Opinion
03-23-00032-CV
03-29-2024
Cottonwood Development Corporation, Appellant v. Longhorn Title Company, Appellee
FROM THE 368TH DISTRICT COURT OF WILLIAMSON COUNTY NO. 21-0128-C368, THE HONORABLE RICK J. KENNON, JUDGE PRESIDING
Before Chief Justice Byrne, Justices Kelly and Theofanis
MEMORANDUM OPINION
Rosa Lopez Theofanis, Justice
This appeal arises from a dispute over financing for a real estate development. Cottonwood Development Corporation appeals from the district court's orders granting summary judgment in favor of Longhorn Title Company (Longhorn). We affirm.
BACKGROUND
In April 2019, the City of Hutto announced "Project Expansion," a planned mixed-used development on 250 acres of unimproved land near the intersection of U.S. Highway 79 and County Road 132. Perfect Game, a baseball scouting company, agreed to move its national headquarters to Hutto to be the anchor tenant. To facilitate the project, the City created Cottonwood Development Corporation. See generally Tex. Transp. Code § 431.101 ("Creation of Local Government Corporations").
In December 2019, Cottonwood approached Preston Hollow Capital regarding financing for the project. The following month, Cottonwood and Preston Hollow reached an agreement in principle on a deal worth up to $35 million. On January 27, 2020, Cottonwood's board of directors passed Resolution 3A approving the proposal and directing its chairman to sign it. On the same day, Cottonwood's board passed Resolution 3F authorizing "Chair Doug Gaul, Charles Daniels, Byron Frankland or Michel Sorrel" (Cottonwood Board Members) to "act as agents on behalf of [Cottonwood] in matters involving Project Expansion - Perfect Game Project, with specific authority granted to sign deeds, mortgages, financing documents and all other documents related to work on Project Expansion - Perfect Game Project."
The parties executed several more documents, including the Loan Agreement between Cottonwood and Preston Hollow and the Closing Statement. The Loan Agreement provides for an initial advance of $15 million and the possibility of further advances if certain conditions are met. Section 3.1 specifies how some of the initial advance "shall be applied": $12,029,000 to purchase two tracts of land, "approximately $1,100,000.00 to reimburse contractors for costs related to the Project," "approximately $1,070,000 for expenses that [Hutto] incurred or will incur as with regard to due diligence costs related to the Project," and $630,000 to settle a lawsuit related to the project. $171,000 remains after subtracting those amounts from the initial advances.
Longhorn was chosen as title company and closing agent for the loan transaction. The Closing Statement specifies how Longhorn is to disburse the funds. Line 120 directs that $12,445,038.24 is to be paid for Cottonwood's settlement charges (i.e., the items in Section 3.1 of the Loan Agreement) and Line 303 directs that $2,554,961.76 is to be paid directly to Cottonwood. A separate section of the Closing Statement lists settlement costs that were to be paid from each parties' funds. The costs that were to be "paid from Borrower's funds at settlement" includes $60,000 in attorney's fees to Winstead PC, counsel for Preston Hollow. Frankland signed the Loan Agreement and the Closing Statement for Cottonwood.
On February 12, 2020, Winstead PC emailed Longhorn with instructions for closing the transaction. The Closing Instructions provide additional instructions for closing including, among other conditions, that Longhorn could only disburse the funds after its receipt of written approval from Preston Hollow of the Closing Statement; Longhorn received "funds sufficient to pay all closing costs reflected on the Closing Statement, including all . . . legal fees charged by Winstead PC, as attorney for [Preston Hollow], as set forth on the Closing Statement"; and Preston Hollow has advised Longhorn in writing "that all conditions precedent to the closing have been satisfied." The Closing Instructions directed Longhorn to indicate its agreement by signing a copy of the Closing Instructions and returning it. Longhorn employee Chasaty Huckabay signed and returned a copy of the Closing Instructions to Winstead the following day.
On February 14, 2020, an employee of Preston Hollow sent the following email to Huckabay:
I am writing in reference to the attached Closing Instructions, which originally directed Longhorn Title to fund the Initial Advance upon satisfaction of the conditions specified therein, at direction of Preston Hollow.
By this email, we hereby confirm that all closing conditions have been satisfied and you are hereby authorized to fund a portion of the Initial Advance equal to $12,445,038.24, for the payment of the Settlement Charges of Borrower, as indicated in Line 120 of the [Closing] Statement.
As for the remaining $2,554,961.76 of the Initial Advance, indicated as "Cash to Borrower" in line 303 of the [Closing] Statement, we direct you to continue to hold such funds in escrow until authorized to release by Preston Hollow in writing, such authorization to be conditioned upon receipt of evidence satisfactory
to Preston Hollow that such remaining funds shall be used to pay for costs of the Project previously incurred by the City or the Borrower.
The same day, McGinnis Lochridge, the law firm acting for Cottonwood, emailed an attorney at Winstead that Cottonwood "is also agreeable to holding the amount shown on Line 303 of the Closing Statement in Escrow with [Longhorn] pending further joint release instructions further instructions from the [Cottonwood] and [Preston Hollow]." Longhorn paid out the funds in Line 120 in the manner outlined in the Closing Statement, including $60,000 to Winstead. Preston Hollow never instructed Longhorn to disburse the remaining $2.5 million.
In April 2020, Preston Hollow sent Cottonwood a notice of default citing, among other things, allegedly "false or misleading" representations concerning the validity of the various documents making up the loan. On May 4, 2020, Preston Hollow requested that Longhorn return the remaining funds. Cottonwood responded to Longhorn the following day demanding that Longhorn retain the funds.
In January 2021, Longhorn filed an interpleader petition against Cottonwood and Preston Hollow seeking to deposit the funds into the registry of the court. See Tex. R. Civ. P. 43 (providing that party who receives multiple claims to funds in its possession may join all claimants in one lawsuit and tender disputed funds into court registry). Cottonwood answered and asserted a counterclaim for conversion against Longhorn based on the dispute over the $60,000 in attorney's fees to Winstead PC.
Longhorn filed a traditional motion for summary judgment as to the conversion claim and attached a declaration from Huckabay describing her handling of the matter for Longhorn. The exhibits to her declaration included the copy of the Closing Instructions that she signed and returned to Preston Hollow, the accompanying email to Preston Hollow, the Closing Statement, Winstead's invoice of attorney's fees, and the two resolutions. Cottonwood filed a response and, simultaneously, an amended answer adding counterclaims for breach of fiduciary duty, negligence, and gross negligence. Although the $60,000 payment remained the sole basis for the conversion claim, Cottonwood alleged that Longhorn was negligent and breached its fiduciary duty through the $60,000 payment and withholding of the remaining $2.5 million.
Cottonwood also asserted claims against Preston Hollow and Winstead. The district court severed those claims into a separate case.
On January 19, 2022, the district court signed an order granting Longhorn's motion for summary judgment on Cottonwood's conversion claim against Longhorn. Several months later, Longhorn filed a no-evidence motion for summary judgment on the remaining claims. Cottonwood filed a response and attached the Loan Agreement, Huckabay's deposition with exhibits, the Closing Instructions, and an affidavit from the Hutto City Secretary. The district court signed an order granting Longhorn's no-evidence motion for summary judgment on Cottonwood's claims for breach of fiduciary duty, negligence, and gross negligence. This appeal ensued.
STANDARD OF REVIEW
"We review summary judgments de novo, viewing the evidence in the light most favorable to the non-movant, crediting evidence favorable to the non-movant if reasonable jurors could, and disregarding contrary evidence unless reasonable jurors could not." Zive v. Sandberg, 644 S.W.3d 169, 173 (Tex. 2022). A defendant moving for traditional summary judgment has the burden to conclusively show that "there is no genuine issue as to any material fact" and that it is "entitled to judgment as a matter of law." Tex.R.Civ.P. 166a(c). By contrast, a party may obtain a no-evidence summary judgment when "there is no evidence of one or more essential elements of a claim or defense on which an adverse party would have the burden of proof at trial." Id. R. 166a(i). A no-evidence motion "shifts the burden to the nonmovant to present evidence raising a genuine issue of material fact supporting each element contested in the motion." JLB Builders, L.L.C. v. Hernandez, 622 S.W.3d 860, 864 (Tex. 2021).
A genuine issue of material fact exists if it "rises to a level that would enable reasonable and fair-minded people to differ in their conclusions." First United Pentecostal Church of Beaumont v. Parker, 514 S.W.3d 214, 220 (Tex. 2017) (citing Merrell Dow Pharm., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997)). Evidence does not create an issue of material fact if it is "so weak as to do no more than create a mere surmise or suspicion" that the fact exists. Id. (citing Kia Motors Corp. v. Ruiz, 432 S.W.3d 865, 875 (Tex. 2014)).
Cottonwood's issues involve questions of contract construction. Contract construction also presents a question of law. Sundown Energy LP v. HJSA No. 3, Ltd. P'ship, 622 S.W.3d 884, 888 (Tex. 2021). When construing a contract, our "primary concern is to give effect to the written expression of the parties' intent." Id. We "presume parties intend what the words of their contract say," Pathfinder Oil & Gas, Inc. v. Great W. Drilling, Ltd., 574 S.W.3d 882, 888 (Tex. 2019), and we interpret "contract language according to its 'plain, ordinary, and generally accepted meaning' unless the instrument directs otherwise," URI, Inc. v. Kleberg County, 543 S.W.3d 755, 764 (Tex. 2018) (quoting Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996)). We do not consider words and phrases in isolation but "consider the entire writing in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless." Pathfinder Oil & Gas, 574 S.W.3d at 889. "If a written contract is so worded that it can be given a definite or certain legal meaning when so considered and as applied to the matter in dispute, then it is not ambiguous." URI, 543 S.W.3d at 765. The question of "whether a contract is ambiguous is a question of law for the court." North Shore Energy, L.L.C. v. Harkins, 501 S.W.3d 598, 602 (Tex. 2016) (per curiam). Courts construe unambiguous contracts as a matter of law. Perthuis v. Baylor Miraca Genetics Labs., LLC, 645 S.W.3d 228, 235 (Tex. 2022).
On the other hand, "if the contract is subject to two or more reasonable interpretations after applying the pertinent construction principles, the contract is ambiguous, creating a fact issue regarding the parties' intent." Plains Expl. & Prod. Co. v. Torch Energy Advisors Inc., 473 S.W.3d 296, 305 (Tex. 2015). Summary judgment "is not the proper vehicle for resolving disputes about an ambiguous contract." Id.
DISCUSSION
Cottonwood argues in five issues that the district court erred by granting Longhorn's traditional and no-evidence motions for summary judgment.
Conversion
Cottonwood argues in its first issue that the district court erred by granting Longhorn's traditional motion for summary judgment on the conversion claim.
Longhorn argues in a footnote that we do not have jurisdiction over this issue because Cottonwood did not separately identify the order granting summary judgment in its notice of appeal. We disagree. "When a trial court renders a final judgment, the court's interlocutory orders merge into the judgment and may be challenged by appealing that judgment." Bonsmara Nat. Beef Co. v. Hart of Tex. Cattle Feeders, LLC, 603 S.W.3d 385, 390 (Tex. 2020). Moreover, a notice of appeal from a final judgment "need not identify every adverse interlocutory ruling merged into the final judgment that an appellant intends to challenge." Nortex Minerals, L.P. v. Blackbeard Operating, LLC, No. 02-23-00027-CV, 2023 WL 7401052, at *4 (Tex. App.- Fort Worth Nov. 9, 2023, no pet.) (mem. op.). Cottonwood's notice of appeal identifies the order granting Longhorn's no-evidence motion for summary judgment, which was the final judgment. That notice of appeal allowed it to challenge earlier interlocutory orders that were not independently appealable, including the order granting Longhorn's motion for traditional summary judgment. See Human Biostar, Inc. v. Celltex Therapeutics Corp., 514 S.W.3d 844, 847 (Tex. App.-Houston [14th Dist.] 2017, pet. denied) (discussing case holding that "notice of appeal from final judgment 'brought forward the entire case, including earlier interlocutory orders that were not independently appealable'" (quoting Gunnerman v. Basic Capital Mgmt., Inc., 106 S.W.3d 821, 824 (Tex. App.-Dallas 2003, pet. denied))).
Conversion is the "unauthorized and unlawful assumption and exercise of dominion and control over the personal property of another to the exclusion of, or inconsistent with, the owner's rights." Cypress Creek EMS v. Dolcefino, 548 S.W.3d 673, 684 (Tex. App.- Houston [1st Dist.] 2018, pet. denied). The elements of a conversion claim are (1) "the plaintiff owned or had legal possession of the property or entitlement to possession"; (2) the defendant "unlawfully and without authorization assumed and exercised dominion and control over the property to the exclusion of, or inconsistent with, the plaintiff's rights as an owner"; (3) "the plaintiff demanded return of the property"; and (4) "the defendant refused to return the property." Smith v. Maximum Racing, Inc., 136 S.W.3d 337, 341 (Tex. App.-Austin 2004, no pet.).
Longhorn argued in its motion for summary judgment that it was entitled to summary judgment as a matter of law and that there is no genuine issue of material fact on the first two elements of Cottonwood's conversion claim because Cottonwood agreed in the Closing Statement that Longhorn would pay Winstead's attorney's fees out of the loan principal. On appeal, Cottonwood contends that this position is in "direct conflict" with Section 5.12 of the Loan Agreement, where Cottonwood agreed to "promptly reimburse" Preston Hollow for its attorneys' fees and other costs. Cottonwood construes Section 5.12 as requiring Cottonwood to reimburse Preston Hollow using Cottonwood's own funds rather than the loan proceeds. And Cottonwood argues that Longhorn should have followed the Loan Agreement rather than the Closing Instructions because Cottonwood's board never approved the Closing Instructions. Longhorn responds that the Closing Statement is the type of document related to the project that Cottonwood's board authorized board member Frankland to sign.
We agree with Longhorn. Our analysis of the parties' arguments begins with the plain language of the contract's text, which we consider in the context of the entire instrument. See URI, 543 S.W.3d at 765. The plain language of the Loan Agreement makes clear that it is not the entire agreement. First, the Loan Agreement defines the terms "Loan Documents" to mean the Loan Agreement, several specified agreements not relevant here, and "any and all other agreements, documents and instruments now or hereafter executed by [Cottonwood], or any other Person or party in connection with the Loan." In another section, Cottonwood warrants that it possesses "all requisite power, authority and legal right to execute and deliver the Loan Documents, and all other instruments and documents to be executed and delivered by [Cottonwood] pursuant thereto" and that Cottonwood had "[b]y resolution . . . duly approved the execution, delivery, performance and observance . . . of the Loan Documents." The Loan Agreement also provides that all modifications must be in writing and signed by all parties. Construing these provisions together, the Loan Agreement contemplates that the parties would execute further agreements "in connection with the Loan" and incorporates those agreements if their terms are consistent with the Loan Agreement.
Longhorn's evidence conclusively shows that the Closing Statement is one of those agreements, and Cottonwood did not present contrary evidence. See Tex. R. Civ. P. 166a(c) (providing that movant has burden to conclusively show no genuine issue of material fact). The parties executed the Closing Statement "in connection with the Loan" because the Closing Instructions require it as an express precondition to closing. And the Closing Statement does not conflict with the Loan Agreement. Section 5.12 of the Loan Agreement provides that Cottonwood will "promptly reimburse" Preston Hollow for all its expenses incurred in connection with the loan, including attorney's fees, but it does not specify the time or method of reimbursement. The parties supplied those details through the Closing Statement. See Rieder v. Woods, 603 S.W.3d 86, 94 (Tex. 2020) (explaining that "instruments pertaining to the same transaction may be read together to ascertain the parties' intent, even if the parties executed the instruments at different times and the instruments do not expressly refer to each other" (citing Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 840 (Tex. 2000))). Construing the Loan Agreement and the Closing Statement together, the relevant provisions are not ambiguous. The Loan Agreement requires Cottonwood to reimburse Preston Hollow for its attorney's fees (among other costs), while the Closing Statement specifies the method of reimbursement. In other words, the parties agreed that Cottonwood would reimburse Preston Hollow for its costs through Longhorn paying Winstead out of the loan funds at closing. Construing these provisions as a matter of law, there is no fact issue concerning Cottonwood's ownership of the $60,000 or whether Longhorn acted unlawfully or without authorization by paying it to Winstead.
Cottonwood argues several times in its brief that it may enter a binding contract only by resolution approved by its board because it is a governmental entity. It relies on cases stating that a "city or county may contract only upon express authorization of the city council or commissioners court by vote of that body reflected in the minutes" and that "statements or acts of the mayor or other officers or governing body members are ineffectual." See, e.g., City of Bonham v. Southwest Sanitation, Inc., 871 S.W.2d 765, 767 (Tex. App.-Texarkana 1994, writ denied). But Cottonwood supplied that authority by passing Resolution 3F, which authorizes Frankland, and other Cottonwood board members, to act as Cottonwood's agent and execute documents related to the project.
We conclude that the district court did not err when it ruled that Longhorn was entitled to summary judgment on Cottonwood's conversion claim, and we overrule Cottonwood's first issue.
Breach of Fiduciary Duty
Cottonwood argues in its second issue that the district court erred by granting no-evidence summary judgment on Cottonwood's claim for breach of fiduciary duty. The elements of the claim are (1) the existence of a fiduciary duty, (2) breach of the duty, (3) causation, and (4) damages. Parker, 514 S.W.3d at 220. Longhorn challenged the second and third elements in its no-evidence motion.
An escrow agent acts as a neutral party to the transaction and owes fiduciary duties to both parties. Capcor at KirbyMain, L.L.C. v. Moody Nat. Kirby Houston S, L.L.C., 509 S.W.3d 379, 385 (Tex. App.-Houston [1st Dist.] 2014, no pet.). The escrow agent owes duties of loyalty, of full disclosure, and "to exercise a high degree of care to conserve the money and pay it only to those persons entitled to receive it." Boozer v. Fischer, 674 S.W.3d 314, 327 (Tex. 2023). Cottonwood argued in its response that Longhorn violated the third duty by paying $60,000 to Winstead and retaining the $2.5 million in escrow.
Cottonwood argues in its opening brief that Longhorn also violated its duty of full disclosure. Cottonwood, however, did not assert a violation of that duty in its pleadings.
With respect to the payment to Winstead, Cottonwood argues that there is a fact issue on breach for essentially the same reasons that it argued a fact issue remained on the conversion claim. Cottonwood also relies on Huckaby's deposition, which allegedly demonstrates that Huckabay was aware of the supposed conflict between the Loan Agreement and the Closing Instructions and followed the Closing Instructions even though she knew the Loan Agreement controlled. That does not affect our analysis because we have concluded that the parties authorized the payment to Winstead through the Loan Agreement and the Closing Statement.
Regarding the $2.5 million retained in escrow, Cottonwood argues that Longhorn had a fiduciary duty to disburse the entire sum once Preston Hollow confirmed in the February 14, 2020 email that "all closing conditions have been satisfied." Cottonwood contends that Section 3.1 of the Loan Agreement entitled it to "receive" the full amount once the conditions were satisfied and that Preston Hollow had no authority to require additional documentation before releasing the remaining funds. Cottonwood again argues that Huckabay's deposition demonstrates that Longhorn was aware that Preston Hollow had no authority to instruct it to retain any amount of the funds but followed Preston Hollow's instructions anyway. Longhorn responds that it could not disburse any of the funds without Preston Hollow's consent and that Cottonwood agreed to Longhorn retaining the funds in escrow through the email from McGinnis Lochridge. The parties join issue over whether the attorney had authority to agree to that modification.
It is unnecessary for us to resolve these questions because, even if Cottonwood succeeded in raising a fact issue on breach, it has not shown that retaining the $2.5 million caused it damages. Cf. Alexander v. Turtur & Assocs., Inc., 146 S.W.3d 113, 119 (Tex. 2004) ("[E]ven when negligence is admitted, causation is not presumed."). In its response to the no-evidence motion, Conttonwood argued that retaining the $2.5 million caused it "to lose out on the full benefits of a Loan, which would have prevented significant litigation between Cottonwood and third parties." More specifically, the retention of the $2.5 million allegedly "gave rise to litigations related to the validity of the Loan Agreement and deeds of trust," leading to a "distressed sale" of the 250 acres for one third of the price, "payment of over $20M to [Preston Hollow]," litigation over settlement with the previous developer, and a related contract dispute. But Cottonwood has presented no evidence explaining how Longhorn's retention of these funds led to those difficulties. Even after Preston Hollow declared the loan in default, Cottonwood requested that Longhorn retain the funds in escrow rather than release them to Cottonwood. We conclude that Cottonwood failed to raise a fact issue that Longhorn's retention of $2.5 million in escrow caused Cottonwood's injuries. We overrule Cottonwood's second issue.
Cottonwood attached to its response the Loan Agreement, Huckabay's deposition with exhibits, the Closing Instructions, a binder of all the documents required to close on the loan, and an affidavit from the Hutto City Secretary attesting that there was no record that the city council ever discussed amending the Loan Agreement.
Negligence
Cottonwood argues in its third issue that the district court erred by granting no-evidence summary judgment on its negligence and gross-negligence theories. The elements of a negligence claim are "(1) a legal duty; (2) a breach of that duty; and (3) damages proximately resulting from the breach." City of Austin v. Membreno Lopez as Next Friend of Lopez, 632 S.W.3d 200, 210 (Tex. App.-Austin 2021, pet. denied) (citing Praesel v. Johnson, 967 S.W.2d 391, 394 (Tex. 1998)).
Longhorn challenged the second and third elements in its no-evidence motion for summary judgment. In its response, Cottonwood stated that its negligence claim "is virtually identical to [its] claim for breach of fiduciary duty, as it is based on the same course of conduct and the same allegations." Cottonwood does not meaningfully distinguish the claims on appeal or make a different harm argument. For the reasons set out in our discussion of Cottonwood's second issue, we conclude that Cottonwood failed to raise a fact issue that Longhorn's breach, if any, caused Cottonwood's damages. That necessarily means Cottonwood's gross negligence theory also fails because a litigant must "prove all elements of negligence as a prerequisite to a gross negligence claim." Durham v. Accardi, 587 S.W.3d 179, 183 (Tex. App.-Houston [14th Dist.] 2019, no pet.); see Gonzalez v. VATR Const. LLC, 418 S.W.3d 777, 789 (Tex. App.- Dallas 2013, no pet.) ("Negligence and gross negligence are not separable causes of action but are inextricably intertwined.").
We overrule Cottonwood's third issue.
Conspiracy and Negligence Per Se
Cottonwood argues in its fourth issue that the district court erred by dismissing its claim for conspiracy and negligence per se even though Longhorn never moved for summary judgment on those claims. See, e.g., G & H Towing Co. v. Magee, 347 S.W.3d 293, 297-98 (Tex. 2011) ("[A] trial court errs in granting a summary judgment on a cause of action not expressly presented by written motion."). Longhorn responds that Cottonwood never asserted either claim against it in its pleadings. Because Cottonwood concedes that point in its reply brief, we do not address this issue further. We overrule Cottonwood's fourth issue.
Expert Testimony
Cottonwood argues in its final issue that the district court created a "new mandatory obligation requiring the use and designation of an expert to maintain breach of fiduciary duty and negligence-based claims against a title and escrow company" and then granting Longhorn's motion for summary judgment because Cottonwood failed to comply with that new obligation. Longhorn responds that it is unnecessary for us to decide whether the district court did so because Cottonwood failed to meet its summary-judgment burden even if expert testimony is not required.
We agree with Longhorn. Because the district court's order granting summary judgment did not specify the basis for its ruling, we must affirm the order "if any of the theories advanced are meritorious." Western Investments, Inc. v. Urena, 162 S.W.3d 547, 550 (Tex. 2005). Longhorn asserted in its no-evidence motion that Cottonwood "has no evidence, by expert testimony or otherwise, that a duty owed it was breached by Longhorn." (emphasis added). We have concluded that summary judgment was proper because Cottonwood presented no evidence to raise a fact issue on the challenged elements of its claims for negligence and breach of fiduciary duty. In this context, it is unnecessary for us to address whether expert testimony would be required. See Tex. R. App. P. 47.1 ("The court of appeals must hand down a written opinion that is as brief as practicable but that addresses every issue raised and necessary to final disposition of the appeal."). We overrule Cottonwood's fifth issue.
CONCLUSION
We affirm the district court's order granting summary judgment to Longhorn.
Affirmed