Affirmed and Opinion filed January 29, 2015.




                                    In The

                    Fourteenth Court of Appeals

                             NO. 14-13-01133-CV

      MARHABA PARTNERS LIMITED PARTNERSHIP, Appellant
                                      V.
                   KINDRON HOLDINGS, LLC, Appellee

                   On Appeal from the 190th District Court
                           Harris County, Texas
                     Trial Court Cause No. 2012-52650

                               OPINION

      Marhaba Partners Limited Partnership appeals from the trial court’s orders
granting summary judgment in favor of Kindron Holdings, LLC on Kindron’s
declaratory judgment claim, and on Marhaba’s counterclaims for declaratory
judgment, usury, breach of contract, conversion, and common law unfair debt
collection. We affirm.
                                        BACKGROUND

       Marhaba planned to develop a large tract of land in Harris County in 2007.
Marhaba agreed with Harris County Municipal Utility District No. 402 to construct
water and sewer lines, waste water treatment facilities, streets, and electrical
systems in connection with the development. In return, the District agreed that
Marhaba would receive proceeds from a District bond sale. We refer to the bond
proceeds as the “MUD 402 Receivables” or the “Receivables.”

       Marhaba obtained a loan from City Bank to finance development in 2007.
Marhaba executed a document entitled “Assignment of Right to Reimbursement,”
which secured the loan with the MUD 402 Receivables. City Bank also secured
the loan with a lien on the property.1

       When Marhaba and City Bank refinanced the loan in 2009, Marhaba
executed three promissory notes evidencing a total debt of $9,584,357.93. The
parties also executed a document entitled “Assignment of Bond Proceeds,” which
affirmed City Bank’s security interest in the MUD 402 Receivables. Marhaba and
City Bank additionally executed a deed of trust, which secured the loan with the
property, and a document entitled “Credit Agreement,” which set out the
refinancing’s terms and conditions.2

       Marhaba defaulted on its City Bank loan. On May 3, 2011, City Bank sold
the property at a foreclosure sale and purchased the property with a credit bid of
$7,140,000. According to City Bank’s records, the foreclosure sale proceeds did
not extinguish Marhaba’s debt.

       1
         Additionally, City Bank secured the loan with a lien on Marhaba’s 25 percent interest in
a limited partnership. Marhaba does not contest this lien or the sale of this collateral on appeal.
       2
         City Bank also secured the refinanced loan with a lien on Marhaba’s 25 percent interest
in a limited partnership. Marhaba does not contest this lien or the sale of this collateral on
appeal.

                                                2
       City Bank sold its interest in the loan to Kindron on December 29, 2011, and
assigned to Kindron the three promissory notes executed at the refinancing. City
Bank also assigned to Kindron all related financing agreements, including the
Assignment of Right to Reimbursement, the Assignment of Bond Proceeds, and
the Credit Agreement.           According to City Bank’s records, Marhaba owed
$1,341,386.71 on the loan when the assignment occurred.

       Kindron notified Marhaba on April 4, 2012, of its intent to conduct a sale of
the MUD 402 Receivables pursuant to Texas Business and Commerce Code
section 9.610.3 The notice stated that Kindron would apply proceeds from the sale
to a remaining indebtedness of $2,056,846.19.

       Marhaba disputed Kindron’s right to sell the MUD 402 Receivables. In a
letter dated April 21, 2012, Marhaba stated: “[P]lease be advised that the
[c]ollateral described in this notice was a contingent assignment pledged only to
secure the payment of certain indebtedness. That indebtedness has now been fully
satisfied, and no deficiency has been established. Therefore[,] no assignment of
the described interest has occurred, and the [c]ollateral that [Kindron] purports to
sell has no value.”

       Kindron sold the MUD 402 Receivables on April 23, 2012, and purchased
the Receivables with a credit bid of $300,000.4 Kindron filed suit against Marhaba
on September 11, 2012; Kindron requested a declaration that it was entitled to
foreclose on the MUD 402 Receivables and that it is the current owner and holder


       3
         Kindron also notified Marhaba of its intent to sell Marhaba’s 25 percent interest in a
limited partnership. Kindron purportedly sold and purchased the partnership interest on April
23, 2012. Marhaba does not contest Kindron’s sale or purchase of the partnership interest on
appeal.
       4
         The record reflects that Kindron paid $300,000 for all collateral purchased at the sale,
including the MUD 402 Receivables and Marhaba’s 25 percent interest in a limited partnership.

                                               3
of the Receivables.5

        Marhaba denied Kindron’s allegations and filed counterclaims for
declaratory judgment, usury, breach of contract, conversion, and common law
unfair debt collection. Marhaba sought a declaration that Kindron was not entitled
to foreclose on the MUD 402 Receivables, and that Marhaba is the current owner
and holder of the Receivables. Marhaba predicated its claims for usury, breach of
contract, conversion, and common law unfair debt collection on an assertion that
Kindron had no right to foreclose on the MUD 402 Receivables.

        Kindron filed traditional motions for summary judgment on its declaratory
judgment claim and on Marhaba’s counterclaims.                        Marhaba filed exhibits in
response through which Marhaba attempted to establish the property’s fair market
value and the value of the MUD 402 Receivables. The trial court struck the
exhibits upon Kindron’s motion, and granted summary judgment in Kindron’s
favor on (1) Kindron’s claim for declaratory judgment; and (2) Marhaba’s
counterclaims. The trial court signed a final judgment on November 25, 2013, in
which it declared that Kindron (1) obtained a valid and enforceable security
interest in the MUD 402 Receivables; (2) was entitled to foreclose on the
Receivables; and (3) is the current owner and holder of the Receivables. The trial
court ordered that Marhaba take nothing on its counterclaims. Marhaba timely
appealed.

                                              ANALYSIS

        Marhaba raises two issues on appeal contending that the trial court erred in

        5
          Kindron stated at oral argument that it requested a declaratory judgment because the
District refused to acknowledge Kindron’s purchase of the MUD 402 Receivables. The District
is not a party to this case; therefore, its rights are not prejudiced by the trial court’s declaration in
favor of Kindron. See Tex. Civ. Prac. & Rem. Code Ann. § 37.006 (Vernon 2008) (“A
declaration does not prejudice the rights of a person not a party to the proceeding.”).

                                                   4
granting summary judgment in Kindron’s favor. Marhaba also contends that the
trial court erroneously struck Marhaba’s summary judgment evidence. We address
Marhaba’s issues in turn. We discuss the trial court’s ruling to strike evidence
related to the property’s fair market value as part of issue one, and we discuss the
trial court’s ruling to strike evidence related to the value of the MUD 402
Receivables as part of issue two.

I.    Standard of Review

      Summary judgment is proper under Rule 166a(c) when the movant
establishes that there is no genuine issue of material fact and that it is entitled to
judgment as a matter of law. Tex. R. Civ. P. 166a(c); Browning v. Prostok, 165
S.W.3d 336, 344 (Tex. 2005). A plaintiff who moves for traditional summary
judgment bears the burden of conclusively proving all elements of its claim as a
matter of law. See Tex. R. Civ. P. 166a(c); MMP, Ltd. v. Jones, 710 S.W.2d 59, 60
(Tex. 1986). A defendant who moves for summary judgment has the burden of
conclusively negating at least one element of the plaintiff’s cause of action or
conclusively establishing an affirmative defense.        See Frost Nat’l Bank v.
Fernandez, 315 S.W.3d 494, 508 (Tex. 2010).              A matter is conclusively
established if reasonable people could not differ as to the conclusion to be drawn
from the evidence. See City of Keller v. Wilson, 168 S.W.3d 802, 816 (Tex. 2005).

      Once the movant produces evidence establishing its entitlement to summary
judgment, the burden shifts to the nonmovant to present evidence raising a genuine
issue of material fact. Walker v. Harris, 924 S.W.2d 375, 377 (Tex. 1996). The
evidence raises a genuine issue of fact if reasonable and fair-minded jurors could
differ in their conclusions in light of all of the summary judgment evidence.
Goodyear Tire & Rubber Co. v. Mayes, 236 S.W.3d 754, 755 (Tex. 2007) (per
curiam). To determine if the nonmovant has raised a genuine issue of fact, we

                                          5
review the evidence in the light most favorable to the nonmovant by crediting
favorable evidence if reasonable jurors could do so and disregarding contrary
evidence 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. Sw. Elec.
Power Co. v. Grant, 73 S.W.3d 211, 215 (Tex. 2002).

      We review the trial court’s grant of summary judgment de novo. Valence
Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). Where a summary
judgment fails to specify the grounds upon which the trial court relied for its
ruling, we must affirm the judgment if any of the grounds advanced is meritorious.
W. Invs., Inc. v. Urena, 162 S.W.3d 547, 550 (Tex. 2005). “In considering grounds
for reversal, we are limited to those grounds expressly set forth in the summary-
judgment motions, answers, or other responses, and may not rely on the appellate
briefs or summary-judgment evidence.” Fleming v. Curry, 412 S.W.3d 723, 731
(Tex. App.—Houston [14th Dist.] 2013, pet. denied); see Tex. R. Civ. P. 199a(c);
McConnell v. Southside Indep. Sch. Dist., 858 S.W.2d 337, 341 (Tex. 1993). We
review a trial court’s decision to admit or exclude summary judgment evidence for
an abuse of discretion. Pipkin v. Kroger Tex., L.P., 383 S.W.3d 655, 667 (Tex.
App.—Houston [14th Dist.] 2012, pet. denied).

II.   Kindron’s Declaratory Judgment Claim

      Marhaba contends that the trial court erred in granting summary judgment in
Kindron’s favor on Kindron’s declaratory judgment claim because a fact issue
exists regarding the property’s fair market value at the time of the foreclosure sale.
Marhaba argues that the property’s fair market value is relevant to Kindron’s claim
because Kindron seeks to recover a deficiency within the meaning of Texas
Property Code section 51.003. Marhaba further asserts that it filed summary

                                          6
judgment evidence relevant to the property’s fair market value, and that the trial
court erred by striking this evidence. Kindron contends that section 51.003 does
not apply to its claim and the property’s fair market value is irrelevant.

      A.     Applicability of Texas Property Code Section 51.003

      Section 51.003 provides borrowers and guarantors with a mechanism to
adjust foreclosure sales prices upward. See Tex. Prop. Code § 51.003 (Vernon
2014); see generally Moayedi v. Interstate 35/Chisam Rd., L.P., 438 S.W.3d 1, 5
(Tex. 2014). The legislature created this mechanism in recognition that post-
foreclosure deficiencies artificially can be inflated because “the nonjudicial
foreclosure sale often does not directly represent what a buyer might pay in the
market.” Moayedi, 438 S.W.3d at 5. When the lender is the sole bidder, it has
little incentive to bid high. See id.

      Section 51.003 states, in pertinent part:

      (a) If the price at which real property is sold at a foreclosure sale
      under Section 51.002 is less than the unpaid balance of the
      indebtedness secured by the real property, resulting in a deficiency,
      any action brought to recover the deficiency must be brought within
      two years of the foreclosure sale and is governed by this section.

      (b) Any person against whom such a recovery is sought by motion
      may request that the court in which the action is pending determine
      the fair market value of the real property as of the date of the
      foreclosure sale.

      (c) If the court determines that the fair market value is greater than the
      sale price of the real property at the foreclosure sale, the persons
      against whom recovery of the deficiency is sought are entitled to an
      offset against the deficiency in the amount by which the fair market
      value, less the amount of any claim, indebtedness, or obligation of any
      kind that is secured by a lien or encumbrance on the real property that



                                           7
       was not extinguished by the foreclosure, exceeds the sale price.6

Section 51.003 applies to “any action brought to recover the deficiency.” Tex.
Prop. Code § 51.003(a).

       Marhaba argues that section 51.003(a) applies here because Kindron’s
declaratory judgment is an “action brought to recover the deficiency.” Marhaba
argues that a deficiency resulted from the property foreclosure sale because the
sale proceeds did not fully pay the loan balance. Marhaba further asserts that,
because a deficiency resulted, section 51.003 applies to Kindron’s subsequent suit
to collect the deficiency via the declaratory judgment action.

       Kindron counters that its suit falls outside of section 51.003’s reach because
Kindron sought only a declaration regarding its rights to the MUD 402
Receivables. See Tex. Civ. Prac. & Rem. Code Ann. § 37.001-.011 (Vernon
2008).     Kindron asserts that the trial court’s judgment merely confirms what
already has been accomplished — Kindron’s non-judicial foreclosure and purchase

       6
          The supreme court provided an example of how the statute works when a single piece of
real estate collateral is involved:
       As an example, imagine a debtor owes $100,000 secured by a piece of property.
       At the foreclosure sale the property is sold for $60,000. The resulting debt is the
       amount owed minus the proceeds from the foreclosure sale. That amount is
       affected by the costs associated with foreclosure, but for simplicity’s sake, we will
       ignore those variables. Here, the resulting deficiency would be $100,000 minus
       $60,000, or $40,000.
       If section 51.003 applies, the court can hear evidence regarding what the fair
       market value of the property was at the time of the foreclosure sale. If the fair
       market value exceeded the foreclosure sale price, the court shall offset the
       deficiency by that difference. Using our example, let us assume that the fair
       market value of the property at the time of foreclosure is $75,000. Because the
       fair market value, $75,000, exceeds the foreclosure sale price, $60,000, the
       deficiency judgment can be reduced by the difference between those amounts,
       that is, by $15,000. The resulting amount owed is $40,000 (the deficiency) minus
       $15,000, or $25,000.
Moayedi, 438 S.W.3d at 5-6.

                                                8
of the MUD 402 Receivables. Kindron asserts that it does not seek to impose
personal liability on Marhaba for any alleged deficiency on the loan; therefore,
according to Kindron, its action falls outside section 51.003.

      As a starting point, we note that Marhaba did not attempt to enjoin the sale
of the MUD 402 Receivables before the April 23, 2012 foreclosure sale.            If
Marhaba had attempted to do so, it could not have enjoined the sale pursuant to
section 51.003 because the non-judicial sale was not an “action” within the
meaning of section 51.003.

      Section 51.003 provides an affirmative defense to offset any deficiency
owed after a real estate foreclosure. Moayedi, 438 S.W.3d at 2, 6. It presupposes a
court action in which the affirmative defense may be asserted. See Tex. Prop.
Code. Ann, § 51.003(b) (“Any person . . . may request that the court in which the
action is pending determine the fair market value of the real property.”). Kindron’s
April 23, 2012 sale did not require a court action; therefore, Marhaba could not
have asserted the section 51.003 affirmative defense to enjoin the sale.        See
Moayedi, 438 S.W.3d at 2, 6; see also Branch Banking & Trust Co. v. TCI Luna
Ventures, LLC, No. 05-12-00653-CV, 2013 WL 1456651, at *5 (Tex. App.—
Dallas Apr. 9, 2013, no pet.) (op. on reh’g) (Section 51.003 does not provide a
cause of action to enjoin a non-judicial real estate foreclosure sale.).

      Marhaba asserted section 51.003 as an affirmative defense in Kindron’s
declaratory judgment action to confirm the April 23, 2012 foreclosure sale of the
Receivables. See Tex. Prop. Code Ann. § 51.003(a). Kindron argues that, even if
section 51.003 could apply to Marhaba’s indirect challenge to the non-judicial
foreclosure sale of the Receivables, the sale — and, therefore, the subsequent legal
action to confirm the sale itself — was not an “action brought to recover the
deficiency.” Instead, Kindron contends the sale was an action to foreclose on

                                           9
additional collateral.

       The Property Code does not define the term “deficiency.” Section 51.003
does not explicitly address how courts should address deficiencies when multiple
sources of collateral secure the same loan. The statute does not state whether the
existence of a “deficiency” within the meaning of section 51.003 should be
determined after each foreclosure sale or after all sales. Additionally, the statute
does not state whether section 51.003 applies to situations involving mixed
collateral encompassing real estate and personal property.7

       When a loan is secured by a single piece of real estate collateral, a
deficiency judgment will impose personal liability upon the debtor for the unpaid
amount of a debt after the foreclosure sale. See, e.g., Moore v. Bank Midwest,
N.A., 39 S.W.3d 395, 403 (Tex. App.—Houston [1st Dist.] 2001, pet. denied)
(debtor personally liable for deficiency remaining after the foreclosure sale of a
single piece of real estate collateral). The deficiency judgment is based on “the
amount of the note, interest and attorney’s fees, less the amount received at the
trustee sale and other legitimate credits.”           Moayedi, 438 S.W.3d at 4 (citing
Maupin v. Chaney, 139 Tex. 426, 163 S.W.2d 380 (1942)). Additionally, a lender
in this circumstance must obtain a judgment to collect any deficiency that remains
after the foreclosure sale; there is no mechanism available for the lender to collect
the deficiency through non-judicial means. See e.g., Moore, 39 S.W.3d at 403.
The lender files its deficiency judgment action in court, and the debtor may assert
       7
          In cases involving collateralization by real estate and personal property, a lender can
choose to apply personal property foreclosure rules to personal property collateral and real
property foreclosure rules to real property collateral. See Tex. Bus. & Com. Code Ann. §
9.604(a) (Vernon 2011); see Van Brunt v. BancTexas Quorum, N.A., 804 S.W.2d 117, 127 (Tex.
App.—Dallas 1990, no writ) (en banc) (op. on reh’g) (applying the prior version of Texas
Business and Commerce Code section 9.604(a) and allowing a lender to seek a deficiency
judgment after first foreclosing on personal property and then foreclosing on real property
collateral).

                                               10
the section 51.003 affirmative defense to reduce the amount of the deficiency by an
offset. See Tex. Prop. Code Ann. § 51.003; Moayedi, 438 S.W.3d at 3.

      In cases involving multiple sources of collateral, personal liability may not
be at issue; the lender may be able to collect through a series of non-judicial
foreclosure sales. See Branch Banking & Trust Co., 2013 WL 1456651, at *5
(loan secured by 12 properties; section 51.003 could not be asserted to enjoin the
sixth non-judicial foreclosure sale based on the argument that the lender should
have credited the fair market values of the first five foreclosed properties before
proceeding with the sixth sale); Comiskey v. FH Partners, LLC, 373 S.W.3d 620,
643 (Tex. App.—Houston [14th Dist.] 2012, pet. denied) (loan secured by two
properties; section 51.003 did not require lender to credit the fair market value of
the first foreclosed property before foreclosing on the second property, which, at
the time of the second foreclosure sale, was owned by persons who were not
debtors on the loan). In cases where multiple pieces of collateral are foreclosed
upon in a series of non-judicial proceedings, the foreclosure sale price for each
piece of collateral — not the collateral’s fair market value — is applied to the loan
balance after each sale. See Branch Banking & Trust Co., 2013 WL 1456651, at
*5; Comiskey, 373 S.W.3d at 643. Moreover, section 51.003 does not apply to
prevent the sales or to require the lender to offset the debt in the manner stated in
section 51.003 before proceeding with additional sales. See Branch Banking &
Trust Co., 2013 WL 1456651, at *5; Comiskey, 373 S.W.3d at 643.

      The inapplicability of the fair market value offset mechanism in cases
involving serial foreclosure on multiple sources of collateral suggests that a
“deficiency” under section 51.003 should be calculated (1) after all collateral has
been sold; or (2) when the lender seeks to impose personal liability against the
debtor through judicial action.    See Branch Banking & Trust Co., 2013 WL

                                         11
1456651, at *5; Comiskey, 373 S.W.3d at 643; see also Van Brunt v. BancTexas
Quorum, N.A., 804 S.W.2d 117, 131 (Tex. App.—Dallas 1990, no writ) (en banc)
(op. on reh’g) (Baker, J., dissenting) (“Foreclosing on [additional] real property is
not the seeking of a deficiency.”).

      To support its contention that a “deficiency” under section 51.003 always
should be calculated immediately after a real property foreclosure sale, Marhaba
relies upon Texas cases involving only a single piece of real estate collateral. See
Vill. Place, Ltd. v. VP Shopping, LLC, 404 S.W.3d 115, 131 (Tex. App.—Houston
[1st Dist.] 2013, no pet.) (rejecting lender’s artful pleading and determining that an
action to impose personal liability on a debtor following the foreclosure sale of a
single piece of real estate collateral was an action brought to recover a deficiency
within the meaning of section 51.003); Martin v. PlainsCapital Bank, 402 S.W.3d
805, 811 (Tex. App.—Dallas 2013, pet. granted) (determining that section 51.003
applied to a deficiency judgment action following the foreclosure sale of a single
piece of real estate collateral even though the lender sought to calculate the
deficiency based on a post-foreclosure resale price, rather than the foreclosure sale
price).

      Marhaba misplaces its reliance on these cases because the debt at issue here
is secured by multiple pieces of mixed collateral that were foreclosed upon in a
series of non-judicial proceedings. Additionally, Kindron does not seek to impose
personal liability on Marhaba; it seeks to confirm the non-judicial foreclosure sale
of the MUD 402 Receivables.

      We conclude that Kindron’s declaratory judgment action to confirm the non-
judicial foreclosure sale of the MUD 402 Receivables, which came after the non-
judicial foreclosure sale of the property, is not an “action brought to recover the
deficiency” within the meaning of section 51.003.

                                         12
       B.      Marhaba’s Summary Judgment                        Evidence       Regarding       the
               Property’s Fair Market Value

       Marhaba filed summary judgment evidence regarding the property’s fair
market value at the time of its foreclosure sale. The trial court struck this evidence
without stating its reasons.8 We review a trial court’s decision to admit or exclude
summary judgment evidence for an abuse of discretion. Pipkin, 383 S.W.3d at
667. A trial court abuses its discretion when it acts without reference to any
guiding rules or principles, or if it acts arbitrarily or unreasonably. Downer v.
Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985). “Evidence
which is not relevant is inadmissible.” Tex. R. Evid. 402.

       Marhaba argues that evidence of the property’s fair market value is relevant
because section 51.003 applies to Kindron’s claim.                   Having held that section
51.003 does not apply to Kindron’s claim, we conclude that the trial court did not
abuse its discretion by excluding evidence of the property’s fair market value.9

       We conclude that the trial court did not err in granting summary judgment in
Kindron’s favor on its claim for declaratory judgment. We overrule Marhaba’s
first issue.



       8
          Marhaba argues that Kindron waived its evidentiary objections by obtaining a ruling on
its objections one month after the hearing. The record shows that the trial court ruled on
Kindron’s objections after the hearing on the same day that it signed its first summary judgment
order. We determine that Kindron did not waive its evidentiary objections. See Dolcefino v.
Randolph, 19 S.W.3d 906, 926 (Tex. App.—Houston [14th Dist.] 2000, pet. denied) (When a
trial court takes a motion for summary judgment under advisement, a party does not waive its
evidentiary objections if the trial court also takes the evidentiary objections under advisement
and rules on the objections at, before, or very near the time the trial court rules on the motion for
summary judgment).
       9
          Marhaba also argues that evidence of the property’s fair market value is relevant to its
counterclaims because section 51.003 applies to those claims; we likewise reject the argument
that section 51.003 applies to those claims.

                                                 13
II.   Marhaba’s Counterclaims

      Marhaba argues in its second issue that the trial court erred in granting
summary judgment in Kindron’s favor on Marhaba’s counterclaims for declaratory
judgment, usury, breach of contract, conversion, and common law unfair debt
collection. It argues that Kindron was not entitled to summary judgment as a
matter of law because (1) section 51.003 applies to Marhaba’s counterclaims; (2)
Marhaba’s contractual release of its usury claim is invalid; and (3) the MUD 402
Receivables were not collateral for the loan.

      We first consider whether section 51.003 applies to Marhaba’s
counterclaims.      We next consider whether the MUD 402 Receivables were
collateral for the loan. In discussing this issue, we also consider whether the trial
court erred in striking evidence related to the value of the MUD 402 Receivables.
Lastly, we turn to Marhaba’s argument that the contractual release of its usury
claim is invalid.

      A.     Section 51.003 Does Not Apply to Marhaba’s Counterclaims

      Marhaba’s counterclaims are based on the premise that Kindron was not
entitled to foreclose on the MUD 402 Receivables because section 51.003 required
Kindron to credit the property’s fair market value before foreclosing on the
Receivables. Marhaba asserts that section 51.003 applies to its counterclaims for
the same reason that it applies to Kindron’s declaratory judgment action.

      We have determined that section 51.003 does not apply to Kindron’s
declaratory judgment action, and that section 51.003 did not require Kindron to
credit the property’s fair market value before foreclosing on the MUD 402
Receivables. Therefore, we also reject Marhaba’s argument that section 51.003
applies to its counterclaims.


                                         14
       B.      The MUD 402 Receivables Secured the Loan

       Marhaba argues that an ambiguity exists regarding whether (1) the MUD
402 Receivables secured the loan; or (2) Marhaba and City Bank merely intended
to create “a ‘direct pay’ mechanism to apply the MUD 402 Receivables (if
necessary), as they were received by Marhaba, to pay down any unpaid principal
and interest on [the loan].”          Marhaba asserts that summary judgment on its
counterclaims is improper if the MUD 402 Receivables did not secure the loan.10

       Kindron tacitly concedes that summary judgment was improper if the
Receivables did not secure the loan. Kindron argues instead that the MUD 402
Receivables secured the loan as conclusively established in the summary judgment
record.11

       10
           Marhaba’s interpretation of the MUD 402 Receivables has evolved over the course of
this dispute. In its letter dated April 21, 2012, contesting Kindron’s right to sell the MUD 402
Receivables, Marhaba asserted: “[P]lease be advised that the [c]ollateral described in this notice
was a contingent assignment pledged only to secure the payment of certain indebtedness. That
indebtedness has now been fully satisfied, and no deficiency has been established. Therefore[,]
no assignment of the described interest has occurred, and the [c]ollateral that [Kindron] purports
to sell has no value.”
       11
           It is undisputed on appeal that the MUD 402 Receivables are personal property rather
than real property. We assume, for purposes of this review only, that this form of personal
property can be sold or assigned as collateral to secure a debt. We make this assumption because
the parties have not addressed whether a lien can attach to the right to receive municipal bond
proceeds, or whether such proceeds can be sold. See San Jacinto River Auth. v. Duke, 783
S.W.2d 209, 209-10 (Tex. 1990) (a court of appeals may not reverse summary judgment on
grounds neither raised in opposition to the motion at the trial level, nor presented to the court of
appeals by brief or argument). There is room for discussion about whether a developer may sell
or assign as security the right to receive municipal bond proceeds. Compare Cameron Cnty. Sav.
Ass’n v. Cornett Constr. Co., 712 S.W.2d 580, 583 (Tex. App.—Corpus Christi 1986, writ ref’d
n.r.e.) (“At the outset, it is important to properly characterize the funds involved; the funds are
proceeds from a municipal utility district bond sale earmarked for paying construction
improvements. Regardless of what they are called, the purpose of the funds was to pay
construction costs, and not as assignable assets to secure other debts.”) with S. Sur. Co. of New
York v. First State Bank of Marquez, 54 S.W.2d 888, 891 (Tex. Civ. App.—Waco 1932, writ
ref’d) (allowing bank to perfect materialmen’s lien on state highway department funds after a
subcontractor assigned his right to receive the funds to the bank to secure a loan); see also
J.W.D., Inc. v. Fed. Ins. Co., 806 S.W.2d 327, 331 (Tex. App.—Austin 1991, no writ) (applying
                                                15
       The loan documents recite Marhaba’s and City Bank’s intent that the
Receivables would serve as security for the loan. The 2007 Assignment of Right
to Reimbursement states: “[Marhaba] hereby grants to [City Bank] a security
interest in [the] agreement with the District and all its proceeds to secure the [loan].
. . . All sums owing for reimbursement from the District shall be paid to [City
Bank], to be applied against the [loan].” The 2009 Assignment of Bond Proceeds
states: “Except as expressly modified and superceded [sic] by this Agreement, the
Assignment of Right to Reimbursement . . . is ratified and confirmed and continues
in full force and effect.” The Assignment of Bond Proceeds states: “Marhaba will
prepare, execute, and forward all such additional documents and other instruments
as may reasonably be required in order to have the [MUD 402 Receivables] paid
directly to City Bank and will execute and deliver all such additional assignments
and instruments as might reasonably be required or necessary to vest title to the
[MUD 402 Receivables] in City Bank, and so that the same will be paid directly to
City Bank.” The Assignment of Bond Proceeds makes clear that the assignment
serves only as collateral for the loan. It states: “Marhaba wishes to provide for the
repayment of [the loan] by assigning to City Bank a portion of Marhaba’s rights to
monies reimbursed to it by the District.” The 2009 Credit Agreement states the
order in which Marhaba’s debts are to be paid by the Receivables.

       Marhaba contends that the MUD 402 Receivables are not security for the
loan because they are a “direct pay” mechanism.           The import of characterizing the
MUD 402 Receivables as a “direct pay” mechanism is not clear. Neither party has
identified dispositive law establishing the correct characterization of the MUD 402
Receivables in this context, and this court has identified no such law through its

Southern Surety and holding, in a McGregor Act case, that “the assignee of a laborer’s claim for
wages is not prohibited from filing and pursuing a claim against a payment bond merely because
the assignee did not personally furnish the labor or materials.”).

                                              16
own research. We do not believe that characterizing the MUD 402 Receivables as
a “direct pay” mechanism is incompatible with characterizing the MUD 402
Receivables as security for the loan.

      In addressing how the MUD 402 Receivables should be characterized, we
look to case law considering the distinction between absolute and collateral
assignments.

      An “absolute” assignment occurs when the assignor “loses all control over
the property assigned and can do nothing to defeat the rights of the assignee.”
Coffey v. Singer Asset Fin. Co., 223 S.W.3d 559, 565 (Tex. App.—Dallas 2007, no
pet.) (determining that a transaction was not an absolute assignment but was
instead a pledge of future payments due under a structured personal injury
settlement); see also Univ. of Tex. Med. Branch at Galveston v. Allan, 777 S.W.2d
450, 453 (Tex. App.—Houston [14th Dist.] 1989, no writ) (determining that a
patient absolutely assigned her insurance benefits to a hospital).

      In contrast, a “pledge” of property as collateral to secure repayment of a loan
“is a transaction by which the [property] is delivered by the debtor and accepted by
the creditor, but legal title does not pass to the secured party.” Coffey, 223 S.W.3d
at 566 (citing McAllen State Bank v. Tex. Bank & Trust Co., 433 S.W.2d 167, 171
(Tex. 1968)).

      When analyzing the MUD 402 Receivables in this light, we conclude on this
record that Marhaba and City Bank intended Marhaba to assign the Receivables as
collateral to secure the loan; Marhaba and City Bank did not intend that an
absolute assignment would occur under which Marhaba (1) would lose all control
over the MUD 402 Receivables; and (2) could do nothing to defeat City Bank’s
rights. See Coffey, 223 S.W.3d at 565; Univ. of Tex. Med. Branch at Galveston,
777 S.W.2d at 453. Marhaba’s characterization of the assignment as a “direct pay”
                                          17
mechanism tacitly recognizes that the assignment was not absolute in this context.
Marhaba did not lose all control over the Receivables such that it could do nothing
to defeat the rights of City Bank if, as Marhaba asserts, the Receivables revert back
to Marhaba once the loan is fully paid.

      The Assignment of Right to Reimbursement, the Assignment of Bond
Proceeds, and the Credit Agreement stipulate the direct application and use of the
MUD 402 Receivables to repay the loan.             Therefore, the summary judgment
evidence conclusively establishes that the MUD 402 Receivables secured the loan.
See Coffey, 223 S.W.3d at 565; Univ. of Tex. Med. Branch at Galveston, 777
S.W.2d at 453.

      C.     Marhaba’s Summary Judgment Evidence Regarding Value

      Marhaba filed a financial statement purporting to show the value of the
MUD 402 Receivables. It argues that the value of the MUD 402 Receivables is
relevant to show that Kindron “over foreclosed” by selling an asset worth
approximately $7.4 million when Marhaba owed no deficiency — or, at most, a
deficiency of $1,341,386.71 — after the property foreclosure sale. Marhaba argues
that “over foreclosure” is relevant to usury. See First State Bank v. Keilman, 851
S.W.2d 914, 932 (Tex. App.—Austin 1993, writ denied) (addressing the argument
that a lender charged usurious interest when it foreclosed on collateral despite there
being no debt, but rejecting the argument because it was unsupported by legally
sufficient evidence).12

      Marhaba’s usury claim is based on three theories, as stated in its
counterclaim and its first response to Kindron’s motion for summary judgment on
      12
         Marhaba also asserts that the value of the MUD 402 Receivables is relevant to
defending Kindron’s request for declaratory relief. We have addressed Marhaba’s issue that
summary judgment is improper on Kindron’s declaratory judgment claim. The value of the
MUD 402 Receivables is irrelevant to our resolution of this issue.

                                           18
Marhaba’s counterclaims. First, Marhaba argues that the assignment of the MUD
402 Receivables was absolute and, when combined with other interest charged on
the loan, the total interest charged was usurious. We reject this theory because we
hold that the assignment of the MUD 402 Receivables was not absolute; instead, as
discussed above, the Receivables served as collateral for the loan.         Second,
Marhaba argues that Kindron charged usurious interest because (1) Marhaba’s loan
was extinguished by the foreclosure sale of the property; and (2) Kindron
foreclosed on additional collateral when no debt remained. We reject this theory
because we hold that Marhaba’s loan was not extinguished by the foreclosure sale
of the property, and that a debt remained after the sale. Third, Marhaba argues that
Kindron demanded usurious “charges” when it demanded additional payment after
the foreclosure sale of the property when no debt remained. We reject this theory
because we hold that Marhaba owed a debt on the loan after the foreclosure sale of
the property.

      We have rejected all of Marhaba’s usury theories. None of these theories
depend on the value of the MUD 402 Receivables; therefore, we reject Marhaba’s
argument that the value of the Receivables is relevant to its claim for usury. We
hold that the trial court did not err in striking evidence regarding the value of the
MUD 402 Receivables. See Pipkin, 383 S.W.3d at 667.

      D.        Summary Judgment is Proper on Usury Regardless of Waiver

      Kindron moved for summary judgment on Marhaba’s usury claim, arguing
that its theories of usury were not supported by the evidence and that Marhaba
contractually waived its claim. Marhaba argues on appeal that its contractual
waiver is invalid. See Emps. Loan Co. v. Templeton, 109 S.W.2d 774, 780 (Tex.
Civ. App.—Fort Worth 1937, no writ) (“The law will not permit persons to make
contracts in advance of usurious transactions to the effect that they will not claim

                                         19
their legal rights, under the law, to resist payment because of usury, nor enforce
penalties on that account. Such agreements are void as against public policy.”).

      Assuming without deciding that Marhaba’s contractual waiver of its usury
claim is invalid, we conclude that summary judgment in Kindron’s favor on
Marhaba’s usury claim is proper because the summary judgment evidence
conclusively disproves Marhaba’s theories of usury.

      We conclude that summary judgment was proper in Kindron’s favor on
Marhaba’s counterclaims. We overrule Marhaba’s second issue.

                                   CONCLUSION

      Having overruled Marhaba’s two issues, we affirm the trial court’s
judgment.



                                             /s/   William J. Boyce
                                                   Justice



Panel consists of Justices Boyce, Jamison, and Donovan.




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