Preview
Filed 13 September 5 P2:38
Chris Daniel - District Clerk
Harris Coun'
ED101J 017695229
By: Wanda McCullough
CAUSE NO. 2010-63264
CADENCE BANK
fik/a ENCORE BANK
IN THE DISTRICT COURT
Plaintiff,
v,
OF HARRIS COUNTY, TEXAS
ALLEN L. BERRY;
JOSEPH D, MCCORD;
and ROBERT G. TAYLOR, II,
Defendants. 152™ JUDICIAL DISTRICT
PLAINTIFF’S REPLY IN SUPPORT OF ITS
MOTIONS FOR SUMMARY JUDGMENT
TO THE HONORABLE JUDGE OF SAID COURT:
Plaintiff Cadence Bank f/k/a Encore Bank (“Plaintiff’ or “Encore”) files this Reply in
Support of its First Amended Traditional Motion for Summary Judgment and No-Evidence
Motion for Summary Judgment and shows the Court as follows:
I OVERVIEW
1 In their Response to Encore’s straightforward Motions for Summary Judgment,
Defendants use 109 pages trying to conjure a fact issue where none exists. Indeed, Defendants
devote more than a quarter of their Response to a baseless and convoluted statute of limitations
argument.
2 Despite Defendants’ verbose Response, Defendants fail to raise a fact issue on
Encore’s breach of contract and breach of guaranty claims, fail to raise a fact issue to support
their counterclaims, and provide the Court with no evidence to support their affirmative
defenses. As a result, the Court should grant Encore’s Motions for Summary Judgment.
IL. ARGUMENT & AUTHORITIES
A Limitations Did Not Run on Encore’s Claims Against Defendants as a Matter of
Law
3 Defendants’ primary argument is that the statute of limitations expired on
Encore’s claims.’ Defendants claim the primary note obligor, BLyn, breached the loan
agreement by failing to obtain and maintain a priority lien on the vessel.’ They assert that
because Crimson Yachts had a prior lien on the vessel (by virtue of its maritime lien) when the
loan was made, BLyn was inherently in breach of the loan agreement the instant the loan was
made. Response at 48. They therefore attempt to measure the limitations period from the date
the Note was made, March 28, 2007. Response at 45-53. Because Defendants were not served
until July and August 2012, they claim the four-year limitations period ran before service was
completed. Jd. at 56. From this argument, Defendants leap to the conclusion that Encore’s claim
for Defendants’ breach of the guaranty is time-barred.
4 Defendants’ contention fails as a matter of law for several reasons:
. First, Defendants conflate the accrual of a claim on an underlying loan
with the accrual of limitations on a guarantee. The fact that limitations
1 Notably, Defendants do not even attempt to raise a fact issue on (1) the fact that they signed the Guaranty
Agreement, (2) the express terms of the Guaranty, (3) the calculation of the outstanding principal, interest, and
penalties on the Promissory Note, or (4) that the Promissory Note was not repaid in full on March 15, 2012 when it
matured, Besides their statute of limitations argument, Defendants’ only attack on Encore’s claim for breach of
guaranty is that Encore failed to mitigate its damages. Response at 71. Defendants claim Encore should have
bought title insurance or obtained UCC liens in anticipation of a breach by Defendants. However, mitigation of
damages has no application to a plaintiff's actions which precede a defendant’s wrongful conduct. See, e.g., King
Son Wong v. Carnation Co., 509 $.W.2d 385, 387 (Tex, Civ. App.—1974, writ refd n.re.). Furthermore, the
Guaranty Agreement precludes this defense: “Gurarantor agrees that . . .no delay or omission or lack of diligence or
care in exercising any right or power with respect to the Obligations or any security or collateral therefor . . . shall in
any manner impair, diminish or affect the tights of Lender on the Obligations and the liability of Guarantor
hereunder.”
? This argument constitutes a judicial admission that Defendants’ negligence and fraud counterclaims are frivolous.
Defendants’ negligence and fraud counterclaims are based on allegations that Encore Bank was obligated to ensure
that its mortgage lien on the Betty Lyn II was superior to Crimson’s. But Defendants’ limitations argument proceeds
from an admission that ensuring a priority lien position was Defendants’ obligation under the parties’ contract, not
Encore’s duty. Accepting Defendants’ limitation claim at face value, Encore had no duty to ensure its lien had
priority.
may have run on a claim against the original borrower on a note is no
defense to a suit on a guarantee of that loan. Wiman v. Tomaszewicz, 877
S.W.1 (Tex. App.—Dallas 1994, pet. denied).
Second, BLyn and the Defendants expressly acknowledged the validity of
the debt several times after it was made. When a borrower acknowledges
the validity of a debt in writing and makes a new promise to pay it when
due, that becomes a new, enforceable contract obligation for limitations
purposes. Tex. Civ. Prac. & Rem. Code Ann. art. 16.065; Miller vy.
Thomas, 226 §.W.2d 149 (Tex. Civ, App.—Amarillo 1950, writ ref'd)?
Third, each failure by Defendants to make a required payment on the
Promissory Note created a separate cause of action with a separate statute
of limitations. Defendants failed to make the required payment on Match
15, 2012 and were served with suit in July 2012, well within the
limitations period.
Fourth, the Promissory Note is payable to order and is therefore a
negotiable instrument. It is governed by a 6-year statute of limitations, not
the 4-year statute. Tex. Bus. & Comm, Code Ann. art. 3.118.
1 Encore’s Claim for Failure to Pay the Debt Owed is Not Time Barred
5 It has long been established in Texas that a suit on a guarantee can be maintained
even if suit on the underlying debt is time-barred. The Texas Supreme Court held over 100 years
ago: “Although the debt may be barred by limitation as against the principal, yet judgment may
be entered against the surety if he be liable thereon.” Willis v. Chowning, 90 Tex. 617, 40 S.W.
395 (1897). This remains the rule today:
“Whenever a creditor is permitted to sue a guarantor without first suing
the principal, the guarantor cannot defend an action to recover on a
promise to pay by showing that the claim against the principal is
barred by the statute of limitations.” Yamin v. Conn, L.P., 2011 WL
4031218 (Tex. App.—Houston fia" Dist.] Sept. 13, 2011, no pet.)
3 As a “writ refused” decision, the opinion of the Court of Appeals in Adi/ler has the precedential authority of a
decision of the Texas Supreme Court. Tex. R. App. P. 56.1(¢); Hunter v. State Farm Cty. Mut. Ins, Co., 2008 WL
5265189 at *3 n.6 (Tex. App.—Fort Worth Dec, 18, 2008, no pet.).
4 The Guaranty in this case explicitly provides that Encore may enforce the Guaranty without first suing the debtor:
“Guarantor specifically agrees that it shall not be necessary or required . that Lender . . file suit or proceed to
obtain or assert a claim for personal judgment against the Borrower for the Obligations .. . or make any effort at
collection of the Obligations from Borrower ..” Ex. A-8, attached to Plaintiff's Motion for Summary Judgment
at 5. Thus, this is the applicable rule in this case.
“In situations where a lender can sue a guarantor without first suing the
maker, the guarantor cannot defend an action to recover on a contract
of guaranty by showing that the statute of limitations barred the claim
against the maker.” Ocean Transp., Inc. v. Graycas, Inc., 878 S.W.2d
256 (Tex. App.---Corpus Christi 1994, writ denied).
“Tn those situations where a guarantor can be sued without first suing the
maker, an action to recover on a contract of guaranty cannot be
defended by showing that the claim against the maker has been
barred by the statute of limitations.” Wiman v. Tomaszewicz, 877
S.W.1 (Tex. App—Dallas 1994, pet. denied).
“[A]n action to recover on a contract of guaranty cannot be defended
by showing that the claim against the original debtor has been barred
by the statute of limitations.” Bedall v. Reader's Wholesale Dist., Inc.,
408 S.W.2d 237 (Tex. Civ. App—Houston 1966, no writ).
Therefore, the underlying legal basis for Defendants’ limitations argument fails as a matter of
well-established Texas law.
6 Encore’s claims for Defendants’ breach of the Guaranty for non-payment are not
time barred because the Defendants failed to make the required payment in March 2012. ‘The
legal determination of when a cause of action accrues is a question of law for the Court.
Schneider Nat'l Carriers, Inc. y. Bates, 147 S.W.3d 264, 270 (Tex. 2004); Childs v. Haussecker,
974 S,W.2d 31, 36 (Tex. 1998); Moreno vy. Sterling Drug, Inc., 787 8.W.2d 348, 351 (Tex.
1990). “Tt is well-settled law that a breach of contract claim accrues when the contract is
breached.” Stine v. Stewart, 80 $.W.3d 586, 592 (Tex. 2002); see also Barker v. Eckman, 213
S.W.3d 306 (Tex. 2006).
4
To determine whether limitations have run on Encore’s claims for non-payment
against Defendants, therefore, the Court must first determine when the guaranty contract was
breached, not when the underlying loan agreement was breached.? Wiman, supra. This, of
°* This analysis underscores the fatal flaw in Defendants’ limitations argument. Defendants focus their entire
argument on a claim that the Loan Agreement was breached when it was made. Even if true, that does not establish
when the Guaranty Agreement was breached.
course, depends on the language of the Guaranty and the obligations undertaken by Defendants
therein. Jd. The Guaranty in this case in unambiguous. It specifically identifies the obligations
guaranteed:
Guarantor hereby irrevocably, absolutely, and unconditionally guarantees to
Lender the prompt payment when due at maturity of the following (collectively,
the “Obligations”) (i) all sums arising out of or under that certain Promissory
Note of even date herewith, in the principal amount of $6,000,000.00, executed
by Borrower and payable to the order of Lender (the “Note”), including all
principal, interest, charges, and attorney’s fees which may be or become due or
owing on or under or in connection with the Note . . ., (ii) all sums due to or to
become due pursuant to any covenant, agreement, or other obligation undertaken.
by Borrower in all instruments governing, securing, or pertaining to the Note . . ,
and (iii) all cost, attorney’s fees, and expenses incurred or expended by Lender
due to nay default in the performance under the note or loan Documents, or in
enforcing any right granted thereunder or under this Guaranty.
Ex. A-8 to Motion for Summary Judgment at § 1. Paragraph 3 of the Guaranty Agreement sets
out the specific contractual obligation of the Guarantors:
In cach event whenever any of the Obligations [as defined above] shall become
due and remain unpaid (howsoever the maturity thereof may have “occurred),
Guarantor will, on demand, pay the amount due thereon to Lender... .
Id. at $3.
8 This language is not difficult to construe. The contractual obligation of the
Guarantor is to pay the unpaid amounts that become due on the note if the Borrower fails to
make payment. Until the Borrower defaults on a payment obligation, no obligation accrues
under the guaranty. Hence, the earliest limitations on the guarantors’ obligations to make
payment could have begun to run was when BLyn defaulted on payment of the debt in March
2012. Defendants admit this suit was served on them by July and August 2012, Response at 54.
Thus, limitations could not have run on Encore’s claims against Defendants within four (4)
months of the breach.
2. The Debt Was Acknowledged as a Valid and Subsisting Debt in 2009 and
2010
9 Even if Defendants’ assumption that the limitations period begins to run on a
guarantee upon breach of the underlying debt was correct, Defendants’ argument fails as a matter
of law in this case because the debt was subsequently acknowledged in writing by Defendants.
10. In 2009 and 2010, new, unconditional promises to pay the debt were made in
connection with certain written loan modifications. These modifications reset the limitations
period. Tex. Civ. Prac. & Rem. Code § 16.065, “The rule is well established that a subsequent
unqualified acknowledgment in writing of an existing debt implies a promise to pay it, and such
is sufficient to toll the statute of limitations unless the acknowledgment be accompanied by some
expressions indicative of an unwillingness to pay.” Miller v. Thomas, 226 S.W.2d 149, 152
(Tex. App.—Amarillo 1950, writ ref'd); accord Stine v. Stewart, 80 8.W.3d 586, 591 (Tex.
2002). As the Texas Supreme Court explained in Stine, the statute requires: “an agreement: 1)
be in writing and signed by the party to be charged; 2) contain an unequivocal acknowledgment
of the justness or the existence of the particular obligation; and 3) refer to the obligation and
express a willingness to honor that obligation.” Id.
ll. The facts are undisputed: On April 15, 2009, the partiers entered into a “Note
Modification Agreement,” attached to the Motion for Summary Judgment at Ex. A-5. This Note
Modification Agreement is signed by BLyn and expressly acknowledges the existence and
justness of the original debt. The document expressly identifies and acknowledges the existence
of the debt as follows: “Borrower is legally obligated to pay to Lender all sums due and
owing under that certain Promissory Note dated March 28, 2007, in the original principal
amount of $6,000,000.00, executed by Borrower and payable to the order of Lender in
accordance with the terms set forth therein (the ‘Note’).” The document also acknowledged the
justness and validity of the debt: “Borrower ratifies, affirms, reaffirms, acknowledges,
confirms, and agrees that the Note, as herein amended, represents the valid, binding, and
enforceable obligation of the Borrower.” The modification contains a new and unconditional
promise to pay the debt: “Borrower promises to pay to the order of Lender, the
indebtedness evidenced by the Note according to the terms thereof, as modified herein.” Jd.
Defendants expressly consented to the Note Modification Agreement. Ex. A-6, Hence, pursuant
to Section 16.065 and the opinion in Stine, limitations could not begin to run until April 15,
2009,
12, Furthermore, the parties entered into a second Note Modification Agreement
dated March 15, 2010, also attached to the Motion for Summary Judgment at Ex. A-5, containing
the same provisions using the exact same language as quoted above from the April 2009
modification. This, too, was (1) signed by BLyn, (2) acknowledged and confirmed the existence,
justness and validity of the debt, and (3) contains a new promise to pay the debt. Once again,
Defendants, as guarantors, expressly consented to the modification. Ex. A-6. Hence, limitations
could not begin to run on this promise until March 15, 2010, at the earliest.
13. While, as discussed above, limitations on the Guaranty could not have begun to
run until there was a monetary default by BLyn, Article 16.065 precludes any claim that
limitations has run on the underlying debt as a matter of law. The renewed promises to pay in
the modification agreements are independently enforceable. Limitations could not have run on
those promises until 2016 at the earliest.’ Thus, Defendants’ limitations argument, predicated on
a claim that limitations has run on BLyn’s debt, must be rejected.
® Defendants urge application of a four-year statute to the note claims in this case, but this is legally incorrect. As
noted above, the UCC establishes a 6-year limitations period for suits on a negotiable instruments such as the
Promissory Note in this case. Tex. Bus. & Com, Code Ann. art. 3.118(a). Therefore, a claim to enforce the BLyn
Note cannot be time-barred before 2016 at the earliest.
3 Each Missed Payment Constitutes a New Cause of Action
14. BLyn and Defendants were required to make numerous payments to Encore
pursuant to the Promissory Note, with a final payment of all outstanding principal and interest
due in 2012. When recovery is sought on an obligation payable in installments, the statute of
limitations runs against each installment from the time it becomes due. Intermedics, Inc. v.
Grady, 683 S.W.2d 842, 845 (Tex. App—Houston [Ist Dist.] 1984, writ refd n.r.e.). Thus, a
suit for the breach of a contract requiring payment in periodic installments may include all
payments due within the four-year statute of limitations period, even if the initial breach was
beyond the limitations period. Hollander v, Capon, 853 S.W.2d 723, 726-27 (Tex. App.—
Houston [1st Dist.] 1993, writ denied); see also Spin Doctor Golf, Inc. v. Paymentech, L.P., 296
8.W.3d 354, 362 (Tex. App.—Dallas 2009, pet. struck).
15. Thus, when BLyn and Defendants breached their obligation to repay the
Promissory Note on March 15, 2012, a new cause of action (with a new limitations period)
accrued on the date of the default. Even under Defendants’ specious analysis, Encore may
properly sue for any and all missed payments within the last four years.
16. Defendants attempt to skirt this issue by claiming the breach occurred in either
2007, when the Loan Documents were executed, or 2008, when BLyn defaulted on its contract
with Horizon/Crimson. Even assuming, arguendo, that breaches of the Loan Documents did
occur at that time, limitations did not begin to run since Encore did not declare BLyn or
Defendants in breach and accelerate the debt.
17. If a note contains an optional acceleration clause, default does not ipso facto start
limitations running on the note. Holy Cross Church of God in Christ v. Wolf, 44 8.W.3d 562,
566-67 (Tex. 2001). Rather, the action accrues only when the holder actually exercises its option
to accelerate. Hammann vy. Ff.J. MeMullen & Co., 122 Tex. 476, 62 S.W.2d 59, 61 (1933);
Curtis v, Speck, 130 8.W.2d 348, 351 (Tex. Civ. App —Galveston 1939, writ ref'd),
18, Here, the only time Encore arguably accelerated the debt was in 2010, when it
demanded BLyn remove Crimson’s maritime lien from the Betty Lyn I and demanded
Defendants pay the outstanding balance on the Note.” Thus, the earliest the statute of limitations
could have run would be 2014.
B. Defendants Fail to Raise a Fact Issue on Their Counterclaims
19. Defendants’ Response completely fails to raise a fact issue on any of their
counterclaims. Indeed, Defendants do not address how any of their counterclaims are viable as a
matter of law. Thus, the Court should grant summary judgment in Encore’s favor on
Defendants’ counterclaims.
Misrepresentation
20. Defendants fail to raise a fact issue on their misrepresentation claim. “Defendants
merely use their Response to allege that Encore made representations to them. Response at 59-
61. However, Defendants’ self-interested assertions that Encore made misrepresentations cannot
rebut the contractual disclaimers of reliance contained in the Loan Documents. Defendants cite
no authority to support their misrepresentation claim in light of the express contractual
disclaimers. As a result, their misrepresentation claim fails as a matter of law.
” Byen assuming Encore had accelerated the debt in 2010, that acceleration was abandoned when Encore continued
to accept payments from Defendants. Thus, the maturity date on the Promissory Note was unaffected. City Nat?
Bank v. Pope, 260 §.W. 903, 905 (Tex. Civ, App —San Antonio 1924, no writ); see also San Antonio Real Estate,
Bldg. & Loan Ass'n y, Stewart, 94 Tex. 441, 61 S.W. 386, 388 (1901) (explaining that the parties' agreement or
actions can “have the effect of obviating the default and restoring the contract to its original condition as if it had not
been broken”); Denbina v. City of Hurst, 516 $.W.2d 460, 463 (Tex. Civ. App—Tyler 1974, no writ) (explaining
that an option to accelerate may be withdrawn or revoked after it is exercised by the noteholder, effectively restoring
the note's original maturity date).
2. Negligence
21. Defendants utterly fail to cite any cases supporting their contentions that Encore
owed a duty to either obtain a subordination agreement or loan unlimited funds. Their only
citations are to affidavits of their “experts” who claim Encore owed and breached a duty.®
However, Texas law uniformly holds that a lender generally owes no duty of care to a borrower
with respect to the underlying investment for which loans are borrowed. See, e.g., Baskin vy.
Mortgage & Trust Co., 837 S.W.2d 743 (Tex. App.—Houston [14th Dist.] 1992, writ denied).
Further, an unconditional, continuing guaranty, like the one Defendants executed here, is binding
upon them regardless of any impairment of collateral. Simpson vy. MBank Dallas, N.A., 724
S.W.2d 102, 106 (Tex. App.—Dallas 1987, writ refd nr.e.). Consequently, any alleged failure
by Encore to either obtain a subordination agreement or otherwise protect the Beity Lyn II is
completely irrelevant — regardless of what Defendants 2, experts” claim. See id.
22, Instead of supporting their previous counterclaims, Defendants now claim ‘that
Encore “undertook” a duty to obtain a subordination agreement. Response at 76. However,
Defendants’ claim is undercut by the very cases they cite and the Loan Documents.
23. Defendants claim Encore gratuitously undertook a duty to render services to them
by obtaining a subordination agreement. Response at 77. Defendants then curiously cite to
Section 323 of the Restatement of Torts and King v. Graham Holding Co.? However, as
expressly noted in King, “section 323, by its own terms, applies only to physical harm... .” Jd.
at 300 (emphasis added). Section 323 of the Restatement simply does not apply to this case.
The cases cited by Defendants involve situations where bodily injury, premises liability, or
® Whether a duty exists is a question of law for the Court to decide, not a fact issue. Humble Sand & Gravel, Ine. v.
Gomez, 146 S.W.3d 170, [81 & n.20 (Tex. 2004). It is well established that an expert cannot testify to issues of
law. Greenberg Traurig of New York, P.C. v. Moody, 161 S.W.3d 56, 94 (Tex. App.-Houston [14th Dist] 2004, no
et.)
762 S.W.2d 296, 299-300 (Tex. App.—Houston [14th Dist.] 1988, no writ).
10
insurance are involved. Sibley v. Kaiser Foundation Health Plan of Texas, 998 8.W.2d 399, 403
(Tex. App.—Texarkana 1999, no pet.). No physical harm occurred in this case and, in any
event, all of Defendants’ alleged injuries sound in contract, not tort. See, e.g., King, 762 S.W.2d
at 299,
24, Indeed, Defendants even cite to the Mortgage Agreement, which expressly
requires BLyn — not Encore — to maintain Encore’s mortgage as a priority lien on the Betty Lyn
Il. Response at 77; see also Ex. A-10, ENBK002149, at § 4. Pursuant to the loan documents
and Texas law, Encore simply owed Defendants no duty to obtain or maintain a priority lien.
25. As a result, Defendants fail to raise a fact issue on their “negligence” claims,
which fail as a matter of law.
CG Defendants Provide No Evidence to Support Their Affirmative Defenses
26. In its Motions for Summary Judgment, Encore devotes much of its no-evidence
motion to Defendants’ affirmative defenses. In their Response, Defendants fail to provide
evidence of any of their affirmative defenses and, oddly, spend some fourteen (14) pages
attempting to “re-plead” affirmative defenses. Response at 83-97. Still, Defendants provide no
evidence supporting their claims. As a result, the Court should grant summary judgment as to
Defendants’ affirmative defenses.
Ii. PRAYER
27. In sum, Encore respectfully requests the Court grant its Motions for Summary
Judgment and for any other relief to which it may show itself entitled.
i
Respectfully submitted,
DOBROWSKI, LARKIN & JOHNSON L.L.P.
“
ov
By
Paill J. Debrowski
SBN 05927100
jd@doblaw.com
Cody W. Stafford
SBN 24068238
cstafford@doblaw.com
4601 Washington Avenue, Suite 300
Houston, Texas 77007
Telephone: (713) 659-2900
Facsimile: (713) 659-2908
ATTORNEYS FOR PLAINTIFF CADENCE
BANK f/k/a ENCORE BANK
12
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing has been served on all
counsel of record on this 5" day of September, 2013, by ECF filing, facsimile, and hand
delivery.
Jett Williams, I]
Henke Law Firm, LLP
3200 Southwest Freeway, 34" Floor
Houston, Texas 77027
Robert G. Taylor, III
Law Office of Robert G. Taylor, [II
4119 Montrose, Suite 400
Houston, Texas 77006
James E. “Jeb” Brown, II
3100 Edloe Street, Suite 220
Houston, Texas 77027
Jerry $. Payne
616 Voss Road
Hunters Creek Village, Texas 77024
“
cday(W, Biafford
13
Preview
Filed 13 September 5 P2:38 Chris Daniel - District Clerk Harris Coun' ED101J 017695229 By: Wanda McCullough CAUSE NO. 2010-63264 CADENCE BANK fik/a ENCORE BANK IN THE DISTRICT COURT Plaintiff, v, OF HARRIS COUNTY, TEXAS ALLEN L. BERRY; JOSEPH D, MCCORD; and ROBERT G. TAYLOR, II, Defendants. 152™ JUDICIAL DISTRICT PLAINTIFF’S REPLY IN SUPPORT OF ITS MOTIONS FOR SUMMARY JUDGMENT TO THE HONORABLE JUDGE OF SAID COURT: Plaintiff Cadence Bank f/k/a Encore Bank (“Plaintiff’ or “Encore”) files this Reply in Support of its First Amended Traditional Motion for Summary Judgment and No-Evidence Motion for Summary Judgment and shows the Court as follows: I OVERVIEW 1 In their Response to Encore’s straightforward Motions for Summary Judgment, Defendants use 109 pages trying to conjure a fact issue where none exists. Indeed, Defendants devote more than a quarter of their Response to a baseless and convoluted statute of limitations argument. 2 Despite Defendants’ verbose Response, Defendants fail to raise a fact issue on Encore’s breach of contract and breach of guaranty claims, fail to raise a fact issue to support their counterclaims, and provide the Court with no evidence to support their affirmative defenses. As a result, the Court should grant Encore’s Motions for Summary Judgment. IL. ARGUMENT & AUTHORITIES A Limitations Did Not Run on Encore’s Claims Against Defendants as a Matter of Law 3 Defendants’ primary argument is that the statute of limitations expired on Encore’s claims.’ Defendants claim the primary note obligor, BLyn, breached the loan agreement by failing to obtain and maintain a priority lien on the vessel.’ They assert that because Crimson Yachts had a prior lien on the vessel (by virtue of its maritime lien) when the loan was made, BLyn was inherently in breach of the loan agreement the instant the loan was made. Response at 48. They therefore attempt to measure the limitations period from the date the Note was made, March 28, 2007. Response at 45-53. Because Defendants were not served until July and August 2012, they claim the four-year limitations period ran before service was completed. Jd. at 56. From this argument, Defendants leap to the conclusion that Encore’s claim for Defendants’ breach of the guaranty is time-barred. 4 Defendants’ contention fails as a matter of law for several reasons: . First, Defendants conflate the accrual of a claim on an underlying loan with the accrual of limitations on a guarantee. The fact that limitations 1 Notably, Defendants do not even attempt to raise a fact issue on (1) the fact that they signed the Guaranty Agreement, (2) the express terms of the Guaranty, (3) the calculation of the outstanding principal, interest, and penalties on the Promissory Note, or (4) that the Promissory Note was not repaid in full on March 15, 2012 when it matured, Besides their statute of limitations argument, Defendants’ only attack on Encore’s claim for breach of guaranty is that Encore failed to mitigate its damages. Response at 71. Defendants claim Encore should have bought title insurance or obtained UCC liens in anticipation of a breach by Defendants. However, mitigation of damages has no application to a plaintiff's actions which precede a defendant’s wrongful conduct. See, e.g., King Son Wong v. Carnation Co., 509 $.W.2d 385, 387 (Tex, Civ. App.—1974, writ refd n.re.). Furthermore, the Guaranty Agreement precludes this defense: “Gurarantor agrees that . . .no delay or omission or lack of diligence or care in exercising any right or power with respect to the Obligations or any security or collateral therefor . . . shall in any manner impair, diminish or affect the tights of Lender on the Obligations and the liability of Guarantor hereunder.” ? This argument constitutes a judicial admission that Defendants’ negligence and fraud counterclaims are frivolous. Defendants’ negligence and fraud counterclaims are based on allegations that Encore Bank was obligated to ensure that its mortgage lien on the Betty Lyn II was superior to Crimson’s. But Defendants’ limitations argument proceeds from an admission that ensuring a priority lien position was Defendants’ obligation under the parties’ contract, not Encore’s duty. Accepting Defendants’ limitation claim at face value, Encore had no duty to ensure its lien had priority. may have run on a claim against the original borrower on a note is no defense to a suit on a guarantee of that loan. Wiman v. Tomaszewicz, 877 S.W.1 (Tex. App.—Dallas 1994, pet. denied). Second, BLyn and the Defendants expressly acknowledged the validity of the debt several times after it was made. When a borrower acknowledges the validity of a debt in writing and makes a new promise to pay it when due, that becomes a new, enforceable contract obligation for limitations purposes. Tex. Civ. Prac. & Rem. Code Ann. art. 16.065; Miller vy. Thomas, 226 §.W.2d 149 (Tex. Civ, App.—Amarillo 1950, writ ref'd)? Third, each failure by Defendants to make a required payment on the Promissory Note created a separate cause of action with a separate statute of limitations. Defendants failed to make the required payment on Match 15, 2012 and were served with suit in July 2012, well within the limitations period. Fourth, the Promissory Note is payable to order and is therefore a negotiable instrument. It is governed by a 6-year statute of limitations, not the 4-year statute. Tex. Bus. & Comm, Code Ann. art. 3.118. 1 Encore’s Claim for Failure to Pay the Debt Owed is Not Time Barred 5 It has long been established in Texas that a suit on a guarantee can be maintained even if suit on the underlying debt is time-barred. The Texas Supreme Court held over 100 years ago: “Although the debt may be barred by limitation as against the principal, yet judgment may be entered against the surety if he be liable thereon.” Willis v. Chowning, 90 Tex. 617, 40 S.W. 395 (1897). This remains the rule today: “Whenever a creditor is permitted to sue a guarantor without first suing the principal, the guarantor cannot defend an action to recover on a promise to pay by showing that the claim against the principal is barred by the statute of limitations.” Yamin v. Conn, L.P., 2011 WL 4031218 (Tex. App.—Houston fia" Dist.] Sept. 13, 2011, no pet.) 3 As a “writ refused” decision, the opinion of the Court of Appeals in Adi/ler has the precedential authority of a decision of the Texas Supreme Court. Tex. R. App. P. 56.1(¢); Hunter v. State Farm Cty. Mut. Ins, Co., 2008 WL 5265189 at *3 n.6 (Tex. App.—Fort Worth Dec, 18, 2008, no pet.). 4 The Guaranty in this case explicitly provides that Encore may enforce the Guaranty without first suing the debtor: “Guarantor specifically agrees that it shall not be necessary or required . that Lender . . file suit or proceed to obtain or assert a claim for personal judgment against the Borrower for the Obligations .. . or make any effort at collection of the Obligations from Borrower ..” Ex. A-8, attached to Plaintiff's Motion for Summary Judgment at 5. Thus, this is the applicable rule in this case. “In situations where a lender can sue a guarantor without first suing the maker, the guarantor cannot defend an action to recover on a contract of guaranty by showing that the statute of limitations barred the claim against the maker.” Ocean Transp., Inc. v. Graycas, Inc., 878 S.W.2d 256 (Tex. App.---Corpus Christi 1994, writ denied). “Tn those situations where a guarantor can be sued without first suing the maker, an action to recover on a contract of guaranty cannot be defended by showing that the claim against the maker has been barred by the statute of limitations.” Wiman v. Tomaszewicz, 877 S.W.1 (Tex. App—Dallas 1994, pet. denied). “[A]n action to recover on a contract of guaranty cannot be defended by showing that the claim against the original debtor has been barred by the statute of limitations.” Bedall v. Reader's Wholesale Dist., Inc., 408 S.W.2d 237 (Tex. Civ. App—Houston 1966, no writ). Therefore, the underlying legal basis for Defendants’ limitations argument fails as a matter of well-established Texas law. 6 Encore’s claims for Defendants’ breach of the Guaranty for non-payment are not time barred because the Defendants failed to make the required payment in March 2012. ‘The legal determination of when a cause of action accrues is a question of law for the Court. Schneider Nat'l Carriers, Inc. y. Bates, 147 S.W.3d 264, 270 (Tex. 2004); Childs v. Haussecker, 974 S,W.2d 31, 36 (Tex. 1998); Moreno vy. Sterling Drug, Inc., 787 8.W.2d 348, 351 (Tex. 1990). “Tt is well-settled law that a breach of contract claim accrues when the contract is breached.” Stine v. Stewart, 80 $.W.3d 586, 592 (Tex. 2002); see also Barker v. Eckman, 213 S.W.3d 306 (Tex. 2006). 4 To determine whether limitations have run on Encore’s claims for non-payment against Defendants, therefore, the Court must first determine when the guaranty contract was breached, not when the underlying loan agreement was breached.? Wiman, supra. This, of °* This analysis underscores the fatal flaw in Defendants’ limitations argument. Defendants focus their entire argument on a claim that the Loan Agreement was breached when it was made. Even if true, that does not establish when the Guaranty Agreement was breached. course, depends on the language of the Guaranty and the obligations undertaken by Defendants therein. Jd. The Guaranty in this case in unambiguous. It specifically identifies the obligations guaranteed: Guarantor hereby irrevocably, absolutely, and unconditionally guarantees to Lender the prompt payment when due at maturity of the following (collectively, the “Obligations”) (i) all sums arising out of or under that certain Promissory Note of even date herewith, in the principal amount of $6,000,000.00, executed by Borrower and payable to the order of Lender (the “Note”), including all principal, interest, charges, and attorney’s fees which may be or become due or owing on or under or in connection with the Note . . ., (ii) all sums due to or to become due pursuant to any covenant, agreement, or other obligation undertaken. by Borrower in all instruments governing, securing, or pertaining to the Note . . , and (iii) all cost, attorney’s fees, and expenses incurred or expended by Lender due to nay default in the performance under the note or loan Documents, or in enforcing any right granted thereunder or under this Guaranty. Ex. A-8 to Motion for Summary Judgment at § 1. Paragraph 3 of the Guaranty Agreement sets out the specific contractual obligation of the Guarantors: In cach event whenever any of the Obligations [as defined above] shall become due and remain unpaid (howsoever the maturity thereof may have “occurred), Guarantor will, on demand, pay the amount due thereon to Lender... . Id. at $3. 8 This language is not difficult to construe. The contractual obligation of the Guarantor is to pay the unpaid amounts that become due on the note if the Borrower fails to make payment. Until the Borrower defaults on a payment obligation, no obligation accrues under the guaranty. Hence, the earliest limitations on the guarantors’ obligations to make payment could have begun to run was when BLyn defaulted on payment of the debt in March 2012. Defendants admit this suit was served on them by July and August 2012, Response at 54. Thus, limitations could not have run on Encore’s claims against Defendants within four (4) months of the breach. 2. The Debt Was Acknowledged as a Valid and Subsisting Debt in 2009 and 2010 9 Even if Defendants’ assumption that the limitations period begins to run on a guarantee upon breach of the underlying debt was correct, Defendants’ argument fails as a matter of law in this case because the debt was subsequently acknowledged in writing by Defendants. 10. In 2009 and 2010, new, unconditional promises to pay the debt were made in connection with certain written loan modifications. These modifications reset the limitations period. Tex. Civ. Prac. & Rem. Code § 16.065, “The rule is well established that a subsequent unqualified acknowledgment in writing of an existing debt implies a promise to pay it, and such is sufficient to toll the statute of limitations unless the acknowledgment be accompanied by some expressions indicative of an unwillingness to pay.” Miller v. Thomas, 226 S.W.2d 149, 152 (Tex. App.—Amarillo 1950, writ ref'd); accord Stine v. Stewart, 80 8.W.3d 586, 591 (Tex. 2002). As the Texas Supreme Court explained in Stine, the statute requires: “an agreement: 1) be in writing and signed by the party to be charged; 2) contain an unequivocal acknowledgment of the justness or the existence of the particular obligation; and 3) refer to the obligation and express a willingness to honor that obligation.” Id. ll. The facts are undisputed: On April 15, 2009, the partiers entered into a “Note Modification Agreement,” attached to the Motion for Summary Judgment at Ex. A-5. This Note Modification Agreement is signed by BLyn and expressly acknowledges the existence and justness of the original debt. The document expressly identifies and acknowledges the existence of the debt as follows: “Borrower is legally obligated to pay to Lender all sums due and owing under that certain Promissory Note dated March 28, 2007, in the original principal amount of $6,000,000.00, executed by Borrower and payable to the order of Lender in accordance with the terms set forth therein (the ‘Note’).” The document also acknowledged the justness and validity of the debt: “Borrower ratifies, affirms, reaffirms, acknowledges, confirms, and agrees that the Note, as herein amended, represents the valid, binding, and enforceable obligation of the Borrower.” The modification contains a new and unconditional promise to pay the debt: “Borrower promises to pay to the order of Lender, the indebtedness evidenced by the Note according to the terms thereof, as modified herein.” Jd. Defendants expressly consented to the Note Modification Agreement. Ex. A-6, Hence, pursuant to Section 16.065 and the opinion in Stine, limitations could not begin to run until April 15, 2009, 12, Furthermore, the parties entered into a second Note Modification Agreement dated March 15, 2010, also attached to the Motion for Summary Judgment at Ex. A-5, containing the same provisions using the exact same language as quoted above from the April 2009 modification. This, too, was (1) signed by BLyn, (2) acknowledged and confirmed the existence, justness and validity of the debt, and (3) contains a new promise to pay the debt. Once again, Defendants, as guarantors, expressly consented to the modification. Ex. A-6. Hence, limitations could not begin to run on this promise until March 15, 2010, at the earliest. 13. While, as discussed above, limitations on the Guaranty could not have begun to run until there was a monetary default by BLyn, Article 16.065 precludes any claim that limitations has run on the underlying debt as a matter of law. The renewed promises to pay in the modification agreements are independently enforceable. Limitations could not have run on those promises until 2016 at the earliest.’ Thus, Defendants’ limitations argument, predicated on a claim that limitations has run on BLyn’s debt, must be rejected. ® Defendants urge application of a four-year statute to the note claims in this case, but this is legally incorrect. As noted above, the UCC establishes a 6-year limitations period for suits on a negotiable instruments such as the Promissory Note in this case. Tex. Bus. & Com, Code Ann. art. 3.118(a). Therefore, a claim to enforce the BLyn Note cannot be time-barred before 2016 at the earliest. 3 Each Missed Payment Constitutes a New Cause of Action 14. BLyn and Defendants were required to make numerous payments to Encore pursuant to the Promissory Note, with a final payment of all outstanding principal and interest due in 2012. When recovery is sought on an obligation payable in installments, the statute of limitations runs against each installment from the time it becomes due. Intermedics, Inc. v. Grady, 683 S.W.2d 842, 845 (Tex. App—Houston [Ist Dist.] 1984, writ refd n.r.e.). Thus, a suit for the breach of a contract requiring payment in periodic installments may include all payments due within the four-year statute of limitations period, even if the initial breach was beyond the limitations period. Hollander v, Capon, 853 S.W.2d 723, 726-27 (Tex. App.— Houston [1st Dist.] 1993, writ denied); see also Spin Doctor Golf, Inc. v. Paymentech, L.P., 296 8.W.3d 354, 362 (Tex. App.—Dallas 2009, pet. struck). 15. Thus, when BLyn and Defendants breached their obligation to repay the Promissory Note on March 15, 2012, a new cause of action (with a new limitations period) accrued on the date of the default. Even under Defendants’ specious analysis, Encore may properly sue for any and all missed payments within the last four years. 16. Defendants attempt to skirt this issue by claiming the breach occurred in either 2007, when the Loan Documents were executed, or 2008, when BLyn defaulted on its contract with Horizon/Crimson. Even assuming, arguendo, that breaches of the Loan Documents did occur at that time, limitations did not begin to run since Encore did not declare BLyn or Defendants in breach and accelerate the debt. 17. If a note contains an optional acceleration clause, default does not ipso facto start limitations running on the note. Holy Cross Church of God in Christ v. Wolf, 44 8.W.3d 562, 566-67 (Tex. 2001). Rather, the action accrues only when the holder actually exercises its option to accelerate. Hammann vy. Ff.J. MeMullen & Co., 122 Tex. 476, 62 S.W.2d 59, 61 (1933); Curtis v, Speck, 130 8.W.2d 348, 351 (Tex. Civ. App —Galveston 1939, writ ref'd), 18, Here, the only time Encore arguably accelerated the debt was in 2010, when it demanded BLyn remove Crimson’s maritime lien from the Betty Lyn I and demanded Defendants pay the outstanding balance on the Note.” Thus, the earliest the statute of limitations could have run would be 2014. B. Defendants Fail to Raise a Fact Issue on Their Counterclaims 19. Defendants’ Response completely fails to raise a fact issue on any of their counterclaims. Indeed, Defendants do not address how any of their counterclaims are viable as a matter of law. Thus, the Court should grant summary judgment in Encore’s favor on Defendants’ counterclaims. Misrepresentation 20. Defendants fail to raise a fact issue on their misrepresentation claim. “Defendants merely use their Response to allege that Encore made representations to them. Response at 59- 61. However, Defendants’ self-interested assertions that Encore made misrepresentations cannot rebut the contractual disclaimers of reliance contained in the Loan Documents. Defendants cite no authority to support their misrepresentation claim in light of the express contractual disclaimers. As a result, their misrepresentation claim fails as a matter of law. ” Byen assuming Encore had accelerated the debt in 2010, that acceleration was abandoned when Encore continued to accept payments from Defendants. Thus, the maturity date on the Promissory Note was unaffected. City Nat? Bank v. Pope, 260 §.W. 903, 905 (Tex. Civ, App —San Antonio 1924, no writ); see also San Antonio Real Estate, Bldg. & Loan Ass'n y, Stewart, 94 Tex. 441, 61 S.W. 386, 388 (1901) (explaining that the parties' agreement or actions can “have the effect of obviating the default and restoring the contract to its original condition as if it had not been broken”); Denbina v. City of Hurst, 516 $.W.2d 460, 463 (Tex. Civ. App—Tyler 1974, no writ) (explaining that an option to accelerate may be withdrawn or revoked after it is exercised by the noteholder, effectively restoring the note's original maturity date). 2. Negligence 21. Defendants utterly fail to cite any cases supporting their contentions that Encore owed a duty to either obtain a subordination agreement or loan unlimited funds. Their only citations are to affidavits of their “experts” who claim Encore owed and breached a duty.® However, Texas law uniformly holds that a lender generally owes no duty of care to a borrower with respect to the underlying investment for which loans are borrowed. See, e.g., Baskin vy. Mortgage & Trust Co., 837 S.W.2d 743 (Tex. App.—Houston [14th Dist.] 1992, writ denied). Further, an unconditional, continuing guaranty, like the one Defendants executed here, is binding upon them regardless of any impairment of collateral. Simpson vy. MBank Dallas, N.A., 724 S.W.2d 102, 106 (Tex. App.—Dallas 1987, writ refd nr.e.). Consequently, any alleged failure by Encore to either obtain a subordination agreement or otherwise protect the Beity Lyn II is completely irrelevant — regardless of what Defendants 2, experts” claim. See id. 22, Instead of supporting their previous counterclaims, Defendants now claim ‘that Encore “undertook” a duty to obtain a subordination agreement. Response at 76. However, Defendants’ claim is undercut by the very cases they cite and the Loan Documents. 23. Defendants claim Encore gratuitously undertook a duty to render services to them by obtaining a subordination agreement. Response at 77. Defendants then curiously cite to Section 323 of the Restatement of Torts and King v. Graham Holding Co.? However, as expressly noted in King, “section 323, by its own terms, applies only to physical harm... .” Jd. at 300 (emphasis added). Section 323 of the Restatement simply does not apply to this case. The cases cited by Defendants involve situations where bodily injury, premises liability, or ® Whether a duty exists is a question of law for the Court to decide, not a fact issue. Humble Sand & Gravel, Ine. v. Gomez, 146 S.W.3d 170, [81 & n.20 (Tex. 2004). It is well established that an expert cannot testify to issues of law. Greenberg Traurig of New York, P.C. v. Moody, 161 S.W.3d 56, 94 (Tex. App.-Houston [14th Dist] 2004, no et.) 762 S.W.2d 296, 299-300 (Tex. App.—Houston [14th Dist.] 1988, no writ). 10 insurance are involved. Sibley v. Kaiser Foundation Health Plan of Texas, 998 8.W.2d 399, 403 (Tex. App.—Texarkana 1999, no pet.). No physical harm occurred in this case and, in any event, all of Defendants’ alleged injuries sound in contract, not tort. See, e.g., King, 762 S.W.2d at 299, 24, Indeed, Defendants even cite to the Mortgage Agreement, which expressly requires BLyn — not Encore — to maintain Encore’s mortgage as a priority lien on the Betty Lyn Il. Response at 77; see also Ex. A-10, ENBK002149, at § 4. Pursuant to the loan documents and Texas law, Encore simply owed Defendants no duty to obtain or maintain a priority lien. 25. As a result, Defendants fail to raise a fact issue on their “negligence” claims, which fail as a matter of law. CG Defendants Provide No Evidence to Support Their Affirmative Defenses 26. In its Motions for Summary Judgment, Encore devotes much of its no-evidence motion to Defendants’ affirmative defenses. In their Response, Defendants fail to provide evidence of any of their affirmative defenses and, oddly, spend some fourteen (14) pages attempting to “re-plead” affirmative defenses. Response at 83-97. Still, Defendants provide no evidence supporting their claims. As a result, the Court should grant summary judgment as to Defendants’ affirmative defenses. Ii. PRAYER 27. In sum, Encore respectfully requests the Court grant its Motions for Summary Judgment and for any other relief to which it may show itself entitled. i Respectfully submitted, DOBROWSKI, LARKIN & JOHNSON L.L.P. “ ov By Paill J. Debrowski SBN 05927100 jd@doblaw.com Cody W. Stafford SBN 24068238 cstafford@doblaw.com 4601 Washington Avenue, Suite 300 Houston, Texas 77007 Telephone: (713) 659-2900 Facsimile: (713) 659-2908 ATTORNEYS FOR PLAINTIFF CADENCE BANK f/k/a ENCORE BANK 12 CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing has been served on all counsel of record on this 5" day of September, 2013, by ECF filing, facsimile, and hand delivery. Jett Williams, I] Henke Law Firm, LLP 3200 Southwest Freeway, 34" Floor Houston, Texas 77027 Robert G. Taylor, III Law Office of Robert G. Taylor, [II 4119 Montrose, Suite 400 Houston, Texas 77006 James E. “Jeb” Brown, II 3100 Edloe Street, Suite 220 Houston, Texas 77027 Jerry $. Payne 616 Voss Road Hunters Creek Village, Texas 77024 “ cday(W, Biafford 13