BEAUMONT – A Texas bank has won its appeal of a summary judgment based upon collateral estoppel.
The Community Bank of Texas filed an appeal Oct. 15, 2014, in the Beaumont Division of the Ninth District of Texas to contest the summary judgment in favor of the Orange County Insurance Brokerage Inc. (OCIB) and Ian Garrett. The Court of Appeals ruled in favor of the bank and ordered the case to be remanded to the trial court.
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The appellate court released its decision Sept. 1.
The Court of Appeals declared that the trial court erred in its decision to issue the disputed summary judgment. It noted that the appellees failed to satisfy the requirements for collateral estoppel. Without these requisites, the trial court should not have signed the summary judgment that would hinder Community Bank from pursuing their legal rights against OCIB and Garrett.
In their appeal, Community Bank raised three issues against the decision of the trial court to deny them of a new trial on the basis of collateral estoppel.
They pointed out that OCIB and Garrett failed to conclusively prove their affirmative defense of collateral estoppel and the trial court failed to consider the collusive nature of the settlement agreement that resulted in the agreed final judgment in the bankruptcy adversary proceeding.
Their third reason noted the fact that they eventually became a holder in due course of the note prior to the agreed final judgment, thereby defeating any defense of fraud by the maker.
The note in question was a key factor in the case. Initially, Community Bank extended credits to Randy Jarell and Beaty Insurance Agency. As a security for payment, Jarell gave the bank a security interest on his properties. This included the assets related to the operation of his agency.
In March 2009, though, Jarell sold the agency to Garrett and OCIB.
In their agreement, the amount of $1,500,000 was to be paid to Jarell for him to pay out the promissory note he issued Community Bank. Garrett himself guaranteed the note.
Community Bank agreed to release the lien on the assets of Jarell’s agency. In doing so, they contributed to expediting the purchase and sale. As a security measure, the bank took a collateral assignment of the note from Jarell.
Community Bank received regular payments from the parties involved until January 2011 when a dispute between Jarell and Garrett occurred. One year after Jarell sold the agency to Garrett and OCIB, he filed for bankruptcy. Community Bank then foreclosed on its collateral interest on the agency based on the strength of their arrangement with Jarell. The bank then purchased the note at a public sale.
Garrett and OCIB filed for an unsecured claim on the assets of Jarell. They pointed out that their earlier transaction with Jarell was induced by fraud on the part of the latter.
Garrett and OCIB noted that Jarell misrepresented himself and failed to fulfill his part of the transactions they agreed to execute together. The fraud allegedly covered the payments of certain debts including the note to Community Bank. These allegations, including res judicata and collateral estoppel, were then used as basis for the claims of Garrett and OCIB that they are no longer liable in fulfilling the terms of the note to the bank.
In its decision, the appellate court shared that the trial court failed to properly execute the terms of the agreed final judgment between the parties. According to the Court of Appeals, the document provided no indication that the claims of Community Bank had been litigated, settled or compromised. It also noted that no portion of the judgment addressed the note.
The Court of Appeals also declared that Garrett and OCIB failed to fulfill the requirements in obtaining a judgment based on collateral estoppel. The case has been declared remanded to the trial court for further proceedings.