Willis v. BPMT, LLC

• Court: Texas Court of Appeals
• Writing for the Court: Michael Massengale, Justice
• Citation: Willis v. BPMT, LLC, 471 S.W.3d 27 (Tex. App. 2015)
• Decision Date: 23 July 2015
• Docket Number: NO. 01–14–00537–CV,01–14–00537–CV
• Parties: Francie Willis, Appellant v. BPMT, LLC, Appellee

471 S.W.3d 27

Francie Willis, Appellant

v.BPMT, LLC, Appellee

NO. 01–14–00537–CV

Court of Appeals of Texas, Houston (1st Dist.).

Opinion issued July 23, 2015

Jane Langdell Robinson, Tiffany Joudi, Reed N. Smith, Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing, Houston, TX, for Appellant.

Tanya N. Garrison, Jonathan D. Saikin, Weycer, Kaplan, Pulaski & Zuber, PC, Houston, TX, for Appellee.

OPINION

Michael Massengale, Justice

Appellee BPMT, LLC sued Urban Retreat of Houston, Inc. for damages pursuant to the breach of a lease agreement. Because Urban Retreat's corporate privileges were forfeited for failure to pay franchise taxes, BPMT also sued appellant Francie Willis in her capacity as a corporate officer of the company, seeking to hold her personally liable for part of the debt. SeeTex. Tax Code§ 171.255. Willis and BPMT filed competing motions for partial summary judgment on the issue of Willis's personal liability.

The trial court granted BPMT's motion and held Willis liable for part of the debt of Urban Retreat under section 171.255 of the Texas Tax Code. After a trial on the issue of the amount of the debt that could be recovered from Willis, the trial court entered a final judgment which held her personally liable for $38,327.13 and jointly and severally liable with Urban Retreat for a conditional award of $45,000 in attorney's fees.

In this appeal, Willis contends that the trial court erred when it (1) determined that she was personally liable for Urban Retreat's debt under section 171.255; and (2) held her jointly and severally liable with Urban Retreat for conditional attorney's fees.

We conclude that all of Urban Retreat's debt was created or incurred before the due date for the unpaid franchise taxes that resulted in the forfeiture of Urban Retreat's charter. Accordingly, we reverse the trial court's judgment and render a judgment that BPMT take nothing from Willis individually.

Background

Willis is a corporate officer of Urban Retreat of Houston, Inc, which operates day spas. Beginning in 1995, Urban Retreat leased space in a retail center from BPMT to operate one of its day spas.

For more than a decade, Urban Retreat continued to lease the property while executing renewals and extensions to the lease. Urban Retreat executed the most recent extension in 2006, extending the lease through April 30, 2011. Willis signed the extended lease agreement solely in her capacity as an officer of Urban Retreat.

The rental payments pursuant to the lease agreement consisted of two components. The first component was a fixed charge per square foot, called a “minimum lease.” The second component was the tenant's pro-rata share of the building's operating costs, called a “triple-net charge.” A BPMT representative explained at trial the method for collecting the triple-net charge. BPMT would estimate the triple-net charge at the beginning of each year, and tenants would pay their pro-rata share of that estimated charge. At the end of the year, once the actual triple-net charge was determined, BPMT would bill or refund tenants for any over- or under-payments.

The parties stipulated that on July 30, 2010, “the Secretary of State forfeited Urban Retreat's charter.” Urban Retreat made no further rental payments from August 2010 until the end of the lease in April 2011, prompting this dispute. The total rent due during that period was $112,735.26.

BPMT sued Urban Retreat for breach of the lease. In the same lawsuit, BPMT alleged that Willis was personally liable for the breach under the Texas Tax Code, which provides that, after the forfeiture of a corporation's corporate privileges for noncompliance with franchise tax requirements, a corporate officer is liable for “each debt of the corporation that is created or incurred in this state after the date on which the report, tax, or penalty is due....” Tex. Tax Code§ 171.255(a).

The parties filed cross-motions for partial summary judgment on the issue of Willis's liability. While the cross-motions for summary judgment were pending, BPMT and Urban Retreat reached a Rule 11 agreement under which Urban Retreat agreed to liability for actual damages of $137,327.06, $20,000 in attorney's fees, and pre- and post-judgment interest.

In its motion for partial summary judgment, BPMT argued that Willis should be liable under section 171.255because a “debt” should mean a “legally enforceable obligation measured in a certainamount” of money. Even though Urban Retreat entered into the lease extension in 2006, BPMT argued, the triple-net charges did not become “debts” incurred under section 171.255until the exact charge could be calculated. Because Urban Retreat forfeited its corporate privileges before it breached the lease agreement in August 2010, BPMT asserted that Willis should be personally liable for the unpaid portion of the triple-net charges that were calculated at the end of 2010 and 2011. BPMT also argued that its duty to mitigate damages after Urban Retreat breached the lease further obscured the full measure of “debt” owed until after the lease expired.

Willis disagreed. She argued that a “debt” under section 171.255is created when the agreement is executed, so the statute imposes liability only on officers for contracts entered into after a corporation forfeits its privileges. According to Willis, the “debt” at issue was created when Urban Retreat executed the lease extension in 2006, even though amount of the triple-net charges was uncertain until after the corporate forfeiture.

The trial court granted BPMT's motion for partial summary judgment on the issue of Willis's liability, and the case proceeded to trial on the issue of damages. The jury charge asked a single question: “What amount of BPMT's damages, if any, were in an amount of money that could not be calculated at the time the Lease Agreement was executed on May 19, 2006?”

Following the verdict, the court entered a judgment against Urban Retreat for the agreed damages of $132,327.06 and attorney's fees of $20,000. The court also entered a judgment against Willis awarding BPMT actual damages of $38,327.13, which was the amount of unpaid rent the jury determined could not be calculated at the time the lease was executed. Additionally, the court's judgment ordered that Willis and Urban Retreat be jointly and severally liable for the agreed $20,000 in trial attorney's fees, as well as an additional $45,000 in conditional appellate attorney's fees.

Willis filed motions to modify the judgment, for new trial, and for judgment notwithstanding the verdict. Her motion for judgment notwithstanding the verdict was denied by order of the trial court; the motions to modify judgment and for new trial were denied by operation of law. This appeal followed.

Analysis

Willis brings two issues on appeal. First, she contends that the trial court erred when it held her personally liable under Texas Tax Code section 171.255for Urban Retreat's obligations under the lease. Second, she argues that the trial court erred when it ordered her liable for $45,000 in conditional appellate attorney's fees in addition to the $20,000 in trial fees awarded against Urban Retreat.

I. Officer liability under section 171.255

We review the trial court's award of partial summary judgment under the usual de novo standard. SeeMerriman v. XTO Energy, Inc.,407 S.W.3d 244, 248 (Tex.2013). Here, the summary judgment depends on a question of statutory construction, which we also review de novo. City of Rockwall v. Hughes,246 S.W.3d 621, 625 (Tex.2008).

Texas Tax Code section 171.255(a)provides:

If the corporate privileges of a corporation are forfeited for the failure to file a report or pay a tax or penalty, each director or officer of the corporation is liable for each debt of the corporation that is created or incurred in this state after the date on which the report, tax, or penalty is due and before the corporate privileges are revived. The liability includes liability for any tax or penalty imposed by this chapter on the corporation that becomes due and payable after the date of the forfeiture.

Tex. Tax Code§ 171.255(a).

The primary question in this case is whether a lease obligation that could not be precisely calculated until the end of the lease term did not become a “debt of the corporation that is created or incurred in this state” for purposes of section 171.255(a)until the exact amount of rental charges and other damages related to a breach of the lease became certain. Because Urban Retreat's corporate privileges were forfeited for an unspecified failure and its corporate privileges were never revived, Willis is liable for the unpaid rent under the statute that was debt created or incurred after the forfeiture. See id.By contrast, if the charges were created and incurred in 2006, before those events, then Willis is not personally liable.

Willis contends that all of BPMT's damages in this case arise from obligations under the lease agreement, which was executed in 2006. Therefore, she argues that the statute does not impose personal liability on her because this court and others have long recognized that “[u]nder section 171.255, individual liability is imposed only for debts contracted afterthe forfeiture of the right to do business, and has no application to obligations arising or renewed prior thereto.” McKinney v. Anderson,734 S.W.2d 173, 174–75 (Tex.App.–Houston [1st Dist.] 1987, no writ); accordSchwab v. Schlumberger Well Surveying Corp.,145 Tex. 379, 198 S.W.2d 79, 81 (1946)(interpreting predecessor statute); Beesley v. Hydrocarbon Separation, Inc.,358 S.W.3d 415, 423 (Tex.App.–Dallas 2012, no pet.); River Oaks Shopping Ctr. v. Pagan,712 S.W.2d 190, 192 (Tex.App.–Houston [14th Dist.] 1986, writ ref'd n.r.e.); Curry Auto Leasing, Inc. v. Byrd,683 S.W.2d 109, 112 (Tex.App.–Dallas 1984, no writ). This principle has been applied “[e]ven when the exact amount of future debt is unknown at the time the parties entered into the contract.” Serna v. State,877 S.W.2d 516, 519 (Tex.App...