Opinion
No. 05-15-00346-CV
03-21-2016
ESTATE OF JERRY WAYNE PARKS, DECEASED
On Appeal from the Probate Court No. 3 Dallas County, Texas
Trial Court Cause No. PR-13-236-3
MEMORANDUM OPINION
Before Justices Francis, Lang-Miers, and Myers
Opinion by Justice Francis
HSBC Bank USA, N.A. appeals the probate court's order distributing funds from the sale of real property to the estate of Jerry Wayne Parks and awarding sanctions against the Bank. In two issues, the Bank challenges both rulings. We affirm.
Parks died on December 25, 2012. The probate court admitted Parks's will to probate, granted letters testamentary, and appointed Patricia Chunn as independent executor of the will and estate. Chunn subsequently filed an inventory, appraisement, and list of claims. The estate had few assets. The only real property listed was a residence in Seagoville burdened by a mortgage and lien held by the Bank. After receiving notification from Chunn, the Bank did not present a secured claim and thus became a preferred debt and lien (PD&L) creditor of the estate under former section 306(b) of the Texas Probate Code.
In 2009 and 2011, the Texas Legislature created the Texas Estates Code, transferred the provisions of the Texas Probate Code into the estates code, and repealed the probate code as part of the continuing statutory revision program. Act of May 29, 2011, 82d Leg., R.S., ch. 1338, Tex. Gen. Laws 3884; Act of May 19, 2011, 82d Leg., R.S., ch. 823, 2011 Tex. Gen Laws 1901; Act of May 26, 2009, 81st Leg., R.S., ch. 680, 2009 Tex. Gen. Laws 1512. The Estates Code and the repeal of the Texas Probate Code took effect January 1, 2014. Act of May 29, 2011, § 2.55, 2011 Tex. Gen. Laws at 3936; Act of May 19, 2011, § 4.03, 2011 Tex. Gen. Laws at 2095; Act of May 26, 2009, § 12, 2009 Tex. Gen. Laws at 1732. The new codification is "without substantive change," and its purpose is to make the law "more accessible and understandable." TEX. EST. CODE ANN. § 21.001 (West Supp. 2015). Because the governing law at the time of the rulings at issue here was prior to the repeal and recodification of the probate code, we will cite to the provision of the probate code for ease of reference and provide a parenthetical to the corresponding provision in the estates code. Former section 306 of the probate code is now found at sections 355.151-.160 of the estates code.
Shortly after the will was admitted to probate, attorneys for the estate and the Bank met at the Seagoville property. The estate's attorney was concerned about the probability of a "short sale and its inherent problems." In an effort to keep fees and expenses to a minimum, the estate's attorney suggested the Bank handle the sale of the property but was told that was "not possible" and that the estate should proceed to retain a realtor to sell the home. According to the estate's attorney, both attorneys "understood" that the expenses of selling the property would be paid first from the sales proceeds.
According to sale documents, a "short sale" means the seller's net proceeds at closing will be insufficient to pay the balance of seller's mortgage loan.
In December 2013, Chunn and a buyer entered into a short sale contract for the property. The Bank and estate, however, disagreed on the administrative expenses incurred in selling the property, and the Bank ultimately would not agree to approve the sale and consent to release its lien. After numerous communications between the parties failed to resolve the issue, Chunn filed a Motion for Issuance of Show Cause Order for the Bank to show cause why it would not approve the short sale of the property. Attached to the motion were the contract, communications between the attorneys for the parties, and a chronology. At the hearing on the motion, the estate's attorney set out his history of dealings with the Bank and its attorney in attempting to attain approval for the short sale.
The trial court ruled in the estate's favor. In an "Order on Order to Show Cause," the trial court ordered the Bank to release any and all of its liens on the property, "thereby dispensing with the need for [the Bank to] consent to the short sale and allowing [Chunn] to sell the Property, free and clear of any and all liens in favor of [the Bank], to [buyer] and close on the contract . . ." and to pay closing costs out of the sales proceeds. The order provided that the remaining proceeds would be paid to the registry of the court and any lien held by the Bank to secure the indebtedness on the property would attach to those net sales proceeds. Finally, the order required the Bank to execute and deliver to the title company a release of lien against the property.
The Bank did not execute and deliver the release of lien for forty-six days, and in the meantime, the estate lost the buyer. The trial court then modified its order to authorize Chunn to sell the property, free and clear of the Bank's lien, to any qualified buyer for net proceeds of at least the amount that would have been received under the previous contract. The property sold ten days later, and the net proceeds were deposited in the court's registry.
Two weeks later, Chunn filed a motion to distribute the funds, for attorney's fees, and for sanctions against the Bank. In the motion, Chunn complained about the conduct of the Bank during the time the estate was attempting to sell the residence and asserted those "actions and inactions" caused the estate to incur substantial additional fees and expenses in selling the residence. Chunn requested the court to release the Bank's lien on the sales proceeds and distribute the funds to the estate. Additionally, she asked that the Bank be sanctioned for its "egregious conduct[.]"
Following a hearing, the probate court ordered the Bank's lien released as to the net sales proceeds of the property; ordered the proceeds held in the court's registry to be distributed to the estate for "payment and reimbursement of the Independent Executor's administrative expenses . . . all of which directly relate to preserving, safekeeping, maintaining, managing, and selling the Property[;]" and sanctioned the Bank in the amount of $23,246.13, which was the amount necessary to cover the remaining "higher priority administrative expenses" resulting from the Bank's "egregious misconduct." Specifically, the order recited the Bank's "failure to accept various short sales of the Property, failure to comply with this Court's Order to execute a Release of the [Bank's] Liens against the Property in a timely manner, errors, omissions, misrepresentations, deceptive conduct, unresponsiveness, delays, bad faith, bad judgment, lack of cooperation, playing games, and ignoring relevant Texas law." The Bank filed a motion for new trial, which the probate court denied. This appeal followed.
Under section 306 of the probate code, a secured creditor may elect to have his claim treated as either (1) a matured secured claim or (2) a preferred debt and lien. TEX. PROB. CODE ANN. § 306(a) (now found at TEX. EST. CODE ANN. § 355.151 (West 2014)). If a secured creditor makes no claim or does not affirmatively elect otherwise within six months after the original grant of letters testamentary, his claim will be treated as a preferred debt and lien. TEX. PROB. CODE ANN. § 306(b) (now found at TEX. EST. CODE ANN. § 355.152 (West 2014)).
If a claim is a preferred debt and lien, the representative may either pay the debt off or continue making payments as per the terms of the contract that secured the debt. TEX. PROB. CODE ANN § 306(a)(2) & (e) (now found at TEX. EST. CODE ANN. 355.151(a)(2), 355.155 (West 2014)). No further claim may be made against other estate assets; the debt thereafter remains a preferred lien against the property; and the property remains security for the debt in any distribution or sale of the property before final maturity and payment of the debt. TEX. PROB. CODE ANN. § 306(d) (now found at TEX. EST. CODE ANN. § 355.154 (West 2014).
In its first issue, the Bank argues that because it asserted its claim as a preferred debt and lien solely against the property used to secure the mortgage, its claim takes priority over all other claims when distributing proceeds from the sale of the property, including those expenses related to preserving, safekeeping, maintaining, managing, and selling the property. As support, the Bank relies on Wyatt v. Morse, 129 Tex. 199, 102 S.W.2d 396 (1937).
In Wyatt, the supreme court considered whether a preferred debt and lien claim had priority over first- (funeral expenses and expenses of last sickness) and second-class claims (expenses of administration and expenses incurred in the preservation, safekeeping, and management of the estate). 102 S.W.2d at 397-98. The court concluded that when the claimant proceeds against the specific property securing his debt, rather than the entire assets of the estate, and waives further claims against the estate, his claim has priority over first- and second-class claims. Id. at 398-99.
Fifty-two years later, this Court addressed the particular issue before us now—whether expenses directly related to preserving, safekeeping, maintaining, managing, and selling the property have priority over the claims of a PD&L creditor, such as the Bank. See San Antonio Sav. Ass'n v. Beaudry, 769 S.W.2d 277 (Tex. App.—Dallas 1989, writ denied). We concluded they did. Id. at 280.
In Beaudry, the deceased's estate included a residence burdened by two liens, one of which was held by San Antonio Savings Association, a PD&L claimant. As here, the value of the property was less than the San Antonio Savings' claim. The parties agreed that "general estate administration expenses" could not be charged against the property and also "seem[ed] to agree that expenses and fees incidental to selling such property are chargeable against sales proceeds from the property." Id. at 280. The dispute involved "where along this spectrum the expenses claimed by the administrator lie." Id.
Noting the probate code's silence in the matter, this Court reasoned:
[L]ogic and equity dictate that such expenses be paid from funds derived from the sale of such property. An estate creditor with a section 306 preferred lien must
look solely to the property subject to the lien for payment of his claim and is not entitled to share in the other asserts of the estate. It would therefore be unfair to require him, in effect, to bear part of the general expense of administration of the estate. It would be equally unfair, however, to require nonpreferred estate creditors to pay to preserve and maintain preferred lien property, the proceeds from the sale of which will benefit first, foremost, and often exclusively, the preferred lien creditor.Id. This Court then held that "administrative expenses directly related to preserving, maintaining, and selling property subject to a 306 preferred lien may, as a rule, be charged against and paid first out of the sales proceeds of the property." Id.
Applying that holding to the facts of this case, we conclude the trial court did not abuse its discretion by distributing the net sales proceeds to the estate for payment and reimbursement of expenses of administrative directly related to preserving, safekeeping, maintaining, managing, and selling the property.
In reaching this conclusion, we reject the Bank's argument that (1) the holding in Beaudry conflicts with the Texas Supreme Court's opinion in Wyatt and (2) a later opinion from this Court, Texas Commerce Bank National Ass'n v. Geary, 938 S.W.2d 205, 208-09 (Tex. App.—Dallas 1997, rev'd on other grounds, 967 S.W.2d 836 (Tex. 1998) (per curiam), acknowledged the conflict, "which effectively means Beaudry is not good law." We disagree with both propositions.
First, the Wyatt opinion did not address, nor purport to address, the priority of expenses directly related to preserving, maintaining, and selling the property secured by the debt; rather, Wyatt addressed the priority of general expenses of administration and expenses incurred in preserving, safekeeping, and managing the estate.
Second, the Geary opinion did not explicitly or implicitly overrule Beaudry. In Geary, the issue was whether section 306 of the probate code applied to independent administrations, not the priority of preferred lien claims or, more specifically, whether Beaudry was wrongly decided. Nevertheless, the Bank argues Geary "disavowed" Beaudry with a "but see" citation:
If a claim is a preferred debt and lien, the representative may either pay the debt off and continue making payments as per the terms of the contract that secured the debt. TEX. PROB. CODE ANN. § 306(a)(2) and (c). Regardless of which method the representative chooses, the creditor will have priority over all other debts, even first- and second-class claims, to the extent of the value of its collateral. TEX. PROB. CODE ANN. § 306(a)(2) and (c); see Wyatt, 129 Tex. at 204-05, 102 S.W. at 298-99; Dallas Joint-Stock Land Bank in Dallas v. Maxey, 112 S.W.2d 305, 307-09 (Tex. Civ. App.—Dallas 1937, no writ). But see San Antonio Sav. Ass'n v. Beaudry, 769 S.W.2d 277, 280 (Tex. App.—Dallas 1989, writ denied) (expenses directly related to preserving, maintaining, and selling collateral may be paid out of the sales proceeds of the property).Geary, 938 S.W.2d at 208-09.
We agree with the general proposition that authority preceding a "but see" signal "clearly supports a proposition contrary to the main proposition." The Bluebook, A Uniform System of Citation, Rule 1.2(c) (Columbia Law Review, et al. 20th ed. 2015). The signal used in the above passage does precisely that: the passage sets out the general rule regarding preferred liens and then apprises the reader of Beaudry's holding of the exception or qualification to that general rule.
Because we conclude Beaudry is controlling on this issue, and because appellant has not challenged whether the particular expenses fall within the Beaudry exception, we conclude the trial court did not err in ordering the net proceeds from the sale of the property distributed to the estate. We overrule the first issue.
In its second issue, the Bank contends the trial court abused its discretion by ordering sanctions "because the order against [it] does not meet the requirements of Texas law by any recognized basis for sanctions and is not supported by sufficient evidence in the record on appeal."
The Bank's entire argument in its opening brief is one-and-one-half pages and contains no record citations. The Bank asserts, without any legal authority or analysis, that the sanctions were inequitable because it had no duty to approve a short sale. It generally references certain provisions of the Texas Civil Practice and Remedies Code, Texas Government Code, and Texas Rules of Civil Procedure and asserts those provisions do not apply because the alleged conduct did not involve groundless pleadings, abusive discovery conduct, or contempt of court. It does not, however, address the trial court's inherent authority to sanction bad faith conduct that occurs during the course of litigation that interferes with the trial court's legitimate exercise of its core functions or to preserve the court's dignity and integrity. See Onwuteaka v. Gill, 908 S.W.2d 276, 280 (Tex. App.—Houston [1st Dist.] 1995, no writ).
A party must provide legal authority and substantive analysis pertinent to the legal issue that we must decide. Bullock v. Am. Heart Ass'n, 360 S.W.3d 661, 665 (Tex. App.—Dallas 2012, pet. denied); Bolling v. Farmers Branch Indep. Sch. Dist., 315 S.W.3d 893, 896 (Tex. App.—Dallas 2010, no pet.). By failing to support his argument with authority, analysis, and record references, the Bank has waived this on appeal. To the extent the Bank presents new arguments in its reply brief, a reply brief may not be used to raise new issues. See Dallas Cnty. v. Gonzales, 183 S.W.3d 94, 104 (Tex. App.—Dallas 2006, pet. denied). We overrule the second issue.
We affirm the trial court's order.
/Molly Francis/
MOLLY FRANCIS
JUSTICE 150346F.P05
JUDGMENT
On Appeal from the Probate Court No. 3, Dallas County, Texas
Trial Court Cause No. PR-13-236-3.
Opinion delivered by Justice Francis; Justices Lang-Miers and Myers participating.
In accordance with this Court's opinion of this date, the October 22, 2014 order of the trial court is AFFIRMED.
It is ORDERED that appellee Estate of Jerry Wayne Parks, Deceased, recover its costs of this appeal from appellant HSBC Bank USA, N.A. Judgment entered March 21, 2016.