     Case: 14-10182      Document: 00512866616         Page: 1    Date Filed: 12/11/2014




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT    United States Court of Appeals
                                                      Fifth Circuit

                                                                                 FILED
                                                                           December 11, 2014
                                      No. 14-10182
                                                                              Lyle W. Cayce
                                                                                   Clerk
HOMETOWN 2006-1 1925 VALLEY VIEW, L.L.C., a Texas Limited Liability
Company,

               Plaintiff - Appellee

v.

PRIME INCOME ASSET MANAGEMENT, L.L.C.,

               Defendant - Appellant




                   Appeal from the United States District Court
                        for the Northern District of Texas
                             USDC No. 3:11-CV-2633


Before HIGGINBOTHAM, CLEMENT, and HIGGINSON, Circuit Judges.
STEPHEN A. HIGGINSON, Circuit Judge:*
       Prime Income Asset Management, L.L.C. (“Prime”) is the guarantor of a
note held by Hometown 2006-1 1925 Valley View, L.L.C. (“Hometown”) and
secured by real property in Texas. After the borrower defaulted, the property
was sold in foreclosure, and Hometown sought a deficiency judgment against
Prime. Prime then sought an offset equal to the amount that the property’s fair



       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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market value exceeded its sale price. The district court denied Prime’s motion
for a determination of the property’s fair market value, finding that Prime
waived its offset rights in its contract with Hometown. Prime appeals that
decision, as well as the district court’s award to Hometown of attorney’s fees
for work to protect the loan before Hometown sued Prime. We affirm both
rulings by the district court.


                           FACTS AND PROCEEDINGS
      In October 2006, Transcontinental Brewery, Inc. (“Borrower”) purchased
real estate in Farmers Branch, Texas. The Borrower financed the acquisition
of the property with a $2,450,000 loan from Hometown Commercial Capital,
L.L.C. (“HCC”) and executed a promissory note for $2,450,000 (“Note”), payable
to HCC. Repayment of the Note was secured by a Deed of Trust and Security
Agreement (“Deed of Trust”). In a guaranty agreement (“Guaranty”), Prime
guaranteed to HCC and “its successors and assigns” the performance of
obligations that the Borrower owed under the Note and Deed of Trust. In
November 2006, HCC assigned the Note and Deed of Trust (“Loan Documents”)
to LaSalle Bank National Association (“LaSalle Bank”), as trustee under an
indenture between Hometown Commercial Trust 2006-1 (“Trust”) and LaSalle
Bank. Bank of America, N.A. (“Bank of America”), the successor by merger to
LaSalle Bank, later became the holder of the Loan Documents.
      In June and July 2010, the Borrower failed to make timely payments on
the loan. In July 2010, Midland Loan Services, Inc., a special servicer, sent a
notice of default to the Borrower and offered the Borrower an opportunity to
cure the default. When the Borrower did not cure, the law firm Thompson &
Knight, acting on behalf of Bank of America, sent the Borrower a notice that
the balance on the Note was payable in full, and that a foreclosure sale had


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been scheduled for the Farmers Branch property. Around the same time, the
Borrower demolished a building on the Farmers Branch property. In
September 2010, the Borrower conveyed the Farmers Branch property to EQK
Bridgeview Plaza, Inc. (“EQK”), an action that the district court characterized
as an “event of default” under the Deed of Trust. EQK filed for bankruptcy in
October 2010, triggering an automatic stay of any foreclosure sale. In March
2011, Bank of America obtained relief from the stay in bankruptcy court. In
June 2011, Bank of America assigned the Loan Documents to Hometown, a
limited liability company.
      A non-judicial foreclosure sale of the Farmers Branch property was
conducted in July 2011. At the foreclosure sale, Hometown was the only bidder
and purchased the property for $1,370,000, which was applied to the loan
balance. In October 2011, Hometown sued Prime for the post-foreclosure
deficiency. Hometown moved for partial summary judgment. Prime moved for
a determination of the fair market value of the Farmers Branch property under
section 51.003 of the Texas Property Code. That section entitles a debtor to
offset the deficiency amount by the difference between the sale price of the
property and its fair market value.
      The district court granted Hometown’s motion for partial summary
judgment, finding that Prime was liable to Hometown, as owner and holder of
the Note and Guaranty, for the Borrower’s payment and defaults. The district
court denied Prime’s motion for a determination of the fair market value of the
property, finding that Prime had waived its right to an offset through the
following language in the Guaranty:
      Section 1.4 Guaranteed Obligations Not Reduced by Offset. The
      Guaranteed Obligations and the liabilities and obligations of
      Guarantor to Lender hereunder, shall not be reduced, discharged
      or released because or by reason of any existing or future offset,
      claim or defense of Borrower, or any other party, against Lender

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      or against payment of any of the Debt or the Guaranteed
      Obligations, whether such offset, claim or defense arises in
      connection with the Loan (or the transactions creating the Loan)
      or otherwise.
The parties stipulated that Hometown suffered actual damages of
$1,469,698.05, subject to Prime’s reservation of its right to appeal the district
court’s ruling. The district court awarded Hometown $612,791.20 in attorney’s
fees, including $278,108.80 for work to protect the loan before the federal
lawsuit and $334,682.40 for the federal lawsuit.


                                 DISCUSSION
      The Guaranty between Prime and Hometown is a contract. See McLane
Foodservice, Inc. v. Table Rock Rests., L.L.C., 736 F.3d 375, 377 (5th Cir. 2013).
“The interpretation of a contract—including whether the contract is
ambiguous—is a question of law, which we review de novo. If a contract is
ambiguous, the district court’s findings of fact as to the intent of the parties
are reviewed for clear error.” Id. (citation omitted). In diversity cases, we
interpret the contract by applying the substantive law of the forum state. Id.
Following principles of contract interpretation articulated by the Texas
Supreme Court, we must “ascertain the true intentions of the parties as
expressed in the instrument.” Moayedi v. Interstate 35/Chisam Rd., L.P., 438
S.W.3d 1, 7 (Tex. 2014) (internal quotation mark omitted). “When parties
disagree over the meaning of an unambiguous contract, we determine the
parties’ intent by examining the entire agreement. Moreover, unless the
agreement shows the parties used a term in a technical or different sense, the
terms are given their plain, ordinary, and generally accepted meaning.” Id.
(footnotes omitted).




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        Both Hometown and Prime claim that the Guaranty is unambiguous, but
they dispute its meaning. Prime argues on appeal that the Guaranty’s
language is not sufficiently specific to constitute a knowing and intentional
waiver of offset rights under section 51.003 of the Texas Property Code. In
addition, Prime challenges the district court’s interpretation of the Guaranty
as requiring Prime to pay for attorney’s fees incurred before Hometown filed
the federal lawsuit.
        I.   Offset Rights
        Section 51.003 of the Texas Property Code is “designed to ensure that
debtors receive credit when their foreclosed property is sold at an unreasonably
low price.” Moayedi, 438 S.W.3d at 6. When real property is sold in foreclosure
for less than the unpaid balance of the indebtedness secured by the property,
the lender may sue the guarantor to recover the deficiency. See Tex. Prop. Code
Ann. § 51.003(a). However, section 51.003(c) entitles the guarantor to an offset
against his liability equal to the amount that the property’s fair market value
exceeds its sale price. Tex. Prop. Code Ann. § 51.003(c); Moayedi, 438 S.W.3d
at 5.
        The Texas Supreme Court has held that guarantors may, by contract,
waive their offset rights under section 51.003. Moayedi, 438 S.W.3d at 6. In
Moayedi, the Texas Supreme Court held that the guarantor unambiguously
waived his right to an offset through the following language in the guaranty
agreement: “Guarantor further agrees that this Guaranty shall not be
discharged, impaired or affected by . . . any defense (other than the full
payment of the indebtedness hereby guaranteed in accordance with the terms
hereof) that the Guarantor may or might have as to Guarantor’s respective
undertakings, liabilities and obligations hereunder, each and every such
defense being hereby waived by the undersigned Guarantor.” Id. at 3.


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      The court in Moayedi acknowledged that “[t]o be effective, a waiver must
be clear and specific.” Id. at 6. The court defined “waiver” as the “intentional
relinquishment of a known right or intentional conduct inconsistent with
claiming that right.” Id. (internal quotation marks and citation omitted). The
court nevertheless found that language waiving “any,” “each,” and “every”
defense was sufficiently specific to effect a waiver of offset rights under section
51.003. Id. at 8. The court noted that “[j]ust because the waiver is all
encompassing does not mean that it is unclear or vague.” Id.
      The language in Prime’s Guaranty is even more specific than the
language in the agreement at issue in Moayedi. The Guaranty provided, in
relevant part, that “the liabilities and obligations of Guarantor to Lender
hereunder, shall not be reduced . . . by reason of any existing or future offset,
claim or defense of Borrower, or any other party, against Lender or against
payment of any of the Debt or the Guaranteed Obligations.” Guaranty § 1.4. If
language in the Moayedi guaranty waiving “every . . . defense” was sufficiently
specific to waive offset rights, so too was language in Prime’s Guaranty waiving
“any . . . offset, claim or defense.” See Moayedi, 438 S.W.3d at 7 & n.31 (noting
that language in a guaranty agreement that waived the “right of offset” was
more specific than the language at issue in Moayedi). 1



      1  Prime effectively argues that Moayedi was wrongly decided because the waiver at
issue in that case was not sufficiently specific. However, under the Erie doctrine, we are
bound to apply principles of contract interpretation articulated by the Texas Supreme Court
and to make an informed judgment as to how a Texas court would rule if presented with the
same facts. Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938); Quorum Health Res., L.L.C. v.
Maverick Cnty. Hosp. Dist., 308 F.3d 451, 458 (5th Cir. 2002) (“Although there is no Texas
Supreme Court case involving the exact contract language at issue here, Texas Supreme
Court cases applying the applicable rules of contract construction to similar indemnity
provisions provide ample guidance for this court to substitute an informed judgment for an
informed guess as to how a Texas court would rule if presented with these facts.” (internal
quotation marks, alterations, and citation omitted)). Indeed, in an unsuccessful motion to
stay the appeal pending the issuance of a decision in Moayedi, Prime acknowledged candidly

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       Nor do the identities of the parties provide a sufficient basis to
distinguish this case from Moayedi. The Moayedi court noted that there was
no “indication that Moayedi [the guarantor] was not a sophisticated
businessman. After all, he was the president of Villages’ [the borrower’s]
general partner.” Id. at 8. Similarly, there is no indication that Prime, an asset
management company, is not a sophisticated party. 2
       A finding of waiver here is also consistent with our own precedent. In
LaSalle Bank National Ass’n v. Sleutel, 289 F.3d 837, 839–42 (5th Cir. 2002),
we held that the guarantor waived his section 51.003 rights based on the
following language in the guaranty agreement:
       To the extent allowed by applicable law, Guarantor expressly
       waives and relinquishes all rights and remedies now or hereafter
       accorded by applicable law to guarantors or sureties, including,
       without limitation: . . . any defense, right of offset or other claim
       which Guarantor may have against Borrower or which Borrower
       may have against Lender or the Holder of the Note.
If a waiver of “any . . . right of offset” in the Sleutel guaranty constitutes a
waiver of section 51.003 rights, then so too does language in Prime’s Guaranty
that “obligations of Guarantor . . . shall not be reduced . . . by reason of any
existing or future offset.” See also Haggard v. Bank of the Ozarks, Inc., 668
F.3d 196, 202 (5th Cir. 2012) (holding that the guarantor waived his offset
rights through language providing that the guarantor’s obligation “shall not be
impaired or released, without written consent of the Bank, based on: ‘any
defenses, set-offs or counterclaims which may be available to Borrower or any
other person or entity’”).




that the Texas Supreme Court in Moayedi was “considering the very issue which would
provide dispositive guidance relevant to this case to this Court, sitting as an Erie court.”
       2 The record reflects that Prime had contracts to advise various companies that

invested in real estate.

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       However, our analysis does not end with section 1.4 of the Guaranty; we
must look to the entire contract to determine the parties’ intent. See Moayedi,
438 S.W.3d. at 8. Prime points to the following language in the Guaranty:
“Guarantor WAIVES each and every right to which it may be entitled by virtue
of any suretyship law, including any rights it may have pursuant to . . . Section
51.005 of the Texas Property Code.” 3 Guaranty § 5.13. Prime argues that the
express waiver of section 51.005 rights, compared to the absence of an explicit
reference to section 51.003, indicates that the parties did not intend for Prime
to waive its offset rights under section 51.003. See CKB & Assocs., Inc. v. Moore
McCormack Petrol., Inc., 734 S.W.2d 653, 655 (Tex. 1987) (relying on the rule
of contract construction “expressio unius est exclusio alterius, meaning that the
naming of one thing excludes another”). However, the words “any” and
“including” indicate that the list of waived rights in section 5.13 of the
Guaranty is illustrative, and not exhaustive. See Tex. Prop. & Cas. Ins. Guar.
Ass’n/Sw. Aggregates, Inc. v. Sw. Aggregates, Inc., 982 S.W.2d 600, 608 (Tex.
App. 1998) (“It is hornbook law that the use of the word including indicates
that the specified list . . . is illustrative, not exclusive.” (alteration in original)
(internal quotation marks and citation omitted)); cf. Tex. Gov’t Code Ann. §
311.005(13) (providing that in the context of statutory construction,
“‘[i]ncludes’ and ‘including’ are terms of enlargement and not of limitation or
exclusive enumeration, and use of the terms does not create a presumption
that components not expressed are excluded”). In addition, the expressio unius
canon is only “an aid to the resolution of ambiguities,” and does not trump the



       3Section 51.005 of the Texas Property Code provides for offset rights if the foreclosure
sale takes place after the debt holder obtains a judgment against the guarantor. See Tex.
Prop. Code Ann. § 51.005(a). Because the foreclosure sale of the Farmers Branch property
took place before Hometown obtained a judgment against Prime, section 51.005 does not
apply to their dispute.

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Guaranty’s clear language precluding “any existing or future offset, claim or
defense.” Guaranty § 1.4. See Smith v. Stonebridge Life Ins. Co., 217 F. App’x
360, 361 (5th Cir. 2007) (“Smith argues that we should apply the canon
expressio unius est exclusio alterius, but that canon is only an aid to the
resolution of ambiguities. Here there is no ambiguity.” (citation omitted));
Keystone Equity Mgmt. v. Thoen, 730 S.W.2d 339, 340 (Tex. App. 1987)
(declining to apply the expressio unius canon where the plain meaning of a
contract supported the opposite interpretation).
      Prime further argues that the Deed of Trust establishes that Prime did
not waive offset rights in the Guaranty. The Deed of Trust provides a
mechanism for determining the fair market value of the Farmers Branch
property in the context of a deficiency action. Deed of Trust § 23.17. However,
the mechanism provided by the Deed of Trust differs from and replaces the
procedure that section 51.003 provides for calculating fair market value. Given
that Prime moved in the district court for a determination of fair market value
under section 51.003, Prime cannot now assert that it is bound by—and may
benefit from—the procedure outlined in the Deed of Trust. In addition, while
Prime, under the Guaranty, assumed the Borrower’s obligations set forth in
the Deed of Trust, see Guaranty §§ 1.1, 1.2, the Guaranty does not entitle Prime
to assert the Borrower’s defenses, including the defense of offset. Indeed, the
Guaranty provides:
      Guarantor hereby . . . waives any common law, equitable, statutory
      or other rights . . . which Guarantor might otherwise have . . . in
      connection with any of the following: [inter alia,] [t]he invalidity,
      illegality or unenforceability of all or any part of the Loan or the
      Guaranteed Obligations . . . including without limitation the fact
      that . . . the Borrower has valid defenses, claims or offsets . . . which
      render the Loan or the Guaranteed Obligations wholly or partially
      uncollectible from Borrower . . . it being agreed that Guarantor



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       shall remain liable hereon regardless of whether Borrower or any
       other person be found not liable on the Loan . . . .
Guaranty § 2.4. The Guaranty therefore precludes Prime from enforcing the
offset rights to which the Borrower is entitled under the Deed of Trust.
       Section 2.12 of the Guaranty further corroborates Prime’s intent to waive
offset rights. That section provides: “it is the unambiguous and unequivocal
intention of Guarantor that Guarantor shall be obligated to pay the
Guaranteed     Obligations      when   due,    notwithstanding   any    occurrence,
circumstance, event, action, or omission whatsoever, whether contemplated or
uncontemplated, and whether or not otherwise or particularly described
herein, which obligation shall be deemed satisfied only upon the full and final
payment and satisfaction of the Guaranteed Obligations.” Guaranty § 2.12
(emphasis added). The Texas Court of Appeals, in an analysis cited approvingly
by   the   Texas      Supreme    Court,   found    that   Moayedi’s    promise    to
“‘unconditionally’ . . . guarantee[] payment of [the] debt” corroborated his
intent to waive offset rights under section 51.003. Interstate 35/Chisam Rd.,
L.P. v. Moayedi, 377 S.W.3d 791, 800 (Tex. App. 2012), aff’d, 438 S.W.3d 1, 8
(Tex. 2014) (“We agree with Moayedi that the meaning of the waiver in
paragraph 7 depends on the rest of the agreement, but we agree with the court
of appeals that these provisions indicate an intent that the guaranty would not
be subject to any defense other than full payment.”). Prime’s guarantee of “full
. . . payment” therefore further corroborates Prime’s clear waiver, in section
1.4 of the Guaranty, of its offset rights under section 51.003 of the Texas
Property Code. It was therefore proper for the district court to deny Prime’s
motion for a determination of the fair market value of the property sold in
foreclosure.




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      II.   Attorney’s Fees
      Prime also challenges the district court’s award to Hometown of
$278,108.80 for attorney’s fees incurred between July 2010 and July 5, 2011
(the “pre-foreclosure” period). During that time, the law firm Thompson &
Knight, acting on a contingency fee basis for Bank of America, sent the
Borrower a notice of foreclosure sale, posted the Farmers Branch property for
foreclosure sale, and litigated in EQK’s bankruptcy proceeding to obtain relief
from an automatic stay of the foreclosure sale. The district court awarded these
fees to Hometown based on time sheets submitted by Thompson & Knight. The
court rejected Prime’s argument that these fees are not recoverable under the
language of the Guaranty.
      Under Texas law, “[a] person may recover reasonable attorney’s fees
from an individual or corporation, in addition to the amount of a valid claim
and costs, if the claim is for . . . an oral or written contract.” Tex. Civ. Prac. &
Rem. Code Ann. § 38.001(8). However, “[p]arties are free to contract for a fee-
recovery standard either looser or stricter than Chapter 38’s.” Intercont’l Grp.
P’ship v. KB Home Lone Star L.P., 295 S.W.3d 650, 653 (Tex. 2009); see also
Spillman v. Self-Serv Fixture Co., 693 S.W.2d 656, 657 (Tex. App. 1985)
(interpreting the language of a guaranty to decide the extent of the guarantor’s
obligation to pay attorney’s fees to the creditor). We review the district court’s
interpretation of a contract de novo. McLane Foodservice, Inc., 736 F.3d at 377.
      The Guaranty provides: “In the event that Guarantor should breach or
fail to timely perform any provisions of this Guaranty, Guarantor shall,
immediately upon demand by Lender, pay Lender all costs and expenses
(including court costs and attorneys’ fees) incurred by Lender in the
enforcement hereof or the preservation of Lender’s rights hereunder.”
Guaranty § 1.8. “Lender’s rights hereunder,” i.e., under the Guaranty, include


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“the payment and performance of . . . the full amount of the Debt and all other
obligations of Borrower to Lender under the Loan Documents,” which include
the Note and Deed of Trust. Guaranty §§ 1.1, 1.2; Deed of Trust § 2.6. Because
the pre-foreclosure attorney’s fees represent work to enforce the Note and Deed
of Trust, these fees were incurred in “the preservation of Lender’s rights” under
the Guaranty. The district court therefore properly awarded Hometown
attorney’s fees for action to protect the loan before the foreclosure and ensuing
federal court litigation. 4


                                   CONCLUSION
      For the foregoing reasons, we AFFIRM the district court’s order denying
Prime’s motion for a determination of fair market value and its award to
Hometown of attorney’s fees of $278,108.80 for the pre-foreclosure period.




      4   Prime argues only that the Guaranty does not cover fees incurred during the pre-
foreclosure period; Prime does not argue on appeal that Hometown is not the proper party to
collect these fees because these fees were incurred before the Loan Documents were assigned
to Hometown. The district court considered and rejected that argument, concluding that
Hometown was entitled to these fees because Hometown had a “right to enforce the Loan
Documents” as their current owner and holder.

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