879 F.3d 653
5th Cir.2018Background
- George Kaleh personally signed three guarantees (Construction, Mezzanine, Completion) tied to Western‑Southern’s financing of a Houston apartment project; guarantees contained Ohio choice‑of‑law clauses.
- Borrower entities took a Construction Loan (secured by the Meritage real property) and a Mezzanine Loan (documents pledged ownership interests in the borrowing entities).
- Borrowers defaulted in April 2009; Western accelerated in August 2009, foreclosed on membership interests and later the property, purchased the property, and incurred post‑foreclosure completion costs.
- Western sued Kaleh in June 2013 for breach of the three guarantees seeking unpaid loan balances, construction costs, lien settlements, taxes, insurance, security deposits, and attorney’s fees.
- District court (bench trial) found liability, awarded some damages for unpaid debt and non‑debt items, denied most attorney’s fees and all post‑foreclosure construction costs; both sides appealed.
Issues
| Issue | Plaintiff's Argument (Western) | Defendant's Argument (Kaleh) | Held |
|---|---|---|---|
| Governing law (choice‑of‑law) | Enforce Ohio choice‑of‑law in guarantees for substantive law | Texas choice‑of‑law from loan documents should govern | Ohio substantive law governs guarantees; Texas procedural law governs remedies/procedure |
| Applicability of Tex. Prop. Code §51.003(a) (2‑year) to Construction debt | §51.003(a) should not be treated as procedural; district court erred excluding it | §51.003(a) bars deficiency suits filed >2 years after foreclosure sale | §51.003(a) is procedural here and bars Western’s claim to recover unpaid Construction Loan debt (suit untimely) |
| Timeliness of Mezzanine claim and accrual/waiver date | Accrual when Western demanded (June 30, 2010) or when acceleration notice sent (Aug 11, 2009) | Accrual earlier at default notice (April 22, 2009); note may waive notice of acceleration | Mezzanine claim governed by 4‑year statute; court must decide on remand whether the note waived notice of acceleration before final accrual determination |
| Waiver of statute‑of‑limitations in guarantees | Waiver clause precludes setoffs/defenses including limitations | Any general advance waiver of limitations is void under Texas unless specific | Kaleh did not validly waive the 2‑year limitation; general waiver unenforceable under Texas law |
| Attorney’s fees proof under Ohio law | Trial and post‑trial proof should suffice; Rule 54 allows post‑trial supplementation | Western’s fee evidence was insufficient (did not tie hours to rates/tasks) | Ohio requires proof tying hours worked and rates; district court did not abuse discretion denying most fees; post‑trial supplementation did not cure inadequate trial proof |
| Post‑foreclosure construction costs | Costs fall under Completion Guarantee and "other provisions" of the loan; should be recoverable | Recovery requires proof work brought project into contractual completion per Plans and Specifications | Recovery denied: Western failed to prove that post‑foreclosure work complied with the Plans and Specifications; district court’s interpretation and evidentiary finding affirmed |
Key Cases Cited
- Bittner v. Tri‑County Toyota, Inc., 569 N.E.2d 464 (Ohio 1991) (adopting lodestar approach to reasonable attorney fees)
- Hensley v. Eckerhart, 461 U.S. 424 (U.S. 1983) (fee claimants should submit evidence of hours and rates; inadequate documentation may justify reduction)
- LaSalle Bank Nat’l Ass’n v. Sleutel, 289 F.3d 837 (5th Cir. 2002) (waiver clauses in guarantees can be read broadly to waive guarantor defenses)
- Shumway v. Horizon Credit Corp., 801 S.W.2d 890 (Tex. 1991) (waiver principles: makers of notes can waive notice/demand/notice of acceleration)
- Cosgrove v. Cade, 468 S.W.3d 32 (Tex. 2015) (contract claim accrues on breach)
- Clagg v. Baycliffs Corp., 695 N.E.2d 728 (Ohio 1998) (interpretation of conjunctive "and" in contract language)
- Exxon Mobil Corp. v. Drennen, 452 S.W.3d 319 (Tex. 2014) (Texas enforces choice‑of‑law clauses absent strong contrary reasons)