1701 Commerce Acquisition, LLC v. MacQuarie US Trading, LLC ( 2022 )

In the
Court of Appeals
Second Appellate District of Texas
at Fort Worth
___________________________
No. 02-21-00333-CV
___________________________
1701 COMMERCE ACQUISITION, LLC, Appellant
V.
MACQUARIE US TRADING, LLC, Appellee
On Appeal from the 236th District Court
Tarrant County, Texas
Trial Court No. 236-302212-18
Before Kerr, Bassel, and Walker, JJ.
Memorandum Opinion by Justice Bassel
MEMORANDUM OPINION
I. Introduction
Appellant 1701 Commerce Acquisition, LLC sued its lender, Appellee
Macquarie US Trading, LLC, after Macquarie declared two events of default on
Appellant’s loan and began charging Appellant a default rate of interest. In two issues
with multiple subparts, Appellant challenges (1) the trial court’s final judgment that
incorporated a prior summary-judgment ruling and that decreed that Appellant
recover nothing on its suit and (2) a ruling on a motion to determine fees by which
the trial court awarded approximately $1.5 million in attorneys’ fees to Macquarie. We
overrule the issues surrounding the defaults or do not reach them. We sustain
Appellant’s issue challenging Macquarie’s recovery of attorneys’ fees.
At the outset, we hold that Macquarie did not breach the terms of its loan
agreement with Appellant or a duty of good faith and fair dealing under New York
law when Macquarie declared a default based on Appellant’s failure to obtain
Macquarie’s written consent before a subordinate mezzanine loan was prepaid. This
holding obviates a need to discuss (1) the propriety of a second alleged default
declared by Macquarie that resulted from Appellant’s exercise of a parking-lot option
and (2) the soundness of the evidence presented by Appellant to support a damage
claim predicated on Macquarie’s public disclosure that the loan was in default—an
action that Appellant claimed devalued the property securing the loan. Next, we hold
that Appellant has not adequately briefed the issue of whether Macquarie “consented”
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to prepayment of the mezzanine loan and thus waived appellate review of that issue.
But we do sustain one issue that Appellant raises on appeal: the loan agreement
between the parties does not contain a provision that entitles Macquarie to recover its
attorneys’ fees and expenses in this litigation from Appellant. Accordingly, we affirm
the portion of the trial court’s summary judgment that Appellant take nothing on its
claims against Macquarie, and we reverse the portion of the trial court’s judgment
awarding Macquarie its fees and expenses and render judgment that Macquarie take
nothing on its fee claim.
II. Factual and Procedural Background
A. Factual Background
1. The ownership and debt structure of Appellant
The president of Appellant is Sushil Patel, and much of the evidence that
Appellant relies on was presented through his affidavit that was filed as part of
Appellant’s summary-judgment evidence and through his deposition. Appellant owns
a Sheraton Hotel located in downtown Fort Worth. Appellant purchased the hotel
out of a bankruptcy proceeding. According to Mr. Patel’s affidavit, he had indirectly
owned the hotel through another entity before the bankruptcy, and in the bankruptcy
proceeding, the hotel was surrendered to a secured creditor in lieu of foreclosure.
The financing structure for the purchase of the hotel by Appellant involved
two tiered loans: (1) a $35 million senior loan (Macquarie’s Loan) made by Macquarie
to Appellant; and (2) a $21 million junior loan (the Mezzanine Loan) made by DOF
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IV Reit Holdings, LLC (which the parties refer to as Torchlight and which we will
refer to as the Mezzanine Lender) to 1701 Mezzco One LLC, which is apparently
Appellant’s parent. Both loans were governed by lengthy loan agreements; the loan
agreement governing Macquarie’s Loan spans 129 single-spaced pages of text. (We
will refer to Macquarie’s loan agreement as the Loan Agreement and the one
governing the Mezzanine Loan as the Mezzanine Loan Agreement.) In addition to
the complexities created by its length, the Loan Agreement provides that it is
governed by New York law, and it is that state’s law that we must apply to interpret its
provisions. An additional agreement overlays the Loan Agreement and the
Mezzanine Loan Agreement because the relationship between the two lenders was
governed by an Intercreditor Agreement, which in essence subordinated the
Mezzanine Lender to Macquarie’s security interests and gave Macquarie the right of
first payment.
2. The alleged defaults by Appellant on the Loan Agreement
that form the core of the parties’ disputes and a summary of
the controversies arising from those disputes
As noted, the controversy below focused on whether two events constituted
events of defaults under the Loan Agreement and justified Macquarie’s action of
charging a default interest rate. The applicable interest rate under the Loan
Agreement was specified to be 4.828%, but because Macquarie contended that events
of default had occurred, Macquarie began charging a post-default rate that increased
the original interest rate by 5%. The increase in the rate caused Appellant to pay
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approximately $1 million in additional interest before it paid off Macquarie’s Loan
than Appellant would have paid had the interest rate not been increased. Each party
claims that the other’s actions breached the Loan Agreement.
As to the event of default that Macquarie claimed because of the alleged
prepayment of the Mezzanine Loan without Macquarie’s written consent, this alleged
default started when the Mezzanine Lender declared its loan in default by asserting
that Appellant carried a balance of trade payables that exceeded the limits allowed in
the Mezzanine Loan Agreement. The Mezzanine Lender made a protective advance
of funds to reduce the trade payables balance below the limit allowed in the
Mezzanine Loan Agreement and then increased the principal balance of its loan by
the amount of its advance. The Mezzanine Lender then demanded repayment of the
amount of the advance. When the advance was not paid to the satisfaction of the
Mezzanine Lender, that lender accelerated its debt, declared the entire balance of the
Mezzanine Loan due, and set a date for foreclosure. Appellant challenged the
propriety of the Mezzanine Lender’s actions. But the fraught state of affairs with the
Mezzanine Lender caused Appellant to consider paying off the Mezzanine Loan.
The circumstances of the eventual payoff of the Mezzanine Loan—and
whether those circumstances gave Macquarie the right to declare that an event of
default had occurred and to charge a default rate of interest—generated most of the
issues discussed in this opinion. The determination of whether Macquarie acted
properly or instead breached the Loan Agreement by declaring a default revolves
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around questions about (1) the communications between Appellant and Macquarie
about whether Macquarie would consent to the pay off of the Mezzanine Loan,
(2) what entity made the payment to discharge that loan, (3) the status of the loan
when it was paid and the way in which that discharge was documented, and (4) how
the Loan Agreement’s terms impact whether its default provisions were triggered by
the circumstances under which the Mezzanine Loan was discharged.
With respect to the communications regarding the payoff, Appellant argues
that Macquarie represented that it would consent to the payoff if certain conditions
were met, and Appellant contends that it satisfied those conditions. Macquarie
counters that the communications referenced by Appellant demonstrate that the parties
had engaged only in preliminary discussions and that questions remained that were
never answered about the payoff and how the discharge of the Mezzanine Loan would
affect Macquarie’s position. Macquarie also highlights that Mr. Patel testified in his
deposition that Macquarie never consented to a prepayment of the Mezzanine Loan.
With respect to the identity of the party that made the payment to discharge
the Mezzanine Loan, the parties agree that the funds paid to discharge the Mezzanine
Loan were provided by an entity named Vesta Equity, LLC, which is described in the
parties’ briefing as an indirect owner of the hotel. The impact of Vesta’s making the
payment triggers a controversy regarding whether the Loan Agreement specified that
only certain parties were prohibited from making a payoff; Vesta was not listed as one
of those parties.
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The circumstances of the payment to discharge the Mezzanine Loan trigger
two subcontroversies. The first is whether the Loan Agreement has language that
alters the conventional definition of prepayment; Appellant argues that the
conventional definition was not met if the Mezzanine Loan was accelerated before its
payment. This question is pivotal because the parties also agree that the Mezzanine
Lender had accelerated its debt before it was paid. The second is whether the way the
discharge of the Mezzanine Loan was documented creates a question regarding
whether that loan was paid off or simply released.
We will only briefly touch on the second default that Macquarie relied on to
charge a default interest rate. This alleged default resulted from the failure of
Appellant to obtain Macquarie’s written consent prior to its exercise of an option to
purchase a parking lot. This event of default allegedly occurred after the alleged
prepayment default that was described above. We will not delve into the facts of this
default because we hold that the prepayment of the Mezzanine Loan constituted an
event of default and that the existence of that default independently supports the
judgment entered by the trial court.
3. The damages that Appellant claimed that it was caused by
Macquarie and the fee recovery that Macquarie obtained
against Appellant
The first measure of damages that Appellant claims resulted from Macquarie’s
allegedly wrongful declarations of default is straightforward. Appellant seeks to
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recover the amount of money it paid Macquarie as default interest, which, as we have
noted, is approximately $1 million.
The second measure is bottomed in Appellant’s claim that it never defaulted on
Macquarie’s Loan, but in its efforts to sell that loan, Macquarie publicly claimed that
Appellant had done so. This damage claim is predicated on Appellant’s contention
that Macquarie had no right to declare Macquarie’s Loan was in default and thus no
right to make the public claim that a default had occurred. As Appellant conceded at
oral argument, this damage claim depends on our conclusion that Appellant did not
default on the Loan Agreement, or if it did, the statements that Macquarie made were
accurate, and a damage claim cannot be predicated on the statements.
On the other side of the ledger, Macquarie claimed that the Loan Agreement
entitled it to recover its attorneys’ fees and expenses from Appellant in this litigation.
Appellant disputed that the provision of the Loan Agreement that Macquarie relied
on to support its fee recovery was sufficient under New York law to permit that
recovery. Because the parties are at loggerheads about the relevant holdings of New
York cases impacting the question and whether the Loan Agreement has a provision
meeting the criteria for Macquarie to recover its fees, the fee issue is another to which
this opinion will devote lengthy consideration.
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B. Procedural background
1. The claims and defenses pleaded by the parties
Appellant initially sued Macquarie, alleging (1) that Appellant was entitled to
declaratory relief that the payment to the Mezzanine Lender and the exercise of the
parking-lot option were not events of default, (2) that Macquarie had breached the
Loan Agreement and the duty of good faith and fair dealing by declaring the payment
and exercise of the parking-lot option to be events of default, and (3) that the breach
caused damage to Appellant by requiring payment of default interest and by reducing
the hotel’s value. Appellant also sought various forms of injunctive relief.
After the suit was filed, the parties reached a partial settlement and executed a
mutual release by which Appellant paid off Macquarie’s Loan but reserved Appellant’s
right to pursue its litigation claims against Macquarie. After execution of the release,
Appellant amended its petition to delete its claim for injunctive relief. Appellant also
eventually quantified its damages as the approximately $1 million for the default interest
collected by Macquarie and the approximately $15 million devaluation of the hotel by
Macquarie’s public statements about Appellant’s alleged defaults that “tainted and
severely impaired the market perception of [Appellant] and of the [h]otel and negatively
impacted the terms on which [Appellant] could sell or refinance the [h]otel.”
As the litigation progressed, Macquarie filed counterclaims against Appellant
alleging that prepayment of the Mezzanine Loan and exercise of the parking-lot
option were breaches of the Loan Agreement. The counterclaim also pleaded for the
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recovery of Macquarie’s attorneys’ fees and costs. Appellant answered the counterclaim
and alleged various affirmative defenses, including waiver, estoppel, and quasi-estoppel.
2. The motion practice that eventually resulted in a final
judgment
Macquarie filed an initial motion for summary judgment, and Appellant filed a
cross-motion for summary judgment—both of which the trial court denied.
Macquarie then filed a second motion for summary judgment that resulted in the
disposition of Appellant’s claims that are on appeal. In essence, Macquarie’s motion
for summary judgment contended that (1) Appellant breached the Loan Agreement
when, without Macquarie’s written consent, the Mezzanine Loan was prepaid and the
parking-lot option was exercised; (2) Macquarie had no duty of good faith and fair
dealing under New York law; (3) no evidence supports Appellant’s claims that
Macquarie’s actions damaged the value of the hotel; and (4) the claim of damage to the
value of the hotel was not foreseeable when the Loan Agreement was entered into.
The trial court granted Macquarie’s motion generally by decreeing that “[a]fter
considering Macquarie’s [m]otion for [s]ummary [j]udgment, the response, the evidence,
and the arguments of counsel, the [c]ourt has determined that the [m]otion is
GRANTED.”
After the trial court granted Macquarie’s motion for summary judgment,
Macquarie then filed a motion for determination of its reasonable attorneys’ fees and
expenses and a motion for judgment. Appellant filed a lengthy objection to
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Macquarie’s motion seeking attorneys’ fees. The trial court granted Macquarie’s fee
motion and awarded it approximately $1.5 million in attorneys’ fees through trial, as
well as appellate fees. The trial court then signed a final judgment embodying its
summary-judgment and fee rulings. Appellant filed a notice of appeal and also a first
and second amended notice of appeal.
III. Analysis
A. We set forth the standards of review that we apply to summary
judgments and to contract construction.
We review a summary judgment de novo. Travelers Ins. v. Joachim, 315 S.W.3d
860, 862 (Tex. 2010). We consider the evidence presented in the light most favorable
to the nonmovant, crediting evidence favorable to the nonmovant if reasonable jurors
could, and disregarding evidence contrary to the nonmovant unless reasonable jurors
could not. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848
(Tex. 2009). We indulge every reasonable inference and resolve any doubts in the
nonmovant’s favor. 20801, Inc. v. Parker, 249 S.W.3d 392, 399 (Tex. 2008). A
defendant that conclusively negates at least one essential element of a plaintiff’s cause
of action is entitled to summary judgment on that claim. Frost Nat’l Bank v. Fernandez,
315 S.W.3d 494, 508 (Tex. 2010); see Tex. R. Civ. P. 166a(b), (c). 1
1
Macquarie appears to have raised a no-evidence summary-judgment ground
with respect to Appellant’s devaluation claim. Although we usually address no-
evidence summary-judgment grounds first, we may address the traditional grounds first
if that approach is more efficient or if traditional grounds are dispositive in our
resolution of the appeal. Veros Credit, L.L.C. v. Sur. Bonding Co. of Am., No. 05-19-
11
Because many of the questions before us involve the construction of the Loan
Agreement, we also set forth the standard of review for construing a contract. “The
construction of an unambiguous contract is a question of law for the court, which we
may consider under a de novo standard of review.” Tawes v. Barnes, 340 S.W.3d 419,
425 (Tex. 2011).
B. We set forth the general principles of New York law that govern
contract interpretation.
As noted above, the Loan Agreement specifies that it is governed by New York
law, and the parties agree that our interpretation of the Loan Agreement is governed
by that state’s law.2 The Second Circuit has outlined the guiding principles of contract
interpretation under New York law as follows:3
00586-CV, 2020 WL 2569911, at *4 n.3 (Tex. App.—Dallas May 21, 2020, pet. denied)
(mem. op.); Webb v. Ellis, No. 05-19-00673-CV, 2020 WL 1983358, at *9 (Tex. App.—
Dallas Apr. 27, 2020, pet. dism’d). Here, it is both more efficient to address Macquarie’s
traditional summary-judgment grounds first and those issues are dispositive.
2
The Loan Agreement provides that
THE NOTE AND THE OTHER LOAN DOCUMENTS AND THE
OBLIGATIONS ARISING HEREUNDER AND THEREUNDER
SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN SUCH STATE (WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS) . . . .
3
Throughout the opinion, when a New York case appears within quoted
material, we cite it as it appears in the original quotation even though many of the
citations do not conform to the Bluebook regarding the reporter that should be cited.
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When interpreting a contract, our “primary objective . . . is to give effect
to the intent of the parties as revealed by the language of their
agreement.” Compagnie Financiere de CIC et de L’Union Europeenne v. Merrill
Lynch, Pierce, Fenner & Smith, Inc., 232 F.3d 153, 157 (2d Cir. 2000).
“[T]he words and phrases [in a contract] should be given their plain
meaning, and the contract should be construed so as to give full meaning
and effect to all of its provisions.” Olin Corp. v. Am. Home Assur. Co., 704
F.3d 89, 99 (2d Cir. 2012) (internal quotation marks omitted).
Under New York law, a contract is ambiguous if its terms “could
suggest more than one meaning when viewed objectively by a reasonably
intelligent person who has examined the context of the entire integrated
agreement and who is cognizant of the customs, practices, usages[,] and
terminology as generally understood in the particular trade or business.”
Law Debenture Tr[.] Co. of N.Y. v. Maverick Tube Corp., 595 F.3d 458, 466
(2d Cir. 2010) (internal quotation marks omitted). “No ambiguity exists
where the contract language has a definite and precise meaning,
unattended by danger of misconception in the purport of the [contract]
itself, and concerning which there is no reasonable basis for a difference
of opinion.” Id. at 467 (internal quotation marks omitted). “[W]hen the
terms of a written contract are clear and unambiguous, the intent of the
parties must be found within the four corners of the contract . . . .”
Howard v. Howard, 292 A.D.2d 345, 740 N.Y.S.2d 71, 71 (2d Dep’t 2002)
(citations omitted).
Chesapeake Energy Corp. v. Bank of N.Y. Mellon Tr. Co., 773 F.3d 110, 113–14 (2d Cir.
2014). Neither Appellant nor Macquarie claims that any of the provisions of the
various documents that we interpret are ambiguous.
C. An event of default occurred by the prepayment of the Mezzanine
Loan.
There is no dispute that the Mezzanine Loan was discharged. But Appellant
launches a three-pronged attack on Macquarie’s contention that the discharge was an
event of default because it constituted a prepayment of the Mezzanine Loan without
Macquarie’s written consent: (1) the Mezzanine Loan had been accelerated before it
13
was discharged, and no provision of the Loan Agreement alters the conventional
definition of prepayment, which provides that discharge of a matured obligation is not
a prepayment; (2) the entity making the payment to discharge the Mezzanine Loan
was not an entity prohibited from doing so by the Loan Agreement; and (3) there is a
fact issue regarding whether the discharge of the Mezzanine Loan was a settlement of
that obligation rather than a prepayment. We reject these arguments because (1) both
the Loan Agreement and the Mezzanine Loan Agreement provide that a prepayment
may occur after acceleration; (2) the Loan Agreement provides that Macquarie’s
consent was required for any prepayment and not just a prepayment made by a
limited number of entities; and (3) the documentation of the discharge of the
Mezzanine Loan described it as a payoff, and the attempt to use the testimony of
Appellant’s representative—that his “understanding” of the transaction was different
than how it was documented—does not create a fact issue.
1. Why we reject Appellant’s argument that payment of the
Mezzanine Loan after it was accelerated could not constitute
a prepayment
In the first portion of its argument under its Issue 1.a., Appellant argues that
there was no prepayment of the Mezzanine Loan because it was paid after it was
accelerated by the Mezzanine Lender, and thus the debt could not have been “pre”-
paid because it had already matured. Appellant’s argument pivots on the contentions
that New York law defines prepayment as payment that occurs prior to maturity; the
Loan Agreement does not provide any definition that alters the conventional
14
definition; and because the conventional definition is not altered by the agreement,
there was no prepayment of the Mezzanine Loan. Macquarie counters that the
conventional definition of prepayment may be altered by agreement and that the loan
documents governing both its loan and the Mezzanine Loan define prepayment to
include payment made after maturity; thus, Macquarie contends that the payoff of the
Mezzanine Loan was a prepayment even though it occurred after acceleration of that
debt. We agree with Macquarie’s analysis.
a. The conventional definition of “prepayment” under
New York law and how the parties’ agreement may
have altered that definition
For its conventional definition of prepayment, Appellant relies on New York
cases that generally provide that
“‘[p]repayment’ is a payment before maturity. ‘Acceleration’ is a change in
the date of maturity from the future to the present. Once the maturity
date is accelerated to the present, it is no longer possible to prepay the
debt before maturity. Any payment made after acceleration of the
maturity date is payment made after maturity, not before[.’]” (Rodgers v.
Rainier Nat[’l] Bank, 111 Wash.2d 232, 237, 757 P.2d 976 [1988]
[emphasis in the original]; see[] also[] In re LHD Realty Corp., 726 F.2d 327,
330–331 [7th Cir. 1984]).
Nw. Mut. Life Ins. Co. v. Uniondale Realty Assocs., 816 N.Y.S.2d 831, 834 (N.Y. Sup. Ct.
2006).
But one of the very cases that Appellant cites for the conventional definition of
prepayment notes that the conventional definition may be altered by agreement; the
full context of a quote from a case that Appellant relies on observes that
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[c]ontrary to the mortgagee’s contention, the mortgagor’s tender of
payment of the entire mortgage principal plus interest to the scheduled
date of closing in response to her acceleration of the debt upon default
did not constitute a “prepayment” of the debt within the meaning of the
prepayment clause set forth in the mortgage. Accordingly, absent a
contractual provision to the contrary, the mortgagee was precluded from
assessing a prepayment penalty (see Kilpatrick v. Germania Life Ins. Co., 183
N.Y. 163, 168, 75 N.E. 1124; 3C Assoc[s]. v. IC & LP Realty Co., 137
A.D.2d 439, 440, 524 N.Y.S.2d 701; [Nw.] Mut. Life Ins. Co. . . . , 11
Misc.3d 980, 985, 816 N.Y.S.2d 831; George H. Nutman, Inc. v. Aetna Bus.
Credit, 115 Misc.2d 168, 169, 453 N.Y.S.2d 586).
D.I.S. LLC v. Sagos, 832 N.Y.S.2d 581, 582 (N.Y. App. Div. 2007) (emphasis added).
Macquarie, in turn, cites cases emphasizing that prepayment, in general, is
subject to the definition that the parties place on it and that, in particular, a specific
definition may provide that a debt paid after acceleration is still a prepayment.
SO/Bluestar, LLC v. Canarsie Hotel Corp., 825 N.Y.S.2d 80, 81 (N.Y. App. Div. 2006)
(“Prepayment clauses will be enforced according to their terms. The Note contained
an express provision providing for the payment of prepayment consideration in the
event of acceleration upon default, and such a provision is enforceable[.]” (citations
omitted)); In re Fin. Ctr. Assocs. of E. Meadow, L.P., 140 B.R. 829, 835 (Bankr. E.D.N.Y.
1992) (analyzing New York case law and holding that it permitted lender to assess
prepayment penalties even though it had accelerated the obligation).
b. Why Appellant argues that the conventional definition
of prepayment adheres and why we reject that
argument
The central pillars of Appellant’s argument are apparently (1) that the Loan
Agreement, though it contains twenty-eight pages of definitions, does not define
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prepayment and (2) that the provisions of the Loan Agreement requiring written
consent for “any prepayment or refinancing of the Mezzanine Loan” cannot mean a
payment after acceleration because the Loan Agreement does not provide a definition
that alters the conventional definition of the term. Thus, Appellant argues that
“[b]ecause ‘prepayment’ is not defined in the Agreement, New York law commands
that this term be given its ordinary and customary meaning and application.”
The Loan Agreement specifies that an event of default occurs “if any
prepayment or refinancing of the Mezzanine Loan shall occur without the prior
written consent of Lender, or if Borrower shall fail to comply with any of the terms,
covenants[,] and conditions of Section 4.2.21.” In turn, Section 4.2.21 provides,
“Except to the extent expressly permitted pursuant to the terms of this Agreement,
neither Borrower, Guarantor[,] nor Mezzanine Borrower shall make any partial or full
prepayments of amounts owing under the Mezzanine Loan or refinance the
Mezzanine Loan without the prior written consent of Lender.” It is true that neither
of these sections contains an internal definition of prepayment.
But Macquarie relied on a different provision to argue that the Loan
Agreement has a more tailored definition of prepayment. Section 2.3.3 of the Loan
Agreement is the provision in question, and it provides that
[i]f all or any part of the principal amount of the Loan is prepaid upon
acceleration of the Loan following the occurrence of an Event of
Default prior to the Permitted Prepayment Date, Borrower shall be
required to pay Lender, in addition to all other amounts then payable
hereunder (including, without limitation, (i) in the event that such
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prepayment is received on a Monthly Payment Date, interest accruing on
such amount calculated through and including the end of the Interest
Period in which such Monthly Payment Date occurs, or (ii) in the event
that such prepayment is received on a date other than a Monthly
Payment Date, interest accruing on such amount calculated through and
including the end of the Interest Period in which the next Monthly
Payment Date occurs), together with the Exit Interest, a Spread
Maintenance Premium calculated with respect to the amount of principal
being repaid[,] and Breakage Costs.
Appellant does not challenge that this provision establishes that a prepayment may
occur after acceleration but instead argues that it is of no aid to Macquarie because it
references the prepayment of Macquarie’s Loan and not that of the Mezzanine Loan.
Appellant reads a great deal into the tailoring of the definition of prepayment to
govern Macquarie’s Loan but not a corresponding definition of prepayment of the
Mezzanine Loan; Appellant argues, “In other words, if the parties knew how to define
or qualify a ‘prepayment’ such that one may occur after acceleration, then their failure
to employ that same language in the other provision must be deemed as intentional.”
Macquarie responds by emphasizing that Appellant is not arguing that the
language of Section 2.3.3 fails to establish that a prepayment may occur after
acceleration. It then highlights that the Mezzanine Loan Agreement contains a
substantially identical provision to the Loan Agreement’s Section 2.3.3 in its own
Section 2.3.3. In Macquarie’s words, “These materially identical provisions establish
that the parties contemplated a prepayment after acceleration under both the Loan
Agreement and the Mezzanine Loan Agreement.”
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Macquarie also notes that other provisions of both the Loan Agreement and
the Mezzanine Loan Agreement support an interpretation that a payment after
acceleration constitutes a prepayment. Both loan agreements contain a Section 2.4.1.
In the Mezzanine Loan Agreement, the provision reads, “Except as otherwise
provided herein, Borrower shall not have the right to prepay the Loan in whole or in
part. Borrower may, provided no Event of Default has occurred, at its option, prepay
the Debt in whole but not in part, provided the following conditions are
satisfied . . . .” In the Loan Agreement, the provision reads, “Except as otherwise
provided herein, Borrower shall not have the right to prepay the Loan in whole or in
part. On and after the Permitted Prepayment Date, Borrower may, provided no
Event of Default has occurred, at its option, prepay the Debt in whole but not in
part.” By its terms, Section 2.4.1 in both loan agreements contemplates that there
may be prepayment after an event of default—one consequence of which could be
the acceleration of the debt.
Both agreements also contain another provision that further undermines a
conclusion that the agreements contemplate that a repayment cannot occur after
acceleration. Section 2.4.3 of the loan agreements provides that “[i]f after an Event of
Default, payment of all or any part of the principal of the Loan is tendered by
Borrower, a purchaser at foreclosure[,] or any other Person, such tender shall be
deemed an attempt to circumvent the prohibition against prepayment set forth in
Section 2.4.1.” Again, prepayment under this provision occurs after an event of
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default and contemplates the possibility that a foreclosure sale has occurred; a
foreclosure sale presumably would occur after acceleration of the debt. Thus, the
import of this provision is contrary to Appellant’s argument that the Loan Agreement
contemplates that a prepayment may occur only before acceleration.
In its reply brief, Appellant raises two arguments to challenge reliance on the
sections of the loan agreements that Macquarie’s arguments highlight. First,
Appellant argues that
[o]nly one provision in the Agreement uses the phrase “prepaid upon
acceleration.” Yet, again, the provisions Macquarie accuses [Appellant]
of violating employ different language. Paragraph 4.2.21 refers to
“partial or full prepayments[,]” and paragraph 11.1(a)(xxiii) refers to
“prepayment or refinancing . . . .” Neither mentions acceleration, and
that omission must mean something. “Under accepted canons of
contract construction, when certain language is omitted from a provision
but placed in other provisions, it must be assumed that the omission was
intentional . . . .” Sterling Inv. Servs., Inc. v. 1155 Nobo Assoc[s]., LLC, 30
A.D.3d 579, 581 (N.Y.S.C. App. Div. 2006) (citing U[.]S[.] Fid. & Guar.
Co. v. Annunziata, 67 N[.]Y[.]2d 2[2]9, 233 (N.Y. 1986)). [Record
references omitted.]
But this argument ignores another principle of construction under New York law that
we conclude is more applicable—the principle that the provisions of a contract
should be harmonized. In re AMR Corp., 485 B.R. 279, 303 (Bankr. S.D.N.Y. 2013)
(“New York law provides that a court should construe a contract in a way that
reasonably harmonizes its provisions and avoids inconsistencies.”). Appellant’s
argument is at odds with this principle; Appellant concedes that several provisions of
the Loan Agreement provide that prepayment includes payment after acceleration, but
20
Appellant contends that when the Loan Agreement uses the word “prepayment”
without further elaboration, then it must be given a different definition. Appellant’s
argument fails to explain why, if the loan agreements contemplate a prepayment may
occur after acceleration, a drafter would be forced to define the term every time it is used
or else face a construction that it has a meaning not elsewhere used in the document.
Appellant’s second argument challenges Macquarie’s reliance on the provisions
of the Mezzanine Loan Agreement; in Appellant’s view, that agreement has no
bearing on the construction of the Loan Agreement because they are separate
documents between different parties. Appellant argues that “Macquarie provides no
reason why a completely different contract should govern this dispute.” But “[u]nder
New York law, all writings forming part of a single transaction are to be read
together.” This Is Me, Inc. v. Taylor, 157 F.3d 139, 143 (2d Cir. 1998). Appellant itself
acknowledges that Macquarie’s Loan and the Mezzanine Loan were a part of the
package put together to purchase the hotel. Indeed, Macquarie and the Mezzanine
Lender entered into an Intercreditor Agreement—the stated purpose of which was to
coordinate the impact of the respective loan agreements:
WHEREAS Senior Lender and Mezzanine Lender desire to enter into
this Agreement to provide for the relative priority of the Senior Loan
Documents and the Mezzanine Loan Documents on the terms and
conditions hereinbelow set forth, and to evidence certain agreements
with respect to the relationship between the Mezzanine Loan and the
Mezzanine Loan Documents, on the one hand and the Senior Loan and
the Senior Loan Documents, on the other hand.
21
Appellant does not explain why the Loan Agreement and the Mezzanine Loan
Agreement should not be read together when they were integrated together as part of
the same transaction nor why there should be variant definitions of prepayment in the
different loan agreements. Appellant’s argument appears to be a recipe for chaos
because the two loan agreements were integrated together and coordinated the right
to payment but, according to Appellant, are supposed to be interpreted as having
different definitions of prepayment for the Mezzanine Loan. In other words, the
effect of Appellant’s argument is that prepayment under the Mezzanine Loan
Agreement can occur after acceleration, but it cannot under the Loan Agreement. At
a more basic level, Appellant also fails to explain the logic of why Macquarie could
not view the Mezzanine Loan as having been prepaid, even though the payment
occurred after acceleration, when the agreement governing that loan provides that
such a payment is a prepayment.
The provisions of the Loan Agreement and the Mezzanine Loan Agreement
demonstrate that the parties contemplated that the early payoff of the Mezzanine
Loan was a prepayment, even if that loan had been accelerated. We overrule the first
portion of Appellant’s argument under its Issue 1.a.
2. Why we reject Appellant’s argument that the Loan
Agreement did not prohibit prepayment of the Mezzanine
Loan by the entity that made the payment
In the second portion of its argument under its Issue 1.a., Appellant argues that
the Loan Agreement prohibits prepayment only by certain entities and that the entity
22
that paid off the Mezzanine Loan—Vesta—is not included in that list; thus, even if
the Loan Agreement prohibited a prepayment after acceleration, it did not prohibit the
prepayment that occurred because the payment was not made by an entity prohibited by
the Loan Agreement from making a prepayment. We disagree because the provision that
Appellant references creates two alternate events of default—one of which prohibited
any prepayment of the Mezzanine Loan without Macquarie’s written consent.
The parties agree that the Loan Agreement’s prohibition on prepayment is
found in its Section 11.1(a)(xxiii), which as we have noted provides that an event of
default occurs “if any prepayment or refinancing of the Mezzanine Loan shall occur
without the prior written consent of Lender, or if Borrower shall fail to comply with
any of the terms, covenants[,] and conditions of Section 4.2.21.” [Emphasis added.]
Again, the Section 4.2.21 referred to in the second phrase of the quoted section
provides, “Except to the extent expressly permitted pursuant to the terms of this
Agreement, neither Borrower, Guarantor[,] nor Mezzanine Borrower shall make any
partial or full prepayments of amounts owing under the Mezzanine Loan or refinance
the Mezzanine Loan without the prior written consent of Lender.”
The parties agree that the party that actually paid off the Mezzanine Loan was
not one of the parties listed in Section 4.2.21. To capitalize on this fact, Appellant
argues that the broadly phrased first clause of Section 11.1(a)(xxiii)—“if any
prepayment or refinancing of the Mezzanine Loan shall occur without the prior
written consent of Lender”—should be read to parallel Section 4.2.21 and creates an
23
event of default only if the prepayment is made by one of the entities listed in the
latter section. [Emphasis added.]
Macquarie counters that Appellant’s interpretation ignores the disjunctive
structure of Section 11.1(a)(xxiii), which creates two distinct events of default—one of
which is an all-encompassing prepayment of the Mezzanine Loan without its consent.
Again, we must adhere to the terms of the document as written, and Macquarie’s
interpretation is more faithful to the Loan Agreement’s terms.
Macquarie presents a straightforward interpretation of the default provision:
[Section] 11.1(a)(xxiii) states that any prepayment without Macquarie’s
prior written consent constitutes an Event of Default. Although this
section also prohibits any violation of [Section] 4.2.21, it is not limited to
such violations. The prohibition on “any prepayment or refinancing” is
in a separate phrase from the prohibition related to . . . [Section] 4.2.21[,]
and these phrases are separated by an “or,” indicating that either one of
them separately constitutes an event of default. The use of the modifier
“any” further confirms that all prepayments required Macquarie’s prior
written consent. See Ali v. Fed. Bureau of Prisons, 552 U.S. 214, 219 (2008)
(“‘any’ has an expansive meaning, that is, ‘one or some indiscriminately
of whatever kind’”); Zanghi v. Greyhound Lines, Inc., 651 N.Y.S.2d 833,
834–35 (N.Y. App. Div. 1996) (separate categories “disjunctively joined
by ‘or’” were “separate alternatives”). [Record references omitted.]
The cases that Macquarie cites for the power of the disjunctive deal with
statutory interpretation. New York cases dealing with contract interpretation vest the
disjunctive with the same power. For example, a New York federal district court dealt
with the question of whether a concrete slab had to meet two tests or only one test
for the levelness specified in a contract. See Pioneer Valley Concrete Serv., Inc. v. JAG I,
LLC, No. 1:10-CV-1311, 2013 WL 6230105, at *13 (N.D.N.Y. Dec. 2, 2013) (mem.
24
decision and order). One party argued that even though the two tests of levelness
were separated by the disjunctive, the slab’s levelness had to meet both tests’
standards. Id. The court summarized the argument made and the authority
establishing that the use of the disjunctive was an unambiguous signal that the phrases
were freestanding alternatives:
Plaintiff argues that the use of the word “or” in the Gymnasium Floor
Specs should be interpreted to mean “and.” Thus, Plaintiff argues,
Pioneer was obligated to Whiting–Turner, and JAG was obligated to
Pioneer, to place and finish the Gymnasium Floors such that they met
both the F-number and 10′ straightedge tests [for levelness]. The plain
terms of the contract do not support such an interpretation.
The Court finds the terms of the Gymnasium Floor Specs to be
unambiguous. Accordingly, the Court need not go outside the four
corners of the contract to understand its meaning. Contrary to
Plaintiff’s position, the Court finds as a matter of law that Pioneer’s
obligation to Whiting–Turner, and by extension JAG’s obligation to
Pioneer, could be satisfied by placing and finishing Gymnasium Floors
that met either the F-number or 10′ straightedge test. See Del Global
Tech[s.] Corp. v. Park, No. 03 Civ. 8867, 2008 WL 5329963, *4 (S.D.N.Y.
Dec. 15, 2008) (holding that the second clause in a contract provision
which was introduced by the disjunctive “or” indicates an alternative
event and could satisfy a condition independent of the first clause);
Portside Growth [&] Opportunity Fund v. Gigabeam Corp. . . . , 557 F. Supp.
2d 427, 431 (S.D.N.Y. 2008) (observing that “[f]or [defendant] to prevail
. . . the contested language must override the ordinary presumption that
the term ‘or’ expresses an alternative” and explaining “that ‘or’ is a
disjunctive particle used to express an alternative or to give a choice of
one or among two or more things”) (citations and quotations omitted);
Cresvale Int’l v. Reuters Am., Inc., 257 A.D.2d 502, 684 N.Y.S.2d 219, 222
(1st Dept. 1999) (holding that words in a contract clause stated in the
disjunctive must be considered separately (citing Coutu v. Exch. Ins. Co.,
174 A.D.2d 241, 579 N.Y.S.2d 751, 752 (1st Dept. 1992)); cf. Progressive
[Ne.] Ins. Co. v. State Farm Ins. [Cos.], 81 A.D.3d 1376, 916 N.Y.S.2d 454,
456–57 (4th Dept. 2011) (holding that “[i]nterpreting [contract] language
in the manner urged by [defendant] effectively turn[ed] the conjunctive
25
‘and’ into a disjunctive ‘or’ “ which was unsupported by “[t]he structure
of the sentence” and contrary to the “plain language of the sentence as it
would be understood by an average or ordinary citizen”).
Id.Thus, giving the disjunctive the power that it commands, Section 11.1(a)(xxiii)
offers two alternative events of default:
• if any prepayment or refinancing of the Mezzanine Loan shall occur
without the prior written consent of Lender
or
• if Borrower shall fail to comply with any of the terms, covenants, and
conditions of Section 4.2.21.
Based on our holding above, there was a prepayment of the Mezzanine Loan, and the
prepayment triggered a default under the first alternative phrase.
Appellant tries to sidestep the presence of the two coequal alternatives created
by Section 11.1(a)(xxiii)’s use of the disjunctive by arguing (1) that the two alternatives
are inconsistent, so we must prioritize what Appellant argues is the more specific
phrase referring to Section 4.2.21, and (2) that not adopting this approach will render
Section 4.2.21 superfluous. To read into the Loan Agreement the inconsistency that
Appellant sees requires an interpretation that it was the parties’ intent that only a
prepayment by the entities specified in Section 4.2.21 could trigger a default, but that
is simply not what the document provides. We have no idea what the parties’
26
subjective intent was in creating the belt-and-suspenders approach evidenced by the
two alternative phrases of Section 11.1(a)(xxiii) and need not delve into the parties’
intent in view of the language utilized because no one argues that the language is
ambiguous, nor do we think that it is. Indeed, at various points in its brief and in the
summary-judgment record, Appellant touts the sophistication of its principals and the
caliber of the law firms negotiating the Agreement.4 One result of these negotiations
was a clause written in plain language that set as one of the alternative events of
default any prepayment of the Mezzanine Loan without Macquarie’s written consent.
We overrule the second portion of Appellant’s argument under its Issue 1.a.
3. Why we reject Appellant’s argument that a fact issue exists
because discharge of the Mezzanine Loan was a settlement
rather than a payoff
Appellant’s final challenge under its Issue 1.a. is to the characterization of the
discharge of the Mezzanine Loan as a prepayment because it was not a payoff of that
loan but rather a termination of that loan to settle a prelitigation dispute. We reject
this argument because it is contrary to the terms of the document implementing the
discharge; that document characterizes the payment as a payoff.
To give the discharge of the Mezzanine Loan the gloss of a “settlement,”
Appellant relies on the “understanding or belief” of how the transaction should be
4
When dealing with another issue, Appellant highlights that “[h]ere, even
though the Agreement extends to some 129 single-spaced pages [of text] and was
entered into by sophisticated parties employing highly capable law firms, the
Agreement contains no attorney-fee provision at all.”
27
characterized as contained in the affidavit of its representative, Mr. Patel. The
affidavit states the following:
It was not the understanding or belief of me or of [Appellant] that the
Mezzanine Transfer was a payment of the Mezzanine Loan. Rather,
both [Appellant] and the Mezzanine Lender made legal allegations and
threatened legal action, there were multiple and substantial disputes as to
whether there was a default and whether the Mezzanine Lender’s
calculation of $30,175,559.48 as a loan payoff was correct, [Appellant]
had threatened to file bankruptcy to stop the foreclosure, and the issues
became not amounts owing on a promissory note[] but contested legal
rights and legal damages. It is in this context that the Mezzanine
Transfer occurred[] and that the parties entered into the settlement
agreement included as Exhibit E, which agreement does not reference
any payment[] but rather speaks in terms of settlement, exhaustion [of]
rights, and termination of the Mezzanine Loan.
Relying on this paragraph’s “understanding or belief” of how the discharge of the
Mezzanine Loan should be characterized, Appellant argues, “Thus, the payment by
Vesta Equity to the Mezzanine Lender was a payment to settle complicated and hotly
disputed legal rights, and the Mezzanine Loan was terminated, not paid off.” [Emphasis
added.]
But the very document that Appellant points us to describes the payment that
was made to discharge the Mezzanine Loan as a “payoff.” In fact, the very page of
the record that Appellant’s brief refers us to—the first page of the document
referencing the discharge of the debt—characterizes the payment as follows:
Lender has been asked to accept a discounted payoff amount with
respect to the Loan (hereinafter referred to as the “Discounted Payoff
Amount”). The Discounted Payoff Amount for a discounted payoff of
the Loan on or before March 23, 2018[,] is $28,575,000.00. Borrower
28
shall pay the Discounted Payoff Amount in accordance with the wire
instructions set forth below.
A summary-judgment affidavit that attempts to gloss over and contradict the
terms of the very document to which it refers transgresses a host of rules governing
what constitutes admissible summary-judgment evidence. The parol-evidence rule
prevents a party from relying on summary-judgment evidence that varies or
contradicts a written document. H.E.B., L.L.C. v. Ardinger, 369 S.W.3d 496, 511 (Tex.
App.—Fort Worth 2012, no pet.). A person’s subjective beliefs are not competent
summary-judgment evidence. Krishnan v. Law Offs. of Preston Henrichson, P.C., 83
S.W.3d 295, 299 (Tex. App.—Corpus Christi–Edinburg 2002, pet. denied)
(“Statements of subjective belief are no more than conclusions and are not competent
summary[-]judgment evidence.”) (citing Tex. Div.–Tranter, Inc. v. Carrozza, 876 S.W.2d
312, 314 (Tex. 1994)). Nor do legal conclusions constitute competent summary-
judgment evidence. Johnson v. Dunham, No. 11-20-00123-CV, 2022 WL 969516, at *8
(Tex. App.—Eastland Mar. 31, 2022, no pet.) (mem. op.) (citing Mercer v. Daoran Corp.,
676 S.W.2d 580, 583 (Tex. 1984)).
At bottom, the “understanding or belief” that Appellant offers to
recharacterize the nature of the payment made to discharge the Mezzanine Loan is
unavailing when it stands in contradiction to the terms of the document that
conveyed and characterized that payment. We overrule Appellant’s last argument
under its Issue 1.a. and thus overrule Issue 1.a. in its entirety.
29
D. Because of our disposition of Appellant’s Issue 1.a., we do not
reach its Issue 1.b.
Appellant’s Issue 1.b. challenges Macquarie’s actions of declaring the loan to be
in default and charging the default rate of interest because Appellant allegedly
exercised a parking-lot option with Macquarie’s written consent. This alleged event of
default occurred after the prepayment default that we have already addressed, and
Macquarie was already charging the default rate of interest before the alleged second
default occurred. Thus, we have concluded that a default occurred that supported the
charging of default interest for the full period that it was charged. This conclusion
supports the trial court’s judgment that Macquarie did not breach the Loan Agreement
by charging default interest. Therefore, we do not reach the question of the propriety
of Macquarie’s actions in declaring the loan in default based on the failure of Appellant
to obtain written consent before allegedly exercising the parking-lot option.5
5
We also do not reach Appellant’s arguments made without support of an issue
that the trial court improperly accepted Macquarie’s challenges to its damage model;
those arguments claimed that Macquarie’s publication of its invalid claims that
Macquarie’s Loan was in default devalued the hotel property owned by Appellant.
This claim appears to be pleaded as a measure of damage associated with the breach-
of-contract claim by improperly declaring an event of default. Specifically, Appellant
pleaded that
upon information and belief, [Macquarie] has recently attempted to sell
its loan. In the process, [Macquarie] (through its agent) prepared a flyer,
which it caused to be transmitted to many brokers, buyers, lenders, and
other participants in the hotel industry. In that flyer, [Macquarie] (through its
agent) falsely claimed that the loan was in default, and [Macquarie] referenced the
default interest now being charged as a “premium.” This caused further damage
to [Appellant] by way of a loss of value of the [h]otel, damage that was
30
E. Appellant has waived its issue on appeal that Macquarie consented
to the prepayment of the Mezzanine Loan.
In its Issue 1.c., Appellant argues that “Macquarie’s consent precluded
summary judgment.” But Appellant does not challenge that the Loan Agreement
required written consent to the prepayment of the Mezzanine Loan.6 Appellant’s
brief never tells us what legal defense prevented Macquarie from forgoing its
contractual right to require written consent, what the elements are for that defense, or
how its summary-judgment evidence met the required standard. Appellant has waived
any such complaint on appeal.
foreseeable by [Macquarie], that was intended by [Macquarie], and that
was proximately caused by [Macquarie]. Namely, even as [Appellant]
was about to market the [h]otel for a potential sale, [Macquarie] created
an impression in the market that the loan was in default, leading to a
belief that [Appellant] may be more desperate to sell the [h]otel, leading
to a lower value due to the false market impression caused by
[Macquarie]. [Emphasis added.]
Also, during oral argument, Appellant’s counsel conceded that Appellant was
not bringing a freestanding trade disparagement claim because of Macquarie’s
statements. Because the devaluation claim was predicated on the claim that
Macquarie improperly declared the loan in default and because we have held that the
loan was in default, we do not reach the challenges related to a damage model that
presumed there was a breach of contract.
Also as a result of our holding, we need not reach Appellant’s alternative issues
on whether Mr. Patel was a credible witness and whether the payments made by
Appellant were voluntary. With respect to Appellant’s arguments regarding whether
one party was attempting to smear another, those arguments are irrelevant based on
our legal rulings that are predicated on our construction of the loan agreements.
6
The Loan Agreement required any modifications or waivers to be in writing
(Section 12.4) and required all notice under the agreement to be in writing (Section 12.6).
31
Based on our holdings and the summary-judgment record, two matters are no
longer in dispute: (1) the Loan Agreement provides that it is an event of default “if
any prepayment or refinancing of the Mezzanine Loan shall occur without the prior
written consent of the Lender,” and (2) Macquarie never gave written consent for the
prepayment at issue. In response to Macquarie’s counterclaim asserting that
prepayment of the Mezzanine Loan constituted a breach of contract, Appellant
pleaded—without elaboration—that “[Appellant] asserts that [Macquarie’s]
counterclaims are barred by waiver, estoppel, and/or quasi-estoppel.” In its response
to Macquarie’s motion for summary judgment, Appellant argued that Macquarie
“consented” to prepayment, even though there was no written consent, and Appellant
specifically relied on the defenses of estoppel and oral modification of the contract.
Appellant’s brief asserts that Macquarie “consented” to the prepayment but
then cites only a smattering of sentences from Mr. Patel’s affidavit; Appellant does
not cite any cases or even reference a legal theory that allowed it to avoid the
requirement of written consent. 7 Appellant’s reply brief is no more enlightening when
7
The substance of Appellant’s briefing on this issue is as follows:
For the alleged “prepayment,” the summary[-]judgment record includes
evidence that Macquarie set forth the conditions [that Appellant] needed
to satisfy to obtain Macquarie’s consent. Mr. Patel testified[,]
Macquarie indicated and represented to me . . . that it
would consent to a payoff of the Mezzanine Loan,
provided that the funds to make such payment did not
come from [Appellant] (which they did not), provided that
32
it argues that Macquarie’s brief improperly invokes the sham-affidavit doctrine to
challenge Mr. Patel’s affidavit and leaves it at that—again, not even referencing what
defense Appellant relied on or citing any authority to guide us in determining whether
a fact issue was raised on the defense, whatever it might be.
Procedurally, if Appellant were attempting to raise an affirmative defense to
thwart the Loan Agreement’s requirement of written consent, Appellant bore the
burden to establish that a fact issue existed on each element of that defense:
the funds would not be in the form of additional debt
against the [h]otel (which they were not), and provided that
there would be no change in control which might
jeopardize the franchise, the liquor license, or [h]otel
operations (which there was not).
Mr. Patel continued, “Ultimately, [Appellant] satisfied each requirement
that Macquarie set forth as a condition for obtaining its consent.” For
the avoidance of doubt[,]
None of the funds used to make the Mezzanine Transfer
came from funds or property of [Appellant] or any affiliate,
or from any entity that was obligated on or had guaranteed
[Appellant]’s obligations to Macquarie. None of the funds
used to make the Mezzanine Transfer came from
Macquarie’s collateral[] or the proceeds of its collateral.
The funds came in as pure equity, and not as debt against
[Appellant], any other obligor or guarantor, the property of
[Appellant] or any other obligor or guarantor, or anyone
else.
The documentary evidence backs up Mr. Patel’s testimony. The
wire receipt shows the funds came [from] an entity known as Vesta
Equity, LLC. As Mr. Patel explained, Vesta was one of [Appellant]’s
indirect equity owners. [Record references omitted.]
33
If, as here, the non[]movant relies on an affirmative defense to oppose
the summary[-]judgment motion, he must provide sufficient
summary[-]judgment evidence to create a fact issue on each element of
the defense. See Brownlee v. Brownlee, 665 S.W.2d 111, 112 (Tex. 1984);
Anglo–Dutch Petroleum Int’l, Inc. v. Haskell, 193 S.W.3d 87, 95 (Tex.
App.—Houston [1st Dist.] 2006, pet. denied). The non[]movant is not
required to prove the affirmative defense as a matter of law; raising a fact
issue is sufficient to defeat summary judgment. See Brownlee, 665 S.W.2d
at 112; Anglo–Dutch Petroleum, 193 S.W.3d at 95.
Tello v. Bank One, N.A., 218 S.W.3d 109, 114 (Tex. App.—Houston [14th Dist.] 2007,
no pet.).
The parties’ summary-judgment briefing contains a host of arguments and
counter-arguments regarding whether consent occurred or why New York law did or
did not permit a waiver of the written-consent requirement. The arguments even
include a citation to a provision of the New York General Obligation Law that
allegedly prohibited any attempt to orally modify the written-consent requirement.
Appellant’s brief leaves it to us to unearth what legal doctrines the parties invoked, to
determine the elements and parameters of those doctrines, and then to formulate how
the evidence interacts with those elements. The superficial treatment that Appellant
gives the consent issue does not constitute proper briefing. See Tex. R. App. P.
38.1(f), (h), (i).
A concurring opinion from the Dallas Court of Appeals has outlined what
constitutes proper briefing as follows:
An appellant has the burden to present and discuss his assertions of
error in compliance with the appellate briefing rules. Amir-Sharif v. Tex.
Dep’t of Fam[.] & Protective Servs., No. 05-13-00958-CV, 2015 WL
344967239, at *2 (Tex. App.—Dallas Aug. 20, 2015, pet. denied) (mem.
op.); Ayati-Ghaffari v. Gumbodete, No. 05-14-01019-CV, 2015 WL
4482158, at *3 (Tex. App.—Dallas July 23, 2015, no pet.) (mem. op.);
Cruz v. Van Sickle, 452 S.W.3d 503, 511 (Tex. App.—Dallas 2014, [pets.
denied]). The Texas Rules of Appellate Procedure have specific
requirements for briefing. Tex. R. App. P. 38; Bolling v. Farmers Branch
Indep. Sch. Dist., 315 S.W.3d 893, 895 (Tex. App.—Dallas 2010, no pet.).
These rules require appellants to state their complaint concisely; to
provide understandable, succinct, and clear argument for why their
complaint has merit in fact and in law; and to cite and apply law that is
applicable to their complaint along with record references that are
appropriate. Tex. R. App. P. 38.1(f), (h), (i); RSL Funding, LLC v.
Newsome, 569 S.W.3d 116, 126 (Tex. 2018); see also Bolling, 315 S.W.3d at
895. This requirement is not satisfied by merely making brief,
conclusory statements unsupported by legal citations. Canton-Carter v.
Baylor Coll. of Med., 271 S.W.3d 928, 931 (Tex. App.—Houston [14th
Dist.] 2008, no pet.). And references to sweeping statements of general
law are rarely appropriate. Bolling, 315 S.W.3d at 896.
Eco Planet, LLC v. ANT Trading, No. 05-19-00239-CV, 2020 WL 6707561, at *5 (Tex.
App.—Dallas Nov. 16, 2020, pet. denied) (mem. op.) (Osborne, J., concurring).
Further, we have previously noted why we cannot take on the role of briefing a
party’s argument for it:
[W]e do not and cannot assume the responsibility of doing the parties’
briefing for them. Our role is to review the arguments made and
dispose of the appeals; we cannot search the record and research the law
to formulate parties’ arguments for them. See Tex. R. App. P. 38.1(i); see
also Bolling, 315 S.W.3d at 895. Simply put, we are not advocates for any
of the parties. Jones v. Am. Real Estate Inv., No. 05-19-00546-CV, 2020 WL
5834301, at *1 (Tex. App.—Dallas Oct. 1, 2020, no pet.) (mem. op.).
De Los Reyes v. Maris, No. 02-21-00022-CV, 2021 WL 5227179, at *9 (Tex. App.—
Fort Worth Nov. 10, 2021, no pet.) (mem. op.).
35
As we have noted, Appellant’s argument does not even tell us which legal
theory underpins its argument and would leave it to us to analyze another state’s law
and then formulate arguments from our research. We will not take on that role.
At times, we will accord a party an opportunity to rebrief after it has filed a
deficient brief. Here, we will not order rebriefing because Appellant has already had
an opportunity to correct its briefing deficiency. See id. at *8. Macquarie’s brief points
out that “[Appellant] has not raised any legal basis to relieve itself of the
prior[-]written[-]consent obligation, and any such arguments are therefore waived.”
Even when faced with Macquarie’s challenge, Appellant’s reply brief still failed to
address what theory or authority supports its position. Instead, it focused on
Macquarie’s contention that Appellant’s representative’s affidavit is a sham. After
being accorded an opportunity in its reply brief to support its argument with legal
argument and citations and after being warned by the opposing party of the deficiency
in its briefing, Appellant still failed to brief its issue adequately. In the face of this
situation, we see no need to accord Appellant an additional opportunity to remedy its
deficient briefing. 8
8
Macquarie’s argument—that Mr. Patel’s affidavit is a sham because in it he
contends that Macquarie had consented—centers on the fact that Mr. Patel had
answered no when asked at his deposition, “Did Macquarie ever consent to any
payoff of the [M]ezzanine [L]oan?” Macquarie also notes that the email that it argues
Mr. Patel was referring to in his affidavit clearly showed that Macquarie was not
stating that if certain conditions were met, it would consent. But Mr. Patel appears to
have testified that he was relying on another email, though he had not reviewed the
email before his deposition, could not state when he had last read the email, and could
36
We overrule Appellant’s Issue 1.c.
F. We reject Appellant’s argument that the Loan Agreement imposed
a duty of good faith and fair dealing on Macquarie.
In its Issue 1.d., Appellant argues that Macquarie violated the duty of good
faith and fair dealing that exists under New York law by declaring an event of default.
We disagree. Though the duty is generally implied in all contracts, it is not imposed
when to do so would be contrary to the terms of the parties’ contract. As explained
more fully below, a contract that gives a party sole and complete discretion to
implement a contractual provision negates the duty, though that rule is tempered in
limited circumstances if the exercise of discretion deprives a party of the fruits of a
contract and makes the performance it was promised illusory.
Here, the provisions governing Macquarie’s decision to refuse its consent to
matters such as prepayment vested it with sole discretion and made its decision with
regard to that discretion final and conclusive. And other than a passing reference to
the principle, Appellant does not argue that it would be deprived of the fruits of the
Loan Agreement unless the duty of good faith and fair dealing were imposed on
Macquarie. Indeed, Macquarie did perform by providing the financing that the Loan
Agreement promised, and to impose the duty in the face of the provision giving
Macquarie broad discretion would negate that very provision. Thus, we conclude that
not remember all of its statements. To further complicate matters, Appellant’s
counsel seemed to acknowledge during the summary-judgment argument that the
email that Macquarie refers to is the email that Mr. Patel mentioned. Because of our
holding, we need not sort out whether Mr. Patel’s affidavit is a sham.
37
New York law did not impose a duty of good faith and fair dealing on Macquarie
when it did not consent to the prepayment of the Mezzanine Loan.
1. We explain the principles of New York law on the duty of
good faith and fair dealing and how a contract may abrogate
the existence of that duty.
Undoubtedly, New York applies a general duty of good faith and fair dealing to
contractual relations. As a summary of New York law on the scope of the duty, we
quote extensively from the recent federal district court decisions of Southern Telecom
Inc. v. ThreeSixty Brands Group, LLC, No. 20-CV-2151 (LJL), 520 F. Supp. 3d 497(S.D.N.Y. Feb. 17, 2021) (corrected order and opinion), and Goureau v. Lemonis,
No. 1:20-CV-04691, 2021 WL 4847073 (S.D.N.Y. Oct. 15, 2021) (order granting in
part motion to reconsider).
ThreeSixty provided the following overview of the origin of the duty of good
faith and fair dealing, its purpose, and how it cannot be imposed when that doctrine’s
application operates inconsistently with a contractual provision:
“Under New York law, a covenant of good faith and fair dealing is
implied in all contracts.” State St. Bank & Tr. Co. v. Inversiones Errazuriz
Limitada, 374 F.3d 158, 170 (2d Cir. 2004) (quoting 1-10 Indus. Assocs.,
LLC v. Trim Corp. of Am., 297 A.D.2d 630, 747 N.Y.S.2d 29, 31 (2d
Dep’t 2002)). “‘This covenant embraces a pledge that neither party shall
do anything [that] will have the effect of destroying or injuring the right
of the other party to receive the fruits of the contract.’” Id. (quoting 511
W. 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144, 746 N.Y.S.2d
131, 135, 773 N.E.2d 496 (2002)). “[T]he implied obligation is in aid
and furtherance of other terms of the agreement of the parties.” Murphy
v. Am. Home Prods. Corp., 58 N.Y.2d 293, 461 N.Y.S.2d 232, 237, 448
N.E.2d 86 (1983). Accordingly, “[n]o obligation can be implied . . .
38
[that] would be inconsistent with other terms of the agreement of the
parties.” Id.520 F. Supp. 3d at 504.
Goureau noted New York’s highest court’s application of the duty to a contract
that gives a party discretion over the invocation of a contractual provision:
The New York Court of Appeals has suggested that a contract provision
granting discretionary authority to one party may be subject to the
implied covenant of good faith and fair dealing. See Dalton v. Educ.
Testing Serv., 87 N.Y.2d 384, 396, 639 N.Y.S.2d 977, 663 N.E.2d 289(1995) (“To be sure, there is a covenant of good faith and fair dealing
implicit in [a] contract [that involves discretionary functions].”). Relying
on this guidance, courts have ruled that where a contract clause imbued
in a party the discretion to take some action, the implied covenant of
good faith and fair dealing could adhere to require that the action taken
be exercised in a way that was not arbitrary or irrational. See, e.g.,
Maddaloni Jew[e]lers, Inc. v. Rolex Watch U.S.A., Inc., 41 A.D.3d 269, 838
N.Y.S.2d 536 (1st Dep’t 2007).
2021 WL 4847073, at *6.
Goureau then went on to describe how the terms of the contract may delimit the
scope of the duty and how a contract may vest a party with such a degree of
discretion that it abrogates a duty to act in good faith. Again, we quote Goureau’s
analysis of New York law:
However, the New York Court of Appeals in Moran v. E[r]k provided
further guidance [on the scope of the duty of good faith and fair
dealing]. In Moran, the Court of Appeals ruled that a contingent
approval clause in a real estate contract did not implicate the implied
covenant of good faith and fair dealing. 11 N.Y.3d 452, 458–59, 872
N.Y.S.2d 696, 901 N.E.2d 187. The Moran Court looked to the plain
meaning of the at-issue contract provision and found that where no
limitation was placed on the contingent approval as part of the
bargained-for language, the implied covenant of good faith and fair
39
dealing did not attach. Id. at 459, 872 N.Y.S.2d 696, 901 N.E.2d 187.
Subsequently, Courts in this district and New York have applied Moran
and its logic broadly to discretionary clauses in contracts. See Stokes v.
Lusker, 2009 U.S. Dist. LEXIS 23471, 2009 WL 612336, at *8 (S.D.N.Y.
Mar. 4, 2009) (“[A] discretionary contingency clause does not carry with
it an implied duty of good faith, unless it was explicitly part of the
bargain.”); Paxi, LLC v. Shiseido Ams. Corp., 636 F. Supp. 2d 275, 286
(S.D.N.Y. 2009) (“[T]he obligation of good faith and fair dealing does
not negate an expressly bargained-for clause that allows a party to
exercise its discretion, unless that clause imposes a limit on the discretion
to be exercised or explicitly states that the duty of good faith and fair
dealing applies.”); Serdarevic v. Centex Homes, LLC, 760 F. Supp. [2d] 322,
334 (S.D.N.Y. 2010).
Subsequent to Moran, state courts applying New York law have
also refused to recognize a claim for breach of the implied covenant of
good faith and fair dealing where the contract entitles one party to
exercise complete and sole discretion with respect to the complained[-]of
actions. Cambridge Invs. LLC v. Prophecy Asset Mgt., LP, 188 A.D.3d 521,
522, 132 N.Y.S.3d 622 (1st Dep’t 2020) (“Defendant cannot breach the
covenant of good faith and fair dealing if the contract gives it sole and
complete discretion.”); Transit Funding Assoc., LLC v. Capital One Equip.
Fin. Corp., 149 A.D.3d 23, 29–30, 48 N.Y.S.3d 110 (1st Dep’t 2017)
(covenant of good faith and fair dealing cannot negate express provision
of contract); ELBT Realty, LLC v. Mineola Garden City Co., 144 A.D.3d
1083, 1084, 42 N.Y.S.3d 304 (2d Dep’t 2016) (rejecting implied covenant
argument where plain language of contract gave termination discretion
to defendant in “its sole discretion.”).
Id. at *6–7. Because the contract provision under examination in Goureau permitted
certain actions in the sole discretion of the party exercising the right under the provision,
no claim lay that the party exercising the right had to do so in good faith. Id. at *7.9
Appellant cites a case that it argues stands for the proposition “that the duty
9
[of good faith and fair dealing] can be disclaimed ‘only . . . by a specific reference to
the duty of good faith and fair dealing.’” See Akal Taxi NYC LLC v. City of N.Y.,
No. 708602/2017, 2020 WL 2066396 (N.Y. Sup. Ct. Mar. 16, 2020). As Macquarie
points out, the language that Appellant cites is not a holding of the court but a
40
But turning back to ThreeSixty, the court did not read the seminal Moran
opinion that Goureau cited to completely insulate a party from a claim of breach of
duty of good faith and fair dealing even though a contractual provision vested a party
with the sole discretion to make a decision. In ThreeSixty’s view, Moran required a
more subtle and expansive analysis:
Rather, Moran requires the court to use the law applicable in all contract
cases to determine the meaning of a contract term and then, after
looking at both that term in isolation and the contract as a whole, to
decide (1) whether the covenant would negate the terms of the
bargained-for clause; and (2) if not, whether application of the covenant
is necessary to preserve the fruits of the contract and prevent it from
being illusory. The two questions are related. Courts presume that
parties do not make empty promises. When the implication of a duty of
good faith and fair dealing would be inconsistent with the language of a
provision of a contract and is not necessary to make the agreement
meaningful, the court will not invoke the covenant. But where, by
contrast, it is necessary to read an obligation of good faith in order to
avoid rendering a contract promise illusory—in the words of the cases,
where necessary so as not to deprive a contracting party of the “fruits of
the contract”—the courts will not hesitate to infer an obligation to act in
good faith. A licensee granted the exclusive rights to sell the licensor’s
products, for example, cannot automatically relieve itself of the
obligation to exercise that contractual right in good faith by the simple
expedient of adding the language “sole discretion,” if the failure to act in
good faith would render the contract illusory. See Advanced Water Techs. v.
Amiad U.S.A., Inc., 457 F. Supp. 3d 313, 319–21 (S.D.N.Y. 2020). That
is what was meant when Judge Cardozo long ago spoke of a contract
right as being “instinct with an obligation.” Wood v. Lucy, Lady Duff-
Gordon, 222 N.Y. 88, 118 N.E. 214, 214 (1917). No magic words can ipso
description of an argument made by the plaintiff in the case. And here, we are not
dealing with a boilerplate disclaimer of the duty but a contractual provision granting
Macquarie exclusive discretion to make a decision. The cases that we have cited make
clear that a provision vesting a party with this level of discretion may disable a claim
for the breach of the duty.
41
facto and without review of the contract as a whole relieve a contracting
party of that obligation.
ThreeSixty, 520 F. Supp. 3d at 507.
Thus, we glean the following from the quotations provided from Goureau and
ThreeSixty:
• New York applies the duty of good faith and fair dealing to contracts;
• The duty applies when a contract gives a party discretion in performing a
duty under a contractual provision;
• Vesting a party with the sole discretion or a similar scope of discretion
negates the existence of the duty; and
• The duty may still exist, even in the face of a provision vesting a party
with sole discretion, but to apply the duty in the face of such a provision
requires a two-pronged analysis of (1) whether the application of the
duty negates the bargained-for discretion that the contractual provision
provides and (2) should the analysis indicate that the duty does not
negate the bargained-for right, whether application of the duty is
necessary “to preserve the fruits of the contract and prevent it from
being illusory.” ThreeSixty, 520 F. Supp. 3d at 507.
42
2. We describe the provisions of the Loan Agreement affecting
the Lender’s consent to the approval of prepayment of the
Mezzanine Loan.
We have already discussed in detail why we conclude that there was a
prepayment of the Mezzanine Loan as prepayment is defined in the Loan Agreement
and why the prepayment—structured as it was—triggered a default of the Loan
Agreement because there was no prior written consent to make the payment.
The question of whether a duty of good faith and fair dealing impacted
Macquarie’s ability to declare a default turns on the scope of the following provision
that both parties agree should be the primary focus of our analysis:
Section 12.2 Lender’s Discretion. Whenever pursuant to this
Agreement Lender exercises any right given to it to approve or
disapprove, or any arrangement or term is to be satisfactory to Lender,
the decision of Lender to approve or disapprove or to decide whether
arrangements or terms are satisfactory or not satisfactory shall (except as
is otherwise specifically herein provided) be in the sole discretion of
Lender and shall be final and conclusive. Prior to a Securitization,
whenever pursuant to this Agreement the Rating Agencies are given any
right to approve or disapprove, or any arrangement or term is to be
satisfactory to the Rating Agencies, the decision of Lender to approve or
disapprove or to decide whether arrangements or terms are satisfactory
or not satisfactory, based upon Lender’s determination of Rating Agency
criteria, shall be substituted therefore.
3. We conclude that the Loan Agreement negates the existence
of the duty of good faith and fair dealing.
The parties agree that the existence of a claim for the breach of the duty of
good faith and fair dealing turns on an interpretation of Section 12.2. On its face, this
provision is broad enough to embrace the question of prepayment with its language
43
stating that when the “Lender exercises any right given to it to approve or disapprove,
or any arrangement or term is to be satisfactory to Lender, the decision of Lender . . .
shall . . . be in the sole discretion of Lender and shall be final and conclusive.” The
only argument that Appellant musters regarding why the provision should not negate
the duty of good faith and fair dealing for consent to prepayment of the Mezzanine
Loan is that other sections of the Loan Agreement grant Macquarie sole and
“absolute” discretion to take specific acts. From this, Appellant draws the argument
that
[c]learly Macquarie knew how to draft the Agreement so as to give it
“absolute” discretion for certain things, yet the absence of such a
provision for approving any alleged “prepayment” or “exercise” of the
parking[-]lot [o]ption demonstrates that Macquarie’s discretion with
respect to those issues was not absolute and, therefore, was subject to
the duty of good faith and fair dealing[,] i.e.[,] “not to act arbitrarily or
irrationally in exercising that discretion.”
The argument begs the question of whether the level of discretion that Section 12.2
vests in Macquarie is sufficient to negate a duty of good faith and fair dealing when it
decided whether to consent to prepayment of the Mezzanine Loan. It is.
Appellant also tries to cabin the language of Section 12.2 by arguing that its
reference to “sole discretion” is not sufficient to grant Macquarie sufficient discretion
to overcome a claim of breach of the duty of good faith and fair dealing. Appellant
pitches its argument as follows: “That any discretion is solely that of Macquarie is not
in dispute. But ‘sole’ discretion means just that; that any discretion is that of
Macquarie’s and Macquarie’s alone. But that is an issue completely separate from the
44
scope of that discretion and whether that discretion is absolute.” There are two flaws
in this argument. First, Goureau cites to ELBT Realty, 42 N.Y.S.3d at 306, in which a
New York court rejected an “implied[-]covenant argument where [the] plain language
of [the] contract gave termination discretion to [the] defendant in ‘its sole discretion.’”
2021 WL 4847073, at *7.
And second, as Macquarie points out, Section 12.2 goes beyond granting it sole
discretion and also provides that the discretion it exercises “shall be final and
conclusive.” Macquarie notes “final and conclusive” carries a meaning of terminal
and unappealable. Final, Black’s Law Dictionary (11th ed. 2019). Conclusive carries
the meaning of authoritative; decisive; convincing. Conclusive, Black’s Law Dictionary
(11th ed. 2019). Thus, Section 12.2 goes beyond stating that Macquarie acts with sole
discretion and augments the provision with language that makes its decision the last
word on the subject.
Undeterred by the breadth of the language giving Macquarie final and
conclusive discretion, Appellant argues in its reply brief that the failure to use the
word “absolute” in Section 12.2 when other sections of the Loan Agreement
specifically provided that the Lender had absolute discretion impacts the analysis
because different words have different meanings and because the Lender used
absolute in some sections of the agreement and “final and conclusive” in Section 12.2,
that difference must have some significance. In Appellant’s view, “[g]iven the
omission of the word ‘absolute,’ one cannot escape the conclusion that Macquarie
45
enjoyed less-than-absolute discretion under ¶ 12.2 of the Agreement.” Of course, this
argument ignores that different words can carry the same meaning. Indeed, one
definition that Black’s Law Dictionary gives of the word “absolute” uses one of the
words found in Section 12.2 with its definition of absolute as “conclusive and not liable
to revision.” Absolute, Black’s Law Dictionary (11th ed. 2019) (emphasis added). For
this reason, we reject Appellant’s attempt to water down the degree of discretion vested
in Macquarie because Section 12.2 has language that is different than other sections of
the Loan Agreement when it uses words granting Macquarie unbridled discretion—a
degree of discretion that usually negates the duty of good faith and fair dealing.
Next, we turn to ThreeSixty’s discussion of New York’s seminal opinion of
Moran and its holding that the duty of good faith and fair dealing may exist even in the
face of a provision granting a party sole discretion to make a decision. 520 F. Supp.
3d at 507. Appellant’s reference to Moran is passing at best when it states, “One of
the key aspects of this implied promise is that ‘neither party shall do anything [that]
will have the effect of destroying or injuring the right of the other party to receive the
fruits of the contract.’ Moran v. Erk, 11 N.Y.3d 452, 456 (N.Y. 2008).”
Looking to the specifics of the Moran analysis that Appellant fleetingly invokes,
we conclude that it does not apply here. Again, ThreeSixty described the analysis
mandated by Moran as
requir[ing] the court to use the law applicable in all contract cases to
determine the meaning of a contract term and then, after looking at both
that term in isolation and the contract as a whole, to decide (1) whether
46
the covenant would negate the terms of the bargained-for clause; and
(2) if not, whether application of the covenant is necessary to preserve
the fruits of the contract and prevent it from being illusory.
ThreeSixty, 520 F. Supp. 3d at 507. To follow the path marked by ThreeSixty,
(1) Section 12.2 vests Macquarie with “final and conclusive” discretion to make
decisions such as those regarding whether to consent to prepayment of the Mezzanine
Loan; (2) it would be a direct contradiction to the language of Section 12.2 to overlay
on it the duty of good faith and fair dealing on that Section—imposition of the duty
would negate the terms of the provision vesting the Lender with broad-ranging
discretion; and (3) even if our analysis in step 2 is incorrect, Appellant is not deprived
of the fruits of the contract unless the duty is imposed on the Lender when deciding
whether to grant consent. Appellant had obtained the fruits of the contract when the
financing was provided by the Lender. The consequence of Macquarie’s act was to
increase the interest rate—an act that had a substantial financial impact on Appellant
but was not one that made Macquarie’s performance of the Loan Agreement illusory.
To accept an argument that Moran negates the discretion vested in the Lender in
Section 12.2 would create an exception that swallowed the rule. The discretion
created by Section 12.2 would be read out of the agreement when Appellant had
obtained the lion’s share of the performance required by Macquarie but disagreed
with how Macquarie resolved the question of whether prepayment of the Mezzanine
Loan affected its position and prompted it to charge a post-default interest rate.
47
At bottom, we conclude that Section 12.2 of the Loan Agreement vests
sufficient discretion in Macquarie to negate a duty of good faith and fair dealing in
deciding whether to consent to prepayment of the Mezzanine Loan. Under the
circumstances of this case, the Moran analysis—that permits imposition of the duty
even though sole discretion is vested to make the decision in question—does not apply.
We overrule Appellant’s Issue 1.d.
G. We accept Appellant’s argument that the Loan Agreement does
not permit Macquarie to recover its attorneys’ fees and expenses
from Appellant.
In its second issue, Appellant attacks the trial court’s award of approximately
$1.5 million in attorneys’ fees to Macquarie. Appellant does not challenge the
evidence that Macquarie offered to support the amount or the reasonableness of its
attorneys’ fees. But Appellant makes a more fundamental attack: Appellant in its
Issue 2.a. asserts that no provision of the Loan Agreement permits Macquarie to
recover its fees and that the existence of such a provision is a prerequisite to a fee
recovery under New York law. 10 Appellant underpins its argument with the
contention that the provision of the Loan Agreement that Macquarie relied on in the
trial court to obtain its fee recovery, when properly interpreted under New York law,
provides no basis for Macquarie to shift its attorneys’ fees to Appellant. In
Appellant’s view, the provision addresses indemnity, and though under New York law
Our holdings obviate the need to address Appellant’s 2.b.(1) regarding
10
whether Appellant did not oppose a request for attorneys’ fees as raised in
Macquarie’s motion for summary judgment.
48
an indemnity provision may sometimes support an interparty fee claim, the provision
relied on by Macquarie lacks the necessary clarity to accomplish that result. We agree
with Appellant. But we first turn to Macquarie’s argument that Appellant waived its
right to contest the fee recovery.
1. As a preliminary matter, we do not agree with Macquarie
that Appellant has waived its argument that Macquarie
cannot recover its attorneys’ fees.
Macquarie argues that Appellant has waived the issue of attorneys’ fees on
appeal by not challenging the ground raised in Macquarie’s motion for summary
judgment—that the Loan Agreement permitted it to recover its fees. Macquarie
argues that its motion for summary judgment provided fair notice that one of the
motion’s grounds was that it was entitled to recover its attorneys’ fees. We reject the
waiver argument because Appellant filed a motion to reconsider whether the Loan
Agreement entitled Macquarie to recover its attorneys’ fees, and the trial court
considered and ruled on that motion. Appellant raises an issue on appeal challenging
the ruling on that motion. The ruling on the motion to reconsider and the issue
challenging that ruling adequately postures the fee issue for our review. Further,
Macquarie carried the burden to establish its fee claim on summary judgment as a
matter of law; Appellant’s alleged failure in the trial court to challenge that the claim
for attorneys’ fees was legally deficient does not free Macquarie from showing on
appeal that it was entitled to that relief as a matter of law, i.e., Macquarie is not
49
entitled to a summary judgment by default simply because Appellant did not respond
to one of Macquarie’s summary-judgment grounds.
When Macquarie filed its motion seeking fees after the trial court had granted
Macquarie’s motion for summary judgment, Appellant responded by arguing that the
summary-judgment motion did not state a ground for the recovery of attorneys’ fees.
But Appellant’s pleading also sought reconsideration of that ruling if the trial court
determined that Macquarie’s motion had raised that ground. The order granting
Macquarie’s fee motion dealt with the motion to reconsider as follows:
Macquarie moved for summary judgment on its entitlement to fees and
expenses under [Section] 12.13 of the Loan Agreement on pages five
through six of its Motion for Summary Judgment. Specifically,
Macquarie asked the court to order that it “is entitled to recover all of its
fees and expenses, including expert expenses, under the terms of the
parties’ Loan Agreement”—namely, [Section] 12.13(a). [Appellant]
acknowledged Macquarie’s argument[] but did not oppose it on the
merits. The [c]ourt then granted Macquarie’s motion. Macquarie’s
instant motion, and the subject of this order, is to determine the amount
[of] fees and expenses Macquarie should be awarded.
[Appellant] has asked the [c]ourt to reconsider its ruling on summary judgment
that Macquarie is entitled to recover fees and expenses. The [c]ourt declines to do so,
primarily because its ruling on summary judgment was correct: Section 12.13 of the
Loan Agreement covers claims between the parties. [Emphasis added.]
Appellant’s second issue in Issue 2.b.(2) questions “whether the [t]rial [c]ourt erred as
a matter of law in denying [Appellant’s] motion for reconsideration on this issue.”
When confronted with a motion to reconsider a summary judgment, the trial
court has two options—disregard it or rule on its merits. If the trial court takes the
50
latter course, the ruling on reconsideration may be reviewed on appeal. As the
San Antonio Court of Appeals has explained,
When a motion for new trial is filed after the rendition of summary
judgment, “a trial court has the discretion to consider the grounds in a
post-judgment motion and supporting proof[] and reaffirm its summary
judgment based on the entire record.” Timothy Patton, Summary
Judgments in Texas § 7.06[1] (3d ed. 2012); see also Auten v. DJ Clark, Inc.,
209 S.W.3d 695, 702 (Tex. App.—Houston [14th Dist.] 2006, no pet.).
The trial court also has the discretion to simply deny a motion filed after
the entry of summary judgment without considering its substance. First
Gibraltar Bank, FSB v. Farley, 895 S.W.2d 425, 430 (Tex. App.—San
Antonio 1995, writ denied). In the latter situation, an appellate court
need only consider arguments and evidence presented prior to the
summary-judgment hearing. Timothy Patton, Summary Judgments in
Texas § 7.06[1] (3d ed. 2012); see also Laurel v. Herschap, 5 S.W.3d 799, 802
(Tex. App.—San Antonio 1999, no pet.). “Thus, the efficacy of a post-
judgment motion to preserve a complaint for appellate review depends
upon whether the trial court affirmatively considers the new grounds
and proof as memorialized by a written order.” Timothy Patton,
Summary Judgments in Texas § 7.06[1] (3d ed. 2012) (citing Auten, 209
S.W.3d at 701; Stephens v. Dolcefino, 126 S.W.3d 120, 133–34 (Tex. App.—
Houston [1st Dist.] 2003[), pet. denied, 181 S.W.3d 741 (Tex. 2005)]).
Charbonnet v. Shami, No. 04-12-00711-CV, 2013 WL 2645720, at *5 (Tex. App.—
San Antonio June 12, 2013, pet. denied) (mem. op.); see also Bauer v. Gulshan Enters.,
Inc., 617 S.W.3d 1, 21 (Tex. App.—Houston [1st Dist.] 2020, pet. denied) (op. on
reh’g) (“When, as here, however, the trial court’s order affirmatively states that it
considered the evidence attached to a motion to reconsider, we review the summary
judgment based on the grounds and proof in both the prejudgment and post-judgment
filings.”); PNP Petroleum I, LP v. Taylor, 438 S.W.3d 723, 729–30 (Tex. App.—San
Antonio 2014, pet. denied) (applying the rule in Charbonnet to a motion to reconsider
51
filed with respect to a summary-judgment ruling and stating that when “the trial court
affirmatively indicates on the record that it accepted or considered the evidence
attached to a motion to reconsider, this court reviews ‘the summary judgment based
upon the grounds and proof in both prejudgment and post-judgment filings’”).
As we read the trial court’s order, though the trial court denied Appellant’s
motion to reconsider, it did consider the motion and reaffirm its ruling by noting that
Appellant had filed a motion to reconsider but that “[t]he [c]ourt decline[d] to
[reconsider its ruling], primarily because its ruling on summary judgment was correct:
Section 12.13 of the Loan Agreement covers claims between the parties.” The import
of this sentence is that the trial court had considered Appellant’s arguments on
whether the Loan Agreement provided for the recovery of attorneys’ fees and rejected
those arguments. Simply on the issue of whether Appellant has preserved its
argument on the fee issue for appeal, Appellant’s motion in combination with the trial
court’s ruling convinces us that it has. Our holding comports with our duty to act
liberally in determining whether an issue is preserved for appellate review. See, e.g.,
Arkoma Basin Expl. Co. v. FMF Assocs. 1990–A, Ltd., 249 S.W.3d 380, 388 (Tex. 2008)
(“Like all other procedural rules, those regarding the specificity of post-trial objections
should be construed liberally so that the right to appeal is not lost unnecessarily.”).
Further, if Macquarie did raise in its summary-judgment motion the ground
that it was entitled to recover its fees, it bore the burden to establish that claim as a
matter of law. See Tex. R. Civ. P. 166a. Even if Appellant failed to challenge that
52
ground in its response, it still retained the ability on appeal to challenge whether
Macquarie established its fee claim as a matter of law—one aspect of which is whether
the Loan Agreement provided for the recovery of fees. Simply,
a non[]movant who fails to raise any issues in response to a summary[-]
judgment motion may still challenge, on appeal, the legal sufficiency of
the grounds presented by the movant. The nonmovant has no burden
to respond to a summary[-]judgment motion unless the movant
conclusively establishes its cause of action or defense. The trial court
may not grant summary judgment by default because the nonmovant did
not respond to the summary[-]judgment motion when the movant’s
summary[-]judgment proof is legally insufficient.
Amedisys, Inc. v. Kingwood Home Health Care, LLC, 437 S.W.3d 507, 512 (Tex. 2014)
(internal citation and quotation marks omitted) (quoting Rhone–Poulenc, Inc. v. Steel, 997
S.W.2d 217, 222–23 (Tex. 1999)). Thus, the failure to challenge the ground by which
Macquarie sought its fees does not foreclose Appellant’s argument that Macquarie
failed to establish that ground as a matter of law.
2. We set out the principles enunciated by New York courts11
to determine whether an indemnity provision permits an
interparty fee recovery.
The parties agree that the bellwether opinion of the New York Court of
Appeals on the question of whether the Loan Agreement has a provision that permits
11
Macquarie predicated its claim for fees on the Loan Agreement. Thus, the
Agreement’s choice of law provision selecting New York law governs. Midwest Med.
Supply Co. v. Wingert, 317 S.W.3d 530, 537 (Tex. App.—Dallas 2010, no pet.) (“A claim
for attorneys’ fees for breach of contract is not an independent cause of action. We
have recognized that the recovery of attorneys’ fees for breach of a contract is a
substantive, not a procedural, issue and will be governed by the law governing the
substantive issues.”).
53
Macquarie’s fee recovery is Hooper Associates, Ltd. v. AGS Computers, Inc., 548 N.E.2d
903 (N.Y. 1989). Hooper stated the general rule of fee recovery as “attorney’s fees are
incidents of litigation and a prevailing party may not collect them from the loser
unless an award is authorized by agreement between the parties, statute[,] or court
rule.” Id. at 904. Hooper then examined the question of whether a hold-harmless
provision that permitted the recovery of fees “is limited to attorney’s fees incurred by
plaintiff in actions involving third parties or also includes those incurred in
prosecuting a suit against defendant for claims under the contract.” Id.Noting that a contract had to be read in view of “the particular object [that] the
parties had in view” and that this principle had special sway for indemnity contracts,
Hooper held that “[w]hen a party is under no legal duty to indemnify, a contract
assuming that obligation must be strictly construed to avoid reading into it a duty
[that] the parties did not intend to be assumed.” Id. at 905. To ensure that the
language of an indemnity/hold-harmless provision was not expanded to permit loose
language in the provision to swallow the rule restricting the recovery of fees, Hooper
articulated the following interpretive principle for resolving the question of whether
an indemnity/hold-harmless provision embraced an interparty fee claim:
Inasmuch as a promise by one party to a contract to indemnify the other
for attorney’s fees incurred in litigation between them is contrary to the
well-understood rule that parties are responsible for their own attorney’s
fees, the court should not infer a party’s intention to waive the benefit of
the rule unless the intention to do so is unmistakably clear from the
language of the promise[.]
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Id.Hooper concluded that the indemnity provisions that it had reviewed did not
include interparty fee claims because “[n]one are exclusively or unequivocally referable
to claims between the parties themselves or support an inference that defendant
promised to indemnify plaintiff for counsel fees in an action on the contract.” Id.Hooper buttressed its holding that the indemnity/hold-harmless provisions did not
embrace interparty fee claims by noting that several of the contract’s other provisions
provided for matters such as notice that the claim was being made and an assumption
of defense; Hooper concluded that these provisions would be surplusage if read to
extend “the indemnification clause to require defendant to reimburse plaintiff for
attorney’s fees in the breach[-]of[-]contract action against defendant.” Id.A later New York Court of Appeals decision distilled Hooper’s holding and
concluded that the following contract provision did not exhibit the necessary clarity to
permit an interparty fee recovery when it provided for reimbursement of “charges,
fees, costs[,] and expenses[,] . . . including reasonable attorneys’ . . . fees and expenses,
in connection with . . . the enforcement, defense[,] or preservation of any rights in
respect of any of the Operative Documents, including defending, monitoring[,] or
participating in any litigation or proceeding . . . relating to any of the Operative
Documents.” Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 106 N.E.3d 1176,
1180 (N.Y. 2018). The provision failed to satisfy the clarity required by Hooper
because “the subjects set forth in this provision are all ‘susceptible to third-party
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claims,’ and ‘[n]one are exclusively or unequivocally referable to claims between the
parties themselves’ . . . . Accordingly, there is no unmistakable promise to reimburse
attorneys’ fees in a case brought by” the party entitled to reimbursement under the
quoted contractual provision. Id. at 1186 (quoting Hooper, 548 N.E.2d at 905).
Not unexpectedly, the devil lies in the details of when a provision
unequivocally refers to an interparty fee recovery. The premises used by different
courts to assess the clarity needed by a provision have not, in our view, been totally
consistent. One court emphasized that “the requirement that parties express their
intent with ‘unmistakable clarity’ is not the same as a ‘magic words’ test, and courts
have interpreted indemnification provisions to cover litigation expenses between the
parties even where that coverage was not explicitly mandated in such words but,
nonetheless, the intent was clear.” Carbonyx License & Lease LLC v. Carbonyx Inc., No.
19-cv-1540 (JSR), 2019 WL 6701910, at *8 (S.D.N.Y. Dec. 9, 2019) (mem. order)
(citing Mid-Hudson Catskill Rural Migrant Ministry, Inc. v. Fine Host Corp., 418 F.3d 168,
178 (2d Cir. 2005)). Another court’s approach seemed to come close to establishing
that magic words are indeed needed:
The bottom line is that a contract provision employing the language of
third-party claim indemnification may not be read broadly to encompass
an award of attorney’s fees to the prevailing party based on the other
party’s breach of the contract; the provision must explicitly so state.
The Hooper standard requires more than merely an arguable
inference of what the parties must have meant; the intention to
authorize an award of fees to the prevailing party in such
circumstances must be virtually inescapable.
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Gotham Partners, L.P. v. High River Ltd. P’ship, 906 N.Y.S.2d 205, 209 (N.Y. App. Div.
2010) (bolded and underlined emphasis added).
Certain New York courts adopt a seemingly hybrid approach that relies on
contextual clues to augment the textual analysis. One court summarized this
approach as follows:
In applying this standard of unmistakable clarity, the courts have
generally declined to infer indemnification obligations arising from an
indemnitee/indemnitor suit if the contractual language does not
expressly refer to or explicitly contemplate such circumstances and the
context does not suggest that the contracting parties were specifically
concerned with prospective litigation between themselves.
Luna v. Am. Airlines, 769 F. Supp. 2d 231, 244 (S.D.N.Y. 2011); see also Thor 725 8th
Ave. LLC v. Goonetilleke, No. 14 CIV. 4968 (PAE), 2015 WL 8784211, at *4 (S.D.N.Y.
Dec. 15, 2015) (opinion and order) (following and applying Luna test); Shah v. 20 E.
64th St., LLC, 154 N.Y.S.3d 6, 21 (N.Y. App. Div. 2021) (holding that indemnity
provision included interparty fee claim because of highly inclusive language in
provision and no other provision of agreement would be rendered meaningless if
provision read to include interparty claims).
Luna cataloged the contextual clues that guided its analysis:
When an indemnification agreement contains provisions that appear to
be inapplicable to suits between the contracting parties—such as
requiring that notice of a claim be given to the indemnitor or allowing
the indemnitor to assume the indemnitee’s defense—the courts have
concluded that the contract does not evidence an unmistakably clear
intent to indemnify attorney’s fees incurred in a lawsuit between the
contracting parties.
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In contrast, when the language of an indemnification provision
specifically evidences the parties’ intent to cover claims by contracting
parties, indemnification for suits against the indemnitor will be enforced.
For instance, when confronted with indemnification provisions that
include both broad indemnity clauses and narrower clauses that
specifically target third-party claims, courts have determined that the
broad provisions cover claims between the contracting parties, thereby
ensuring that neither clause is superfluous.
Absent specific contractual language authorizing indemnification
in suits between the contracting parties, the courts may still determine
that the parties intended for such indemnification based on clear
contextual evidence. Thus[,] the court will enforce such an obligation if
it is apparent that at the time of contracting the parties had no reason to
anticipate the possibility of the indemnitee being faced with third-party
claims. . . .
By comparison, if third-party claims were possible at the time of
contracting and the contractual language did not evidence the parties’
intent regarding the indemnification of attorney’s fees incurred in suits
between them, the courts have refused to award such expenses as
indemnification.
769 F. Supp. 2d at 244–45 (citations omitted).
3. We set forth the provision of the Loan Agreement that
Macquarie relies on to support its fee claim.
Macquarie predicates its fee claim on a single provision of the Loan Agreement.
It relies on Section 12.13 that is titled “Expenses; Indemnity.” This section contains
six subsections, but Macquarie relies on only one of them. Placing the operative
subsection, which we have italicized below, in context with the introductory and
concluding clauses of the section, the provision reads as follows:
Borrower shall pay or, if Borrower fails to pay, reimburse Lender upon
receipt of notice from Lender, for all reasonable costs and expenses
(including reasonable attorneys’ fees and disbursements) incurred by
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Lender in connection with . . . (v) enforcing or preserving any rights, in response
to third[-]party claims or the prosecuting or defending of any action or proceeding or
other litigation or otherwise, in each case against, under[,] or affecting Borrower, any
other Borrower Party[,] or any Affiliate of Borrower, this Agreement, the other Loan
Documents, the Property, the Other Collateral[,] or any other security given for the
Loan . . . provided, however, that Borrower shall not be liable for the
payment of any such costs and expenses to the extent the same arise by
reason of the gross negligence, illegal acts, fraud[,] or willful misconduct
of Lender. [Emphasis added.]
Our focus is on this provision alone; neither party points us to any other provisions of
the Loan Agreement that might create the contextual clues that we have enumerated
from Luna.
4. We agree with Appellant that Section 12.13 does not entitle
Macquarie to recover its fees for prosecuting and defending
its claims against Appellant.
We agree with Appellant that Section 12.13 lacks the clarity that it needs to
support an interparty fee claim. Though there is an arguable interpretation of the
section that supports the reading advocated for by Macquarie, that reading does not
meet the standard articulated by New York’s court of last resort that the reference be
“exclusively or unequivocally referable to claims between the parties themselves.” See
Hooper, 548 N.E.2d at 905.
Before explaining our rationale, we detail one of Appellant’s arguments that we
reject. Appellant places great emphasis on the fact that the Loan Agreement does not
contain a standard fee provision that might look familiar to Texas lawyers. But that
argument begs the question because the question is not what the Loan Agreement did
not include but whether the section that it did include satisfies the Hooper standard.
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And, again, neither party mentions the Luna principles that look to various
textual clues to clarify the scope of the fee provision. The parties do not point us to
provisions of the Loan Agreement that would be rendered surplusage or suggest that
it would be “apparent that at the time of contracting the parties had no reason to
anticipate the possibility of the indemnitee being faced with third-party claims.” See
Luna, 769 F. Supp. 2d at 244.
Here, the argument focuses on whether subsection (a)(v) of Section 12.13
covers both third-party and interparty claims. This argument is crystalized in
Macquarie’s brief as follows:
Here too, [Section] 12.13 of the Loan Agreement distinguishes third-
party claims from claims between the parties and must be interpreted as
covering both. [Appellant] is correct that [Section] 12.13(a)(v) first
addresses costs and expenses incurred in connection with “enforcing or
preserving any rights, in response to third[-]party claims.” But that same
section also covers costs and expenses incurred “prosecuting or
defending of any action or proceeding or other obligation or otherwise,
in each case against, under[, ] or affecting Borrower, any other
Borrower Party [, ] or any Affiliate of Borrower, this Agreement, the
other Loan Documents, the Property, the Other Collateral[,] or any
other security given for the loan.” Section 12.13 of the Loan Agreement
therefore covers claims between the parties, and the trial court correctly
awarded Macquarie its reasonable attorneys’ fees and expenses. See, e.g.,
Mid-Hudson Catskill Rural Migrant Ministry . . . , 418 F.3d [at] 178–79 . . .
(distinguishing provision indemnifying a party for certain actions
“brought by third parties” from one covering “actions of any kind or
nature arising, growing out of, or otherwise connected with any activity
under this Agreement”). [Brief and record references omitted.]
Certainly, Section 12.13 describes actions “prosecuting or defending” matters
“against . . . or affecting” the borrower, and this suit was such. But the open question
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is whether the section can be interpreted to include a suit by Macquarie against
Appellant simply because a literal interpretation is broad enough to support
Macquarie’s construction. The phrases Macquarie relies on are pregnant with the
possibility that they include such claims but do not carry that possibility to fruition
with the necessary clarity to meet the Hooper standard; the provision never explicitly
states that a suit brought by Macquarie against Appellant falls within its ambit.
Appellant argues, and we agree, that Section 12.13’s language parallels the
provision examined in Ambac that provided for the recovery of “charges, fees, costs[,]
and expenses[,] . . . including reasonable attorneys’ . . . fees and expenses, in
connection with . . . the enforcement, defense[,] or preservation of any rights in
respect of any of the Operative Documents, including defending, monitoring[,] or
participating in any litigation or proceeding . . . relating to any of the Operative
Documents.” 106 N.E.3d at 1180. If literally interpreted, this language seems to hold
a possible interpretation that would allow an interparty fee recovery. Even so, the
New York Court of Appeals found that it failed to carry the unmistakable promise
necessary to support that claim. Id. at 1186.
Macquarie also places emphasis on the fact that Section 12.13 is broken down
into two sections—one dealing with expenses and the other indemnity. Specifically,
Macquarie argues,
[Section] 12.13, which is titled “Expenses; Indemnity” and not just
“indemnity[,”] has two parts. Section 12.13(b), which starts with
“Borrower shall indemnify,” is the indemnification provision. Section
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12.13(a), on the other hand, covers expenses; it requires [Appellant] to
pay or reimburse Macquarie for reasonable “costs and expenses” incurred,
“including reasonable attorneys’ fees” incurred in “prosecuting or
defending of any action or proceeding . . . against, under[,] or affecting”
[Appellant]. [Record references omitted.]
But, again, Ambac had a provision that was also phrased in terms of reimbursement
but still applied the rule of Hooper to conclude that the provision lacked the necessary
clarity. Id. at 1180, 1186. Thus, the court of last resort in New York does not appear
to see the material distinction advocated for by Macquarie simply because the
provision deals with reimbursement.
We sustain Appellant’s Issue 2.a. and hold as a matter of law that Macquarie
cannot recover its attorneys’ fees and expenses from Appellant because Section 12.13
cannot be interpreted as having the necessary clarity to create that claim. See id. For
the same reason, we also sustain Appellant’s Issue 2.b.(2), in which Appellant
contends that the trial court erred by denying its motion for reconsideration on the
issue of Macquarie’s ability to recover attorneys’ fees.
IV. Conclusion
We have overruled the portions of Appellant’s first issue that challenge the trial
court’s grant of summary judgment that Appellant recover nothing on its claims that
Macquarie breached the Loan Agreement by declaring a default because the
Mezzanine Loan was prepaid without its written consent and that Macquarie owed
Appellant a duty of good faith and fair dealing. We have also concluded that
Appellant has waived the portion of its first issue claiming that a fact question exists
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regarding whether Macquarie consented to the prepayment of the Mezzanine Loan.
Our resolution of these issues obviates the need to address whether Appellant also
defaulted on the Loan Agreement by its exercise of a parking-lot option or whether
Macquarie’s public statements that the loan was in default devalued the hotel. Thus,
we affirm the portion of the trial court’s judgment that Appellant recover nothing on
its claims against Macquarie. However, we hold that there is an error in the trial
court’s judgment because having sustained Appellant’s second issue, we reverse the
trial court’s judgment awarding Macquarie its attorneys’ fees and expenses; Section
12.13 of the Loan Agreement cannot be read as having the requisite clarity to entitle
Macquarie to that recovery. Accordingly, we render judgment that Macquarie take
nothing on its fee claim.
/s/ Dabney Bassel
Dabney Bassel
Justice
Delivered: August 31, 2022
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