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Mahmoud v. De Moss Owners Association, Inc.

United States Court of Appeals, Fifth Circuit

July 28, 2017

ASHRAF MAHMOUD; VALERIE JACKSON, Plaintiffs-Appellants
v.
DE MOSS OWNERS ASSOCIATION, INCORPORATED; CREATIVE MANAGEMENT COMPANY; FRANK, ELMORE, LIEVENS, CHESNEY & TURET, L.L.P.; KRISTI A. SLAUGHTER; KHOSROW ABTAHI, Defendants-Appellees

         Appeal from the United States District Court for the Southern District of Texas

          Before JONES, CLEMENT, and HIGGINSON, Circuit Judges.

          EDITH H. JONES, Circuit Judge:

         This appeal arises from the 2013 foreclosure sale of appellants Ashraf Mahmoud and Valerie Jackson's condominium unit in Houston, Texas. In 2013, Mahmoud and Jackson filed suit against the condo owners association, the company that manages the day-to-day affairs of the complex, the law firm hired to collect on delinquent homeowner accounts, and the attorney responsible for their account. Appellants alleged common law claims for breach of contract, wrongful foreclosure, negligent misrepresentation, and breach of fiduciary duty, and violations of the Federal Debt Collection Practices Act, Texas Fair Debt Collection Practices Act, and Texas Deceptive Trade Practices Act. 15 U.S.C. §§ 1692c, e, and f; Tex. Fin. Code Ann. § 392; Tex. Bus. & Com. Code Ann. § 17. The district court granted summary judgment on all claims. We affirm.

         I

         In 2001, Mahmoud and Jackson purchased condominium unit 806 located at 6606 De Moss Drive, Houston, Texas. The condo is part of De Moss Condominiums, which is run by the De Moss Owners Association (the Association) and governed by the Condominium Declaration (the Declaration) filed in Harris County, Texas in 1981. Paragraph 5.1 of the Declaration requires all owners to pay monthly assessments and grants the Association the power to assess late fees of $5.00 for each late payment, a late fee that was subsequently increased to $25.00. Common assessments include assessments based on non-recurring costs for repairs and improvements to the common areas of the premises. Paragraph 5.9 grants the Association a lien to secure payment of these assessments. Finally, paragraph 3.10 allows the Association to charge individual owners for repairs to common elements willfully or negligently damaged by an owner or his or her guests.

         Creative Management Company (Creative) managed the day-to-day operations of the condo complex. By letter dated August 24, 2012, Creative notified Jackson and Mahmoud that their account was delinquent by $1611.80 and gave them one month to make payment. The letter listed dated and itemized charges, including: a repair from May 2006, a repair from April 2007, a repair from February 2010, maintenance fees from July and August 2012, and an August 2012 late penalty. [1] The letter allowed Jackson and Mahmoud 30 days from receipt to challenge the validity of the debt or the account would be turned over to an agent or an attorney to initiate foreclosure proceedings or to file a lawsuit to recover the total amount due. The Association then turned the collection over to Appellee Kristi Slaughter of Frank, Elmore, Lievens, Chesney & Turet, L.L.P. (Appellee FELCT).

         Slaughter sent Mahmoud and Jackson a letter dated October 8, 2012, identifying the balance on the "Resident Transaction Report" maintained by Creative as $2, 171.80, and informing Mahmoud and Jackson that the debt was secured by a continuing lien against their condo and failure to pay the total amount within 30 days would result in a nonjudicial foreclosure on the lien. Page one of the letter stated that the balance was secured by a continuing lien against their condominium and that failure to pay the total amount "on or before the expiration of thirty (30) days from and after the date hereof" would result in nonjudicial foreclosure. Page two contained a notice, in all-caps, which included the following warning three times: "UNLESS YOU DISPUTE THE VALIDITY OF THIS DEBT OR ANY PORTION THEREOF WITHIN THIRTY (30) DAYS AFTER RECEIVING THIS LETTER, WE WILL ASSUME THE DEBT IS VALID." Mahmoud and Jackson never disputed the validity of the debt before filing this lawsuit.

         Mahmoud and Jackson sent in three checks covering the three most recent monthly assessments ($750), but not the full amount of the debt owed ($2, 171.80). Slaughter responded with two separate letters dated November 12, 2012, advising the owners that their unit would be put up for foreclosure sale and returning the checks. The charging of attorneys' fees and assessments had increased the balance due to $2, 796.80. The property was posted for nonjudicial foreclosure on December 4, 2012. Both letters gave Mahmoud and Jackson until December 3 to pay the full amount or submit an Association-approved payment plan proposal.

         On November 17, Mahmoud and Jackson sent a letter again including three checks for the most recent monthly assessments and requesting a breakdown of all outstanding fees to set up a payment plan. On November 20, 2012, Slaughter responded with the Resident Transaction Report which included all charges dating back to January 2006, returned the partial payment, and reminded them that they needed to establish an approved payment plan with the Association prior to the foreclosure date. A similar set of letters was exchanged a week later-Mahmoud and Jackson sending partial payment on November 27, 2012 and Slaughter returning it on November 28, 2012. Mahmoud acknowledged receiving Slaughter's November 28 letter and admitted that he did not contact the Association, Creative, or the Association's lawyers about its contents.

         Slaughter, with the Association's permission, elected to delay the foreclosure sale and gave Mahmoud and Jackson more time to work out a payment plan. Her letter of December 10 confirms this forbearance until January 10, 2013 to make full payment (now increased to $3, 321.80) or work out a payment plan. Once again, Mahmoud and Jackson sent an incomplete payment ($240), which was rejected, and no payment plan was forthcoming. A properly noticed foreclosure sale occurred on February 5, 2013. The amount owed to the Association ($4, 861.80) was deducted from the sale price ($18, 500) and the remainder deposited in the FELCT trust account ($13, 638.20). Slaughter held the funds until receipt of a signed release. FELCT paid the $13, 638.20 to Mahmoud and Jackson in February 2014. The new owner conveyed the unit back to Mahmoud and Jackson on June 17, 2014 via warranty deed. Ultimately, Mahmoud and Jackson were never dispossessed of the condo.

         Mahmoud and Jackson filed suit on multiple common law and statutory claims and sought partial summary judgment as to liability (not damages) in January 2015. In March and April 2015, the Appellees sought summary judgment as to the claims against them. In September 2015, after hearing oral arguments, the district court issued a 23-page Memorandum Opinion and Order and entered judgment in favor of the Appellees. Mahmoud and Jackson timely appealed.

         II

         This court must "review the trial court's evidentiary rulings under an abuse of discretion standard." Curtis v. M&S Petroleum, Inc., 174 F.3d 661, 667 (5th Cir. 1999). Evidentiary rulings, however, are also subject to harmless error review, "so even if a district court has abused its discretion, we will not reverse unless the error affected 'the substantial rights of the parties.'" Heinsohn v. Carabin & Shaw, P.C., 832 F.3d 224, 233 (5th Cir. 2016) (quoting Nunez v. Allstate Ins. Co., 604 F.3d 840, 844 (5th Cir. 2010)).

         With the record properly defined, this court then reviews a summary judgment de novo. Wilcox v. Wild Well Control, Inc., 794 F.3d 531, 535 (5th Cir. 2015). Summary judgment is required "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). This court may affirm the district court's grant of summary judgment on any ground supported by the record and presented to the district court. Hernandez v. Velasquez, 522 F.3d 556, 560 (5th Cir. 2008).

         III

         Mahmoud and Jackson's evidentiary objection was that the Certificate of Corporate Resolution regarding the increased late fees was hearsay, conclusory, and lacked foundation. They moved to strike the exhibit. In their motion for summary judgment, Mahmoud and Jackson additionally raised five new objections, all based on lack of foundation. Appellees argued successfully to the district court that the objections were waived.

         On appeal, Mahmoud and Jackson contend that the district court did not identify any authority holding that objections to summary judgment evidence not made the first time the evidence is presented to the court are waived. Regardless whether the district court abused its discretion, however, any error was harmless. The issue whether the late fee increase was properly adopted by the Association is not dispositive of any claims, so it did not affect the outcome of the litigation and did not affect their substantial rights. See Heinsohn, 832 F.3d at 233.

         IV

         We consider separately each of the claims asserted by Mahmoud and Jackson. First, they argue that the district court erred in granting summary judgment for three different alleged breaches of the Declaration: that the Condo Defendants charged and demanded excessive late fees, wrongfully included time-barred debt in the assessment lien, and charged and ultimately foreclosed upon repair assessments without giving them notice and an opportunity to be heard. Under Texas law, it is a "strict" and "well established rule" that "a party to a contract who is himself in default cannot maintain a suit for its breach." Dobbins v. Redden, 785 S.W.2d 377, 378 (Tex. 1990) (quoting Gulf Pipe Line Co. v. Nearen, 135 Tex. 50, 138 S.W.2d 1065, 1068 (Tex. Comm'n App. 1940)).

         Mahmoud and Jackson were indisputably in default under the contract. Paragraph 3.11. of the Declaration states: "Each Owner shall comply strictly with the provisions of this Declaration, the By-Laws and the decisions and resolutions of the Association adopted pursuant thereto." Paragraph 5.9 provides that "[a]ll sums assessed but unpaid by a Unit Owner for its share of Common Expenses chargeable to its respective Condominium Unit . . . shall constitute a lien on such Unit" and expressly gives the Association the right to foreclose on such a lien. Mahmoud and Jackson's failure to pay their balance and to make timely payments on their monthly assessments was a material breach of the Declaration. See E. Friedman & Assoc., Inc. v. ABC Hotel & Rest. Supply, Inc., 412 S.W.3d 561, 565 (Tex. App. 2013) ("One of the considerations in determining whether a breach is material is the extent to which the nonbreaching party will be deprived of the benefit that it could have reasonably anticipated from full performance."). Mahmoud and Jackson's argument that the Association waived the right to timely payment is incorrect; the Association's election to receive untimely payments, for which a late fee was charged, in no way compromised its contractual rights. Likewise, their performance was not prevented or excused by the Association's allegedly erroneous statements about their balance due; this argument, as the Association points out, conflates performance with cure. Summary judgment on this claim was proper.

         V

         Mahmoud and Jackson next assert that because of material disputed fact issues, their wrongful foreclosure claim should have gone to trial. "A wrongful-foreclosure claim under Texas law has three elements: (i) a defect in the foreclosure sale proceedings; (ii) a grossly inadequate selling price; and (iii) a causal connection between the defect and the grossly inadequate selling price." Villarreal v. Wells Fargo Bank, N.A., 814 F.3d 763, 767-68 (5th Cir. 2016) (quoting Miller v. BAC Home Loans Servicing, L.P., 726 F.3d 717, 726 (5th Cir. 2013). Appellants offer no authority-and we have found none-to support the conclusion that an inaccurate balance included in a default notice constitutes a defect in the foreclosure proceedings, they do not allege that the sale price was grossly inadequate, and they never allege any causal connection between the defect and the sale price. Therefore, the district court did not err on this ground for granting summary judgment.

         VI

         Although they challenge the adverse summary judgment on their claim for negligent misrepresentation, Mahmoud and Jackson failed to cite specific misrepresentations by the Appellees. A cause of action for negligent misrepresentation in Texas requires: "(1) the representation is made by a defendant in the course of his business, or in a transaction in which he has a pecuniary interest; (2) the defendant supplies 'false information' for the guidance of others in their business, (3) the defendant did not exercise reasonable care or competence in obtaining or communicating the information, and ...


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