0,, NO. 05-11-01632-CV IN THE COURT OF APPEALS FOR THE FIFTH DISTRICT OF TEXAS AT DALLAS 5th Court of Appeals FILED: 01/26/2012 14:00 Lisa Matz, Clerk LORRIE JEAN SMITH v. Appellant, SUMEER HOMES, INC., ET AL. Appellees. ON APPEAL FROM THE 192nd JUDICIAL DISTRICT COURT OF DALLAS COUNTY, TEXAS BRIEF OF APPELLANT KILGORE & KILGORE, PLLC 31 09 CARLISLE DALLAS, TEXAS 75204 214/969-9099- TELEPHONE 214/953-0133- FAX W. D. MASTERSON SBN 13184000 JOHN H. CROUCH SBN 00783906 THEODORE C. ANDERSON SBN 01215700 ROBERT M. BEHRENDT SBN 24012270 ATTORNEYS FOR APPELLANT
ORAL ARGUMENT REQUESTED IDENTITY OF PARTIES AND COUNSEL The following is a complete list of all parties to the trial court's judgment, as well as the names and addresses of all trial and appellate counsel: Parties Plaintiff I Appellant Lorrie Jean Smith and as Trustee and The Caroline Beth Berthelot Living Trust Counsel W. D. Masterson SBN 1 31 84000 Theodore C. Anderson SBN 01215700 Kilgore & Kilgore, PLLC 3109 Carlisle St., Suite 200 Dallas, TX 75204 214/969-9099 - Telephone 214/953-0133 - Fax (Trial and Appellate Counsel) Defendants/ Appellees Scott W. Ray & Kristen Ray, Colonial National Mortgage, A Division of Colonial Savings, F.A., David A. Leuthold & Kathleen 0. Leuthold, Wells Fargo Bank, N.A., Thomas Nail & Jinnifer Nail and Primelending, a Plainscapital Company Arthur F. Selander SBN 18004300 Quilling, Selander, Lownds, Winslett & Moser, P.C. 2001 Bryan Street, Suite 1800 Dallas, TX 75201 214/871-2100- Telephone 214/871-2111-Fax #151626.1
Capital Title of Texas, LLC Craig L. Dowis SBN 24028655 Thompson, Coe, Cousins & Irons, LLP 700 North Pearl Street Twenty-Fifth Floor Dallas, TX 75201 214/871-8245- Telephone 214/871-8209 - Fax Sumeer Homes, Inc. Ron B. Johnson SBN 1 0788000 Law Offices of Ron B. Johnson 1 02 YMCA Drive Waxahachie, TX 75165 972/938-7163- Telephone 972/938-8083 - Fax Wells Fargo Bank, N.A. Jonathan E. Collins SBN 24049522 Locke, Lord, Bissell & Liddell, LLP 2200 Ross Avenue, Suite 2200 Dallas, TX 75201 214/7 40-8000 - Telephone 214/7 40-8800 - Fax (Trial and Appellate Counsel) #151626.1 ii
argument. REQUEST FOR ORAL ARGUMENT Pursuant to the Texas Rules of Appellate Procedure, Appellant requests oral STATEMENT ON ORAL ARGUMENT The Court should grant oral argument for the following reasons: a. b. c. d. The issues presented have not been authoritatively decided. See Tex. R. App. P. 1 (b). Oral argument would give the Court a more complete understanding of the facts presented in this appeal. See Tex. R. App. P. 39.1 (c). Oral argument would allow the Court to better analyze the complicated legal issues presented in this appeal. See Tex. R. App. P. 39.1 (c). Oral argument would significantly aid the Court in deciding this case. See Tex. R. App. P. 38.1 (e), 39.1 (d). #151626.1 iii
RECORD REFERENCES Clerk's Record: There is one volume of the Clerk's Record. Pages in the Clerk's Record are referred to as "CR." The record reference [CR 230] means page 230 of the Clerk's Record. Exhibits: Exhibits referred to are attached to Appellees' Motions for Summary Judgment and Replies, and Appellant's Responses thereto as they appear in the Clerk's Record. Numerical or alphabetical designations are the same as used in the Motion or Response, or other pleading. For example, "Exh. 3" means Exh. 3 to the Motion or Response or other pleading, and a reference is given to the first page of the Clerk's Record where the exhibit appears. PARTY REFERENCES Appellant Lorrie Jean Smith was the Plaintiff in the Trial Court and is sometimes referred to as "Smith" or "Plaintiff". Appellees were Defendants in the Trial Court and are sometimes referred to collectively as "Defendants." #151626.1 iv
TABLE OF CONTENTS IDENTITY OF PARTIES AND COUNSEL o o o o o o o o o o o o o o o o o o o o o o o o o o o 0 0 o i REQUEST FOR ORAL ARGUMENT o o o o o o o o o o o o o o o o o o o o o o o o o o o o o 0 0 0 0 iii RECORD REFERENCES o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o 0 0 0 iv INDEX OF AUTHORITIES o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o 0 0 0 vii STATEMENT OF THE CASE o o o o o o o o o o o o o o o o o o o o o o o o o o o o o 0 o o o 0 0 0 0 1 ISSUES PRESENTED FOR REVIEW o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o 0 0 o 2 STATEMENT OF FACTS o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o 0 o 2 SUMMARY OF THE ARGUMENT o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o 5 ARGUMENT AND AUTHORITIES o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o 6 ISSUE 1: THE TRIAL COURT IMPROPERLY ENTERED A SUMMARY JUDGMENT DENYING PLAINTIFF'S FORECLOSURE OF PLAINTIFF'S ABSTRACT OF JUDGMENT LIENS AGAINST DEFENDANTS o o o o o o o o o o o o o o o o o o o o o o o o o o 6 PRAYER o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o 12 CERTIFICATE OF SERVICE o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o 13 APPELLANT'S APPENDIX IS BEING FILED SEPARATELY WITH THE FOLLOWING INDEX: #151626o1 v
INDEX OF APPENDIX OF BRIEF OF APPELLANT A. Trial Court's Final Order Granting Defendants' Motions for Summary Judgment and Denying Plaintiff's Motions for Summary Judgment dated December 19, 2011, CR 601 B. Statutes Relied On 1. 13.001 of the Texas Property Code. C. Case Law Relied On 2. Gaona v. Gonzales, 997 S. W.2d 784 (Tex.App. -Austin 1999, no pet.) 3. Johnson v. Darr, 114 Tex. 516, 272 S. W. 1098 (Tex. 1925) 4. Paris Grocer Company v. Burks, 101 Tex. 106, 105S.W. 174(Tex. 1907) 5. Shear Co. v. Currie, 295 F. 841 (5 1 h Cir. 1923) D. Case Documents 6. The Landstar Deed to Shaddock filed on July 16, 2010. 7. A Chart showing the title issues in summary form. #151626.1 vi
TABLE OF AUTHORITIES STATE CASES Page Gaona v. Gonzales, 997 S. W.2d 784 (Tex.App. -Austin 1999, no pet.) 8 Johnson v. Darr, 114 Tex. 516,272 S.W. 1098 (Tex. 1925) 10 Paris Grocer Company v. Burks, 101 Tex. 106, 105 S. W. 174 (Tex. 1907) 8, 9, 11 Shear Co. v. Currie, 295 F.841 (5 1 h Cir.1923) 9, 10, 11 STATUTES 13.001 of the Texas Property Code... 6, 7, 8, 10 #151626.1 vii
STATEMENT OF THE CASE Nature of the Case. By Plaintiff's Original Petition Plaintiff sued Defendants in the 1S2"d District Court in Dallas County to foreclose Plaintiff's judgment liens against properties held by Defendants. CR10-14. Defendants filed general denials. CR 24, 26, 28, 31, 32, 35 and 38. Course of Proceedings. Since the facts were stipulated, the parties proceeded to file Motions and Counter-Motions for Summary Judgment based upon the same facts. CR 49, 185, 324, 374, 381, 521 and 540. In order to avoid multiple hearings involving different parties but the same controlling facts and legal arguments, the Plaintiff and all Defendants entered into a Rule 11 agreement that all parties would be bound by the ruling of the Trial Court in the Motion for Summary Judgment of the Homeowner Defendants and Plaintiff's Counter-Motion for Summary Judgment with respect thereto. CR 535, 590. Trial Coyrt Disposition. The trial Court entered a Final Order Granting Defendants' Motions for Summary Judgment, and denying Plaintiff's Motions for Summary Judgment. CR 601 Plaintiff gave Notice of Appeal on December 2, 2011. CR 598. #161626.1 1
ISSUES PRESENTED FOR REVIEW ISSUE 1: THE TRIAL COURT IMPROPERLY ENTERED A SUMMARY JUDGMENT DENYING PLAINTIFF'S FORECLOSURE OF PLAINTIFF'S ABSTRACT OF JUDGMENT LIENS AGAINST DEFENDANTS. STATEMENT OF FACTS The following Statement of Facts is taken from the section of Appellee Capital Title of Texas, LLC's Motion entitled "Undisputed Factual Background" appearing at CR 185-188: This case involves realproperty in Denton County, Texas -specifically, Lot 35 in Block A ("Lot 35 ") and Lots 4 and 8 in Block M ("Lot 4 and Lot 8") of Pearson Farms, Phase 1-A, an Addition to the City of Frisco, Denton County, Texas ("the Property"). In July of 2008, Capital was engaged to serve as escrow agent and to close two transactions relating to the Property. In the first transaction, Landstar Homes of Dallas, Ltd. ("Landstar"), as seller, sold the Property to Shaddock Builders & Developers, lnc.("shaddock"). as purchaser, for a total contract price of $224,250.00 (the "Landstar/Shaddock Transaction"). In the second transaction, Shaddock, as seller, sold the Property to Basin, Ltd. ("Basin"), as purchaser, for a total contract price of $225,250.00 (the "Shaddock/Basin Transaction"). These transactions were structured as pass-through transactions and were closed simultaneously. #151626.1 2
The Landstar/Shaddock Transaction was funded and closed in the middle of July of 2008. At that time, Shaddock paid to Landstar the total purchase price for the Property in accordance with the closing statements signed bythe parties. However, due to an inadvertent oversight, a deed to the Property from Landstar to Shaddock was not executed or recorded in the Denton County Deed Records at that time. The Shaddock/Basin Transaction was also funded and closed in the middle of July of 2008. At that time, Basin paid to Shaddock the total purchase price for the Property in accordance with the closing statements signed by the parties. Thereafter, Shaddock conveyed the Property to Basin by Special Warranty Deed, which was recorded in the Denton County Deed Records on July 14, 2008. On May 21, 2010, Plaintiff obtained a judgment against Shaddock in the amount of $373,997.69, plus interest, in a case styled Lorrie Jean Smith v. Shaddock Builders & Developers, Inc. a/k/a Southerby Homes, Cause No. 296-01683-2008, pending in the 296'h District Court of Collin County Texas (the "Shaddock Judgment"). On July 14, 2010, in order to correct the conveyance oversight in the Landstar/Shaddock Transaction, Landstar executed a Special Warranty Deed relating to the Property to Shaddock with an effective date in July of 2008. On July 15, 201 0, Plaintiff recorded an abstract of the Shaddock Judgment in the Denton County Deed Records. On July 16, 2010, the Landstar/Shaddock Deed was recorded in the Denton County Deed Records. #161626.1 3
On August 4, 2010, Basin executed a Special Warranty Deed conveying lots 4 and 8 to Sumeer Homes, Inc. ("Sumeer"), which was recorded in the Denton County Deed Records on August 18, 201 0. On September 14, 2010, Basin executed a Special Warranty Deed conveying Lot 35 to Sumeer, which was recorded in the Denton County Deed Records on September 24, 2010. On March 11, 2011, Sumeer executed a Special Warranty Deed conveying lot 8 to the Nails who executed a Deed of Trust relating to Lot 8 to Primelending, their purchase money lender. The Deed of Trust to Primelending as well as the Special Warranty Deed to the Nails were recorded in the Denton County Deed Records on March 14, 2011. On March 15, 2011, Sumeer executed a Special Warranty Deed conveying Lot 4 to the Leutholds who executed a Deed of Trust relating to Lot 4 to Wells Fargo, their purchase money lender. The Special Warranty Deed to the Leutholds as well as the Deed of Trust to Wells Fargo were recorded in the Denton County Deed Records on that same date. Finally, on April 11, 2011, Sumeer executed a Special Warranty Deed conveying Lot 35 to the Rays who executed a Deed of Trust relating to Lot 35 to Colonial, their purchase money lender. These instruments were recorded in the Denton County Deed Records on April 13, 2011. The following paragraph is added from Plaintiff's Response at CR 329-330: When Plaintiff's abstract of judgment lien was filed on July 15, 201 0, in the records of Denton County, Texas, Plaintiff had no knowledge of the unrecorded #161626.1 4
special warranty deed relating to the real property described at lot 35 in Block A ("Lot 35") and Lots 4 and 8 in Block M ("Lot 4 and Lot 8"') of Pearson Farms, Phase 1-A, in addition to the City of Frisco, Denton County, Texas, according to the Plat thereof recorded in Cabinet W, Slide 689, Plat Records, Denton County, Texas from landstar Homes of Dallas, Ltd. to Shaddock Builders & Developers, Inc. executed in July, 2008, and thereafter recorded in the Denton County Deed Records. Nor did Plaintiff have any knowledge on July 15, 2010 of any claim of equitable title by Defendants in the above proceeding. SUMMARY OF THE ARGUMENT Plaintiff obtained a judgment against Shaddock Builders & Developers, Inc. a/k/a/ Southerby Homes ("Shaddock") in the amount of $474,997.69 plus interest in the 296'h District Court of Collin County, Texas, recorded an abstract of that judgment in the Denton County Deed Records on July 15, 2010. Shaddock owned real property in Denton County, Texas at the time that the abstract of judgment was recorded and Plaintiff's judgment lien attached to Shaddock's real property. The Rays, the Leutholds and the Nails (collectively, "Homeowners") and their respective lenders, Colonial, Wells Fargo and Primelending (collectively, "Lenders") are successors in interest to Shaddock with respect to that property. In this suit, Plaintiff has asserted a claim against the Homeowners and the Lenders seeking to foreclose her judgment #151626.1 5
lien against the real property in question. The Homeowners and Lenders have answered the suit denying the claims of Plaintiff. Shaddock was the presumed source of title for the Homeowner and Lender Defendants, but in fact had no title at the time of its conveyance. Landstar owned the real property and never conveyed it to Shaddock. When this was discovered, Landstar conveyed the property to Shaddock on July 16, 2010, the day after Plaintiff filed her judgment lien on July 15, 2010. The Deed is necessary to perfect the Homeowner and Lender Defendants' title. When Plaintiff filed her abstract of judgment, Plaintiff had no knowledge of the fact that Landstar had conveyed the land to Shaddock by an unrecorded Deed, nor of any claim to equitable title by the Homeowner and Lender Defendants. By filing the judgment lien just prior to the filing by Landstar of the deed to Shaddock, Plaintiff came within the protection of 13.001 (a) of the Texas Property Code so that Plaintiff's lien attached to the legal title with priority over the Homeowner and Lender Defendants as soon as the Landstar deed to Shaddock was recorded. ARGUMENT AND AUTHORITIES ISSUE 1: THE TRIAL COURT IMPROPERLY ENTERED A SUMMARY JUDGMENT DENYING PLAINTIFF'S FORECLOSURE OF PLAINTIFF'S ABSTRACT OF JUDGMENT LIENS AGAINST DEFENDANTS The Homeowner and Lender Defendants needed the Special Warranty Deed to perfect their title because their ultimate source of title to the property in question was Shaddock, and no title had ever been conveyed to Shaddock until the Deed from #161626.1 6
Landstar to Shaddock was executed in July, 2010, and recorded on July 16, 2010. When the Landstar-Shaddock Deed was filed on July 16, 2010, the judgment lien of Plaintiff against Shaddock filed on July 15, 2010, immediately attached, giving Plaintiff's lien priority over any interest of the Homeowner and Lender Defendants. The Homeowner and Lender Defendants assert that they held equitable title to the tracts in question which under the common law was not affected by Plaintiff's recorded abstract of judgment. However, the Homeowner and Lender Defendants concede that 13.001 (a) of the Texas Property Code"... in partial derogation of the common law, provides that an unrecorded conveyance of real property is void as to a judgment creditor without notice of it." The Homeowner and Lender Defendants' Brief, pg.8. Texas Property Code Ann. 13.001 (a) provides as follows: "13.001. Validity of Unrecorded Instrument (a) A conveyance of real property or an interest in real property or a mortgage or deed of trust is void as to a creditor or to a subsequent purchaser for a valuable consideration without notice unless the instrument has been acknowledged, sworn to, or proved and filed for record as required by law." (Emphasis added.) The Homeowner and Lender Defendants argue that their equitable title may be asserted as a complete defense to Plaintiff as a judgment lien creditor even though Plaintiff had no notice of the Landstar deed to Shaddock nor of said Defendants' #151626.1 7
claim to equitable title at the time of fixing Plaintiff's lien, citing Gaona v. Gonzales, 997 S.W.2d 784, 786 (Tex. App.- Austin 1999, no pet.). In Gaona, the defendant was not relying for title upon an unrecorded deed filed after the judgment lien. In this case, the Homeowner and Lender Defendants are relying upon an unrecorded deed from Landstar to Shaddock, which appears as Exhibit 6 in Appellant's Appendix. At the time Landstar executed its July 14, 2010 deed and recorded it on July 16, 2010 after Plaintiff's abstract of judgment had been filed against Shaddock on July 15, 2010, the Homeowner and Lender Defendants held only equitable title and needed the deed to perfect legal title. Thus, Plaintiff's lien attached to the legal title under 13.001 (a) because ~laintiff had no notice of either the Homeowner and Lender Defendants' equitable title nor of Landstar's legal title prior to recording Plaintiff's abstract of judgment. In addition to the line of Texas cases cited by Defendant involving abstract of judgment liens, there is another line of cases involving attachment liens which reached an opposite result. In the case of Paris Grocer Company v. Burks, 101 Tex. 106, 105 S.W. 174 (Tex. 1907). the Supreme Court of Texas stated as follows, at page 175: "That the lien of the attachment must prevail over the unrecorded deed, unless the creditor, prior to the levy, had notice of such deed, is a proposition put beyond all question by the decisions of this court. The right of the creditor is purely statutory, and requires nothing but the concurrence of the conditions #151626.1 8
required by the statute to make it complete. The statute by its terms makes void the unrecorded deed as against 'all creditors' but the courts hold this to mean all creditors who have acquired liens without notice of the deed. When these elements exist, the right of the creditor is perfect in law, and no considerations of equity or questions of estoppel enter into the case. It is wholly.immaterial whether the creditor has ever examined the records as to the title of his debtor or not, since a deed of the property executed by the latter is, by the statute, made void as against the lien of the former, unless he is affected with notice." Under the rationale of the holding in Paris Grocer, Plaintiff's judgment lien, if it had been an attachment lien, would have taken priority over the Homeowner and Lender Defendants because the Landstar deed to Shaddock was not filed of record until after Plaintiff's judgment lien. The issue of which line of cases to follow was before the Fifth Circuit Court of Appeals in Shear Co. v. Currie, 195 F. 841 (5 1 h Cir. 1923). The Fifth Circuit stated that the two lines of cases might be construed as announcing different rules in cases of attaching creditors versus judgment creditors. However, the Court pointed out that there was no reason for different rules since an attachment creates only an inchoate lien which ripens into a perfect lien only upon rendition of judgment. #151626.1 9
The Fifth Circuit concluded that it was "inconceivable" that a creditor who reduces his claim to judgment, and his attachment lien to a judgment lien, thereby loses the superiority he obtained through the levy of his attachment. Therefore, the Fifth Circuit proceeded to reconcile the two lines of cases by holding that when there is an unrecorded conveyance, the language of the recording statute 13.001 (a) governs as to a creditor holding either an attachment lien or a judgment lien so that the creditor has priority over the grantee in the unrecorded deed. Plaintiff comes within the scope of the rule announced in Shear and is entitled to priority over the Homeowner and Lender Defendants. Obviously, the Homeowner and Lender Defendants needed the conveyance. of title, otherwise the record is devoid of any conveyance into their chain of title, and all transactions after the original conveyance by Shaddock in July, 2008 are a nullity. This entire area of law and the leading cases were reviewed in the leading Texas Supreme Court case of Johnson v. Darr, 114 Tex. 516, 272 S.W. 1098 (Tex. 1925) cited by the Homeowner and Lender Defendants where the Court held an equitable title was the superior title where no unrecorded deed was involved. A trust had conveyed legal title to a grantee with an unrecorded agreement by the grantee that he would hold title as trustee. Creditors levied an attachment lien against the undisclosed trustee but lost to the trust because the recording statute (now 13.001 (a)) only protected the creditors against unrecorded conveyances, not #151626.1 10
unrecorded trust agreements. Therefore, the Darr case is not a precedent for this case. However, the Darr opinion: approves the Fifth Circuit's opinion and rationale in Shear, supra, and quotes from it extensively at 11 00. approves the holding in Paris Grocer, supra, that "the lien of an attaching creditor without notice is superior to an unrecorded deed." /d. at 1101. When all is said and done, the Homeowner and Lender Defendants acquired the perfect title they sought by means of the deed appearing as Exhibit 6 in Appellant's Appendix, only subject to Plaintiff's judgment lien. However, the Homeowner and Lender Defendants should have ample recourse against Defendant Sumeer and others for any losses under warranties and title policies. Defendants have also argued that Plaintiff Lorrie Smith is bound by the doctrine of after acquired title whereby Shaddock, having conveyed no title to Defendants in 2008, is estopped to assert title under the 2010 subsequent special warranty deed from Landstar to Shaddock, so that legal title passed eo instante to Basin when the Landstar deed was signed on July 14, 2010. However, the doctrine does not apply to Plaintiff in this case for two very good reasons: First, Plaintiff is not estopped, only Shaddock is estopped because Shaddock previously conveyed the property by special warranty deed #151626.1 1 1
to Basin at a time when Shaddock had no title, so that Shaddock cannot claim title under the special warranty deed from Landstar to Shaddock. The doctrine only applies when there is a deed with a general warranty, but in this case Shaddock conveyed to Basin with a special warranty deed. Defendants cite the case of Houston First American Savings. et al v. Vann Musick and C.C. Divine. et al, 650 S.W.2d 764 (Tex.1983) but the opinion states that Divine was estopped under his general warranty deed dated July 27, 1963. Therefore, Defendants' after acquired title arguments fail. PRAYER The Trial Court's summary judgment was clearly erroneous. Accordingly, Appellant prays that the judgment be reversed and rendered that Plaintiff's abstract of judgment liens be foreclosed, and that Appellant have general relief. Dated~~' 2012 ' ' Respectfully submitted, 31 09 Carlisle St., Suite 200 Dallas, Texas 75204 (214) 969-9099 - Telephone (214) 953-0133 - Fax ATTORNEYS FOR APPELLANT LORRIE JEAN SMITH #161626.1 12
CERTIFICATE OF SERVICE This certifies that the undersigned served this Brief of Appellant on counsel of record for Appellees via United States Mail, Certified - Return Receipt Requested, on ~~,2012 Johnathan E. Collins Locke, Lord, Bissell & Liddell, LLP 2200 Ross Avenue, Suite 2200 Dallas, TX 75201 Arthur F. Selander Quilling, Selander, Lownds, Winslett & Moser P.C. 2001 Bryan St., #1800 Dallas, TX 75201 Ron B. Johnson 711 Ferris Avenue P. 0. Box 962 Waxahachie, TX 751 68 Craig L. Dowis Thompson, Coe, Cousins, Irons, LLP 700 North Pearl Street, 25 1 h Floor Dallas, TX 75201 W. D. Masterson #151626.1 13