Homes v. Kim

• Decision Date: 07 July 2010
• Docket Number: No. 08-08-00029-CV.,08-08-00029-CV.
• Citation: 320 S.W.3d 366
• Parties: PENHOLLOW CUSTOM HOMES, LLC and Steven J. Penhollow, Appellants,v.Cornelius KIM and Jong Kim, Appellees.
• Court: Texas Court of Appeals

320 S.W.3d 366

PENHOLLOW CUSTOM HOMES, LLC and Steven J. Penhollow, Appellants,v.Cornelius KIM and Jong Kim, Appellees.

No. 08-08-00029-CV.

Court of Appeals of Texas El Paso.

March 24, 2010.

Rehearing Overruled July 7, 2010.

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J. Stephen Hunnicutt, Dallas, TX, for Appellants.

J.B. Peacock Jr., Dallas, TX, for Appellees.

Before CHEW, C.J., McCLURE, and RIVERA, JJ.

OPINION

ANN CRAWFORD McCLURE, Justice.

Penhollow Custom Homes, LLC and Steven J. Penhollow appeal from a judgment entered in favor of Cornelius and Jong Kim. For the reasons that follow, we affirm in part and reverse in part.

FACTUAL SUMMARY

Penhollow Custom Homes (PCH) is a custom home builder. Steven Penhollow is the owner and sole employee of PCH. He is not paid a salary by the corporation but takes an owner's draw from the profits. On May 8, 2000, the Kims entered into a contract with PCH for the construction of a new home. At the closing on December 5, 2000, PCH provided the Kims with a limited warranty and assurance that there would be no construction defects, but if there were any defects, they would be fixed at PCH's expense. The Kims moved into the home and soon began to notice problems with the construction, including a leaky roof, slow drains, incomplete interior trim, and a drainage problem in the yard. They contacted PCH regarding their complaints and a dispute arose as to which items PCH had a duty to repair. Some items were repaired but others were not.

The Kims filed suit against PCH and Penhollow seeking equitable rescission, or alternatively, damages for breach of contract, breach of warranty, and unjust enrichment.

In a subsequent amendment, the Kims dismissed the equitable rescission claim. The amended petition included claims for breach of contract, violation of the Residential Construction Liability Act,¹ breach of warranty, fraud, conspiracy, alter ego, and unjust enrichment. ² The jury determined that PCH and Penhollow breached the contract with the Kims, failed to make a timely settlement offer, and breached the warranty. It also found that Penhollow is the alter ego of PCH. The jury found against the Kims on the statutory fraud claim. The trial court entered judgment on the jury's verdict and awarded damages in the amount of $46,100, attorney's fees in the amount of $60,971.75, and prejudgment interest.

RULE 11 AGREEMENT

In their first issue on appeal, Appellants argue that their acceptance on the record of the Kim's request to rescind the contract created a binding Rule 11 agreement which should have been enforced by the trial court. Rule 11 provides that: “Unless otherwise provided in these rules, no agreement between attorneys or parties touching any suit pending will be enforced unless it be in writing, signed and filed with the papers as part of the record, or unless it be made in open court and entered of record.” Tex.R.Civ.P. 11. To comply with Rule 11, the agreement must comply with general contract principles, including a valid offer and acceptance. Two Brothers Trucking v. Modine Manufacturing Company, No. 13-07-00427-CV, 2009 WL 2192682 at *2 (Tex.App.-Corpus Christi, July 23, 2009, no pet.); Alcantar v. Oklahoma National Bank, 47 S.W.3d 815, 819 (Tex.App.-Fort Worth 2001, no pet.). The made-in-open-court exception to Rule 11 requires a statement into the record of the terms of the agreement and the agreement of the parties or their counsel to be bound by it affirmatively stated on the record. Two Brothers Trucking, 2009 WL 2192682 at *2 citing Anderegg v. High Standard, Inc., 825 F.2d 77, 81 (5th Cir.1987).

Appellants assert that a Rule 11 agreement was entered into at a hearing on June 7, 2006 when their attorney stated on the record:

Judge, the plaintiffs have come forth with pleadings, I guess it is, have requested an equitable decision whereby we buy back the house minus the fair rent and property. We will do that. We will request judgment right now for that, the house price of $315,000. We will buy it back for that price, plus all the property taxes that they've paid to date. Not property taxes that would be due later, but property taxes they've paid to date minus the fair market rental value of that home for the time they've been in the house. They've been in the house about 69 months now. Both sides eat their attorney's fees and costs. Fair market rental value can be determined by three appraisers. Take the average of three appraisers and use that as a loan value. Short circuits the whole trial.

The Kims' attorney expressed surprise at this offer and stated, in essence, that it was unacceptable. He informed the court that attorneys' fees were an issue and the Kims wanted to go to trial and make an election after seeing the jury's verdict. The court concluded the hearing by noting they were perhaps “getting close to being able to work out a settlement with this offer, and as you know, juries can be unpredictable.”

Appellants cite no authority, and we are aware of none, for their assertion that an offer to confess judgment on one of the Kims' causes of action creates a Rule 11 agreement. We further find that the parties did not enter into a valid Rule 11 agreement because the Kims' attorney refused to accept the offer on the record. Even if it could be said there was an agreement, Appellants never requested that the trial court enforce it. Consequently, their complaint regarding the court's failure to enforce the Rule 11 agreement is waived. Tex.R.App.P. 33.1; see Rammah v. Abdeljaber, 235 S.W.3d 269, 273 (Tex.App.-Dallas 2007, no pet.)(appellant waived his claim that trial court erred in refusing to enforce Rule 11 agreement where appellant failed to move the trial court to enforce the agreement with sufficient specificity and failed to obtain a ruling). We overrule Issue One.

ALTER EGO FINDING

In their second issue, Appellants challenge the legal sufficiency of the evidence to support the jury's finding that Penhollow is the alter ego of PCH. ³ Appellants argue that there is no evidence to prove that Penhollow used any corporate funds to purchase personal items or to pay personal debts.

In a legal sufficiency review, we credit evidence favorable to the finding if a reasonable fact-finder could, disregard contrary evidence unless a reasonable fact-finder could not, and reverse the fact-finder's determination only if the evidence presented would not enable a reasonable and fair-minded person to reach the judgment under review. City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex.2005). We will sustain the legal-sufficiency challenge if the record reveals: (1) the complete absence of evidence supporting the finding; (2) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to support the finding; (3) the evidence offered to prove the finding is no more than a mere scintilla; or (4) the evidence conclusively establishes the opposite of the finding. Id. at 810-11. More than a scintilla of evidence exists when the evidence presented rises to a level that would enable reasonable and fair-minded people to differ in their conclusions. Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 601 (Tex.2004).

A corporation is a separate legal entity from its shareholders, officers, and directors. Sparks v. Booth, 232 S.W.3d 853, 868 (Tex.App.-Dallas 2007, no pet.). A bedrock principle of corporate law is that an individual can incorporate a business and thereby normally shield himself from personal liability for the corporation's contractual obligations. Willis v. Donnelly, 199 S.W.3d 262, 271 (Tex.2006); Sparks, 232 S.W.3d at 868. Under Section 21.223(a)(2) of the Texas Business Organizations Code, a shareholder may not be held liable to the corporation or its obligees with respect to any contractual obligation of the corporation or any matter relating to or arising from the obligation on the basis that the shareholder is or was the alter ego of the corporation or on the basis of actual or constructive fraud, a sham to perpetrate a fraud, or other similar theory. Tex.Bus. Orgs.Code Ann. § 21.223(a)(2)(Vernon Pamph.2009); Willis, 199 S.W.3d at 272. The liability of a shareholder for a contractual corporate obligation “is exclusive and preempts any other liability imposed for that obligation under common law or otherwise.” Tex.Bus.Orgs.Code Ann. § 21.224; Willis, 199 S.W.3d at 272. Subsection (b) provides that the statutory limitation on a shareholder's liability under subsection (a) does not protect the shareholder if the obligee demonstrates the shareholder caused the corporation to be used for the purpose of perpetrating and did perpetrate an actual fraud on the obligee primarily for the direct personal benefit of the shareholder. Tex.Bus. Orgs.Code Ann. § 21.223(b); Willis, 199 S.W.3d at 272. This proposition generally is referred to as piercing the corporate veil. Sparks, 232 S.W.3d at 868 citing Castleberry v. Branscum, 721 S.W.2d 270, 278 (Tex.1986)(superseded in part by Tex.Bus.Orgs.Code Ann. § 21.223(a)(2)).

The alter ego doctrine is one theory used to pierce the corporate veil. Sparks, 232 S.W.3d at 868 citing Castleberry, 721 S.W.2d at 272. The theory may be applied if there is a unity between the corporation and the individual to the extent that the corporation's separateness has ceased, and holding only the corporation liable would be unjust. Id. As proof of alter ego, a court may consider: (1) the payment of alleged corporate debts with personal checks or other commingling of funds; (2) representations that the individual will financially back the corporation; (3) the diversion of company profits to the individual for his personal use; (4) inadequate capitalization; and (5) other failure to keep corporate and personal assets separate. Mancorp Inc. v. Culpepper, 802 S.W.2d 226, 228 (Tex.1990); Sparks, 232 S.W.3d at 868; Carone v. Retamco Operating, Inc., 138 S.W.3d 1, 13 (Tex.App.-San Antonio 2004, pet. denied). Under...