Court Opinion

ID: 7804643
Source: CourtListenerOpinion
Date Created: 2022-08-30 00:00:24.565113+00
Date Added: 2024-06-11T16:28:48.022829
License: Public Domain

Case: 21-40365      Document: 00516450991           Page: 1     Date Filed: 08/29/2022

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

                                                                               FILED
                                                                         August 29, 2022
                                    No. 21-40365                          Lyle W. Cayce
                                                                               Clerk

   Nicholas Fugedi, in his capacity as Trustee Carb Pura Vida
   Trust,

                                                              Plaintiff—Appellant,

                                        versus

   Initram, Incorporated; RJL Realty, L.L.C.; Eternal
   Investments, L.L.C.; Bruce Robinson; Dale Pilgeram, et
   al

                                                            Defendants—Appellees.

                   Appeal from the United States District Court
                       for the Southern District of Texas
                             USDC No. 3:19-CV-249

   Before Richman, Chief Judge, and Clement and Engelhardt,
   Circuit Judges.
   Per Curiam:*
          Nicholas Fugedi, as trustee for the CARB PURA VIDA Trust (the
   trust), filed suit to quiet title to real property in Houston, Texas. Both parties

          *
            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   opinion should not be published and is not precedent except under the limited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: 21-40365        Document: 00516450991              Page: 2       Date Filed: 08/29/2022

                                          No. 21-40365

   moved for summary judgment, and the district court granted Initram’s
   motion. Because the court erred as a matter of law, we vacate and remand.
                                                I
           The district court’s characterization of this case is accurate: “[the]
   dispute is contentious and involves multiple parties. The [p]roperty [at
   issue] is burdened with many liens and has a convoluted history of
   conveyances. On top of that, there are salacious allegations of fraud and other
   skulduggery.” 1 But despite the whirlwind of allegations and accusations, the
   claim on appeal is straightforward. Fugedi, as trustee for the trust, seeks to
   quiet title to property in Houston, Texas (the property) against the many
   named defendants (Initram).
           Yale Development, LLC, executed and recorded a General Warranty
   Deed (the deed) in which it sold and conveyed the property to a grantee
   identified as the “CARB Pura Vida Trust.” Although Fugedi is the trustee
   of the trust, he was not named in the deed. Little more than a week later,
   Fugedi filed this action to quiet title. 2 During the litigation and before
   summary judgment, Initram argued that the deed was invalid because it
   purported to convey directly to the trust, a nonentity under Texas law. To
   remedy this potential cloud on his title, Fugedi executed a corrected deed
   with Yale Development, and he entered that deed and an affidavit from the
   closer of the original deed into the record. The corrected deed lists as the
   grantee, “Nicholas Fugedi in his capacity as Trustee of the CARB Pura Vida
   Trust, a Michigan trust,” and the affidavit clarifies that Fugedi was always

           1
            Fugedi v. United Rentals (N. Am.) Inc., No. 3:19-CV-00249, 2021 WL 1220032, at
   *1 (S.D. Tex. Mar. 31, 2021).
           2
              Fugedi eventually amended the complaint to bring a trespass to try title claim as
   well as a claim for declaratory relief.

                                                2
Case: 21-40365          Document: 00516450991           Page: 3   Date Filed: 08/29/2022

                                         No. 21-40365

   meant to take the property in his capacity as trustee and that it was a
   scrivener’s error for the original deed to state otherwise.
          Texas law allows for certain changes to be made under the deed
   correction statutes, Texas Property Code §§ 5.027-.030. Fugedi argued that
   the corrected deed made a nonmaterial change and that the affidavit satisfied
   the statute’s requirements for making such a change. He contends that the
   correction merely clarified in what capacity the parties were acting, 3 and that
   because the change was nonmaterial, all the statute required was an affidavit
   from someone with personal knowledge, such as the closer of the original
   deed. 4 Fugedi also argued that because the trust is a Michigan trust,
   Michigan law should apply and that under Michigan law, trusts can hold
   property.
          The district court disagreed. The court first decided that, as a matter
   of Texas law, (1) trusts are a relationship rather than a legal entity and are
   incapable of holding title to property; and (2) a deed must contain both a valid
   grantor and grantee in legal existence. 5 The court then concluded that,
   because the trust is not a legal entity, the original deed was void because it
   purported to convey property to a grantee that was not in legal existence. 6
   The court then decided that the corrected deed purported to correct a
   material—rather than nonmaterial—change because it attempted to
   substitute grantees. 7 The court characterized this decision as “a close call,”

          3
              See Tex. Prop. Code Ann. §§ 5.027-.030.
          4
              Id. § 5.028.
          5
              Fugedi, 2021 WL 1220032, at *3.
          6
              Id.
          7
              Id.

                                                3
Case: 21-40365          Document: 00516450991             Page: 4     Date Filed: 08/29/2022

                                           No. 21-40365

   distinguishing the substitution of grantees from corrections to “the capacity
   of the grantor and grantee.” 8
           Because the court decided that the correction was a material change,
   it decided that § 5.029 of the deed correction statute applied. As a result, the
   corrective instrument needed to be “executed by each party to the recorded
   original instrument of conveyance . . . or, if applicable, a party’s heirs,
   successors, or assigns.” 9 The court concluded that because the original
   conveyance was signed by the trust and did not identify a legally recognizable
   trustee, it was invalid 10 and “[n]o amount of correction instruments
   filed . . . will change that.” 11 The court added that, even if the statute allowed
   this type of error to be corrected, “it is simply impossible to comply with
   § 5.029 because the alleged grantee [the trust] can’t sign the correction
   instrument.” 12
           The court then quickly disposed of the remaining arguments. It
   decided that Texas law likely applied because the property was located in
   Texas and, in the alternative, that Michigan law was the same as Texas law
   in that a trust could not hold title to property. 13 Because Fugedi could not

           8
             Id. (citing inter alia Pense v. Bennett, No. 06-20-00030-CV, 2020 WL 5948801, at
   *5 n.9 (Tex. App.—Texarkana Oct. 8, 2020, no pet.); AIC Mgmt. Co. v. AT&T Mobility
   LLC, No. 01-16-00896-CV, 2018 WL 1189865, at *7 (Tex. App.—Houston [1st Dist.] Mar.
   8, 2018, pet. denied)).
           9
                Id. at *4 (quoting Tex. Prop. Code Ann. § 5.029(b)).
           10
             The court called the deed “invalid as a matter of law” in its memorandum and
   order but revised that to say “void” in the final judgment.
           11
                Fugedi, 2021 WL 1220032, at *4.
           12
                Id. (citing AIC Mgmt., 2018 WL 1189865, at *9).
           13
             Id. Fugedi’s contention that Michigan law applies is incorrect. This is a dispute
   concerning conveyances and interests in real property located in Texas, so Texas law
   applies. Colden v. Alexander, 171 S.W.2d 328, 335 (Tex. 1943); see also Pellow v. Cade, 990
   S.W.2d 307, 314 (Tex. App.—Texarkana 1999, no pet.) (holding that under Texas law,

                                                  4
Case: 21-40365               Document: 00516450991           Page: 5      Date Filed: 08/29/2022

                                              No. 21-40365

   prove title in his trespass to try title claim, the court held that his quiet title
   and declaratory relief claims failed. 14 The court denied Fugedi’s motion for
   summary judgment and granted Initram’s cross-motion for summary
   judgment “to the extent that it requests [Fugedi] take nothing by this suit
   against Defendants, and Fugedi is adjudicated to possess no right, title, claim,
   or interest to the Property.” 15 Fugedi timely appealed.
           Once in this court, Initram moved to dismiss, seeking damages and an
   antisuit injunction. Initram argued that dismissal was appropriate “because
   the issues on appeal are no longer in controversy and [Fugedi] no longer has
   a legally cognizable interest in the outcome of the case” since new
   whistleblower evidence allegedly proved that the trust is a sham operated by
   Texas citizen Lloyd Kelley.
                                                   II
           We review a grant of summary judgment de novo. 16 Summary
   judgment should be granted if there is no genuine dispute as to any material
   fact and the movant is entitled to judgment as a matter of law. 17 We view the
   evidence in the light most favorable to the nonmoving party. 18 Vacatur and
   remand are appropriate if the district court misapplies a legal standard. 19

   “[q]uestions concerning title to real estate, the validity of conveyances, warranties, and
   foreclosures are determined by the law of the situs”) (citing Colden, 171 S.W.2d at 335).
           14
                Fugedi, 2021 WL 1220032, at *4.
           15
                Id. at *5.
           16
                Molina v. Home Depot USA, Inc., 20 F.4th 166, 168 (5th Cir. 2021).
           17
                Fed. R. Civ. P. 56(a).
           18
                Molina, 20 F.4th at 168-69.
           19
             See United States v. Bittner, 19 F.4th 734, 748-49 (5th Cir. 2021), cert. granted, 142
   S. Ct. 2833 (2022) (vacating and remanding when the district court construed a statute
   incorrectly).

                                                   5
Case: 21-40365           Document: 00516450991              Page: 6       Date Filed: 08/29/2022

                                            No. 21-40365

   When determining Texas law, this court looks first to “the final decisions of
   the . . . Supreme Court [of Texas].” 20 If those decisions provide inadequate
   guidance, then this court can determine “how [the Supreme Court of Texas]
   would resolve the issue if presented with the same case.” 21
                                                  A
           The district court erred when it concluded that the deed was null and
   void. The district court correctly concluded that a trust is a relationship, not
   a legal entity, and that a grantee must be in legal existence for a grant to be
   valid. 22 But no Texas court has gone so far as to hold that all deeds naming a
   trust as a grantee are null and void or that the error is not correctable under
   the deed correction statute. Indeed, there have been cases in which Texas
   courts have not voided a deed even when confronted with a trust holding
   property in its own name. 23 At most, the deed was invalid.
                                                   1
           However, it appears that the deed is valid under Texas law. Texas
   courts have long recognized a certain amount of flexibility in naming the
   grantee, and Texas state court decisions indicate that courts would read the

           20
                In re Katrina Canal Breaches Litig., 495 F.3d 191, 206 (5th Cir. 2007).
           21
                Id.
           22
             See, e.g., Ray Malooly Tr. v. Juhl, 186 S.W.3d 568, 570 (Tex. 2006) (per curiam);
   Parham Fam. Ltd. P’ship v. Morgan, 434 S.W.3d 774, 787-88 (Tex. App.—Houston [14th
   Dist.] 2014, no pet.).
           23
             See Tanya L. McCabe Tr. v. Ranger Energy LLC, 531 S.W.3d 783, 784, 798-800
   (Tex. App.—Houston [1st Dist.] 2016, pet. denied) (holding that a defective correction
   instrument “did not divest the Trusts of their overriding royalty interests” without
   discussion of whether a deed in which a trust seemingly holds property is void) (emphasis
   added); Transcon. Realty Invs., Inc. v. John T. Lupton Tr., 286 S.W.3d 635 (Tex. App.—
   Dallas 2009, no pet.) (not discussing whether the trust itself could hold property or whether
   it would be a void trust).

                                                   6
Case: 21-40365           Document: 00516450991            Page: 7     Date Filed: 08/29/2022

                                           No. 21-40365

   original deed to convey to Fugedi in his capacity as trustee rather than to the
   trust itself. “Every deed of conveyance must have a grantee. But it is a
   mistake to suppose that any mere formalities are necessary to its
   validity. . . . The grantee need not be named.” 24               “If, from the whole
   instrument, a grantor and grantee can be ascertained . . . it is a deed which is
   legally effective as a conveyance.” 25
          “[M]ere formalities are [not] necessary to [a deed’s] validity,” and
   Texas courts would have inferred that Fugedi was the grantee. 26 In Vineyard
   v. O’Connor, 27 for example, the Supreme Court of Texas inferred the identity
   of the grantee when none was listed. 28 That court would likely do the same
   here. The deed in this case does list a grantee, but the grantee is a nonentity
   incapable of holding property itself. As in Vineyard, this would seem not to
   satisfy the legal requirements for a conveyance. But Fugedi was the trustee
   at the time of the original deed and remains so today. As trustee, he was the
   only entity capable of holding property for the benefit of the trust. As in
   Vineyard, Texas courts may infer here that Fugedi was the party to be named
   as grantee. He is the obvious party that should have been named rather than
   the trust itself. Finally, the affidavit submitted as part of Fugedi’s § 5.028

          24
               Vineyard v. O’Connor, 36 S.W. 424, 425 (Tex. 1896) (emphasis added).
          25
              Harlan v. Vetter, 732 S.W.2d 390, 392 (Tex. App—Eastland 1987, writ ref’d
   n.r.e.) (emphasis added).
          26
               Vineyard, 36 S.W. at 425.
          27
               36 S.W. 424.
          28
               Id. at 425.

                                                7
Case: 21-40365         Document: 00516450991               Page: 8       Date Filed: 08/29/2022

                                           No. 21-40365

   correction clarifies that Fugedi was indeed supposed to be the original
   grantee.
           Initram argues that Vineyard is inapposite because the deed at issue in
   Vineyard made references to the eventual grantee even though it did not
   explicitly name that individual as the grantee. 29 This distinction is unavailing
   because, as Texas law makes clear, Fugedi is the only individual who could
   take the property for the benefit of the trust. 30 The identity of the proper
   grantee can be ascertained from context just as in Vineyard. 31
                                                 B
           Even assuming the Texas courts would not save the original deed by
   reading in Fugedi as grantee, Fugedi validly made a nonmaterial correction
   to the deed. The district court erred in concluding that the change was
   material.
           Section 5.028 allows a party to a deed to make a nonmaterial
   correction to that deed so long as it submits an affidavit from someone with
   personal knowledge of the original deed explaining the correction. 32 The
   statute lists several different types of nonmaterial clarifications that a party
   can make under § 5.028. 33 Texas courts have recognized a clarification to the

           29
            Vineyard, 36 S.W. at 425 (“It describes . . . Genereaux as being the party of the
   second part.”).
           30
              See Tex. Prop. Code Ann. § 113.002 (outlining the broad general powers of
   trustees including any “that are necessary or appropriate to carry out the purposes of the
   trust”); see also id. §§ 113.001-.031.
           31
              See Harlan v. Vetter, 732 S.W.2d 390, 392 (Tex. App—Eastland 1987, writ ref’d
   n.r.e.) (“If, from the whole instrument, a grantor and grantee can be ascertained . . . it is a
   deed which is legally effective as a conveyance.”) (emphasis added).
           32
                Tex. Prop. Code Ann. § 5.028.
           33
                Id.

                                                 8
Case: 21-40365               Document: 00516450991         Page: 9    Date Filed: 08/29/2022

                                            No. 21-40365

   capacity of one of the parties to the deed to be nonmaterial. 34 The Supreme
   Court of Texas has even recognized that correction deeds prior to the
   enactment of the statutes could be used to correct the capacity in which the
   grantor conveys the land. 35
           In Pense v. Bennett, 36 a Texas appellate court explained that a
   correction affidavit that changed the description of the grantor from solely
   the guardian of an incapacitated person to reflect that the individual was also
   acting as trustee on behalf of the person’s management trust was a
   nonmaterial change because it simply clarified in what capacity the grantor
   was conveying land. 37 Similarly, in Myrad, the Supreme Court of Texas held
   that clarifications as to capacity are allowable corrections, even before the
   deed correction statute was passed. 38
           The district court concluded and Initram argued that the correction
   was material because it substituted a new grantee. They relied on AIC
   Management Co. v. AT&T Mobility, LLC, 39 but the case is inapposite. In AIC,

           34
             Myrad Props., Inc. v. LaSalle Bank Nat’l Ass’n, 300 S.W.3d 746, 750 (Tex. 2009)
   (“[A] correction deed may be used to correct a defective description of a grantor’s
   capacity.”); see also Pense v. Bennett, No. 06-20-00030-CV, 2020 WL 5948801, at *5-6 n.9-
   10 (Tex. App.—Texarkana Oct. 8, 2020, no pet.) (holding that affidavits of correction that
   “corrected the capacity of the grantor and grantee” were nonmaterial changes made in
   accordance with § 5.028).
           35
             Myrad, 300 S.W.3d at 750 (citing Humble Oil & Refin. Co. v. Mullican, 192 S.W.2d
   770, 771-72 (Tex. 1946)).
           36
                No. 06-20-00030-CV, 2020 WL 5948801.
           37
                Id. at *5.
           38
                Myrad, 300 S.W.3d at 750.
           39
                No. 01-16-00896-CV, 2018 WL 1189865 (Tex. App.—Houston [1st Dist.] 2018,
   no pet.).

                                                 9
Case: 21-40365          Document: 00516450991         Page: 10      Date Filed: 08/29/2022

                                       No. 21-40365

   the original deed listed Aldine ISD as the grantee. 40 Several years later, the
   grantor executed a correction affidavit listing AIC as the new grantee in place
   of Aldine ISD. 41 Because the correction affidavit substituted an entirely new
   party as grantee, the court decided that the change was material and needed
   to comply with § 5.029. 42 Unlike in AIC, Fugedi has always been part of the
   transaction because he is the trustee for the trust. It was Fugedi who signed
   the original deed and corrected deed, and the property is still held in trust.
   All the corrected deed does is clarify in what capacity Fugedi was acting. He
   is not a new third party to the transaction like AIC was. 43
          It is true that no Texas court has explicitly held that § 5.028 applies in
   a situation exactly like this one, but the only difference here is that the change
   in capacity is from that of the trust itself to that of trustee rather than a change
   in guardianship or the addition of a trustee capacity. Unlike these changes
   that Texas courts have explicitly approved, the change in this case involves
   an original grantee that is technically incapable of holding property. But there
   is little daylight between this type of change and the standard clarification to
   capacity usually allowed under the statute. Further, Texas courts have long
   recognized flexibility about technical naming requirements, as in Vineyard in
   which the Supreme Court of Texas inferred a grantee to save the grant.
          No Texas court has gone so far as to declare all deeds that convey to
   trusts void. In fact, Texas courts are likely to have given the grant a reading
   that would have saved it, treating Fugedi as the grantee even though he was

          40
               Id. at *2.
          41
               Id.
          42
               Id. at *8.
          43
             We need not and will not consider whether Fugedi would be a proper party to a
   material change under § 5.029.

                                             10
Case: 21-40365           Document: 00516450991            Page: 11      Date Filed: 08/29/2022

                                           No. 21-40365

   not named. Even if the Texas courts did not, the deed correction statute is
   broad and allowed Fugedi to file his affidavit clarifying the capacity in which
   he acted—a nonmaterial change.                 The district court erred in holding
   otherwise.
                                                III
            Initram argues, in the alternative, that we should affirm because it
   validly foreclosed on the property prior to the conveyance. Initram also
   moved this court to dismiss the appeal in light of new evidence purporting to
   establish the trust as a sham concocted by Texas individuals, thereby
   destroying diversity jurisdiction. The district court did not address the
   foreclosure argument in its order, and the district court never had the
   opportunity to review this new evidence of fraud presented for the first time
   to this court.
            Because the district court erred as a matter of law in declaring the deed
   void and the change material, vacatur and remand are appropriate. 44 We
   need not reach the parties’ additional arguments concerning foreclosure.
   Further, we generally do not consider new evidence on appeal. 45 We decline
   to do so now with regard to Initram’s evidence of fraud. To the extent that
   diversity jurisdiction is in question, remand is the appropriate remedy when
   “our jurisdiction remains unclear, ‘but there is some reason to believe that
   jurisdiction exists.’” 46

            44
              See United States v. Bittner, 19 F.4th 734, 748-49 (5th Cir. 2021), cert. granted,
   142 S. Ct. 2833 (2022) (vacating and remanding when the district court construed a statute
   incorrectly).
            45
                 See MidCap Media Fin., LLC v. Pathway Data, Inc., 929 F.3d 310, 315 (5th Cir.
   2019).
            46
             Id. at 316 (quoting Molett v. Penrod Drilling Co., 872 F.2d 1221, 1228 (5th Cir.
   1989) (per curiam)).

                                                 11
Case: 21-40365   Document: 00516450991            Page: 12   Date Filed: 08/29/2022

                                   No. 21-40365

                               *        *         *
         Accordingly, we VACATE the district court’s order and REMAND
   for further proceedings not inconsistent with this opinion. We DENY all
   outstanding motions.

                                       12