TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-18-00066-CV

Just Fondue It, L.L.C.; Capital Fondue, L.L.C.;

Michael R. Swartz, Jr.; and Kelly Ann Swartz, Appellants

v.

Comerica Bank, a Texas Banking Association, successor in interest by merger to

Comerica Bank, a Michigan banking corporation, Appellee

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 200TH JUDICIAL DISTRICT

NO. D-1-GN-12-003990, HONORABLE SCOTT H. JENKINS, JUDGE PRESIDING

M E M O R A N D U M O P I N I O N

Appellants Just Fondue It, L.L.C.; Capital Fondue, L.L.C.; Michael R. Swartz, Jr.;

and Kelly Ann Swartz contend that the evidence is legally and factually insufficient to support the

trial court’s judgment rendered after a bench trial on the debt claim of appellee Comerica Bank, a

Texas Banking Association (Comerica). We will affirm the trial court’s judgment.

BACKGROUND

Comerica filed a lawsuit against appellantsseeking a judgment for the unpaid balance

under a U.S. Small Business Administration (SBA) promissory note in the principal amount of

$1,176,000.00 (the Note). The lawsuit alleged that in 2007 Just Fondue It signed the Note and the

other three appellants signed guaranties of the Note. Comerica further alleged that appellants

defaulted on the Note, Comerica accelerated the Note, and appellants failed to make partial monthly
payments on the Note per the parties’ agreed payment arrangement. Comerica’s petition alleged that

it is the “legal owner and holder of the Note and Guaranties” and that it “seeks recovery of the

entire, unpaid principal balance of the Note, together with all accrued but unpaid interest, and any

other amounts due and owing pursuant to the terms of the Note and Guaranties.” In their answer,

appellants made a verified plea that Comerica is “not the holder []or the owner” of the Note and

asserted that Comerica had not met the condition precedent of selling their collateral (fonduerestaurant fixtures, furniture, and equipment) in a commercially reasonable manner.

After a bench trial, the trial court rendered judgment for Comerica of $1,676,480.63

plus interest, costs, and attorney’s fees. The judgment also awarded appellants a credit against the

judgment amount for “[a]ny amounts received by the U.S. Small Business Administration (SBA) or

the U.S. Treasury Department from collection efforts against any of the Defendants.”

DISCUSSION

Appellantsraise two issues on appeal: (1) the trial court erred in finding that Comerica

was the owner and holder of the Note and guaranties, and (2) the trial court erred in finding that a

commercially reasonable sale of the collateral would have realized $31,500 in net proceeds.

With respect to their first issue, appellants contend that the trial court improperly

admitted Comerica’s copies of the Note and guaranties rather than the original instruments. See

Tex. R. Evid. 1003 (“A duplicate is admissible to the same extent as the original unless a question

israised about the original’s authenticity or the circumstances make it unfair to admit the duplicate.”).

Specifically, appellants assert that “the circumstances made it unfair to admit a duplicate rather than

the original note and guaranties under Rule 1003” because theywere “simultaneously defending this

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lawsuit by Comerica . . . and [facing] the administrative seizure actions of the federal government

[through wage garnishment].” Without production of the original instruments, appellants continue,

Comerica could not prove that the instruments had not been transferred or assigned to another party

(i.e., the SBA) and that it was still the owner and holder of the instruments and had the right to

enforce them. See Tex. Bus. & Com. Code §§ 1.201 (defining “holder” to include, relevantly,

“person in possession of a negotiable instrument that is payable either to bearer or to an identified

person that is the person in possession”), 3.301 (defining “person entitled to enforce” instrument

to include, relevantly, “holder” of instrument). Appellants additionally contend that the evidence

established that Comerica was no longer the owner or holder of the Note because it had “assigned”

it to the SBA, relying on documents admitted at trial evidencing communications between the SBA

and Comerica and a 2008 indorsement on the Note reading, “The guaranteed portion of this note

has been transferred to a registered holder for value.”

We review the trial court’s ruling on the admissibility of the duplicate Note and

guaranties for an abuse of discretion. See Whirlpool Corp. v. Camacho, 298 S.W.3d 631, 638 (Tex.

2009); see also Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241–42 (Tex. 1985)

(explaining that trial court abuses its discretion when it acts arbitrarily, unreasonably, or without

reference to any guiding rules and principles). On this record, we conclude that the trial court did

not abuse its discretion in admitting the duplicate instruments.

The federal government’s and Comerica’s simultaneous collection efforts against

appellants does not, as a matter of law, make it unfair for the trial court to have admitted duplicates

of the loan instruments or call into question the duplicates’ authenticity. Evidence showed that the

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federal government was pursuing its administrative seizure actions against appellants because it

had the right to collect on delinquent SBA loans, including via wage garnishment. Appellants have

not cited any authority preventing a private lender from pursuing collection efforts on an SBA loan

that the federal government is servicing and collecting, and there was no evidence to that effect; to

the contrary, Comerica’s witness testified that he was not aware of any law prohibiting simultaneous

collection. On this record, we conclude that the trial court did not act unreasonably or without

reference to guiding rules and principles in determining that it was not unfair to appellants to admit

the duplicates of the Note and guaranties.

Furthermore, we hold that Comerica was not required to produce the original Note

and guaranties to prove that it had not assigned the instruments and, thus, was still the owner and

holder. Comerica could have established that same fact with affidavits or testimony, which it did

present on the issue prior to the court’s ruling on appellants’ objection to the duplicates. See Zarges

v. Bevan, 652 S.W.2d 368, 369 (Tex. 1983) (per curiam) (holding that photocopy of note attached

to affidavit of holder, who swore it was true and correct copy, was proper summary-judgment

evidence and sufficient as matter of law to prove status of owners and holders of note absent

controverting summary-judgment proof); Garza v.Evans,No. 01-11-00666-CV, 2012 WL1893731,

at *8 (Tex. App.—Houston [1st Dist.] May 24, 2012, no pet.) (mem. op.) (holding that party’s

testimony that he received original of guaranty, he was its owner and holder, and copy thereof was

true and accurate copy of original was sufficient to prove his status as legal owner and holder of

guaranty, absent evidence that he had transferred or assigned his rights thereunder).

Comerica’s witness, Cedric Jordan, testified that the original Note had not been

“transferred or conveyed in any way from Comerica”; that the duplicates sought to be admitted by

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Comerica were true and correct copies of the originals; that it is “standard practice in litigation to

use copies”; that the originals are located in a vault in Michigan and “never leave the vault . . . unless

the loan is paid in full”; and that due to his involvement with this particular loan, he “would have

knowledge if the note or guarant[i]es had been assigned.” Jordan further testified that under the

SBA loan program, the federal government—as well as the lender—has the authority to collect on

a note. Jordan explained that the SBA had guaranteed 75% of the Note and that the indorsement on

the Note—“[t]he guaranteed portion of this note has been transferred to a registered holder for

value”—meant that the SBA had paid Comerica the 75% that the SBA had guaranteed, meaning

that when Comerica collected on the Note, it would be contractually bound to forward 75% of

its collections to the SBA. Jordan testified that in 2017, the Note “stayed with Comerica” but the

“loan servicing of it was sent back to the SBA.”

The documentaryevidence that appellants cite as allegedlydemonstrating Comerica’s

transfer or legal “assignment” of the Note to the SBA does not conclusively establish that fact. At

best, it constitutes controverting evidence to Jordan’s testimony that the Note was not assigned and

that Comerica wasstill in possession ofit. The resolution of conflictsin the evidence,such as whether

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Comerica assigned the Note or retained possession of it, was within the province of the trial court

as fact finder, and we assume that the fact finder resolved all such conflicts in favor of the judgment

unless it would have been unreasonable to do so. See City of Keller v. Wilson, 168 S.W.3d 802, 819

In addition to the indorsement on the Note, appellants cite emails between employees of 1

Comerica and the SBA. In one of the emails, after Comerica informs the SBA that it is in active

litigation against appellants with respect to this loan, one SBA employee indicates that the SBA had

already referred the loan to the Department of Treasury for servicing and inquires of another SBA

employee whether it is “possible to pull the loan from Treasury and assign it back to Comerica so

that Comerica may pursue a judgment?”

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(Tex. 2005). We conclude that the evidence waslegally and factually sufficient,seeKendall Builders,

Inc. v. Chesson, 149 S.W.3d 796, 802–03 (Tex. App.—Austin 2004, pet. denied) (outlining legaland factual-sufficiency standards of review), to support the trial court’s finding that Comerica was

the legal owner and holder oftheNote and guaranties. Accordingly,we overrule appellants’first issue.

In their second issue, appellants contend that Comerica “failed to produce any

evidence of the ‘amount of proceeds that would have been realized’” had Comerica conducted

its sale of appellants’ collateral in a commercially reasonable manner. See Tex. Bus. & Com. Code

§§ 9.626(a)(3)(B) (providing that if secured party fails to dispose of collateral in commercially

reasonable manner, debtor’s liability for deficiencyis limited to amount bywhich secured obligation

exceeds amount of proceeds that would have been realized in commercially reasonable disposition),

.627(b) (defining what constitutes disposition of collateral in “commercially reasonable manner”).

We read this complaint to be a challenge to the legal sufficiency of the evidence to support the trial

court’s finding on the proceeds issue.2

Contrary to appellants’ contention, the record reflects that Comerica did, in fact,

produce evidence of the amount of proceeds that would have been realized had Comerica disposed

of the collateral in a commercially reasonable manner. See id. § 9.626(a)(4) (providing that amount

of proceeds that “would have been realized” had sale been commercially reasonable is equal to “the

Both the trial court’s Finding of Fact Number 11 and Conclusion of Law Number 4 provide 2

The amount of the proceeds from the disposition of the Collateral that would have

been realized had the disposition of the Collateral be[en] in accordance with the

Texas Business and Commerce Code Section 9.610 et seq. and in a commercial[ly]

reasonable manner would have been $50,000, with the net proceeds being $31,500

with the reasonable charges for auctioneer costs to be 20% of the proceeds ($10,000),

and transportation costs of approximately $8,500.

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sum of the secured obligation, expenses, and attorney’s fees unless the secured party proves that the

amount is less than that sum” (emphasis added)). Comerica’s witness, Frank Sughrue, testified that

he has been in the auction business for over thirty years; is a Texas licensed auctioneer, specializing

in commercial liquidations; has conducted hundreds of appraisals, including ofrestaurant equipment,

furniture, and fixtures; and had recently been a speaker at a Texas Continuing Legal Education

convention on the topic of commercially reasonable sales. He testified that he was familiar with the

collateral at issue, having appraised it in 2009 with a value at that time of $29,305 (if liquidated by

public auction in a commercially reasonable manner). He further testified that a public disposition

of collateral such as that at issue would result in the highest net proceeds. He opined that had the

collateral been disposed of by public auction in a commercially reasonable manner during the time

frame when Comerica disposed of it, the net proceeds would have been between $25,000 and

$30,000, with expenses associated with moving the collateral from Austin to the public auction area

around $6,000 or $7,000. Appellant Michael Swartz testified that he believed the collateral could

have realized as much as $200,000 if Comerica had specifically notified other fondue-restaurant

franchisees about the collateral sale but did not present any other evidence to support this assertion.

As a general rule, a fact finder has broad discretion to award damages within the

range of evidence presented at trial, so long as a rational basis exists for the fact finder’s calculation.

See Khorshid, Inc. v. Christian, 257 S.W.3d 748, 760 (Tex. App.—Dallas 2008, no pet.); Mayberry

v. Texas Dep’t of Agric., 948 S.W.2d 312, 317 (Tex. App.—Austin 1997, writ denied). Sughrue’s

opinion about the amount of proceeds that would have been realized had the sale of the collateral

been commercially reasonable was supported by his many years of experience with auctions,

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appraisals, and commercially reasonable sales as well as his familiarity with the collateral at issue.

The trial court’s calculation of the amount of net proceeds fell within the range of the evidence

presented at trial, which provided a rational basis for the calculation of an amount within that range.

We conclude that the trial court’s finding about the amount of net proceeds was supported by legally

sufficient evidence. Accordingly, we overrule appellants’ second issue.

CONCLUSION

Having overruled both of appellants’ issues, we affirm the trial court’s judgment.

__________________________________________

Thomas J. Baker, Justice

Before Justices Baker, Kelly, and Smith

Affirmed

Filed: March 27, 2019

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