Lujan v. Navistar, Inc., 14–14–00345–CV

• Decision Date: 23 June 2016
• Docket Number: NO. 14–14–00345–CV,14–14–00345–CV
• Citation: 503 S.W.3d 424
• Parties: Albert LUJAN d/b/a Texas Wholesale Flower Co., Appellant v. NAVISTAR, INC., Navistar International Corporation, Navistar International Transportation Corp., International Truck and Engine Corporation and Santex Truck Centers, Ltd., Appellees
• Court: Texas Court of Appeals

503 S.W.3d 424

Albert LUJAN d/b/a Texas Wholesale Flower Co., Appellant

v.NAVISTAR, INC., Navistar International Corporation, Navistar International Transportation Corp., International Truck and Engine Corporation and Santex Truck Centers, Ltd., Appellees

NO. 14–14–00345–CV

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

Majority and Dissenting Opinions filed June 23, 2016

Wesley S. Coddou, Ponta Vedra Beach, FL, for appellant.

Richard A. Sheehy, William J. Collins, III, Houston, TX, for appellee.

Panel consists of Justices Jamison, McCally, and Wise

OPINION

Ken Wise, Justice

A purchaser of trucks for use in a wholesale flower business appeals the trial court's grant of two summary judgments in favor of the truck manufacturer and related parties, holding that the purchaser's claims were barred by the trucks' limited warranties and that the purchaser lacked standing to sue after transferring the business's assets to a wholly owned corporation. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

Appellant Albert Lujan has been in the wholesale flower business since about 1988. In 2005, Lujan purchased two wholesale flower businesses operated from a single location in San Antonio. Doing business as Texas Wholesale Flower Company, Lujan sold and delivered perishable floral products and floral hard goods throughout central and south Texas. Because the delivery trucks that came with the businesses were old and past their useful life, Lujan purchased five CF600 trucks manufactured by Navistar, Inc. (Navistar) to replace the existing fleet. Lujan financed and purchased the trucks through Santex Truck Centers, Ltd. (Santex) and took delivery of the vehicles on December 17, 2005.

In June 2006, Lujan decided to incorporate his business, forming Texas Wholesale Flower Co., Inc. (the Corporation). The Corporation's federal income tax return for that year reflected that Lujan made a "section 351" election in which he transferred the assets of his business to the Corporation in a tax-free exchange, after which Lujan retained 100% of the Corporation's stock.¹ The transferred assets included the five CF600 trucks. The Corporation's income tax returns for both 2006 and 2007 represented that the trucks were corporate assets. On March 28, 2008, however, the Texas Secretary of State declared the Corporation's charter or certificate forfeited.

In December 2009, Lujan sued Navistar, Santex, and other entities in his individual capacity, doing business as Texas Wholesale Flower Company. For convenience, we will refer to Navistar, Santex, and the other named defendants collectively as "the Navistar parties."² Lujan alleged that the five CF600 trucks he purchased continually broke down while in service, causing Lujan to lose customers and perishable products. Lujan asserted claims of breach of express and implied warranties and sought damages of about $3.7 million. In later-amended petitions, Lujan added allegations that in February 2008, a representative of the Navistar parties advised Lujan that he must purchase different trucks at a higher price, and that if Lujan did not comply, Navistar would cease to honor its warranty obligations by the end of the month. According to Lujan, he incurred additional debt to purchase the new trucks, rather than suffer injury to his business in the event that the Navistar parties acted on their threat. Lujan alleged that the Navistar parties imposed duress and business coercion that compelled him to submit involuntarily to their demand.

In late September 2013, the Navistar parties filed a "Motion for Summary Judgment Pursuant to Rules 166a(b) and 166a(i)." The basis of the Navistar parties' motion was that Lujan's warranty claims should be dismissed because his warranty rights were disclaimed or, alternatively, that Lujan had no evidence to prove his claims for breach of the alleged warranties.

Within days of the Navistar parties' summary judgment motion, the Corporation filed an intervention, alleging that it was a Texas corporation and that "[b]y section 351 election and transfer, [Lujan] is Intervenor's sole shareholder." The Corporation adopted the allegations Lujan made in his individual capacity and asserted that the Corporation and Lujan had suffered damages in excess of $15 million. The Corporation was represented by the same attorney who was representing Lujan individually in his suit against the Navistar parties.

At the time of the intervention, the case had been on file for nearly four years and was a few weeks away from the scheduled trial date. The Navistar parties moved to strike the intervention as untimely and argued that any claims by the Corporation were barred by limitations.

The Corporation filed a response to the Navistar parties' motion to strike, in which it represented that Lujan transferred all of his wholesale flower company's assets to the Corporation:

On June 12, 2006, at his accountant's recommendation, [Lujan] made an IRS Section 351 election transfer. Pursuant to the election, [Lujan] transferred all of the assets and liabilities of Texas Wholesale Flower Co. to Texas Wholesale Flower Co., Inc., in exchange for 100% ownership of the stock.

The section 351 election was attached to the Corporation's response as evidence of Lujan's transfer of his assets, and the Corporation affirmed that the document was included in the Corporation's 2006 federal income tax return. Later, the Navistar parties would rely on this same document to support their summary judgment motion on standing.

At the hearing on the motion to strike, Lujan's counsel, speaking on behalf of the Corporation, explained that when the Navistar parties requested discovery relating to Lujan's damage model, he saw the Corporation's tax returns and asked Lujan about them. According to counsel, he accepted Lujan's explanation that Lujan never actually transferred legal title to the trucks and did not do anything with the Corporation. Lujan's counsel went on to explain that later, while reading through the 2006 return, he found the section 351 transfer, which he characterized as representing a transfer of all of the sole proprietorship's assets "lock, stock and barrel" and "broom and dustpan ... absolutely everything is transferred over."

Counsel went on to explain that for "a third" of Texas Wholesale Flower Company's existence it was a sole proprietorship, but that the "last two thirds of its existence it was a corporate entity." Counsel further explained that, because the operation of the business did not change in any way, Lujan "never knew that its essential nature had changed." In response to an inquiry from the trial court, however, counsel acknowledged that "on paper" the sole proprietorship and the Corporation were separate entities.

The trial court ultimately granted the Navistar parties' motion to strike, concluding that the Corporation's attempted intervention amounted to a "substantial change in the posture of the suit" that was inappropriate given the length of time since the sale of the trucks had occurred and the years the case had been on file. On appeal, Lujan does not challenge the trial court's ruling on the Corporation's attempted intervention.

Around the same time, Lujan individually filed a motion for leave to file a fourth amended petition containing the same causes of action, but increasing the damages sought to more than $15 million. The trial court denied Lujan's motion for leave after an oral hearing.³

In December 2013, the Navistar parties filed a second motion for summary judgment titled "Defendants' Motion for Partial Summary Judgment Pursuant to Rules 166a(b) and 166a(e)." In this motion, the Navistar parties argued that Lujan individually could not assert a claim for damages because he had transferred his business assets and liabilities to the Corporation, and therefore the Corporation owned any claim for breach of warranties. The Navistar parties supported their motion with four exhibits: (1) Lujan's third amended petition; (2) a copy of the Corporation's certificate of formation, filed in the Office of the Texas Secretary of State; (3) the section 351 election from the Corporation's 2006 federal income tax return showing the transfer of assets on June 12, 2006; and (4) the Secretary of State's declaration that the Corporation's charter or certificate was forfeited on March 28, 2008. A hearing on the Navistar parties' motion was set for Monday, January 27, 2014.

In response to the Navistar parties' contention that Lujan lacked standing to sue because he had transferred his assets to the Corporation, Lujan filed a response and supporting affidavit on January 18, in which Lujan averred in relevant part:

1. At all times I did business as Texas Wholesale Flower Company. At no time have I transferred my assets and liabilities of Texas Whole Flower Company. I did not transfer ownership of my trucks nor my business to a corporation.

* * *

2. Texas Wholesale Flower Co., Inc .... never carried debt obligations to American Express, Navistar Financial Corporation, Texstar Bank, National Plant & Floral, Ford Credit or any other creditor, ... never acquired, owned, held title to nor operated motor vehicles, including the trucks made the basis of my lawsuit against Defendants, ... [and] never conducted business.

Relying on this affidavit, Lujan argued that the Navistar parties' allegation that he transferred his assets and liabilities to a corporation at any time was false. Lujan also argued that Texas law did not recognize the election as an instrument to effect a transfer of assets and liabilities and that the document was not evidence of such a transfer.

On January 24, the Navistar parties filed a reply brief complaining that Lujan's response and affidavit represented a "complete contradiction" of the written and oral representations made to the trial court during the Corporation's attempted intervention just a few months earlier, as well as the evidence Lujan had previously produced to the Navistar parties. The Navistar ...