### T E X A S C O U R T O F A P P E A L S , T H I R D D I S T R I C T , A T A U S T I N

NO. 03-18-00066- CV

Just F ondu e It, L.L.C.; Capital F ondu e, L.L.C.; Michael R. Swartz, Jr .; and Kelly Ann Sw artz , Appellan ts

v. Com eric a Bank , a Texas Bank ing Association, su cce ssor in in ter est by m erge r to

Com eric a Bank , a Michigan ban kin g corporat ion, App ellee

F ROM TH E DISTRI CT COURT O F TRAVIS CO UNTY, 200 TH JUDICI AL DISTRICT NO. D-1 -GN-1 2-0 0399 0, H ONO RAB LE SCO TT H . JENK INS, J UDGE P RESIDING

M E M O R A N D U M O P I N I O N Ap p ellants J ust Fondue I t, L .L .C.; Capital Fondue , L .L .C.; Michae l R. Swartz, J r.; and Kelly Ann Swartz c ontend that the evidenc e is leg ally and fa ctually

insufficient to support the trial court’s judgment render ed after a bench trial on the debt claim of appellee Comer ica Bank, a Texas Ba nking A ssociation (Comerica ). We will affirm the tr ial court’s judg ment.

BACK GR OUND Comerica filed a lawsuit ag ainst app e ll a nts s e eking a judgme nt for the unpaid balanc e under a U.S. Small Business Administration (SBA) promissory note i n t h e p rincipal amount of $1,176,000.00 (the Note). The lawsuit alleg ed that in 2007 J ust F ondue I t signed the Note and the

o t her three appellants signe d g uara nties of the Note. Comerica further alleg ed that appellants defa ulted on the Note, Comerica acc eler ated the Note, and appellants failed to make partial monthlypay

ments on the Note per the parties’ ag ree d pay ment arr ang ement. Comerica’ s petition alleg ed that it is the “leg al owner and holder of the Note and Gu ar an t i es ” and that it “see ks rec overy of the entire, unpa id principal bala nce of the Note, tog ether

with all acc rued but unpaid interest, and a ny other amounts due and owing pursuant to t he ter ms of the Note and Guaranties.” I n their answer, appellants made a verifie d plea that Comerica is “not the holder [] or the owner ” of t h e Note and

asser ted that Comerica had not met the condition prec edent o f s ell ing their collater al (fondue

restaur ant fixt ures, f

urniture, a

nd equipment) in a c ommercia lly rea sonable manne r. After a bench trial, the trial court rende red judgme nt for Comerica of $1,676,480.63 plus inter est, costs, and attorney ’s fee s. The judgme nt a lso a war ded appellants a cre dit a g ainst the judgme nt amount for “[a]ny amounts rec eived by the U.S. Small Business Administration (SBA) or the U.S. Trea sury

Depa rtment from c ollection eff orts ag ainst any

of the De fenda

nts.”

DISCUSSIO N A p p e ll a nts r a is e tw o is s u e s o n a

p p e a l: ( 1 ) th e tr

ia l c o u r t e r r e d in f in d in g th a t Co me r ic a was the owner and holder of the Note and g uara nties, and (2) the trial court err ed in finding that a

commerc ially

rea sonable sale of the c ollatera l would have r ealized $31,500 in net proc eeds. Wit h re s p ec t to their first issue, appellants contend that the trial court improperly admitted Comerica’ s copies of the Note and g uara nties rather t h an t h e orig inal instruments. See Tex. R. Evid. 1003 (“A duplicate is a dmissibl e to the same extent as the orig inal unless a question is r a is e d a b o ut th e o r ig in a l’ s a

uth e nti c it y o r th e c ir c u

ms ta n c e s ma k e it u n f a ir to a d mi t th e d u p li c a te

. ” )

. Specifica lly , appellants asser t that “the circ umstances made it unfair to admit a duplicate rathe r than the orig inal note and g uara nties under Rule 1003” beca use they wer e “simultaneously defe nding this

2lawsuit by Comerica . . . and [facing ] t he administrative se izure actions of the f eder al g overnme nt [t hroug h wag e g arnishment].” Wit hout production of the orig inal instruments, appellants continue, Comerica could not prove that the instruments had not been transfe rre d or assig ned to another party (i

. e. , the SBA) and that it was still the owner and holder of the instruments and had the rig ht t o

en fo rc e them. See Tex. Bus. & Com. Code §§ 1.201 (def ining “holder ” to include, rele vantl y , “per son in possession of a neg otiable instrument that is pay able e ither to bea rer or to an identified person that is the p er s o n i n possession”), 3.301 (def ining “per son entitled to enfor ce” instrument to include, relevantly , “hold er ” o f instrument). Appellants additi onally contend that the evidence established that Comerica was no longe r the owner or holder of the Note beca use it had “assig ned” it to the SBA, relying on documents admitted at trial evidenc ing communications betwee n the SBA and Comerica and a 2008 indorsement on the Note rea ding, “The g uara nteed portion of t h i s note has bee n transfe rre d to a re g istered holder for va lue.” We revie w the trial court’s ruling on the admissibili ty of the du p l i cate Note and g uara nties for an abuse of discretion. See W hirlpool Corp. v. Camacho , 298 S.W .3d 631, 638 (Tex. 2 0 0 9); see also Downer v. Aquamarine Operators, Inc. , 701 S.W .2d 238, 241–42 (Tex. 19 8 5 ) (explaining that trial court abuses i t s d iscretion when it acts arbitra rily , unrea sonably , or without ref ere nce to any g uiding rules and principles). On this rec ord, we conclude that the trial cour t did not abuse its discretion in admitting the duplicate instruments.

The fe d er al g overnme nt’s and Comerica’ s simult aneous collection eff orts ag ainst 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

3fede ral g overnme nt was pursuing its administrative seizure actions ag ainst appellants beca use it had the rig ht to collect on delinquent SBA loans, including via wag e g arnishment. Appellants have not cited any authority preve nting a private lender from pursuing collection eff orts on an SBA loan that the fede ral g overnme nt is servicing and collecting , and there was no evidenc e to that eff ect; to the contra ry , Comerica’ s witness testified that he was not awa re of any law prohibiting simult aneous collection. On this rec ord, we conclude that the trial court did n ot act unrea sonably or without ref ere nce to guiding rules and principles in deter mining that it was not unfair to appellants to admit the duplicates of

the Note a

nd g uara nties. Fur thermore , we hold that Comerica was not required to produce the original Note and guar anties t o prove that it had not assig ned the instruments an d , t h u s, was sti ll the owner and holder. Comerica could have established t h at s ame fact with aff idavits or t estimony , which it did prese nt on the issue prior to the court’s ruling on appellants’ objection to the duplicates. See Zarges v. Be van , 652 S.W .2d 368, 369 (Tex. 1983) (per curiam) (holding that photocopy of note attached to aff idavit of h o l d er , wh o swore it was true and corr ect copy , was proper summary -judg ment evidenc e and sufficie nt as matter of law to prove status of owner s and holders of note absent controve rting summary -judg ment pr o o f ) ; G a r z a v . E v a n s , N o. 01-11-00666- CV, 2012 WL 1893731, at *8 (Tex. App.—Houston [1st Di s t.] May 24, 2012, no pet.) (mem. op.) (holding that party ’s testimony that he rec eived orig inal of g uara nty , he was its owne r and holder, and copy there of was true and acc urate copy of orig inal was sufficie nt to prove his status as leg al owner and holder of g uara nty , absent e vidence that he had tr ansfe rre d or assig ned his rig hts thereunde r). Comerica’ s witness, Cedric J ordan, testified th at the orig inal Note had not been “tra nsfer red or convey ed in a

ny way from Comerica” ; that the duplicates soug ht to be admitted by

4Comerica were true and corr ect copies of t he originals; t hat i t is “standa rd pract i ce in litigation t o

use copies” ; that the orig inals are located in a vault in Michig an and “neve r leave the vault

. . . unless the l oan is paid i n full”; and that due to his involvement with this particula r l oan, he “would have knowledg e if the note or g uara nt[ i] es had been assig ned.” J o rd an further testified that under the SBA loan prog ram, the fede ral g overnme nt—as well as the lender —has the authority to collect on

a note. J ordan explained that the SBA had g uara nteed 75% of the Note and that the indorsement on the Note—“[t]he g uara

nteed portion of this note has been transfe rre d t o a re gi s tere d holder for value” —meant that the SBA had paid Comerica the 75% that the SBA had guara nteed, meaning that when Comerica co l l ec t ed on the Note, it would be contra ctually bound to forwa rd 75% of its collections t o the S BA

. J ordan testified that in 2017, the Note “stay ed with Comerica” but the “loan se rvicing of it was sent ba ck to the SBA .”

The documentar

y evi d e n c e th a

t a p p e ll a nts c it e a s a ll e g e d ly d e monstrating Comerica’ s transfe r or leg al “assig nment” of the Note to the SBA does not c onclusively establish that fac t. At best, it constitutes controve rting evidenc e to J ordan’ s testimony that the Note was not assig ned and th a t Co me r ic a w a s s ti ll in p o s s e s s io n o f it

. T h e r e s o lu ti o n o f c o n f

li c ts in th e e v id e n c e , s u c h a s wh e th e r 1 Comerica a ssigne d the Note or retained possession of it , was within the province of the trial c ourt

as fac t finder, and we assume that the fac t finder resolved all such conflicts in favor of the judgme nt unless it would have been unrea sonable to do so. See City of Keller v. W

ilson , 168 S.W .3d 802, 819

I n addition to the indorsement on the Note, a ppellants cite e mails betwee n employ ees of 1 Comerica and the SBA. I n one of the emails, afte r Comerica informs t h e S BA t h at it is in active litigation ag ainst appellants with respe ct to this loan, one SBA employ ee indicates that the SBA had alre ady ref err ed the loan to the D epar tment of Tre asury

for servicing

and inquires of

another SBA employ ee whether

it is “possibl e to pull the l oan from Trea sury and assign itback to Comeric a so that Comerica ma

y pursue a judgme nt? ” 5( T e x. 2 0 0 5 )

. We c o n c lu d e th a t th e e v id e n c e w a s le g a ll y a n d f a c tu a ll y s u f

f ic ie nt, s e e Ke n d

a ll B u il d e r s , Inc. v . Chesson , 149 S.W .3d 796, 802–03 (Tex. A pp.—Austin 2004, pet. denied) ( outlining leg aland fac tual-suffic iency standards of revie w), to support the trial court’s finding that Comerica was th e le g a l o wn e r a

n d h o ld e r o f th e N o te a

n d g u a r a nti e s . A c c o r d in g ly , w e o v e r r u le a p p e ll a nts ’ f ir s t is s u e . I n their second issue, appellants contend that Co m eric a “fa iled to produce any evidenc e of the ‘a m ount of proce eds that would have been rea liz ed’” had Comerica conducte d its sale of appellants’ collater al in a commerc ially rea sonable manner . See Tex. Bus. & Com. Code § § 9.626(a) (3)( B) (providing that if secur ed party fails to dispose of collater al in commer ci al l y

rea sonable manner , debtor’s liability for defic iency is limit ed to amount by which secur ed obligation exceeds amount of proce eds that would have been rea liz ed in commerc ially rea sonable dispositi on), .627(b) (def

ining what constitutes disposition of collater al in “commer cially rea sonable manner ”). We rea d this complaint to be a challeng e to the leg al sufficie ncy of the evidenc e to support the trial court’s f inding on the pr ocee ds issue. 2 Contrary to appellants’ contenti o n , t h e rec ord ref lects that Comerica did, in fac t, produce evidenc e of the amount of proce eds that would have been rea liz ed had Comerica disposed of the collater al in a commerc ially rea sonable manner . See id. § 9.626(a) (4) (providing that amount of proce eds that “would have been rea liz ed” had sale been commerc ially rea sonable is equal to “the

Both the trial court’s Finding of Fa ct Number 11 and Conclusion of L aw Number 4 provide 2 The amount of t he procee ds from t h e dispositi on of t he C ollatera l that would have been rea liz ed had the dispositi on of the Collateral be[en] in acc orda nce with the Texas Business and Commerce Code Section 9.610 et seq. and in a commerc ial[l y ] rea sonable manne r would have been $50,000, w ith the net proce eds being$31,500 with the rea sonable char g es for auctionee r costs to be 20% of the proce eds ($10,000), and tra nsportation costs of appr ox imately $8,500. 6sum of the secur ed obligation, expenses, and attorney ’s fee s unless the secure d party proves that the

amount is less than that sum ” (empha sis added) ). Comerica’ s witness, Fr ank Sughr ue, testified that he has been in the auction business for over thirty y ear s; is a Texas licensed auctionee r, specia liz ing in commerc ial liquidations; has conducte d hundreds of a p p r a is a ls , in c lu d in g o f r e s ta u r a nt equipment, furniture , and fix tures; and had rec entl y b ee n a speake r at a Texas Continui ng L eg al Education convention on the topic of commerc ially rea sonable sales. He testified that he was familiar with the collater al at issue, having appra ised it in 2009 with a value at that time of $29,305 (if liquidated by public auction in a commerc ially rea sonable manner ). He further testified that a public dispositi on of collateral such as t hat at issue would result i n the hi g hest net proceeds. He opined that had the collater al been disposed of by public auction in a commerc ially rea sonable manner during the time frame when Comerica d i s p o s ed of it, the net proce eds would have been betwee n $25,000 and $30,000, with expenses associate d with moving the collater al from Austin to the public auction are a around $6,000 or

$7,000. Appellant Micha el Swartz te stified that he believe d the collater al could have rea liz ed as much as $200,000 if Comerica had s pecif ically notified other fondue- restaur ant fra nchisee s about the collater al sale but did not prese nt any other evidenc e to support this asser tion. As a g ener al rule, a fac t finder has broad d i s cr et ion to awa rd damag es within the rang e of evidenc e prese nted at trial, so long as a rational basis exis ts for the fac t finder’ s calc ulation. See Khorshid, Inc. v. Christ ian , 257 S.W .3d 748, 760 (Tex. App.—Dallas 2008, no pet.); Maybe rry

v. Texas Dep’ t of

Agric. , 948 S.W .2d 312, 317 (Tex. App.—Austin 1997, writ denied)

. Sughr ue’s opinion about t h e amount of proceeds that would have been realized had the sale of the collateral been commerc ially rea son ab l e wa s supported by his many y ear s of experience with auctions,

7appra isals, a nd commerc ially rea sonable sales as well as his familiarity with the collater al at issue. The trial court’s calc ulation of t he amount of net proce eds fell within the rang e of the evidenc e prese nted at trial, which provided a rational basis for the calc ulation of an amount within that rang e. We conclude that the trial court’s finding about the amount of net proce eds was supported by leg ally sufficie nt evidence . Acc ording ly , we ove rrule a ppellants’ sec ond issue.

CONCLUSION Havingoverr

uled both of appe llants’ issues, we a ffirm the tria l court’s judg ment.

__________________________________________ Thomas J . Ba

ker, Justi ce Be fore J ustices B aker , Kelly , and Smith Affir med Filed: Mar ch 27, 2019

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