Bass v. Walker

• Decision Date: 06 March 2003
• Docket Number: No. 14-01-00532-CV.,14-01-00532-CV.
• Citation: 99 S.W.3d 877
• Parties: Edward BASS and Cary L. Bass, Appellants, v. T. Delbert WALKER, Walker Sand, Inc., Ellington Dirt, Inc., Camille Butler, and Ed Robeau, Appellees.
• Court: Texas Court of Appeals

99 S.W.3d 877

Edward BASS and Cary L. Bass, Appellants, v. T. Delbert WALKER, Walker Sand, Inc., Ellington Dirt, Inc., Camille Butler, and Ed Robeau, Appellees.

No. 14-01-00532-CV.

Court of Appeals of Texas, Houston (14th Dist.).

March 6, 2003.

COPYRIGHT MATERIAL OMITTED

Kerry McMahon, Houston, for appellants.

Charles R. Dunn, David A. Carp, Ed Peine, Houston, for appellees.

Panel consists of Chief Justice BRISTER and Justices ANDERSON and FROST.

SUBSTITUTE OPINION

KEM THOMPSON FROST, Justice.

We overrule the motion for rehearing filed by appellants Edward Bass and Cary L. Bass. We withdraw the opinion issued in this case on November 7, 2002, and we issue the following opinion in its place.

Appellants Edward Bass and Cary L. Bass challenge the sufficiency of the evidence supporting the trial court's determination that they brought this derivative suit without reasonable cause. Because there was sufficient evidence that appellants filed suit without reasonable cause and because the trial court did not abuse its discretion in ordering them to pay appellees' expenses under the Texas Business Corporation Act, we affirm the trial court's judgment.

FACTUAL AND PROCEDURAL BACKGROUND

In 1982, T. Delbert Walker, Ed Robeau, Travis Campbell, Dr. E.C. Butler, Dr. G.H. Barfield¹, and a group that included several members of the Bass family formed Ellington Dirt, Inc., for the purpose of acquiring two adjacent tracts of land in southeast Harris County ("the Property"). In that same year, Ellington Dirt purchased the Property and leased it to Walker Sand, Inc., under a 1982 lease entitled "Lease for the Purpose of Removal and Sale of Sand and Related Fill Material" ("the Original Lease"). At all material times, Delbert Walker was the principal stockholder of Walker Sand and the president of both Walker Sand and Ellington Dirt.

The Original Lease contained the following terms:

• The term of the lease was 15 years.

• During the first four years of the lease, Walker Sand would pay Ellington Dirt $0.50 per cubic yard for all sand, fill dirt, and topsoil removed from the Property.

• In the fifth year, this royalty amount would increase to $0.60 per cubic yard, and it would increase by five percent for each year thereafter.

• If Walker Sand failed to pay the royalties as specified in the lease, Ellington Dirt had the right to immediately terminate the lease, re-lease the Property, and, if it desired, bring suit against Walker Sand.

• If Walker Sand did not work the lease or move sand, fill dirt, or topsoil for a period of nine months, Ellington Dirt had the option to terminate the lease.

• Walker Sand agreed to excavate all material on the Property to a depth of 35 feet.

• After Walker Sand completed this excavation, Ellington Dirt would have the option to sell the Property to Walker Sand at fair market value or receive one-tenth of all revenues generated from the operation of a landfill on the Property.

• In connection with the landfill option, Walker Sand agreed to obtain any necessary permits and to comply with the laws applicable to the operation of landfills.

Approximately two years after the Original Lease was signed, a number of problems arose that impacted the operations. First, the economy suffered a downturn. Because of the adverse economic conditions and other factors, the Original Lease was not generating much income. In 1986, Ellington Dirt agreed not to escalate the royalties as provided in the lease. Delbert Walker testified that he told the shareholders of Ellington Dirt that circumstances made it unlikely that a landfill permit could be acquired for the Property. Ellington Dirt never excavated all material on the Property to a depth of 35 feet.

In 1989, the Basses² began to suspect that the Property was being used as a dump site. Edward Bass and Travis Campbell found concrete, rebar, pipe, tires, and other materials on the Property. At a shareholders' meeting in October of 1990, Edward Bass asked Walker about the apparent dumping on the Property. According to Bass, Walker initially denied it, but later stated that seven to ten acres of the Property had been used for dumping and that permits were unnecessary because he dumped only "dirt and crushed concrete." The Basses feared that the material dumped on the Property might be debris from a 1989 explosion at a Phillips Petroleum Plant and, therefore, might contain hazardous waste. Walker testified that he invited the Basses to inspect and test the Property, but instead, Edward Bass resigned from Ellington Dirt's board of directors, and thereafter the Basses filed this lawsuit. The dumping on the Property apparently ceased before the suit was filed in accordance with a resolution passed by the Ellington Dirt shareholders in December of 1990.

In February of 1991, Travis Campbell and the Basses filed this shareholder derivative suit on behalf of Ellington Dirt against Delbert Walker and Walker Sand. At all material times, the Basses were minority shareholders in Ellington Dirt. In their original petition, the Basses alleged derivative-action claims on behalf of Ellington Dirt against Walker and Walker Sand for "breaches of fiduciary duty, bad faith, and fraudulent business transactions." In their petition, the Basses alleged that the defendants "made use of the land, for Defendants' financial gain, without compensating the rightful owner of the land therefor" and that "[a]dditionally, such uses of the land have greatly impaired its market value and subjected the owners of the land to increased liability." They also asserted claims for negligence and fraud and requested exemplary damages in the amount of $500,000. The Basses made no mention of the Original Lease in their petition, nor did they assert any claim for breach of the Original Lease in their original pleading.

Several months after the Basses filed suit, the parties to the Original Lease amended it to provide, among other things, that the royalty payment would remain at $0.50 per cubic yard with no escalations ("the Amended Lease"). The Amended Lease, signed in October of 1991, further provided that Walker Sand would have the right, but not the duty, to excavate 93 acres of the Property to a depth of 35 feet and to move any unmarketable material without payment of royalty. Ellington Dirt approved this Amended Lease after Camille Butler³ and Ed Robeau were elected as directors of the corporation. After this amendment, the Basses amended their pleadings to add Butler and Robeau as defendants, alleging, among other things, that Butler and Robeau breached their fiduciary duties as directors by approving the Amended Lease. Later, the Basses added Olshan Demolishing Company, Inc. and Phillips Petroleum Company as defendants and also asserted additional claims, including an allegation that Walker Sand breached the Original Lease. Appellees/defendants filed a counterclaim against the Basses and Campbell for expenses under article 5.14, section F, of the Texas Business Corporation Act ("article 5.14F").

This case first went to trial in May of 1996. On the second day of trial, Phillips and Olshan settled for $150,000, which went to Ellington Dirt, after deduction for certain fees and expenses. Before submitting the case to the jury, the trial court granted a directed verdict to Walker Sand on all claims except breach of the lease and negligence. The trial court also granted a directed verdict on all claims against Butler and Robeau. The jury considered the remaining issues and found Walker Sand breached the lease; however, the jury found the breach was excused. The jury found no breach of fiduciary duty on the part of Delbert Walker and no negligence on the part of Walker Sand. Finally, as to the counterclaim under article 5.14F, the jury found Campbell and the Basses brought this shareholder derivative suit without reasonable cause.

The parties agreed to try the amount of attorney's fees to the court. Based on its rulings and the jury's findings, the trial court entered judgment in favor of appellees on their counterclaim in the amount of $411,499. The Basses and Campbell appealed to this court. In an unpublished opinion, this court affirmed in part and reversed and remanded in part based on the following holdings: (1) the trial court, not the jury, must determine whether the Basses and Campbell filed this suit "without reasonable cause"; (2) the trial court's failure to conduct a bench trial regarding appellees' counterclaim was reversible error; (3) the trial court did not reversibly err when it overruled the plaintiffs' objections to the jury question regarding excuse of Walker Sand's breach; (4) there was sufficient evidence that Walker Sand was excused from performing under the Original Lease based on the Amended Lease; and (5) the trial court properly granted a directed verdict in favor of Butler and Robeau. See Campbell v. Walker, No. 14-96-01425-CV, 2000 WL 19143, at *3-*14 (Tex.App.-Houston [14th Dist.] Jan. 13, 2000, no pet.) (not designated for publication). This court remanded the case in part for a bench trial on the article 5.14F issues. See id. at *14.

On remand, Campbell settled with appellees for $100,000 and relinquishment of his stock. After conducting a bench trial, the trial court ruled in favor of appellees on their counterclaim, found the Basses had filed the derivative suit without reasonable cause, and awarded appellees a total of $311,499 — the same amount of attorney's fees and expenses awarded in the first judgment minus the $100,000 settlement credit.

ISSUES PRESENTED

On appeal, the Basses present the following issues:

• Did the trial court err in awarding attorney's fees under article 5.14F of the Texas Business Corporation Act because the Basses had "reasonable cause" to bring a shareholder derivative suit as a matter of law?

• Is the evidence legally sufficient or, alternatively, factually sufficient to support the trial court's finding that this...