Aquaplex, Inc. v. Rancho La Valencia, Inc.

• Decision Date: 30 October 2009
• Docket Number: No. 08-0280.,08-0280.
• Parties: AQUAPLEX, INC. and James Edward Jones, Jr., Petitioners, v. RANCHO LA VALENCIA, INC. and Charles R. "Randy" Turner, Respondents.
• Court: Texas Supreme Court

297 S.W.3d 768

AQUAPLEX, INC. and James Edward Jones, Jr., Petitioners, v. RANCHO LA VALENCIA, INC. and Charles R. "Randy" Turner, Respondents.

No. 08-0280.

Supreme Court of Texas.

October 30, 2009.

D. Douglas Brothers, Ben Jay Cunningham, Gary L. Lewis, Amy L. Saberian, George & Brothers, L.L.P., Austin, TX, for Petitioners.

Brian Alan Turner, Law Office of Brian Turner, Craig T. Enoch, James G. Ruiz, Elliot Clark, Winstead PC, Austin, TX, for Respondents.

PER CURIAM.

In this case, we decide whether the evidence presented at trial was legally sufficient to support the award of damages. The trial court believed so and entered judgment on the jury verdict, but the court of appeals reversed, holding that no evidence supported the amount of damages awarded. "[B]ecause there is no legally sufficient evidence to support the entire amount of damages, but there is some evidence of the correct measure of damages," Formosa Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 51 (Tex.1998), we reverse the damages portion of the court of appeals' judgment and remand the case to the court of appeals.

Randy Turner established Rancho La Valencia, Inc. to acquire a piece of land called the Tumbleweed Property located in Austin. Rancho took out a $2.4 million loan from OmniBank to develop the property, with Turner as the guarantor. Problems arose during the development, so OmniBank required Rancho to bring in a new partner before it would continue financing. A Rancho employee put Turner in touch with Eddie Jones who agreed to a joint venture. For purposes of the joint venture, Jones established Aquaplex, Inc. Rancho and Aquaplex (through their representatives Turner and Jones) then signed the Tumbleweed Investment Joint Venture Agreement (JVA), which included the following provisions:

• Contributions: Rancho would contribute the property and existing project; Aquaplex would contribute $400,000.

• Loans: Only Rancho and the property remained responsible for the existing $2.4 million OmniBank loan—Aquaplex had no liability. Aquaplex also made a $644,000 loan to the joint venture, with repayment priority second only to the OmniBank loan.

• Ownership Interest: Aquaplex — 60%; Rancho — 40%.

• Management: Aquaplex would be managing partner and would be paid up to a $6,000 monthly management fee. Aquaplex could make all but "major decisions" without Rancho's approval. One "major decision" was selling any of the development's properties for less than $60,000 per unit. Even in a major decision, however, a partner could not unreasonably withhold its approval.

• Cash Calls: Aquaplex, as managing partner, could issue a cash call when needed and both partners would be responsible for their pro-rata share. If a partner failed to comply with the cash call, then the other partner could either contribute the amount, loan the joint venture the amount, or could seek to dissolve the joint venture.

• Third-party Offers: On an offer of purchase by a third-party of the property, either party that dissented to the sale could make a matching offer to buy the property. If no offer was made, the sale would go through.

Disputes between Aquaplex and Rancho arose soon after the JVA was signed. Aquaplex terminated the project manager and took over the day-to-day management. Aquaplex also demolished the clubhouse, which Rancho had already completed. Aquaplex then issued a cash call under the terms of the JVA, but Rancho refused to contribute. Rancho sued Aquaplex, alleging fraud, breach of duties under the JVA, and conversion and destruction of partnership assets. Rancho claimed that Aquaplex overstated the budgetary needs that led to the cash call and was needlessly destroying property. Aquaplex counter-claimed, alleging frivolous suit, negligent misrepresentation, fraud, breach of the JVA, and breach of warranty. Aquaplex claimed that, prior to the JVA, Rancho misrepresented the status of the project and Rancho's own financial ability to meet continuing financial obligations. In the meantime, Rancho's loan with OmniBank went into default, causing concerns about a potential foreclosure.

The parties proceeded to mediation. They entered into a Rule 11 memorandum of settlement agreement (MSA), which envisioned selling the property or ending the joint venture within six months. The terms of the MSA provided that:

• OmniBank would roll all existing interest into the note and extend it for six months.

• Rancho would deposit $100,000 into an OmniBank account to pay all interest, taxes, and expenses on the property for those six months.

• The property would be listed for six months at $5 million, but that the property could be sold at any price exceeding $4 million. Rancho retained a right of first refusal on any offer.

• Rancho could acquire Aquaplex's interest in the joint venture for $1,645,425 (the approximate amount of Aquaplex's capital contribution, loan, interest, and management fees) at any time in the next six months.

• If the property was not sold or acquired in six months, Rancho's interest passed to Aquaplex.

OmniBank also agreed under a forbearance agreement not to post the property for foreclosure and if the property was not sold, to extend the maturity of the note with interest at the then-existing federal funds rate. The MSA contemplated the later execution of a formal settlement agreement. However, Rancho never established the $100,000 account and a formal settlement agreement was never executed, causing OmniBank's forbearance agreement to lapse.

After the collapse of the settlement, the case proceeded to trial. A few days before trial, Rancho's trial counsel filed a motion to withdraw, claiming that his services were being used to perpetuate a fraud. Rancho then filed for bankruptcy, which temporarily stayed the trial court proceedings. During the bankruptcy, an individual named Jeff Greenberg offered to purchase the Tumbleweed Property (the "Greenberg Offer") for $4.05 million. Rancho refused to consent to the sale and filed a lis pendens on the property to prevent a sale of the property until the dispute was adjudicated. The bankruptcy court later dismissed Rancho's bankruptcy suit as a bad-faith filing. The trial then resumed. Aquaplex amended its petition to include allegations of breach and fraud related to the MSA. At the close of Rancho's case in chief, the court directed a verdict against Rancho on all of its claims, ruling that Rancho breached the MSA as a matter of law for failing to fund the $100,000 account. This left Aquaplex's claims as the subject of the remainder of the trial. In a video deposition shown at trial, Rancho's former attorney testified under the crime-fraud exception about his dealings with Turner. See TEX.R. EVID. 503(d)(1) ("There is no [attorney-client privilege] . . . [i]f the services of the lawyer were sought or obtained to enable or aid anyone to commit or plan to commit what the client knew or reasonably should have known to be a crime or fraud."). The former attorney testified that he discovered that Rancho did not intend to put up the $100,000 deposit required under the MSA and that Rancho was negotiating with bankruptcy attorneys on the side during the settlement process. The jury found that Rancho had breached both the JVA and the MSA and also committed fraud in connection with both. The jury also found that Rancho had assigned its interest in the joint venture to OmniBank in an earlier document.

Aquaplex elected to recover damages for fraud under the MSA and pursued declaratory and injunctive relief for the breach of the JVA. The trial court entered judgment on the jury verdict, which awarded Aquaplex:

• actual damages for fraudulent inducement under the MSA, itemized as:

▸ $597,183.70 for the loss of the Greenberg Offer;

▸ $100,000 for the OmniBank deposit that Rancho failed to set up;

▸ $279,000 for the loss of the forbearance agreement with OmniBank;¹

▸ $35,000 for the amount Aquaplex spent on legal representation during the bankruptcy proceedings.

• punitive damages of $1.5 million under the MSA

• declaratory relief that Rancho had no rights under the JVA because they were divested by either: (1) the MSA; (2) an assignment of the JVA to OmniBank; (3) paragraph 5.2(j) of the JVA;(4) paragraph 5.9 of the JVA

• injunctive relief that Rancho has no rights in the property and cannot interfere with the sale of the property • $283,624 in attorney's fees

• an avoidance of the lis pendens on the property.

Rancho appealed. In its initial opinion, the court of appeals reversed the trial court's judgment, holding that: (1) the single injury doctrine precluded recovery under both the JVA and the MSA;² (2) there was no evidence that fraud relating to the MSA caused damages to Aquaplex; and (3) Aquaplex was barred from punitive damages because it did not prove actual damages. 253 S.W.3d 728, 732-36 (Tex.App.-Amarillo 2007). On rehearing, the court of appeals acknowledged that its initial opinion failed to address the declaratory and injunctive relief awarded for Rancho's breach of the JVA. 297 S.W.3d 781, 783. The court held that there was no evidence supporting this relief and rendered judgment that Aquaplex take nothing. Id. at 783.

The trial court's judgment declared that Rancho no longer had any interest in the joint venture because the interest was divested by one or more of: (1) the MSA; (2) an assignment of Rancho's interest in the joint venture to OmniBank; (3) paragraph 5.2(j) of the JVA;³ or (4) paragraph 5.9 of the JVA.⁴ We agree with the court of appeals that none of these is a proper basis for this relief. First, Aquaplex's counter-claim for declaratory and injunctive relief was premised on breach of the JVA, not the MSA. Second, the unambiguous language of the "assignment" makes clear it was a security interest. It states that Rancho "assigns, transfers and conveys unto OMNIBANK . . . all of Assignor's right, title and interest in and to Assignor's 40%...