Court Opinion

ID: 6315956
Source: CourtListenerOpinion
Date Created: 2022-02-19 01:00:28.490866+00
Date Added: 2024-06-11T09:01:41.613018
License: Public Domain

Case: 21-20081     Document: 00516209060          Page: 1    Date Filed: 02/18/2022

              United States Court of Appeals
                   for the Fifth Circuit                         United States Court of Appeals
                                                                          Fifth Circuit

                                                                        FILED
                                                                 February 18, 2022
                                   No. 21-20081
                                                                   Lyle W. Cayce
                                                                        Clerk

   Ross Dress for Less, Incorporated,

                                                            Plaintiff—Appellant,

                                       versus

   ML Development, L.P.,

                                                            Defendant—Appellee.

                  Appeal from the United States District Court
                      for the Southern District of Texas
                            USCS No. 4:20-CV-978

   Before Barksdale, Engelhardt, and Oldham, Circuit Judges.
   Per Curiam:*
          This diversity action involves a drainage easement granted Ross Dress
   for Less, Incorporated (Ross), by ML Development, L.P. (ML), and arises
   out of land omitted mistakenly from the original land-purchase contract
   between them. At issue is whether the easement is an accord and satisfaction,
   discharging ML’s tax obligations under the original contract. In awarding

          *
            Pursuant to 5th Circuit Rule 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   opinion should not be published and is not precedent except under the limited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 Circuit Rule 47.5.4.
Case: 21-20081     Document: 00516209060              Page: 2   Date Filed: 02/18/2022

                                       No. 21-20081

   summary judgment to ML, the district court concluded ML granted the
   easement in exchange for a discharge of those obligations. But, because there
   was no pre-existing dispute between the parties over those tax obligations,
   ML has not satisfied its burden to show the parties mutually agreed to a
   discharge of them.     VACATED; judgment RENDERED for Ross;
   REMANDED.
                                            I.
          In 2018, Ross sought to purchase property in Waller County, Texas,
   for a new warehouse and distribution center. P150, LLC, a company formed
   solely to acquire the property before conveying it to Ross, entered into an
   agreement of purchase and sale of real property (PSA) with ML to acquire a
   250-acre parcel of land for approximately $33 million.
          The PSA contains a provision prorating specified taxes. The relevant
   provision, Section 6.6, provides:
          Real property taxes and the current installment of any special
          assessments approved by Purchaser in accordance with the
          provisions of Section 7.1 shall be prorated through Escrow to
          the Closing. All Roll Back Taxes shall be paid by the Seller.

   (Regarding rollback taxes, unless a property-sales contract, such as the PSA,
   expressly specifies otherwise or includes a prominent warning, the seller of
   agricultural property in Texas typically must pay those taxes if there is a
   change in use of the land within five years. See Tex. Prop. Code
   § 5.010(a), (d), (e); see also TEX. TAX CODE § 32.07(a).)
          Due to drainage issues, and as covered by the PSA, the property was
   to be divided into two areas:         the “Developable Property”; and the
   “Detention Area”. Ross planned to build the distribution center in the
   Developable Property, with the Detention Area to be used for draining and
   detaining water flowing from other parts of the property.

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          Ross retained an engineering firm, Ward, Getz and Associates
   (WGA), to assess the drainage issues and determine a course of action. Any
   drainage projects had to be approved by the Brookshire-Katy Drainage
   District (BKDD).      Ross was required eventually to grant title for the
   Detention Area, and any related drainage structures, to Waller County Road
   Improvement District No. 1 (Road District). Accordingly, the parties agreed
   in Section 4 of the PSA: BKDD and the Road District would determine the
   Detention Area’s size; and, based on WGA’s study, ML would decide the
   Detention Area’s location.
          The second amendment to the PSA identified the Detention Area’s
   location.      The amendment also noted: “Except as modified by this
   Agreement and the First Amendment, the PSA remains unchanged”. (The
   first amendment modified Section 8.5 of the PSA; the third amendment
   deleted Sections 8.5 and 8.6. No amendment modified ML’s tax obligations
   under the PSA.)
          On 16 May 2019, the parties signed a “Temporary Easement”, giving
   Ross access to additional land while constructing the drainage structures.
   The Temporary Easement described the consideration as “TEN AND
   NO/100 DOLLARS ($10.00) and other good and valuable consideration”.
   The next day, the parties closed on the property sale and executed a Tax
   Proration Agreement, which reaffirmed that ML would pay a prorated share
   of the 2019 real-property taxes.
          Two months later, Ross discovered WGA had miscalculated the
   Drainage Area’s location. This miscalculation left an area of the property
   landlocked, resulting in a small gap between a detention pond on one portion
   of the land and the drainage channel on the other. As a result, BKDD rejected
   the project.

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          To remedy this mistake, Getz of WGA requested from Magness,
   ML’s representative, a narrow easement to connect the two portions. Getz
   noted that, without the easement, Waller County would likely condemn the
   land. Magness responded by email: “I am doing this as, a ONE TIME
   personal favor to you, not to [Ross], not to the [Road] District, we are now even.
   Don’t ask for anything else.” (Emphasis added.) Attached to the email was
   a proposed agreement for the easement, entitled “Drainage Easement”.
          On 12 August 2019, Ross and ML executed the Drainage Easement,
   granting Ross “a nonexclusive perpetual right-of-way and easement” over
   the landlocked parcel “for and in consideration of the sum of TEN AND
   NO/100 DOLLARS ($10.00), and other good and valuable consideration . . .
   in hand paid to [ML] by . . . P150, LLC . . . or Ross”. Paragraph 9 of the
   Drainage Easement provides:
          Notwithstanding anything to the contrary, the conveyance of
          this easement fulfills any and all contractual, moral, or ethical
          obligations that ML . . . may have had in the past or may have
          in the future to P150, LLC, . . . and/or its successor Ross . . .
          [;] ML . . . shall have no obligation to provide any easements,
          right-of-way or anything else of value to [Ross].

          Property taxes, including rollback taxes and 2019 real-estate taxes,
   became due a few months after the Drainage Easement was executed.
   Because neither the PSA nor the Tax Proration Agreement specified
   otherwise, but rather reaffirmed ML’s tax obligations, it was responsible for
   taxes totaling approximately $547,000: approximately $268,000 for rollback
   taxes; and approximately $279,000 for 2019 real-estate taxes. When Ross
   began receiving tax invoices from Waller County, it forwarded them to
   Magness.
          After receiving delinquency statements from Waller County, Ross
   paid the taxes to avoid further penalties and requested reimbursement from

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   ML. Magness responded: “ML . . . has fulfilled all of [its] obligations to
   Ross”. Ross sued ML for breach of contract and unjust enrichment.
          As discussed in detail infra, after cross-motions for summary
   judgment were filed, ML was granted leave to amend its answer to add accord
   and satisfaction as an affirmative defense (ML had originally instead asserted
   the easement was a release from its tax obligations), and the district court ordered
   supplemental briefing addressing the accord-and-satisfaction defense.
   Subsequently, the court granted summary judgment to ML, concluding that
   the above-quoted Paragraph 9 of the Drainage Easement constituted an
   accord and satisfaction, which discharged ML’s tax obligations. Ross’
   motion for reconsideration was denied in January 2021.
                                           II.
          Ross asserts the Drainage Easement was not an accord and satisfaction
   of ML’s $547,000 tax obligation. Critical to that assertion is whether a pre-
   existing dispute existed between the parties.
          A summary judgment is reviewed de novo. E.g., Baylor Health Care
   Sys. v. Emps. Reinsurance Corp., 492 F.3d 318, 320–21 (5th Cir. 2007).
   Summary judgment is appropriate when “there is no genuine dispute as to
   any material fact and the movant is entitled to judgment as a matter of law”.
   Fed. R. Civ. P. 56(a). For deciding whether genuine disputes of material
   fact exist, facts in the summary-judgment record must be viewed in the light
   most favorable to the nonmovant. E.g., Baylor, 492 F.3d at 321.
          Texas substantive law applies to this diversity action. E.g., Greenwich
   Ins. Co. v. Capsco Indus., Inc., 934 F.3d 419, 422 (5th Cir. 2019). “Under
   Texas law, [a]ccord and satisfaction, as a defense to a claim based upon a
   contract, exists when the parties have entered into a new contract, express or
   implied, which discharges the obligations under the original contract in a
   manner otherwise than as originally agreed.” Baylor, 492 F.3d at 321

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   (alteration in original) (citation omitted). Because accord and satisfaction is
   an affirmative defense, the burden is on the party that pleads it: in this
   instance, ML. F.T.C. v. Nat’l Bus. Consultants, Inc., 376 F.3d 317, 322 (5th
   Cir. 2004) (“An affirmative defense places the burden of proof on the party
   pleading it.”).
          In that regard, there must be more than payment or acceptance of
   money for there to be an accord and satisfaction. Baylor, 492 F.3d at 321.
   Critical to this case, “[a] valid accord and satisfaction requires that there
   initially be a legitimate dispute between the parties about what was expected”.
   Lopez v. Muñoz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 863 (Tex. 2000)
   (emphasis added) (quoting Bueckner v. Hamel, 886 S.W.2d 368, 372 (Tex.
   App. 1994)); see also Baeza v. Hector’s Tire & Wrecker Serv., Inc., 471 S.W.3d
   585, 592 (Tex. App. 2015) (“If a pre-existing dispute is established, the . . .
   party [seeking the accord and satisfaction] must then establish that the
   parties ‘specifically and intentionally agreed’ that the tendering and
   acceptance of the [new agreement] would discharge the underlying obligation
   that formed the basis of their dispute”. (citation omitted)).
          In addition to the requisite pre-existing dispute, “[t]here must be an
   ‘unmistakable communication’ establishing that performance according to
   the terms of the new agreement will satisfy the underlying obligation created
   by the original contract”. Baylor, 492 F.3d at 321 (citing Pate v. McClain, 769
   S.W.2d 356, 361–62 (Tex. App. 1989)). The communication “must be plain,
   definite, certain, clear, full, explicit, not susceptible of any other
   interpretation, and accompanied by acts and declarations that [the parties
   are] sure to understand”. Id. (alteration in original).
          An accord and satisfaction, however, need not be explicitly stated in
   the new agreement. Id. When considering whether a new agreement was
   executed to discharge a pre-existing obligation, courts may look to

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   surrounding circumstances. Id. “When the parties’ intent is ‘resting in
   implication,’ however, the circumstantial evidence must ‘irresistibly point to
   the conclusion’ that, in reaching a new agreement, the parties assented to a
   complete discharge of the original obligation.” Id. (emphasis added).
                                         A.
          Before reaching whether there was an accord and satisfaction, we
   turn, in the light of the very unusual procedural background for this appeal,
   to whether the pre-existing-dispute issue was preserved in district court. ML
   does not claim it was not preserved; but, no authority need be cited for the
   long-established rule that we, not the parties, make that determination.
          After discovery, when the parties cross-moved for summary
   judgment, ML asserted Paragraph 9 constituted a “release” of its tax
   obligations. In response, Ross maintained that Paragraph 9 did not constitute
   a release and pointed out that ML “failed to plead accord and satisfaction”.
   Ross also noted: Even if ML had pleaded accord and satisfaction, the
   language in Paragraph 9 did not meet the standards required for that
   affirmative defense; and, quoted Texas Supreme Court authority that an
   underlying disputed obligation is one of the conditions for an accord and
   satisfaction, citing Lopez, 22 S.W.3d at 863.
          ML, realizing its mistake, moved, as noted, for leave to file an
   amended answer to add the affirmative defense of accord and satisfaction. At
   a Zoom hearing for oral argument on the cross-motions for summary
   judgment, the district court granted ML’s motion to amend and ordered the
   parties to file simultaneous five-page supplemental briefs addressing accord
   and satisfaction. During the balance of the hearing, Ross noted, inter alia,
   that the at-issue Paragraph 9 of the Drainage Easement does not mention
   ML’s tax obligations.

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          In its supplemental brief, and favorably to Ross’ position, ML stated:
   “A valid accord and satisfaction requires that there initially be a legitimate
   dispute between the parties about what was expected”, citing City of Houston
   v. First City, 827 S.W.2d 462, 472 (Tex. App. 1992) (emphasis added). The
   balance of its brief, however, failed to discuss whether the requisite legitimate
   dispute existed, much less claim that it did. Instead, ML repeatedly referred
   to the gap in the legal description of the land as a “mistake”. Quoting Baylor,
   492 F.3d at 321, ML asserted the tax obligations were discharged, even
   though they weren’t mentioned in the Drainage Easement, explaining:
   “[T]he new agreement need not explicitly state that it is intended to
   supersede the original contract”.
          Ross’ supplemental brief did not use the term “pre-existing dispute”.
   It did, however, discuss that, for an accord and satisfaction in Texas, there
   must be an underlying obligation’s being satisfied by the new agreement and
   there must be an unequivocal specification of the obligation that is being
   satisfied.
          The district court’s ruling on the cross-motions for summary
   judgment did not address the pre-existing-dispute requirement for accord
   and satisfaction. The court did state that there must be an underlying
   obligation that the new agreement satisfies and concluded Paragraph 9
   sufficiently discharged ML’s tax obligations.
          Ross’ earlier-referenced motion for reconsideration discussed at
   length the pre-existing-dispute condition. It also noted the supplemental
   briefs were “limited to no more than five pages and focused only on legal
   arguments”. Ross asserted: Because of this, it was “permitted to raise new
   arguments and evidence in [its] motion [to reconsider]”, citing Luig v. N. Bay
   Enters., Inc., 817 F.3d 901, 907 (5th Cir. 2016).

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            ML responded there was no support for Ross’ assertion that the court
   ignored the pre-existing-dispute requirement. ML maintained: “A dispute
   did exist and [it] arose due to Ross’s own mistake”—the need for the
   easement.      Regarding whether the pre-existing-dispute issue had been
   preserved, ML did not assert that Ross had not done so. Nor did ML claim
   it would be prejudiced (which it would not be) by the court’s considering that
   issue.
            As noted, the motion was denied. The court concluded, inter alia, the
   pre-existing-dispute issue should have been raised earlier.
            Based on these very unusual circumstances, the pre-existing-dispute
   requirement was sufficiently raised, especially because: We apply de novo
   review for the summary judgment; and the burden to show an accord and
   satisfaction is on ML. Most telling, ML does not assert on appeal that this
   issue was not preserved in district court; nor could it do so.
                                          B.
            As stated, the first condition for an accord and satisfaction is that a
   dispute existed between the parties prior to the new agreement. Ross
   contends: The property not included in the original contract was merely a
   mistake that the Drainage Easement remedied, “not a dispute about the tax
   obligations that ML . . . supposedly sought to discharge”. Ross further points
   to Texas law to explain that the requisite dispute for an accord and
   satisfaction cannot be unrelated to the obligation a party seeks to discharge.
   See Baeza, 471 S.W.3d at 592 (explaining parties must agree “the tendering
   and acceptance of the [new agreement] would discharge the underlying
   obligation that formed the basis of their dispute”).
            ML maintains the requisite dispute is whether the property between
   the detention pond and the drainage channel should have been included in
   the original agreement: “This drainage easement would resolve the dispute

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   concerning what real property should have been . . . included in the original
   land conveyance, avoid condemnation proceedings, and avoid substantial
   delay to the development of Ross’s largest warehouse and distribution center
   in the country”. ML asserts it was undisputed that the land should have been
   included in the original conveyance.
          During oral argument on appeal, ML contended that caselaw does not
   require the specific dispute at issue to be the subject matter of the accord and
   satisfaction. Relying on Baylor and Pileco, Inc. v. HCI, Inc., 735 S.W.2d 561
   (Tex. App. 1987), ML maintains the broad language contained in Paragraph
   9 of the Drainage Easement is a catchall that covers the tax obligations
   imposed by the PSA. But, in both Baylor and Pileco, the dispute and the
   accord and satisfaction concerned the same subject matter. See Baylor, 492
   F.3d at 319–20; Pileco, 735 S.W.2d at 561.
          ML also noted during oral argument here: At the time the Drainage
   Easement was executed, all contractual obligations had been satisfied, except
   for ML’s tax obligations; and, therefore, the Drainage Easement settled those
   remaining tax obligations. Nothing in the record, however, even suggests
   there was ever a dispute about those obligations.
          To the contrary, the summary-judgment record reflects the Drainage
   Easement was executed to resolve the mistake that was made when the very
   small parcel of land was left out of the original $33-million agreement. As
   noted supra, Magness for ML referred to the easement as a “personal favor
   to [Getz of WGA]”, with no hint of, much less reference to, a dispute.
          For an accord and satisfaction, the pre-existing dispute, for obvious
   meeting-of-the-minds reasons, serves as consideration for the discharge of
   the obligation at issue. See Hycarbex, Inc. v. Anglo-Suisse, Inc., 927 S.W.2d
   103, 110 (Tex. App. 1996) (noting “the very existence of the dispute is the
   consideration for the accord and satisfaction”). In other words, the purpose

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   of identifying the dispute is obviously to put the parties on notice as to what
   is being discharged. The accord and satisfaction must, therefore, be based on
   the pre-existing dispute. But here, there was no dispute over whether ML
   owed tax obligations, or was seeking to avoid them, when the Drainage
   Easement was executed.       ML has not met its burden for the dispute
   requirement.
          Because no pre-existing dispute existed between the parties, we need
   not consider the “unmistakable communication” condition. In sum, the
   Drainage Easement was not an accord and satisfaction discharging ML’s tax
   obligations.
                                        III.
          For the foregoing reasons, the summary judgment awarded ML is
   VACATED; judgment is RENDERED for Ross; and this matter is
   REMANDED for any further proceedings, consistent with this opinion.

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