Cottonwood Development Corporation v. Preston Hollow Capital, LLC; PHCC LLC; And Winstead, P.C.

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-22-00735-CV

Cottonwood Development Corporation, Appellant

v.

Preston Hollow Capital, LLC; PHCC LLC; and Winstead, P.C., Appellees

FROM THE 368TH DISTRICT COURT OF WILLIAMSON COUNTY

NO. 22-1985-C368, THE HONORABLE RICK J. KENNON, JUDGE PRESIDING

OPINION

This appeal arises from a dispute over financing of a real-estate development.

Cottonwood Development Corporation appeals the summary-judgment orders granted in favor of

Preston Hollow Capital, LLC; PHCC LLC (collectively Preston Hollow); and Winstead, P.C.1

Additionally, Cottonwood appeals the orders denying its combined plea in bar and motion for

summary judgment, its motion for reconsideration, the final judgment and order of foreclosure,

and the postjudgment orders denying its motion for injunctive relief and motion to set aside the

deeds of trust.2 We will affirm the district court’s orders and final judgment.

1

As part of a corporate restructuring unrelated to the transaction at issue in the parties’

litigation, Preston Hollow Capital, LLC assigned its interest in the transaction (along with the loan

agreement and related loan documents) to PHCC LLC, effective January 1, 2022.

2

Cottonwood’s amended notice of appeal purports to appeal the final judgment and ten

orders. No argument is presented in Cottonwood’s brief as to five orders. The January 19, 2022

order granting summary judgment to Longhorn Title and the April 26, 2022 unopposed order

BACKGROUND3

In April 2019, the City of Hutto announced “Project Expansion,” a planned mixed-

used development on 250 acres of unimproved land near the intersection of US Highway 79 and

County Road 132. Perfect Game, a baseball-scouting company, intended to relocate its national

headquarters to Hutto as the anchor tenant. To facilitate the project, the City created Cottonwood,

a local-government corporation. See generally Tex. Transp. Code § 431.101 (“Creation of Local

Government Corporations”). The general structure of the project required the City to purchase

tracts of land that it would consolidate for the project. To proceed with the project, the City planned

to borrow funds for the land acquisitions.

Preston Hollow is a non-bank finance company that funds economic development

and infrastructure projects for municipal governments and development corporations.

Cottonwood approached Preston Hollow Capital in December 2019 for “emergency, almost-

modifying that summary-judgment order are referenced only as background information, and those

orders were appealed separately. See Cottonwood Dev. Corp. v. Longhorn Title Co., No. 03-23-

00032-CV, 2024 WL 1334327, at *3 (Tex. App.—Austin Mar. 29, 2024, pet. denied) (mem. op.).

Additionally, the June 2, 2022 order denying Cottonwood’s motion to strike PHCC LLC’s petition

in intervention, and the December 13, 2022 postjudgment orders denying Cottonwood’s “Motion

to Set Aside Deeds of Trust Validated Within the Court’s Judgment to Permit the Sale of Property

and to Place Net Proceeds in the Court’s Registry in Sufficient Amounts to Satisfy Judgment in

the Event of a Final Judgment in Favor of Preston Hollow” and “Motion for Temporary and

Permanent Injunction Suspending the Judgment by Operation of Law and Preventing Issuance of

Order of Sale by the District Court” are not briefed and thus, complaints as to those orders are

waived. See Tex. R. App. P. 38.1(i) (requiring briefs to contain argument for contentions made,

along with appropriate citations to authorities and record); Harrison v. Bentley Ltd., No. 05-00-

01794-CV, 2001 WL 1360206, at *3 (Tex. App.—Dallas Nov. 7, 2001, no pet.) (mem. op.)

(concluding that party who failed to brief argument as to denial of motion to strike plea in

intervention waived that appellate complaint).

3

This background is taken from the pleadings and the related state and federal cases

concerning this dispute. See, e.g., Preston Hollow Cap., LLC v. Cottonwood Dev. Corp., No. 1:20-

CV-00978-LY-SH, 2021 WL 812114, at *2 (W.D. Tex. Mar. 2, 2021), aff’d, 23 F.4th 550 (5th Cir.

2022); Cottonwood Dev. Corp., 2024 WL 1334327, at *1-2.

2

immediate alternate financing” of the project after other planned financing failed. In January 2020,

Preston Hollow provided Cottonwood and the City with a Term Sheet for the project, summarizing

the terms and conditions of a proposed finance plan for the Perfect Game project.

The Term Sheet stated that the City would take certain actions by the closing date,

including entering into a grant agreement under Texas Local Government Code Chapter 380

(which would provide for 75-100% of the City’s portion of ad valorem taxes on certain land related

to the project to offset any special assessments, or to finance or reimburse costs related to the

project), and granting Preston Hollow the exclusive right to finance a public-improvement district

or tax-increment-reinvestment-zone loan or issue bonds of approximately $220 million.

Cottonwood’s board of directors passed Resolution No. R-20-01-27-3A on

January 27, 2020, approving the proposal and directing Cottonwood’s chair to sign it. The

same day, Cottonwood’s board approved Resolution No. R-20-01-27-3F authorizing four board

members “Chair Doug Gaul [who was also the City Mayor], Charles Daniels, Byron Frankland or

Michel Sorrell” to “act as agents on behalf of [Cottonwood] in matters involving Project Expansion

- Perfect Game Project, with specific authority granted to sign deeds, mortgages, financing

documents and all other documents related to work on Project Expansion - Perfect Game Project.”

Mayor Gaul executed the Term Sheet on January 28, 2020, on behalf of the City and Cottonwood.

Cottonwood and Preston Hollow close on loan

After execution of the Term Sheet, Preston Hollow began structuring the public-

finance deal for the project. The parties to the loan transaction each had their own counsel.

McGinnis Lochridge represented the borrower, Cottonwood. Winstead represented the lender,

Preston Hollow. Cottonwood and Preston Hollow executed a series of loan documents on February

3

13, 2020, including a Loan Agreement, Promissory Note, First and Second Lien Deeds of Trust,

and an Interlocal Agreement between the City and Cottonwood “to administer certain matters

related to [Cottonwood] for the development of the Project.”

Under the Loan Agreement, Preston Hollow agreed to loan up to $35 million to

Cottonwood with an initial advance of $15 million and the possibility of further advances if certain

conditions were met. Section 3.1 of the Loan Agreement directed how some of the $15 million

initial advance “shall be applied”: $12,029,000 to purchase two tracts of land; “approximately

$1,100,000.00 to reimburse contractors for costs related to the Project”; “approximately

$1,070,000 for expenses that [the] City incurred or will incur as with regard to [sic] due diligence

costs related to the Project”; and $630,000 to settle a lawsuit related to the project. After

subtracting these amounts from the initial advances, $171,000 remained. The Loan Agreement

addressed events of default, including if (1) the City failed to enter into a grant agreement under

Chapter 380 of the Local Government Code within 60 days after February 13, 2020; or (2) Preston

Hollow determined that any of Cottonwood’s or others’ representations, warranties, or statements

in the loan documents were materially false or misleading, and resulted or had the potential to

result in a material adverse change.

Longhorn Title was the title company and closing agent for the loan transaction

between Cottonwood and Preston Hollow. Longhorn Title’s disbursement of the funds was

addressed in the Closing Statement. Line 120 of the Closing Statement specified that

$12,445,038.24 would be paid for Cottonwood’s settlement charges (items referenced in

Section 3.1 of the Loan Agreement) and Line 303 specified that $2,554,961.76 would be paid to

Cottonwood directly. Another section of the Closing Statement listed the settlement costs to be

paid from each parties’ funds. Among the costs to be “paid from Borrower’s funds at settlement”

4

was $60,000 in attorney’s fees to Winstead. Board Member Frankland signed the Loan Agreement

and the Closing Statement for Cottonwood.

Winstead attorney Beth E. Thurman emailed a letter to Longhorn Title on

February 12, 2020, with instructions for closing the loan transaction. The Closing Instructions

specified that Longhorn Title could disburse the funds only after it: (1) received Preston Hollow’s

written approval of the Closing Statement; (2) received “funds sufficient to pay all closing costs

reflected on the Closing Statement, including . . . legal fees charged by Winstead PC, as attorney

for [Preston Hollow], as set forth on the Closing Statement”; and (3) was advised in writing by

Thurman “that all conditions precedent to the closing have been satisfied.” Longhorn Title was to

indicate its agreement by signing and returning the Closing Instructions.

Longhorn Title employee Chasaty Huckabay first asked McGinnis Lochridge

attorney Mary H. Allen by email whether the Closing Statement met expectations, including

deduction of fees from the initial advance: “Mary - this is how I structured the HUD [Closing

Statement] prior to this morning. I think this is what you were expecting? I would take the

fees/purchase prices out of the initial advance and owe Cottonwood the difference?” Allen replied,

“Yes. This is the expectation of Borrower.” Huckabay signed and returned a copy of the Closing

Instructions to Winstead the next day. She sent a copy of the signed Closing Instructions letter

to counsel for both parties and three Preston Hollow employees: John Dinan, Michel Benitez,

and Glen Hill. The day after that, before closing of the loan transaction, Winstead attorney

Jeff Nydegger sent Winstead’s $60,000 attorney’s fees invoice to Longhorn Title; the City;

Huckabay; the City’s director of economic development, Jessica (Geray) Bullock; and three

attorneys at McGinnis Lochridge.

5

On February 14, 2020, William H. Bingham of McGinnis Lochridge, acting as

counsel for both the City and Cottonwood for this transaction, sent opinion letters to Preston

Hollow—after reviewing the Loan Documents,4 Cottonwood’s organizational documents,

resolutions approved by Cottonwood’s board of directors, City Council Resolution No. R-20-02-

06-11D, the City’s Diligence Certificate, and other “relevant” documents—stating that the Loan

Documents were “valid and binding” obligations of the borrower Cottonwood and that the City

had taken or obtained all legally required approvals and authorizations as to its obligations:

Each Loan Document to which the Borrower is a party constitutes the valid and

binding obligation of the Borrower enforceable against the Borrower in accordance

with its terms.

....

The City has taken or obtained all actions, approvals, consents and authorizations

required of it by applicable laws in connection with the enactment of the Resolution

and the execution and delivery of the Interlocal Agreement, the Collateral

Assignment and the Omnibus Amendment, and the performance by the City of its

obligations thereunder.5

4

The “Loan Documents” consisted of 12 items listed in Exhibit A of the opinion letter for

Cottonwood: (1) the Loan Agreement; (2) Promissory Note; (3) First Lien Security Instrument; (4)

Second Lien Security Instrument; (5) Interlocal Agreement; (6) Environmental Indemnification

Agreement; (7) Collateral Assignment of Contracts; (8) Consent and Subordination Agreement of

Multi-Party Developer; (9) UCC-1 Financing Statement pursuant to the First Lien Security

Instrument; (10) UCC-1 Financing Statement pursuant to the Second Lien Security Instrument;

(11) Intercreditor Agreement, and (12) Omnibus Amendment to Loan Documents and Interlocal

Agreement dated February 14, 2020 by and between the Lender, the Borrower and the City.

5

Cottonwood and the City made similar representations in the Loan Agreement, stating:

• All acts, conditions and things required by law to exist, to have happened and to have been

performed precedent to and in connection with the execution and delivery of this

Agreement do exist, have happened and have been performed in regular and due time, form

and as required by law, and the parties hereto are now duly authorized to execute and enter

into this Agreement;

6

Also on February 14, 2020, Cliff Ernst of McGinnis Lochridge sent an email to

Jeff Nydegger of Winstead—copied to Huckabay and Cottonwood Board Members Frankland and

Michel Sorrell—confirming that “the Borrower [Cottonwood] is also agreeable to holding the

amount [$2,554,961.76] show[n] on Line 303 of the Closing Statement in Escrow with the Title

Company [Longhorn Title] pending further joint release instructions further instructions [sic] from

the Borrower and Lender [Preston Hollow].” This escrow agreement was reiterated soon afterward

in an email sent from Bullock, the City’s director of economic development, to Huckabay,

McGinnis Lochridge counsel, Winstead counsel, and Preston Hollow staff stating, “Borrower

agrees funds shown in 3.03 [sic] of closing statement will be held in escrow until post closing[,]

pending post closing instructions from the borrower and lender.” Later that day, Ernst sent an

email to all parties and counsel approving the closing of the loan.

Minutes after receiving that approval from McGinnis Lochridge, Michel Benitez of

Preston Hollow sent an email to Huckabay confirming that closing conditions were satisfied and

authorizing Longhorn Title’s funding of a portion of the initial advance to Cottonwood:

I am writing in reference to the attached Closing Instructions, which originally

directed Longhorn Title to fund the [$15 million] Initial Advance upon satisfaction

of the conditions specified therein, at direction of Preston Hollow.

By this email, we hereby confirm that all closing conditions have been satisfied

and you are hereby authorized to fund a portion of the Initial Advance equal to

• Validity of Loan Documents. [Cottonwood] has all requisite power, authority, and legal

right to execute and deliver the Loan Documents, and all other instruments and documents

to be executed and delivered by [Cottonwood] pursuant thereto and to perform and observe

the provisions thereof and to carry out the transactions contemplated by the Loan

Documents; and

• The Loan Documents constitute the legal, valid and binding obligations of [Cottonwood],

and others obligated under the terms of the Loan Documents, enforceable in accordance

with their respective terms.

7

$12,445,038.24, for the payment of the Settlement Charges of Borrower

[Cottonwood], as indicated in Line 120 of the [Closing] Statement.

As for the remaining $2,554,961.76 of the Initial Advance, indicated as “Cash to

Borrower” in line 303 of the [Closing] Statement, we direct you to continue to hold

such funds in escrow until authorized to release by Preston Hollow in writing, such

authorization to be conditioned upon receipt of evidence satisfactory to Preston

Hollow that such remaining funds shall be used to pay for costs of the Project

previously incurred by the City or the Borrower [Cottonwood].

Longhorn Title paid the Line 120 funds of $12,445,038.24 as outlined in the

Closing Statement, including the $60,000 in attorney’s fees to Winstead. Preston Hollow never

instructed Longhorn Title to disburse the remaining $2,554,961.76 held in escrow.

Preston Hollow alleges default, but Cottonwood alleges loan documents are unenforceable

Cottonwood alleges that on April 24, 2020, it requested that Preston Hollow

disburse the remaining $2,554,961.76 in escrowed funds to pay contractors’ invoices. Preston

Hollow contends that Cottonwood made that demand for release of the escrowed funds without

providing public-purpose documentation required under the Loan Agreement.

On April 30, 2020, Preston Hollow gave Cottonwood notice of default under the

Loan Agreement, alleging that the City failed to enter into the Chapter 380 grant agreement with

Preston Hollow within the 60-day deadline (April 13, 2020) required by the Interlocal Agreement,

and that Cottonwood made false or misleading representations as to the validity of the loan

documents. Preston Hollow also gave Cottonwood notice of intent to accelerate the note and

declare the unpaid principal balance of $15 million, plus $377,500 in unpaid interest, immediately

due and payable if Cottonwood did not repay the disbursed funds within ten days. Cottonwood

did not repay the funds.

8

On May 4, 2020, Preston Hollow requested that Longhorn Title return the

remaining $2,554,961.76 in escrowed funds. On May 5, 2020, interim City Manager Charles W.

Daniels wrote to Longhorn Title on behalf of Cottonwood, stated that Cottonwood disputed the

alleged default, and requested retention of the funds until resolution of the matter with Preston

Hollow. Longhorn Title complied.

The next week, Preston Hollow gave notice of its intent to foreclose on the

mortgaged property purchased for the project. On May 14, 2020, Cottonwood and the City

responded through a new City Attorney, Dorothy Palumbo, that the intended foreclosures would

be unlawful and that the loan documents “are void or voidable” because:

(1) neither Cottonwood’s nor the City’s governing bodies complied with the Texas Open

Meetings Act (TOMA), Tex. Gov’t Code §§ 551.001-.146, by properly posting that

those documents were to be considered;

(2) neither Cottonwood nor the City requested review or approval of the loan documents

by the Texas Attorney General and no such approval was obtained;

(3) the Interlocal Agreement that Preston Hollow asserted as grounds for default was not

the version presented to and authorized by the City Council;

(4) the purported event of default by the City was not an event of default in the Interlocal

Agreement presented to the City Council;

(5) the Interlocal Agreement impermissibly purported to delegate key government

functions;

(6) it was questionable whether land owned by Cottonwood or the City, which is immune

from liens and foreclosure when owned by a governmental entity, could be subject to

foreclosure by foreclosing on contracts for the purchase of those lands, particularly

when the Texas Attorney General had not reviewed and approved the note and contract

authorizing the note; and

(7) Winstead “apparently” represented Cottonwood, the City, and Preston Hollow in the

closing and related transactions from which the threatened foreclosure arose, and per

the disbursement records from closing, Winstead “appears to have received” $60,000

from loan disbursements that should have gone to Cottonwood for providing legal

services to the two government entities related to these transactions, even though

9

(a) no record had been found showing that either government entity gave informed

consent to the joint representation or authorized the separate representations;

(b) no written agreement had been found showing that the City or Cottonwood

retained Winstead or authorized Winstead’s compensation for performing legal

services to either government entity, so Winstead’s payment from government

funds was unlawful; and

(c) Winstead should not be representing Preston Hollow adverse to the City or

Cottonwood as to the same transaction on which it purportedly represented the

two government entities.

Lastly, Palumbo stated that Cottonwood and the City were “interested in scheduling a meeting to

consider a financial work-out” addressing the problems in the Loan Agreement.

Preston Hollow disputed the assertions that the loan documents were void or

voidable (noting that those assertions were contrary to the terms and conditions of the loan

documents, representations from Cottonwood’s representatives during loan negotiations, and

legal opinions from Cottonwood’s legal counsel); disagreed that there had been any TOMA

violation because the loan and the pledge of collateral were properly noticed on the agenda for a

January 27, 2020 meeting of Cottonwood’s Board of Directors; and contended that because the

loan was not a negotiable instrument, it could not be a public security under Chapter 1371 of the

Local Government Code and the Texas Attorney General’s approval of it was unnecessary.

Moreover, Preston Hollow denied that Winstead ever represented Cottonwood or the City in

connection with the Perfect Game project, or any other transaction, and noted that the $60,000

attorney’s fees payment to Winstead had been approved by the City Council as well as

Cottonwood’s Board of Directors and was incorporated by reference into the Interlocal Agreement.

Preston Hollow then renewed its demand for return of the disbursed funds. Cottonwood refused.

10

Federal-court litigation6

In September 2020, Preston Hollow sued Cottonwood and the City in federal

district court for unconstitutional taking of private property. Preston Hollow alleged that

Cottonwood and the City committed a per se taking in violation of the Fifth Amendment of the

United States Constitution by refusing to return the $12,445,038.24 of disbursed funds and

preventing return of the $2,554,961.76 in escrowed funds after Preston Hollow gave notice of

Cottonwood’s alleged default under the Loan Agreement. Cottonwood asserted state-law

counterclaims, including requests for declarations under the Uniform Declaratory Judgments Act

that the loan transaction was invalid, see generally Tex. Civ. Prac. & Rem. Code §§ 37.001-.011

(UDJA); breach-of-contract claims based on Preston Hollow’s alleged failures to fully fund the

initial advance of $15 million and to allow an opportunity to cure before accelerating the note and

demanding payment; and claims for alleged meeting and notice violations of TOMA.7

Cottonwood and the City sought dismissal of Preston Hollow’s claim because it

had not alleged facts necessary to support an unconstitutional taking, thereby eliminating the basis

for any federal-question subject-matter jurisdiction. After determining that Cottonwood’s and the

City’s “jurisdictional arguments [we]re ‘completely intermeshed’ with whether Preston Hollow

ha[d] alleged a plausible claim for relief,” a magistrate judge issued a report and recommendation

concluding that Preston Hollow’s takings claim—the only claim pleaded—was not facially

plausible because Preston Hollow received contractual rights under the Loan Agreement in

6

This background section is taken from the related federal court cases and pleadings. See

Preston Hollow, 2021 WL 812114, at *4-6; see also 23 F.4th at 552-54.

7

About one month after Cottonwood filed its federal-court counterclaims, Cottonwood’s

Board passed a resolution stating that its arrangement with Preston Hollow was based on “a legally

defective transaction.”

11

exchange for its funds, including a Promissory Note obligating Cottonwood to repay the debt. The

magistrate noted that after Cottonwood’s alleged default, Preston Hollow alleged that it accelerated

the Promissory Note and exercised its rights and remedies available under the loan documents,

which were rights Preston Hollow received in exchange for providing $15 million to Cottonwood.

The magistrate also noted that a takings claim is improper if it duplicates a breach-

of-contract claim and a breach-of-contract remedy is available to the claimant. Because “Preston

Hollow merely allege[d] a claim for Cottonwood’s breach of the loan agreement,” the magistrate

recommended dismissal for failure to state a claim. The magistrate recommended dismissal of

Cottonwood’s counterclaims as well, recognizing that when a court disposes of the claim supplying

federal subject-matter jurisdiction, exercise of supplemental jurisdiction over any state-law claims

is discretionary, and the Fifth Circuit generally favors dismissal when all federal claims have been

dismissed and only pendent state-law claims remain.

Objecting to the magistrate’s report and recommendation, Preston Hollow argued

that a breach-of-contract claim was precluded because Cottonwood and the City repeatedly

asserted that the loan documents were void. Preston Hollow noted in its objections that it “had

not challenged or disputed in this lawsuit [Cottonwood and the City’s] claim that all agreements

between them are ‘void.’” Here, Cottonwood contends that Preston Hollow’s statement

constituted a “judicial admission” that all the loan documents are void.

On March 31, 2021, the federal district court signed an order and a final judgment

that overruled Preston Hollow’s objections, adopted the magistrate’s recommendation, dismissed

Preston Hollow’s suit with prejudice, dismissed pending motions, awarded court costs to

Cottonwood and the City, and declined to exercise supplemental jurisdiction over their

counterclaims. Preston Hollow appealed.

12

After oral argument, the Fifth Circuit Court of Appeals affirmed the dismissal,

stating that “a government must be acting in its sovereign capacity to effect a taking,” “all of the

misconduct alleged in the complaint involves ‘commercial’ and not ‘sovereign’ acts,” and “any

claim that [Preston Hollow] may have asserted should be a breach of contract claim, not a taking

claim.” When making this ruling, the Fifth Circuit noted, “We do not address what effect, if any,

this dismissal might have on potential claims that are not before us.”

State district-court litigation

In January 2021, while the federal litigation was ongoing, Longhorn Title filed

an interpleader action against Cottonwood and Preston Hollow seeking to deposit the disputed

funds into the registry of the court. See FinServ Cas. Corp. v. Transamerica Life Ins. Co.,

523 S.W.3d 129, 141 (Tex. App.—Houston [14th Dist.] 2016, pet. denied) (noting that “[u]nder

Texas Rule of Civil Procedure 43, a party who receives multiple claims to funds in its possession

may join all claimants in one lawsuit and tender the disputed funds into the registry of the court”);

see also Tex. R. Civ. P. 43 (providing for interpleader).

Cottonwood answered and counterclaimed for conversion against Longhorn Title,

disputing the $60,000 in attorney’s fees paid to Winstead. Next, Cottonwood filed a third-

party claim against Winstead for conversion and civil conspiracy and sought declaratory relief.

Cottonwood then filed a cross-claim against Preston Hollow for breach of contract and TOMA

violations; requested UDJA declarations that the notice of foreclosure, the Interlocal Agreement,

the Loan Agreement, and “related instruments” are void; and sought, among other relief, release

of all liens on the mortgaged property.

13

Preston Hollow then filed its own cross-claims against Cottonwood for breach of

contract, and seeking UDJA declarations that (1) it is the lawful owner of, and is legally entitled

to recover, the $2,554,961.76 at issue in Longhorn Title’s interpleader action, plus an award of

attorney’s fees and expenses; (2) it was legally entitled to foreclose on the mortgaged property;

(3) the Loan Agreement and all other loan documents were valid and enforceable; (4) all liens it

recorded on the mortgaged property were valid and enforceable; and (5) the mortgaged property

was validly purchased by Cottonwood and/or the City.8 Alternatively, if the Loan Agreement and

loan documents were void or unenforceable, Preston Hollow asserted that it was entitled to recover

against Cottonwood under the equitable theories of quantum valebant (for money had and

received)/quantum meruit and implied contract.

The parties filed numerous motions and supporting briefs, including cross-motions

for summary judgment. Preston Hollow filed a traditional summary-judgment motion on the

interpleader claim and on its cross-claim seeking declaration as the lawful owner of the

$2,554,961.76 in escrowed funds. Preston Hollow contended that as a matter of law under the

doctrine of quasi-estoppel, Cottonwood could not maintain a claim to the escrowed funds and

simultaneously seek to void the Loan Agreement. See Forney 921 Lot Dev. Partners I, L.P. v. Paul

Taylor Homes, Ltd., 349 S.W.3d 258, 268 (Tex. App.—Dallas 2011, pet. denied) (noting that quasi-

estoppel precludes party from asserting, to another’s disadvantage, right that is inconsistent with

position previously taken). Preston Hollow asserted that this doctrine barred Cottonwood from

taking the contradictory positions that the Loan Agreement is void, while simultaneously seeking

to recover the escrowed funds under that same Loan Agreement. See San Antonio Sav. Ass’n v.

8

Because PHC, LLC later joined these claims as an Intervenor, we still refer to Preston

Hollow collectively here.

14

Palmer, 780 S.W.2d 803, 810 (Tex. App.—San Antonio 1989, writ denied) (holding that “[I]it

would be unfair and unconscionable to allow plaintiffs to pocket $2,400,000.00 of SASA’s money

while voiding the deed of trust against the Bandera Road property. They are not entitled to keep

both the land and the money. It is as simple as that.”).9

Preston Hollow also filed a separate traditional summary-judgment motion as to its

cross-claims for breach of contract and requested declarations as to the validity and enforceability

of the Loan Agreement, loan documents, and recorded liens on the mortgaged property; the validity

of Cottonwood’s/the City’s purchase of the property; and Preston Hollow’s entitlement to foreclose

on the mortgaged property.10

Cottonwood filed a combined plea in bar and summary-judgment motion and later,

a separate summary-judgment motion, primarily contending, as we will discuss further, that

Preston Hollow’s claims were barred by res judicata or void, that Preston Hollow breached first,

and that Winstead was not entitled to its affirmative defense of attorney immunity.

9

Preston Hollow’s evidence included a declaration from its managing director

Ramiro Albarran, with attached copies of the Term Sheet, Closing Instructions, Loan Agreement,

Note, Environmental Indemnity Agreement, First and Second Deeds of Trust, Interlocal

Agreement, Closing Statement, McGinnis Lochridge attorney Cliff Ernst’s February 14, 2020

email confirming that Longhorn Title should hold funds pending further instruction, Notice of

Default, Request for Return of Escrowed Funds, Response to Request for Return of Escrowed

Funds, Notice of Intent to Foreclose, and Dorothy Palumbo’s May 14, 2020 and May 20, 2020

letters asserting invalidity of the loan documents and requesting stay of foreclosure.

10

Preston Hollow’s evidence included Albarran’s declaration with attached copies of the

Notice of Default, Notice of Intent to Foreclose, Loan Agreement, Note, First and Second Deeds

of Trust, Interlocal Agreement, Closing Statement, Ernst’s February 14 email, Palumbo’s May 14

and May 20 letters, and the opinion letters from McGinnis Lochridge attorney William H. Bingham

stating that the loan documents were Cottonwood’s “valid and binding” obligations and that the

City had taken or obtained all requisite approvals or authorizations as to its obligations.

15

District-court’s interlocutory orders and final judgment

The parties’ litigation resulted in a series of district-court rulings, including:

(1) a November 1, 2021 order granting Winstead’s motion for summary judgment as to its

$60,000 of attorney’s fees, ruling that Cottonwood take nothing on its claims against

Winstead, and dismissing those claims with prejudice;

(2) a November 1, 2021 order granting “Preston Hollow Capital LLC’s Amended Motion for

Summary Judgment,” awarding judgment in Preston Hollow’s favor on all claims asserted

in its original crossclaim, declaring Preston Hollow the lawful owner of the $2,554,961.76

in escrowed funds that were the subject of Longhorn Title’s interpleader petition, and

awarding related attorney’s fees;

(3) a March 14, 2022 order denying Cottonwood’s “Motion to Reconsider Summary Judgment

Order Granting Summary Judgment to Preston Hollow Capital on the Basis of Res

Judicata”;

(4) a July 22, 2022 order denying Cottonwood’s “Plea in Bar on the Basis of Res Judicata and

Motion for Summary Judgment”;

(5) an August 18, 2022 order granting “Preston Hollow Capital LLC and PHCC LLC’s Motion

for Summary Judgment,” awarding judgment in Preston Hollow’s favor on all remaining

issues involving Cottonwood; declaring the validity and enforceability of the loan

documents, and authorizing Preston Hollow to proceed with foreclosure on the real

property pledged as security for Cottonwood’s debt; and

(6) a November 9, 2022 “Final Judgment and Order of Foreclosure”

(i) incorporating and attaching prior orders (ruling in Preston Hollow’s favor as to

its breach-of-contract claim, request for judicial foreclosure, and declaratory

judgment regarding the escrowed funds, loan agreement, and loan documents)

and concluding that Preston Hollow’s equitable claims, pleaded in the

alternative, were moot;

(ii) incorporating and attaching prior orders (ruling in Preston Hollow’s favor as to

Cottonwood’s request for declaratory judgment; claims based on breach of

contract, mutual mistake, violation of TOMA; “Supplemental Claims,” and

requests for injunctive relief, fees, costs, and damages) and ruling that all

claims were dismissed with prejudice and that Cottonwood “shall take nothing

and shall recover no damages on its claims against Preston Hollow”;

(iii) restating the declarations as to the validity and enforceability of the loan

documents and authorizing Preston Hollow to proceed with foreclosure;

16

(iv) awarding Preston Hollow judgment of $18,476,927.26 from Cottonwood

for the unpaid loan principal and accrued but unpaid interest through

September 12, 2022, plus per diem interest under the Loan Agreement of

$7,500 starting September 13, 2022, and continuing until the judgment is

satisfied;

(v) awarding Preston Hollow attorney’s fees and expenses of $784,356.33 from

Cottonwood plus contingent appellate fees of $195,000.00; and

(vi) ordering foreclosure of the mortgaged property, with proceeds of a foreclosure

sale applied to the debt owed to Preston Hollow by Cottonwood.

On the same day that the district court signed the judgment finalizing the interlocutory orders,

the district court granted Cottonwood’s motion to sever its claims against Preston Hollow and

Winstead from Longhorn Title’s interpleader action. See Cottonwood Dev. Corp. v. Longhorn Title

Co., No. 03-23-00032-CV, 2024 WL 1334327, at *2 (Tex. App.—Austin Mar. 29, 2024, pet.

denied) (mem. op.) (noting severance).

After the final judgment, Cottonwood filed a “Motion to Set Aside Deeds of Trust

Validated Within the Court’s Judgment to Permit the Sale of Property and to Place Net Proceeds

in the Court’s Registry in Sufficient Amounts to Satisfy Judgment in the Event of a Final Judgment

in Favor of Preston Hollow” and a “Motion for Temporary and Permanent Injunction Suspending

the Judgment by Operation of Law and Preventing Issuance of Order of Sale by the District Court.”

The district court denied the motions December 13, 2022, in separate orders.11

11

Cottonwood satisfied the judgment on the eve of a scheduled foreclosure sale, informed

this Court of the payment, and stated its continued interest in this appeal. Cottonwood Dev. Corp.

v. Preston Hollow Cap., LLC, No. 03-22-00735-CV, 2023 WL 2576771, at *1 (Tex. App.—Austin

Mar. 21, 2023, no pet.) (order lifting temporary stay of foreclosure sale).

17

Cottonwood’s appeal

On appeal, Cottonwood presents six issues seeking reversal of the district court’s

rulings in favor of Preston Hollow and Winstead, recovery of the judgment it paid, and remand for

determination of its attorney’s fees. Cottonwood’s first and primary issue asserts the applicability

of res judicata as a bar to all Preston Hollow’s claims. Cottonwood’s second through fifth issues

allege the invalidity of the loan transaction due to TOMA violations, contract zoning, improper

delegation of the City’s authority to a former City Manager, failure to seek and obtain the Texas

Attorney General’s review of the loan transaction, and Preston Hollow’s prior material breach of

the Loan Agreement. Lastly, Cottonwood’s sixth issue alleges that Winstead was not entitled to

summary judgment on its affirmative defense of attorney immunity.

DISCUSSION

Standard of review

“We review summary judgments de novo, viewing the evidence in the light most

favorable to the non-movant, crediting evidence favorable to the non-movant if reasonable jurors

could, and disregarding contrary evidence unless reasonable jurors could not.” Zive v. Sandberg,

644 S.W.3d 169, 173 (Tex. 2022).12 A party moving for traditional summary judgment has the

burden of showing that “there is no genuine issue as to any material fact” and that it is “entitled

to judgment as a matter of law.” Tex. R. Civ. P. 166a(c). By contrast, a party may obtain a no-

12

We review the ruling on Cottonwood’s combined “plea in bar” under the same standard

because it was brought through the summary-judgment process. See Texas Highway Dep’t v.

Jarrell, 418 S.W.2d 486, 488 (Tex. 1967) (noting that res judicata is “a plea in bar” that if sustained

would require take-nothing judgment against claimant); Kelley v. Bluff Creek Oil Co., 309 S.W.2d

208, 214 (Tex. 1958) (noting that final judgment may be obtained on pleas in bar without formal

trial on merits if parties agree or “if recourse is had to the process of summary judgment where

contested fact issues are not present”).

18

evidence summary judgment when “there is no evidence of one or more essential elements of a

claim or defense on which an adverse party would have the burden of proof at trial.” Id. R. 166a(i).

A no-evidence motion “shifts the burden to the nonmovant to present evidence raising a genuine

issue of material fact supporting each element contested in the motion.” JLB Builders, L.L.C. v.

Hernandez, 622 S.W.3d 860, 864 (Tex. 2021).

A genuine issue of material fact exists if it “rises to a level that would enable

reasonable and fair-minded people to differ in their conclusions.” First United Pentecostal Church

of Beaumont v. Parker, 514 S.W.3d 214, 220 (Tex. 2017) (citing Merrell Dow Pharm., Inc. v.

Havner, 953 S.W.2d 706, 711 (Tex. 1997)). Evidence does not create an issue of material fact if

it is “so weak as to do no more than create a mere surmise or suspicion” that the fact exists. Id.

(citing Kia Motors Corp. v. Ruiz, 432 S.W.3d 865, 875 (Tex. 2014)).

Cottonwood’s issues include questions of contract construction. Contract

construction also presents a question of law. Sundown Energy LP v. HJSA No. 3, Ltd. P’ship,

622 S.W.3d 884, 888 (Tex. 2021). “When construing a contract, the court’s primary concern is to

give effect to the written expression of the parties’ intent.” Id. We “presume parties intend what

the words of their contract say,” Pathfinder Oil & Gas, Inc. v. Great W. Drilling, Ltd., 574 S.W.3d

882, 888 (Tex. 2019), and we interpret “contract language according to its ‘plain, ordinary, and

generally accepted meaning’ unless the instrument directs otherwise,” URI, Inc. v. Kleberg County,

543 S.W.3d 755, 764 (Tex. 2018) (quoting Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118,

121 (Tex. 1996)). We do not consider words and phrases in isolation but “consider the entire

writing in an effort to harmonize and give effect to all the provisions of the contract so that none

will be rendered meaningless.” Pathfinder Oil & Gas, 574 S.W.3d at 889.

19

“If a written contract is so worded that it can be given a definite or certain legal

meaning when so considered and as applied to the matter in dispute, then it is not ambiguous.”

URI, 543 S.W.3d at 765. The question of “whether a contract is ambiguous is a question of law

for the court.” North Shore Energy, L.L.C. v. Harkins, 501 S.W.3d 598, 602 (Tex. 2016) (per

curiam). Courts construe unambiguous contracts as a matter of law. Perthuis v. Baylor Miraca

Genetics Labs., LLC, 645 S.W.3d 228, 235 (Tex. 2022). On the other hand, “if the contract is

subject to two or more reasonable interpretations after applying the pertinent construction

principles, the contract is ambiguous, creating a fact issue regarding the parties’ intent.” Plains

Expl. & Prod. Co. v. Torch Energy Advisors Inc., 473 S.W.3d 296, 305 (Tex. 2015). Summary

judgment “is not the proper vehicle for resolving disputes about an ambiguous contract.” Id.

1. Res judicata does not bar Preston Hollow’s claims against Cottonwood

Cottonwood filed a combined plea in bar and summary-judgment motion and later,

a separate summary-judgment motion, contending that it conclusively established the applicability

of res judicata. Cottonwood likewise filed responses to Preston Hollow’s motion and amended

motion for summary judgment, and a motion to reconsider the grant of summary judgment to

Preston Hollow, contending that it raised a fact issue as to the applicability of res judicata.

Res judicata is an affirmative defense that may be raised in a summary-judgment motion. See

Tex. R. Civ. P. 94; Villarreal v. Ramirez, 685 S.W.3d 868, 884 (Tex. App.—San Antonio 2024, no

pet.). Cottonwood’s motions argued that res judicata applied to this case and barred Preston

Hollow from relitigating in state court all claims arising from the Loan Agreement that could have

been brought in the federal-court case.

20

In Texas, the preclusive effect of a federal judgment is determined by federal law.

John G. & Marie Stella Kenedy Mem’l Found. v. Dewhurst, 90 S.W.3d 268, 287 & n.60 (Tex.

2002) (“federal law controls the determination of whether res judicata will bar a later state court

proceeding” (citing Eagle Props., Ltd. v. Scharbauer, 807 S.W.2d 714, 718 (Tex. 1990))). Under

federal law, the doctrine of res judicata bars claims if: (1) the parties are identical or in privity;

(2) the judgment in the prior action was rendered by a court of competent jurisdiction; (3) the prior

action was concluded by a final judgment on the merits; and (4) the same claim or cause of action

was involved in both actions. Lewis-Watson v. Wormuth, No. 23-50538, 2024 WL 277725, at *2

(5th Cir. 2024); Wetherbe v. Texas Tech Univ. Sys., 699 F. App’x 297, 302 (5th Cir. 2017); Eagle

Props., 807 S.W.2d at 718. The first element, as to the identity of the parties, is not disputed.

Cottonwood’s argument focuses on the third and fourth elements, requiring judgment “on the

merits” and the “same claim” in both actions. Preston Hollow argues the second element, requiring

judgment by a “court of competent jurisdiction” that would have had jurisdiction over its state-

court claims, is determinative. We agree with Preston Hollow.

Relying on Federal Rule of Civil Procedure 41(b), Cottonwood contends that the

federal court’s dismissal of Preston Hollow’s takings claim was an adjudication “on the merits”

that barred further litigation in state court. Rule 41(b) provides: “Unless the dismissal order states

otherwise, a dismissal under this subdivision (b) and any dismissal not under this rule—except one

for lack of jurisdiction, improper venue, or failure to join a party under Rule 19—operates as an

adjudication on the merits.” Additionally, Cottonwood contends that Preston Hollow’s subsequent

state-district-court suit involved the “same claims” as the federal-court suit because of the

transactional approach taken toward res judicata. Under the transactional approach, “a final

judgment on an action extinguishes the right to bring suit on the transaction, or series of connected

21

transactions, out of which the action arose.” Barr v. Resolution Tr. Corp., 837 S.W.2d 627, 631

(Tex. 1992) (citing Restatement (Second) of Judgments § 24(1)). Cottonwood’s position is based

on the general rule that “when a cause of action is brought in federal court and there is no

jurisdictional obstacle to advancing claims arising from both federal and state law, but only federal

claims are asserted, the state claims cannot be brought in a subsequent cause of action in state

court.” Eagle Props., 807 S.W.2d at 718.

However, as Preston Hollow points out, there are two exceptions to that general

rule. The exceptions concern the “court of competent jurisdiction” element and are derived from

the Restatement (Second) of Judgments § 25, comment e, which provides that a “subsequent action

based on the state claims will not be precluded” if (1) the federal court did not possess jurisdiction

over the omitted state claims or (2) “having jurisdiction, [it] would clearly have declined to

exercise that jurisdiction as a matter of discretion.” Id. (citing Jeanes v. Henderson, 688 S.W.2d

100, 104 (Tex. 1985); Restatement (Second) of Judgments § 25 cmt. e); accord Piggly Wiggly

Clarksville, Inc. v. Interstate Brands Corp., 83 F. Supp. 2d 781, 792 (E.D. Tex. 2000) (noting

that Restatement (Second) of Judgments § 25 applies to claim-preclusion analysis regardless of

whether first judgment is rendered by federal court or state court).13 The latter exception

13

The Restatement (Second) of Judgments § 25, comment e, states:

A given claim may find support in theories or grounds arising from both state and

federal law. When the plaintiff brings an action on the claim in a court, either state

or federal, in which there is no jurisdictional obstacle to his advancing both theories

or grounds, but he presents only one of them, and judgment is entered with respect

to it, he may not maintain a second action in which he tenders the other theory or

ground. If however, the court in the first action would clearly not have had

jurisdiction to entertain the omitted theory or ground (or, having jurisdiction, would

clearly have declined to exercise it as a matter of discretion), then a second action

in a competent court presenting the omitted theory or ground should be held not

precluded.

22

recognizes that federal courts have discretion to decline the exercise of their “pendent” jurisdiction

over state-law claims when an action presents some claims within the federal court’s jurisdiction

and some state-law claims without an independent basis for federal jurisdiction. See United Mine

Workers v. Gibbs, 383 U.S. 715, 725 (1966).

Res judicata does not preclude presentation of state-law claims that the federal

court either expressly declined or would clearly decline to address through the exercise of its

discretionary “pendent” or “supplemental” jurisdiction. See 18A Charles Alan Wright, Arthur R.

Miller, & Edward H. Cooper, Federal Practice and Procedure § 4436 (3d ed. 2024) (explaining that

federal court’s “[d]iscretionary refusal to exercise supplemental jurisdiction [ ] does not preclude

subsequent action on state-law claims in a state court or in a federal court that has an independent

basis of subject-matter jurisdiction”); El Paso Nat. Gas Co. v. American Petrofina Co., 733 S.W.2d

541, 552 (Tex. App.—Houston [1st Dist.] 1986, writ ref’d n.r.e.) (rejecting res judicata plea and

concluding that prior federal-court judgment did not preclude presentation of state-court claims

because federal court “may have been authorized to accept pendent jurisdiction if it chose, but it

specifically declined to do so”). One reason a federal district court may decline to exercise

supplemental jurisdiction in a civil action is if the court “has dismissed all claims over which it

has original jurisdiction.” 28 U.S.C. § 1367(c)(3). Routinely, federal courts decline to exercise

jurisdiction over pendent state-law claims when the federal claims in the suit are dismissed

pretrial.14

14

See, e.g., Carnegie–Mellon Univ. v. Cohill, 484 U.S. 343, 351 (1988) (noting that

when single federal-law claim is eliminated early in litigation, “the District Court ha[s] a powerful

reason to choose not to continue to exercise jurisdiction”); Lopez v. Lone Star Beef Processors LP,

145 Fed. Appx. 473, 475 & n.18 (5th Cir. 2005) (“Ordinarily, when the federal claims are

dismissed before trial, the pendent state claims should be dismissed as well.” (quoting Wong v.

Stripling, 881 F.2d 200, 204 (5th Cir. 1989))); Parker & Parsley Petroleum Co. v. Dresser Indus.,

23

To show that a federal court “would clearly have declined” to exercise its

discretionary pendent jurisdiction, a party may identify cases indicating the federal court’s practice

of dismissing pendent state-law claims after all federal claims have been dismissed, especially

when the federal-law claims were dismissed at an early stage. See Motient Corp. v. Dondero,

269 S.W.3d 78, 88-90 (Tex. App.—Dallas 2008, no pet.). In Motient, the Dallas Court of Appeals

concluded that Motient met its burden of showing that the federal court “clearly would have

refused to exercise its discretionary supplemental jurisdiction” over state-law claims. Id. at 90.

Motient referenced eight cases in which the same federal-court judge who had dismissed Motient’s

federal suit with prejudice had previously “declined to exercise supplemental or pendent

jurisdiction upon the dismissal of federal claims.” Id. Moreover, because Motient made this

showing, the Dallas Court ruled that Dondero “did not establish the ‘court of competent

jurisdiction’ element of its res judicata affirmative defense as a matter of law” and reversed the

summary judgment erroneously granted in favor of Dondero. Id.

Preston Hollow followed a procedure like the one in Motient. In its opposition to

Cottonwood’s motion to reconsider the summary judgment granted to Preston Hollow and in

its opposition to Cottonwood’s motion for summary judgment, Preston Hollow showed that

(1) federal district court judge Lee Yeakel expressly declined to exercise supplemental jurisdiction

when dismissing Preston Hollow’s takings claim, and (2) in nine other cases, after dismissing

972 F.2d 580, 585 (5th Cir. 1992) (“Our general rule is to dismiss state claims when the federal

claims to which they are pendent are dismissed.”); Preston Hollow Cap., 2021 WL 812114, at *6

(noting that “the Fifth Circuit generally favors dismissal when all federal claims have been

dismissed and only pendant state law claims remain”); Reece v. Murillo, No. 1:21-CV-1146-LY,

2022 WL 1436244, at *5 (W.D. Tex. Apr. 12, 2022) (recommending dismissal of plaintiff’s state-

law claims and noting that “when all federal claims are dismissed prior to trial, the general rule in

this circuit is to decline exercising jurisdiction over the remaining state law claims”), appeal

dismissed, No. 22-50342, 2022 WL 16630284, at *1 (5th Cir. July 12, 2022).

24

federal-law claims, Judge Yeakel also declined to exercise pendent jurisdiction over potential or

pleaded state-law claims.15 See id. Additionally, the Fifth Circuit refused to issue any ruling

addressing the impact of the dismissal of the takings claim on any other potential claims: “We do

not address what effect, if any, this dismissal might have on potential claims that are not before

us.” Preston Hollow Cap., LLC v. Cottonwood Dev. Corp., 23 F.4th 550, 554 n.1 (5th Cir. 2022).

15

See, e.g., C.O-M ex rel. Mendoza v. Round Rock Indep. Sch. Dist., No. A-19-CV-00860-

LY, 2020 WL 10574223, at *2 (W.D. Tex. Sept. 30, 2020) (noting that there were no federal claims

remaining against RRISD and stating that trial court “decline[d] to exercise supplemental

jurisdiction over the Plaintiffs’ pendant Texas state-law claims,” which were dismissed without

prejudice); HCB Fin. Corp. v. McPherson, No. A:18-CV-01120-LY, 2020 WL 5176173, at *5

(W.D. Tex. July 30, 2020) (dismissing plaintiff’s federal RICO claims with prejudice and “as no

other federal claims remain,” declining to exercise supplemental jurisdiction over plaintiff’s state-

law claims); Rudkin v. Roger Beasley Imports, Inc., No. 1:17-CV-849-LY, 2019 WL 12536913, at

*2 (W.D. Tex. Jan. 4, 2019) (dismissing with prejudice plaintiff’s Title VII claim and declining to

exercise supplemental jurisdiction over remaining state-law claims); Razien v. Micro Focus (US),

Inc., No. A-16-CV-1209-LY, 2017 WL 5644381, at *2 (W.D. Tex. July 25, 2017) (dismissing

plaintiff’s federal claims against defendant and declining to exercise supplemental jurisdiction

over remaining state-law claims); Push Up Founds., Inc. v. Austin Hous. Fin. Corp., No. A-16-

CV-1163-LY, 2017 WL 11221431, at *1-2 (W.D. Tex. Feb. 21, 2017) (dismissing plaintiff’s federal

claim with prejudice for failure to state claim and “declin[ing] to exercise supplemental jurisdiction

over any potential state-law claims” in complaint); Lloyd v. Whitlock, No. A-15-CV-551-LY, 2015

WL 13049217, at *1 (W.D. Tex. Aug. 31, 2015) (dismissing with prejudice plaintiff’s federal

claims for failure to state claim, “declin[ing] to exercise supplemental jurisdiction over any

potential state-law claims asserted in Plaintiff’s complaint, and noting that his “allegations at best

would only amount to a potential breach of contract, breach of warranty or Deceptive Trade

Practices claim under Texas state law,” but such state-law claims must be filed in state court); Ross

v. Abbott, No. CV 1:12-CA-0540-LY, 2013 WL 12393981, at *1 (W.D. Tex. Sept. 3, 2013) (“As

all claims are dismissed except the Texas state-law claims alleged by [plaintiff] against Defendants,

the court declines to exercise supplemental jurisdiction over these claims and dismisses them

without prejudice.”); Save Our Springs All. v. Salazar, No. A-10-CA-561-LY, 2010 WL 11569778,

at *4 (W.D. Tex. Dec. 17, 2010) (dismissing with prejudice all plaintiff’s federal claims, declining

to exercise supplemental jurisdiction, and dismissing without prejudice all plaintiff’s state-law

claims); Accutel of Tex., L.P. v. AT&T Corp., No. A-05-CA-353-LY, 2008 WL 11400738, at *3

(W.D. Tex. Mar. 11, 2008) (“When a court dismisses all federal claims before trial, the general rule

is to dismiss any pendent claims. Because the Court finds that summary judgment should be

granted against Plaintiffs on their interstate-access-charge claims, the Court declines to exercise

supplemental jurisdiction over the remaining state-law claims and dismisses those claims without

prejudice.”).

25

Based on Judge Yeakel’s practice of dismissing pendent state-law claims after all federal claims

have been dismissed—consistent with the Fifth Circuit’s general preference for dismissal in such

circumstances—Preston Hollow showed that Judge Yeakel would clearly have declined to exercise

discretionary pendent jurisdiction over any of Preston Hollow’s potential state-law claims after

dismissal of the takings claim. See Motient, 269 S.W.3d at 88-89. Thus, Cottonwood failed to

establish the “court of competent jurisdiction” element of its res judicata affirmative defense.

In its reply brief on appeal, Cottonwood argues that Preston Hollow presented its

evidence of Judge Yeakel’s practices for the first time in opposition to Cottonwood’s motion to

reconsider, and that the district court did not consider such evidence in denying that motion.16

Cottonwood notes that when a motion to reconsider is filed after rendition of summary judgment,

a trial court has discretion to consider the grounds raised in the motion and supporting proof

and reaffirm its summary judgment based on the entire record, or to deny the motion without

considering its substance. See PNP Petroleum I, LP v. Taylor, 438 S.W.3d 723, 729 (Tex. App.—

San Antonio 2014, pet. denied). If there is no indication that a trial court considered evidence

submitted in response to a motion to reconsider, an appellate court should not assume that the

trial court considered it. See id. at 730-31 (noting trial court’s order stated that evidence was

16

Until its reply brief, Cottonwood made no argument responsive to Preston Hollow’s

contention that the federal district court clearly would have declined to exercise its discretionary

pendent or supplemental jurisdiction over any potential state-law claims. “Ordinarily, an argument

asserted for the first time in a reply brief is waived and need not be considered by an appellate

court.” McFadden v. Olesky, 517 S.W.3d 287, 293 n.3 (Tex. App.—Austin 2017, pet. denied)

(internal citations omitted). But the parties joined issue when Preston Hollow fully argued this

supplemental-jurisdiction element of res judicata in its appellee’s brief and Cottonwood replied,

so this argument is properly before us. See id.; Hutchison v. Pharris, 158 S.W.3d 554, 563 (Tex.

App.—Fort Worth 2005, no pet.) (concluding that issue appellant raised for first time in reply brief

was properly before court because parties joined issue when appellee fully argued issue and

appellant replied).

26

struck and not considered); McMahan v. Greenwood, 108 S.W.3d 467, 500 (Tex. App.—Houston

[14th Dist.] 2003, pet. denied) (noting defendants argued to trial court that it could not consider

evidence).

Here, the record indicates that the district court considered the evidence Preston

Hollow presented about Judge Yeakel’s practices. This consisted of nine case-law citations with

summaries of each and copies of those nine cases. The district court expressly stated that it

reviewed “all the case law and briefing” when it notified the parties about the denial of

Cottonwood’s motion to reconsider and sent a copy of the court’s signed order.17 Thus,

Cottonwood’s argument that the district court did not consider the cases that Preston Hollow

provided is incorrect and belied by the record.

Next, Cottonwood states that res judicata applies to Preston Hollow’s state-court

claims because Preston Hollow “judicially admitted the voidness of the underlying contracts” in

the federal litigation.18 However, “judicial admissions are not conclusive and binding in a separate

case from the one in which the admissions were made.” Blankenship v. Buenger, 653 Fed. Appx.

330, 335 (5th Cir. 2016). “A judicial admission ‘has the effect of withdrawing a fact from

contention.’” Id. A question of law for the court is not a “fact” that can be admitted. Id. (rejecting

17

Cottonwood states that Judge Yeakel’s Westlaw Profile Summary shows he presided over

2,075 cases, and that Preston Hollow’s reference to 9 cases is insufficient to show what he would

or would not do. Because Cottonwood does not state what portion of those 2,075 cases involved

dismissals, Cottonwood’s calculation of a percentage using that number is uninformative.

18

In fact, the record reflects that in federal court, Preston Hollow stated that it “had not

challenged or disputed in this lawsuit [Cottonwood and the City’s] claim that all agreements

between them are ‘void.’” Preston Hollow notes that it asserted its takings claim in federal court

not to the exclusion of pursuing state-law claims, but in the context of Cottonwood’s assertions

that their agreements were void. By contrast in state court, Preston Hollow was affirmatively

asserting the validity and enforceability of the Loan Agreement and loan documents and

challenging Cottonwood’s assertions to the contrary.

27

plaintiff’s contention that defendants’ state-court pleading, invoking official immunity afforded to

public officials, constituted judicial admission precluding defendants from taking contrary position

in federal court). “The issue of res judicata is a question of law.” Kinney v. BCG Att’y Search,

Inc., No. 03-12-00579-CV, 2014 WL 1432012, at *9 (Tex. App.—Austin Apr. 11, 2014, pet.

denied) (mem. op.). Making the same error described in Blankenship, Cottonwood points to

Preston Hollow’s alleged “admissions” from another case, about a question of law, i.e., the

voidness of the underlying contracts in this case. The complained-of statements from Preston

Hollow in federal court are not judicial admissions, and they do not support Cottonwood’s

res judicata arguments.

On this record, we conclude that Preston Hollow met its burden of showing that

after dismissal of the takings claim, the federal-district court would clearly have declined to

exercise its discretionary jurisdiction over any state-law claims that might have been raised, based

on the federal court’s practice in other cases. Cottonwood’s plea in bar and summary-judgment

motions did not conclusively establish the applicability of res judicata, and Cottonwood’s

responses to Preston Hollow’s summary-judgment motions and motion to reconsider did not raise

a genuine issue of material fact as to the applicability of res judicata. Thus, we overrule the

portions of Cottonwood’s first through fifth issues asserting that res judicata barred all Preston

Hollow’s claims.

2. Cottonwood did not show that TOMA allows governmental body to sue itself

Cottonwood, a local-government corporation created by the City, contends that it

was entitled to summary judgment on its claim that “[t]he acts taken by the City and [Cottonwood]

were in violation of TOMA.” As a corollary to this contention, Cottonwood asserts that it

28

has standing to bring an action for its own, and the City’s, alleged TOMA violations, which

purportedly voided the loan documents.

Under the Texas Open Meetings Act § 551.142(a), an interested person may bring

an action by mandamus or injunction to stop, prevent, or reverse a violation or threatened violation

of TOMA by members of a governmental body. Tex. Gov’t Code § 551.142(a). Cottonwood says

that it qualifies as an “interested person” under this statute because the Code Construction Act

defines “person” to include a “government or governmental subdivision or agency.” See id.

§ 311.005(2).

However, the TOMA statute distinguishes between the “interested person” who

may bring an action and the “members of a governmental body” who are the subjects of that action.

See id. § 551.142(a). The court in County of Ward v. King, presented with an analogous issue under

a prior version of TOMA, concluded that the open-meeting statute authorizing an “interested

person” to sue for violations conferred no authority on the county attorney to act for the county by

suing the county judge and county commissioners who failed to give notice about the subject

matter of a commissioners’ court meeting. See 454 S.W.2d 239, 241 (Tex. App.—El Paso 1970,

writ dism’d w.o.j.). Cottonwood cites no authority, and we have found none, holding that TOMA

allows a governmental body to sue itself, or more precisely, that a local-government corporation

may sue the governmental entity that created it for alleged TOMA violations. Without first

showing its right to bring the TOMA action, Cottonwood cannot show its entitlement to judgment

as a matter of law on a claim asserting that Cottonwood’s and the City’s alleged failures to comply

with TOMA invalidated the loan documents. We overrule the portion of Cottonwood’s second

through fifth appellate issues contending that it raised a fact issue regarding TOMA violations in

29

response to Preston Hollow’s motion for summary judgment, and that it conclusively established

TOMA violations in support of its summary-judgment motions.

3. Challenges to validity of loan documents

Cottonwood contends that the Term Sheet is void because of “contract zoning,” and

that the loan documents were void ab initio because of the City’s improper delegation of

governmental power to a former City Manager, Odis Jones. On these bases, Cottonwood asserts

that the district court’s final judgment, the order granting Preston Hollow’s summary judgment,

and the order denying Cottonwood’s summary judgment should be reversed.

a. “Contract zoning” not pleaded

Cottonwood’s summary-judgment motion and its response to Preston Hollow’s

summary-judgment motion included an argument that the Term Sheet was void ab initio because

it included a sentence stating that “[t]he City of Hutto agrees to (i) the terms of Section D.6

hereof and (ii) to take the zoning and land entitlement actions set out herein.” Cottonwood

contends that this constituted “illegal contract zoning.” See City of White Settlement v. Super Wash,

Inc., 198 S.W.3d 770, 772 n.2 (Tex. 2006) (explaining that “‘[c]ontract zoning’ occurs when a

governmental entity, such as a city, enters into a binding contract in which it promises to zone land

in a certain way in exchange for a landowner’s promise to use the land in a particular manner” and

that “contract zoning is invalid because, by entering into such agreements, the city impermissibly

abdicates its authority to determine proper land use, effectively bypassing the entire legislative

process.”). However, Cottonwood’s third-party petition failed to plead any claim against

Preston Hollow alleging invalidity of the Term Sheet because it required “contract zoning.” When

Cottonwood first raised this argument in its summary-judgment motion, Preston Hollow pointed

30

out the lack of supportive pleading and objected: “Preston Hollow objects to this argument because

it exceeds the scope of the allegations pleaded in CDC’s [Cottonwood’s] Third-Party Petition.” In

its brief, Preston Hollow again raised the lack of any contract-zoning claim in Cottonwood’s

petition. Cottonwood does not address this pleading deficiency.

It is fundamental that a motion for summary judgment must be supported by the

pleadings on file, and the final judgment of the court must conform to those pleadings. Hernandez

v. Hernandez, 632 S.W.3d 92, 97 (Tex. App.—El Paso 2020, no pet.) (citing Houle v. Casillas, 594

S.W.3d 524, 541 (Tex. App.—El Paso 2019, no pet.)); Elite Towing v. LSI Fin. Grp., 985 S.W.2d

635, 641 (Tex. App.—Austin 1999, no pet.). Without a supportive pleading, Cottonwood’s

contract-zoning argument is unreviewable by this Court. See Hernandez, 632 S.W.3d at 97-98

(concluding that plaintiff who raised argument in response to defendant’s summary-judgment

motion but never raised it as claim in his petition presented nothing for appellate review).

Accordingly, we overrule the portions of Cottonwood’s first, fourth, and fifth issues alleging that

it “conclusively established and raised a fact issue” as to the validity of the Term Sheet because of

contract zoning.

b. “Illegal delegation” to former City Manager Odis Jones

Cottonwood also moved for summary judgment contending that it conclusively

established that the Term Sheet, Loan Agreement, and Omnibus Agreement—executed by

Mayor/Cottonwood Chair Gaul and Assistant City Manager/Cottonwood Board Member

Frankland after former City Manager Odis Jones had separated from the City—were void ab initio

because of illegal delegations of authority to Jones. For this complaint, Cottonwood references

the April 18, 2019 and July 3, 2019 minutes of City meetings during which Jones was authorized

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to negotiate and execute all necessary agreements related to Project Expansion. Cottonwood’s

summary-judgment motion states broadly that illegal delegations to Jones cannot be ratified;

acknowledges his separation from the City before execution of the Term Sheet, Loan Agreement,

and Omnibus Agreement but asserts “that does not save them”; and says “Preston Hollow’s

reliance on the earlier grants of unfettered authority to the ex-city manager” is misplaced.

Jones separated from the City in December 2019, before preparation of the Term

Sheet, Loan Agreement, and other loan documents. Those instruments were separately approved

and executed by Gaul and Frankland for Cottonwood as the contracting party. See, e.g., Southern

Cas. Co. v. Morgan, 299 S.W. 476, 477 (Tex. App.—Fort Worth 1927), aff’d, 12 S.W.2d 200 (Tex.

Comm’n App. 1929) (“An agreement will be enforced, even if it is incidentally or indirectly

connected with an illegal transaction, provided it is supported by an independent consideration.”);

see also B. F. Goodrich Rubber Co. v. Town of Collinsville, 101 S.W.2d 583, 584 (Tex. App.—

Dallas 1937, no writ) (noting that municipal contracts which are not void, but defectively executed

by some officer, body, or board that lacked authority to act because such authority had not been

expressly conferred upon that officer or body by ordinance, may be ratified by acts and conduct

of municipality’s governing body). Cottonwood does not explain how any alleged improper

delegation of authority to Jones for property purchases in April and July 2019—before any

involvement by Preston Hollow—invalidates Cottonwood’s subsequent loan transaction with

Preston Hollow. Cottonwood has the burden to brief issues it wants reviewed on appeal. See Tex.

R. App. P. 38.1(i) (requiring clear and concise argument for contentions made); Flores v. Zimprich,

559 S.W.3d 223, 229 (Tex. App.—El Paso 2018, no pet.). It is a “well-established principle that

an appellate court is not permitted to make a party’s argument for him.” Id. Accordingly, we

overrule the portions of Cottonwood’s first and fifth issues alleging it “conclusively established”

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that the Term Sheet, Loan Agreement, and Omnibus Agreement were void ab initio due to illegal

delegations of authority to the former City Manager.

4. Loan documents are not void due to lack of Texas Attorney General’s approval

Cottonwood contends that the Loan Agreement and all related agreements and

documents are void ab initio because Preston Hollow failed to secure the Texas Attorney General’s

approval of the note, violating Texas Transportation Code § 431.071(a), which states that “[a]

corporation shall submit a bond or note authorized under Section 431.070 and a contract supporting

its issuance to the attorney general for examination.” However, we have previously determined

that “Section 431.071 [of the Transportation Code] provides no consequence for failure to submit

a bond or note to the AG for examination, much less for failure thereafter to obtain AG approval,

and it does not condition the validity or enforceability of the subject instruments on AG approval.”

River Creek Dev. Corp. v. Preston Hollow Cap., LLC, No. 03-23-00037-CV, 2024 WL 3892448,

at *6 (Tex. App.—Austin Aug. 22, 2024, no pet. h.) (mem. op.) (distinguishing express requirement

that corporation merely “submit” subject instrument “for examination” from nonexistent

requirement to “obtain AG approval”).

We noted that if such approval is obtained, a statutory defense is available: “After

approval by the attorney general, a bond, note, or contract may not be contested for any reason.”

Id. (citing Tex. Transp. Code § 431.071(b), (c)). Thus, the potential benefit of a statutory defense

may be lost if the Texas Attorney General’s approval is not sought and obtained, “but loss of

that defense does not—absent express statutory language to the contrary—convert the instrument

into an illegal or void bond, note, or supporting contract.” Id. We overrule this portion of

Cottonwood’s second through fifth appellate issues.

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5. Cottonwood did not raise a fact issue as to Preston Hollow’s prior material breach

Cottonwood alternatively argues that even if the “relevant contracts are not void,”

the final judgment and Preston Hollow’s summary judgment should be reversed because

Cottonwood raised a fact issue regarding Preston Hollow’s prior material breach. We disagree.

In response to Preston Hollow’s summary-judgment motion, Cottonwood argued

that the Loan Documents19 obligated Preston Hollow to fund an initial advance of no less than

$15,000,000 at the closing held on February 14, 2020; that Preston Hollow breached the Loan

Agreement by failing to release the remaining approximately $2.5M owed; that Preston Hollow

had no effective consent from Cottonwood to withhold such funds; and that Cottonwood was

relieved of any duty to perform. See Bartush- Schnitzius Foods Co. v. Cimco Refrigeration, Inc.,

518 S.W.3d 432, 436 (Tex. 2017) (“It is a fundamental principle of contract law that when one

party to a contract commits a material breach of that contract, the other party is discharged or

excused from further performance.”).

Contrary to Cottonwood’s characterization, the summary-judgment evidence

conclusively established that no breach occurred. Preston Hollow’s evidence shows that it

19

The Loan Documents are defined in the Loan Agreement as:

This Agreement, the Note, the Environmental Indemnity Agreement, the Security

Documents, the Interlocal Agreement and any and all other agreements, documents

and instruments now or hereafter executed by Borrower, or any other Person or

party in connection with the Loan evidenced by the Note or in connection with the

payment of the Indebtedness or the performance and discharge of the Obligations,

including without limitation that certain Assignment and Subordination of the

Development Agreement, together with any and all renewals, modifications,

amendments, restatements, consolidations, substitutions, replacements, extensions

and supplements hereof and thereof.

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disbursed the full $15 million into escrow for Cottonwood’s benefit at closing, consistent with the

Loan Agreement. This disbursement is reflected on Line 220 of the Closing Statement:

Preston Hollow’s evidence further showed that the City’s and Cottonwood’s authorized

representatives, including director of economic development Bullock, and McGinnis Lochridge

attorney Ernst, agreed that approximately $2.5 million of these funds could remain in escrow. As

we have noted, on February 14, 2020, Ernst sent an email to Nydegger of Winstead—copied to

Huckabay and Cottonwood Board Members Frankland and Sorrell—confirming that “the

Borrower [Cottonwood] is also agreeable to holding the amount [$2,554,961.76] show[n] on

Line 303 of the Closing Statement in Escrow with the Title Company [Longhorn Title] pending

further joint release instructions further instructions [sic] from the Borrower and Lender [Preston

Hollow].” This escrow agreement was reiterated soon afterward in an email sent the same day

from Bullock to Huckabay, McGinnis Lochridge counsel, Winstead counsel, and Preston Hollow

staff stating, “Borrower agrees funds shown in 3.03 [sic] of closing statement will be held in

escrow until post closing[,] pending post closing instructions from the borrower and lender.”20

That agreement was not a breach; rather, Preston Hollow sent the money where it was told.

Cottonwood did not present contrary evidence to create a fact issue. Thus, we overrule the portion

of Cottonwood’s fourth and fifth appellate issues contending that it raised a fact issue as to its

affirmative defense of an alleged prior material breach.

20

During a subsequent deposition, Cottonwood’s corporate representative and chair Tanner

Rose testified that assistant city manager Byron Frankland had agreed to the withholding of $2.5

million of the original $15 million advance under the loan.

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6. Winstead conclusively established its attorney-immunity defense

Cottonwood contends that the district court erred by granting Winstead’s summary-

judgment motion, which raised the affirmative defense of attorney immunity and asserted that

Cottonwood’s claims were based entirely on Winstead’s conduct during its representation of

Preston Hollow. As the summary-judgment movant on an affirmative defense, Winstead has the

burden of conclusively establishing that attorney immunity bars Cottonwood’s recovery on its

claims. See Taylor v. Tolbert, 644 S.W.3d 637, 645 (Tex. 2022).

In its third-party claim, Cottonwood alleged that Winstead attorney Thurman, as

counsel for lender Preston Hollow, instructed Longhorn Title to pay $60,000 of attorney’s fees to

Winstead at closing out of loan proceeds that Preston Hollow funded; the $60,000 was properly

distributable to Cottonwood; Cottonwood’s Board of Directors did not approve or authorize

making the $60,000 payment at closing; and making the $60,000 payment at closing was contrary

to the Loan Agreement’s provision that Cottonwood “will reimburse” Preston Hollow for its

attorneys’ fees: “Borrower [Cottonwood] will promptly reimburse Lender [Preston Hollow] for

all expenses of Lender, including . . . reasonable attorneys’ fees incurred[.]” Based on these

allegations, Cottonwood pleaded causes of action for conversion and civil conspiracy against

Winstead and requested declarations that Winstead’s conduct was unlawful and illegal:

• Conversion

Cottonwood claimed that Winstead “illegally converted $60,000 by directing

distribution to itself of Winstead[’s] attorney’s fees”;

• Civil Conspiracy

Cottonwood claimed that Winstead conspired with Longhorn by “acting in concert

with Longhorn and having a meeting of the minds with Longhorn to further the tort

of conversion through unlawfully depriving Cottonwood of $60,000 in proceeds

from a Loan Agreement”; and

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• Declaratory Judgment

Cottonwood requested UDJA declarations that (1) “Winstead wrongfully and

illegally converted $60,000 of loan funds that belonged to Cottonwood,”

(2) “Winstead is in wrongful and illegal possession of $60,000 in loan funds

that should be repatriated and transferred to Cottonwood by Winstead,” and

(3) “Winstead engaged in and committed civil conspiracy against Cottonwood,

acting in concert with Longhorn.”

It is undisputed that Cottonwood was not Winstead’s client. McGinnis Lochridge,

not Winstead, represented Cottonwood in the underlying loan transaction between Preston Hollow

and Cottonwood. Cottonwood and Preston Hollow are unrelated and unaffiliated with each

other, and the Loan Agreement specified that the “relationship between Borrower and Lender is

solely that of debtor and creditor.” The loan to Cottonwood from Preston Hollow was an arm’s

length transaction. See Arm’s-Length Transaction, Black’s Law Dictionary (12th ed. 2024)

(“1. A transaction between two unrelated and unaffiliated parties. 2. A transaction between two

parties, however closely related they may be, conducted as if the parties were strangers, so that no

conflict of interest arises.”).

“A lawyer representing a client in an arm’s-length business transaction does not

owe a duty of care to opposing nonclients.” Haynes & Boone, LLP v. NFTD, LLC, 631 S.W.3d

65, 80 (Tex. 2021) (quoting Restatement (Third) of the Law Governing Lawyers § 51 cmt. c).

Under Texas law, attorneys are generally immune from civil liability to nonclients for actions taken

within the scope of legal representation if those actions involve the kind of conduct that attorneys

engage in when discharging their professional duties to a client. Taylor, 644 S.W.3d at 642. The

immunity inquiry focuses on the function and role the lawyer was performing, not the alleged

wrongfulness, or even asserted criminality, of the lawyer’s conduct. Id.

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The attorney-immunity defense applies to claims based on conduct in non-litigation

and litigation contexts. Haynes & Boone, 631 S.W.3d at 79. The only facts required to support

the attorney-immunity defense are the type of conduct at issue and the existence of an attorney-

client relationship at the time that the attorney engaged in the conduct. Taylor, 644 S.W.3d at 645.

We must then decide “the legal question of whether said conduct was within the scope of

representation.” Id. Attorney immunity protects an attorney against a nonclient’s claim when the

claim is based on (1) conduct constituting the provision of legal services involving the unique

office, professional skill, training, and authority of an attorney and (2) the attorney engages in such

conduct to fulfill the attorney’s duties in representing the client within an adversarial context in

which the client and the nonclient do not share the same interests and therefore, the nonclient’s

reliance on the attorney’s conduct is not justifiable. Haynes & Boone, 631 S.W.3d at 78.

Cottonwood asserts that Winstead “provided no evidence” showing that assurance

of payment is “conduct in the scope of representation” and that Winstead “argues for the first time

on appeal that assuring it was paid from the loan proceeds benefited its client ‘by relieving PHC

from the obligation of paying those fees itself.’” We disagree.

Winstead’s summary-judgment evidence showed that Thurman drafted a letter with

instructions for closing the loan transaction and sent it to Longhorn Title. Within the section of

the Closing Statement listing the settlement costs to be “paid from Borrower’s funds at settlement”

was $60,000 in attorney’s fees to Winstead. McGinnis Lochridge attorney Allen had previously

reviewed the Closing Statement and confirmed to Longhorn Title that the fees would be taken out

of the initial advance. Longhorn Title sent the signed Closing Instructions letter to counsel for

both parties and three Preston Hollow employees: Dinan, Benitez, and Hill. Afterward, Winstead

attorney Nydegger sent Winstead’s attorney’s fee invoice to Longhorn Title, the City’s director of

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economic development, and three attorneys at McGinnis Lochridge: Allen, Bingham, and Ernst.

Board Member Frankland, Cottonwood’s authorized representative, signed the Closing Statement

for Cottonwood.

Winstead’s summary-judgment evidence also included Thurman’s declaration,

averring that all her conduct and that of the other Winstead attorneys in connection with the loan,

including preparation and approval of the Closing Instructions letter, delivery of closing-related

materials to McGinnis Lochridge and Cottonwood (including Winstead’s invoice), approval of the

Closing Statement, and closing of the loan, constituted legal services involving the unique office,

professional skill, training, and authority of the attorneys, and that all such conduct was undertaken

solely on behalf of their client, Preston Hollow.

Further, Winstead contended that assuring the payment of those fees at closing

benefited Preston Hollow by relieving it of the obligation to pay those fees itself. Winstead

presented this exact argument to the district court below:

[P]ayment of Winstead’s attorney’s fees at closing was of no special benefit to

Winstead. PHC [Preston Hollow] was obligated to pay Winstead’s attorneys’ fees

whether the loan closed or not. As in most large loan transactions, the borrower

(Cottonwood) agreed in the loan documentation to pay the lender’s (PHC’s)

attorneys’ fees. Both Cottonwood and its counsel signed off on the closing

statement providing that those fees would be paid at closing. The payment of those

fees benefited PHC (Winstead’s client) by relieving PHC from the obligation to pay

those fees itself. Winstead was going to be paid either way. Thus, even if

there were a “self-interest” exception to the attorney immunity doctrine, which

there is not, the exception would not apply to this case. Everything Winstead did

in connection with the loan—including any alleged conduct affecting payment of

PHC’s attorney fee obligation from closing proceeds—was done for PHC’s benefit

as part of Winstead’s skilled representation.

Cottonwood acknowledges that the Loan Agreement required it to pay Preston

Hollow’s attorneys’ fees. Cottonwood’s complaint is about the way that Winstead assured payment

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of those fees, which Cottonwood contends was contrary to the Loan Agreement. But “immunity

focuses on the type of conduct, not on whether the conduct was meritorious in the context of the

underlying suit.” Cantey Hanger, LLP v. Byrd, 467 S.W.3d 477, 481 (Tex. 2015) (quoting Alpert

v. Crain, Caton & James, P.C., 178 S.W.3d 398, 406 (Tex. App.—Houston [1st Dist.] 2005, pet.

denied). For instance, in Cantey Hanger, the Texas Supreme Court held that a complaint about a

law firm’s preparation of transactional, bill-of-sale documents ancillary to a divorce decree, which

shifted tax liabilities, was protected by the attorney-immunity defense, even if those documents

violated the divorce decree. Id. at 485; see also Santiago v. Mackie Wolf Zientz & Mann, P.C., No.

05-16-00394-CV, 2017 WL 944027, at *3 (Tex. App.—Dallas Mar. 10, 2017, no pet.) (mem. op.)

(concluding that attorney-immunity defense applied to borrowers’ claim against lender’s lawyer

who sent acceleration and foreclosure notices to borrowers based on allegedly counterfeit note).

And in U.S. Bank National Association v. Sheena, the Fourteenth Court of Appeals concluded that

attorney immunity barred the lender’s claims against the borrower’s attorney, who knew of the

lender’s interest in certain insurance proceeds, but negotiated the proceeds through his trust

account and disbursed a portion of the proceeds to himself as his attorney’s fee. 479 S.W.3d 475

(Tex. App.—Houston [14th Dist.] 2015, no pet.).

We conclude that the complained-of conduct, involving Winstead’s instructions

to Longhorn Title to pay $60,000 of attorney’s fees to Winstead at closing out of loan proceeds

that Preston Hollow funded, was within the scope of Winstead’s representation. See Taylor,

644 S.W.3d at 645. The signed letter with Winstead’s Closing Instructions was provided before

closing to Winstead’s client, Preston Hollow. The summary-judgment evidence supports that this

conduct constituted “the provision of legal services involving the unique office, professional skill,

training, and authority of an attorney,” and that Winstead engaged in that conduct as part of its

40

representation of Preston Hollow “within an adversarial context in which the client and the non-

client d[id] not share the same interests.” See Haynes & Boone, 631 S.W.3d at 78. Cottonwood’s

arguments challenging the applicability of attorney immunity to its pleaded claims lack record

support and are unpersuasive. Because Winstead conclusively established that attorney immunity

bars Cottonwood’s recovery, summary judgment was proper. We overrule Cottonwood’s sixth and

final issue.

CONCLUSION

Having overruled all of Cottonwood’s appellate issues, we affirm the district court’s

(1) Order denying Cottonwood’s Plea in Bar on Basis of Res Judicata and Motion for Summary

Judgment;

(2) Order granting Preston Hollow Capital LLC’s Amended Motion for Summary Judgment;

(3) Order denying Cottonwood Development Corporation’s Motion to Reconsider Summary

Judgment Order Granting Summary Judgment to Preston Hollow Capital on the Basis of

Res Judicata;

(4) Order granting Preston Hollow Capital, LLC and PHCC LLC’s Motion for Summary

Judgment;

(5) Order granting Winstead PC’s Motion for Summary Judgment;

(6) Final Judgment and Order of Foreclosure;

(7) Order denying Cottonwood Development Corporation’s Motion for Temporary and

Permanent Injunction Suspending the Judgment by Operation of Law and Preventing

Issuance of Order of Sale by the District Clerk; and

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(8) Order denying Cottonwood Development Corporation’s Motion to Set Aside Deeds of

Trust Validated Within the Court’s Judgment to Permit the Sale of Property and to Place

Net Proceeds in the Court’s Registry in Sufficient Amounts to Satisfy Judgment in the

Event of a Final Judgment in Favor of Preston Hollow.

__________________________________________

Darlene Byrne, Chief Justice

Before Chief Justice Byrne, Justices Triana and Theofanis

Affirmed

Filed: November 27, 2024

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