David S. BAGWELL, Individually and as Trustee of the David S. Bagwell Trust, Marilyn D. Garner, Chapter 7 Trustee for the David Bagwell Company, and Evermore Communities, Ltd., Appellants v. RIDGE AT ALTA VISTA INVESTMENTS I, LLC, Appellee.
Appellants guaranteed three promissory notes payable to appellee's predecessor-in-interest. Each note was secured by a deed of trust on a (separate) tract of land. Appellee sued appellants on the guaranty agreements and obtained a partial summary judgment as to liability. After acquiring the properties securing the notes at separate sales, appellee obtained a summary judgment on the sole remaining issue—damages. Appellants1 assert six issues on appeal. They argue the trial court erred by refusing to allow them to amend their pleadings to assert a statutory right of offset under the property code, see Tex. Prop.Code Ann. § 51.003(c) (West 2007); alternatively, they argue their live pleadings were sufficient to raise offset. They also complain the trial court erred by striking an affidavit filed in response to the motion for summary judgment as to damages relating to the offset issue. Lastly, they complain the trial court erred by granting appellee's two motions for summary judgment2 because the affidavits filed in support of those motions were not from a corporate representative with knowledge of the facts.3 We overrule appellants' issues and affirm the trial court's judgment.
Three Texas limited partnerships (that are not parties to this action) executed three promissory notes in favor of appellee's predecessor-in-interest (which also is not a party to this lawsuit). Each note was secured by a deed of trust lien on a separate tract of land. At the same time, appellants executed guaranty agreements to guarantee payment of the promissory notes. The borrowers later defaulted on the notes and appellee sued them to recover the amounts owed. After the borrowers filed for bankruptcy protection, appellee filed this suit against appellants to recover on the guaranty agreements. Appellants timely answered and denied the allegations.
The trial court entered the parties' Agreed Scheduling Order, which required any amended pleadings asserting new causes of action or affirmative defenses to be filed no later than thirty days before the end of the discovery period. The Agreed Scheduling Order also set the case for trial on June 27, 2011.
On November 2, 2010, appellee filed a motion for summary judgment on its claims for breach of the guaranty agreements. Attached as an exhibit to the motion was the affidavit of Robert G. Paul (First Paul Affidavit). Appellants responded to the motion and objected to the First Paul Affidavit on several grounds, including that the affidavit did not show Paul had personal knowledge of the facts. The trial court overruled appellants' objections to the affidavit and granted appellee's motion for summary judgment as to liability; however, it denied the motion as to damages.
Appellee obtained relief from the bankruptcy court's automatic stays. Thereafter, on August 2, 2011, it conducted a non-judicial foreclosure and acquired the property securing one of the notes (the Old Grove Property). That same day and two days later, it also acquired the properties securing the other two notes through auctions conducted by the respective bankruptcy trustees. On October 4, 2011, appellee filed its first amended original petition seeking amounts “due and owing” under each note after “all offsets and credits” were applied.
The original June 27, 2011 trial date was delayed several times.4 The third trial setting was for March 5, 2012. Shortly before the March 2012 trial date, appellants sought a continuance. On March 6, 2012, the trial court held a hearing on appellants' motion for continuance. At that hearing, the trial judge stated:
The Court has continued this case only for a very limited purpose. And consistent with the scheduling orders entered previously and because the Court agrees with [appellee] that it is past the time where anybody should be asserting new theories of defense or counterclaims, or on [appellee's] side for that matter, no further pleadings may be filed without leave of Court with good cause shown, unless there is agreement of the parties, and I don't anticipate that would happen.
The trial court reset the trial for the week of April 16, 2012.
On March 14, 2012, appellee filed a second motion for summary judgment, supported by a second affidavit from Paul (Second Paul Affidavit), seeking judgment on the amounts due and owing and for attorney's fees. Appellants timely filed their response, supported by an affidavit from appellant Bagwell. They also objected to the Second Paul Affidavit.
At the same time, appellants filed a motion for leave to amend their answer to add an affirmative defense under section 51.003 of the property code with respect to the note that had been secured by the Old Grove Property. Appellants sought to obtain an offset against the deficiency balance of that note in the amount that the Old Grove Property's fair market value exceeded the amount received at the foreclosure sale. Appellants also filed a motion to determine the fair market value of the Old Grove Property.
Appellee objected to appellants' motions as untimely pursuant to the Agreed Scheduling Order. On April 19, 2012, the trial court conducted a hearing on appellants' motion for leave to amend their pleadings and on appellee's second motion for summary judgment. At the conclusion of the hearing, the trial court denied appellants' motion for leave to amend, struck Bagwell's affidavit, overruled appellants' objections to the Second Paul Affidavit, and granted appellee's second motion for summary judgment.
Appellants filed a motion for new trial, which the trial court denied. This appeal followed.
LAW & ANALYSIS
It is undisputed that appellants sought to amend their pleading after the deadline for doing so in the Agreed Scheduling Order had passed. The Agreed Scheduling Order required any amended pleadings asserting new causes of action or affirmative defenses be filed no later than thirty days before the end of the discovery period. Discovery in the case was controlled by rule 190.3 (Discovery Level 2), which states that the discovery period ends the earlier of thirty days before the date set for trial or nine months after the earlier of the date of the first oral deposition or the due date of the first response to written discovery. Tex.R. Civ. P. 190.3(b).
From the record, it is unclear when the discovery period closed in this case. However, assuming in appellants' favor that it closed on the latest date possible—thirty days prior to the April 16, 2012 final trial setting—appellants were required to amend their pleading to assert any affirmative defenses no later than thirty days before that date—i.e., before February 17, 2012. However, appellants did not attempt to file their amended petition until the end of March 2012, approximately six weeks later.
On appeal, appellants argue that their live pleadings (even without their proposed amendment) were sufficient to raise the issue of offset and the trial court abused its discretion by denying their motion for leave to amend and striking the pleadings related to the motion. They also argue that the trial court erred by denying their motion to amend their pleadings to assert their section 51.003 affirmative defense.
A. Affirmative Defense Already Raised
In their third issue, appellants contend their live pleading on file was sufficient to raise their section 51.003 affirmative defense. Appellants' brief states that their first amended answer, filed on December 13, 2010, included a verified denial of the account on which appellee brought suit and alleged the affirmative defense of accord and satisfaction. Appellants summarily argue this was sufficient to put appellee on notice of their claim for offset, and the trial court abused its discretion by denying their motion for leave to amend and striking their related pleading.
Appellants correctly state that Texas follows a fair notice pleading standard. A plaintiff's petition must contain “a short statement of the cause of action sufficient to give fair notice of the claim involved.” Tex.R. Civ. P. 47(a). The fair notice standard for pleading is satisfied if the opposing party can ascertain from the pleading the nature and basic issues of the controversy, and what type of evidence might be relevant. Low v. Henry, 221 S.W.3d 609, 612 (Tex.2007); see also Elite Door & Trim, Inc. v. Tapia, 355 S.W.3d 757, 766 (Tex.App.-Dallas 2011, no pet.) (pleading provides fair notice if “opposing attorney of reasonable competence, on review of the pleadings, can ascertain the nature and basic issues of controversy.”).
The accord and satisfaction defense that appellants pled rests upon a contract, express or implied, in which the parties agree to discharge an existing obligation by means of a lesser payment tendered and accepted. Lopez v. Munoz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 863 (Tex.2000). As the movant on the defense, appellants would have had to establish the existence of a dispute and an unmistakable communication to appellee in which the parties agreed to the discharge of appellants' debt by means of a lesser payment tendered and accepted. See id.
The affirmative defense afforded by section 51.003 of the property code is different. A claim for deficiency arises when real property is sold at foreclosure for a price that is less than the unpaid balance of indebtedness secured by the real property. When a deficiency claim is pursued by a lender, section 51.003 of the Texas Property Code provides that the borrower may request that “the court in which the action is pending determine the fair market value of the real property as of the date of the foreclosure sale.” Tex. Prop.Code Ann. § 51.003(b). If the court determines that the fair market value is greater than the price paid at the foreclosure sale, the borrower is “entitled to an offset against the deficiency amount in the amount by which the fair market value ․ exceeds the sale price.” Id. § 51.003(c).
Thus, the evidence required to support an accord and satisfaction affirmative defense is markedly different than that required for a section 51.003 defense. Namely, accord and satisfaction does not require any evidence of fair market value of the property subject to the contract; in contrast, fair market value is essential to the section 51.003 affirmative defense. See id. § 51.003. Additionally, whether any agreement to discharge the debt has been reached is irrelevant to the section 51.003 affirmative defense, but is central to the accord and satisfaction defense. See Lopez, 22 S.W.3d at 863.
We conclude appellants' pleading of accord and satisfaction did not provide fair notice of the affirmative defense of offset under section 51.003 of the property code. See Low, 221 S.W.3d at 612. By reviewing appellants' first amended answer, a reasonably competent attorney would not have ascertained appellants' intent to assert an offset under the statute. See Tapia, 355 S.W.3d at 766.
Because appellants' pleading did not assert an offset affirmative defense, the trial court did not abuse its discretion by denying the motion for leave to amend and striking the pleadings related to the motion on that ground. We overrule appellants' third issue.
B. Motion for Leave to Amend
In their first and second issues, appellants argue the trial court abused its discretion by refusing to grant their motion for leave to amend their pleadings to add a section 51.003 affirmative defense. See Moayedi v. Interstate 35/Chisam Rd., L.P., 377 S.W .3d 791, 794, 799 (Tex.App.-Dallas 2013), aff'd, No. 12–0937, 2014 WL 2619524, at *1 (Tex. June 13, 2014). Appellants assert two reasons the trial court erred by denying their motion for leave to amend: (1) appellee did not show it was surprised or prejudiced by an amendment and the proposed amendment was not prejudicial on its face and (2) the pleading deadline in the Agreed Scheduling Order for amendments passed six months before appellee amended its pleading to seek a deficiency and so appellants could not have amended their pleading within the pleading deadline.
A trial court has wide discretion to manage its docket and we will not interfere with the exercise of that discretion without a showing of clear abuse. In re Estate of Henry, 250 S.W.3d 518, 526 (Tex.App.-Dallas 2008, no pet.) (citing Roskey v. Cont'l Cas. Co., 190 S.W.3d 875, 879 (Tex.App.-Dallas 2006, pet. denied)). We review a trial court's decision whether to grant leave to file an amended pleading for abuse of discretion. Roskey, 190 S.W.3d at 879. The trial court's enforcement of its scheduling order is also reviewed for abuse of discretion. Id.; Gunn v. Fuqua, 397 S.W.3d 358, 377 (Tex.App.-Dallas 2013, pet. denied) (citing Hakemy Bros., Ltd. v. State Bank & Trust Co., 189 S.W.3d 920, 924 (Tex.App.-Dallas 2006, pet. denied)). An abuse of discretion occurs when the trial court acts in an unreasonable and arbitrary manner, or when it acts without reference to any guiding rules or principles. Gunn, 397 S.W.3d at 377.% (citing Walker v. Gutierrez, 111 S.W.3d 56, 62 (Tex.2003)).
1. Amendment Prejudicial
Generally, a party may amend its pleadings at any time prior to seven days before trial unless the amended pleadings operate as a surprise to the opposing party. Tex.R. Civ. P. 63; Gunn, 397 S.W.3d at 377. That deadline may be altered by the trial court in a scheduling order issued pursuant to rule 166. Tex.R. Civ. P . 63; see also Tex.R. Civ. P. 166. A party may seek leave of court to amend its pleadings after the deadline imposed by a scheduling order entered pursuant to rule 166. Tex.R. Civ. P. 63. Leave “shall be granted” by the trial court “unless there is a showing that such filing will operate as a surprise to the opposing party.” Id. A trial court has no discretion to refuse an amended pleading unless (1) the opposing party presents evidence of surprise or prejudice; or (2) the amendment asserts a new cause of action or defense, and is thus prejudicial on its face, and the opposing party objects to the amendment. Halmos v. Bombardier Aerospace Corp., 314 S.W.3d 606, 622 (Tex.App.-Dallas 2010, no pet.). As we explained in Halmos,
An amendment that is prejudicial on its face has three defining characteristics: (1) it asserts a new substantive matter that reshapes the nature of the trial itself; (2) the opposing party could not have anticipated the new matter in light of the development of the case up to the time the amendment was requested; and (3) the amendment would detrimentally affect the opposing party's presentation of its case.
Id. at 623.
As discussed above, the section 51.003 affirmative defense, if allowed, would have been a new substantive matter injected into the trial. The record does not reflect that the fair market value of the Old Grove Property had been an issue in the case up to the time when appellants sought to amend their pleading. At the time appellants filed their motion to amend, the only issue remaining in the case was the amount of damages, if any, to which appellee was entitled. Appellee sought to recover on the deficiency, which would not have required the trial court to consider the fair market value of the Old Grove Property. Allowing the amended pleading would have significantly changed the issues to be tried.
Additionally, the section 51.003 affirmative defense was a new matter that appellee could not have anticipated in light of the case's development up to the point when appellants sought the amendment. The affirmative defenses previously pled by appellants gave no indication they would seek a determination of fair market value of the Old Grove Property or that they would seek an offset against the deficiency amount.
The case had been set for trial on three different dates in the time period between when appellee filed its amended petition and when appellants sought to add the section 51.003 affirmative defense. Each trial delay was in response to a motion filed by appellants. Yet none of those motions mentioned that appellants needed additional time to consider or pursue a section 51.003 affirmative defense or examine a fair market value issue. Rather, appellants waited until March 2012 to raise the issue. Not only did more than five months elapse between the time the section 51.003 issue became relevant, but two trial settings passed by and a third one approached. It would have been reasonable for appellee to assume that if appellants intended to raise a section 51.003 defense, then they would have done so in preparation for the earlier trial settings.
As the trial judge explained at the hearing on appellants' motion for new trial:
As I noted in the previous hearing, Mr. Bagwell had more than ample time and knowledge of the pertinent facts to have brought this issue before the Court in a timely manner. He was represented throughout that time by very competent counsel. And I was not, and am not, persuaded that the law requires me to permit him to inject a very significant issue into a two-year-old case as late as he did.
Appellee had no reason to be prepared to try a fair market value defense only a few weeks before the trial setting.
Trying a fair market value defense also would have required appellee to engage a new expert witness. Counsel for appellee represented to the trial court that appellee would be:
left with trying a case on a fair market value defense with no experts designated by the other side to testify on these issues, including Mr. Bagwell; with no opportunity to depose him on all of these facts they are alleging, many of which are stated in their summary judgment response that are blatant hearsay without any support behind it; and no opportunity to seek evidence or discovery against the other witness that [appellants' counsel] has referenced during his statements to the Court.
The trial court agreed, explaining at the hearing on appellants' motion for new trial:
․ [a] trial on the determination of fair market value is [ ] it is inherent in the nature of that issue that expert testimony will be required from both sides.
[Appellants] may be content to rely on Mr. Bagwell as an expert. But I suspect that [appellee] would feel compelled to get an appraiser. It will take time and cost money to do that. And given the long history of this proceeding, I don't consider that it would be fair or just to require the [appellee] to do so.
Based on this record, the trial court could conclude that allowing the amendment would detrimentally affect appellee's presentation of its case.
Appellants cite John H. Thomas, M.D. v. Graham Mortgage Corp., 408 S.W.3d 581 (Tex.App.-Austin 2013, pet. denied), to support their argument that the trial court abused its discretion by refusing to permit appellants to amend their pleading. Thomas concerned the nonjudicial foreclosure of a property owned by Thomas and secured by a note and deed of trust in favor of the bank. Id. at 585. After foreclosure, the bank sought to recover from Thomas the deficiency balance owed on the loan. See id. at 587. The bank filed a motion for summary judgment seeking, among other things, recovery of the deficiency owed by Thomas. Id. Thomas also asserted claims against the bank and filed his own motion for summary judgment. Id. at 586. The trial court set both motions for hearing. Id. at 587.
Ten days before the summary judgment hearing, Thomas filed an amended motion for summary judgment, which the bank objected to as untimely. Id. Two days before the hearing, Thomas filed an answer to the bank's pending counterclaim for deficiency and, in the alternative, a motion for an appraisal. Id. The bank moved to strike the motion for appraisal on the ground that it operated as an unfair surprise under rule 63. Id. at 593. One day before the summary judgment hearing, Thomas filed a motion to continue the hearing. Id. at 587.
At the hearing, the trial court denied Thomas's motion for continuance. Id. The trial court also granted the bank's motion to strike Thomas's motion for an appraisal and granted the bank's objection to Thomas's amended motion for summary judgment. Id. Finally, the trial court denied Thomas's motion for summary judgment and granted the bank's motion. Id.
The court of appeals noted that no document in the record indicated that Thomas requested or obtained leave of court before filing his amended answer or motion. Id. at 593. On appeal, the bank argued the pleading was prejudicial on its face and the trial court properly excluded it. Id. However, the court concluded the bank did not present any evidence of surprise or prejudice. Id. at 594. The court stated: “Although the Bank foreclosed on the Property in September 2009, it waited until February 2011 to amend its pleadings to assert its deficiency counterclaim. Three days after asserting its deficiency claim, the Bank Defendants moved for summary judgment on the claim, and less than two months later, Thomas amended his pleadings and requested an offset under section 53.001.” Id. Under those circumstances, the court concluded no surprise or prejudice was apparent on the face of the pleadings; the bank “could have anticipated that Thomas would assert a section 53.001 offset defense.” Id. Thus, the court concluded, the trial court abused its discretion by striking Thomas's motion for appraisal and granting summary judgment on the bank's deficiency claim. Id.
We consider Thomas distinguishable. The Thomas opinion does not discuss the existence of a scheduling order. Thus, the Austin court of appeals did not consider whether the trial court acted within its discretion by enforcing its scheduling order, which is one of the issues before us. In the case at hand, the trial court had entered the parties' Agreed Scheduling Order, and allowing appellants to plead a new affirmative defense would have violated that order. The trial court had discretion to enforce its scheduling order. See Gunn, 397 S.W.3d at 377. Further, while the Thomas court stated only two months lapsed between the time between the bank asserting its deficiency claim and Thomas requesting to amend his pleadings, here the time lapse was nearly six months—from October 4, 2011, to March 30, 2012. Finally, by the time appellants sought to amend their pleading, there was only one remaining issue before the trial court: the amount of damages, if any. However, the Thomas opinion does not indicate that any issues in the case had been resolved when Thomas sought to add his affirmative defense, which indicates the entire case still remained to be decided and, perhaps, adding a new affirmative defense would not have significantly impacted the trial. We do not consider the Thomas court's conclusions to be persuasive when applied to the facts before us.
In summary, appellants' requested amendment asserted a new affirmative defense that would have “inject[ed] a very significant issue” into the case and would have reshaped the nature of the trial from one about the amount of any deficiency owed to appellee to a trial about the fair market value of the Old Grove Property and any offset to which appellants might be entitled. Appellee could not have anticipated that appellants would assert a section 51.003 affirmative defense based on the development of the case up to the time the amendment was requested. The amendment would have detrimentally affected appellee's presentation of its case, and appellee objected to the proposed amendment. Thus, we conclude the trial court did not abuse its discretion by enforcing its scheduling order and refusing to permit appellants to amend their pleading. See Halmos, 314 S.W.3d at 622.
2. Pleading Deadline Impossible to Meet
Appellants also contend the deadline for amendments in the Agreed Scheduling Order was six months before appellee amended its pleading to reflect a revised balance on the debt following the foreclosure and so appellants could not have amended their pleading within the pleading deadline.
Appellee amended its pleading to revise the balance owed on the debt on October 4, 2011. Without citing to the record, appellants assert that the pleading deadline pursuant to the trial court's Agreed Scheduling Order was April 27, 2011. Therefore, appellants argue, “it is fundamentally unfair and unjust to hold Appellants to a pleading deadline that occurred six months prior to the date of the accrual of the claim and the resulting the [sic] defense.”
As previously discussed, based on the record before us, we are unable to determine the deadline for filing amended pleadings. Thus, we are unable to conclude whether the pleading deadline passed before appellee amended its petition to seek a deficiency judgment on the Old Grove Property or whether appellee amended its pleading within the time frame allowed by the Agreed Scheduling Order, and whether appellants could have done the same had they not delayed in asserting the section 51.003 defense by five months.
Additionally, appellants' argument still ignores the fact that appellants waited five months to add a section 51.003 affirmative defense after appellee filed its revised pleading. This case does not present a situation where appellee amended its pleading and appellants sought to respond with an amended pleading of their own shortly thereafter. Rather, the record before us shows that appellants waited five months—during which time the trial date was reset three times at appellants' request—before attempting to add a new affirmative defense that would “inject a very significant issue” into the case, require testimony from additional expert witnesses, and further delay the trial setting.
We overrule appellants' first and second issues.
In their fourth, fifth, and six issues, appellants complain about the trial court's rulings striking the Bagwell affidavit and not striking the First and Second Paul Affidavits. We review a trial court's decision to admit or exclude summary judgment evidence under an abuse of discretion standard. Allbritton v. Gillespie, Rozen, Tanner & Watsky, P.C., 180 S.W.3d 889, 892 (Tex.App.-Dallas 2005, pet. denied) (op. on reh'g); Double Diamond, Inc. v. Van Tyne, 109 S.W.3d 848, 852 (Tex.App.-Dallas 2003, no pet.). We must uphold the trial court's ruling if the record shows any legitimate basis supporting that ruling. Owens–Corning Fiberglas Corp. v. Malone, 972 S.W.2d 35, 43 (Tex.1998); see also Holloway v. Dekkers, 380 S.W.3d 315, 320 (Tex.App.-Dallas 2012, no pet.).
1. Bagwell Affidavit
The Bagwell affidavit was attached to appellants' proposed second amended answer (which the trial court struck), as well as appellants' response to the second motion for summary judgment. The affidavit set forth Bagwell's opinion about the fair market value of the Old Grove Property on the date of foreclosure. This information might have proved relevant to appellants' proposed affirmative defense under section 51.003. However, we have concluded that appellants' live pleadings did not raise that affirmative defense and that the trial court did not abuse its discretion by denying appellants' motion for leave to amend to assert that affirmative defense. As the contents of the Bagwell affidavit were not relevant to the issues raised by the pleadings and set forth in the second motion for summary judgment, we cannot conclude the trial court's striking of Bagwell's affidavit was an abuse of discretion, see Allbritton, 180 S.W.3d at 892, or probably caused the rendition of an improper judgment, see Tex.R.App. P. 44.1(a)(1). We overrule appellants' fourth issue.
2. First and Second Paul Affidavits
Appellants argue the two affidavits from Paul did not show he had personal knowledge of the facts, and the trial court erred by admitting them as evidence in support of appellee's two motions for summary judgment.
In the First Paul Affidavit, Paul averred that a Texas limited partnership executed and delivered a real estate lien note to Texas State Bank. Appellants Bagwell, Bagwell Trust, Bagwell Company, and Evermore delivered guaranty agreements to Texas State Bank, which unconditionally guaranteed payment of all monies due and owing on the terms of the note. Copies of the note, guaranty agreements, modifications, renewals, and extensions were attached to the First Paul Affidavit. He stated that Compass Bank was the successor-in-interest to Texas State Bank and Compass Bank sold all loan-related documents to appellee.
Appellants argue Paul did not explain how he had “personal knowledge of the execution, modification, extension, maturity or offsets and credits under the Notes and other loan documents. Paul does not state how he has personal knowledge that Compass Bank is the successor-in-interest to Texas State Bank.” Therefore, appellants argue, the First Paul Affidavit is incompetent evidence and cannot support the trial court's first order granting appellee's first motion for summary judgment.
As to the Second Paul Affidavit, appellants again claim it does not show Paul had personal knowledge. Appellants argue that the Second Paul Affidavit contains statements that conflict with the loan documents that were part of appellee's second motion for summary judgment and those conflicts created a genuine issue of material fact. Appellants cite the Second Paul Affidavit, which states that the three partnerships executed and delivered the notes to Alta Vista when the documents show they were delivered to Texas State Bank. Further, they claim the affidavit does not explain how appellee came into possession of the notes. Finally, appellants argue the Second Paul Affidavit does not address all of the requirements to prevail in a deficiency suit.
In the both the First and Second Paul Affidavits, Paul averred that he had personal knowledge of the “matters stated in this affidavit and they are true and correct.” He further stated that he was employed as a manager at Ridge at Alta Vista Investments I, LLC. His job responsibilities included “servicing and collection of indebtedness owed to Alta Vista” by appellants. He was the custodian of these records, he was familiar with the manner and method in which appellee maintains its books and records, and he had reviewed the books and records related to appellants' indebtedness. He also averred that appellee's business records support the statements in the affidavit and “[a]ll of the records attached to this Affidavit are the original or exact duplicates of the original.”
The documents attached to Paul's affidavit support his statements. The “Second Modification, Renewal, and Extension Agreement” specifically recites that it is between “Compass Bank, successor-in-interest to Texas State Bank,” the limited partnership, and appellants. The Second Modification, Renewal, and Extension Agreement was signed by Compass Bank, “successor-in-interest to Texas State Bank,” as the Lender and Bagwell on behalf of himself and the other appellants. Paul also attached a “Notice of Assignment of Note, Loan Agreement and Loan Documents and Notice of Default,” which “serve[d] as notice that the original Lender has ․ assigned all of Lender's right, title and interest in and to the Note, Loan Agreement, and other Loan Documents to Ridge At Alta Vista Investments, I, LLC, a Texas limited liability company ․”
Based on the statements in each of Paul's affidavits, we conclude the affidavits demonstrated a sufficient basis for Paul's personal knowledge regarding the facts. See Woodhaven Partners, Ltd. v. Shamoun & Norman, L.L.P., 422 S.W.3d 821, 843 (Tex.App.-Dallas 2014, no pet.) (citing Hydroscience Techs., Inc. v. Hydroscience, Inc., 401 S.W.3d 783, 791–92 (Tex.App.-Dallas 2013, pet. denied) (for summary judgment affidavit to have probative value, affiant must swear facts in the affidavit reflect his personal knowledge; references to true and correct copies of documents in support of an affidavit can establish personal knowledge)); Valenzuela v. State & Cnty. Mut. Fire Ins. Co., 317 S.W.3d 550, 552 (Tex.App.-Houston [14th Dist.] 2010, no pet.) (affiant's position or job responsibilities can qualify him to have personal knowledge of facts and establish how he learned of the facts). Further, the documents attached to the First and Second Paul Affidavits clearly showed that Compass Bank was the successor-in-interest to Texas State Bank, and appellee acquired all rights to the loan documents. Therefore, we conclude the trial court did not abuse its discretion by overruling appellants' objections to the First and Second Paul Affidavits. We overrule appellants' fifth and sixth issues.
We affirm the trial court's judgment.
I dissent for two reasons. First, the trial judge abused his discretion by refusing to allow appellants to amend their answer to assert a fair-market-value offset against appellee's deficiency claim. Second, appellee's summary-judgment proof was defective and insufficient.
A. Appellants' motion for leave to amend should have been granted.
The trial judge should have allowed appellants to amend their answer to assert their right to a fair-market-value offset under section 51.003 of the property code. His refusal to do so was unreasonable and arbitrary, and it was accordingly an abuse of discretion.1
The relevant dates are as follows. Appellee filed suit in April 2010. In June 2010, the trial judge signed an agreed scheduling order setting the case for trial in June 2011. The deadline for amended pleadings asserting new causes of action or affirmative defenses was thirty days before the end of the discovery period. Although appellants assert that this deadline expired on April 27, 2011, appellee demonstrates in its brief that the amended-pleading deadline was actually in February 2011. The trial was later continued to November 2011. But the facts of the case changed in August 2011—after the amended-pleading deadline—when appellee foreclosed on the collateral for the debts. In October 2011, and without leave of court, appellee filed an amended pleading to change its claims to deficiency claims. The trial judge then continued the trial from November 2011 to March 2012. In February 2012, appellants moved for another continuance, and their attorneys moved to withdraw. The trial judge reset the case for April 16, 2012. Having already obtained summary judgment as to liability, appellee moved for summary judgment as to damages on March 14, 2012. Appellants obtained new counsel, and on March 30, 2014, appellants filed a response to the summary-judgment motion, a motion to determine the fair market value of the Old Grove Property under section 51.003 of the property code, and a motion to amend pleadings. During the week the case was set for trial, the trial judge heard appellants' motions, and appellants' counsel said that appellants' previous attorneys had simply missed the fair-market-value offset issue.2 The judge denied appellants' motion for leave to amend pleadings and granted appellee's motion for summary judgment.
2. Application of the law to the facts
The question presented is whether the trial judge abused his discretion by denying appellants' motion for leave to amend their pleadings and assert the fair-market-value offset under the property code. The trial judge's discretion to deny a late-offered amended pleading is quite narrow. Leave to amend “shall be granted by the judge unless there is a showing that such filing will operate as a surprise to the opposite party.”3 This means that the judge must grant leave to amend unless (1) the opposing party presents evidence of surprise or prejudice, or (2) the amended pleading asserts a new cause of action or defense, making it prejudicial on its face, and the opposing party objects to the amendment.4 An amendment that is prejudicial on its face has three defining characteristics: (1) it asserts a new substantive matter that reshapes the nature of trial itself; (2) the new matter could not have been anticipated by the opposing party in light of the development of the case up to the time the amendment was requested; and (3) the amendment would detrimentally affect the opposing party's presentation of its case.5
Appellee does not contend that it produced any evidence of actual surprise or prejudice, so the question is whether appellants' requested amendment was prejudicial on its face. I would conclude that it was not prejudicial on its face because none of the “defining characteristics” of a facially prejudicial amendment were present.
First, appellants' proposed amendment to assert a fair-market-value offset would not have reshaped the nature of the trial itself. The only issue to be determined was how much credit appellants should receive for appellee's purchases of the collateral in foreclosure. Allowing the amendment would have affected only the method of calculating the credit as to one of the debts, the one involving the Old Grove Property. Appellants would have attempted to prove that the fair market value of that property exceeded appellee's credit bid, and appellee would have attempted to prove that it did not. The nature of the trial itself would not have changed.
Second, appellants' fair-market-value offset could have been anticipated by appellee, considering the entire development of the case. Appellee did not file its last amended pleading until October 2011—several months after the amended-pleading deadline had passed, several weeks after the foreclosures that reshaped the suit into a deficiency action, and only about a month before the trial setting then in place. Yet, appellee apparently thought it was unnecessary to seek leave to amend its pleadings on this occasion. Moreover, despite the significant new factual development in the case—the foreclosures—appellee opposed, at least initially, appellants' request for a continuance of the November trial setting. The foreclosures and appellee's own late amendment of its petition were the first developments in the case from which appellee should have anticipated the possibility that appellants would assert a fair-market-value offset.
Appellants' November 2011 motion for continuance also gave appellee some indication that there might be issues involving the sale of the collateral. In that motion, appellants asserted, “Questions have arisen with respect to the amounts recently obtained in judicial Bankruptcy Court auctions of the underlying real estate collateral.” Although it appears that appellee acquired the Old Grove Property in a nonjudicial foreclosure sale rather than in a bankruptcy auction, appellants' motion for continuance still put appellee on notice that there might be problems with appellee's acquisitions of the collateral. At the very least, appellee could have anticipated that appellants would challenge the adequacy of the credits appellee was willing to apply to the debts.
Finally, it defies belief that appellee would have found it difficult to assemble a rebuttal case concerning the fair market value of the Old Grove Property, even on short notice. When appellants sought to raise the fair-market-value offset, only about eight months had elapsed since the foreclosures. Appellee, a sophisticated business entity, would not have foreclosed on the properties without exercising some diligence to ensure that its credit bids were less than and certainly did not exceed the fair market values of the properties.6 The fruits of that diligence could not have disappeared in eight months. Appellee should have anticipated that appellants would raise a contest over the fair market values of some or all the collateral.
Third, allowance of the amendment would not have detrimentally affected appellee's presentation of its case. It simply would have permitted appellants to attempt to prove the fair market value of the Old Grove Property. Appellee could have simply called their own experts to testify that the fair market value did not exceed appellee's credit bid. Appellee could also have defended against the fair-market-value offset through cross-examination of appellants' valuation witness or witnesses. The proposed amendment does not justify any assumption that the amendment would have detrimentally affected appellee's trial presentation.
3. Response to the majority
The majority invokes the rule that a trial court has wide discretion to manage its docket and relies on the fact that the trial had been delayed twice after appellee amended its pleading before appellants sought to plead the fair-market-value offset. But this analysis ignores the sharp constraints on trial-court discretion when it comes to amending pleadings, as discussed above. More disconcerting, the majority's analysis ignores the key facts—appellants' original lawyer completely missed the most important defensive issue in the case. Once appellants obtained new counsel, he spotted the issue and acted promptly to put it before the court. These facts should have played a huge role in the trial judge's decision and should have compelled him to grant appellants' request for leave to amend. “The proper objective of rules of civil procedure is to obtain a just, fair, equitable and impartial adjudication of the rights of litigants under established principles of substantive law.”7
The majority also upholds the trial judge's conclusion that appellee's presentation of its case would have been detrimentally affected if the trial judge had permitted appellants' amendment. This is not correct. Despite the April 16 trial setting, the case did not actually go to trial on April 16. Instead, the trial judge considered and granted appellee's motion for summary judgment on April 19. If the case was going to be disposed of on summary judgment, the trial judge should have allowed appellants to amend their pleadings and assert the fair-market-value offset.
Because appellants' proposed amendment did not present any of the characteristics of an amended pleading that is prejudicial on its face, the trial judge erred by denying appellants' motion for leave to amend.
B. Appellee's summary-judgment proof was insufficient.
Appellee won summary judgment by two separate motions. After considering the first motion, the trial judge granted partial summary judgment that the notes and guaranties were valid and that appellee was entitled to enforce them. The trial judge later granted final summary judgment as to damages based on the second motion. The principal evidentiary support for each summary-judgment motion was an affidavit by a “manager” of appellee named Robert G. Paul. Various loan documents and guaranties were attached to the affidavits. In their fifth and sixth issues on appeal, appellants argue that Paul's affidavits were incompetent because Paul did not demonstrate that he had personal knowledge of the facts he testified to. They also point out that Paul's affidavits are contradictory and that the affidavits do not conclusively prove all facts necessary to justify summary judgment for appellee. I agree with appellants.
1. Evidentiary defects
The Paul affidavits are defective because appellee was not the original lender on these loans, and because Paul did not demonstrate that he has personal knowledge of the events that occurred before appellee purportedly acquired the loans in January 2010. According to the documents attached to Paul's affidavits, Texas State Bank was the original holder of the notes, which were executed in July 2006. Texas State Bank was also the beneficiary of the guaranties executed by appellants on the same date. According to Paul's first affidavit, Compass Bank became Texas State Bank's successor in interest, and Compass Bank sold the loans and related guaranties to appellee in January 2010. Also according to Paul's first affidavit, the loans matured in December 2009—before appellee acquired the loans—and each debtor defaulted. But Paul does not say that he ever worked for Texas State Bank or Compass Bank, nor does he state any other facts that would suggest he had personal knowledge of the 2006 loan transactions or of the alleged defaults.
A summary-judgment affidavit must be based on personal knowledge.8 Moreover, the affiant must set forth facts affirmatively demonstrating the basis for such knowledge; a conclusory assertion of personal knowledge does not suffice.9 Paul's affidavits do not show how he has personal knowledge of the events that occurred before appellee acquired the debts in January 2010. He testifies as follows in his first affidavit:
1.․ I have personal knowledge of each of the matters stated in this affidavit and they are true and correct.
2. I am presently employed by [appellee] in the capacity of Manager. As part of my duties, I am responsible for the servicing and collection of the indebtedness owed to [appellee] by [appellants] described in this Affidavit.
3. I am also a custodian of records for [appellee] with respect to the indebtedness owed to [appellee] by [appellants]. I am familiar with the manner and method in which [appellee] maintains its books and records. [Appellee] keeps these books and records in the regular course of its business. It is the regular course of [appellee]'s business for an employee with personal knowledge of each transaction or event to make a record of the transaction or event at or near the time of the transaction or event. These books and records are maintained by employees and agents whose duties it is to maintain the books and records accurately and completely.
4. I have reviewed the books and records of [appellee] with respect to the indebtedness of [appellants]. The business records of [appellee] support the statements contained in this Affidavit. I am authorized to make this Affidavit, and it is in support of Plaintiff's Motion for Summary Judgment. All of the records attached to this Affidavit are the originals or exact duplicates of the original.
Paul's second affidavit says the same thing with respect to Paul's personal knowledge.
In his first affidavit, Paul then purports to recount the history of the loans—the creation of the original debts and guaranties in favor of Texas State Bank in 2006, some extensions of the debts, the fact that Compass Bank became successor in interest in Texas State Bank, the debtors' defaults, and Compass Bank's assignments of the debts to appellee in January 2010. In his second affidavit, Paul changes the facts completely, testifying (contrary to his first affidavit and to the attached documents) that the debtors delivered the notes and guaranties to appellee (not Texas State Bank) in 2006. This inconsistency alone is enough to create genuine issues of material fact defeating summary judgment. Further, Paul discloses no facts that affirmatively show how he acquired personal knowledge of the key facts—that the original loan documents and guaranties are authentic and accurate, that the chain of title from Texas State Bank to appellee is good, or that the loans and guaranties were actually in default when appellee acquired them in January 2010. The fact that he is now a manager for appellee does not suffice to demonstrate personal knowledge of the conduct of other entities years earlier.
The majority errs by accepting at face value Paul's assertions that appellee's business records “support the statements contained in this Affidavit” and that all the records attached to the affidavits “are the original or exact duplicates of the original.” First, as shown above, Paul has not demonstrated that he has personal knowledge of the authenticity of the loan documents and guaranties. He does not say he was ever affiliated with the original debtors, appellants, Texas State Bank, or Compass Bank, nor does he otherwise explain how he personally knows that the attachments are authentic originals or copies of original documents dating to 2006 (the original loan documents and guaranties) and 2008 (the extension agreements). Nor does he show that he has personal knowledge of the facts necessary to qualify the documents as business records. On their face, the notes, guaranties, and extensions were executed by debtors, appellants, Texas State Bank, and Compass Bank. Paul does not show that he has personal knowledge that these documents were “business records,” that is, records of factual matters, made at or near the time, by or from information transmitted by a person with knowledge, kept in the course of a regularly conducted business activity, and it was the regular practice of that business activity to make the record.10 We have said that one entity's business records can become the business records of another entity if (1) the records are incorporated into and kept in the course of the acquiring entity's business, (2) the acquiring entity typically relies on the accuracy of the records' contents, and (3) the circumstances otherwise indicate the documents' trustworthiness.11 But Paul does not swear to these facts either. In short, Paul does not show that he is competent to prove up the attached documents-either that they are authentic or that they are business records.
The majority asserts that Paul's affidavit is reliable because the attached documents “support his statements.” But this reasoning is circular, lacks any factual basis, and is therefore unsound. Why is Paul's affidavit reliable? Because his testimony matches the contents of the attached documents.12 Why are the attached documents reliable? Because Paul testifies that they are authentic business records. There is no independent evidence establishing the records' authenticity and business-record status from a witness who actually has personal knowledge about the authenticity and mode of generation of the documents.
The majority concludes by citing cases for the proposition that a summary-judgment affiant can establish personal knowledge by referring to true and correct copies of documents. For example, in one case we wrote, “References to true and correct copies of documents in support of an affidavit also establish [ ] personal knowledge.”13 Statements like this should not be taken to repeal the plain requirement of the summary-judgment rule that “[s]upporting and opposing affidavits shall be made on personal knowledge.”14 “Personal knowledge” is knowledge acquired through firsthand observation or experience, as opposed to knowledge based on what someone else has said.15 Knowledge acquired by hearsay—even admissible hearsay, such as a proved-up business record—is not personal knowledge. The record in this case contains no testimony from a person with personal knowledge that proves up the loan documents either as to authenticity or as to the business-records requirements.
2. Failure to prove an essential element
Finally, appellants point out that appellee failed to address all the elements of a deficiency claim. Appellee had to prove (1) the amount due on the note at the time of foreclosure, (2) proper notice of acceleration was given, (3) a valid foreclosure sale was conducted, and (4) appellee gave appellants credit for the amount received at the foreclosure sale and any other legitimate credit.16 Appellee did not prove all those elements. In particular, the Paul affidavits contain no evidence of proper notice of acceleration. Thus, appellee failed to prove its entitlement to summary judgment.
The trial court erred by granting summary judgment in favor of appellee.
For the foregoing reasons, I dissent.
1. At a post-trial hearing, counsel for appellee represented to the trial court that appellants David Bagwell Company and Evermore Communities, Ltd. filed for bankruptcy on or about May 3, 2012. On November 28, 2012, this Court abated the appeal, citing rule of appellate procedure 8.2, which provides that “[a] bankruptcy suspends the appeal ․ until the appellate court reinstates or severs the appeal in accordance with federal law.” Tex.R.App. P. 8.2. The parties moved to reinstate the appeal on June 11, 2013; the Court reinstated the appeal on June 25, 2013.
2. Appellee filed more than two motions for summary judgment. However, only two are relevant to this appeal: the motion filed on November 2, 2010, and the motion filed on March 14, 2012.
3. In their reply brief, appellants also argue the trial court abused its discretion by denying them leave to amend because they did not have counsel during a time period when the trial court admonished appellants that they would not be permitted to file a new cause of action. We do not consider new arguments raised in the reply brief and, therefore, will not address the ones raised by appellants in their reply brief. See Collin Cnty. v. Hixon Family P'ship, Ltd., 365 S.W.3d 860, 877 (Tex.App.-Dallas 2012, pet. denied).
4. The record indicates appellants requested a continuance several weeks before the original trial setting, and the parties agreed to reset the trial date to November 7, 2011. On November 7, 2011, appellants filed a verified motion for continuance requesting the trial court delay the trial by 120 days; the trial court granted the motion and reset the trial for March 5, 2012. On February 24, 2012, appellants filed a verified emergency motion for continuance seeking another 120 day delay in the trial date. In response, appellee indicated it was amenable to a short continuance so that it could file a motion for summary judgment on damages. The trial court reset the trial to the week of April 16, 2012.
1. “A trial court abuses its discretion if it acts in an arbitrary or unreasonable manner without reference to any guiding rules or principles.” Walker v. Gutierrez, 111 S.W.3d 56, 62 (Tex.2003).
2. Specifically, appellants' counsel said, “And I called [appellants' prior counsel] and asked him why it [the fair-market-value offset] wasn't brought, and it was missed. And that's really unfortunate. And I'm not going to try to tell you things that aren't true about that. It was missed, and it is really unfortunate.”
3. Tex.R. Civ. P. 63.
4. Halmos v. Bombardier Aerospace Corp., 314 S.W.3d 606, 622 (Tex.App.-Dallas 2010, no pet.).
5. Id. at 623.
6. According to appellee, it made a credit bid of $4,512,000 for the Old Grove Property, leaving a deficiency of about $1,265,000 on the related note. According to appellants, the fair market value of the Old Grove Property was actually $7,280,000, which would have wiped out the alleged deficiency.
7. Tex.R. Civ. P. 1.
8. Tex.R. Civ. P. 166a(f).
9. Neel v. Tenet HealthSystem Hosps. Dallas, Inc., 378 S.W.3d 597, 608 (Tex.App.-Dallas 2012, pet. denied).
10. See Tex.R. Evid. 803(6).
11. See, e.g., Nat'l Health Res. Corp. v. TBF Fin., LLC, 429 S . W.3d 125, 130 (Tex.App.-Dallas 2014, no pet.).
12. Actually, only Paul's first affidavit matches the contents of the attached documents. As previously noted, his second affidavit says that the loan documents were delivered to appellee, but the documents reflect that they were delivered to Texas State Bank or Compass Bank.
13. Hydroscience Techs., Inc. v. Hydroscience, Inc., 401 S.W.3d 783, 792 (Tex.App.-Dallas 2013, pet. denied).
14. Tex.R. Civ. P. 166a(f) (emphasis added).
15. Austin Traffic Signal Constr. Co., L.P. v. Transdyn Controls, Inc., No. 03–06–00655–CV, 2010 WL 3370292, at *7 (Tex.App.-Austin Aug. 24, 2010, no pet.) (mem.op.).
16. Thompson v. Chrysler First Bus. Credit Corp., 840 S.W.2d 25, 28 (Tex.App.-Dallas 1992, no writ).
Opinion by Justice MOSELEY.
FITZGERALD, J. dissenting.