AIRPRO MOBILE AIR, LLC and Arnold W. Gartman, Appellants v. PROSPERITY BANK, Appellee
This appeal involves a deficiency judgment in appellee Prosperity Bank's (“Bank”) favor arising out of a repossession of collateral. In one issue, appellants Airpro Mobile Air, LLC and Arnold Gartman (collectively “Airpro”) contend the evidence is legally and factually insufficient to support the trial court's determination that Bank disposed of the collateral in a commercially reasonable manner. We affirm the trial court's judgment.
This case was tried on stipulated facts. In 2011, Airpro Mobile Air and its owner, Arnold Gartman, entered into a $1,705,649.70 Loan Agreement with Bank's predecessor. The loan was secured by Airpro Mobile Air's assets, including its inventory, parts, accounts, equipment, and general intangibles (“the collateral”).
In 2016, Airpro leased property (the “Premises”) from H&H Properties, LLC (“Landlord”). When Airpro failed to pay rent, Landlord locked Airpro out of the Premises. At all relevant times, the collateral was locked inside.
Airpro later defaulted on its loan with Bank, so Bank sought to foreclose on the collateral. Landlord, however, maintained it had a superior lien on the collateral and denied Bank possession of and unfettered access to it. Bank then sued Landlord for possession of the collateral and conversion and sought $1,357,827.00 in damages.
While Bank's suit against Landlord was pending, Bank sold the collateral by private sale to the only bidder, Phoenix Mobile Air, LLC (“Phoenix”), for $17,500, which Bank credited to the balance due on Airpro's loan.3 A year later, Bank and Landlord settled for $30,000, which Bank again credited to Airpro's balance. Bank then sued Airpro for the deficiency, but Airpro countered the collateral's sale was commercially unreasonable. After hearing all the evidence during a bench trial, the trial court entered a $1,356,493.79 deficiency judgment in Bank's favor. Airpro appeals.
I. Applicable Law
Article 9 of the Uniform Commercial Code provides that a secured creditor may repossess collateral after default, dispose of it, and then sue for any deficiency that remains after proceeds from the collateral are applied to the debt. Tex. Bus. & Com. Code § 9.610(a); Regal Fin. Co., Ltd. v. Tex. Star Motors, Inc., 355 S.W.3d 595, 596–97 (Tex. 2010). To recover a deficiency, however, a secured creditor must prove that it acted in a “commercially reasonable manner” regarding every aspect of the collateral's disposition. Tex. Bus. & Com. Code § 9.610(b); Regal, 355 S.W.3d at 599.
Although commercial reasonableness is not precisely defined in Article 9, courts consider many non-exclusive factors when analyzing the commercial reasonableness of a disposition, including whether the secured party endeavored to obtain the best price possible; whether the collateral was sold in bulk or piecemeal; whether it was sold via private sale or public sale; whether it was available for inspection before the sale; whether it was sold at a propitious time; whether the expenses incurred during the sale were reasonable and necessary; whether the sale was advertised; whether multiple bids were received; what state the collateral was in; and where the sale was conducted. Regal, 355 S.W.3d at 601–02. As these factors imply, commercial reasonableness is a fact-based inquiry that requires a balance of Article 9's two competing policies: (1) protecting debtors against creditor dishonesty and (2) minimizing interference in honest dispositions. Id. at 602.
II. Sufficiency of the Evidence
When, as here, parties challenge the legal sufficiency of the evidence supporting an adverse finding on an issue for which they do not have the burden of proof, those parties must demonstrate no evidence supports the adverse finding. Exxon Corp. v. Emerald Oil & Gas Co., 348 S.W.3d 194, 215 (Tex. 2011). In a legal sufficiency or “no evidence” review, we determine whether the evidence would enable reasonable and fair-minded people to reach the verdict under review. City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). We consider the evidence in the light most favorable to the challenged finding, crediting favorable evidence if a reasonable factfinder could and disregarding contrary evidence unless a reasonable factfinder could not. Id. at 807. We will sustain a no evidence complaint only if the record reveals (a) the complete absence of a vital fact, (b) the court is barred by rules of law or evidence from giving weight to the only evidence offered to prove a vital fact, (c) the evidence offered to prove a vital fact is no more than a mere scintilla, or (d) the evidence establishes conclusively the opposite of the vital fact. Id. at 810.
In reviewing a challenge to the factual sufficiency of the evidence, we consider and weigh all of the evidence, setting aside the judgment only if it is so contrary to the overwhelming weight of the evidence. Id. at 826. The fact finder is the sole judge of the witnesses' credibility; it may choose to believe one witness over another, and we cannot impose our own opinion to the contrary. Id. at 819. Because it is within the fact finder's province to resolve conflicting evidence, we must assume the fact finder resolved all evidentiary conflicts in accordance with its decision if a reasonable fact finder could have done so. Id.
In a bench trial where a trial court makes findings of fact, those findings have the same force and effect as a jury verdict. Lanier v. E. Found., Inc., 401 S.W.3d 445, 459 (Tex. App.—Dallas 2013, no pet.). Consequently, unchallenged findings of fact are binding on this Court unless the contrary is established as a matter of law or no evidence supports the finding. Sheetz v. Slaughter, 503 S.W.3d 495, 505 (Tex. App.—Dallas 2016, no pet.).
In a case tried to the court on stipulated facts, those facts are binding on the parties, the trial court, and the reviewing court. Wells Fargo Bank Nw., N.A. v. RPK Capital XVI, L.L.C., 360 S.W.3d 691, 698 (Tex. App.—Dallas 2012, no pet.). An appellate court does not review the legal or factual sufficiency of the evidence of stipulated facts.
In four arguments, Airpro contends (1) Bank's minimal efforts to sell the collateral, (2) the $17,500 sale price, (3) Bank's failure to submit expert testimony, and (4) Bank's “excuse” that Landlord interfered with its attempts to dispose of the collateral constitute no evidence of commercial reasonableness. We address each argument in turn.4
i. Bank made commercially reasonable efforts to dispose of the collateral.
In its first argument, Airpro contends Bank made minimal efforts to dispose of the collateral. Specifically, Airpro argues Bank failed to follow its own Repossession Procedures,5 never hired anyone to help it dispose of the collateral, and never advertised the collateral's sale. Bank responds that Landlord unreasonably thwarted its efforts to dispose of the collateral and, based on Landlord's interference, it was impractical to hire outside help and advertise the collateral's sale.
The evidence shows Bank assigned Jerome Johnson, Senior Vice President and Special Assets Officer, to handle the collateral's disposition. At trial, Johnson testified Airpro advised Bank that Landlord was disposing of the collateral. Bank notified Landlord of its security interest, but Landlord maintained it had a superior lien on the collateral because Airpro owed it rent. Bank then emailed Landlord, proposing the parties agree on inventory, sale, and escrow of funds. Landlord responded with a detailed list of damages totaling $130,000 and threatened to dispose of the collateral unless Bank paid it at least $46,450.
The evidence further shows Landlord repeatedly denied Bank possession of and limited access to the collateral. Landlord allowed Bank “supervised visit[s]” to inspect the collateral, but never allowed Bank to conduct an inventory. Johnson testified Landlord had put the collateral in boxes and piled it against the walls, making it nearly impossible to inspect.
To help Bank conduct a public sale of the collateral, Johnson contacted Stampler Auctions (“Stampler”). Stampler sent Bank a detailed proposal, stating it would organize, inventory, and advertise the collateral and conduct the auction for a percentage, plus costs. Nonetheless, “due to many circumstances,” which included Bank's limited access to the collateral, Bank never hired Stampler or held a public auction.
On several different occasions, Johnson testified Bank attempted to rent the Premises from Landlord to obtain access to the collateral. On one occasion, Bank offered Landlord a $25,000 flat rate, and on another occasion, offered $10,000 a month. Bank also offered extra incentives, including ten percent of the collateral's net sales. Landlord rejected all of Bank's offers.
Bank then contacted Jerry Lemon, a former sales management consultant for Airpro, to help it look for warehouse space to move the collateral.6 Lemon testified he located a space for $2,500 a month, but told Bank that, total, it would cost about $18,000 to $20,000 to move and store the collateral elsewhere. Bank declined to move the collateral and, instead, discussed hiring Lemon to help Bank sell the collateral. Lemon requested a fee and recommended the parties execute a formal contract, which they never did.
Based on this evidence, we disagree with Airpro's contention that Bank made minimal efforts to dispose of the collateral. Indeed, Bank made several attempts, but Landlord's interference prevented it from inspecting, managing, marketing, or appraising the collateral. Moreover, even Bank's best efforts to rent the Premises from Landlord or move the collateral to a space where it could host a public sale failed because of Landlord's interference or the costs of an alternate warehouse.
We also reject Airpro's reliance on Havins v. First Nat'l Bank of Paducah, 919 S.W.2d 177 (Tex. App.—Amarillo 1996, no writ). In Havins, the only evidence the creditor provided regarding commercial reasonableness was that the collateral was in “pretty bad shape” and that it sold the collateral at a public auction. Id. at 181–82. The court noted, among other deficiencies, the absence of evidence showing any steps the creditor took to prepare the collateral for sale. The court concluded that, without more, the “miniscule amount of evidence” was factually insufficient to prove commercial reasonableness. Id. at 182.
Unlike the creditor in Havins, here, Bank presented a substantial amount of evidence showing how it attempted to prepare the collateral for sale. Bank assigned Johnson, who had over thirty-five years of foreclosure experience, to handle the collateral's disposition; contacted Stampler and Lemon; and attempted to conduct an inventory, rent the Premises from Landlord, and move and store the collateral elsewhere. Further, it was reasonable for the trial court to conclude that, because of Landlord's interference, it was impractical for Bank to hire outside help or advertise the collateral's sale. We therefore conclude the evidence is legally and factually sufficient to prove Bank made reasonable efforts to dispose of the collateral.
ii. The $17,500 sale price was commercially reasonable.
In its second argument, Airpro contends the $17,500 sale price of the collateral was commercially unreasonable. Airpro specifically argues Bank failed to present any testimony regarding the sale price's commercial reasonableness. Airpro further relies on Bank's lawsuit against Landlord, in which Bank pleaded the collateral was worth “at least $1,357,827.00.”
The ultimate purpose of a commercially reasonable sale is to ensure the creditor realizes a satisfactory price. Regal, 355 S.W.3d at 602. A satisfactory price is not necessarily the highest price, and courts have recognized that secured creditors often sell in the low end of wholesale markets. Id. Further, the fact that a higher price could have been obtained is not preclusive to a finding of commercial reasonableness. Tex. Bus. & Com. Code § 9.627(a).
At trial, Bank called multiple witnesses who testified as to the sale price's commercial reasonableness. Scott Carter, owner of Phoenix—the company that purchased the collateral—testified that after inspecting the collateral, he determined most of it was a “bunch of junk” and “obsolete.” Carter initially offered $35,000 or $36,000 for the collateral, but after further inspection, he discovered the computers, hardware, and hard drives were missing. Carter then lowered his original offer to $17,500, which Bank accepted. When asked if he believed $17,500 was a commercially reasonable price, Carter opined that based on the collateral's condition, it was more than reasonable, despite the fact he later sold some of the collateral for $60,000.7
Johnson also testified the $17,500 sale price was commercially reasonable. He explained that Bank “had no other alternative ․ [L]andlord had prohibited us and struck us from every potential angle that we had pursued.”
Lemon did not specifically testify as to whether the sale price was commercially reasonable. Lemon believed that, given Landlord's limited access, a reasonable price was between $25,000 to $30,000. Lemon stated the $17,500 purchase price was an “outstanding price on the part of Phoenix ․ [but] a less than stellar price on the part of [Bank].” Lemon noted, however, that Bank could have obtained a greater sales price if it had earlier access to the collateral and was able to conduct a proper inventory.
Kent Brooks, an attorney who represented the Mesquite Taxing Authority regarding a payment agreement for property taxes with Airpro, testified Gartman told him he could sell the collateral for ten cents on the dollar, which is what Gartman “felt that he could get [from the collateral] he valued at a million two.”
In contrast, Gartman testified the collateral was in “sellable, excellent condition.” According to Gartman, a commercially reasonable price was “over a million five.” Gartman maintained that had Bank hired Stampler and advertised the collateral's sale, it would have received substantially more money.
Airpro called Mel Davis, an auction owner. Davis testified the collateral's sale overall was not commercially reasonable because Bank never performed an appraisal or a good inventory and did not advertise or conduct a public sale. Davis, however, conceded the fact that Bank did not have possession or control of the collateral would affect his opinion, but did not explain how.
Conflicting evidence existed as to whether $17,500 was a commercially reasonable sales price. Because any conflicts in the testimony were within the province of the trial court to decide, we must defer to those findings. Wilson, 168 S.W.3d at 819. Based on the evidence, we conclude a reasonable factfinder could have found the $17,500 sale price was commercially reasonable.
iii. Bank presented expert testimony regarding commercial reasonableness.
In its third argument, Airpro contends Bank failed to submit expert testimony regarding commercial reasonableness. To the contrary, the record shows Bank designated Carter and Lemon as experts. Airpro moved to strike them, but the trial court denied the motions.
Airpro further relies on this Court's opinions in ITT Com. Fin. Corp. v. Riehn, 796 S.W.2d 248 (Tex. App.—Dallas 1990, no writ) and Sunjet, Inc. v. Ford Motor Credit Co., 703 S.W.2d 285, 289 (Tex. App.—Dallas 1990, no writ) for the proposition that expert testimony is required to prove commercial reasonableness. But ITT and Sunjet do not make expert testimony a strict requirement when proving commercial reasonableness 8 and, moreover, were decided prior to the supreme court's decision in Regal, in which the supreme court concluded the disposition of collateral was commercially reasonable, despite Regal's failure to present expert testimony. See Regal, 355 S.W.3d at 609 (Johnson, J., dissenting) (“The real difficulty here is that Regal did not have a qualified expert witness testify as to what were reasonable commercial practices.”). We therefore reject Airpro's contention that a creditor must introduce expert testimony to prove a disposition was commercially reasonable.
iv. Landlord's interference could be considered in determining whether the disposition was commercially reasonable.
Lastly, Airpro contends the trial court improperly considered Landlord's interference in determining whether the disposition was commercially reasonable. Specifically, Airpro argues Bank failed to present any authority suggesting Landlord's interference excused Bank from conducting a commercially reasonable sale. We do not, however, construe this to be Bank's argument at trial. At trial, Bank argued its efforts to dispose of the collateral were commercially reasonable under the circumstances, given Landlord's repeated interference. At no time did Bank argue it was excused from conducting a commercially reasonable sale. Indeed, for Bank to recover a deficiency, the disposition must have been commercially reasonable. Tex. Bus. & Com. Code § 9.610(b); Regal, 355 S.W.3d at 599.
Airpro further contends the evidence undercuts Bank's argument that Landlord's interference otherwise excused certain efforts regarding commercial reasonableness because Landlord eventually allowed Phoenix to remove the collateral from the Premises. Airpro argues that “Bank, like Phoenix, could have itself removed the collateral from the [Premises] and could have then conducted either a public auction or a private sale.” Airpro's argument, however, lacks evidentiary support, and we decline to indulge such unsubstantiated speculations. See Diamond v. San Soucie, 239 S.W.3d 428, 434 (Tex. App.—Dallas 2007, no pet.).
We also reject Airpro's contention that the time of the sale was unreasonable because Bank sold the collateral to Phoenix while Bank's suit against Landlord was still pending. Bank sold the collateral to Phoenix on May 23, 2017 and settled its lawsuit with Landlord on June 8, 2018. We conclude selling the collateral a year before the lawsuit settled was reasonable under the circumstances, particularly given that a substantial portion of the collateral was already obsolete at the time of sale.
We conclude the evidence was legally and factually sufficient to prove Bank's disposition of the collateral was commercially reasonable. Having resolved Airpro's sole issue against it, we affirm the trial court's judgment.
3. Landlord ceded possession of the collateral to Phoenix.
4. Bank asserts Airpro waived its sufficiency complaints because it did not challenge specific findings of fact. Although a party appealing from a bench trial in which the trial court made findings of fact should direct its attack on the sufficiency of the evidence at specific findings of fact rather than at the judgment as a whole, a challenge to an unidentified finding may be sufficient if we can fairly determine from the argument which specific finding the appellant challenged. Shaw v. Cty. of Dallas, 251 S.W.3d 165, 169 (Tex. App.—Dallas 2008, pet. denied). Here, the trial court made sixty-nine findings of fact, six of which concerned commercial reasonableness. We can therefore determine from Airpro's arguments which findings of fact it challenges. See id.
5. Bank had detailed Repossession Procedures that required a special assets officer to determine the collateral's value by contacting a “local Public Auction House” before selling the collateral. Further, although Bank's procedures reflected a preference for public auctions over private sales, pursuant to its procedures, Bank could nonetheless sell the collateral via private sale, but only after obtaining “at least 3 bids,” and only if the winning bid would be more than what Bank would expect to receive through a public auction.
6. Landlord had also contacted Lemon to help it dispose of the collateral. Lemon contacted at least four industry professionals to see if they were interested in the collateral, but did not move forward with negotiations because Landlord could not prove it had any ownership rights regarding the collateral.
7. Airpro contends Carter's testimony was conclusory because Carter never inventoried the collateral. See United Servs. Auto. Ass'n v. Croft, 175 S.W.3d 457, 464 (Tex. App.—Dallas 2005, no pet.) (“An expert opinion is conclusory when it offers an opinion with no factual substantiation. A conclusory opinion ․ will not support a verdict.”). Although Landlord prevented any party from conducting a detailed inventory, Carter testified he inspected the collateral at least three or four times before buying it.
8. See ITT, 796 S.W.2d at 251 (expert testimony is generally required); see also Sunjet, 703 S.W.2d at 289 (expert testimony was required where procedures used in jet craft sales were not within the average person's knowledge).
Opinion by Justice O'Neill