No Double Dipping: Court of Appeals Slashes Damages Award for Breach of Construction Contract

Joy & Yoo Properties, Inc. v. Roeder Holdings, LLC

Dallas Court of Appeals, No. 05-22-00699-CV (November 28, 2023)

Justices Pedersen (Opinion, linked here), Garcia, and Kennedy

Brent M. Rubin

MDK owned a tract of land in Burleson, Texas. In 2009, Joy & Yoo Properties purchased one of the lots on the tract and agreed to construct improvements on the entire tract (not just its lot), including fire lanes, access drives, sewers, and water lines. But the property was never developed according to the agreement. In 2011, the bank foreclosed on MDK’s property, and the bank sold the property to Roeder in 2017. In 2019, Roeder demanded that Joy & Yoo complete the improvements required under the contract with MDK. Roeder sued Joy & Yoo and obtained summary judgment on liability for breach of contract.

The case went to a jury trial on damages, and the jury awarded two measures of damages: $618,718.07, the cost to construct the improvements, and $480,000, the lost value of Roeder’s land without the improvements. The trial court entered a judgment that included both damages measures, totaling $1,098,718.07. Joy & Yoo appealed.

Joy & Yoo argued that the trial court awarded Roeder overlapping measures of damages, resulting in an improper double recovery, and the appeals court agreed. The Court explained that there are two measures of damages for breach of a construction contract: (1) remedial damages, which assess the cost to complete or to repair the subject of the contract; and (2) difference-in-value damages, which assess the difference between the value with the improvements as constructed versus the value had the improvements been constructed according to the contract. Remedial damages are appropriate when the contractor has substantially performed. The difference-in-value measure applies when the contractor has not substantially complied with the contract terms.

The Court of Appeals concluded that remedial damages and difference-in-value damages are alternative measures and held that allowing a party to recover both would be an improper double recovery. Roeder argued that it was proper for the judgment to include both measures of damages, because the remedial damages were direct damages whereas the difference-in-value damages were consequential damages. The Court rejected this argument, concluding the difference-in-value damages are direct damages and noting that Roeder did not plead for consequential damages.

The appeals court therefore vacated the damages award. Because undisputed evidence showed that Joy & Yoo had not substantially performed, the Court remanded to the trial court and instructed it to enter a $480,000 judgment based on the difference-in-value measure and to recalculate interest based on the reduced damages award.

Penny Wise But Pound Foolish. Serving as Your Company’s Registered Agent Can Be Costly in the Long Run

Huffman Asset Management, LLC v. Colter

Dallas Court of Appeals, No. 05-22-00779-CV (November 8, 2023)

Justices Partida-Kipness (Opinion, linked here), Reichek, and Breedlove

Brent M. Rubin

Entities that do business in Texas, like corporations and limited liability companies, must “designate and continuously maintain” a registered agent and a registered office to be served with process. For around $100 annually, an entity can hire a company to serve as its registered agent and provide an address for its registered office. A business owner who faces ever-increasing expenses may be tempted to save costs by personally serving as his or her business’s registered agent and listing the business’s current address as its registered office. But this decision can prove perilous, as it did in this case.

The Colters claimed their apartment was infested by insects and sued their landlord, Prairie Capital, LLC, and its property management company, Huffman Asset Management, LLC. Both entities listed Douglas Huffman as their registered agent. Public filings for Prairie Capital listed a house in Highland Village as its registered office, and Huffman Management’s filing listed an office in Dallas as its registered office. But when the Colters tried to serve Huffman at these addresses, a bank occupied the address listed for Huffman Management and their process server was told Huffman had sold the Highland Village house.

Unable to serve Huffman, the Colters served the Secretary of State, as Texas law allows when a registered agent cannot be located at the registered office. The Secretary of State must then send notice to the “most recent address of the entity on file with the secretary of state” via certified mail. Tex. Bus. Orgs. Code § 5.253. The Secretary of State issued certificates confirming that it forwarded the documents the Colters served to the Highland Village house for Huffman Management and the Dallas office for Prairie Capital and that it later received the documents back “Return to Sender.”

The Colters then obtained a default judgment. The trial court sent a Notice of Default Judgment to the defendants at a Dallas address on San Jacinto Street, which the Colters listed as the defendants’ last known mailing address but was not either defendant’s registered office. The defendants appeared and moved for a new trial. The trial court denied the motion, and the defendants appealed.

On appeal, the defendants argued the Colters’ service on the Secretary of State was invalid because they gave the Secretary of State “bad” addresses. They argued the Colters knew the San Jacinto address was the defendants’ “most recent … address on file with the secretary of state.” Tex. Bus. Orgs. Code § 5.253. The defendants pointed to public information reports filed with the Secretary of State listing the San Jacinto address as each company’s principal place of business. The court of appeals rejected this argument, reasoning that the purpose of § 5.253 and related provisions is to effect service on the designated registered agent at the designated office. The Secretary of State, according to the court, should not have to ignore an entity’s filings about its registered agent and office in favor of a more recent filing not related to service of process.

A $100 annual fee gets a company a registered agent and registered office consistently available during normal business hours at an address that will not change. While this might seem like an easy expense to eliminate because a principal of the business can serve as the registered agent, a company faces a real risk of a default judgment if its registered agent is not actually available for service or if it fails to keep its registered agent information updated with the Secretary of State.

SCOTx: Disagreement Between the Parties—or their Lawyers—Does Not Equal Ambiguity

U.S. Polyco, Inc. v. Texas Central Business Lines Corp.

Supreme Court of Texas, No. 22-0901 (November 3, 2023)

Per Curiam Opinion (linked here)

Ken Carroll

U.S. Polyco and Texas Central disputed the meaning of their land-improvement contract. The Supreme Court of Texas took that as an opportunity to reinforce its repeated admonitions that (1) a court’s “‘primary objective’ when construing private legal instruments … ‘is to ascertain and give effect to the parties’ intent as expressed in the instrument,’” and (2) “[i]n the usual case, the instrument alone will be deemed to express the intention of the parties.” These “principles of contract interpretation,” it emphasized, “are well established and of fundamental importance.”

Here, the parties disagreed about whether certain items were encompassed by the defined term, “TCP Infrastructure Improvements.” The pertinent contractual provision listed some specific items to be included within that definition, but it concluded with, “and other items in or adjacent to the Designated Areas as are agreed upon by [the parties] in writing.” The question, of course, was whether the qualifier—“as are agreed upon by [the parties] in writing”—applied to all items in the series or only to the last entry.

Both the trial court and the court of appeals considered dueling canons of construction to unravel the parties’ dispute: “the series-qualifier canon and the last-antecedent canon.” Because of the absence of a comma before the phrase “as are agreed upon by [the parties] in writing,” both courts concluded the “last antecedent canon” controlled—an analysis and conclusion with which the Supreme Court agreed. But, while the trial court then found the contract to be unambiguous and enforced its interpretation as a matter of law, the appeals court held that, “[t]he record demonstrates that the parties strongly disagree about the intent of [the contractual provision] and its application,” and it therefore “conclude[d] that [the contract] is ambiguous and cannot be construed as a matter of law.”

Without hearing oral argument, the Supreme Court granted the Petition for Review and reversed the court of appeals. “[L]ike all other considerations beyond the contract’s language and structure,” it said, “parties’ ‘disagreement’ about their intent is irrelevant to whether that text is ambiguous.” “If lawyerly disagreement about text meant that a legal instrument’s disputed meaning must be resolved as a matter of fact,” the Court warned, “it would be a poor advocate who could not obtain a jury trial to interpret the text.” Instead, “[c]oncluding that a legal instrument is insolubly ambiguous must always come after a court has exhausted all the traditional tools of interpretation and still cannot reach a definitive conclusion about the meaning conveyed by the text.”

As Long as There’s a Plan—Resolving Defenses after Class Certification

Topletz v. Choice

Dallas Court of Appeals, No. 05-22-00781-CV (August 22, 2023)

Justices Carlyle (Opinion, linked here), Goldstein, and Kennedy

Brent M. Rubin

Topletz owns roughly 225 rental houses. The City of Dallas sued Topletz for various code violations. Several Topletz tenants intervened in 2016, asserting claims individually and on behalf of a class, alleging, among other things, that Topletz’s standard lease omitted certain language about tenant remedies required by Texas Property Code § 92.056(g) and improperly shifted certain repair duties from Topletz to the tenants in violation of § 92.006 of the Property Code. In a lengthy order, the trial court certified a class, and Topletz brought an interlocutory appeal.

The Court of Appeals affirmed in part and reversed in part. Citing the Supreme Court of Texas’s recent decision in American Campus Communities, Inc. v. Berry, 667 S.W.3d 227 (Tex. 2023), the Court of Appeals held that the class could not proceed on its claims for the missing lease language under § 92.056(g) because mere failure to include the language is not actionable. But the court affirmed part of the order deciding the class could proceed on its § 92.006 claims relating to waiver of the landlord’s repair duties.

Topletz also argued that class certification was not proper because the class included members whose claims were barred by limitations. The class definition included all who signed the standard lease from 2008 to present, and Topletz claimed the four-year limitations period barred all claims that had accrued more than four years before the named plaintiffs intervened in 2016. The court disagreed, explaining that a trial court need not resolve the merits of a defense before certifying a class. Rather, a certification order must only explain how a defense will be tried. The trial court’s certification order addressed how it intended to resolve limitations after certification, and Topletz did not identify any specific defects in that part of the trial court’s certification order. Therefore, the Court affirmed certification with respect to the § 92.006 claims about waiver of repair duties.

Arbitration: Where's the Agreement with the Plaintiff?

Fox v. The Rehabilitation & Wellness Centre of Dallas, LLC, et al.

Dallas Court of Appeals, No. 05-21-00904-CV (June 5, 2023)

Justices Molberg (Opinion), Partida-Kipness, and Carlyle

Neil R. Burger

Roger Fox brought wrongful death and survivor claims on behalf of his deceased wife, Karen. Defendants moved to compel arbitration based on an agreement signed by Roger—not Karen. The trial court granted Defendants’ motion to compel arbitration and dismissed all claims.

The issue before the Court was simple: Did Defendants “meet their initial evidentiary burden to prove the existence of a valid, enforceable arbitration agreement?” No, they did not.

The Court noted that the trial court did not hold an evidentiary hearing, did not consider any affidavits, and did not admit any evidence into the record. Instead, the only items before it were unauthenticated documents attached to the filings. Although the parties apparently ignored this evidentiary problem in both the trial court and on appeal, which would have been dispositive had he raised it, the Court recognized another fundamental problem: there was no evidence that Roger signed the agreement on Karen’s behalf. Therefore, even assuming the contract had been authenticated and admitted, Defendants did not meet their burden under principles of contract law and agency, which require the agent’s (Roger’s) authority to be established through the principal’s (Karen’s) conduct. Roger’s signature, accompanied by language in the agreement purportedly stating Roger was acting as Karen’s agent, did not suffice.

The Court thus reversed the order compelling arbitration and remanded the case to the trial court for further proceedings.

Rule 91a: “Just the Facts Pleadings, Ma’am” … Even if It’s Not Briefed?

Davis v. Homeowners of American Insurance Co.

Dallas Court of Appeals, No. 05-21-00092-CV (May 31, 2023)

Justices Molberg (Opinion, linked here), Pedersen (Dissent, linked here), and Kennedy

Ken Carroll

A defendant insurer successfully moved to dismiss the plaintiff’s claims under Rule 91a, based on limitations. But the Dallas Court of Appeals reversed, 2-1. The problem? The insurer’s motion to dismiss relied heavily on a variety of documents submitted with that motion to establish the limitations point. Rule 91a, however, expressly provides that a “court may not consider evidence in ruling on the motion and must decide the motion based solely on the pleading of the cause of action.” “In the Rule 91a context, only the non-movant’s pleading may be looked to when determining whether the cause of action pleaded has a basis in law.” A Rule 91a motion to dismiss, the Court explained, “is not a substitute for … summary judgment,” and so “the court may not resort to evidence proffered by the movant, such as through affidavits, transcribed testimony, or documents.” The majority therefore reversed the Rule 91a dismissal, but cautioned that it was not addressing the merits of the limitations argument, which might yet succeed on summary judgment.

Seems straightforward, right? So, why a dissent? Well, said Justice Pedersen, the plaintiff did not preserve error in the trial court. More specifically, the plaintiff did not object to the trial court’s considering the movant-insurer’s proffered documentary evidence, choosing instead to argue the merits of the insurer’s argument and the “evidentiary value” of the documents on which it relied. “Issues not timely preserved for appeal are waived,” and the procedural misstep identified by the majority wasn’t objected to or otherwise preserved in the trial court here.

Compounding the problem, the plaintiff-appellant did not raise the Rule 91a pleadings/evidence issue on appeal. That, argued Justice Pedersen, also should have precluded the majority’s decision. Per the Texas Supreme Court in Pike v. Texas EMC Management, “Our adversary system of justice generally depends ‘on the parties to frame the issues for decision and assign[s] to courts the role of neutral arbiter of matters the parties present.’” 610 S.W.3d 763, 782 (Tex. 2020) (quoting Greenlaw v. United States, 554 U.S. 237, 243 (2008) (discussing the “party presentation principle”)). “A court of appeals may not reverse a trial court judgment on a ground not raised” on appeal. Id. “Accordingly,” said Justice Pedersen, “this Court’s precedent … prohibits our panels from reversing trial court judgments on unassigned, nonfundamental error”—as he contended the majority did here.

Curiously, the majority opinion does not respond to the dissent’s preservation and waiver arguments.

TRO Void Because the Order Failed to Comply with Rules 680, 683, 684

In re St. Mark’s School of Texas

Dallas Court of Appeals, No. 05-23-00369-CV (May 3, 2023)

Justices Partida-Kipness, Carlyle, and Garcia (Opinion, linked here)

Ken Carroll

This mandamus from a dispute about a high schooler’s AP statistics grade was marked by a number of procedural oddities—including the plaintiff high schooler, rather than his attorney, putatively signing the certificate of conference for the TRO. In directing the trial court to vacate its order, the Dallas Court of Appeals drove home a number of important reminders for those drafting proposed TROs:

• An order that is functionally a TRO will be treated as one, regardless of its title. Here, the plaintiff filed an “Emergency Ex Parte Motion for Temporary Injunctions [sic]” and the trial court’s order was similarly styled. But because it was issued without notice or a hearing and set a further hearing about the continuation of the injunctive relief pending trial, it was functionally a TRO.
  
  
• “Mandamus relief is available to remedy a void temporary restraining order.”
  
  
• Rule 680 requires a trial court to explain in its TRO why the order was issued ex parte and without notice—i.e., why “immediate and irreparable injury, loss, or damage will result to the applicant before notice can be served and a hearing had thereon.” The order here did not provide an adequate explanation—and in fact plaintiff’s counsel had emailed defendant’s counsel regarding a discovery issue about an hour before the motion for ex parte relief was filed, but did not mention the soon-to-be-filed request for injunctive relief. Failure to comply with this requirement of Rule 680 rendered the order void.
  
  
• “A TRO that does not identify the imminent, irreparable injury necessitating its issuance is void.” Tex. R. Civ. P. 683. The order here failed to explain this with the required specificity; it was therefore void for this reason, as well.
  
  
• Finally, “[a] TRO that fails to set bond is void and unenforceable.” See Tex. R. Civ. P. 684. Here, the order provided for a bond “in the amount of $0.” The appeals court held this was the equivalent of not setting a bond at all, rendering the TRO “void and unenforceable” for a third reason.

SCOTx: Statute Tolling SOL During Defendant’s “Temporary Absence From [the] State” Doesn’t Really Mean What It Says

Ferrer v. Almanza

Supreme Court of Texas, No. 21-0513 (April 28, 2023)

Opinion by Justice Huddle (linked here), Dissent by Justice Busby (here)

Ken Carroll

Civil Practice & Remedies Code § 16.063—entitled “Temporary Absence From State”—provides, “The absence from this state of a person against whom a cause of action may be maintained suspends the running of the applicable statute of limitations for the period of the person’s absence.” But what does “absence” mean, under the statute? With apologies to Inigo Montoya, a majority of the Supreme Court of Texas “does not think it means what you think it means.”

Almanza, a Texas resident, argued that limitations barred Ferrer’s claim against her. In response, Ferrer invoked § 16.063 to contend limitations had been tolled during Almanza’s temporary absence from the State to attend college in Massachusetts, bringing the assertion of Ferrer’s claim within the limitations period.

The Supreme Court sided with Almanza, affirming summary judgment on the basis of limitations. It held that, “‘absence from this state’ under Section 16.063 depends not on physical location but, rather, on whether a defendant is subject to personal jurisdiction and service. … If a defendant is subject to personal jurisdiction in Texas and amenable to service, he or she is not absent from Texas under Section 16.063.” Almanza had always been subject to personal jurisdiction and service of process even while away at school and therefore, the Court concluded, § 16.063 tolling did not apply. The majority relied heavily on two of its recent decisions—Kerlin v. Sauceda and Ashley v. Hawkins—which had reached the same result with respect to claims against nonresidents. It acknowledged that “physical location” within the state had been a requirement during much of the time § 16.063 and its predecessors had been in force, beginning back when a defendant’s physical presence within the state was necessary to the exercise of personal jurisdiction and service of process. With the advent of the “minimum contacts” analysis of International Shoe and the long-arm statutes enacted in its wake, physical presence within the state was no longer necessary. And so, the Court reasoned, defendants should be considered “absent” only when they are not amenable to personal jurisdiction or service of process.

Justice Busby dissented, unwilling to follow his colleagues’ apparent departure for the second time in a week from the Court’s longstanding adherence to a “textualist approach, which adheres to the ordinary meaning of the words enacted and leaves statutory updating to the legislative branch” and contractual drafting to the parties. The “ordinary meaning” of “absence,” he said, is the “‘fact of not being where you are usually expected to be,’ or, in a legal sense, the ‘condition of being away from one’s usual place of residence’”—a physical characteristic. “Most people who read this statute would never suspect that ‘absence’ holds the hidden meaning” engrafted by the Court, he argued. Justice Busby contended the Court’s prior rulings in Kerlin and Ashley did not control because those cases involved nonresidents who were subject to service and jurisdiction under the long-arm statute, which gave rise to their “constructive presence” in the state despite their lack of physical presence—a statute that did not apply to Almanza, as a resident. The majority rejected that argument, saying, “If the Legislature intended to limit Section 16.063’s application to Texas residents, it certainly could have said so expressly.” Of course, Justice Busby could be forgiven for thinking, on the other hand, “If the Legislature had intended § 16.063 to apply when a defendant is not ‘subject to personal jurisdiction in Texas [or] amenable to service,’ rather than when she is ‘absent from Texas,’ ‘it certainly could have said so expressly.’”

Rules Are Rules

 Badger Tavern LP v. City of Dallas

Dallas Court of Appeals, No. 05-23-00299-CV (April 20, 2023)

Chief Justice Burns (opinion available here) and Justices Molberg and Goldstein

Kelli Hinson

The rules authorizing interlocutory appeals are strictly construed—really strictly. Rule 168 requires that a court’s permission to appeal an otherwise unappealable order “must be stated in the appealed order.” In this case, the trial court denied a Rule 91a motion to dismiss and then later signed a separate order granting permission to appeal that denial. The Dallas Court of Appeals, relying on the plain language of the rule and similar cases out of other jurisdictions, dismissed the appeal. It held: “[b]ecause the trial court did not sign a single order that both denied appellants’ rule 91a motion to dismiss and granted permission to appeal the order, this Court has no jurisdiction over this appeal.”

SCOTx: Agreeing to Arbitrate According to the AAA Rules Constitutes “Clear and Unmistakable” Agreement to Delegate Questions of Arbitrability to the Arbitrator

TotalEnergies E&P USA, Inc. v. MP Gulf of Mexico, LLC

Supreme Court of Texas, No. 21-0028 (April 14, 2023)

Opinion by Justice Boyd (linked here), Concurrence by Justice Bland (here), Dissent by Justice Busby (here)

Ken Carroll

AAA Commercial Rule 7(a) provides that an arbitrator “shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.” Relying on that passage, the Supreme Court of Texas confirmed what most of us thought we already knew, holding that, “as a general rule, an agreement to arbitrate in accordance with the AAA or similar rules constitutes a clear and unmistakable agreement that the arbitrator,” not a court, “must decide whether the parties’ disputes must be resolved through arbitration”—i.e., questions of arbitrability. The Court buttressed its pronouncement with a comprehensive review of other courts’ decisions on the issue, which revealed that “the vast majority of federal circuit courts and other state supreme courts have reached this same conclusion.”

But the TotalEnergies arbitration agreement came with a wrinkle. It said:

If any dispute or controversy arises between the parties out of this Agreement, the alleged breach thereof, or any tort in connection therewith, … the same shall be submitted to arbitration . . . in accordance with the rules of the AAA and the provisions in this Article.

Justice Busby contended in dissent that the “if” took the agreement out of the “general rule” recognized by the majority. “As a matter of text and logic,” he argued, “the ‘if’ clause is a substantive condition precedent to arbitrators acquiring the power to decide anything at all .…, including any issues … regarding [their] jurisdiction.” At the very least, he concluded, this “if” precondition precluded a determination that the parties had “clearly and unmistakably” agreed to delegate questions of arbitrability to the arbitrators unless and until a court first found the precondition to have been met. And, as both he and the majority acknowledged, it appears the Second and Fifth Circuits agree with that analysis.

The majority, however, rejected that argument. Just as an arbitration provision is “severable” and to be evaluated separately from the overall contract in which it appears, so also, the Court said, should a delegation clause be considered severable and evaluated separately from the overall arbitration agreement. Viewed through this lens, the delegation clause here—incorporating the AAA rules—was absolute and not subject to the “if” precondition. Consequently, the Court held, even under the language of the TotalEnergies arbitration agreement, the parties “clearly and unmistakably” delegated questions of arbitrability to the arbitrator.