Subsea 7 Port Isabel, LLC v. Port Isabel Logistical Offshore Terminal, Inc.

• Court: Texas Court of Appeals
• Writing for the Court: Opinion by Chief Justice Contreras
• Decision Date: 20 June 2019
• Docket Number: NUMBER 13-17-00144-CV
• Citation: Subsea 7 Port Isabel, LLC v. Port Isabel Logistical Offshore Terminal, Inc., NUMBER 13-17-00144-CV (Tex. App. Jun 20, 2019)
• Parties: SUBSEA 7 PORT ISABEL, LLC, Appellant, v. PORT ISABEL LOGISTICAL OFFSHORE TERMINAL, INC., Appellee.

SUBSEA 7 PORT ISABEL, LLC, Appellant, v. PORT ISABEL LOGISTICAL OFFSHORE TERMINAL, INC., Appellee.

NUMBER 13-17-00144-CV

COURT OF APPEALS THIRTEENTH DISTRICT OF TEXAS CORPUS CHRISTI - EDINBURG

June 20, 2019

On appeal from the 107th District Court of Cameron County, Texas.

OPINION

Before Chief Justice Contreras and Justices Rodriguez¹and Benavides

Opinion by Chief Justice Contreras

This is a landlord-tenant dispute centering on the question of whether a subleaseagreement was effectively renewed. The tenant, appellant/cross-appellee Subsea 7 Port Isabel, LLC (Subsea), contends by three issues that the trial court erred in awarding damages and prejudgment interest to the landlord, appellee/cross-appellant Port Isabel Logistical Offshore Terminal, Inc. (PILOT), after a jury found that the sublease was not renewed. PILOT brings eleven unenumerated cross-issues challenging (1) the trial court's failure to award attorney's fees, and (2) a provision in the final judgment allowing Subsea to remove improvements from the subject premises. We affirm in part and reverse and remand in part.

I. BACKGROUND

Subsea is an engineering and construction firm that manufactures and installs undersea oil and gas pipelines. Starting in 2007, PILOT leased around fifty-four acres at the port of Port Isabel, Texas, from the Port Isabel-San Benito Navigation District (PISBND). On April 29, 2008, Subsea entered into an agreement with PILOT to sublease about half of that property (the sublease premises or subject property), to be used as a "spoolbase" for its undersea pipeline operations. The agreement stated that "[t]his Sublease shall commence on May 1, 2008, and terminate on May 31, 2012 (the 'Initial Term')." Section II of the agreement, entitled "Option to Renew," stated in its entirety as follows:

A.

[PILOT] represents and warrants that the PRIME LEASES' [i.e., the leases between PILOT and PISBND] initial term expires May 31, 2012, and that [PILOT] has the right to renew the term thereof for up to four (4) additional five (5) year terms through the exercise of renewal options pursuant to this Sublease.

B.

[Subsea] is hereby granted, subject to the terms hereof, and provided[PILOT] has exercised its option to renew the PRIME LEASES, and further provided that [Subsea] is not in default in any particular under this Sublease beyond any notice and cure period as set forth in this Sublease; up to four (4) options to renew and extend the term of this Sublease for a term of five (5) years (i.e., no more than four options for five years each) on the expiration of the said initial lease term (of five [5] years) under this Sublease, and any additional option term, as appropriate, if exercised.

C.

No later than March 31, 2012 (and each fifth (5th) March 31 thereafter to and including March 31, 2027, if [Subsea] has exercised its option to renew this Sublease) [Subsea] shall advise [PILOT] in writing whether it wishes to exercise its option to renew the Sublease for the subsequent five (5) year-term beginning on June 1 of such year. If [Subsea] notifies [PILOT] that it wishes to renew the Sublease, [PILOT] shall advise [Subsea] in writing whether it will renew the PRIME LEASES for the same five (5) year term by no later than 30 calendar days following receipt of [Subsea]'s notice. If [PILOT] notifies [Subsea] that it has elected to renew the PRIME LEASE, [Subsea]'s election to renew the Sublease shall be binding and irrevocable and the Sublease shall be renewed for the following five (5) year term.

D.

Any such option (if exercised) will be under the same terms, covenants and conditions of this Sublease, so far as is applicable, except as to rental fees (which are addressed in Paragraph VI below), and subject to the exceptions and reservations contained in this Sublease.

As to rental fees, the agreement stated that "[d]uring the 'rental abatement period' (as that term is defined in the PRIME LEASES)," Subsea will pay a base rent of $11,800 per month, and after that period, the base rent will increase to $20,000 per month. The agreement further stated:

In the event of a renewal or extension of this Sublease, through the exercise of options or otherwise, the said rental and related fees shall be subject to adjustment, but at no time shall the monthly rentals or charges be less than the foregoing amounts, and same will be calculated by taking the foregoing amounts and adjusting same in accordance with the Producer's Price Index ("for all goods"), as calculated every five (5) years (i.e., in the fifth [5th] year of the relevant term), in conjunction with an option to renew.

. . . .

Any late payment (i.e., ten days after the due date) will require the paymentof a charge of 10% of the amount due to avoid a default; any holding over beyond the expiration of the said "lease term" (or any extension thereof) will require the payment of pro rata rentals, in accordance with the rates above.

(Brackets and quotation marks in original.) Finally, the sublease agreement provided that any modifications or amendments to the agreement must be in writing and signed by the parties, and "[a]ny oral representations or modifications concerning this instrument shall be of no force or effect."

Also on April 29, 2008, Subsea, PILOT, and PISBND entered into a "Non-Disturbance Agreement" under which PISBND consented to PILOT subleasing the subject premises to Subsea. The "Non-Disturbance Agreement" provided that PISBND and PILOT will not amend or modify their lease agreement "in any way that affects the [Sublease] Premises or [Subsea]'s rights under the Sublease" without Subsea's prior written consent.

Subsea claims that it spent over $40 million to improve the subject property by, among other things, building a dock, building facilities for fabricating pipes and loading them onto ships, and stabilizing the ground with crushed rock. But after the Deepwater Horizon oil spill in 2010, drilling activity in the Gulf of Mexico slowed dramatically and the facilities on the sublease premises went virtually unused for several years. Thus, in early 2012, Subsea sought to renegotiate the terms of the Sublease before renewing under the agreement. According to Subsea, its operations manager Greg Donnelly spoke with PILOT's then-president, John Stafford, in February or March 2012 about renewing the sublease and about the possibility of "rent abatement." Subsea asserts that Stafford told Donnelly he would discuss the matter with PILOT's board, and that in the meantime, Subsea did not need to send written notice of its intent to renew the sublease before March 31, 2012, as required by the agreement.

Steve Bearden, PISBND's executive director, testified that Stafford told him "[Subsea] was going to renew the sublease." However, he acknowledged that Stafford never told him that Subsea "actually renewed the sublease." Bearden testified that PILOT negotiated a new lease with PISBND with a lower rental rate; that the new lease was signed two days after the deadline for Subsea to renew the sublease; and that PISBND would not have signed the new lease if it did not believe that Subsea had already renewed its sublease.

David Dennis, then PILOT's vice president, testified that Stafford told him prior to March 31, 2012, that Subsea "wanted to renew [its] lease." Laura Butler, a Subsea attorney, testified that Donnelly told her prior to March 31, 2012, that he had conversations with Stafford about renewing the sublease.²

In May 2012, Scott Brown replaced Stafford as PILOT's president. Donnelly sent an email to Brown on May 22 stating that Subsea intended to renew the lease. The following day, Butler sent a notice of renewal via certified mail. PILOT did not respond to the notices, believing that they were untimely and therefore invalid. Nevertheless, PILOT continued to send rent invoices to Subsea for two years after the initial sublease term expired, and Subsea paid those invoices. Brown testified at trial that he did not believe it was necessary for PILOT to advise Subsea that it considered Subsea a holdover tenant in violation of the sublease agreement.

In April 2014, PILOT sent an eviction notice to Subsea, demanding that Subseavacate the premises by May 31, 2014. Subsea, believing that the sublease had been effectively renewed, refused to do so, leading to the instant litigation. In its live pleading, PILOT sought a declaratory judgment confirming that the sublease expired and was not renewed, damages for trespass³ and breach of contract, and attorney's fees. Subsea's live pleading sought a declaration that the sublease was validly renewed, damages for breach of contract and promissory estoppel, and attorney's fees.⁴

After two weeks of trial, ten of twelve jurors found that: (1) the parties did not orally agree to modify the renewal provisions of the sublease such that Subsea's oral notification and subsequent written notice were sufficient to renew the sublease; (2) PILOT is not estopped from denying that Subsea renewed the sublease; (3) PILOT did not waive strict compliance with the renewal provisions of the sublease such that Subsea's oral notification and subsequent written notice were sufficient to renew the sublease; (4) Subsea trespassed on PILOT's property; (5) PILOT is entitled to $634,710 in damages for the trespass; and (6) Subsea did not substantially and foreseeably rely to its detriment on PILOT's promise, if any, that Subsea did not need to send written notice of renewal before March 31, 2012.⁵

The trial court's judgment, dated December 13, 2016, stated that Subsea "became an unlawful trespasser as of June 1, 2014," and it awarded $634,710 in damages toPILOT, along with pre-judgment interest "at the simple rate of 5% per year beginning on June 1, 2014, through the day preceding the date of this Final Judgment, which is the amount of $80,425.58 as of December 13, 2016," and post-judgment interest. The judgment further provided:

[Subsea] may remove any or all property and improvements located on the

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