Court Opinion

ID: 4558077
Source: CourtListenerOpinion
Date Created: 2020-08-24 07:14:58.244446+00
Date Added: 2024-06-11T08:45:49.720768
License: Public Domain

Affirmed and Opinion filed August 18, 2020.

                                           In The

                          Fourteenth Court of Appeals

                                  NO. 14-19-00302-CV

                COVENANT CLEARINGHOUSE, LLC, Appellant

                                             V.
                        KUSH AND KRISHNA, LLC, Appellee

                       On Appeal from the 281st District Court
                               Harris County, Texas
                         Trial Court Cause No. 2017-83237

                                     OPINION

      This appeal involves private transfer fees associated with conveyances of real
property. One example of a private transfer fee obligation is a subdivision deed
restriction that a developer places on all property in the subdivision, obligating a
transfer fee payable to the developer on each future conveyance of the property.1 In
2011, the legislature enacted laws prohibiting the use of private transfer fees after

      1
          See Tex. Att’y Gen. Op. KP-0195 (2018).
June 17, 2011. See Tex. Prop. Code § 5.202(a). Private transfer fee obligations
created before that date, however, are subject to strict notice requirements to remain
enforceable.

       Appellant Covenant Clearinghouse LLC (“CCH”)—which claims the right to
receive a private transfer fee arising from a pre-2011 obligation—did not comply
with statutory notice requirements, and the dispositive question of first impression
in this appeal is whether it was required to do so. For the reasons explained below,
we conclude that CCH was required to comply. Because it did not comply, the trial
court did not err in granting summary judgment in appellee’s favor, and we affirm
the judgment.

                                        Background

A.     Private Transfer Fees Generally

       In 2011, the legislature addressed the practice of using private transfer fees in
real estate transactions by amending the Property Code to add chapter 5, subchapter
G, entitled “Certain Private Transfer Fees Prohibited; Preservation of Private Real
Property Rights.”2 A “private transfer fee” is defined as “an amount of money,
regardless of the method of determining the amount, that is payable on the transfer
of an interest in real property or payable for a right to make or accept a transfer.”
Tex. Prop. Code § 5.201(4). A “private transfer fee obligation” can be created by
any number of instruments, including as here a declaration requiring payment of a
private transfer fee that is recorded in the real property records in the county in which
the property is located. See id. § 5.201(5)(A).

       2
         See Act of May 21, 2011, 82d Leg., R.S., ch. 211, § 1, 2011 Tex. Gen. Laws 780, 780-84
(currently codified at Tex. Prop. Code §§ 5.201-.207).

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      Subject to exceptions not relevant here, a private transfer fee obligation
created on or after June 17, 2011 is void and unenforceable against a subsequent
owner or subsequent purchaser of real property. Id. § 5.202(a). Any private transfer
fee obligation created before that date, however, is subject to rather austere notice
requirements. First, a person who “receives” a private transfer fee under a private
transfer fee obligation created before June 17, 2011 must, on or before January 31,
2012, file a “Notice of Private Transfer Fee Obligation” in the real property records
of each county in which the property is located. See id. § 5.203(a). The notice must
include the content and be in the form prescribed by the statute. Id. § 5.203(c).
Second, any person who is required to file the initial notice by January 31, 2012 must
also refile the notice every three years thereafter. See id. § 5.203(d) (stating a person
required to file a notice under this section shall refile the notice described by this
section within a thirty-day window preceding the third anniversary of the original
filing date, and “within a similar 30-day period every third year thereafter”).

      The consequences of failing to comply with the notice requirements are clear
and inflexible. “If a person required to file a notice under this section fails to comply
with this section: (1) payment of the private transfer fee may not be a requirement
for the conveyance of an interest in the property to a purchaser; (2) the property is
not subject to further obligation under the private transfer fee obligation; and (3) the
private transfer fee obligation is void.” See id. § 5.203(f).

B.    The Private Transfer Fee Obligation at Issue

      In September 2009, I-45 Thirty, a Texas general partnership, recorded in the
Harris County real property records a “Declaration of Covenant” pertaining to real
property then owned by I-45 Thirty and described in the Declaration.                The
Declaration became binding on the property at filing and does not expire until
December 31, 2110. The Declaration contains a private transfer fee provision, which

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imposes an obligation to pay a private transfer fee equal to one percent of the total
purchase price of the property upon the closing of a sale.            Section 5 states
specifically:

      AMOUNT DUE, Except as otherwise provided herein,
      contemporaneous with, and as an encumbrance in connection with a
      Conveyance, the Grantor shall pay to Trustee, as trustee for
      Beneficiaries, a fee (the “Reconveyance Fee”) equal to one percent
      (1%) of the Consideration (as defined in section 1(c)) paid by or on
      behalf of the Grantee in connection with the Conveyance.

      Additionally, in accordance with section 5, the Declaration instructs any
closing agent to, for non-exempt sales made before December 31, 2110, collect from
the grantor one percent of the consideration paid by the grantee, retain the closing
agent fee, and remit the balance to a designated trustee.

C.    The Present Dispute

      In December 2009, Kush and Krishna LLC (“Kush”) purchased the property
from I-45 Thirty. Kush was aware of the private transfer fee obligation when it
purchased the property; however, because Kush’s acquisition was the property’s
initial sale, the transfer was exempted from the private transfer fee obligation
pursuant to the Declaration’s terms.

      The Declaration appointed “Rjon Robins, Esq.” as “trustee” for the
“beneficiaries” of the private transfer fee. For additional information, including
“any successor trustee,” the Declaration directs readers to CCH’s website. The
Declaration lists seven beneficiaries, in each of whom is vested varying percentages
of “all rights, interest, ownership and privileges in” the private transfer fee. Notably,
I-45 Thirty holds a 54% interest in the private transfer fee created by this
Declaration. On January 6, 2012, CCH filed in the Harris County real property
records a “Notice of Private Transfer Fee Obligation,” which designated itself as the

                                           4
“payee of record” entitled to accept payment on behalf of all payees under numerous
instruments, including the Declaration at issue. However, it is undisputed that
neither CCH nor anyone else refiled a “Notice of Private Transfer Fee Obligation”
pertaining to the Declaration any time after January 2012.

      In February 2017, Kush sold the property. Apparently aware that no party
had refiled a notice of private transfer fee obligation relating to the property by
January 2015, Kush did not pay the private transfer fee at the time of sale but placed
into an escrow account an amount that would be due as the fee ($36,000) were it
payable.      Kush then filed the present declaratory-judgment action, seeking
declarations that the private transfer fee obligation in the Declaration is void for
failure to comply with section 5.203’s notice provisions and that Kush did not owe
a private transfer fee. It also sought an order instructing the escrow agent to disperse
the escrowed funds to Kush.3

      Kush filed a traditional motion for partial summary judgment on its
declaratory-judgment claim. CCH filed a cross-motion for summary judgment
urging, as relevant to this appeal, that it was not required to file a “Notice of Private
Transfer Fee Obligation” either in January 2012 or later because it has never
“received” a private transfer fee with respect to the property. See Tex. Prop. Code
§ 5.203(a). In its cross-motion, CCH asked the court to award it the $36,000 in
interpleaded funds.

      After a hearing, the trial court granted Kush’s motion for partial summary
judgment and declared that CCH was not entitled to recover the interpleaded funds.
The court later signed a final judgment ordering the funds released to Kush and

      3
          The escrow agent interpleaded the escrowed funds into the court’s registry.

                                                 5
awarding it trial and conditional appellate attorney’s fees. CCH filed a motion for
new trial, which the court denied. CCH now appeals.

                                       Analysis

      CCH challenges the summary judgment in Kush’s favor. CCH states that the
duty to file, and refile, a Notice of Private Transfer Fee Obligation under section
5.203(a) applies only to a person “who receives a private transfer fee.” Because to
date CCH has never “received” such a fee related to the property, CCH asserts that
the notice provisions do not apply to it.

A.    Standard of Review

      We review a trial court’s ruling on a motion for summary judgment de novo.
Tarr v. Timberwood Park Owners Assoc., Inc., 556 S.W.3d 274, 278 (Tex. 2018);
Texan Land & Cattle II, Ltd. v. ExxonMobil Pipeline Co., 579 S.W.3d 540, 542 (Tex.
App.—Houston [14th Dist.] 2019, no pet.). To prevail on a traditional motion for
summary judgment, the movant must show that no genuine issue of material fact
exists and that it is entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c).
When both parties move for summary judgment on the same issue and the trial court
grants one motion and denies the other, we consider the summary judgment evidence
presented by both sides, determine all questions presented, and, if we determine that
the trial court erred, render the judgment the trial court should have rendered. Tarr,
556 S.W.3d at 278; see also Wausau Underwriters Ins. Co. v. Wedel, 557 S.W.3d
554, 557 (Tex. 2018) (“A declaratory judgment granted on a traditional motion for
summary judgment is reviewed de novo.”).

      We likewise review issues of statutory construction de novo. See Cadena
Comercial USA Corp. v. Tex. Alcoholic Beverage Comm’n, 518 S.W.3d 318, 325
(Tex. 2017). In construing statutes, our primary objective is to give effect to the

                                            6
legislature’s intent. See id. The words the legislature chooses are the surest guide
to its intent. See Presidio Indep. Sch. Dist. v. Scott, 309 S.W.3d 927, 930 (Tex.
2010). Thus, we construe the text according to its plain and common meaning unless
a contrary intention is apparent from the context or the construction leads to an
absurd result. See Cadena Comercial, 518 S.W.3d at 325.

       The statute at issue is in the Property Code, which adopts the conventions of
statutory construction provided in the Code Construction Act, except as otherwise
expressly provided. See Tex. Prop. Code § 1.002 (“The Code Construction Act
(Chapter 311, Government Code) applies to the construction of each provision in
this Code, except as otherwise expressly provided by this code.”).4

B.     Application

       “A person who receives a private transfer fee” under a private transfer fee
obligation created before June 17, 2011 must (1) file a Notice of Private Transfer
Fee Obligation in the real property records of each county in which the property is
located, and (2) refile the same notice “not earlier than the 30th day before the third
anniversary of the original filing date described by Subsection (a) and within a
similar 30-day period every third year thereafter[.]” Id. § 5.203(a), (d). According
to CCH, a person who “receives” a private transfer fee includes only those who have
received the fee by physical possession and excludes those with a right to receive
the fee in connection with a future conveyance of the property. Thus, the question

       4
         Courts commonly turn to the Code Construction Act when construing Property Code
provisions. See, e.g., Alanis v. Wells Fargo Bank Nat’l Assoc., No. 04-19-00461-CV, –S.W.3d–,
2020 WL 3260093, at *4 (Tex. App.—San Antonio June 17, 2020, no pet. h.); Khyber Holdings,
LLC v. BAC Home Loans Servicing, LP, 349 S.W.3d 178, 180 (Tex. App.—Dallas 2011, no pet.);
Univ. Woods Apartments, Inc. v. McDill Columbus Corp., No. 01-92-00779-CV, 1996 WL 38986,
at *4 (Tex. App.—Houston [1st Dist.] Jan. 29, 1996, no writ) (not designated for publication);
Cohen v. State, 858 S.W.2d 51, 52 (Tex. App.—Houston [14th Dist.] 1993, writ denied).

                                              7
can be reduced to whether the present tense of the word “receives” also includes the
future tense.

      The answer is readily apparent in the Code Construction Act, which provides
that “[w]ords in the present tense include the future tense.” Tex. Gov’t Code
§ 311.012(a). Courts often cite section 311.012(a) when construing verb tenses in
statutes. See, e.g., Tex. Cent. R.R. & Infrastructure, Inc. v. Miles, No. 13-19-00297-
CV, 2020 WL 2213962, at *3-4 (Tex. App.—Corpus Christi May 7, 2020, pet. filed)
(mem. op.) (applying section 311.012(a) to determine that phrase “legal entity
operating a railroad” in Tex. Transp. Code § 81.002(2) includes both present and
future railroad operators); In re Nabors, 276 S.W.3d 190, 197 n.8 (Tex. App.—
Houston [14th Dist.] 2009, orig. proceeding). “Consistent with the legislature’s
instruction under the Code Construction Act, we should not focus on verb tense in
determining legislative intent because words in the present tense include the future
tense.” In re Nabors, 276 S.W.3d at 197 n.8. We must also assume that the
legislature intended that each statute be interpreted in accordance with the Code
Construction Act. See id. CCH’s interpretation would have this court ignore the
legislature’s instruction by limiting the word “receives” to solely the present tense
when both present and future situations are contemplated. See Cadena Comercial,
518 S.W.3d at 330 (applying section 311.012(a) to interpret present tense verbs in
Texas Alcoholic Beverage Code).

      “Receive” means “to be given, presented with, or paid (something).” Receive,
Oxford          English        Dictionary         online,         available        at
https://www.Lexico.com/en/definition/receive (last visited Aug. 10, 2020).
Applying the verb’s present and future tenses, we construe the phrase “a person who
receives” to mean someone who is being, or may be, given, presented with, or paid
something. So construed, section 5.203(a)’s phrase “a person who receives a private

                                          8
transfer fee under a private transfer fee obligation” includes a person who is
receiving, may receive, or may claim a right to receive a private transfer fee in the
future under a private transfer fee obligation covered by the statute. Our construction
of section 5.203(a) is consistent with the Declaration itself, which imposes an
obligation to pay the fee on grantors of the property in all future conveyances until
December 31, 2110.

      Based on a proper reading of section 5.203(a), we hold that CCH falls into the
class of persons required to file a Notice of Private Transfer Fee Obligation by
January 31, 2012 because it is a person who receives, may receive, or may claim a
right to receive a private transfer fee arising from a future conveyance of the
property. In fact, CCH filed such a notice on January 6, 2012, in which CCH
declared itself “the duly appointed designated payee of record authorized to accept
payment for, and to act on behalf of, all payees. . . .” See Tex. Prop. Code § 5.203(b)
(“Multiple payees of a single private transfer fee under a private transfer fee
obligation must designate one payee as the payee of record for the fee.”). CCH’s
notice referenced the expiration date listed in the Declaration, specifically cited
section 5.203, and designated CCH as authorized to accept payments of the private
transfer fee “due in connection with each non-exempt conveyance of the Property.”

      Under section 5.203(d), any person required to file the initial notice by
January 31, 2012 “shall” also “(1) refile the notice described by this section not
earlier than the 30th day before the third anniversary of the original filing date
described by Subsection (a) and within a similar 30-day period every third year
thereafter.” Id. § 5.203(d)(1). Because CCH is a person required to file the initial
notice under section 5.203(a), it was required to refile a similar notice by January 6,
2015, at the latest. Our record indicates and it is undisputed that it did not do so.
Accordingly, Kush was not required to pay the private transfer fee to CCH in

                                          9
connection with its 2017 conveyance of the property, and it is entitled to recover the
interpleaded funds, as the trial court ruled. See id. § 5.203(f).

      CCH argues further that interpreting the word “receives” to include both
present and future tenses equates the term with the legislature’s definition of
“payee,” also included in subchapter G. See id. § 5.201(3). “Payee” is defined as,
“a person who claims the right to receive or collect a private transfer fee payable
under a private transfer fee obligation and who may or may not have a pecuniary
interest in the obligation.” Id. “Collect” means “to bring or gather together (things,
typically when scattered or widespread)” or to “call for and take away; fetch,”
including to “go somewhere and accept or receive (something), especially as a right
or   due.”      Collect,   Oxford     English    Dictionary    online,   available   at
https://www.Lexico.com/en/definition/collect (last visited Aug. 10, 2020). The term
“payee” encompasses not only those who claim a right to receive, but also those who
have or claim a right to collect a private transfer fee. Thus, the term “payee” is
broader than the phrase “person who receives,” even construing the word “receives”
to include both the present and future tenses.

      It is true, as CCH observes, that the legislature’s use of the phrase “person
who claims the right to receive . . .” in defining “payee” is forward-looking in nature,
whereas the legislature did not use precisely the same language in section 5.203(a)
(“a person who receives . . .”). This distinction is immaterial, as explained, due to
the legislature’s presumptive intent to include the future tense in all words stated in
the present tense. In any event, CCH declared itself the “payee” authorized to
receive the private transfer fees throughout the Declaration’s term. In doing so, CCH
was on notice of the definition of “payee” because it cited section 5.203 in its January
6, 2012 Notice of Private Transfer Fee Obligation. CCH therefore indicated that it

                                           10
was someone who “claims the right” to receive or collect a private transfer fee in the
future under a private transfer fee obligation.

                                     Conclusion

      For the reasons stated, the trial court did not err in granting summary judgment
in Kush’s favor. We overrule CCH’s issue and affirm the trial court’s judgment.

                                        /s/       Kevin Jewell
                                                  Justice

Panel consists of Justices Christopher, Jewell, and Hassan.

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