intend to discuss two issues here today and they both relate to the statute of limitations it's mr kerry's position that both statutes should be applied in this case in his favor and would bar western southern's cause of action those two statutes are the texas property code section fifty one yes fifty one point zero three as a which essentially says that a creditor that foreclosures are real property which secure remedies code section sixteen point zero zero for a three which is the four years statute for suits on a dead suits on contracts that statute accrues when the creditor has the right to bring an action and his cause of action going back to start i'm going to start off with fifty one point zero zero three and i it's mr caylee's position that because t the operative facts are as follows the foreclosure of the real property which secured the two notes occurred on december first two thousand and nine so it was not filed into june of two thousand and thirteen clearly more than two years from the day to foreclosure so it is for that reason that we believe that that statute bars western southern's cause of action judge had never held early on before the trial started that because the guarantee agreements and mr cayley signed provided that ohio law would apply judge judge had not held that ohio law would apply to the substantive issues in this case but that because the suit was filed in texas under texas conflicts of law analysis that the procedural law of the forum texas procedural law would apply texas procedural law also includes its statute of limitations and so but judge hidden are then held that the section fifty one point zero zero three a of the text property code was not a procedural statute of limitations and held that it was a substantive statute of limitations he cited a case the hill vs pres case which announced or basically set forth the role of when a statute of limitations is considered substantive versus procedural and in that court in that case the court held that when the very statute that creates the limitations also creates the cause of action itself then the statue of limitations is substantive but the hill case actually held in that what happened in hill was there was a car accident in california and the injured person filed suit in texas hill the court held that while substantive law of california would apply to the negligence cause of action the texas statute of limitations would apply because negligence was nothing more than a common law cause of action right to sue for a deficiency it does no such thing all it does is create a two year limitations rather than what was formally a four year limitations and provides for an additional offset right to a debtor if the debtor believes that the lender did not fit in the full fair market value of the property at the foreclosure but the right to sue for deficiency has been around since the eighteen hundreds and there's several three a limitation was procedural and not substantive we cited that case in our findings of the proposed findings of fact conclusions of law and argued that case judge hidden or but he never addressed it one way or the other its not in any of his findings or conclusions we think with all respect all due respect to judge hitler is he just missed that case the same thing that your caret and the limitations period does apply in two years it seems like there might be different answers thanks for the different different guarantees your honor in the in the south  question is the mezzanine guarantee was the indebtedness under the mezzanine loan which is what the mezzanine guarantee guaranteed was that secured by the real property because fifty one zero three a applies to indebtedness that is secured by the real property and in response to that i would say yes it was secured by the real property under the documents themselves which i'll get to in just a second but i was so say that that issue was not specifically addressed in judge head nurse findings or conclusions because it was not an issue it was an issue that had been disposed of already in by that what i mean is western southern in their order which was filed prior to trial specifically stated the construction loan promissory note and the mezzanine loan promissory note for each secured by a deed of trust they've admitted that they've stipulated to that in the record or found that texas law would cover procedure i don't think that western southern stipulated to anything in that regard as to which law would apply  stipulated not only in the pretrial order that both the construction note and them as note or says were secured by the real property that that issue has been foreclosed in their discovery answers response to requests for twenty four they also stated that the deficiency the mezzanine loan in the construction loan were secured by the same collateral and then again in their april first tw letter which is the fed at the bridge or away sixty fifty seven they state the deficiency amount is calculated by subtracting the value of the property of foreclosure from the total amount outstanding under the mezzanine loan in the construction  loan and so i think between their discovery answers and their stipulation in the pretrial order there is not an issue about whether or not the guarantee of the mess note and the construction loan were secured by the real talking that that is not what i've just reciting to the court that is in there also and i believe i probably pointed that out my brief but specifically what i was at are always sixty eighty western southern answered yes your honor western southern calculated the deficiency by subtracting the value of the property in december two thousand and nine from the total outstanding total amount outstanding under the mezzanine same secured by the same collateral no i heard you that i'm showing you that you know i think the most important language is what's in the pretrial order where western southern states and that set our way sixteen thirty the construction loan promis and then i will also say in this perhaps maybe the most critical piece of evidence is that the total indebtedness of just under the construction loan at the time of your closure was twenty four million and then there was roughly five million under the mezzanine loan the fair market value of the property that was credited was twenty seven point four so that's roughly three million more than the total in deadness under the construction hoed and this came up at trial i asked mr rube some well under the deed of trust it states that if there's any excess over it from the fair market value over and above the indebtedness shouldn't that money go back to the debtor under i think was paragraph er just because they're all related and less they're all secured by the same property and so we didn't challenge that we didn't file any kind of requests for the three million to come back to mr cayley as a guarantor or to be applied because we agreed with their position that they were both everything was covered by by the real property in fact that issue came up briefly at trial and judge hitler said western southern you've played the case that way you've your pleading is that why you've tried it that way all of your submissions and have been that way we're not going to let you change the story now so we think that all of the indebtedness is covered by or was secured by the real property so you would like us to do so i would i would like this court to reverse the district court's judgment which was in favor of western southern hold that both statute of limitations apply and bar western southern and render judgment for mr cayley that western southern take nothing my next argument your honor your honour's is the application of texas several practice in remedies code section western southern sand yet a third or fourth letter to mr keighley we believe the cause of action accrued in on april twenty second two thousand and nine and the reason for that is on october sixteenth and seventeenth western southern sent letters to the borrowers and copied mr keighley basically saying you're in default if the defaults not cured we're we're going to exercise our rights including the right to declare the notes immediately due and payable admitted that's an optional acceleration clause and had they not actually accelerated we might not be here on that issue today however they did actually accelerate and the evidence i pointed out my brief but they started charging the notes say that if there's if the notes are declared immediately due and payable then western southern can charge the default interest rate they did that on the entire balance of both loans they charged twenty percent  and they charged eleven percent which was the default rate versus the the ninety four rate of six percent they started they started running the meter on april twenty second two thousand and nine so we believe they had to file suit under that section no later than april twenty second two thousand and thirteen they didn't file suit until june of thirteen so we believe that that statute bars the entire cause of action as well and i see that my time's about up so i will thank you  good morning your honour's my name is eric richardson i'm here with my colleague nathan fold and we represent the plaintiff apollyon cross appeal of western southern life insurance company i'd like to address some of the points that were just made by is hammering on behalf of george caylee there was a statement made by ms hamren that judge hitler stated during the trial that we had pled the case one way and he was not going to allow us to change it that is not accurate your honor that discussion i'm not sure what she's referring to but that did not happen in any portion of this record in fact the court made a finding that the mezzanine loan is secured by a pledge of the ownership interests in the borrowing entities on the where it states that it is actually said and this was also cited in our brief but it's r o a fifteen ninety five paragraph ten where we state that the mezzanine loan promissory note was secured by a pledge of ownership interests in the borrowers of the mezzanine loan promis both signed your honor i believe have been liable for imprecise language we played in the complaint at a paragraph eleven that the mezzanine loan was secured by a pledge of the borrowers interests mr kiely actually admitted that also a paragraph eleven of his answer at the very outset of the case i believe that both sides had been imprecise with regard to that the documents themselves were crystal clear your honor here and they were cited by joe hit support of paragraph fourteen of his findings of fact where he cites the mezzanine loan the amendment to the mezzanine loan and then the pledge of borrowers interest that was in fact the security for the mezzanine loan and your honor it just made sense because there were three special purpose entities created here one entity was created to hold the property and to be the borrower on the construction loan that was sedona apartments lp there were two different entities that were created to actually own sedona apartments lp those two entities it was sedona apartments g p l l c and said kona apartments investors i apologize for the very similar names but that was the way that it was set up so the mezzanine borrowers did not own the real property they own and the owner of the real property they did not have an interest in the real property to deed outright or to pledge as security for the mezzanine loan because they themselves did not own it their security for the mezzanine loan was simply a pledge of the ownership interest in those entities themselves ms hamilton also mentioned the fact that well if the fair market value of the property was twenty seven million four hundred thousand dollars why wouldn't there have been some credit that would have gone to mr cayley the foreclosure on the real property occurred on december first of two thousand and nine two months earlier western southern had already foreclosed on the mezzanine loan on september twenty eighth so at that point in time if there was a surplus it would have gone to the borrowers at that point in time it would not have gone to a guarantor it would have gone theoretically to sedona apartments lp that owned the land or its owners at that point western souther was the owners any surplus would have gone to western southern because it had already foreclosed on the owning entities western southern did not simply pocket that or take that and say that it wasn't going to give credit in its damages it gave mr keely credit for the additional surplus and again this is all on paper nobody actually bid at the non judicial foreclosure other than western southern western southern actually bid eighteen million one hundred thousand and was the prevailing better there was a subsequent calculation that was done that there was a fair market value for the land of approximately twenty seven and that was how we booked it against the debt we were going to go against the guarantors so form is hammering to say that well it was clear from the beginning that the mezzanine loan was in fact secured by real property as i said there was a mistake that we made in a pretrial brief that was corrected a few pages before that or stated accurately a few pages before that mr cayley actually admitted in his answer that the mezzanine loan was secured by a pledge of the borrowers interests you agree with finding of fact fourteen you told us that's how we should look at this yes your honor i would say that's a finding of fact here that cannot be disturbed unless it's clearly erroneous it cannot be deemed to be clearly erroneous because all of the documents in fact demonstrate that that was the way that it was actually secured then what do you do if you lose on the procedural substance argument well your honor that actually the first if it's procedural or substantive we as we say the court found that the mezzanine loan was not in all of our items of damages or recoverable independently on the mezzanine loan and the completion guarantee the completion guaranteed was not tied to any debt secured by real property nor does m hammerin argue otherwise the completion guarantee gave us recovery of the lien amounts and it was the only one to do sell and as a result of that that amount should survive in this case regardless of anything else i guess i'm asking what do we do with the case do we you've got claims they what happens to the case and you're just like i asked the other side who wants to render it your honor we believe that the  favor of western southern should be affirmed the holding that it is timely should be affirmed we have asked for two additional items of damages that we have argued should have additionally been granted by judge hitler so we would argue that you're going to lose  argument i'm not saying that you actually are if you lose on the first part that was secured by the deed of trust and it's two years problem and you lose that part what do we do with the rest of the case  how do we bring your a proper judgment or to be free man and what do we do with the remaining damages should be affirmed that judge had her granted be because they are not a deficiency and we have cited the case law for that so it would be the two point five million dollar balance on the mezzanine loan if this were concludes that judge hitler clearly erred in that it was secured by real property the two point five million dollars balance i think would then be time barred by fifty one zero zero three but the remaining one point three million in damages which were a combination of the liens the unpaid real estate taxes a portion for the attorney fees and or other enumerated damages those are not part of the deficiency the sole case o w e l l identifies the calculation that a deficiency is simply the unpaid loan balance minus the value of the property any other damages in that case they had real estate taxes those are not included within the hitler to consider beyond the legal impediments that he believed existed which we believe do not to the award of those he could consider then what is a reasonable attorney fees with regard to our cross appeal so we believe that for the district court to then consider what attorney fees are reasonable and then also the construction costs to be able to enter judgment on the that's true your hon he had awarded he had directed us at trial when we asked for an opportunity to supplement our fees for the time that had not been reduced to a statement we asked for the option to do that in a real fifty four he withheld ruling on whether we could do that or not and it was opposed by mr cayley the court i think on the third day of trial then directed us to go ahead and present testimony regarding what we had incurred since the time or an estimate of what time had been incurred since the last than what we have that we had estimated a trial so i don't believe that that category anyway your honor would be less the of the a total attorney fees it was approximately nine hundred thousand for three firms the court ended up awarding approximately forty thousand on that and the other categories for the appeal or i'm sorry for the attorney fees and then the construction defect costs if i may your honor with regard to some of the additional ones i believe judge southwick had put his finger on it as well the other items where his hammering has identified as supposedly some stipulation it was actually is stated that the mezzanine loan was secured by an ownership interest as i conceded previously i think both sides have been sometimes with the language before that issue i think crystallized but the documents themselves are clear in terms of what the actual security is with regard to the substantive vs procedural issue your honor as well we do cite the chase manhattan bank vs greenbrier case that is a case where the texas court of appeals did consider a time limitation where there was a new york choice of l provision the court there and then looked at the new york statute for a deficiency to try to determine whether or not the time limitation there could be characterized as procedural or substantive ultimately concluded that it was a substantive provision because it was  unified statutory scheme it was in a rural ultimately the different provisions to the creation there of the rights and affirmative defenses but but notably in new york the right to a deficiency preexisted that statu it is not as limited as ms hammerin has stated with regard to the hill versus parole case certainly if a statute of limitations is included within the statute that creates the cause of action that statute of limitations can be said to be substantive but it is not that limited that it can be substantive in other situations such as chase manhattan bank where there was a time limitation that had to be taken in order for a lender to be able to proceed to try to recover  deficiency and it was a ninety day a very short time turnaround to be able to move for a determination of the fair market value following the foreclosure at that point in time the texas court of appeals concluded that the way this statute was put together that you could not cherry pick one portion of it from another to be able to then say well the statute of limitations is entirely procedural or any limitations period is procedural they concluded that the time limitation was in fact substantive we would submit that here with regard to fifty one zero zero three a that it does far more than even the tranquil case that she cited did trunk kill proceeded on the misunderstanding that the statute only govern rights that existed zero three created a right of offset for a borrower and a guarantor under texas law the plains hills case also came up and said that it was that it created an affirmative defense that the rest of the statutory scheme sets out a somewhat complex series of how you determine a fair market value what evidence is relevant with regard to that procedure in addition to creating the rights themselves we assert your honor as we set forth in the brief that fifty one zero zero three when you consider the party's choice of ohio law when you consider the waiver that mr cayley executed that he was waiving the right of set off which is being concluded to be the same as a right of fifty one zero zero three and again i think it's the nussbaum case that there would be nothing left other than the two year statute of limitations they're trying to apply and we believe that at that point there are it doesn't make sense to try to cherry pick from that that the statute has to be seen as a unified statutory scheme that can't be applied piecemeal as a result then you also have the siegel case which they cited we do as well and the sole case where they do deal with looking at the rights under fifty one zero zero three and conclude that the right of offset is a subset of right the statute does create subset of rights with regard to the analysis here which we believe also carries over that you cannot excise one portion and try to apply a piecemeal other wise just briefly your honour's also with regard to our with regard to the waiver argument they argue that the waiver provision isn't applicable because the way that it's framed i believe that the language is somewhat odd that it says the that the guarantor agrees that he will not assert any rights that the borrower had against the lender or that the  guarantor has against the borrower that same kind of construction was considered by this court in the list southbank matter in that matter this court held that well where the lenders rights are the same or would be shared with the guarant such as fifty one zero zero three that it is an effective waiver of rights that the guarantor might also assert against the lender even if they happen to overlap with what the borrower would do we believe that's the appropriate construction here and we cited that for the court in our case in our brief with regard to with regard also your honor with regard to the cross appeal as i indicated i believe  appropriate there with regard to the attorney fees judge hitler directed us to present evidence at trial with regard to the calculation we had we were the only ones who presented testimony or documents regarding it we had statements on a monthly basis for the vorhees from my firm we also had summaries with regard to the statements that were submitted by baker botts and also by another firm frost brown todd that had been involved and we  undisputed by any other testimony or evidence in terms of the amount that was incurred we had my colleague who was admitted as an expert witness to be able to testify regarding the reasonable nyssa of the fees consistent with ohio law he calculated what was a reasonable hourly rate based upon published rates from the texas and ohio bars and then a reasonable number of hours and because those amounts fell within that he concluded that it was reasonable again there was no other testimony regarding that with regard to the construction defect costs we believe that judge hitler was unduly restrictive with regard to that particular item on construction defect costs he looked soley at what items were covered by the plans and specifications in fact the language is broader than that in the guarantee in the completion guarantee and it actually covers anything that would be identified in the plans and specifications or otherwise required by the construction loan agreement and the construction loan agreement here required that the property be completed as a class a development our expert kelly mcgee who had been a principal of grey star property development also was admitted  issues regarding when these defects are deficiencies occurred and are you seeking covering compensation for a remediation completion of things that may have arisen after you took control of proper y no your honor we are not we have identified where mister mr mcgee our expert on this issue had identified items that had arisen or incomplete construction by definition incomplete construction is something that they had not done before we took a position at least to limit the part of what you said it seems to me that you acknowledging a limit that whatever think pollution costs or in the future incurred according to this provision your lease limit to what the original plans were are i mean i can see if you want to get to whatever you called a class a or something else category for this development this could get quite expensive only this somewhat open ended vision is the sum total we are seeking or honors the six hundred  and that is the complete amount that was necessary to be able to provide furniture which was an item also in the construction loan agreement we cited in our brief to be able to complete construction repair the pool decking this place was essentially left on done and allowed to be vandalized once mr cayley and his partner realized they weren't going to be able to bring the loan current as a result it was essentially left to rot that was the words that were used by judge hitler during the trial  during that time but we had a property inspection report which we have cited which establishes the condition of the property as of september third of two thousand and nine your honor and that identifies all of these items for which we ultimately had this done w inspection done at that time was it retrospective no it was done in august your honor it was done at the very end of august the report was issued on september third and that was before mr mcgee's firm came in and reassessed in december and found of course that it was comparable levels when he was trying to figure out everything he was going to have to finish i see that my time's expired if i may say one thing on acceleration the district court also made a finding on when acceleration actually happened although ms hammerin states that acceleration occurred and sorry april of two thousand and nine actually the letter on the mezzanine loans says that the lender may exercise its rights not that it shall on the construction loan it says that if unless this is brought current they shall but within a week  clean his partner asked us to forbear from doing that to try to work out an agreement which we did and the district court ultimately concluded that acceleration did not in fact occur until august eleventh of two thousand and nine that set a finding  fact twenty three twenty seven seventy five so i would ask that the holding that the suit was timely and judgment in favor of western southern be affirmed and on the cross appealed that those issues be remanded to judge him or for entry of some amount your honor is with respect to counsel statement that mr cayley admitted in his answer that the mezzanine loan was not secured by the deed of trust that is simply not the case i believe counsel cites to paragraph eleven will paragraph eleven of the amended answer i'm not sure of counsel's referring to the original answer of the amended the amended was filed proximately two weeks later but paragraph eleven of the answer simply admits what paragraph eleven of the complaint is in paragraph eleven of the complaint states accordingly western southern agreed in november two thousand and six to extend to loans for completion of the maritime excuse me project the loans were made between western southern and several special purpose entities ownership entities of which caylee was an owner and or investor loans were secured by caylee's personal guarantees as wells as well as by personal guarantees by pew can and by security interest in the ownership interest that control the project that is different that paragraph doesn't state that the mezzanine loan was only secured by the ownership entities we believe it was secured by the ownership entit and the deed of trust and with respect to councils statement that what's in his preacher order was a mistake this is the first time i've heard that that is not in his briefs and it's binding to the case was tried as if that that being the case no wonder that the finding of fact fourteen i don't believe finding of fact i don't believe that when the judge made findings of fact he said i don't think it was done with the intention of he didn't say it it's only secured statute he didn't say that it again it wasn't tried that way and not only the pretrial and the discovery but the loan documents themselves basically say that the deed of trust being the real and the interest in the real property secures any and all loans with respect to the project and that is that i think i left it at the counsel table i believe i've cited in my brief but it's in the deed of trust states that this deed of trust secures all loans related to the project and then the mezzanine loan as count as the complaint states there were two loans related to the project so i think western southern was well within its rights to apply the proceeds from the fair market value of the foreclosure of the real property to both loans because the owner of that property agreed that all loans related to the project were secured by that deed of trust now with respect to the other items the taxes the insurance the deed of trust also secures those items so they too are subject to fifty one zero zero three and i've stated in my brief the specific sections of the deed of trust we argued at trial we submitted findings of fact on that there's very specific sections in the deed of trust that's very standard for date of tries to say this a cure is not only taxes insurance i think they were rance missing security deposits which was one of the items that the judge awarded to western southern all of those additional items were all mentioned in the deed of trust as being secured by the deed of trust and that applies also to the attorney's fees for the baker botts firm which conducted the foreclosure the deed of trust states that it secures all attorney's fees in connection with the foreclosure we believe those attorneys fees would be b by limitations also same thing with the foreclosure on the on the security interest which is the additional security for the mess loan now this court recognized in the with south case back in two thousand and two that hundred one when the texas legislature adopted fifty one zero zero three in the heading in the in the property code as deficiency judgment it's not really an anti deficiency statute like like some of the other states have i've one of those other states is the chase case which western souther relies on the sagat case which is a houston court of appeal this case specifically talked about the anti to fit the ninety day window in under new york new york law and said yes that is substantive under new york law because what new york law requires is that if a creditor foreclose is within ninety days they have to follow a motion with the court asking for an order of anything just respect well mr are just saying each of you have done that and will have to sort out where the answers are but we look for oral argument to you know to inform us instead at times it has not informed us because of these different statements about what's really in the record so i have i'm your honor i apologize i didn't mean any disrespect to mr rich that he's a fine lawyer i was simply trying to argue that my version of of what the facts are in the cases is different