking the Court to do is to redistribute the risk by improperly modifying its contractual obligation to delete the requirement that both properties close. Ultimately, this contract ‘constitute[s] the allocation by market participants of risks and benefits’ regarding the [transaction]. ‘The Court’s role is not to redistribute these risks and benefits but to enforce the allocation that the parties previously have agreed upon’ See El Paso Field Servs., L.P. v. MasTec N. Am., Inc., 389 S.W.3d 802 (Tex. 2012) (internal citations omitted). KB HOME agreed to pay a higher price for the KL-5 Tract in combination with the GCKM Tract than it otherwise would have paid for the KL-5 Tract alone. Now, KL-5 wants the higher price without the obligation to wait for both sales to close. This is a reallocation of the risk that Texas law does not condone. Even assuming that the factors identified by KL-5 apply in this case, the condition on closing in the Purchase and Sale Agreement is reasonable. See Meduna v. Holder, 2003 WL 22964270, *4 (Tex. App.—Austin Dec. 18, 2003, pet. denied). First, the condition is limited in duration; it expires on the date that the conditions in the GCKM sale are satisfied. A limit to the lifetime of the promisee is reasonable; the time period in this case is not a lifetime. Id. 4 Second, the only person who is bound by the restriction is KL-5. This is not a condition that will attach to the land and continue to bind later owners. Id. (expressing concern that later unnamed heirs or interest owners would be burdened by the obligation). Third, the testimony established that the condition increased the value of the KL-5 Tract by making it possible to access the property through the GCKM Tract and develop it for single family dwellings. Again, the KL-5 Tract is landlocked. Any development on the land must have access to the West Lake Houston Parkway to be economically viable. KB HOME has no interest (i.e., would pay nothing) for the KL-5 Tract alone. Whereas, with the GCKM Tract, KB HOME contracted to pay over $2.8 million. Finally, the condition is imposed on a property (the KL-5 Tract) that is not readily marketable. As noted above and in the testimony, the KL-5 Tract cannot be developed without the front property (the GCKM Tract). The condition on closing is all that makes the property marketable. The condition on closing, if it is a restraint, is reasonable. PRAYER WHEREFORE, PREMISES CONSIDERED, Plaintiff/Counterclaim Defendant KB HOME Lone Star Inc. respectfully requests that this Court hold that the lis pendens encumbering the KL-5 tract has been effectively released and is expunged, cancelled and rendered void and that the Agreements are valid and enforceable and that Sellers are in default. KB HOME also requests that this Court order specific performance as outlined in its Motion for Judgment and/or as described above and grant the permanent injunction as requested therein. Furthermore, KB HOME requests its reasonable attorneys’ fees. 5 Finally, KB HOME requests all such other and further relief to which it may be justly entitled. Respectfully submitted, JOHNSON, TRENT, WEST & TAYLOR, L.L.P. By: /s/ Lawrence J. West Lawrence J. West State Bar No. 21202600 Joshua W. Mermis State Bar No. 24039055 919 Milam, Suite 1700 Houston, Texas 77002 (713) 222-2323 – Telephone (713) 222-2226 – Facsimile ATTORNEYS FOR PLAINTIFF KB HOME LONE STAR INC. 6 CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the above and foregoing instrument has been served upon the following in accordance with the Texas Rules of Civil Procedure on this 10th day of September, 2013. Fred Stumpf BoyerShort Nine Greenway Plaza, Suite 3100 Houston, TX 77046 Attorneys for GCKM, Ltd.; CY Kings Lake Estates, LLC; and Chowdury Yalamanchili H. Fred Cook Wilson, Cribbs & Goren, P.C. 2500 Fannin Houston, Texas 77002 Attorneys for KL-5 LLC and Prabhaker Guniganti /s/ Joshua W. Mermis Joshua W. Mermis 250997.1-09092013 7