N. & W. Ins. Co. v. Sentinel Inv. Grp., LLC

Decision Date31 October 2013
Docket NumberNO. 01-12-00847-CV,01-12-00847-CV
PartiesNORTHERN AND WESTERN INSURANCE COMPANY LTD., Appellant v. SENTINEL INVESTMENT GROUP, LLC, Appellee
CourtTexas Court of Appeals

On Appeal from the 268th District Court

Fort Bend County, Texas

Trial Court Cause No. 11DCV190036

OPINION

Sentinel Investment Group, L.L.C., is a small investment group funded by four individuals. Lured by an investment program that promised regular payment of substantial profits and a guaranteed return of Sentinel's $1.5 million ininvestment principal, Sentinel entered into a Private Placement Agreement (agreement) with Fundacion Vamos Panama (FVP). FVP procured a surety bond from Northern & Western as security for Sentinel's investment.

The investment program did not deliver as promised. Only a few months into the program, Sentinel stopped receiving profit payments. It learned that FVP had been dissolved, its offices were shuttered, and its principal had fled to another country.

Sentinel informed Northern & Western of FVP's failure to make profit payments or return its investment principal, and it demanded payment under the surety bond. Northern & Western refused to pay Sentinel, and Sentinel sued it for breach of contract. Sentinel moved for summary judgment. The trial court granted summary judgment and awarded Sentinel $1.5 million in damages and reasonable attorney's fees. Northern & Western moved for a new trial, which the trial court denied.

On appeal, Northern & Western contends that the trial court erred in: (1) granting summary judgment on Sentinel's breach-of-contract claim; (2) awarding Sentinel $1.5 million in damages; and (3) awarding Sentinel appellate attorney's fees without conditioning the award on a successful appeal. We modifythe judgment to condition the award of appellate attorney's fees on a successful appeal and, as modified, affirm.

Background

In October 2010, Sentinel entered into the agreement with FVP, a Panamanian corporation with offices in Panama. Pursuant to the agreement, Sentinel deposited investment principal of $1.5 million into FVP's Swiss bank account. FVP agreed to invest these funds on behalf of Sentinel and to pay Sentinel seventy percent of future profits in twice-monthly installments. FVP would retain the remaining thirty percent future profits and, after a forty-week term—the duration of the investment program—return to Sentinel its $1.5 million principal amount. The agreement further provided that, if FVP missed one of the twice-monthly profit payments, the "principal amount will be returned [to Sentinel]."

On the same day FVP entered into the agreement with Sentinel, FVP and Northern & Western Insurance Company, Ltd. (Northern & Western) executed a surety bond contract. The surety bond reflects that, in exchange for FVP's payment of $75,000.00, Northern & Western agreed to insure Sentinel against loss of the $1.5 million principal investment "in the event of a breach of the [agreement] by FVP and/or any default of FVP in the performance of its obligations under the [agreement] . . . [Northern & Western] shall, subject to theprovisions of this bond and to the extent that the Deposit Amount is not returned to Sentinel in accordance with the [agreement], discharge to Sentinel any differential between the Deposit Amount and those monies returned to Sentinel relating to such deposit in accordance with the Contract, up to [the $1.5 million] maximum of the Bond Amount."

Sentinel transferred $1.5 million into FVP's Swiss bank account on October 5, 2010. Sentinel received its first payment from FVP on November 1, 2010. Alarmed that the amount was substantially less than FVP had represented Sentinel would receive, Sentinel sent FVP an email complaining about the discrepancy and requesting return of the $1.5 million investment. Sentinel reiterated its demand for return of the investment principal in correspondence sent on November 10 and December 16. In all, Sentinel received four profit distributions from FVP, on November 1, 2010, November 17, 2010, December 1, 2010, and December 17, 2010. Like the first distribution, the later ones were substantially less than the amount Sentinel understood the investment would earn. FVP did not return Sentinel's investment principal.

In correspondence dated February 11, 2011, Sentinel notified Northern & Western of its beneficiary status under the surety bond and claimed $1.5 million under the bond based on a missed payment due on February 1, 2011, thepreviously missed payments, and FVP's failure to respond to Sentinel's demand for the return of its investment principal.

In April 2011, Northern & Western conducted a "financial fraud investigation" into FVP. The investigation revealed that FVP had closed its offices in Panama in November 2010, the corporation had been dissolved in early December 2010, and its principal had fled the country. In a May 2011 letter to Sentinel, Northern & Western claimed that FVP had procured the surety bond by committing fraud and, as a result, the bond was invalid ab initio.

Discussion
I. Standard of Review

The challenged judgment grants Sentinel's traditional motion for summary judgment on its breach-of-contract claim. We review de novo the trial court's ruling on a motion for summary judgment. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009); Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). We take as true all evidence favorable to the non-movant, and we indulge every reasonable inference in the nonmovant's favor. Dorsett, 164 S.W.3d at 661; Provident Life & Accid. Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). Under Texas Rule of Civil Procedure 166a(c), the party moving for summary judgment bears the burden of showing that no genuineissue of material fact exists and that it is entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c); Knott, 128 S.W.3d at 215-16.

II. Rights and Duties Under the Surety Bond

"A surety is a party who promises to answer for the debt of another." Crimmins v. Lowry, 691 S.W.2d 582, 585 (Tex. 1985); Simmons v. Compania Financiera Libano, 830 S.W.2d 789, 792 (Tex. App.—Houston [1st Dist.] 1992, writ denied). Surety bonds provide security for a creditor against an insolvent or otherwise unreliable principal. See Am. Mfg. Mut. Ins. Co. v. Tison Hog Mkt., 182 F.3d 1284, 1288-89 (11th Cir. 1999).

We apply common-law contract principles to interpret surety bonds and determine a surety's liability. Kendziorski v. Saunders, 191 S.W.3d 395, 403 (Tex. App.—Austin 2006, no pet.); see also Geters v. Eagle Ins. Co., 834 S.W.2d 49, 50 (Tex. 1992) ("The liability of a surety is determined by the language of the bond itself."). The construction of a surety bond is a question of law for the court. Augusta Ct. Co-Owners' Ass'n v. Levin, Roth & Kasner, P.C., 971 S.W.2d 119, 123 (Tex. App.—Houston [14th Dist.] 1998, pet. denied) (citing G.H. Bass Co. v. Dalsan Props.—Abilene, 885 S.W.2d 572, 576 (Tex. App.—Dallas 1994, no writ)).

To be enforceable, a surety bond, like any contract, must use sufficiently certain language to enable a court to determine the rights and responsibilities of theparties. See T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 221 (Tex. 1992). Our primary concern in construing a written contract is to ascertain the true intent of the parties as expressed in the instrument. Seagull Energy E & P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342, 345 (Tex. 2006); Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 662 (Tex. 2005). We consider the entire writing in an effort to harmonize and give effect to all of the provisions of the contract so that none will be rendered meaningless. Seagull Energy E & P, Inc., 207 S.W.3d at 345. Contract terms will be given their plain, ordinary, and generally accepted meanings unless the contract indicates a technical or different sense. Dorsett, 164 S.W.3d at 662.

"If a contract as written can be given a clear and definite legal meaning, then it is not ambiguous as a matter of law." Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd's London, 327 S.W.3d 118, 133 (2010); see SAS Inst., Inc. v. Breitenfeld, 167 S.W.3d 840, 841 (Tex. 2005). A contract is ambiguous only if it is subject to two or more reasonable interpretations. Seagull Energy E & P, Inc., 207 S.W.3d at 345; Edascio, L.L.C. v. NextiraOne L.L.C., 264 S.W.3d 786, 796-97 (Tex. App.—Houston [1st Dist.] 2008, pet. denied). A lack of clarity does not create an ambiguity, and not every difference in the interpretation of a contract amounts to an ambiguity. Gilbert Tex. Constr., L.P., 327 S.W.3d at 133. Courts should notrewrite contracts to insert provisions that the parties could have included or imply restraints for which they have not bargained. Tenneco, Inc. v. Enter. Prods. Co., 925 S.W.2d 640, 646 (Tex. 1996); see also Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 162 (Tex. 2003) ("[W]e may neither rewrite the parties' contract nor add to its language.").

To be entitled to summary judgment on its breach-of-contract claim, Sentinel was required to prove, as a matter of law, the essential elements of breach of contract: (1) the existence of a valid contract; (2) performance or tendered performance by the plaintiff; (3) breach of contract by the defendant; and (4) damages sustained as a result of the breach. Simien v. Unifund CCR Partners, 321 S.W.3d 235, 247 (Tex. App.—Houston [1st Dist.] 2010, no pet.); Williams v. Unifund CCR Partners, 264 S.W.3d 231, 235-36 (Tex. App.—Houston [1st Dist.] 2008, no pet.).

A. Default

Northern & Western first contends that the trial court erred in determining that FVP defaulted on the parties' underlying contract. The default clause provides:

1. [FVP] agrees to return the principal sum of USD $1,500,000.00 back to [Sentinel] at the end of the duration of the Private Placement Program, which is a 40 week term.2. The invested Principal will be returned to the investor unless a written
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