Compass Bank v. Victor Nacim and Rachel Nacim

COURT OF APPEALS
EIGHTH DISTRICT OF TEXAS
EL PASO, TEXAS

§
COMPASS BANK, No. 08-12-00318-CV
§
Appellant, Appeal from
§
v. County Court at Law No. 3
§
VICTOR NACIM AND of El Paso County, Texas
RACHEL NACIM, §
(TC # 2009-2946)
Appellees. §

OPINION

The case arises from Victor and Rachel Nacim’s substantial losses at the hands of David

Peterson, a dishonest bank employee. A judgment was rendered against Peterson. That

judgment has not been appealed and is not at issue here. Instead, Compass Bank, who employed

Peterson, appeals the judgment against it. For the reasons stated below, we affirm.

FACTUAL SUMMARY

Victor and Rachel Nacim opened accounts at State National Bank in October 2006. In

March 2008, State National merged with Compass Bank. David Peterson worked for State

National and later for Compass as a vice president doing commercial lending.

The Nacims met Peterson in 2006 when they moved their accounts to State National.

Victor was involved in the wholesale car-buying business. He opened his checking account at
State National with a substantial balance. The couple’s account activities were frequent, and by

the nature of Victor’s occupation, large deposits and withdrawals were transacted throughout the

history of the account. They apparently mixed both business and personal transactions in their

primary checking account.

The Nacims were treated as preferred customers and conducted their banking activities

directly with David Peterson, or his assistant, Angie Soto, in his private office. Victor valued the

personal service and referred several substantial real estate transactions to the bank.

The Nacims’ 2007 Transactions

In early 2007, Rachel noticed a questionable $32,000 withdrawal from their primary

checking account. She raised the issue with Victor, who did not recognize the transaction either.

Rachel found the reference to the withdrawal on the February 2007 account statement that had

been mailed to them by State National Bank. The account statement lists the withdrawal as a

“miscellaneous debit.” A photocopy of a “DDA Internal Debit” reflecting the $32,000 debit was

also attached to the account statement. The debit memo does not show to whom the $32,000 was

paid. It did show that David Peterson initialed the debit document.

Several days later, Victor went to see Peterson about the $32,000 debit. Peterson said it

was a mistake and that he would take care of the problem. He assured Victor that the amount

would be credited by the next month. But in April 2007, an additional $14,982 was debited from

the Nacims’ account. On April 17, Rachel noticed the new debit, and found that the $32,000

had not been repaid. She discovered these issues by looking at an on-line account statement.

Victor went back to the bank to address these matters with Peterson. Peterson’s assistant, Angie

Soto, pulled the corresponding DDA Internal Credit memos that showed the funds had been

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credited to a company called “Brute Force”.1 Peterson told Victor that the two account numbers

were very similar and that Peterson would close the Nacims’ old account and open a new

account to avoid these problems in the future.

In 2006 when the Nacims opened their accounts, they lived on Thunderbird Drive in west

El Paso. In October 2007, they moved into a new home on Turnberry Street. State National

financed their new mortgage and later a home equity loan for the new residence. The Nacims

retained an interest in the Thunderbird property but rented it to a third party. They had limited

access to mail sent to the Thunderbird address. When the Nacims moved to their new residence

on Turnberry, Rachel went to Peterson’s office to ask that their mailing address be updated. At

least for their checking account, State National and then Compass continued to carry the

Thunderbird address as the official mailing address. The Nacims testified that they continually

complained and asked that the mailing address be changed. Though Compass had the correct

street address listed on several loans, on one of its computer fields, and in various deed records,

it did not begin mailing account statements to Turnberry until August 2008.

In November 2007, Peterson drew $12,000 on one of Victor’s lines of credit and

deposited the money into the Brute Force account. This transaction was not discovered until

after this lawsuit was filed.

The Nacims’ 2008 Transactions

In February 2008, Compass sent State National customers a letter notifying them of the

merger of the two banks. The mailing also contained a Deposit Account Agreement with new

terms and conditions to govern the accounts. The Agreement stated that: “[b]y opening your

account, by conducting any transaction involving your account, or by maintaining your account

1
Brute Force was in fact a company nominally owned by one of David Peterson’s high school friends. Money put
into this account was apparently accessed by Peterson for his own use.

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after receipt of this agreement, you agree to the terms of this agreement.” The merger of State

National and Compass was completed by March 12, 2008.

In June 2008, Peterson approached Victor to discuss a “situation.” He asked to borrow

$45,000 for personal reasons. Peterson promised to repay the loan in three days. Victor was

shocked by the request and told Peterson that he needed to speak with his wife. But before

Victor could even speak with Rachel, Peterson informed him that he had already funded the loan

out of the Nacims’ account. Because Victor had many pending loans at the bank and felt

vulnerable, he acceded to the loan. The $45,000 was deposited into a business account for

“La Estancia.” La Estancia was a business owned by the Peterson family that runs a restaurant in

El Paso. It was common knowledge at the bank that Peterson had an interest in the restaurant.

The loan was not repaid in three days. Victor repeatedly confronted Peterson about when

the money would be returned. Sometime in July 2008, he and Rachel were in Peterson’s office.

They were shown a computer screen which supposedly documented that $43,000 of the $45,000

loan had been repaid, and Peterson promised to repay the balance shortly. Peterson said the

$43,000 would be reflected on their next monthly statement. At this time, the monthly bank

statements were still being mailed to the Thunderbird address.

In August 2008, Victor Nacim learned that Peterson had left Compass. He called

Peterson, who told him that none of the $45,000 had actually been repaid and that there were

additional debits that Peterson had removed from the Nacims’ account. The July bank statement,

covering June 26 to July 28, reflected an unauthorized withdrawal of $34,000 which occurred on

July 18. This statement was mailed to the Nacims on July 29, but was mailed to the Thunderbird

address such that the Nacims never received it. The August statement, covering July 29 to

August 26, reflected an unauthorized withdrawal of $9,617.64. For this transaction, Compass

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had issued a cashier’s check to “T&T Staff” dated August 8, 2008 but the debit memo to cover

the funds taken from the Nacims’ account was not made until August 21, 2008. The August

statement was mailed to the Turnberry address and the Nacims acknowledge receipt. Victor met

with the branch president, Ray Owen, on September 2, 2008. He informed Owen about the

$45,000 loan in June, the $34,000 debit from July, and the $9,617.64 debit from August. Owen

appeared to be familiar with Peterson’s misdeeds. Victor was later asked to complete an

affidavit documenting these amounts. When Compass failed to restore the amounts that the

Nacims claimed were due them, they filed this lawsuit.

Proceedings Below

The Nacims filed suit against both David Peterson and Compass Bank. They originally

based their claims only on the 2008 transactions: the June $45,000 loan, the July $34,000

withdrawal, and the August $9,617.64 withdrawal. Less than three months before trial, they

amended their petition to include claims arising out of the 2007 withdrawals.

Compass obtained summary judgment on the claim involving the $45,000 loan based on

the Nacims’ having either consented to or ratified the loan. The trial court also found that all of

the 2007 transactions were barred by limitations The Nacims do not challenge those rulings.

The case was tried to the bench over several days. Peterson did not attend the trial as he

was incarcerated in federal prison. Prior to trial, he had pled guilty to several counts of bank

fraud. The count relevant here, and to which he also pled guilty, alleged that since May 2007,

Peterson had submitted debit slips in several different customer accounts so as to transfer money

into accounts that Peterson held an interest, all without the consent of the account holders.

Additional counts alleged different acts of bank fraud dating back to 2004.

Compass primarily defended the suit below on two theories. First, and as more fully

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explained below, Compass contended that the Nacims delayed reporting the unauthorized

withdrawals and that they were barred under the UCC as adopted in Texas for recovering these

losses from the bank. Second, Compass via a counterclaim contended that the Nacims aided and

abetted Peterson’s actions, and that the withdrawals were actually kick-backs for loans that

Peterson made to the Nacims or entities related to the Nacims.

The trial court found in favor of the Nacims on the claims for the July and August 2008

unauthorized withdrawals. It awarded those amounts along with attorney’s fees and costs to the

Nacims. The trial court did not find in favor of Compass on its counterclaim.

Compass Bank’s Appeal

Compass Bank does not appeal the adverse findings on its counterclaim. Rather, in five

issues it contends that the trial court erred in not awarding a portion of its litigation costs based

on an offer of settlement (Issue One). It also contends that the trial court erred in failing to

award attorney’s fees and costs for defending against the 2007 withdrawals (Issue Two). Finally,

it challenges the Nacims’ recovery for the July and August 2008 withdrawals based on its

contention that those claims are barred under TEX.BUS.&COM.CODE ANN. § 4.406(d)(1) and (2)

(West 2002)(Issues Three, Four, and Five). We address these issues in a slightly different order

for clarity.

STANDARD OF REVIEW

This appeal proceeds with the benefit of findings of fact and conclusions of law. In a

non-jury trial, the trial court is the fact finder and, as such, is the sole judge of the credibility of

the witnesses. Great American Ins. Co. v. Hamel, 444 S.W.3d 780, 797 (Tex.App.--El Paso

2014, no pet h.), citing Southwestern Bell Media, Inc. v. Lyles, 825 S.W.2d 488, 493 (Tex.App.--

Houston [1st Dist.] 1992, writ denied). The trial court’s fact findings carry the “same force and

6
dignity” as would a jury’s verdict. Anderson v. City of Seven Points, 806 S.W.2d 791, 794 (Tex.

1991); Heritage Resources, Inc. v. Hill, 104 S.W.3d 612, 619 (Tex.App.--El Paso 2003, no pet.).

The findings are reviewable for legal and factual sufficiency of the evidence by the same

standards that are applied in reviewing the evidence supporting a jury’s verdict. Catalina v.

Blasdel, 881 S.W.2d 295, 297 (Tex. 1994). Because Compass seeks only to have us reform the

judgment, or render judgment in its favor, it only challenges the legal sufficiency of the trial

court’s findings of fact.

In a legal sufficiency review of the evidence, we consider the evidence in the light most

favorable to the verdict. See AutoZone, Inc. v. Reyes, 272 S.W.3d 588, 592 (Tex. 2008). The

test for legal sufficiency “must always be whether the evidence at trial would enable [a]

reasonable and fair-minded [fact finder] to reach the [result] under review.” City of Keller v.

Wilson, 168 S.W.3d 802, 827 (Tex. 2005). Legal sufficiency review must credit favorable

evidence if a reasonable fact finder could, and disregard contrary evidence unless a reasonable

fact finder could not. Id. An appellate court will sustain a legal sufficiency or “no-evidence”

challenge, if the record shows: (1) the complete absence of a vital fact; (2) the court is barred by

rules of law or evidence from giving weight to the only evidence offered to prove a vital fact; (3)

the evidence offered to prove a vital fact is no more than a scintilla; or (4) the evidence

establishes conclusively the opposite of the vital fact. Id. at 810. The ultimate test for legal

sufficiency is whether the evidence at trial would enable reasonable and fair-minded people to

reach the verdict under review. Id. at 827. So long as the evidence falls within this zone of

reasonable disagreement, we may not substitute our judgment for that of the trier-of-fact. Id.at

822.

When the party with the burden of proof suffers an unfavorable finding, the inquiry is

7
whether the fact was established as “a matter of law.” Serrano v. Union Planters Bank, N.A.,

162 S.W.3d 576, 580 (Tex.App.--El Paso 2004, pet. denied). When the party without the burden

of proof suffers an unfavorable finding, the challenge on appeal is one of “no evidence to support

the finding.” Id.; In re Estate of Livingston, 999 S.W.2d 874, 879 (Tex.App.--El Paso 1999, no

pet.).

When a party appeals from a non-jury trial, it must complain of specific findings and

conclusions. Carrasco v. Stewart, 224 S.W.3d 363, 367 (Tex.App.--El Paso 2006, no pet.); see

also Serrano, 162 S.W.3d at 580. A general complaint against the trial court’s judgment does

not present a justiciable question. Carrasco, 224 S.W.3d at 367; Serrano, 162 S.W.3d at 580. If

the appellant does not challenge the trial court’s findings of fact, these facts are binding upon

both the party and the appellate court. Serrano, 162 S.W.3d at 580.

We review the trial court’s conclusions of law de novo. BMC Software Belgium, N.V. v.

Marchand, 83 S.W.3d 789, 794 (Tex. 2002); Austin Hardwoods, Inc. v. Vanden Berghe, 917

S.W.2d 320, 322 (Tex.App.--El Paso 1995, writ denied). We review de novo the construction of

rules and statutes. Pacific Employers Ins. Co. v. Torres, 174 S.W.3d 344, 346 (Tex.App.--El

Paso, 2005, no pet.). We also review de novo a trial court’s application of uncontested facts to

the law. Id.; NCED Mental Health, Inc. v. Kidd, 214 S.W.3d 28, 32 (Tex.App.--El Paso, 2006,

no pet.). But when the question before the court is the application of disputed facts to the law,

our standard of review, at least with regard to the contested facts, is abuse of discretion.

Brainard v. State, 12 S.W.3d 6, 30 (Tex. 1999)(mixed question of law and fact for award of

attorney’s fees under the Frivolous Claims Act); see also Delfingen US-Texas, L.P. v.

Valenzuela, 407 S.W.3d 791, 799-800 (Tex.App.--El Paso 2013, no pet.)(abuse of discretion

standard applied in mixed question of law and fact for determining whether an arbitration

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agreement is unconscionable). With these standards in mind, we turn to the issues on appeal.

BUSINESS & COMMERCE CODE SECTION 4.406

Our starting point is TEX.BUS.&COM.CODE ANN. § 4.406. That section, adopted from the

UCC, allocates the risks from unauthorized transactions in a customer’s bank account. American

Airlines Employees Federal Credit Union v. Martin, 29 S.W.3d 86, 91 (Tex. 2000). A bank can

only charge against a customer’s account “an item that is properly payable.” TEX.BUS.&COM.

CODE ANN. § 4.401(a). An item is properly payable only if it is “authorized by the customer”

consistent with the terms of the party’s banking agreement. Id. But because a bank can process

thousands of transactions a day, the UCC had to devise a system to handle those questionable

transactions where a customer may not have actually authorized a payment. Martin, 29 S.W.3d

at 92. The UCC’s answer to this problem is premised on the concept that the customer is in the

best position to know which transactions were authorized, and which were not. Id. Using this

concept, Section 4.406 details both the customer’s and the bank’s duties.

First, Section 4.406(a) outlines the bank’s duties with regard to providing the customer

sufficient information to detect an unauthorized transaction. It requires the bank to send or

“make available” an account statement showing any “items paid.” Id. The account statement

can either return the actual items paid or otherwise provide “sufficient information” to allow the

customer to reasonably identify them. Id. The bank provides sufficient information if it gives

the customer an image of the item paid. Id. at cmt.1. A statement also provides sufficient

information “if the item is described by item number, amount, and date of payment.” Id. at §

4.406(a). When the bank does not actually return the items paid, it must provide a means for

the customer to contact the bank to get a legible copy of the item.2

2
TEX.BUS.&COM.CODE ANN. § 4.406(b) details how long the bank must retain the items and the how they are to be
returned.

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 If the bank discharges it duties under Section 4.406(a), then section 4.406(c) burdens the

customer with the duty to inspect the account statement and report any unauthorized payment:

If a bank sends or makes available a statement of account or items pursuant to
Subsection (a), the customer must exercise reasonable promptness in examining
the statement or the items to determine whether any payment was not authorized
because of an alteration of an item or because a purported signature by or on
behalf of the customer was not authorized. If, based on the statement or items
provided, the customer should reasonably have discovered the unauthorized
payment, the customer must promptly notify the bank of the relevant facts.

TEX.BUS.&COM.CODE ANN. § 4.406(c)(West 2002). A customer who does not detect and report

an unauthorized transaction can be barred from making a claim on those items in one of two

ways. First, TEX.BUS.&COM.CODE ANN. § 4.406(d)(1) precludes any claim which asserts “the

customer’s unauthorized signature or any alteration on the item, if the bank also proves that it

suffered a loss by reason of the failure[.]” An unauthorized signature could include a bank

employee signing with the purported permission of an authorized signatory. Martin, 29 S.W.3d

at 93.

Additionally, if customers fail to report an unauthorized signature or alteration, they risk

losing the right to pursue future claims when the questionable transactions arise from the same

wrongdoer. TEX.BUS.&COM.CODE ANN. § 4.406(d)(2) bars any claim when:

[T]he customer’s unauthorized signature or alteration by the same wrongdoer on
any other item paid in good faith by the bank if the payment was made before the
bank received notice from the customer of the unauthorized signature or alteration
and after the customer had been afforded a reasonable period of time, not
exceeding 30 days, in which to examine the item or statement of account and
notify the bank.

A bank’s defense both under Section 4.406(d)(1) and (2) has three potential limitations.

First, neither defense applies if the bank does not comply with Section 4.406(a) and send or

make available a statement with either the paid items, or information sufficient to allow the

customer to identify those items. Id. at cmt.1. Second, neither of the exclusions apply if the

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customer shows that the item was not paid in good faith. TEX.BUS.&COM.CODE ANN. §

4.406(e). Third, if the customer can show the bank “failed to exercise ordinary care in paying

the item and that the failure contributed to loss” then the loss is handled as a comparative

negligence issue with each party being responsible for their proportionate share of the loss. Id.3

Finally, TEX.BUS.&COM.CODE ANN. § 4.406(f)(West 2002) provides an effective one year

statute of repose on any unauthorized item or alteration from the date the bank statements are

made available to the customer. Id.; Federal Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602, 609

(Tex. 2012).

With certain limitations not relevant to this dispute, the parties may alter terms of the

UCC’s reciprocal duties. For instance, the length of time during which a customer can bring to a

bank’s attention a questionable transaction can be shortened by agreement. In American Airlines

Employees Federal Credit Union v. Martin, the court upheld a credit union customer agreement

which shortened the one year repose period in Section 4.406(f) to sixty days. Martin, 29 S.W.3d

at 97. The Martin court cites to several cases approving even more restrictive modifications of

the Section 4.406 time periods. Id. at 97 n.58.

Compass Bank’s Section 4.406 Defenses.

Compass contends in Issues Four and Five that Section 4.406 bars the Nacims’ claims

relating to the July and August 2008 transactions. It claims that the July 2008 transaction was

reported no earlier than the September 2 meeting between Victor and Owen. The July bank

statement which referenced that transaction was mailed on July 29, 2008. The September 2

meeting would thus be the 33rd day following the date Compass mailed the Nacims the July

3
The trial court found that Compass was 80% at fault, that Peterson was 15% at fault, and that the Nacims were 5%
at fault. Compass asks that we reform the judgment in accordance with these percentages of fault. Given our
disposition of the applicability of the Section 4.406 scheme, we do not reach this issue, nor the issue regarding the
sufficiency of the evidence to support the negligence finding.

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bank statement. Compass contends that its Deposit Account Agreement mailed to the Nacims in

February changed Section 4.406(a) so to impose an absolute thirty day time limit for reporting

claims. The Nacims were therefore three days late in reporting the questionable transaction.

With regard to the August 2008 transaction, Compass contends that the late reporting of

the July transaction bars the Nacims from recovering on the August transaction because both

withdrawals were made by the same wrongdoer. Section 4.406(d)(2) bars a claim when a

customer fails to report an unauthorized transaction and the same wrongdoer later commits

another theft. Related to both defenses, Compass maintains there is no evidence to support the

negligence (lack of ordinary care) findings made by the trial court. Overarching all these claims

is the contention that any common law duties the bank may owe are supplanted by Section 4.406

and its system of customer/bank duties and responsibilities.

We initially agree that when Section 4.406 applies to a situation, it supplants any

inconsistent common law duties. See Bryan v. Citizens Nat’l Bank, 628 S.W.2d 761, 764 (Tex.

1982); Signal Oil & Gas Co. v. Universal Oil Products., 572 S.W.2d 320, 330 (Tex. 1978);

Miller-Rogaska, Inc. v. Bank One Texas, N.A., 931 S.W.2d 655, 662 (Tex.App.--Dallas 1996, no

writ). The statute retains common law principles of law and equity, “[u]nless displaced by the

particular provisions of this title . . . .” TEX.BUS.&COM.CODE ANN. § 1.103 (b)(West 2009). If

the comprehensive system of reciprocal duties under Section 4.406 applies on these facts, they

would displace any existing common law treatment of the issues raised here.

Does Section 4.406 Apply on These Facts?

The Nacims raise three issues questioning whether Section 4.406 applies on these facts:

whether the debit memo is an “item” or “item paid”; whether Compass suffered a loss; and

whether the Deposit Account Agreement is ambiguous. We address each claim in turn.

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 The Debit Memo is an “Item Paid” Within the Meaning of Section 4.406

While Compass contends Section 4.406 applies and acts as a bar for the 2008

transactions, the Nacims respond that because Peterson withdrew their funds with a “debit

memo,” Section 4.406 cannot apply. Section 4.406 deals with “items” and a “debit memo” is not

an “item.” An “item” is a defined term and means “an instrument or a promise or order to pay

money handled by a bank for collection or payment.” TEX.BUS.&COM.CODE ANN. § 4.104(9).

We agree that a debit memo is neither an “instrument” nor a “promise to pay.” The question is

whether it is an “order to pay” and thus falls with the scope of Section 4.406.

An “order” is further defined in TEX.BUS.&COM.CODE ANN. § 3.103(6) as “a written

instruction to pay money signed by the person giving the instruction.” Id. The debit memos

used by Peterson were “instructions” to pay from a customer’s deposit account. The debit memo

is not necessarily signed by the customer, but can be signed on the customer’s behalf by a bank

employee. Peterson would fill out the debit memo, drop it off with a teller who would then send

it to a “proof” department which would execute the instruction to move the funds out of the

Nacims’ account. The debit memo only directs that funds be moved out of a customer’s account.

There should also be a corresponding credit memo on the same day directing where the funds are

ultimately routed. The Nacims raise one principle argument contesting whether the debit memo

is an order to pay. They contend that because the debit memo is only half the transaction--it only

operates to pull money out of an account and does not direct where it ultimately is paid--that it

cannot be an order to pay.

We reject this contention. The commentary to Section 4.104 and the Texas Supreme

Court direct us to read the term “item” broadly. TEX.BUS.&COM.CODE ANN § 4.104 cmt.8;

Martin, 29 S.W.3d at 92-93 (citing cases from other jurisdictions finding deposit slips, savings

13
account withdrawal orders, and handwritten notes asking for cashiers’ checks to be “items”). In

the Martin case itself, the Texas Supreme Court found a journal entry to be an item; the journal

entry directed that funds be taken from a customer’s account and put in another account. Id. The

journal entry was signed by a bank employee taking verbal instructions from someone thought to

be authorized on the account. Id. The Nacims attempt to distinguish Martin. They note that the

journal entry there identified the specific account to which the transfer was made, while here the

debit memo is silent on the ultimate destination of the funds. We would agree that the absence

of the corresponding credit memo is significant to whether the bank has provided the Nacims

sufficient information to allow them to reasonably identify items paid in their account, but it does

not disqualify the debit memo from being an “item.” The debit memo itself still directs that

funds were to be taken from the Nacims’ account and is an order to pay, wherever the funds may

ultimately be directed.

The Nacims similarly argue that Section 4.406(a) only applies to “items paid” and that

the debit memo, without the corresponding credit memo, is therefore not “paid.” The Nacims

cite no case for this proposition and we have found none. The debit memo itself directs the

removal of funds from their account; the funds would necessarily go somewhere, whether to be

held temporarily by the bank or as a part of a larger transaction. We certainly understand how

customers who look at an account statement, and seeing a withdrawal that they do not recognize,

would first want to see the identity of the payee. The absence of the payee information may well

be relevant to whether a bank has provided sufficient information to allow the customer to

identify items paid, but the trial court made no findings that Compass failed to meet the

informational requirements in Section 4.406(a) and that issue is not before us.

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 Compass Bank Failed to Prove it Suffered a “Loss”

Next, the Nacims contend that Compass Bank did not suffer a loss. Indeed, the trial court

made a specific finding that only the Nacims, and not Compass, suffered a loss. This finding is

significant because the defense in Section 4.406(d)(1) precludes any claim for an unauthorized

withdrawal, but only “if the bank also proves that it suffered a loss by reason of the failure” of

the customer to make a timely report. Id. at § 4.406(d)(1)

Neither the Nacims nor Compass direct us to any authority defining what “loss” is

contemplated by Section 4.406(d)(1) and we find scant authority ourselves. Compass argues that

the payment of the questionable item is itself the loss because a bank has liability to its

depositors for all funds that it holds on deposit. But that logic would make the language of the

statute a redundancy. If every item that is improperly paid creates a loss for the bank, why

would the Legislature have added the specific language requiring the bank to prove that it

suffered a loss from the customer’s failure to report the item? “We presume that the Legislature

chooses a statute’s language with care, including each word chosen for a purpose, while

purposefully omitting words not chosen.” TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d

432, 439 (Tex. 2011). “It is settled that every word in a statute is presumed to have been used for

a purpose; and a cardinal rule of statutory construction is that each sentence, clause and word is

to be given effect if reasonable and possible.” Texas Workers’ Compensation Ins. Fund v. Del

Indus., Inc., 35 S.W.3d 591, 593 (Tex. 2000).

A federal bankruptcy court has reasoned that the loss must be something collateral, such

as the bank losing “an opportunity to recover from the forger, or probably more likely, from

some bank up the line in the check collection process.” In re Mid-American Clean Water

Systems, Inc., 159 B.R. 941, 947 (D.C. Kan. 1993). Applying that logic here, Compass would

15
have to show that the alleged three day delay by the Nacims in reporting Peterson’s activities

cost Compass some chance to recover funds from Peterson, or avert some other loss. Compass

mailed the July account statement on July 29, 2008. Under the Bank’s view of the deposit

agreement, the Nacims had until August 28 (thirty days from July 29th) to report the account

discrepancy. But the record shows that Compass had terminated Peterson on August 26, 2008,

which would be two days before the Nacims would have had to report the questionable

transaction. Given this sequence of events, Compass has not established as a matter of law that it

suffered a loss as contemplated by Section 4.406(d)(1).

Moreover, Compass Bank does not expressly challenge the trial court’s finding that it did

not incur a loss generally, and it makes no complaint that the trial court failed to make a finding

that it suffered a loss based on the three day delay. At best, the testimony below as to whether

Compass suffered any loss is conflicting. Because there is some evidence supporting the finding

that it suffered no loss, we uphold that finding. And without a finding of its own loss, the

defense in Section 4.406(d)(1) does not apply. We therefore overrule the issue germane to the

July 18th withdrawal in Issue Four.

The Deposit Account Agreement is Ambiguous

Under Section 4.401(a), the bank triggers the customer’s duty to inspect and report

questionable items when it “makes available” a sufficient account statement. But a bank may

amend, within limits, that statutory language. Martin, 29 S.W.3d at 92. Here, Compass

contends its customer agreement changed not only the time limits for reporting a questionable

item, but also other matters such as the definition of the term “item” and how items must be

described to the customer. The Nacims argued below, and obtained findings to support their

contention, that the additional terms created an ambiguity as to when the reporting requirement

16
of Section 4.406 (d) began to run.

Whether a contract is ambiguous is a question of law. Heritage Resources, Inc. v.

NationsBank, 939 S.W.2d 118, 121 (Tex. 1996). If the contract is so worded that it can be given

a certain or definite legal meaning or interpretation, then it is not ambiguous and a court should

construe the contract as a matter of law. SAS Institute, Inc. v. Breitenfeld, 167 S.W.3d 840, 841

(Tex. 2005); ACS Investors, Inc. v. McLaughlin, 943 S.W.2d 426, 430 (Tex. 1997). “A contract

is ambiguous when its meaning is uncertain and doubtful or is reasonably susceptible to more

than one interpretation.” Heritage Resources, 939 S.W.2d at 121.

Not every difference in the interpretation of a contract amounts to an ambiguity. Forbau

v. Aetna Life Ins. Co., 876 S.W.2d 132, 134 (Tex. 1994). Mere disagreement over the meaning

of a provision in the contract does not make the terms ambiguous. Richardson Lifestyle

Association v. Houston, 853 S.W.2d 796, 800 (Tex.App.--Dallas 1993, writ denied). We

determine whether a contract is ambiguous by looking at the contract as a whole in light of the

circumstances present when the parties entered the contract. Universal Health Servs., Inc. v.

Renaissance Women’s Group, P.A., 121 S.W.3d 742, 746 (Tex. 2003).

When a contract does contain an ambiguity, the interpretation of the instrument becomes

a fact issue. Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983); Quality Infusion Care, Inc. v.

Health Care Service Corp., 224 S.W.3d 369, 379 (Tex.App.--Houston [1st Dist.] 2006, no pet.).

The trier of fact must resolve the ambiguity by determining the true intent of the parties. Coker,

650 S.W.2d at 394-95.

The Deposit Agreement requires (at least in some provisions) that the customer report

questionable transactions once the customer actually receives the account statement. The

Agreement provides:

17
 You agree that you will carefully examine each account statement or notice you
receive and report any exceptions to us promptly after you receive the statement
or notice. You agree to act in a prompt and reasonable manner in reviewing your
statement or notice and reporting any exceptions to us. If you do not report an
exception to us within thirty (30) days after we send the statement or notice to
you, you agree that we will not be liable to you for any loss you suffer related to
that exception. This means that, if you do not report exceptions to us within thirty
(30) days after we send the statement or notice to you, we will not reimburse you
for any loss you suffer, including, but not limited to, any amounts lost as a result
of: paying any unauthorized, forged, or altered item, or paying any other item
altered or forged by the same wrongdoer if we paid the other item before we
received notice of any of these exceptions from you.

The ambiguity arises from the first and second sentences which trigger the duty to report

questionable transactions after the customer receives the account statement, and the last two

sentences which trigger the thirty day period from the date the statement is mailed. It creates the

anomaly that the duty to inspect and report could begin after the thirty day period expires if the

customer does not receive the mailed account statement. The Nacims argued below, and the trial

court so found, that they did not receive their account statement because they had changed

addresses and Compass failed to change the mailing address in its system.

Other banks have altered the Section 4.406 time limits, but preserved the “made

available” trigger date found in Section 4.406(a). Coffey v. Bank of America, 2013 WL 257363,

*5 (Tex.App.--Beaumont, January 24, 2013, no pet.)(mem. op.)(per customer agreement, sixty

day repose period which ran “after we send your statement or items, or otherwise make them

available”); Lone Star Nat. Bank v. Martinez, 2010 WL 1138450, *3 (Tex.App.--Corpus Christi,

March 25, 2010, no pet.)(mem. op.)(customer agreement imposing sixty-day repose period from

“when we make the statement available”). If we are to engage in the fiction that customers

actually read and agree to the modified terms and conditions of their account agreements, and

enforce those provisions which favor the bank, then we must also apply those which work to the

bank’s detriment. If Compass had modified only the time limits of Section 4.406, and not

18
attempted to modify the date for when the time limit runs, our view might be different. But

having created an ambiguity where none existed before, the trial court had to determine the true

intent of the parties. It found that actual receipt of the customer statement is required by the

contract and there is some evidence to support that finding.

Nor can we credit Compass Bank’s argument that the “made available” language of

Section 4.406(a) obviates any issues with its customer agreement. Once Compass altered the

provisions of Section 4.406 through its customer agreement, it could no more go back and rely

on the favorable provisions of Section 4.406 than could the Nacims rely on the Section 4.406

terms that were superseded through the customer agreement. So whether the account statement

was made available by mail, through its branch banks, or on-line, at least some sections of the

customer agreement stated that the Nacims duty to inspect and report questionable items began

once they received the statement. That the statute would impose a more onerous duty on the

Nacims is irrelevant once Compass sought to contractually change the statutory scheme.

Compass Bank Failed to Prove its Entitlement to the Section 4.406 Defenses.

We overrule Issue Three which asserts that Section 4.406 bars the Nacims from

recovering for the July 2008 withdrawal. We do so for the two reasons outlined above. First,

Compass did not prove that it suffered a loss as required by Section 4.406(d)(1). Second,

because of the ambiguity in the agreement, there is no date certain from when the thirty day time

period in the Deposit Account Agreement begins to run.

We additionally overrule Compass Bank’s Issue Five with regard to the “repeated

wrongdoer” defense in Section 4.406(d)(2). Compass seeks to apply the “repeated wrongdoer”

rule in Section 4.406(d)(2) as a bar to the Nacims’ recovery for the August 25 withdrawal. Its

argument is premised solely on the claimed failure of the Nacims to timely report the July

19
withdrawal. Because we uphold the trial court’s findings that the duty to report the July

withdrawal did not arise because of the ambiguity in the Deposit Account Agreement, it could

not operate to trigger a time line under the repeated wrongdoer rule.

Finally, Compass complains of the trial court’s findings that it failed to exercise ordinary

care when it paid the July and August transactions. The failure to exercise ordinary care is

relevant only to the extent that Sections 4.406(d)(1) or (2) apply. In light of our holding that

those provisions were never triggered, the negligence finding is moot. We therefore overrule

Issue Five.

OFFER OF SETTLEMENT

In Issue One, Compass complains that the trial court erred in not applying the offer of

settlement rule found in TEX.R.CIV.P 167 and TEX.CIV.PRAC.&REM. CODE ANN. § 42.005(a)-(b)

(West 2008). That statute, and the rule promulgated under it, permit a party to make an offer of

settlement and if the eventual verdict is “significantly less favorable”--a defined term--then

certain costs of litigation can be shifted to the party refusing the offer. TEX.R.CIV.P 167.4(b)

Here, Compass contends the judgment eventually awarded to the Nacims was significantly less

favorable than its pretrial offer to settle the case. The resolution of this issue turns on our

construction of the statute and the standard of review to be applied.

As noted above, we review de novo the construction of rules and statutes, and the

application of uncontested facts to the law. Torres, 174 S.W.3d at 346. But when the question

before the court is the application of disputed facts to the law, our standard of review, at least

with regard to the contested facts, is abuse of discretion. In Brainard v. State, 12 S.W.3d 6 (Tex.

1999), for instance, the court reviewed an award of attorney’s fees under the Frivolous Claims

Act. To award fees under that enactment, the trial court must make a finding that the state’s

20
actions were “unreasonable” which is a mixed question of law and fact, and one reviewable

under an abuse of discretion standard. Id. at 30.

Compass Bank’s Argument.

On October 11, 2011, Compass offered $75,000 to the Nacims to settle this dispute.

Compass had earlier invoked the offer of settlement rule under Rule 167 by filing an appropriate

declaration. The offer was not accepted. The amount of the judgment awarded to the Nacims on

its face is $92,937.64 exclusive of pre-judgment interest and costs, which exceeds the offer.

Under Rule 167, certain litigation costs can be shifted to the party making a claim, but only if

“the judgment would be less than 80 percent of the offer.” TEX.R.CIV.P. 167.4(b)(1). Here, the

judgment would need to be no more than $60,000 to meet the 80% “significantly less favorable”

threshold as set by the rule.

But Compass argues that when a party’s claim includes a variable that increases as the

litigation drags on, such as attorney’s fees, the amount of the attorney’s fees must be ascertained

and applied as of the date of the settlement offer, and not as of the date of the trial. This issue

has not been addressed by a Texas court applying Rule 167. Compass points to several federal

and out of state cases applying similar, but not identical rules. E.g. Marek v. Chesny, 473 U.S. 1,

7, 105 S.Ct. 3012, 3015-16, 87 L.Ed.2d 1 (1985)(applying Fed.R.Civ.P. 68); Chartier v.

Weinland Homes, Inc., 25 P.3d 1279, 1281 (Colo. Ct. App. 2001)(post-offer attorney’s fees

should not be considered for purposes of comparing to offer, but amount of pre-offer attorney’s

was unclear from record and case was remanded). Those case hold that under the respective

rules at issue, the relevant date for determining the amount of attorney’s fees is the date of the

offer, and not the date the case is eventually tried.

Compass then argues that there was a stipulation as to the amount of the attorney’s fees

21
which had been incurred as of the date of the settlement offer, thus making the amount of the

Nacims’ attorney’s fees uncontested. Weaving these threads together, Compass then concludes

that the amount of a judgment as of the date of the settlement offer would have been less than

80% of its settlement offer.4

The “Stipulation” on Attorney’s Fees.

Compass Bank’s argument relies heavily on what it contends was a stipulation as the

amount of the Nacims’ attorney’s fees incurred as of the date of the offer. At trial, counsel for

both parties asked for a short recess to see if they could reach an agreement regarding attorney’s

fees. After the recess, both counsel testified to their respective qualifications, the hours

expended by the attorneys and paralegals on both sides, the respective hourly rates, and how

their fees could be allocated to the various claims asserted or being defended. As a part of an

agreement between both sides, neither counsel cross-examined each other. They also both

agreed to discount their fees. The Nacims’ attorney apparently applied a 25% reduction across

the top of his fees. The record shows this was less a stipulation about recoverable attorney’s

fees, and more of an agreement that both counsel could testify without cross-examination. The

agreement arose in part “in order to expedite” the proceedings and avoid a “prolonged hearing.”

The net effect of the agreement might well be that for certain issues concerning attorney’s

fees, one counsel or the other’s testimony might be the only evidence in the record. But this was

not a stipulation that any particular amount testified to was binding on the trial court.

In addition to its counsel’s testimony, the Nacims’ attorney’s fees evidence came from

three exhibits. Exhibit 29 is a compilation of all the periodic billing statements sent to the

Nacims from the case’s inception to October 10, 2012. That invoice reflects billings in excess of

4
The actual damages for the July and August 2008 withdrawals totaled $43,617.64. Compass contends the
stipulated attorney’s fees were $8,610 and it recalculated the accrued prejudgment interest to be $4,977.19. The
total of these figures is $57,204.83 which is 76.27% of the $75,000 offer.

22
$42,000 as of the time of the settlement offer. Exhibit 30 is a summary of the total fees which

allocates the time and expenses between the claims asserted against Peterson and those against

Compass. This compilation also contains a discount, per the agreement reached at trial, and

provided that the Nacims were seeking $80,000 against Compass Bank, with 60% of that

allocated to the breach of contract claim ($48,000), and 40% allocated to the negligence claim

and defense of the counterclaim asserted against them.

Finally, Exhibit 31 further breaks down the $48,000 allocated to the breach of contract

claim by time period. On the face of the exhibit, there is a total for the time and expense

attributable to three time periods: November 1, 2011 to December 1, 2011; December 2 to May

20, 2012; and June 2012 to trial. Specific figures are stated for each of those periods. There is

no specific figure stated for the fees and expenses before November 1, 2011 which was the date

of the settlement offer. Instead, to find that number, one needs to subtract the subtotals for the

three time periods on Exhibit 31 from the total of $48,000 attributed to the contract claim. The

residual amount totals $8,610 which is the amount Compass represents as the stipulated pre-

settlement offer attorney’s fees attributed to the claims against it.5

Compass did not request any findings by the trial court as to amount of the Nacims’

attorney’s fees as of the date it made its offer. The findings of facts and conclusions of law do

not address the offer of settlement issue. Indeed, Compass never raised the offer of settlement

issue until it filed its motion to modify the judgment. The motion was never set for hearing and

was overruled by operation of law. While the motion refers to the amount of attorney’s fees as a

stipulated sum, the record is less clear.

5
A footnote in Compass Bank’s brief is the first place we can find in the record where the math to arrive at the
“stipulated” pre-offer attorney’s fee amount is set forth. The Bank’s motion to modify the judgment merely states
that the Nacims stipulated that $8,610 was the amount of attorney’s fees through the date of the settlement offer.
The motion does not explain how that figure is arrived at, and as noted, neither the testimony nor the exhibits reflect
this number.

23
 Assuming without deciding that the amount of attorney’s fees as of the date of the offer is

determinative, we are disinclined to find that the trial judge abused his discretion in finding the

offer was significantly less favorable than the amount awarded. First, the stipulation that

Compass refers to was simply an agreement that the attorneys would testify without cross-

examination. The agreement apparently included a compromise that reduced the fees sought, but

that compromise occurred at the time of trial, and not at the time that Compass Bank’s offer was

made. Nothing in their agreement suggests the amounts were meant to apply retroactively. The

testimony at trial also included Exhibit 29 which supported a much higher fee than the amount

Compass claims was stipulated to as of the date of the settlement offer. Before we can fault the

trial court for not applying Rule 167 in this case, we believe it was incumbent on Compass to

actually bring this issue to the attention of the trial court and obtain definitive findings as to

amount of attorney’s fees which were incurred as of the date of the rejected settlement offer.

This it failed to do.

COMPASS BANK’S CLAIM FOR ATTORNEY’S FEES

In March 2012, the Nacims’ amended their pleadings to assert claims for certain losses

which occurred in 2007. Compass prevailed on having these particular claims dismissed based

on the statute of limitations. It contends that the customer account agreement in effect in 2007

provided that the Bank can recover attorney’s fees as a prevailing party. Because it prevailed on

these claims, Compass asks us to reform the judgment so that it recovers some $42,189.50 in

attorney’s fees attributable to resisting the 2007 claims.

The trial court found that Compass failed to plead or prove that it was entitled to recover

attorney’s fees. With regard to pleadings, the general rule is that unless attorney’s fees are

mandated by a statute, a party must properly plead for them. Bailey v. Rodriguez, 351 S.W.3d

24
424, 426 (Tex.App.--El Paso 2011, no pet.); R. Conrad Moore & Associates, Inc. v. Lerma, 946

S.W.2d 90, 96 (Tex.App.--El Paso 1997, writ denied). In this case, the parties dispute what

constitutes an appropriate pleading.

In an amended pleading filed October 20, 2011, Compass asserted a general denial,

various affirmative defenses, a cross claim against Peterson, and a counterclaim against the

Nacims. The counterclaim alleged two theories: aiding and abetting breach of a fiduciary duty,

and fraud. The factual basis of the counterclaim related to the Bank’s claim that the Nacims

were receiving kickbacks in exchange for obtaining favorable treatment on loan applications. In

it prayer for relief, Compass sought unspecified actual damages along with “exemplary damages,

attorney’s fees, post-judgment interest, and all courts [sic] of court” from the Nacims. Compass

contends this pleading is sufficient to support an award of attorney’s fees.

There is authority that a general request for attorney’s fees in a prayer for relief is enough

to authorize the award of attorney’s fees. See Tull v. Tull, 159 S.W.3d 758, 762 (Tex.App.--

Dallas 2005, no pet.), citing Morgan v. Morgan, 657 S.W.2d 484, 491 (Tex.App.--Houston [1st

Dist.] 1983, writ dism’d)(holding that a prayer and stated basis in the pleading were sufficient to

raise attorney’s fee claim). But we find the discussion in Alan Reuber Chevrolet, Inc. v. Grady

Chevrolet, Ltd., 287 S.W.3d 877 (Tex.App.--Dallas 2009, no pet.) more instructive and in line

with our precedence. In Alan Reuber, one dealership sued another for breach of contract and

specifically sought attorney’s fees under the contract. Id. at 881. The other dealership’s answer

denied the breach and contained a request for attorney’s fees, but did not make a specific

reference to the contractual provision allowing for recovery of attorney’s fees. Id. The prayer

for relief was sufficient because the answer, read in conjunction with the plaintiff’s petition in

that case, gave fair notice of the basis for the attorney’s fee claim.

25
 Texas follows the “fair notice” standard--a party should be able to determine from the

pleadings “the nature, basic issues, and the type of evidence that might be relevant to the

controversy.” Low v. Henry, 221 S.W.3d 609, 612 (Tex. 2007). Accordingly, a general prayer

for relief will not always support an award of attorney’s fees. Alan Reuber, 287 S.W.3d at 885,

citing Kissman v. Bendix Home Sys., Inc., 587 S.W.2d 675, 677 (Tex. 1979)(“The prayer for

general relief is of no assistance [in giving fair notice of a claim] because a prayer must be

consistent with the facts stated as a basis for relief.”). Instead, the pleading should state the legal

basis or the facts upon which the attorney’s fee claim is premised. Bailey v. Rodriguez, 351

S.W.3d 424, 426 (Tex.App--El Paso 2011, no pet.). Alternatively, the facts supporting the

attorney’s fee claim should be evident from the opponent’s own pleadings. Alan Reuber, 287

S.W.3d at 885; see also Land Title Co. of Dallas, Inc. v. F.M. Stigler, Inc., 609 S.W.2d 754, 756

(Tex. 1980)(“In determining whether issues are supported by pleadings, the trial court will

supply omissions in the pleadings of one party by referring to the allegations contained in the

pleadings of another.”). We find none of these standards met by the Bank’s amended answer and

counterclaim.

The amended answer and counterclaim which first contained a prayer for attorney’s fees

did not plead any facts germane to the 2007 transactions, including the Deposit Agreement, or its

contractual provision for attorney’s fees. And when that counterclaim was first filed, there was

no pending issue with regard to the 2007 transactions. It was some five months later that the

Nacims amended their pleadings to raise the 2007 unauthorized withdrawals by Peterson.6

We fail to see how the bare request for attorney’s fees, first filed at a time when the 2007

6
We acknowledge that after the Nacims amended their petition to add the 2007 claims, Compass filed
another amended answer, identically captioned as “Compass Bank’s Second Amended Answer, Counterclaim, and
Cross-Claim.” This pleading adds an affirmative defense of statute of limitations, but does not change the
counterclaim in any way, or mention the 2007 agreement as a basis for the attorney’s fees.

26
transactions were not at issue, provides fair notice that Compass was seeking its attorney’s fees

for defense of the Nacims’ 2007 losses. We agree with the trial court’s finding that there were

no pleadings to support its claim for attorney’s fees.

Compass alternatively claims that even if not pled, its claim for attorney’s fees was tried

by consent. When issues not raised by the pleadings are tried by consent, they must be treated in

all respects as if they had been raised in the pleadings. TEX.R.CIV.P. 67; Phillips v. Phillips, 296

S.W.3d 656, 670 (Tex.App.--El Paso 2009, pet. denied); Gutierrez v. Gutierrez, 86 S.W.3d 721,

729 (Tex.App.--El Paso 2002, no pet.). This rule applies to those exceptional cases when it

clearly appears from the record as a whole that the parties tried an unpled issue by consent.

Gutierrez, 86 S.W.3d at 729. It is not a general rule of practice; it should be applied with care,

and never in a doubtful situation. Marrs and Smith Partnership v. D.K. Boyd Oil and Gas Co.,

Inc., 223 S.W.3d 1, 18 (Tex.App.--El Paso 2005, pet. denied). Trial by consent “applies only

where it appears from the record that the issue was actually tried, although not pleaded.” Id.,

quoting Johnston v. McKinney American, Inc., 9 S.W.3d 271, 281 (Tex.App.--Houston [14th

Dist.] 1999, pet. denied). To determine whether the issue was tried by consent, the court must

examine the record not for evidence of the issue, but rather for evidence of trial of the issue.

Marrs and Smith Partnership, 223 S.W.3d at 18.

As support for its claim that the attorney’s fee issue was tried by consent, Compass points

to its counsel’s testimony. The attorney made a point of segregating those fees attributable to

defense of the 2007 transactions because he claimed a right to recover those fees by virtue of

having prevailing on the 2007 claims. The Nacims respond that Compass failed to seek a trial

amendment. TEX.R.CIV.P. 67 would not require a formal amendment in a non-jury trial. It

allows for trial amendments, but states that the “failure so to amend shall not affect the result of

27
the trial of these issues; provided that written pleadings, before the time of submission, shall be

necessary to the submission of questions, as is provided in Rules 277 and 279.” Rules 277 and

279 apply to jury trials, and by implication, no formal trial amendment would be required in a

non-jury trial.

But we are more troubled by the “stipulation” under which the attorney’s fee testimony

was admitted. Both counsel stated several times on the record that while they agreed that each

could testify to what their attorney’s fees would be, both expressly reserved the right to contest

that either was entitled to attorney’s fees. With this reservation, we cannot conclude that the

mere inclusion of testimony as to the amount of attorney’s fees attributable to defense of the

2007 transactions would constitute trial by consent.

Looking to the record as whole, there is no mention of a claim for attorney’s fees under

the 2007 customer agreement in Compass Bank’s pretrial filings.7 In the opening statements to

the trial court, Compass Bank’s counsel claimed his client was seeking its attorney’s fees and

costs as matter of “equity” because the Nacims’ lawsuit was “baseless.” There were no findings

of facts on the application of the 2007 agreement to these facts, and no findings on the amount of

attorney’s fees referable only to the defense of the 2007 claims. Based on this record, we cannot

conclude that this case is one of those exceptional situations where an issue was actually tried,

much less by consent. Issue Two is overruled.

CONCLUSION

We overrule Issues One, Two, Three, Four, and Five and affirm the judgment below. We

award the Nacims’ the conditional attorney’s fees for the appeal of this matter as provided in the

trial court’s judgment.

7
Compass filed shortly before trial “Compass Bank’s Statement of Legal Matters To Be Decided By The Court”
and “Statement of Contentions, Contested Issues of Fact, And Issues To Be Tried To The Jury.”

28
January 14, 2015
ANN CRAWFORD McCLURE, Chief Justice

Before McClure, Rodriguez, J., and Chew, C.J. (Senior Judge)
Chew, C.J. (Senior Judge), sitting by assignment

29