454 F. App'x 307
5th Cir.2011Background
- KCA executed a $7,150,000 promissory note to Holliday Fenoglio, LP, later assigned to Bank, secured by a Deed of Trust on KCI.
- KGMK and KGAK were the general partners of KCA; Kobernick and Klein were the sole shareholders of KGMK and KGAK, respectively.
- Paragraph 14(c) of the Note makes recourse liability spring upon KCI becoming an asset in specified bankruptcies or insolvency proceedings.
- KCI was transferred to Comunidad Kensington Club I, LLC (Comunidad) in December 2003 to obtain a tax exemption; this transfer occurred without prior Bank consent as required by §8.2 of the Security Instrument.
- Comunidad filed a Chapter 11 bankruptcy in March 2008, one day before a foreclosure sale of the property; the Bank later pursued recourse under the Note and related documents.
- The district court granted summary judgment for the Bank on recourse liability and later awarded attorney’s fees; Defendants appealed, and the Bank cross-appealed on waiver and default interest issues.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the transfer of KCI to Comunidad triggered recourse liability | KCI becoming asset in Comunidad bankruptcy triggered 14(c) | Defendants contend no trigger or incorrect interpretation | Yes; 14(c) triggered recourse liability when KCI became asset in Comunidad bankruptcy. |
| Whether the Bank waived its right to declare a default and thus waived default interest | Waiver by Bank due to escrow refund is applicable | No waiver; transfers unchanged; non-waiver clause controls | Bank waived its right to declare default based on transfer; no default interest. |
| Whether attorney’s fees should be reconsidered or remanded based on KCI's fair market value | Fees valid as part of debt; value of KCI may affect offset | Remand needed to reflect KCI value in light of state court verdict | No remand required; fees stayed within debt under Note and Guaranty. |
Key Cases Cited
- FDIC v. Prince George Corp., 58 F.3d 1041 (4th Cir. 1995) (enforce promissory terms; not barred when asset becomes subject to bankruptcy)
- In re Huang, 275 F.3d 1173 (9th Cir. 2002) (bankruptcy petition protection; public policy arguments distinguished)
- Intercontinental Group Partnership v. KB Home Lone Star L.P., 295 S.W.3d 650 (Tex. 2009) (fee-shifting contract terms; prevailing party rule distinguished)
- Enter. Leasing Co. of Hous. v. Barrios, 156 S.W.3d 547 (Tex. 2004) (contract interpretation; ambiguity standard)
- Ulico Cas. Co. v. Allied Pilots Ass’n, 262 S.W.3d 773 (Tex. 2008) (waiver elements; non-waiver clause may be waived)
- Straus v. Kirby Court Corp., 909 S.W.2d 105 (Tex. App.—Houston [14th Dist.] 1995) (nonwaiver considerations in loan security)