Burke v. Hous. Pt Bac Office P'ship (Bank of Am.)

1

KEVIN BURKE, JEFFREY SCHWARTZ BURKE, TRACY RUTH BURKE, LUCKY BURKE, CINDY BERNAT, PAM BURKE DAILY, BARBARA BURKE HARGERG, LORI ILENE QUINTA VALLE, FONDA GLAZER, AND KIM BROWN, Appellants v. HOUSTON PT BAC OFFICE LIMITED PARTNERSHIP (BANK OF AMERICA), Appellee

No. 01-21-00288-CV

Court of Appeals of Texas, First District

January 18, 2024

On Appeal from the 129th District Court Harris County, Texas Trial Court Case No. 2016-75801A

Panel consists of Justices Kelly, Rivas-Molloy, and Guerra.

MEMORANDUM OPINION^[1]

Amparo Monique, Guerra Justice In this commercial lease dispute arising from a contractual appraisal process, appellants Kevin Burke, Jeffrey Schwartz Burke Tracy Ruth Burke, Lucky Burke, Cindy Bernat, Pam Burke Daily Barbara Burke Hargerg, Lori Ilene Quinta Valle, Fonda Glazer and Kim Brown (collectively, the Landlords) appeal the trial court's interlocutory orders granting appellee Houston PT BAC Office Limited Partnership (Bank of America)'s (BAC) motion to enforce the appraisal award and motion for summary judgment on the Landlords' fraud-by-nondisclosure claim. The Landlords raise two issues on appeal. First, they contend that the trial court erred in enforcing the appraisal award because the neutral appraiser failed to disclose material information that a reasonable person could conclude might affect the neutral appraiser's impartiality. Second, the Landlords assert that the trial court erred in granting summary judgment on their fraud-by-nondisclosure claim because they presented sufficient evidence to raise a material issue of fact on each of the elements of their claim.

We affirm.

Background

A. Factual History

The Landlords own a tract of land composed of the eastern half of Block 84 in downtown Houston, which is bounded by Capitol, Louisiana, Smith, and Rusk Streets (the Tract).^[2] The rest of the land at Block 84 is owned by BAC. Bank of America Center, which is owned by BAC, is located on Block 84.

The Landlords and BAC are parties to a Lease Agreement (the Lease) concerning the land occupied by the Bank of America Center. Article 3 of the Lease provides for a fixed rent for the first part of the lease term followed by six revaluation periods during which the parties are required to renegotiate the annual rent due in the latter part of the lease term. Pursuant to a 1982 amendment to the Lease, the period of fixed rent was extended to December 31, 2016, and the first revaluation period for the annual rent due was set to begin on January 1, 2017 and terminate on December 31, 2026.

Under the terms of the Lease, the revaluation process is based on the fair market value of the land as of the date one year prior to the commencement of the revaluation period. Thus, for the revaluation period beginning January 1, 2017, the date for valuing the land was December 31, 2015. The rent owed was set at seven and one-half percent (7.5%) of the fair market value as of that date.

To determine fair market value, the Lease requires the parties to first try to reach an agreement on the fair market value of the land. If they are unable to agree, the Lease provides an appraisal process to determine fair market value. The process requires the parties to each appoint an appraiser to assess the land's fair market value. If the appraisers cannot agree on a value, they jointly select a "competent and impartial" third appraiser. The decision of two of the three appraisers establishes the fair market value of the land for calculating the annual rent due for the revaluation period. Under the terms of the Lease, the decision is final and binding: "The decision in which any two arbitrators or appraisers so appointed and acting hereunder concur shall in all cases be binding and conclusive upon the parties."

The parties were unable to agree on a fair market value, and the Landlords initiated the appraisal process in May 2016. The Landlords appointed their party-appraiser, Ronald P. Little (Little). BAC appointed Curtis Podlewski (Podlewski) as its party-appraiser.

Little appraised the fair market value of the land at $14,400,000.00. Podlewski appraised the fair market value at $8,250,000.00. Because the two party-appraisers did not agree to a fair market value, they selected Scott Rando, with Cushman & Wakefield, as the third appraiser. At Rando's request, the party-appraisers provided him with information about the parties so he could perform a conflicts check. Rando issued his engagement letter to the parties on July 19, 2016. Following his appointment as the neutral appraiser, Rando issued his appraisal valuing the land at $8,700,000.00.

The appraisers met in person to discuss their differing values. Recognizing that the primary difference in their valuations concerned whether, under Section 3.02(c) of the Lease,^[3] the land should be valued with or without access to the downtown tunnel system, the appraisers proposed to the parties that each appraiser prepare an appraisal "to attempt to reach a majority decision as to the market value of the property." The Landlords agreed to the proposal, but BAC did not. According to BAC, an extended effort to reach consensus among all three appraisers was unnecessary and beyond the scope of Section 16.01 of the Lease which provides that fair market value of the land is established by agreement of two of the three appraisers.

B. Procedural History

On November 1, 2016, the Landlords filed their original petition seeking a declaratory judgment construing Section 3.02(c) of the Lease to determine whether the property was to be valued with or without consideration of the adjacent tunnel system. The appraisers met the next day. Podlewski and Rando agreed that a fair market value of the land was $8,475,000.00 and confirmed the valuation to the parties on November 3, 2016.

In December 2018, BAC filed counterclaims for breach of contract and declaratory judgment against the Landlords. BAC alleged that the Landlords had breached the Lease by contesting that the valuation agreed upon by Rando and Podlewski was binding. It also sought a declaratory judgment that the $8,475,000.00 valuation was binding on the parties.

In May 2019, the Landlords asserted additional claims for breach of the lease, common law fraud, and fraud-by-nondisclosure. They alleged, among other things, that BAC and Rando did not disclose that they had negotiated Rando's services as BAC's party-appraiser or their significant business relationships.

In August 2019, BAC filed a motion to enforce the arbitration and appraisal award and alternative motion for new arbitration and appraisal, seeking dismissal of the Landlords' claims and requesting that the trial court enforce the appraisal award. BAC moved for traditional and no-evidence summary judgment on the Landlords' counterclaims for breach of contract, fraud, and fraud-by-non-disclosure, and it moved for traditional summary judgment on its request for declaratory relief, breach of contract counterclaim, and the Landlords' request for declaratory relief.

In late-August 2019, the Landlords responded to BAC's summary judgment motion on the Landlords' counterclaims, arguing that evidence existed to defeat BAC's no-evidence motion and that no summary judgment evidence existed to support BAC's traditional motion. The Landlords requested that BAC's summary judgment motion be denied or, in the alternative, continued until the Landlords could complete discovery.

In September 2019, the Landlords responded to BAC's motion to enforce the appraisal award arguing, among other things, that enforcement of a contested award must be done by either summary judgment or trial.

In September 2020, BAC filed a supplemental motion to enforce the appraisal award. In their response to the supplemental motion, the Landlords argued that additional evidence obtained in discovery showed undisclosed communications and business relationships between BAC, Rando, and Rando's firm, Cushman & Wakefield. The Landlords argued that the evidence raised fact questions about evident partiality and therefore precluded confirmation of the appraisal award.

BAC also filed a supplemental motion for traditional and no-evidence summary judgment to which it attached the deposition transcript of James Moran, Cushman & Wakefield's corporate representative. Moran testified that, in his opinion, the Uniform Standards of Professional Appraisal Practice (USPAP) did not require Rando to disclose his communications with BAC. The Landlords responded to the supplemental motion objecting to Moran's opinion testimony.

The trial court entered two interlocutory orders (1) granting BAC's motion to enforce the arbitration and appraisal award and ordering that $8,475,000.00 was the fair market value of the land; and (2) granting BAC's motion for summary judgment on the Landlords' claims for breach of contract, fraud, and fraud-by-nondisclosure. The trial court severed the two orders, rendering them final and appealable, on May 18, 2021.

Enforcement of Appraisal Award

In their first issue, the Landlords contend that the trial court erred in enforcing the appraisal award^[4] because they offered evidence of "evident partiality"-the neutral's refusal to disclose critical information-which precludes confirmation of the award. BAC responds that the Landlords failed to make the required showing of evident partiality to be entitled to vacatur of the appraisal award.

A. Standard of Review

We review a trial court's decision to confirm or vacate an arbitration award under a de novo standard of review based on a review of the entire record. Port Arthur Steam Energy LP v. Oxbow Calcining LLC, 416 S.W.3d 708, 713 (Tex App.-Houston [1st Dist.] 2013, pet. denied). Texas law favors arbitration and thus review of...