Court Opinion

ID: 3088789
Source: CourtListenerOpinion
Date Created: 2015-10-16 03:35:16.102736+00
Date Added: 2024-06-11T09:52:26.450548
License: Public Domain

Reverse and Remand; Opinion Filed November 26, 2013.

                                        S   In The
                               Court of Appeals
                        Fifth District of Texas at Dallas
                                     No. 05-12-00439-CV

                             KIMZEY WASH, LLC, Appellant
                                        V.
                            LG AUTO LAUNDRY, LP, Appellee

                      On Appeal from the 429th Judicial District Court
                                   Collin County, Texas
                          Trial Court Cause No. 429-02079-2010

                                         OPINION
                        Before Justices O'Neill, Lang-Miers, and Evans
                                   Opinion by Justice Evans
       Kimzey Wash, LLC appeals from a take-nothing summary judgment in favor of LG Auto

Laundry on Kimzey’s lawsuit seeking declaratory relief to quiet title on certain real property in

which LG has asserted a leasehold interest. Kimzey argues that the trial court should have

rendered summary judgment in its favor because it conclusively established that (1) LG’s ground

lease was extinguished by the foreclosed deed of trust from which Kimzey’s predecessor-in-

interest obtained title to the property; (2) the D’Oench, Duhme doctrine and section 1823(e) of

chapter 12 of the United States Code precludes LG from enforcing its subordination agreement

with the failed mortgagee bank; and (3) as a bona fide purchaser, Kimzey took title to the

property free of LG’s claimed interest. For the reasons that follow, we reverse the trial court’s

judgment and remand this cause to the trial court with instructions to render judgment declaring

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Kimzey the owner of the property described in the petition free and clear of LG’s ground lease

and for further proceedings consistent with this opinion through final judgment.

                               FACTUAL AND PROCEDURAL BACKGROUND

         On February 8, 2007, LG Auto Laundry, LP sold a .805-acre tract in Collin County to

Shammy Man Auto Wash II, LP. Shammy purchased the premises in part with a loan from

Millenium State Bank that was secured by a deed of trust executed on February 8, 2007. On that

date, LG and Shammy also signed a ground lease granting LG possession of a .0625-acre portion

of the tract containing a cellular tower and acknowledging the cellular tower as LG’s property

for the term of the lease. 1 The ground lease further provided it would be subject and subordinate

to any of Shammy’s mortgages and deeds of trust encumbering the premises but also subject to

any subordination, non-disturbance and attornment agreement executed by a mortgage holder

“which will state, among other things, if any deed of trust or mortgage is foreclosed, . . . this

lease shall not terminate or be terminable by the purchaser at foreclosure . . . and TENANT shall

attorn to the purchaser at such foreclosure sale.” The warranty deed, deed of trust, and a

memorandum of ground lease were recorded in the real property records of Collin County on

February 9, 2007.         LG and Millenium then signed a Subordination, Non-Disturbance and

Attornment Agreement (SNDA) providing, among other things, that in the event proceedings to

foreclose the deed of trust were instituted, LG’s possession of the leased premises would not be

disturbed. The SNDA had an effective date of February 8, 2007 which was the date stated for

LG’s execution, but Millenium’s execution was dated April 11, 2007 and the SNDA was not

recorded in the Collin County real property records.

   1
       The cellular tower was surrounded by a wrought iron fence.

                                                       –2–
       Shammy defaulted on its loan with Millenium, and the property was posted for a

foreclosure sale pursuant to Millenium’s deed of trust. Before the foreclosure sale occurred,

however, the Federal Deposit Insurance Corporation took over Millenium and transferred its

assets, including Shammy’s loan and deed of trust, to State Bank of Texas. On July 7, 2009

State Bank held the posted foreclosure sale and ultimately acquired title to the property by

substitute trustee’s deed. Kimzey purchased the property from State Bank by warranty deed

about four months later, on November 24, 2009. In May 2010, Kimzey filed this lawsuit

asserting, among other things, State Bank’s foreclosure of the deed of trust extinguished the

LG’s ground lease.      Kimzey also claimed it was a bona fide purchaser and that the

LG/Millenium SNDA was unenforceable against it pursuant to the D’Oench, Dhume doctrine

and 12 U.S.C. § 1823(e).

       Both parties moved for summary judgment. LG filed a traditional summary judgment

motion asserting that D’Oench, Duhme and 12 U.S.C. § 1823(e) did not apply and Kimzey was

not a bona fide purchaser. Kimzey filed a summary judgment motion asserting both traditional

and no-evidence grounds. Kimzey argued that it conclusively established its status as a bona fide

purchaser. It also contended the SNDA was unenforceable pursuant to D’Oench, Duhme and

that LG had no evidence the SNDA satisfied the elements for the exception set forth in 12 U.S.C.

§1823(e). The trial court denied Kimzey’s summary judgment motion, granted LG’s motion,

and rendered a take-nothing judgment against Kimzey. This appeal followed.

                                            ANALYSIS

       We review a trial court’s summary judgment de novo.             See Frost Nat’l Bank v.

Fernandez, 315 S.W.3d 494, 508 (Tex. 2010). The party moving for a traditional summary

judgment has the burden of establishing there are no genuine issues of material fact and that it is

entitled to judgment as a matter of law. See TEX. R. CIV. P. 166a(c). In a no-evidence motion

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for summary judgment, however, the non-movant must present evidence raising a genuine issue

of material fact on each challenged element of a claim or affirmative defense on which the

nonmovant has the burden of proof at trial. See TEX. R. CIV. P. 166a(i); Sudan v. Sudan, 199
S.W.3d 291, 292 (Tex. 2006). Where, as here, both parties move for summary judgment and the

trial court grants one motion and denies the other, we review both motions and the summary

judgment evidence, determine all questions presented, and render the judgment the trial court

should have rendered. See Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d
844, 848 (Tex. 2009).

       We begin our discussion with the general rule that a valid foreclosure of a lien terminates

any leases entered into subject to that lien. See Fleetwood v. Med. Ctr. Bank, 786 S.W.2d 550,

555 (Tex. App.—Austin 1990, writ denied); B.F. Avery & Sons’ Plow Co. v. Kennerly, 12
S.W.2d 140 (Tex. Comm’n App. 1929, judgm’t adopted) (original mortgagee who purchased

property at foreclosure of mortgage given before the lease held clear title unencumbered by

lease). Here, the ground lease specifically states that it was subordinate to the Millenium deed of

trust. Consequently, foreclosure of the deed of trust necessarily extinguished LG’s ground lease

by the express terms in the ground lease itself. The question we must address, therefore, is

whether the SNDA may be used to support LG’s position that the ground lease survived the

foreclosure of the Millenium deed of trust. The SNDA, while acknowledging the superiority of

Millenium’s deed of trust, provides that the ground lease will survive, and LG’s possession of

the lease tract would not be disturbed, by the foreclosure of the deed of trust. Kimzey argues that

once the FDIC took over Millenium and acquired the Shammy loan and deed of trust, the SNDA

was unenforceable because it did not meet the requirements of the D’Oench, Duhme doctrine and

section 1823(e). See 12 U.S.C. § 1823(e).

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         Generally, the D’Oench, Duhme doctrine and its federal codification provide that no

agreement which tends to diminish or defeat the interest of the FDIC in any asset acquired as

security for a loan, or by purchase, or as a receiver of any insured bank, shall be valid against the

FDIC and its assigns unless it is in writing, executed by the bank contemporaneously with the

bank’s acquisition of the asset, approved by the bank’s board of directors or loan committee

which approval shall be reflected in the minutes of the board or committee, and has been from its

execution an official record of the bank. 12 U.S.C. § 1823(e); Bluebonnet Sav. Bank v. Jones

Country, Inc., 920 S.W.2d 670, 671 (Tex. 1996). The essence of the doctrine is that the FDIC is

entitled to rely on, to the exclusion of extraneous matters, the official bank records setting forth

the rights and obligations of the bank and those to whom the bank lends money. FSLIC v. T.F.

Stone-Liberty Land Assocs., 787 S.W.2d 475, 490 (Tex. App.—Dallas 1990, writ dism’d by

agr.).

         LG asserts the SNDA executed by Millenium ensured the ground lease survived the

foreclosure of the deed of trust. It further argues that the D’Oench, Duhme doctrine does not

prevent its enforcement because LG was neither a borrower nor guarantor of a debt and this

matter does not involve a claim by or against the FDIC. LG cites no authority for its position

and our review of the case law reveals the doctrine and section 1823(e) are not so limited. See

generally 12 U.S.C. § 1823(e). D’Oench, Duhme has been used to defeat a lessor’s breach of

fiduciary duty claim against a failed bank that made a loan to the lessee, not the plaintiff-lessor.

See FDIC v. Zoubi, 792 S.W.2d 825, 829 (Tex. App.—Dallas 1990, no writ). D’Oench, Duhme

has also been applied to the benefit of a third-tier private assignee of an asset acquired by the

assignor bank from the Resolution Trust Corporation. See UMLIC-Nine Corp. v. Lipan Springs

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Dev. Corp., 168 F.3d 1173, 1179 (10th Cir. 1999). We have found no authority or policy reason

supporting LG’s argument and LG provides none.

       LG also argues that D’Oench, Duhme and its subsequent codification do not apply here

because the SNDA did not diminish the FDIC’s interest in Millenium’s mortgage or deed of

trust. It contends the SNDA is merely a contract intended to protect LG’s right to occupy the

strip of land containing the cellular tower and does not alter the relationship between the original

lender and borrower. We are unpersuaded by this argument for the following reason. On its

face, the SNDA in part relinquishes Millenium’s lien priority to the extent it provided that any

foreclosure of the deed of trust would not disturb LG’s possession of the lease tract. Absent the

SDNA, any foreclosure of the Millenium deed of trust would have necessarily extinguished LG’s

ground lease. See Fleetwood, 786 S.W.2d at 555; Kennerly, 12 S.W.2d at 140–41. Because

enforcement of the SNDA tends to diminish the FDIC’s interest in the Millenium assets at issue,

we conclude that the D’Oench, Duhme doctrine applies here as a matter of law.

       LG further contends that Kimzey is improperly using the federal defenses of D’Oench,

Duhme and section 1823(e) as a sword to invalidate its ground lease. We do not agree. We

understand Kimzey to assert that the foreclosure of the Millenium deed of trust extinguished

LG’s ground lease and vested free and clear title to the property to Kimzey, as successor in title

to State Bank, who purchased the property at the foreclosure sale. To the extent LG claims the

SNDA prevents the foreclosure from extinguishing its ground lease, Kimzey merely contends

that D’Oench, Duhme and section 1823(e) preclude enforcement of the SNDA. Accordingly, we

conclude LG’s argument that Kimzey is improperly using the doctrine to invalidate its ground

lease lacks merit.

                                                –6–
        Finally, LG argues that even if D’Oench, Duhme applies, the SNDA here is nevertheless

enforceable because it meets all requirements of section 1823(e). 2 Pursuant to the federal

codification, the SNDA is enforceable if it: (1) is in writing, (2) executed by the failed bank

contemporaneously with the bank’s acquisition of the asset, (3) was approved by the failed

bank’s board of directors or its loan committee, “which approval shall be reflected in the minutes

of said board or committee,” and (4) has been continuously, from the time of its execution, an

official record of the failed bank. See 12 U.S.C. § 1823(e).

        LG contends the following summary judgment evidence satisfies the statute’s

requirements: the SDNA itself, which is in writing; deposition testimony from Millenium Vice

President Marion Tarin who stated he executed the SNDA on behalf of and at the direction of

Millenium in the normal course and scope of his duties. Even so, there is no evidence in the

record that that the SNDA was executed contemporaneously with the note and deed of trust. To

the contrary, the record reflects that the SDNA was signed by Tarin two months after LG

executed the document. Moreover, there is no evidence that the SNDA was approved by either

Millenium’s board of directors or its loan committee or that an approval appeared in the bank’s

minutes. There is also no evidence that from the time of its execution the SNDA has been

continuously an official record of Millenium. Based on the summary judgment record before us,

the SNDA did not establish that it met the requirements for enforceability under section 1823(e).

    2
       LG also argues that because State Bank became the fee simple owner of the property after the foreclosure, any
lien rights under Millenium’s deed of trust were necessarily extinguished through the merger of title and were no
longer subject to D’Oench, Duhme or section 1823(e). Because LG did not raise this argument in its summary
judgment motion or its response to Kimzey’s motion, we cannot consider it on appeal. See TEX. R. CIV. P. 166a(c);
City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678–79 (Tex. 1979).

                                                       –7–
                                           CONCLUSION

       We conclude that D’Oench, Duhme and section 1823(e) bar LG from enforcing its SNDA

with Millenium as a matter of law. Without an enforceable SNDA, we further conclude that

Kimzey acquired the property in question from State Bank free and clear of LG’s leasehold

interest which was extinguished upon the foreclosure sale. Our disposition of these issues make

it unnecessary to address Kimzey’s remaining issue of whether it was a bona fide purchaser. We

reverse the trial court’s judgment and remand this cause to the trial court with instructions to

render judgment declaring Kimzey the owner of the property described in the petition free and

clear of LG’s ground lease and for further proceedings consistent with this opinion through final

judgment.

                                                      /David Evans/
                                                      DAVID EVANS
                                                      JUSTICE

120439F.P05

                                                –8–
                                        S
                               Court of Appeals
                        Fifth District of Texas at Dallas
                                      JUDGMENT

KIMZEY WASH, LLC, Appellant                         On Appeal from the 429th Judicial District
                                                    Court, Collin County, Texas
No. 05-12-00439-CV         V.                       Trial Court Cause No. 429-02079-2010
                                                    Opinion delivered by Justice Evans,
LG AUTO LAUNDRY, LP, Appellee                       Justices O'Neill and Lang-Miers
                                                    participating.

       In accordance with this Court’s opinion of this date, the judgment of the trial court is
REVERSED and this cause is REMANDED to the trial court with instructions to render
judgment declaring Kimzey Wash, LLC the owner of the property described in the petition free
and clear of LG Auto Laundry, LP's ground lease and for further proceedings consistent with our
opinion through final judgment.
       It is ORDERED that appellant Kimzey Wash, LLC recover its costs of this appeal from
appellee LG Auto Laundry, LP.

Judgment entered this 26th day of November, 2013.

                                                   /David Evans/
                                                   DAVID EVANS
                                                   JUSTICE

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