LAW 0FnCE OF BETH WATKINS

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BETH. WATKINS@WATKINSAPPEALS.COM

SHANNON K. DUNN

SHANNON .DUNN@WATKINSAPPEALS.COM

September 4, 2015

Mr. Keith Hottle, Clerk

FOURTH COURT OF APPEALS 300 Dolorosa, Suite 3200
San Antonio, Texas 78205

re: Cause No. 04-14-00579-CV Jay Kay Bear, Ltd. v. Patty Martin

Dear 

### Mr. Hottle:

At oral argument on Wednesday, September 2, Jay Kay Bear-as Appellant and Cross-Appellee-was not able to fully answer all of the Court's questions. I submit this post-submission letter to more fully explain Jay Kay Bear's answers to a few of those questions. I ask that you please circulate this letter to Chief Justice Marion, Justice Angelini, Justice Pulliam, and their staff post haste.



### I. THIS COURT HAS JURISDICTION OVER JAY KAY BEAR'S APPEAL.

During the oral argument, the Court asked a number of questions about jurisdiction. The simplest answer-and the answer the undersigned counsel failed to clearly convey-focuses on the trial court's judgment setting aside Jay Kay Bear's April 6, 2010 foreclosure sale. That action injuriously affected Jay Kay Bear's rights. Therefore, Jay Kay Bear has standing to challenge that action on appeal.



### A. Jay Kay Bear Has Standing Under General Principles Of Law.

Standing to sue exists when a party has a sufficient stake in an otherwise justiciable controversy to obtain judicial resolution of that controversy. See, e.g., Sierra
Club v. Morton, 405 U.S. 727, 731 (1972). "To have standing, a party must have suffered

a threatened or actual injury." Allstate Indemn. Co. v. Forth, 204 S. W.3d 795, 796 (Tex. 2006). On appeal, a party may only complain of error that injuriously affects that party. See, e.g., Torrington Co. v. Stutzman, 46 S.W.3d 829, 843 (Tex. 2000); see also Paradigm Oil Inc. v. Retamco Op., Inc., 161 S.W.3d 531, 538 (Tex. App.-San Antonio 2004, pet. denied) (Angelini and Marion, J.J., participating).

t Board Certified- Civil Appellate Law, Texas Board of Legal Specialization ACCEPTED 04-14-00579-CV FOURTH COURT OF APPEALS SAN ANTONIO, TEXAS 9/4/2015 5:00:44 PM KEITH HOTTLE CLERK2 Here, the trial court’s judgment setting aside Jay Kay Bear’s foreclosure affects Jay Kay Bear’s rights in a negative way. See, e.g., Stutzman , 46 S.W.3d at 843. The trial court’s judgment divests Jay Kay Bear of title, and means that Jay Kay Bear had no
interest in the 8.09 acres th at it could convey to 281 Prope rty, LLC. 2 CR 198. The trial court’s ruling therefore cause d Jay Kay Bear an injury. See, e.g., Forth , 204 S.W.3d at 796. Jay Kay Bear has standing to challenge that ruling on appeal. See Stutzman , 46 S.W.3d at 843. It simply cannot be said th at the trial court’s order setting aside Jay Kay Bear’s April 6, 2010 foreclosure does not injuriously affect Jay Kay Bear’s rights.

B. Jay Kay Bear Has Standing Under Specific Foreclosure Law.

The Texas Supreme Court has recognized, “identifying who properly has standing
to contest a foreclosure sale in Texas is well settled.” Goswami v. Metro Sav. & Loan
Ass’n , 751 S.W.2d 487, 489 (Tex. 1998). That Court understoo d that a typical foreclosure
contest occurs between a borrower and a lende r after the lender forecloses and sells; the
borrower then files suit. See id . The Court recognized, “[a] s a general rule, only the mortgagor or a party who is in privity with the mortgagor has standing to contest the validity of a foreclosure sale pursuant to the mortgagor’s deed of trust.” Id . That makes sense because the dispute is be tween the borrower and the lender. The borrower has standing to challenge the lien foreclosu re despite the fact that the borrower’s interest in the property has been terminated by a foreclosure sale. See id . That same logic should apply here.

Like Goswami , this lawsuit challenges the validity of a foreclosure sale. 1 CR 367;
1 CR 378. Goswami recognized that the bo rrower and the lender have standing to request judicial review of a foreclosure sale. See Goswami , 751 S.W.2d at 489. Here, Jay Kay is the lender who foreclosed; Ma rtin’s interest was foreclos ed upon. 1 CR 378. Like in
Goswami , the person whose interest was foreclos ed upon sued the lender seeking to set
aside the foreclosure sale. 1 CR 378. The Su preme Court recognized that the proper parties were before it to seek resolution of the dispute. See Goswami , 751 S.W.2d at 489.
This Court should reach the same result here.

But even if Jay Kay Bear lacks standing under this general standing rule, it has standing under an exception to that rule. “An exception to [the] general rule exists when a third party has a pr operty interest, whether le gal or equitable, that will be affected by the
foreclosure sale.” Montenegro v. Ocwen Loan Servicing, LLC , 419 S.W.3d 561, 567 (Tex. App.—Amarillo 2013, pet. denied) (citing Goswami , 751 S.W.2d at 489). “In that instance, the third party has stan ding to challenge the sale to th e extent that its rights will be affected by the sale.” Id . (citing Goswami , 751 S.W.2d at 489).

Here, Jay Kay Bear has a legal or equitabl e property interest that will be affected by the propriety of its foreclos ure sale. It believed it owned th e property outright after its3 April 6, 2010 foreclosure. On that day, Ja y Kay Bear reasonably be lieved it owned all the legal and equitable property interests in the 8.09 acres, and it acted accordingly. The trial court’s judgment negated those property inte rests, thereby rendering every action Jay Kay Bear took with the property after April 6, 2010 null and void. Jay Kay Bear has a cognizable interest in appealing this ex post facto negation of its intere sts in the property. See, e.g., Goswami , 751 S.W.2d at 489.

Jay Kay Bear also has an equitable interest in the property because under the Special Warranty Deed, Jay Kay Bear has a continuing duty “to warrant a nd forever defend” 281 Property “against an y person whomsoever lawfully claiming... the same or any part thereof....” See Br. of Appellee at Tab A, p.2. Jay Kay Bear is contractually obligated to defend 281 Property again st Martin’s claims in this appeal

. See id . By appealing the judgment against it, that is exactly what Jay Kay Be ar is doing. 2 CR 215. Jay Kay Bear has a justiciable interest in correcting the trial court’s erroneous judgment setting aside its April 6, 2010 foreclosure sale. Stutzman , 46 S.W.3d at 843.

C. Martin’s Interpretation Leads To An Absurd Result.

Essentially, Martin’s argumen t is that a party has to presently have an interest in the foreclosed-upon property to have standing to challenge the foreclosure. But after a foreclosure, the borrower’s interest in the property is wiped out. Nevertheless, Goswami specifically recognized that the borrower has standing to ch allenge a foreclosure even after the foreclosure is complete and the borrower’s legal intere st in the property has been wiped out. See Goswami , 751 S.W.2d at 489. Martin’s argument is therefore directly contrary to Goswami and its progeny.

If the rule truly is that a party has to pr esently have an interest in the foreclosedupon property to challenge the foreclosure, th en Martin lacked standing to file this
lawsuit—the interest she held in this property had been fore closed upon and sold before she filed suit. Continuing that logic, if the trial court had not set aside the foreclosure,
then Martin would lack standing to challenge th at ruling on appeal, because the trial
court would have confirmed that she lacked a justiciable interest in the property.

When the trial court rules against a part y—like it ruled against Jay Kay Bear when it set aside Jay Kay Bear’s Apr il 6, 2010 foreclosure—that pa rty has a statutory right to meaningful appellate review. See, e.g., Tex. Gov’t Code Ann. § 22.220 (West 2015). This Court has jurisdiction to review the trial cour t’s resolution of this lien priority dispute.

D. The Pleadings Establish The Parties’ Standing.

“Standing is determined at the time suit is filed in the trial c ourt, and subsequent events do not deprive the tr ial court of jurisdiction.” Tex. Ass’n. of Bus. v. Tex. Air
Control Bd. , 852 S.W.2d 4 40, 446 n.9 (Tex. 1993 ). In her petition, Martin alleged that4 when Jay Kay Bear recorded and foreclosed upon the 2003 Zyco lien, it committed fraud. 1 CR 367. To remedy that purported fraud, Mar tin asked the trial court to set aside that foreclosure. 1 CR 378. She filed that petition on December 28, 2012—four months before Jay Kay Bear transferred the property. 1 CR 35 1. In Jay Kay Bear’s live answer, which it filed three months before it transferred the pr operty, Jay Kay Bear asserted that it had “a security interest in each of th e tracts of real property Mar tin complains of and filed and
recorded their valid liens to each tract at a point in time prior to Martin and thus have lien superiority over Martin’s claims .” 1 CR 469. The parties went to trial on those pleadings and both parties asked for a judgme nt establishing lien priority.

E. The Evidence Establishe s Jay Kay Bear’s Standing.

In her case-in-chief, Martin introduced do cumentary evidence th at title to the 8.09 acres was vested in Jay Kay Bear as a result of its April 6, 2010 foreclosure of the 2003 Zyco lien. 11 Am. RR Exh. 6 at 9. Martin also introduced expert testimony that Jay Kay Bear’s April 6, 2010 foreclosure of the 2003 Zy co lien wiped out Martin ’s interest in the property. 3 RR 196-99. The parties consistently asked the trial court to review all the liens and foreclosures and determine whose interest was superior. See id . On the 8.09 acres, those liens and foreclosures began with the October 24, 2003 Deeds of Trust from BMI to the Naylor Living Trust and Zyco, a nd ended with the April 6, 2010 Foreclosure Deed of Jay Kay Bear under the Zyco Deed of Trust. 11 Am. RR Exh. 6. The parties
asked the trial court to review that evidence and determine lien superi ority as of April 6,
2010.

F. The Trial Court’s Judgment Demo nstrates Jay Kay Bear’s Standing

.

The trial court’s May 20, 2014 judgment specifically:

1. finds the Martin lien superior to th e Zyco Collateral Transfer of Note and Lien; and

2. orders that Jay Kay Bear’s April 6, 2010 foreclosure under the Collateral
Transfer of Note and Lien is set aside.

2 CR 196. Jay Kay Bear appealed that orde r because that decision to set aside the foreclosure effectively negated every action Ja y Kay Bear had taken with regard to the property since it foreclosed. 2 CR 215. That fa ct demonstrates how this ruling impairs Jay Kay Bear’s rights. See, e.g., Stutzman , 46 S.W.3d at 843.

G. The Parties’ Briefing Shows Jurisdiction.

In its Brief of Appellant, Jay Kay Bear’s prayer asked this Court to reverse the trial court’s judgment setting aside Jay Kay Bear’s foreclosure of the Zyco lien and5 render a judgment that “Jay Kay Bear’s April 2, 2010 foreclosure of the 2003 Zyco Deed of Trust extinguished any intere st that Martin held in the 8.09 acres as a result of her February 2, 2010 foreclosure of the 2008 Mar tin Deed of Trust.” Br. of Appellant at 46. In fact, both parties asked this Court review a ll the liens and all the foreclosures and then determine which lien was superior. See id .; see also Br. of Appellee at 28. After requesting dismissal, Martin’s pr ayer specifically asked this Court to “affirm that portion of the trial court’s Judgment setting aside Ja y Kay Bear’s April 6, 2010 foreclosure....” Br. of Appellee at 28. Both parties recognize that the trial court’s order setting aside Jay Kay Bear’s foreclosure is criti cal to the appeal. Both partie s recognize that April 6, 2010 is the operative date for this Court’s analysis.

H. This Court Should Review Lien Priority As Of April 6, 2010.

The liens and foreclosures at issue bega n on October 24, 2003 and ended on April 6, 2010. 11 Am. RR Exh. 6. The parties did not present any evidence of liens or foreclosures before those dates, nor did they present any evidence of liens or foreclosures after those dates. Jay Kay Bear therefore asks this Court to review the trial court’s lien priority judgment as of April 6, 2010—the last date relevant to the liens that were at issue at trial. On that date, Jay Kay Bear had an interest in this propert y under the 2003 Zyco
lien. See Br. of Appellee at Tab A, p.2. The trial court’s rulin g impairs that right. 2 CR 196. Jay Kay Bear has standing to challenge that adverse ruling. See Stutzman , 46 S.W.3d
at 843.

I. Alternatively, A Party Can Ap peal To Vindicate Rights That Currently Belong To Another.

Although the Texas Supreme Court has re cognized that “[a] party whose own interest is prejudiced by an error has standing to appeal,” that Court has also recognized exceptions to that rule. Torrington Co. v. Stutzman , 46 S.W.3d 829, 843 (Tex. 2000). In Torrington , the plaintiffs obtained a judgme nt against Torrington and Textron. See id . at 836. Torrington was contractually obligated to indemnify Textron. See id. Torrington appealed; Textron did not. See id . On appeal, however, Torring ton raised arguments that belonged to Textron; Stutzman complained th at Torrington lacked standing to complain
about error that aff ected another party. See id. at 843. Importantly, the Texas Supreme Court did not decide the standing issue first. See id. Instead, after addressing Torrington’s complaints about the charge and the inde mnity provision, the Texas Supreme Court reviewed Torrington’s standing to appeal the Textron judgment. See id . at 836-43. The Supreme Court held that since Torrington was contractually obligated to indemnify Textron, Torrington had a justiciable interest in that controversy, so it had standing to appeal the judgment against Textron. See id . at 844. While not an indemnity provision, the Special Warranty Deed from Jay Kay Bear to 281 Property, LLC contains similar terms that obligate Jay Kay Bear to defe nd 281 Property’s interest in the land.6 J. The Special Warranty Deed Ob ligates Jay Kay Bear To Defend 281 Property’s Title.

Under the heading “Exc eptions to Conveyance an d Warranty,” the Special Warranty Deed from Jay Kay Bear to 281 Propert y, LLC, provides:

Br. of Appellee at Tab A, p.2. According to that term, Jay Kay Bear has a duty “to
warrant and forever defend” 28 1 Property “against any p erson whomsoever lawfully claiming... the same or any part thereof....” See Br. of Appellee at Tab A, p.2. Jay Kay Bear is contractually obligated to defend 281 Property against Martin ’s claims in this appeal. See id . By appealing the judgment against it, that is exactly what Jay Kay Bear is doing. Jay Kay Bear has a justic iable interest in this app eal just as Torrington did. Compare id.

, with Torrington , 46 S.W.3d at 836. For that reason, this Court should recognize that Jay Kay Bear has standing to ap peal the portions of the trial court’s judgment that are adv erse to its interests.

K. Jay Kay Bear Has Standing To Appeal The Trial Court’s Judgment Against It.

The standing requirement prevents c ourts from issuing a dvisory opinions. See, e.g. Empire Life Ins. Co. of Am. v. Moody , 584 S.W.2d 855, 858 (Tex . 1979). But this Court’s
decision to affirm or reverse the trial court’ s judgment cannot be an advisory opinion
because that decision will directly determine whether Ja y Kay Bear’s transfer to 281 Property is valid. Jay Kay Bear has a cognizabl e interest in seeing that transfer validated; Martin has a cognizable interest in seeing it set aside. This is a live controversy between these two parties, so this Court has jurisdiction to decide it.

Courts do not rule in real time. Their j udgments routinely set aside actions that were taken in the past. Setting aside Jay Ka y Bear’s April 6, 2010 foreclosure caused an injury to Jay Kay Bear . Failing to provide meaningful appellate review of that ruling
would violate the due c ourse of law and open courts provisions of the Texas Constitution. Similarly, such a ruling would, ex post facto , deprive Jay Kay Bear of a valuable property right. Tex. Const. art. I, § 16. For these reasons , this Court should conclude that Jay Kay Bear has standing to appeal the tr ial court’s judgment against it.7 II. T HERE I S N O E VIDENCE I N T HE A PPELLATE R ECORD T O S UPPORT T HE I MPLIED F INDINGS T HE C OURT D ISCUSSED

.

A. Martin presented no evidence of the maturity da te of the 2003 Zyco lien, so this Court cannot presume that it was one year.

The Court asked a number of questions of Martin’s couns el about whether the trial court made an implied finding of fact that th e 2003 Zyco lien was eith er paid off or that
the statute of limitations to enforce that debt had expired. The practical effect of such an implied finding would be to wipe out any in terest Zyco or Jay Kay Bear had in the property under the 2003 Zyco lien. In respons e to these questions, Martin relied on the statutory presumption contained in secti on 16.036 of the Texas Civil Practice and
Remedies Code. See Br. of Appellee at 17-18. Accordi ng to Martin’s Appellee’s Brief:

If there is no recorded rene wal or extension fi led, the maturity date stated in the original instrument is conclusive evidence of the maturity date. Four years after the maturity date, one can conclusively presume that the lien debt is paid.

Id . at 17 (citing Cadle Co. v. Butler , 951 S.W.2d 901, 909 (T ex. App.—Corpus Christi 1997, no writ)). The problem w ith Martin’s argument is that the statute and the cases interpreting it require eviden ce of the maturity date. See id . Here, Martin presented no evidence of the maturity date of the Zyco Deed of Trust. At oral argument, she claimed it was Jay Kay Bear’s burden to present this ev idence. But if Martin—a s the plaintiff with the burden of proof—wanted the benefit of th e statutory presumption, she was required to present evidence showing that sh e was entitled to that presump tion. In the absence of any evidence establishing the maturity date, the trial court cannot simply guess. Because the
trial court had no evidence of th e maturity date of the 2003 Zyco Deed of Trust, the trial court could not have made an implied find ing that the 2003 Zyco Deed of Trust had either been paid or that the statute of limitations on enforcing it had expired.

B. The undisputed evidence actua lly admitted at trial contradicts such an implied finding.

“Where the implied findings of fact ar e supported by the evidence, we must uphold the judgment on any legal theory applicable to the case.” Castano v. Wells Fargo Bank, N.A., , 82 S.W.3d 40, 43 (Tex . App.—San Antonio 2002, no pet.) (Angelini, J., participating) (citing Point Lookout W., Inc. v. Whorton , 742 S.W.2d 277, 278 (Tex. 1987)). “In making this determination, we co nsider only the eviden ce most favorable to the implied fact findings and disregard a ll opposing or contradictory evidence.” Id. (citing Renfro Drug Co. v. Lewis , 235 S.W.2d 609, 613 (Tex. 19 50). Here, the only evidence admitted on this point establis hes the exact opposite of the implied fact the Court asked about finding. For that reason, this Court ca nnot make an implied finding that the 20038 Zyco loan was either pa id off or that collec tion under that loan wa s barred by the statute
of limitations.

The evidence the trial court actually did receive shows why the statutory presumption cannot apply here. On June 23, 2008, Zyco transferred the 2003 Zyco Deed of Trust to Jay Kay Bear as collateral for a $75,000 loan from Jay Kay Bear to Zyco. 11 RR Exh. 24. In that document, Zyco recited that the 2003 Zy co loan to BMI was not in
default.

11 RR Exh. 24. The on ly evidence the trial court receive d on this topic shows that BMI
was not in default under the 2003 Zyco lien. 11 RR Exh. 24. For that reason, implying a finding that BMI had defaulted on Octob er 24, 2004—one year after this lien was created—and then applying the st atutory presumpti on that the Zyco was barred by the
statute of limitations from su ing on the lien would be contrary to the law and the evidence
in this case.

C. Extension and Renewal Agreement s do not have to be Recorded.

Additionally, Dysart testified that notes like the 2003 Zyco note can be renewed
and extended. 3 RR 200. She te stified that renewal and exte nsion agreements do not have
to be recorded. 4 RR 59. The rec itals here—that the note and deed of trust were not in
default—show the exact o pposite of the implied fact this Court asked about finding. This evidence indicates that the parties actuall y did enter into a renewal and extension agreement. 11 RR Exh. 24 . That is consistent with the rec ital that, as of the date of the transfer, BMI owed Zyco $74, 000 in principal and $36,000 in interest. 11 RR Exh. 24.

Because it would violate the standard , ignore well-established precedent, and contradict the undisputed ev idence introduced at trial, this Court should refrain from making an implied finding of fact that th e 2003 Zyco lien was no longer enforceable.9 III. T HE Q UESTION I S N OT W HETHER T HE 2008 C OLLATERAL T RANSFER O F N OTE A ND L IEN “C REATED ” A L IEN T HAT I S S UPERIOR T O T HE 2008 M ARTIN L IEN ; T HE Q UESTION I S W HETHER T HE 2003 Z YCO L IEN I S S UPERIOR T O T HE 2008 M ARTIN L IEN

.

The trial court’s judgment clearly shows how it misapplied the law. The trial court disregarded the Texas Property Code pr ovisions authorizing assignment of liens. See,

e.g., Tex. Prop. Code Ann. § 51.004(c) (West 201 5). The trial court al so disregarded this Court’s opinion in Anthony v. Langford and all the other caselaw establishing that liens may be assigned freely. 152 S. W.2d 935, 936 (Tex. Civ. Ap p.—San Antonio 1941, writ ref’d); see also Morlock, L.L.C. v. Nationstar Mortg. L.L.C. , 447 S.W.3d 42, 47 (Tex. App.—Houston [14th Dist.] 2014 , pet. denied). Transferring a valid lien from one holder to another does not impair or otherwise diminish the superiority of that lien. See, e.g., DTND Sierra Invs., LLC v. De utsche Bank Nat’l Trust Co. , 04-12-00817-CV; 2013 WL 4483436, *4 (Tex. App.—San Antonio 2013 , pet. denied) (mem. op.) (J. Marion participating).

The trial court described June 23, 2008 as the operative date for the Zyco lien. The operative date for the Zyco lien, however, is October 28, 2003—the date that lien was
recorded. 11 Am. RR Exh. 6. By that date, Zyco had advanc ed BMI purchase money, so the priority of the 2003 Zyco purchase money lien was set in stone. 11 Am. RR Exh. 6. By failing to recognize that the Zyco lien wa s filed of record in 2003, and that its character or priority did not change when it was validly transferred to Jay Kay Bear, the trial court failed to give the 2003 Zyco lien th e priority to which it was entitled. The trial court misapplied the law, so its opinion must be reversed.

If the Court has any further questions , please do not hesitate to ask.

Respectfully submitted,

/s/ Beth Watkins
Beth Watkins
State Bar No. 24037675
L AW O FFICE OF B ETH W ATKINS 925 Chulie Drive San Antonio, Texas 78216 (210) 225-6 666—phone (210) 225-2300—fax Beth.Watkins@WatkinsAppeals.com

Counsel for Appellant Jay Kay Bear, Ltd.10 Certificate of Service

I hereby certify that I electronically se rved the above and fo regoing document on the following counsel of reco rd on September 4, 2015:

Ms. Patricia Oviatt
C OKINOS

, B OSIEN & Y OUNG 10999 West IH-10, Suite 800 San Antonio, Texas 78230 POviatt@cbylaw.com

/s/ Beth Watkins Counsel for Appellant Jay Kay Bear, Ltd.