United States Court of Appeals for the Fifth Circuit United States Court of Appeals Fifth Circuit

FILED June 17, 2021 No. 19-20841 Lyle W. Cayce Clerk

In the Matter of: 3 Star Properties, L.L.C.

Debtor,

SED Holdings, L.L.C.,

Appellee Cross-Appellant,

versus

TM Property Solutions, L.L.C.; Biltmore Funding, L.L.C.; TMPS, L.L.C.; Mark Hyland; Home Servicing, L.L.C.,

Appellants Cross-Appellees,

Don St. John; Howard L. Nations, a Professional Corporation,

Cross-Appellees.

Appeal from the United States District Court for the Southern District of Texas USDC No. 4:17-CV-1655 Case: 19-20841 Document: 00515903518 Page: 2 Date Filed: 06/17/2021

No. 19-20841

Before Haynes, Duncan, and Engelhardt, Circuit Judges. Stuart Kyle Duncan, Circuit Judge: A federal jury found that 3 Star Properties fraudulently sold SED Holdings millions in loans and awarded SED over $14 million in damages. From that verdict, we must untangle a snarled skein of appeals and cross-appeals. We affirm the liability judgment against 3 Star but, concluding the damages award was excessive, we remand for remittitur of the award. We vacate a separate judgment against Home Servicing for breaching a contract to service the loans, and we remand for a new trial on that claim. I. Background A. Facts In 2014, SED contracted with 3 Star to buy 1,235 non-performing residential mortgage loans.1 3 Star made certain representations about the loans—that it was their sole owner, that it had the right to sell them, and that they would be sold “free and clear”—that were not true. In fact, at the time the parties signed the loan sale agreement (“LSA”), 3 Star was a shell company that did not own the loans, had no assets, and did not generate revenue. Three other companies owned the loans: Biltmore Funding (“Biltmore”); TM Property Solutions2 (“TM Property”); and Biltmore Funding II (“Biltmore II”), all of which were partly owned and/or managed by Mark Hyland. Hyland authorized those entities to sell the loans to 3 Star, but only after 3 Star purportedly sold them to SED. Hyland had authorized 3 Star to market the loans to SED and represent it owned them, despite

1 SED is a North Carolina company. 3 Star is a Nevada company based in North Carolina. 2 The parties also refer to an entity named “TMPS.” It is unclear whether TM Property Solutions and TMPS are different entities. Hyland testified the two are interchangeable, and no party distinguishes them. We also treat them as one and the same.

2 Case: 19-20841 Document: 00515903518 Page: 3 Date Filed: 06/17/2021

No. 19-20841

knowing that was untrue. Hyland and James Johnson, 3 Star’s managing member, crafted the 3 Star-SED LSA and agreed to split the profits. SED was in the dark about all of this. Under the LSA’s terms, SED bought the loans for nearly $14 million. SED would pay $2 million in cash at closing, $2 million about a month later, and the balance