Reversed and Rendered; Majority and Dissenting Opinions filed April 24, 2012.




                                          In The

                       Fourteenth Court of Appeals

                                   NO. 14-11-00045-CV


PRESTON RESERVE. L.L.C., ARTHUR A. LANCASTER, JR., LACY C. HOWE,
               & ROBERT S. PEEK, JR., Appellants

                                             V.

                               COMPASS BANK, Appellee


                        On Appeal from the 189th District Court
                                Harris County, Texas
                          Trial Court Cause No. 2009-48427


                      DISSENTING                    OPINION

        In this deficiency action, the trial court, as fact finder in the bench trial below,
heard evidence of the subject property’s fair market value as of May 5, 2009. The
Borrowers’ “property owner,” Lacy Howe, opined that the fair market value of the
property was $2.7–2.8 million. The lending entity’s “property owner,” Carl Scott, opined
that the fair market value of the property was $1 million.         The trial court entered
judgment for a deficiency calculated on a fair market value of $2.4 million as of May 5,
2009.
       The trial court entered no findings; in particular, the trial court made no findings
about how it arrived at the fair market value of the property. Yet, the panel majority
reverses, concluding “there was no legally sufficient evidence to support a fair market-
value finding of less than $2.7 million.” I disagree with this conclusion for two reasons:
(1) the fair-market-value testimony of Compass’s loan officer Carl Scott is, pursuant to
the Property Owner Rule, some evidence of fair market value less than $2.7 million; and
(2) even if Scott’s testimony is no evidence, there is ample other evidence in the record to
support the trial court’s determination that the fair market value was less than $2.7
million.

                                             ANALYSIS

1.     Scott’s fair-market-value opinion is some evidence under the Property Owner
       Rule.

       Citing Reid Road Municipal Utility District No. 2 v. Speedy Stop Food Stores,
Ltd., 337 S.W.3d 846, 847–48 (Tex. 2011), the majority holds that (a) the Property
Owner Rule applies to corporate entities; and (b) permits “officers of the entity in
managerial positions with duties related to the property to provide a lay opinion about the
value of the property.” According to the majority, Scott is “an officer of Compass Bank
in a managerial position with duties related to the property.” I agree that the record
supports this conclusion. The majority also holds that the “Property Owner Rule” applies
to Scott such that he may be the entity witness on market value. I agree with this
application of law to fact. As such, I concur with the majority that Scott’s testimony was
properly admitted under the Property Owner Rule, and a presumption arose that he was
familiar with the entity’s property and knew its value. See id. at 853.

       However, the majority disregards Scott’s opinion. Notwithstanding the absence of
a trial objection to the testimony on the basis of Texas Rule of Evidence 701,1 the

       1
         The Borrowers did object to Scott’s testimony on the grounds that he was not designated as an
expert and could not, therefore, provide opinion testimony. When counsel for Compass directed the court
to the Property Owner Rule, the Borrowers articulated no other objections to Scott providing opinion
testimony prior to its admission.

                                                  2
majority rejects Scott’s opinion because the majority believes that it was not based on
personal knowledge and familiarity under Texas Rule of Evidence 701. Specifically, the
panel concludes that “the evidence before us shows that the Borrowers rebutted the
presumption that Scott was personally familiar with the property’s fair market value in
this case.”

       Not only has the majority sustained an objection not made, the majority has
misapplied the standard of review and ignored uncontroverted testimony to reach this
conclusion. First, under City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005), we
are to credit Scott’s testimony and indulge every reasonable inference unless the fact
finder could not. Here, the fact finder could credit the evidence, as the majority finds it
was properly admitted. Thus, City of Keller instructs us to imply all findings in favor of
the judgment; here, that means the fact finder credited Scott’s testimony and found that
the Borrowers did not rebut the presumption.           Instead, the majority substitutes its
judgment and finds the presumption to have been rebutted.

       Second, the majority holds that Scott’s “familiarity with some of the property’s
attributes” is insufficient to show familiarity with the property’s value based on those
attributes. I disagree. Scott first met the Borrowers around January 2009. Scott was
working with the Borrowers’ group on “this and three other loans that they had with the
bank, with [the] objective being to attempt to salvage the loans as performing loans with
the bank.” In April, he concluded that the subject property was not salvageable because
the Borrowers “informed me they didn’t intend to build on it and had been unable to sell
it for enough to pay off our loan [approximately $2,529,172] after having marketed it
with an agent for probably a year.” Thus, it was Scott’s decision to foreclose on the
property, and he was the initial substitute trustee for the foreclosure sale.

       When questioned about the property and the basis for his opinion, Scott knew that:

              the property was zoned for multifamily housing;
              the plat for the property expired in January 2010, so it was “not feasible for
              a potential purchaser to begin and complete construction in time to meet the

                                               3
               local zoning and planning requirements”;
               20% of the property was in the flood plain and could not be built upon—it
               was completely unusable for construction;
               financing for the property was virtually nonexistent because it was raw land
               at that time.

The face of the Integra Realty Resources appraisal on the subject property indicates that it
was “prepared for: Mr. Carl Scott.” Scott knew enough about the property and the
subject market that he strongly disagreed with the February 2009 appraisal based upon
his knowledge of “the reality in the market, the offers that were being received, the
saturation in the market that [he] discovered existed.”                Thus, Scott demonstrated
familiarity with the property’s attributes; the property’s lack of salvageability when
compared to the Borrowers’ other properties; familiarity with comparable sales as
supplied by the Integra appraisal; familiarity with other factors specific to the property
that would affect the willing buyer/willing seller negotiations negatively; 2 and familiarity
with the saturation of market that would impact his ability to sell the property.

       I would hold that Scott’s lay testimony on fair market value was some evidence in
support of the trial court’s decision to find a fair market value of less than $2.7 million.

2.     Other competent evidence of fair market value

       Even if the majority’s disregard of Carl Scott’s opinion on fair market value as no
evidence is correct, I would nonetheless affirm the decision of the trial court because
there is ample other evidence to support the trial court’s decision that the fair market
value of this property on May 5, 2009, was less than $2.7 million.

       At the outset, I note that the majority implies this trial court was obligated to
accept the lay opinion of Lacy Howe that the fair market value of the property was $2.7
million. Specifically, the majority suggests that the fact finder may not award damages
within the evidentiary range unless the record discloses “a means of computing” the
       2
           Under longstanding Texas precedent, the trial court should consider “all factors . . . which
would reasonably be given weight in negotiations between a seller and a buyer” of the property in
arriving at a fair market value. City of Austin v. Cannizzo, 267 S.W.2d 808, 813–14 (Tex. 1954).

                                                  4
damage finding. To the extent that the majority intends to hold that the fact finder must
blindly choose between the fair market values supplied to them by witnesses, I disagree.

        A fact finder always has discretion to award damages within the range of evidence
presented at trial as long as there is a rational basis for the calculation. See Gulf States
Util. Co. v. Low, 79 S.W.3d 561, 566 (Tex. 2002). The fact finder must have an
evidentiary basis for the findings. See Salinas v. Rafati, 948 S.W.2d 286, 289 (Tex.
1997). When the award falls within the evidentiary range, the reviewing court should not
speculate on how the fact finder arrived at the amount.3 Drury Sw., Inc. v. Louie Ledeaux
#1, Inc., 350 S.W.3d 287, 292 (Tex. App.—San Antonio 2011, pet. denied). A fact
finder’s verdict on damages cannot exceed the amount shown by the evidence, but it can
reduce the amount below the opinion of an expert when there are factors that would
justify a reduction. See Geo Viking, Inc. v. Tex-Lee Operating Co., 817 S.W.2d 357, 363
(Tex. App.—Texarkana 1991, writ denied).

        The trial court was well within the range of evidence when it selected a fair market
value of less than $2.7 million. For example, appellant Lacy Howe testified as an
interested witness by virtue of a personal guarantee on the note underlying the deficiency
alleged. He provided his opinion that the subject property had a market value of $2.7
million on May 5, 2009. He and his co-appellants paid $3.2 million for the property 15
months earlier. He acknowledged the following about the property that impacted its
value: the market for raw land had dropped in the interim; available financing was
limited; part of the property was within the flood plain; the Borrowers had the property
on the market unsuccessfully for 2–3 months prior to foreclosure; and the value of the
property was impacted by a foreclosure and its sale by a bank. These are factors that


        3
           The amount awarded by the trial court here is $300,000 less than Howe’s opinion on fair market
value. The majority rejects the $300,000 “specs and plans” as no evidence of fair market value. For the
majority not to consider other evidence that places the trial court’s award within the range of evidence is
tantamount to implying a fact finding on the trial court’s computation of fair market value. We do not
treat statements made by the trial court on the record in a bench trial as fact findings. See In re W.E.R.,
669 S.W.2d 716, 716 (Tex. 1984) (per curiam); Rutledge v. Staner, 9 S.W.3d 469, 470 (Tex. App.—Tyler
1999, pet. denied).

                                                    5
would justify a reduction from $2.7 million. See Cannizzo, 267 S.W.2d at 813–14.

        Further, the majority acknowledges but rejects evidence that the subject property
actually sold for $980,000. I do not disagree with the majority’s determination that the
sale price at a foreclosure sale is no evidence of fair market value. However, in this case,
Compass itself bought the subject property at the foreclosure sale for $1.2 million. That
sum would be no evidence of fair market value. According to Scott, Compass ultimately
sold the property for $980,000 “[a]fter working through at least two different purchase
opportunities and not being able to sell it for more.” Over objection, the trial court
admitted this evidence as “some evidence of what the land was worth at the time in
question.”4 The Borrowers neither argued nor offered evidence that the $980,000 sale
was in any way not between willing buyer and willing seller. Thus, the trial court could
have considered the subsequent sale of the property for $980,000 as some evidence that
in May 2009, the property was worth less than $2.7 million.

        Howe also reviewed and considered the February 27, 2009 Integra appraisal5 of
the property. The appraisal establishes a “market valuation” as of February 27, 2009, at
$2,730,000, and a liquidation value of $1,365,000 on that same date.6 These figures are
based upon an analysis of comparable sales. The appraiser established the market figure
based upon $6.00 per square foot on 454,331 usable square feet.7 However, the “Land


        4
            The Borrowers have not challenged this evidentiary ruling on appeal.
        5
           The majority suggests that the Integra appraisal is (a) not competent evidence of fair market
value because it was not admitted “for the truth of what’s asserted therein”; and (b) did not form a basis
for the trial court’s conclusion of fair market value. The trial court’s evidentiary rulings that are relied
upon by the majority are far from clear. In addition to the quoted portions of the transcript, the record
reflects that the trial court also indicated during closing arguments that he was going to have to “make
[his] best stab” at market value based upon (a) opinions of the former owner and the owner-to-be; (b)
other data points; (c) “offers that were made, maybe”; (d) sales afterward; and (e) “other things that shed
some light on minimum values, maybe, or maximum values, I don’t know.” More importantly, the trial
court received in evidence the exact same appraisal opinions on fair market value and liquidation value
from Howe himself, without objection.
        6
          According to the report, a liquidation value “includes a condition that ‘consummation of sale
will [occur] within a [severely] limited future [marketing] period specified by the client.’”
        7
          The usable square feet calculation excludes an estimate of acreage within the flood plain, but the
report states, “[w]e requested, but were not provided with exact acreage within the 100 year flood plain.”
                                                      6
Value Conclusion” provides as follows:

       Prior to adjustments, the sales reflect a range of $4.78–$7.04 per square
       foot. After adjustment, the range is narrowed to $4.27–$6.27 per square
       foot, with an average of $5.30 per square foot. To arrive at an indication of
       value, we place primary emphasis on sales 1, 2, and 3 and secondary
       emphasis on the remaining comparable sales as well as supplementary land
       listings.

Thus, the range of evidence of value places the figure selected by the fact finder,
$2,400,000, in the middle of the evidence on value.8

       Howe, himself, explained the difference between the appraisal’s fair market value
figure and its liquidation figure:

       Q. Now, this appraisal gives two values for the property. If you could,
       would you turn to Page 733. It gives a market value of 2,730,000 and a
       liquidation value of $1,365,000?
       A. Yes.
       Q. Is that correct?
       A. That’s correct
       Q. Now, did — in liquidation value, under the extraordinary assumptions
       and hypothetical conditions, it defines liquidation value includes a
       condition that consummation of a sale will occur within a severely limited
       future marketing period specified by the client. If you have a very limited
       marketing period, what does that do to the types of offers you’re going to
       get?
       A. They are going to be lower. And if you are a person making offers and
       you want to close quickly, typically, a seller would take less money. If I
       am going to close something immediately, then do a protracted due
       diligence period.
       Q. Does that affect the fair market value?
       A. Certainly does.

Although Howe also gave testimony contrary to the above on the impact on fair market

So the appraiser had to make an assumption about the unusable acreage.
       8
          The range of evidence is a result of usable square feet multiplied by (a) the “average” value
presented in the report ($5.30), which equals $2,407,954.30; (b) the low adjusted range ($4.27), which
equals $1,939,993.37; and (c) the high adjusted range ($6.27), which equals $2,848,655.37.

                                                  7
value, the fact finder was entitled to find this to be the credible testimony.9

        The above evidence—alone or in combination—provides a range of evidence that
supports a fair market value of less than $2.7 million. The trial court’s decision is not
arbitrary and does not exceed the evidence.

        The evidence is legally sufficient to support the trial court’s judgment in this
cause. The judgment should be affirmed.




                                                  /s/       Sharon McCally
                                                            Justice



Panel consists of Justices Brown, Boyce, and McCally. (Boyce, J., Majority.)




        9
           I am particularly troubled by the majority’s criticism of the trial court’s failure to document its
credibility determinations. There is no authority for requiring a fact finder to articulate its credibility
determinations before accepting any witnesses’ testimony—in whole or in part. Thus, for the majority to
reject the possibility that the trial court departed downward from Howe’s damages figure due in part to a
credibility determination is an abandonment of the proper standard of review giving deference to those
fact findings.

                                                        8
