Silver Lion, Inc. v. Dolphin Street, Inc., No. 01-07-00370-CV (Tex. App. 5/20/2010)
| Decision Date | 20 May 2010 |
| Docket Number | No. 01-07-00370-CV.,01-07-00370-CV. |
| Parties | SILVER LION, INC., Appellant, v. DOLPHIN STREET, INC. AND R. KENT LARSEN, Appellees. |
| Court | Texas Court of Appeals |
On Appeal from the 157th District Court Harris County, Texas, Trial Court Cause No. 2005-63497.
Panel consists of Justices JENNINGS, HANKS, and BLAND.
Appellant, Silver Lion, Inc. and appellees, Dolphin Street, Inc. and R. Kent Larsen, have filed motions for rehearing of our May 21, 2009 memorandum opinion and judgment. We deny those motions. We do, however, withdraw our May 21, 2009 memorandum opinion and judgment and issue this memorandum and judgment in their stead.
We affirm the trial court's judgment in part, holding that the evidence is legally and factually sufficient to support the trial court's findings that (1) Silver Lion tortiously interfered with the sale of Dolphin Street and (2) Dolphin Street and Larsen did not breach the Lease and Guaranty at issue.
We sustain Silver Lion's fourth issue in part, holding that the trial court properly awarded attorney's fees to Larsen as a signatory to the Guaranty but erred in awarding attorney's fees to Dolphin Street because it was not a signatory to that Guaranty. Accordingly, we reverse that part of the trial court's judgment awarding attorney's fees to Dolphin Street and render judgment in favor of Silver Lion on that issue.
We also sustain Silver Lion's second issue and reverse the trial court's finding that Silver Lion breached the Management Agreement. We render judgment for Silver Lion on Dolphin Street and Larsen's breach of contract claims based upon the Management Agreement and vacate the trial court's award of $100 to Dolphin Street and Larsen.
In April 2002, Silver Lion, as landlord, leased commercial space to Dolphin Street for the operation of a nightclub. The lease agreement ("the Lease") had a five-year term and was secured by a guaranty agreement executed by Larsen, Dolphin Street's owner (the "Guaranty"). Under the Lease, Dolphin Street agreed to pay monthly rent, which would increase on an annual basis, and to pay for maintenance of common areas of the premises.
In November 2002, shortly after opening for business, Dolphin Street fell behind on its rent. In January 2003, Dolphin Street executed a promissory note, assigning Esperanza Martinez a lien on the furniture, fixtures, equipment and other assets of the club in exchange for $163,000. Ms. Martinez then forwarded a check for January's rent to Silver Lion. On January 29, 2003, Doug Butcher, Silver Lion's representative, signed a subordination agreement agreeing that any security interest Silver Lion had or obtained in the future would be subordinated to Martinez's interest.
In March 2003, Larsen informed Butcher that Dolphin Street would not be able to continue to pay rent. Larsen and Butcher agreed that it would be a "win/win" situation for both of them if Butcher managed the club to keep it open until Larsen could find a buyer for the business. They believed that such an arrangement would maintain Dolphin Street as a viable, ongoing business, something Larsen could sell, and assist Butcher by "keeping his premises leased and looking busy and keeping the value up." Larsen and Butcher then entered into a Management Agreement that they both drafted, effective March 31, 2003, under which Silver Lion agreed to pay for the continued operation of the club for 90 days to enable Dolphin Street to "find a buyer for the operations and to maintain continuity of Dolphin Street nightclub, to protect the value of the operations, supporting lease and location and to stop any accrual of additional operating debt on the part of Dolphin Street, Inc." The Lease and Larsen's Guaranty are attached to the Management Agreement. In the Management Agreement, the parties agreed that any potential buyer of the business would be subject to the approval of Silver Lion, and that Silver Lion would not unreasonably withhold that approval.
The Management Agreement directly addressed the issue of future rent that would come due under the existing Lease. Paragraph 5 of the Management Agreement states that Silver Lion would either "forgive or pay as an operating expense all rents due during the period of the agreement." Further, the Management Agreement called for Silver Lion to pay two types of operating expenses: (1) those incurred prior to April 1, 2003—the time Larsen was operating the club—which the Management Agreement called "prior obligations;" and (2) those incurred between April 1, 2003 and the prospective sale of the club—the time Silver Lion was operating the club—which Silver Lion would pay and for which it would not seek reimbursement. As to the first category, the Management Agreement called for Dolphin Street and Larsen to reimburse Silver Lion for "the amount of prior obligations actually paid," less $750. This reimbursement was to be made from the proceeds of the sale of the club. The Management Agreement also stated that the list of "prior obligations" was to be attached to the Agreement, and was to be updated to reflect all of the payments incurred prior to April 1, 2003:
Dolphin Street, Inc. has the supporting Accounts payable (attachment #2) as of 26 March 2003 and Tax Liability. This list does not include an unknown amount owed to Reliant Energy for electricity that has not been billed. It is agreed that this list will be adjusted to include all liabilities that were incurred or payable prior to 01 April 2003 that are not listed (collectively, prior obligations). Landlord warrants that landlord will pay all liabilities Dolphin Street, Inc. may owe to any taxing authority or governmental entity in a manner to avoid incurring additional penalties.
A copy of the Management Agreement was admitted into evidence at trial by both sides. The copy admitted by Dolphin Street and Larsen contained two attachments relating to accounts payable. The first, entitled "Vendor Balance Summary," listed several vendors with outstanding invoices as of March 26, 2003, totaling $20,494.15. Several handwritten codicils addressed various vendors, with Larsen promising to pay certain vendors directly, despite the Management Agreement's requirement that Silver Lion do so, "upon dispursal [sic] of fund [sic] from sale of club." A second document, entitled "Dolphin Street Texas 1st Quarter 2003," listed the taxes Larsen estimated were due to taxing authorities for January, February, and March of 2003, totaling $ 13,955.86.
In contrast, Silver Lion's copy of the Management Agreement did not contain these attachments. Instead, at trial, Butcher testified that he had never seen the attachments to Larsen and Dolphin Street's copy of the Management Agreement, and that those documents did not match his recollection of the list of accounts payable that Larsen gave him at the time they executed the Management Agreement. Butcher testified that a different document had been attached as the list of accounts payable, but that the vendors listed had been substantially similar. The document Butcher testified was attached contained the notation "Insurance Cancelled Apr 03" and indicated that three of the accounts were "paid and current" despite showing a balance. Larsen stated that Butcher himself made those notations.
The Management Agreement also lists several vendors to whom Dolphin Street acknowledged it owed money, and noted that these vendors held personal guarantees from Larsen. Silver Lion promised to keep current on the payments to these vendors "so as to limit credit or legal action against Mr. Larsen." Silver Lion promised to indemnify and hold Larsen harmless from "any and all liabilities, claims and causes of action raised by third parties, taxing authorities or governmental entities which in any way relate to the management of the business of Dolphin Street, Inc. or the operation of Dolphin Street nightclub after the date of this agreement."
Soon after Butcher, on behalf of Silver Lion, began managing the nightclub, he discovered that Dolphin Street and Larsen had not provided him a complete list of accounts payable. Various vendors began demanding past due payments. Butcher testified that the cash flow of the business was so poor that he had his family members work in the business to reduce costs, and that he worked in the club on weeknights as a DJ to save money on entertainment. In May 2003, almost three months after Silver Lion began operating Dolphin Street, the Texas Comptroller placed a freeze on Dolphin Street's assets for failure to pay franchise, sales, and mixed beverage gross receipts taxes. Other expenses incurred during this time also went unpaid, as did obligations incurred prior to Silver Lion's assumption of the nightclub's management. In all, Larsen testified at trial that he eventually paid $32,369.91 in past due debts, penalties, and interest that he claimed were either incurred while Silver Lion was managing the club or were pre-existing debts that Silver Lion had agreed to pay under the Management Agreement. In mid-May, Larsen learned that the insurance on the nightclub had been cancelled because the premiums had not been paid. Based on these developments, Larsen and Butcher agreed to close the nightclub.
Prior to the club's closure, a potential buyer had expressed interest in the business. The buyer, Jack Speer, offered to purchase Dolphin Street from Larsen for $115,000. During the negotiations between Larsen and Speer, Butcher sent Speer's attorney two letters indicating that Dolphin Street owed Silver Lion $19,288.26 in back rent for the months of April, May and June 2003, plus an additional amount for the expenses that Silver Lion had paid on Dolphin Street's behalf. According to Larsen, Butcher stated that Silver Lion would withhold its approval of Speer as a purchaser for the club unless Speer paid Silver Lion for...
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