Dakota Util. Contractors, Inc. v. Sterling Commercial Credit, LLC

• Decision Date: 30 August 2018
• Docket Number: NUMBER 13-16-00538-CV
• Citation: 583 S.W.3d 199
• Parties: DAKOTA UTILITY CONTRACTORS, INC., Appellant, v. STERLING COMMERCIAL CREDIT, LLC and CM Sterling, LLC, Appellees.
• Court: Texas Court of Appeals

583 S.W.3d 199

DAKOTA UTILITY CONTRACTORS, INC., Appellant,

v.STERLING COMMERCIAL CREDIT, LLC and CM Sterling, LLC, Appellees.

NUMBER 13-16-00538-CV

Court of Appeals of Texas, Corpus Christi-Edinburg.

Delivered and filed August 30, 2018

Edward S. Cox, The Cox Law Firm, PLLC, 1300 Norwood Dr. Suite 100, Bedford, TX 76022, for Appellant.

Sandra C. Zamora, Aaron M. Kaufman, Dykema Cox Smith, 1201 Elm St., Suite 3300, Dallas, TX 75270, Melanie L. Fry, Dykema Cox Smith, 112 East Pecan Street, Ste. 1800, San Antonio, TX 78205, for Appellees.

Before Chief Justice Valdez and Justices Rodriguez and Benavides

Opinion by Chief Justice Valdez

Dakota Utility Contractors, Inc. (Dakota), a subcontractor, sued Sterling Commercial Credit, LLC and CM Sterling, LLC (collectively Sterling), an account factor,¹ alleging that Sterling had misapplied construction trust funds. Dakota and Sterling filed cross-motions for traditional summary judgment regarding whether the Texas Construction Trust Fund Act (the Act) applies to factoring companies like Sterling. See TEX. PROP. CODE ANN. §§ 162.001 –.033 (West, Westlaw through 2017 1st C.S.). Dakota contends that Sterling is a "trustee" who is liable for the misapplication of construction funds, whereas Sterling contends that it is exempt from liability under the Act. The trial court granted summary judgment in favor of Sterling.² We affirm.

I. BACKGROUND

Dakota provides directional drilling services. It entered into several subcontract agreements with Dambold & Wilson Pipeline Construction, Inc. (Dambold), a gas pipeline construction company, to furnish its services on several construction projects in Texas. Dambold had a master services agreement with Atmos Energy Corporation pursuant to which Dambold provided pipeline construction, maintenance, and repair services to Atmos. Dakota provided directional drilling services to Dambold on several Texas projects owned by Atmos in Glen Rose, Grandview, Petrolia, Fort Worth, and on a separate project owned by the City of Temple.

Sterling Commercial Credit, LLC originated a factoring relationship with Dambold in November 2013 by executing a Restated Accounts Purchase and Security Agreement with Dambold. Sterling Commercial Credit, LLC immediately assigned its interests in that relationship to CM Sterling, LLC. Under the agreement, Dambold factored its invoices on projects to Sterling in exchange for monetary advances. The agreement contemplated a sale of Dambold’s accounts to Sterling and imposed a repurchase obligation on Dambold for invoices that remained uncollected for a specified period, and that obligation was secured by liens granted in favor of Sterling. Sterling contacted Atmos, as a party who contracted with Dambold, and instructed it that any payments due to Dambold should be paid to Sterling pursuant to the factoring agreement. Sterling advanced over $2 million to Dambold under the agreement.

Dambold ultimately defaulted under its agreement with Sterling, ceased operating, and filed for voluntary bankruptcy. As creditors, Sterling and Dakota filed proofs of claim in Dambold’s bankruptcy proceeding. In the bankruptcy case, Dambold filed adversary proceedings against Atmos and Sterling. The bankruptcy court ultimately approved a settlement between Dambold and Sterling under which Dambold paid Sterling $400,000 and Sterling released all claims against Dambold, including claims pertaining to Dambold’s outstanding receivables. The bankruptcy court thereafter approved a global settlement between Dambold, Atmos, Dakota, and other subcontractors. Under this settlement agreement, Atmos tendered $900,000 to Dambold and Dambold paid Dakota $311,306.26 in partial satisfaction of Dakota’s claim against it. Dakota alleges that Dambold still owes it additional funds for the projects identified above.

Dakota filed the instant lawsuit against Sterling in the 40th District Court of Ellis County, Texas contending that Sterling misapplied construction trust funds owed to Dakota for the Atmos projects. Dakota alleged in relevant part:

The Sterling Defendants, as [agents] of Dambold, [have] received construction payments, trust funds, and/or loan receipts for the improvement of specific real property in the State of Texas. The Sterling Defendants had control or direction of the construction payments, trust funds, and/ or loan receipts, and therefore, [were trustees] pursuant to the provisions of Chapter 162 of the Texas Property Code. The Sterling Defendants intentionally or knowingly or with intent to defraud as defined in § 162.005(1) of the Texas Property Code, directly or indirectly retained, used, disbursed, or otherwise diverted said construction payments, trust funds, or loan receipts without first fully paying all of the current or past due obligations incurred by them individually and by Dambold to the beneficiaries of the construction payments, trust funds, or loan receipts, including Plaintiff. Therefore, the Sterling Defendants have misapplied said construction payments, trust funds, or loan receipts in violation of their fiduciary duties to Plaintiff.

Plaintiff is entitled to recover the misapplied construction payments, trust funds, or loan receipts from the Sterling Defendants, as more particularly set forth above, in an amount of not less than $714,345.00.

In the underlying lawsuit, Dakota and Sterling filed competing motions for summary judgment to have the trial court determine as a matter of law whether the Act, codified in Chapter 162 of the Texas Property Code, applies to factoring companies like Sterling. See TEX. PROP. CODE ANN. §§ 162.001 –.033. The parties filed traditional motions for summary judgment with supporting evidence and entered a "Joint Statement of Undisputed Facts" in support of their competing motions. In its motion for summary judgment, Sterling argued that the Act did not apply to Sterling because either: (1) Sterling was not an "agent" of Dakota’s contractor and, therefore, not a "trustee" under the Act; or, alternatively (2) Sterling was a "lender" to Dakota’s contractor and, therefore, exempt from liability under the Act. In turn, Dakota’s motion for summary judgment asserted that the Act applied to Sterling because Sterling was a "trustee" and was not a "lender." After a hearing, the trial court granted Sterling’s motion for summary judgment and denied Dakota’s motion. The trial court’s judgment does not state the rationale for its decision.

This appeal ensued. Dakota raises two issues on appeal:

Issue Number One: [The Act] imposes fiduciary obligations upon certain parties who receive payments under a construction contract by creating a trust for the protection of those subcontractors, suppliers and materialmen awaiting payment for their work on the project. The Act only imposes liability on a trustee, as defined in the Act, and goes on to expressly exempt lenders from its scope. In granting Sterling’s Motion for Traditional Summary Judgment in its entirety, the trial court found that Sterling, a factoring company in the construction industry, either was not a trustee or was a lender under the Act. Is Sterling an agent of the contractor for whom it collects receivables, and thus a trustee under the Act or, as an account factor, a lender that is exempt from liability under the Act?

Issue Number Two: If the Court holds that Sterling is subject to liability under the Act, then Dakota also asks the Court to hold that the trial court erred in denying Dakota’s Motion for Traditional Summary Judgment. Sterling knowingly directly received and retained the funds it collected from Atmos payable to Dambold under its construction contract with Atmos for improvement of real property in this state without first fully paying Dambold’s current or past due obligations to Dakota, a beneficiary of construction trust funds under the Act. Is Sterling’s failure to pay the current or past due obligations of Dambold owed to Dakota with the funds it directly received from Atmos a misapplication of construction trust funds under the Act?

In response, Sterling contends that the Act does not apply to the funds it received. Sterling argues that it is not a trustee under the Act, or alternatively, that it constitutes a lender under the Act and is thus exempt from its provisions.

II. SUMMARY JUDGMENT

We perform a de novo review of the trial court’s summary judgment. Valence Operating Co. v. Dorsett , 164 S.W.3d 656, 661 (Tex. 2005). A traditional motion for summary judgment is granted only when the movant establishes that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding , 289 S.W.3d 844, 848 (Tex. 2009). On cross-motions for summary judgment, each party bears the burden of establishing that it is entitled to judgment as a matter of law. See City of Garland v. Dallas Morning News , 22 S.W.3d 351, 356 (Tex. 2000). When both parties move for summary judgment and the trial court grants one motion and denies the other, we determine all issues presented and render the judgment that the trial court should have rendered. See Colorado Cty. v. Staff , 510 S.W.3d 435, 444 (Tex. 2017) ; Merriman v. XTO Energy, Inc. , 407 S.W.3d 244, 248 (Tex. 2013).

Additionally, when parties to a lawsuit submit matters in controversy upon stipulated facts, as here, the only issue is whether the trial court properly applied the law to the agreed facts. Cremers v. Hallman , 403 S.W.3d 878, 883–84 (Tex. App.—Texarkana 2013, pet. denied) ; Cent. Mut. Ins. Co. v. KPE Firstplace Land, LLC , 271 S.W.3d 454, 458 (Tex. App.—Tyler 2008, no pet.). When an action is tried on stipulated facts, we generally may not infer or find any facts not conforming to the stipulation. Strasburger Enters., Inc. v. TDGT Ltd. P’ship , 110 S.W.3d 566, 569 (Tex. App.—Austin 2003, no pet.). Because the trial court has no factual issues to resolve when it decides a case on stipulated facts, we indulge no...