Joe R. Chapman v. Qamar U. Arfeen ( 2018 )

In The
Court of Appeals
Ninth District of Texas at Beaumont
____________________
NO. 09-16-00272-CV
____________________
JOE R. CHAPMAN, Appellant
V.
QAMAR U. ARFEEN, ET AL, Appellees
__________________________________________________________________
On Appeal from the 58th District Court
Jefferson County, Texas
Trial Cause No. A-196,015
__________________________________________________________________
MEMORANDUM OPINION
The purpose of summary judgment procedure is to allow courts to summarily
end a case when only questions of law are involved and no genuine issues of fact
remain. G&H Towing Co. v. Magee, 347 S.W.3d 293, 296–97 (Tex. 2011). Joe R.
Chapman appeals the February 29, 2016 summary judgment order that dismissed all
of his claims against Qamar U. Arfeen; Arfeen Properties, LP; Harbor Hospital
Managers of Southeast Texas, LLC; HHCS Managers, LLC; Harbor Hospice
Managers, LLC; Harbor Healthcare System, LP; Harbor Hospital of Southeast
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Texas, LP; Harbor Hospice of Austin, LP; Harbor Hospice of Alexandria, LP;
Harbor Hospice of Arlington, LP; Harbor Hospice of Beaumont, LP; Harbor
Hospice of Baytown, LP; Harbor Hospice of Bay City, LP; Harbor Hospice of
Bryan-College Station, LP; Harbor Hospice of Corpus Christi, LP; Harbor Hospice
of Central Houston, LP; Harbor Hospice 28, LP; Harbor Hospice of Central San
Antonio, LP; Harbor Hospice of East Dallas-Fort Worth, LP; Harbor Hospice of East
Houston, LP; Harbor Hospice of East Texas, LP; Harbor Hospice of Fort Worth, LP;
Harbor Hospice of Gulf Coast, LP; Harbor Hospice of Georgetown, LP; Harbor
Hospice of Harlingen, LP; Harbor Hospice of Houston, LP; Harbor Hospice of
Lafayette, LP; Harbor Hospice of Lake Charles, LP; Harbor Hospice of Livingston,
LP; Harbor Hospice 26, LP; Harbor Hospice of McAllen, LP; Harbor Hospice of
Medical Center-Houston, LP; Harbor Hospice of North Dallas-Fort Worth, LP;
Harbor Hospice of North San Antonio, LP; Harbor Hospice Northwest Houston, LP;
Harbor Hospice of Oakdale, LP; Harbor Hospice of Richmond, LP; Harbor Hospice
of San Antonio, LP f/n/a Harbor Hospice of South Texas, LP; Harbor Hospice of
South Dallas-Fort Worth, LP; Sunshine Hospice, LP; Harbor Hospice of South
Houston, LP; Harbor Hospice of South San Antonio, LP; Harbor Hospice of Texas,
LP; Harbor Hospice 27, LP; Harbor Hospice of Victoria, LP; Harbor Hospice of
West Dallas-Fort Worth, LP; Harbor Hospice of West Houston, LP; Harbor Hospice
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of Longview, LP; Harbor Hospice Southeast Houston, LP; Harbor Hospice of
Texarkana, LP; Harbor Home Health, LP; and Harbor Hospital Land Investors of
Southeast Texas (collectively referred to as Defendants unless specifically referred
to otherwise as explained below). The claims dismissed were for breach of contract,
breach of fiduciary duty, conversion, theft, and fraud, as well as Chapman’s request
seeking declaratory judgment about his ownership interests, if any, in the entities.
Defendants, who were also counter-plaintiffs in the lower court, appeal the trial
court’s July 22, 2016 grant of Chapman’s summary judgment dismissing all their
counter-claims against Chapman for attorney’s fees, breach of fiduciary duty, and
duty of loyalty.
For the reasons described below, we affirm in part and reverse in part the trial
court’s February 29, 2016 order granting Defendants’ summary judgment relief on
Chapman’s claims against Defendants. We affirm in part and reverse in part the trial
court’s July 22, 2016 order granting Chapman’s summary judgment based on
Defendants’ claims against Chapman.
I. BACKGROUND
In 2005, Arfeen and others, including Chapman, began a business venture and
opened a hospice in Beaumont, Texas, called Harbor Hospice of Beaumont. Arfeen
or Arfeen Properties was the general partner and Chapman, as well as others,
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retained a limited partner interest. The healthcare venture proved profitable and
several more limited partnerships were created across the Gulf Coast, including
some in which Chapman undisputedly owned limited partnership interests: (1)
Harbor Hospice of Beaumont, (2) Harbor Hospice of Gulf Coast, (3) Harbor Hospice
of Baytown, (4) Harbor Hospice of Austin, (5) Harbor Hospice of Oakdale, (6)
Harbor Hospice Lafayette, (7) Harbor Healthcare System, (8) Harbor Hospital of
Southeast Texas, and (9) HHCS Managers (collectively called the “Ownership
Entities”). In the other entities, Chapman claims he owns a limited partnership
interest as a result of an agreement with Arfeen. Chapman was also an employee and
served as the chief operating officer or manager for these entities, including Harbor
Healthcare System, which operated as the main entity overseeing the other entities.
Chapman alleges that after he resigned from his employment, he was told for
the first time that he was no longer a partner in any of the entities; but rather, his
limited partnership interests had been converted into profit interests in April or May
2010, after which he received “profit sharing payments” or bonuses, instead of
partnership distributions. Chapman filed suit in August 2014, seeking a declaratory
judgment affirming his ownership interest in each healthcare entity named a party
or, in the alternative, damages and other remedies for fraud, breach of contract,
breach of fiduciary duty, conversion, and for theft for the wrongful taking of his
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ownership interests. Defendants collectively answered and asserted affirmative
defenses to bar Chapman’s claims by way of statute of frauds, statute of limitations,
and ratification of the alleged assignments of his ownership interests. Defendants
also filed counterclaims against Chapman contending that as a company officer,
Chapman breached his fiduciary duty and his duty of care to the healthcare entities.
Defendants also sought attorney’s fees from Chapman for defending against
Chapman’s claims.
Defendants collectively moved for summary judgment on the following
grounds: (1) all of Chapman’s claims against the Ownership Entities were barred by
the statute of limitations; (2) Chapman ratified the change in his ownership interests
in the Ownership Entities; (3) Chapman’s claims against the remainder of the Harbor
entities were barred by the statute of frauds; and (4) Chapman’s claims to an
ownership interest in the remainder of the Harbor entities failed as there was no
agreement to create an ownership interest in any of the entities. Following a non-
evidentiary hearing, the trial court granted Defendants’ motion for summary
judgment on February 29, 2016, dismissing all of Chapman’s claims in their entirety
without specifying the ground or grounds relied on for the ruling. Soon thereafter,
Chapman filed his own no-evidence and traditional motion for summary judgment
seeking dismissal of all of Defendants’ counterclaims against him. The trial court
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granted summary judgment on July 22, 2016, for Chapman and dismissed all of
Defendants’ counterclaims against him. Both Chapman and Defendants appeal the
summary judgment orders dismissing all claims and counterclaims of all parties.
II. STANDARD OF REVIEW
We review the trial court’s grant of summary judgment de novo. See Tex. Mun.
Power Agency v. Pub. Util. Comm’n of Tex., 253 S.W.3d 184, 192 (Tex. 2007);
Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). To prevail on
a traditional summary judgment motion, the movant bears the burden of proving that
no genuine issues of material fact exist and that it is entitled to judgment as a matter
of law. Tex. R. Civ. P. 166a(c); Mann Frankfort Stein & Lipp Advisors, Inc. v.
Fielding, 289 S.W.3d 844, 848 (Tex. 2009). When, as here, the defendants (or
counter-defendant) as movants requested summary judgment on both its affirmative
defenses and on plaintiff’s (or counter-plaintiffs’) claims, we determine whether the
defendants (or counter-defendant) conclusively negated at least one element of
plaintiff’s (or counter-plaintiffs’) causes of action or conclusively proved every
element of their affirmative defenses. See Frost Nat’l Bank v. Fernandez, 315
S.W.3d 494, 508 (Tex. 2010); Am. Tobacco Co. v. Grinnell, 951 S.W.2d 420, 425
(Tex. 1997).
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A matter is conclusively established if reasonable people could not differ
about the conclusion drawn from the evidence. City of Keller v. Wilson, 168 S.W.3d
802, 816 (Tex. 2005). To establish facts through an interested witness, the testimony
must be clear, positive, direct, credible, free from contradiction, and uncontroverted
even though it could have been readily controverted. Tex. R. Civ. P. 166a(c);
McIntyre v. Ramirez, 109 S.W.3d 741, 749 (Tex. 2003). If the testimony does not
meet these requirements, it will not support a summary judgment. Casso v. Brand,
776 S.W.2d 551, 558 (Tex. 1989). If the movant meets its burden, the burden shifts
to the nonmovant to raise a genuine issue of material fact precluding summary
judgment. Centeq Realty, Inc. v. Siegler, 899 S.W.2d 195, 197 (Tex. 1995). To
determine if the nonmovant raises a fact issue, we review the evidence in the light
most favorable to the nonmovant, crediting favorable evidence if reasonable jurors
could and disregarding contrary evidence unless reasonable jurors could not.
Fielding, 289 S.W.3d at 848 (citing City of Keller, 168 S.W.3d at 827). We indulge
every reasonable inference and resolve any doubts in the nonmovant’s favor. See
Sw. Elec. Power Co. v. Grant, 73 S.W.3d 211, 215 (Tex. 2002) (citing Sci. Spectrum,
Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex. 1997)). The nonmovant must produce
more than a scintilla of evidence of the challenged element to preclude summary
judgment. Neely v. Wilson, 418 S.W.3d 52, 59 (Tex. 2013). More than a scintilla of
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evidence exists when reasonable and fair-minded individuals could differ in their
conclusions. King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 751 (Tex. 2003).
When, as here, the trial court does not specify the grounds on which it relied
to grant summary judgment, we must affirm the summary judgment if any of the
independent summary judgment grounds are meritorious. See FM Props. Operating
Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000).
III. APPEAL OF DEFENDANTS’
MOTION FOR SUMMARY JUDGMENT
A. Issue One: Plaintiff’s Objections to the Summary Judgment Evidence of
Defendants
Summary judgment does not have to be a hit or miss exercise—one shot and
you are done. Texas Rule of Civil Procedure 166a provides for an orderly process
that includes special exceptions, amendments, and flexibility in deadlines for filing
evidence, for conducting hearings, and for granting continuances. The summary
judgment procedure is provided for in the Rules so the trial court may promptly
dispose of cases that involve unmeritorious claims or untenable defenses. City of
Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 n.5 (Tex. 1979).
“Promptly” is juxtaposed to the length of time necessary for the litigants to conduct
a full trial by jury. Summary judgment procedure should not be used to unfairly
deprive litigants of their right to a trial by jury or be used to try a case involving
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disputed issues of material fact by affidavit and deposition testimony. See id. at 678;
Collins v. Cty. of El Paso, 954 S.W.2d 137, 145 (Tex. App.—El Paso 1997, pet.
denied).
To support their position that Chapman’s limited ownership interests were
voluntarily converted to “profit interest[s] paid out as bonuses,” Defendants rely
upon documentary evidence in the form of assignments and redemption agreements,
as well as Chapman’s ratification of such agreement by accepting, without objection,
periodic “bonus profit payments.” The affidavit of Tracy Haygood, Vice President
of Finance for Harbor Healthcare Systems, was offered to prove that such payments
were made and accepted by Chapman. Further, Haygood’s affidavit included the
following statements: “Bonus checks were paid separately and by paper check[,]”
and “[t] he payment of bonuses based on profits continued with some regularity from
May/June, 2010 until Mr. Chapman’s resignation in July, 2014.” The affidavit was
filed on behalf of at least nine separate entities that intended to rely upon such
testimony to prove their affirmative defense of ratification as a matter of law.
Chapman objected to the summary judgment evidence Defendants submitted
to support their motion for summary judgment. Chapman raised questions as to the
authenticity of important business documents relied upon by Defendants and swore,
under oath, that a stamped image of his signature was used without his direction or
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consent to reportedly memorialize his agreement to assign or otherwise convert his
ownership interests in these healthcare entities. Texas Rules of Evidence 1002 and
1003 provide that to prove the content of a writing, the original writing is required
if a question is raised as to the authenticity of the original. Tex. R. Civ. P. 1002,
1003. The trial court overruled the objections and considered the duplicates of the
signature-stamped documents as evidence supporting the Defendants’ motion.
Because genuine issues of material fact exist as to the authenticity of the signature-
stamped documents, the trial court erred by overruling Chapman’s objections to
them.
Chapman also objected to Haygood’s affidavit. As previously stated, to
establish facts through an interested witness in a summary judgment proceeding, the
testimony must be clear, positive, direct, credible, free from contradiction, and
uncontroverted even though it could have been readily controverted. Tex. R. Civ. P.
166a(c); McIntyre, 109 S.W.3d at 749. If the testimony does not meet these
requirements, it will not support a summary judgment. Casso, 776 S.W.2d at 558.
The phrase “could have been readily controverted” in Texas Rule of Civil Procedure
166a(c) means the testimony is of a nature that can be effectively countered by
opposing evidence. Id.; Trico Techs. Corp. v. Montiel, 949 S.W.2d 308, 310 (Tex.
1997); Casso, 776 S.W.2d at 558.
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In his objections, Chapman claimed that Haygood’s affidavit contained
unsubstantiated factual conclusions and failed to identify which entity allegedly paid
“profit interest paid out as bonuses” and to identify when the payments were first
made from each entity. Haygood’s testimony could not have been “readily
controverted” as required by Rule 166a(c) because Haygood’s affidavit did not set
forth each of the payments from each entity that they allege Chapman received and
accepted “profit interest paid out as bonuses” following the date Defendants allege
Chapman voluntarily assigned or converted his limited ownership interests.
Accordingly, the trial court erred in failing to grant Chapman’s objections to
Haygood’s affidavit and in considering it as evidence that conclusively established
the nature of the payments Chapman received.
B. Issues Two and Three: Dismissal of Chapman’s Claims Against Entities
with Undisputed Ownership
Chapman complains in his second issue that the trial court erred in granting
the Ownership Entities’ summary judgment based on their affirmative defense of
statute of limitations because he submitted more than a scintilla of evidence raising
questions of material fact about when his claims accrued or when he reasonably
should have become aware of his claims. Chapman argues the Ownership Entities
failed to conclusively establish when he discovered that he had claims against the
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Ownership Entities. In his third issue, Chapman argues that the Ownership Entities
did not conclusively prove their affirmative defense of ratification.
1. Statute of Limitations
A defendant seeking summary judgment based on limitations must
conclusively prove when the cause of action accrued and, if the plaintiff has pleaded
the discovery rule or another defensive theory, the defendant must conclusively
negate these claims. Pustejovsky v. Rapid-Am. Corp., 35 S.W.3d 643, 646 (Tex.
2000); KPMG Peat Marwick v. Harrison Cty. Hous. Fin. Corp., 988 S.W.2d 746,
748 (Tex. 1999). If, as here, the summary judgment order does not specify the
grounds on which it was granted, the appealing party must establish on appeal that
none of the proposed grounds is sufficient to support the judgment. Rogers v. Ricane
Enters. Inc., 772 S.W.2d 76, 79 (Tex. 1989).
It is undisputed Chapman’s claims are governed either by the four-year or the
two-year statute of limitations. Chapman’s request for declaratory judgment and
claims of breach of contract or partnership agreement, breach of fiduciary duty, and
fraud are governed by a four-year limitation period, while he was required to file suit
on his claims for conversion and theft within two years after the day those causes
accrued. See Tex. Civ. Prac. & Rem. Code Ann. § 16.003 (West 2017), § 16.004
(West 2002). In their motion for summary judgment, the Ownership Entities asserted
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the evidence conclusively proved that Chapman was aware of the transfers or
assignments of his ownership interests for more than four years before he sued, so
limitations barred his claims.
For this Court to affirm summary judgment on the affirmative defense of
limitations, the Ownership Entities were required to establish that Chapman’s claims
accrued outside the applicable period of limitations that apply to Chapman’s claims.
“Causes of action accrue and statutes of limitations begin to run when facts come
into existence that authorize a claimant to seek a judicial remedy.” Exxon Corp. v.
Emerald Oil & Gas Co., 348 S.W.3d 194, 202 (Tex. 2011). When a cause of action
accrues is generally a question of law. Provident Life & Accident Ins. Co. v. Knott,
128 S.W.3d 211, 221 (Tex. 2003). Knowledge of the injury initiates the accrual of
the cause of action and triggers the claimant’s duty to exercise reasonable diligence
to investigate the problem, even if the claimant does not know the specific cause of
the injury, the party responsible for it, or the full extent of it. Exxon Corp., 348
S.W.3d at 207, 209. Under the discovery rule, a cause of action will not accrue until
the plaintiff knew or should have known of the wrongfully caused injury. Baxter v.
Gardere Wynne Sewell LLP, 182 S.W.3d 460, 462 (Tex. App.—Dallas 2006, pet.
denied). Fraudulent concealment tolls limitations, but only until the fraud is
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discovered or could have been discovered by using reasonable diligence. Shell Oil
Co. v. Ross, 356 S.W.3d 924, 927 (Tex. 2011).
Chapman originally filed suit on August 18, 2014. The claims subject to the
four-year statute of limitation must have accrued no earlier than August 18, 2010, to
be barred. The claims subject to the two-year statute must have accrued no earlier
than August 18, 2012, to be barred. The Ownership Entities argue Chapman agreed
to assign his ownership interests in the entities to Arfeen or Arfeen Properties in
May or June of 2010, and that from and after June 2010, he received no further
ownership distributions from any of the entities; and instead, Chapman received
profit payments.
The organizational agreements for each of the Ownership Entities expressly
require that any assignment or change in ownership interest be in writing and signed
by the parties. In support of their summary judgment, the Ownership Entities relied
on the affidavit of Haygood, Vice President of Finance for Harbor Healthcare
System, one of the Ownership Entities. In her affidavit, Haygood states that in April
2010, she was informed that employee-held limited ownership interests in a number
of entities would be transformed from limited ownership interests to profit interests
and be paid out as bonuses. Haygood’s affidavit does not provide any evidence of a
date that Chapman knew his partnership interests were converted into profit
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interests. Haygood’s affidavit states when she learned of the decision altering the
interests. On the other hand, Chapman’s affidavit asserts that he never agreed to
assign or convert his ownership interests in the entities to profit interests. Therefore,
to affirm the summary judgment, we must determine whether the other evidence the
Ownership Entities submitted conclusively established that Chapman had actual or
constructive notice of the alleged change in his ownership interests by August 18,
2010.
Haygood’s affidavit includes federal income tax Schedule K-1 forms for fiscal
year 2010 for the Ownership Entities that were sent to Chapman. The 2010 K-1s
show that Chapman’s partnership interest had been reduced to zero. However, the
affidavit does not indicate when the Ownership Entities sent Chapman the 2010 K-
1s or when Chapman received them.
Based on our review of the record, beginning April 2011, some of the
Ownership Entities began providing Chapman with 2010 Schedule K-1s for the
Ownership Entities that all indicated his various ownership interests were reduced
to zero at the end of the 2010 tax-year. Deposition testimony made a part of the
summary judgment record showed the K-1s for some of the other Ownership Entities
were not issued until September 2011. Thus, the evidence in the record does not
conclusively establish that Chapman received the K-1s by August 18, 2010.
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Chapman’s affidavit states that he did not review the K-1s when he received
them. But regardless of whether he had actual notice of what was in them, he is
deemed to have been placed on constructive notice of the changes they reflect to his
interests in the Ownership Entities, as reflected on the forms. 1 Additionally,
Chapman’s yearly income tax returns for the years 2011 through 2014 are included
in the summary judgment evidence, and none of them indicate that Chapman
claimed a partnership interest in any of the Ownership Entities after 2010. Chapman
filed his 2011 tax return on September 29, 2011. Additionally, even though
Chapman’s 2010 K-1 for Harbor Hospice of Beaumont shows he did not own an
interest in the entity, Harbor Hospice’s renewal application, which it filed with the
Texas Department of Aging and Disability Services in January 2010, shows that
Chapman owns 3% of that entity. To add, a capital account with Chapman’s name
is also included on Harbor Hospice of Beaumont’s 2010 year-end reports.
Accounting reports for Harbor Hospital Land Investors of Southeast Texas, which
is another entity in which Chapman undisputedly owns an interest in to be discussed
1
When an individual signs a Form 1040 when filing their income tax with the
IRS, they are signing “[u]nder penalties of perjury” that the signor has “examined
this return and accompanying schedules and statements, and to the best of [their]
knowledge and belief, they are true, correct[.]”
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later, reveal Chapman received distributions from it during 2011, including a
November 2011 distribution.
The Ownership Entities also rely on a June 2010 email from Chapman’s
spouse to Haygood to argue that they conclusively established that Chapman’s
claims are barred by limitations. In the email, Chapman’s wife asked Haygood to
identify the entities associated with three “bonus checks” paid to Chapman. The
Ownership Entities argue the email established that Chapman knew he was receiving
profit sharing checks instead of partnership distributions. However, the email does
not conclusively prove that Chapman was on notice by August 2010 that his
ownership interests in the Ownership Entities had been converted to profit interests.
Defendants also contend that prior to August 18, 2010, Chapman executed
documents acknowledging the change in his ownership interests in five of the nine
Ownership Entities. Defendants attached copies of Redemption and Assignments or
Amendments to the Partnership Agreements of the Ownership Entities as evidence
of such conversion of Chapman’s interests:
a. Harbor Hospice Managers, LLC
The Redemption and Assignment of Harbor Hospice Managers is dated
November 5, 2012, to be effective as of January 1, 2010. While Chapman’s signature
is on the document, he signed it only in his capacity as Manager of Harbor Hospice
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Managers, not individually. In another assignment, Chapman’s signature is included
in his individual capacity, but it is dated June 11, 2013, to be effective as of January
1, 2010. Nevertheless, Chapman filed a sworn affidavit with the trial court denying
his signature on such documents and stating he did not authorize anyone to sign his
name to execute such documents.
b. Harbor Hospice of Gulf Coast, LP
Amendment No. 4 to the Limited Partnership Agreement is a business record
intended to reflect certain changes in the partnership percentages “following the
assignment by Janet Montagne and Joe Chapman of limited partnership interests to
Arfeen Properties, LP effective April 30, 2010[.]” The document is dated “to be
effective as of the 30th day of April, 2010.” It contains a stamped signature of
Chapman, but only in his capacity as Manager of HHCS Managers. No document
represented to be an assignment executed by Chapman individually is in the record.
Curiously, Amendment No. 5 is included in the record, “executed to be effective
September 30, 2009,” which purportedly shows the limited partnership interests of
Harbor Hospice Gulf Coast as of that date. However, the partnership records do not
reflect the ownership interests of either Montagne or Chapman causing confusion
because the earlier numbered amendment was executed after the prior amendment
but dated effective when they should have been listed as owners.
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c. Harbor Hospice of Baytown, LP
The organizational documents are included in the record, originally executed
on May 28, 2008, containing a stamped signature of Chapman, as Manager of HHCS
Managers, as General Partner, and evidencing Arfeen Properties and Harbor Hospice
of Beaumont as the only initial limited partners. However, in a First Amended and
Restated Agreement dated October 21, 2008, Chapman is listed as a 2.0% limited
partner. Amendment No. 2 to the Agreement is “executed to be effective as of the
1st day of January, 2010[,]” and contains the stamped signature of Chapman, in his
capacity as Manager for Harbor Hospice Managers, General Partner. The document
recites that “the General Partner has elected to redeem the limited partner interests
of Joe R. Chapman,” and others, in accordance with Section 8.5 of the Partnership
Agreement. However, the summary judgment record does not contain any document
signed by Chapman individually, rather than stamped, assigning or redeeming his
interest in the healthcare entity to the partnership, Arfeen, or Arfeen Properties.
d. Harbor Hospice of Austin, LP
Attached as summary judgment evidence is Amendment No. 1 to the
Agreement of Limited Partnership for Harbor Hospice of Austin, dated June 1, 2008.
The business records show that Arfeen assigned limited partnership interests to
Chapman and another. The document is signed by Arfeen, Chapman, and the other
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limited partner in accordance with the original organizational agreement and
evidences that Arfeen assigned a 2.0% limited partnership interest in the Ownership
Entity to Chapman. Amendment No. 3 purports to represent an amendment to the
organizational records to “reflect the changes in the partnership percentages
following the assignment . . . by Joe R. Chapman of limited partnership interests to
Qamar Arfeen.” The document is signed only by Arfeen, as Manager of HHCS
Managers, as General Partner, and is dated “to be effective as of the 1st day of
October, 2010.” Exhibit “A” to the document sets forth the limited partnership
interests of other individuals, excluding Chapman. Amendment No. 4 to the
Amended and Restated Agreement of Limited Partnership is also included in the
record. It recites that the partnership records should be amended to reflect changes
in the partnership percentages “following the assignment . . . by Joe R. Chapman of
limited partnership interests to Qamar Arfeen.” The document is signed only by
Arfeen, as Manager of HHCS Managers, as General Partner, and is dated “to be
effective as of the 30th day of November, 2011.” Exhibit “A” to the document lists
only Arfeen owning 100% of the limited partnership interest in the Ownership
Entity. Amendment No. 5 to the Amended and Restated Agreement of Limited
Partnership is included in the record and recites the Partnership Agreement is
amended to reflect changes in the partnership percentages “following the assignment
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. . . by Joe R. Chapman of limited partnership interests to Qamar Arfeen.” The
document is signed only by Arfeen, as Manager of HHCS Managers, as General
Partner, and is dated “to be effective as of the 1st day of January, 2012.” Exhibit “A”
to the document lists Arfeen and another owning 40% of the limited partnership
interests in the Ownership Entity. The summary judgment record does not contain
any document signed by Chapman individually, rather than stamped, assigning or
redeeming his interest in Harbor Hospice of Austin to the partnership, Arfeen, or
Arfeen Properties.
e. Harbor Hospice of Oakdale, LP
The original, amended, and restated operating agreements for Harbor Hospice
Oakdale are included in the summary judgment record. Amendment No. 1 is
included which purportedly reflects an assignment of all interest owned by Harbor
Healthcare System, constituting a 100% sharing and ownership interest in Harbor
Hospice of Oakdale, to “be assigned as follows: 1% to HHLC Managers, LLC, 93%
to Arfeen Properties, LP, 1% to Brenda Anderson, 2% to Joe R. Chapman, 1% to
Jennifer Mertz, and 2% to Janet Montagne.” Such document is dated “to be effective
as of the 1st day of January, 2008,” and is signed by Arfeen as Manager. Amendment
No. 2 to the First Amended and Restated Operating Agreement of Harbor Hospice
of Oakdale recites the operating agreement is amended as follows: “The effective
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date of the redemption of the Membership Interests of HHLC Managers, LLC,
Brenda Anderson, Jennifer Mertz Burch, Joe R. Chapman, and Janet Montagne shall
be January 1, 2010 (the ‘Effective Date’).” The document is dated “to be effective
as of the 1st day of January, 2010[,]” and signed by Arfeen, Manager and as General
Partner of Arfeen Properties. Exhibit “A” reflects that for a capital contribution of
$1,000, purportedly to the partnership, Arfeen Properties owns 100% of all
membership interest. The summary judgment record does not contain any document
signed by Chapman individually, rather than stamped, assigning or redeeming his
interest in Harbor Hospice of Oakdale to the partnership, Arfeen, or Arfeen
Properties, or any other documentation evidencing the partnership redeemed the
interests of Chapman.
f. Harbor Hospice of Lafayette, LP
Amendment No. 1 to the First Amended and Restated Operating Agreement
of Harbor Hospice of Lafayette is included in the summary judgment record and
memorializes the assignment of 100% sharing and ownership interest in Harbor
Hospice Lafayette as follows: 1% to HHLC Managers, 93% to Arfeen Properties,
1% to Brenda Anderson, 2% to Chapman, 1% to Jennifer Mertz, and 2% to Janet
Montagne. The document is dated “Executed to be effective as of the 1st day of
January, 2008[,]” and is signed by Arfeen, Manager. Amendment No. 2 to the First
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Amended and Restated Operating Agreement of Harbor Hospice of Lafayette
purports to memorialize an agreement of the partners to redeem the interests of
HHLC Managers, Anders, Mertz Burch, Chapman, and Montagne, to be effective as
of January 1, 2010. It is signed by Arfeen as Manager and as General Partner of
Arfeen Properties. Exhibit “A” reflects that for a capital contribution of $1,000,
purportedly to the corporation, Arfeen Properties, owns 100% of all limited
partnership interest. The summary judgment record does not contain any document
signed by Chapman individually, rather than stamped, assigning or redeeming his
interest in Harbor Hospice Lafayette to the partnership, Arfeen, or Arfeen Properties,
or any other documentation evidencing the partnership redeemed the interests of
Chapman.
g. Harbor Healthcare System, LP
The organizational agreement is included in the record and is signed by all
recited limited partners and their spouses. It reflects, among other things, Arfeen
owned a 59% limited interest and Chapman owned a 10% limited partnership
interest. Amendment No. 2 to Agreement of Limited Partnership for Harbor
Healthcare System, purportedly memorializing that Chapman assigned his 10%
limited partnership interest to Arfeen, was stricken from the record by the trial court.
The summary judgment record does not contain any other document signed by
23
Chapman individually, rather than stamped, assigning or redeeming his interest in
Harbor Healthcare System to the partnership, Arfeen, or Arfeen Properties, or any
other documentation evidencing that the partnership redeemed the interests of
Chapman.
h. Harbor Hospital of Southeast Texas, LP
The Limited Partnership Agreement of Harbor Hospital of Southeast Texas is
included in the record and evidences the signature of Chapman on an Investor’s
Signature Page dated September 6, 2006, and it includes other investors. In sworn
answers to written interrogatories, Harbor Hospital of Southeast Texas answered that
Chapman received a 2% interest in the limited partnership on September 6, 2006.
While Defendants contend Chapman assigned his interest to Arfeen or Arfeen
Properties, no written document signed or even stamped by Chapman was made a
part of the summary judgment record.
i. HHCS Managers, LLC
The summary judgment record includes the Regulations of HHCS Managers,
dated January 9, 2006. The document is signed by Arfeen, Chapman, and Montagne,
as Managers/Members, as well as their spouses, and purports to represent that Arfeen
owned 51% of the company, while Chapman and Montagne each owned 24.50%.
Defendants have attached and incorporated into the summary judgment record an
24
Assignment, wherein Chapman individually conveys to Arfeen Properties, a 24.50%
limited membership interest in HHCS Managers. The document was executed on
June 11, 2013 but made to be effective as of the 1st day of January 2010. Chapman
filed an affidavit in the summary judgment record denying that he signed or
authorized his signature to be placed on any such document.
Finally, attached by Chapman as evidence in response to the Ownership
Entities motion for summary judgment, Arfeen provided sworn deposition testimony
in Cause Number E-192,576; styled Sandeep Patel v. Harbor Hospice of Beaumont,
LP, et al, in the 172nd Judicial District Court of Jefferson County, Texas, on April
10, 2014, that neither he nor Arfeen Properties had acquired by assignment or
transfer any of Chapman’s interests in any of the entities.
Because much of the summary judgment evidence is controverted, we hold
Defendants failed to conclusively establish that Chapman’s four-year claims are
barred by the applicable statutes of limitation. See Pustejovsky, 35 S.W.3d at 646.
With respect to the two-year claims, on the other hand, we conclude the Schedule
K-1s placed Chapman on notice of a potential claim regarding his interests in the
Ownership Entities as of at least September 29, 2011, when Chapman filed his 2010
income tax return. The actions taken by the entities after Chapman’s receipt of the
tax documents, including him being named as an owner on a licensing form or
25
making distributions to him, were done prior to August 18, 2012. No controverting
evidence is contained in the summary judgment record precluding summary
judgment on the Defendants’ affirmative defense of statute of limitations as to
Chapman’s claims that are governed by a two-year limitation period.
Moreover, neither the discovery rule nor fraudulent concealment saves
Chapman’s two-year claims. The K-1s conclusively established that Chapman was
on constructive notice that his ownership interests had been converted more than two
years before Chapman sued. See Ross, 356 S.W.3d at 927; Baxter, 182 S.W.3d at
462. Therefore, we sustain issue two as to the claims governed by the four-year
statute of limitations, but we overrule issue two to the extent that Chapman seeks to
overturn the trial court’s ruling granting summary judgment on the claims he filed
that are governed by the two-year statute of limitations.
2. Ratification
The Ownership Entities also asserted in the trial court that Chapman ratified
the transfer of his ownership interests into profit interests in the entities, and thus his
claims should be barred regardless of limitations. Chapman disputes this, and in his
third issue argues that the Ownership Entities did not establish as a matter of law
that he ratified the changes that were made to the ownership interest he held in the
Ownership Entities.
26
Ratification is an affirmative defense. Land Title Co. of Dallas, Inc. v. F.M.
Stigler, Inc., 609 S.W.2d 754, 756 (Tex. 1980). The elements of ratification are: “(1)
approval by act, word, or conduct; (2) with full knowledge of the facts of the earlier
act; and (3) with the intention of giving validity to the earlier act.” White v. Harrison,
390 S.W.3d 666, 672 (Tex. App.—Dallas 2012, no pet.). “A party ratifies an
agreement when—after learning all of the material facts—he confirms or adopts an
earlier act that did not then legally bind him and that he could have repudiated.” Id.
Because the Ownership Entities are movants in this summary judgment proceeding,
they were required to conclusively establish that no genuine issue as to any material
fact existed on their claim that Chapman ratified the conversion of his interests in
the entities. See Tex. R. Civ. P. 166a(c). If the evidence of ratification is
controverted, then the question is for the trier of fact, and summary judgment was
improper. Spangler v. Jones, 797 S.W.2d 125, 131 (Tex. App.—Dallas 1990, writ
denied).
The Ownership Entities assert that Chapman ratified the transfer of his
ownership interests into profit interests in a variety of ways. They claim that in
addition to the Schedule K-1s reflecting the change in Chapman’s ownership
interests, Chapman’s 2011-2014 income tax returns do not show that he received
partnership distributions from the entities. Further, the Ownership Entities argue that
27
Chapman cashed checks that were bonus checks, not partnership distributions.
Additionally, the Ownership Entities claim that Chapman signed various company
documents, two in particular, representing the redemption of his ownership interests
in the entities. Last, the Ownership Entities assert that because Chapman was the
chief operating officer for the entities, and because he has two advanced business
degrees, his failure to act on the information, ratified the acts about which he
complained.
The checks Chapman allegedly received are not in the record. Without
evidence showing they were clearly marked as profit payments and not as
partnership distributions, the fact that Chapman cashed them fails to conclusively
prove that he knew his ownership interests had been changed. Moreover, the
authenticity of the business documents and assignments that the Ownership Entities
relied on were in dispute, so they also fail to conclusively establish that Chapman
assigned or transferred his interests in the entities to Arfeen or to Arfeen Properties.
The Ownership Entities also failed to conclusively establish that Chapman had seen
the business records of the entities, so they failed to prove he was on notice the
records reflected he no longer owned an interest in them. Because genuine issues of
material fact preclude summary judgment on the Ownership Entities’ affirmative
defense of ratification, we sustain Chapman’s third issue.
28
In a sub-issue under Chapman’s fourth appellate issue (to be discussed in more
detail below), he claims it is undisputed that he is a partner in Harbor Hospice of
Lake Charles and Harbor Hospital Land Investors of Southeast Texas. Chapman
argues the trial court erred in granting the motion filed by Defendants as to these two
entities. Defendants agree and recognize that Chapman was an owner in these
entities as well. We note that Schedule K-1s were not provided to Chapman for
Harbor Hospice of Lake Charles or Harbor Hospital Land Investors of Southeast
Texas. And, the record contains evidence that Harbor Hospital Land Investors of
Southeast Texas made distributions to Chapman through November 2011. Thus, we
conclude the trial court erred by granting the Defendants’ motion in favor of Harbor
Hospice of Lake Charles or Harbor Hospital Land Investors of Southeast Texas. We
reverse the order regarding Chapman’s claims against these two entities and remand
the case as to all of Chapman’s claims against Harbor Hospice of Lake Charles and
Harbor Hospital Land Investors of Southeast Texas.
29
C. Issue Four: Alleged Partnership Interest in Thirty-Nine Entities 2
In Chapman’s fourth issue, he contends the trial court erred in granting
summary judgment regarding his claims that he owned a partnership interest in the
Thirty-Nine Entities because the summary judgment evidence reveals questions of
material fact exist about whether he holds an interest in them. While the partnership
agreements for the Thirty-Nine Entities do not show Chapman owned an interest,
Chapman claimed that Arfeen verbally promised him a 2% interest in “every entity
going forward[,]” a representation that Chapman claims refers to the Thirty-Nine
Entities. Chapman assumed paperwork existed about the promise, but he submitted
2
The thirty-nine entities are Harbor Hospital Managers of Southeast Texas,
LLC; Harbor Hospice Managers, LLC; Harbor Hospice of Alexandria, LP; Harbor
Hospice of Arlington, LP; Harbor Hospice of Bay City, LP; Harbor Hospice of
Bryan-College Station, LP; Harbor Hospice of Corpus Christi, LP; Harbor Hospice
of Central Houston, LP; Harbor Hospice 28, LP; Harbor Hospice of Central San
Antonio, LP; Harbor Hospice of East Dallas-Fort Worth, LP; Harbor Hospice of East
Houston, LP; Harbor Hospice of East Texas, LP; Harbor Hospice of Fort Worth, LP;
Harbor Hospice of Georgetown, LP; Harbor Hospice of Harlingen, LP; Harbor
Hospice of Houston, LP; Harbor Hospice of Livingston, LP; Harbor Hospice 26, LP;
Harbor Hospice of McAllen, LP; Harbor Hospice of Medical Center-Houston, LP;
Harbor Hospice of North Dallas-Fort Worth, LP; Harbor Hospice of North San
Antonio, LP; Harbor Hospice Northwest Houston, LP; Harbor Hospice of
Richmond, LP; Harbor Hospice of San Antonio, LP f/n/a Harbor Hospice of South
Texas, LP; Harbor Hospice of South Dallas-Fort Worth, LP; Sunshine Hospice, LP;
Harbor Hospice of South Houston, LP; Harbor Hospice of South San Antonio, LP;
Harbor Hospice of Texas, LP; Harbor Hospice 27, LP; Harbor Hospice of Victoria,
LP; Harbor Hospice of West Dallas-Fort Worth, LP; Harbor Hospice of West
Houston, LP; Harbor Hospice of Longview, LP; Harbor Hospice Southeast Houston,
LP; Harbor Hospice of Texarkana, LP; and Harbor Home Health, LP.
30
no written documents to support his claim that he held ownership interest in the
Thirty-Nine Entities. Chapman’s deposition reflects that he claimed that Arfeen, in
2005, represented Chapman would have a 2% interest at the beginning of the Harbor
venture. According to Chapman, Arfeen told him that they “would be partners and
work together for years.”
1. Statute of Frauds
The Thirty-Nine Entities argue Chapman has no ownership interests in the
Thirty-Nine Entities, and Chapman’s alleged oral agreement violates the statute of
frauds. The Thirty-Nine Entities also assert Chapman’s claims cannot be saved by
any equitable exceptions that exist to their statute of frauds defense, such as
promissory estoppel.
“The statute of frauds exists to prevent fraud and perjury in certain kinds of
transactions by requiring agreements to be in writing and signed by the parties.”
Haase v. Glazner, 62 S.W.3d 795, 799 (Tex. 2001). It is an affirmative defense in a
breach of contract suit and renders a contract that falls within its purview
unenforceable. Tex. Bus. & Com. Code Ann. § 26.01(a) (West 2015); see also S &
I Mgmt., Inc. v. Sungju Choi, 331 S.W.3d 849, 854 (Tex. App.—Dallas 2011, no
pet.). Whether an agreement falls within the statute of frauds is a question of law,
but the determination of whether an exception to the statute of frauds applies is
31
generally a question of fact. Dynegy, Inc. v. Yates, 422 S.W.3d 638, 642 (Tex. 2013);
Kalmus v. Oliver, 390 S.W.3d 586, 589 (Tex. App.—Dallas 2012, no pet.).
The statute of frauds provides that an agreement “which is not to be performed
within one year from the date of making the agreement” is not enforceable unless it
is in writing. Tex. Bus. & Com. Code Ann. § 26.01(a), (b)(6). “For the one-year
provision to apply, performance within one year must be impossible.” Abatement
Inc. v. Williams, 324 S.W.3d 858, 860 (Tex. App.—Houston [14th Dist.] 2010, pet.
denied). In deciding whether an agreement is capable of being performed within one
year, we compare the date of the agreement to the date when the performance under
the agreement is to be completed. See Tex. Bus. & Com. Code Ann. § 26.01(b)(6);
Young v. Ward, 917 S.W.2d 506, 508 (Tex. App.—Waco 1996, no writ). If there is
a year or more between those two dates, a writing is required to render the agreement
enforceable. Young, 917 S.W.2d at 508.
The Thirty-Nine Entities have partnership agreements, which state:
The term of the partnership shall commence on the effective date
of [the] agreement and shall continue for ninety-nine (99) years, after
which date the partnership shall dissolve, unless sooner dissolved in
accordance with the [Texas Partnership] Act or upon the occurrence of
any of the following events of dissolution:
(a) the voluntary bankruptcy of the partnership;
(b) the termination and winding up on the partnership pursuant to
other provisions contained elsewhere herein; or
(c) the written agreement of all partners to dissolve the Partnership[.]
32
Based on the language in the agreements, the agreements did not contemplate
that the undertaking would be completed within a year. See id. at 507–10.
Additionally, even Chapman’s account that they would be partners and work
together for years does not indicate that the alleged promise could be completed
within a year. Finally, a large number of the Thirty-Nine Entities did not come into
existence until after 2006. We conclude the agreement concerned an undertaking
that could not be completed within a year. See Hairston v. S. Methodist Univ., 441
S.W.3d 327, 334–35, (Tex. App.—Dallas 2013, pet denied) (deciding that a
proposed oral agreement concerning a soccer scholarship made two years prior to
the player potentially playing for the college could not be completed within a year’s
time of the agreement being allegedly made; thus, the statute of frauds applied to the
agreement); see also Gano v. Jamail, 678 S.W.2d 152, 154 (Tex. App.—Houston
[14th Dist.] 1984, no writ) (concluding that an oral agreement between lawyers could
not be performed in less than a year given the nature of the business and based on
the testimony by the lawyer seeking to enforce the agreement). Because the statute
of frauds applies to the alleged promise regarding the Thirty-Nine Entities, the oral
promise, unaccompanied with a written document, is unenforceable. See Dynegy,
422 S.W.3d at 641.
33
Chapman also argues that the statute of frauds does not apply to the
partnerships in his case. We disagree. Relying on Citrin Holdings, LLC v. Minnis,
No. 14-11-00644-CV, 2013 WL 1928652 (Tex. App.—Houston [14th Dist.] May 9,
2013, pet. denied), Chapman contends that the statute of frauds does not apply to his
claims because he raised a fact issue as to whether he established a statutory
partnership as provided by section 152.052(a) of the Texas Business Organizations
Code. See Tex. Bus. Orgs. Code Ann. § 152.052(a) (West 2012). However, Citrin
Holdings does not hold that section 152.052 provides an exception to the application
of the statute of frauds for partnerships; but rather, that the statute of frauds does not
prevent a plaintiff from seeking recovery of his out-of-pocket damages because he
relied upon an oral promise. See id. at *15 n.22. Chapman did not complain in the
trial court or on appeal that the alleged oral promise to be partners with Arfeen in all
future Harbor entities resulted in him suffering out-of-pocket damages. We overrule
Chapman’s claims that the statute of frauds does not apply to the Thirty-Nine
Entities to which he claims he has an ownership interest.
2. Promissory Estoppel Exception
Because the Thirty-Nine Entities established their statute of frauds affirmative
defense as a matter of law, the burden shifted to Chapman to raise a fact issue
showing that an exception allowed him to avoid the application of the statute. See
34
id. Promissory estoppel is such an exception. Hairston, 441 S.W.3d at 334; Exxon
Corp. v. Breezevale Ltd., 82 S.W.3d 429, 438 (Tex. App.—Dallas 2002, pet. denied).
Promissory estoppel applies to . . . allow the enforcement of an
otherwise unenforceable oral agreement when (1) the promisor makes
a promise that he should have expected would lead the promisee to
some definite and substantial injury; (2) such an injury occurred; and
(3) the court must enforce the promise to avoid the injury.
Exxon Corp., 82 S.W.3d at 438 (citing Nagle v. Nagle, 633 S.W.2d 796, 800 (Tex.
1982)).
Chapman claims in his response to the Thirty-Nine Entities’ motion for
summary judgment and in his appellate brief that his reliance on the alleged oral
agreement was that he continued to work for the entities, assisting them in return for
the promised interest. Chapman was, however, compensated for his work. Chapman
testified he received an annual salary while employed that increased throughout the
years. Thus, Chapman, cannot rely on the fact he continued to work to raise a fact
issue on his promissory estoppel claim. See Hairston, 441 S.W.3d at 334; Exxon
Corp., 82 S.W.3d at 438; Nagle, 633 S.W.2d at 800.
Because the statute of frauds barred the enforcement of the alleged oral
partnership agreement that Chapman was to own at least a 2% interest in all future
Harbor ventures, and promissory estoppel did not serve as an exception to the statute
35
of frauds, we overrule issue four and affirm the trial court’s grant of summary
judgment in favor of the Thirty-Nine Entities.
D. Issue Five: Alleged Mistake of Not Addressing All Defendants Under the
Summary Judgment Proceedings
In issue five, Chapman asserts the trial court erred in dismissing all his claims
against Arfeen, Arfeen Properties, Harbor Hospice of East Texas, and Harbor
Hospice of Harlingen as these defendants did not seek summary judgment on the
claims he filed against them.
All Defendants, including Arfeen individually and Arfeen Properties,
collectively moved for summary judgment. Included within Defendants’ summary
judgment evidence were the formational partnership documents for both Harbor
Hospice of East Texas and Harbor Hospice of Harlingen. Neither of the partnership
agreements for those entities listed Chapman as a partner and Chapman did not
provide any summary judgment evidence establishing any ownership interest other
than the oral agreement discussed in issue four. Harbor Hospice of East Texas and
Harbor Hospice of Harlingen are parties included in the Thirty-Nine Entities, and
Chapman’s claims against them are barred for the reasons we explain in resolving
issue four.
With respect to Arfeen and Arfeen Properties, Chapman alleges that both were
complicit in wrongfully converting and transferring his ownership interests in the
36
Harbor entities to Arfeen or to Arfeen Properties. Neither Arfeen individually nor
Arfeen Properties moved for summary judgment on any defenses not raised by the
Harbor entities. In Chapman’s live pleading, he alleges various causes of action
against Arfeen and Arfeen Properties complaining about the alleged conversion of
his ownership interests in the various entities. Neither Arfeen nor Arfeen Properties
filed special exceptions to Chapman’s pleadings.
For the same reasons as explained in resolving issues two and three, we
reverse the trial court’s order dismissing Chapman’s claims against Arfeen and
Arfeen Properties for fraud, breach of contract, breach of fiduciary duty, and for
declaratory judgment. The trial court’s order on Chapman’s claims for theft and
conversion are affirmed.
IV. CROSS-APPEAL OF CHAPMAN’S
MOTION FOR SUMMARY JUDGMENT
A. Cross-Appeal Issue One: Denial of Attorney’s Fees Requested by Defendants
In the first issue of their cross-appeal, Defendants claim the trial court
improperly granted summary judgment in its July 22, 2016 order for Chapman and
denied their claim for attorney’s fees under the Texas Declaratory Judgments Act
and the Texas Theft Liability Act. Under Texas law, a court may award attorney’s
fees only when authorized by statute or by the parties’ contract. MBM Fin. Corp. v.
Woodlands Operating Co., 292 S.W.3d 660, 669 (Tex. 2009). Whether a party is
37
entitled to seek an award of attorney’s fees is a question of law that we review de
novo. Holland v. Wal–Mart Stores, Inc., 1 S.W.3d 91, 94 (Tex. 1999).
The Declaratory Judgments Act provides that an award of costs and attorney’s
fees is discretionary with the trial court. Tex. Civ. Prac. & Rem. Code Ann. § 37.009
(West 2009); Bocquet v. Herring, 972 S.W.2d 19, 20 (Tex. 1998) (stating that the
Declaratory Judgments Act “does not require an award of attorney fees to the
prevailing party”). In contrast, under the Texas Theft Liability Act, the prevailing
party “shall be awarded court costs and reasonable and necessary attorney’s fees.”
Tex. Civ. Prac. & Rem. Code Ann. § 134.005(b) (West 2011); Moore v. Amarillo-
Panhandle Humane Soc’y, Inc., 541 S.W.3d 403, 405 (Tex. App.—Amarillo 2018,
pet. denied).
Because we have reversed the trial court’s ruling on Chapman’s declaratory
judgment claim, the Defendants’ have not yet prevailed on their defense to those
claims. On the other hand, we affirmed the summary judgment order to the extent
the trial court dismissed Chapman’s Texas Theft Liability Act claims. As the
prevailing party, the Defendants were entitled to an award on these attorney’s fees
and costs upon presenting evidence of a reasonable fee. See Tex. Civ. Prac. & Rem.
Code Ann. § 134.005(b).
38
Chapman moved for both a no-evidence and traditional summary judgment
against Defendants claiming they were not entitled to these fees. See Tex. R. Civ. P.
166a(c), (i). In his motion, Chapman asserted that Defendants failed to provide any
evidence of the reasonableness of the fees incurred defending the theft claim. See El
Apple I, Ltd. v. Olivas, 370 S.W.3d 757, 764 (Tex. 2012); Arthur Anderson & Co. v.
Perry Equip. Corp., 945 S.W.2d 812, 818 (Tex. 1997). Chapman further argued
Defendants’ claim for attorney’s fees should be dismissed because they relied on an
employment agreement between Defendants’ law firm and Arfeen, dated April 23,
2015, which he asserts was insufficient to satisfy their burden to prove the amount
and necessity of a reasonable fee.
In response, Defendants requested that the trial court take judicial notice of
the case file and note that Defendants had made repeated appearances in the case.
Defendants stated that “[p]lainly, reasonable and necessary attorney’s fees have been
incurred with respect to the defeat of . . . the Theft Liability Act claims.” Defendants
acknowledge the contract between Arfeen and the law firm failed to segregate the
fees Arfeen agreed to pay among all Arfeen’s businesses or between the defense of
Chapman’s claims. Nevertheless, they argue the agreement Arfeen signed to pay
attorney’s fees still serves at least as “circumstantial evidence” on some of the
Anderson factors.
39
Texas law does not require detailed billing records or other documentary
evidence as a prerequisite to awarding attorney’s fees. See, e.g., Tex. Commerce
Bank, Nat’l Ass’n v. New, 3 S.W.3d 515, 517–18 (Tex. 1999) (per curiam); Save Our
Springs Alliance, Inc. v. City of Dripping Springs, 304 S.W.3d 871, 892–93 (Tex.
App.—Austin 2010, pet. denied). “It has consistently been held that an attorney’s
testimony about his experience, the total amount of fees, and the reasonableness of
the fees charged is sufficient to support an award.” Metroplex Mailing Servs., LLC
v. RR Donnelley & Sons Co., 410 S.W.3d 889, 900 (Tex. App.—Dallas 2013, no
pet.) (citing In re A.B.P., 291 S.W.3d 91, 99 (Tex. App.—Dallas 2009, no pet.).
Parties seeking attorney’s fees must segregate between claims for which they are
recoverable and claims for which they are not. Tony Gullo Motors I, LP v. Chapa,
212 S.W.3d 299, 311 (Tex. 2006). It was Defendants’ burden on summary judgment
to raise an issue of material fact that reasonable and necessary fees were incurred as
the prevailing party to the Texas Theft Liability Act claim, not conclusively establish
the amount of those fees. See Tex. R. Civ. P. 166a(c), (i); Ford Motor Co. v.
Ridgway, 135 S.W.3d 598, 600 (Tex. 2004).
The amount of reasonable and necessary attorney’s fees that Defendants
incurred is determinable at trial. We sustain Defendants’ first issue, and reverse and
remand the case to the trial court for further proceedings, as required on the
40
Defendants’ claims for attorney’s fees and costs as related to their Texas Theft
Liability claims. We reverse and remand the trial court’s order dismissing the
Defendants’ claim for attorney’s fees associated with Chapman’s declaratory
judgment claims and remand the case to the trial court for further proceedings
dependent upon the resolution of Chapman’s declaratory judgment claims.
B. Cross-Appeal Issue Two: Alleged Improper Grant of Summary Judgment
on Issue Not Raised in Summary Judgment Motion
In their second issue, Defendants contend the trial court improperly granted
summary judgment on a cause of action not addressed in Chapman’s motion.
Defendants point to their third amended counter-petition, which they filed after
Chapman moved for summary judgment and they assert it raised a new claim.
Defendants’ claim Chapman’s actions or inactions resulted in them having to defend
a lawsuit filed against them by another entity. While this is a new allegation, it is not
a new cause of action. Defendants’ claimed that Chapman had breached his fiduciary
duty or his duty of care to them in their earlier pleadings. Chapman’s motion
addressed the breach of duty claims. We overrule Defendants’ second issue.
C. Cross-Appeal Issue Three: Business Judgment Rule Defense to Defendants’
Counter-Claims for Breach of Fiduciary Duty and Duty of Care
In Defendants’ third issue, they argue the trial court improperly granted
summary judgment relief for Chapman because the business judgment rule did not
41
immunize him from liability for all his actions. Defendants claim Chapman’s
actions, which were the subject of their counterclaim, were beyond the protections
afforded by the business judgment rule. The Defendants based one of their claims
against Chapman on a letter sent to Defendants notifying them of an entity’s intent
to sue Defendants based on their alleged breach of contract with that entity.
Defendants claim Chapman received this letter and failed to notify them about it,
resulting in the entity suing on a claim they ultimately settled. Defendants also claim
that Chapman’s alleged failure to notify others regarding problems with Harbor
Hospital of Southeast Texas eventually caused it to lose its operating license. Finally,
Defendants argue that Chapman’s failure to take any actions regarding “Medicare
Gap” issues caused some of the Defendants to incur fines for violating various
federal regulations.
Company officers owe a fiduciary duty to the company, which “‘includes the
dedication of [their] uncorrupted business judgment for the sole benefit of the
[company].’” Ritchie v. Rupe, 443 S.W.3d 856, 868 (Tex. 2014) (quoting Int’l
Bankers Life Ins. Co. v. Holloway, 368 S.W.2d 567, 577 (Tex. 1963)). As a fiduciary,
a company officer owes the company “a strict duty of ‘good faith and candor,’ as
well as ‘the general duty of full disclosure respecting matters affecting the
principal’s interests’; there is a ‘general prohibition against the fiduciary’s using the
42
relationship to benefit his personal interest, except with the full knowledge and
consent of the principal.” Hawthorne v. Guenther, 917 S.W.2d 924, 934 (Tex.
App.—Beaumont 1996, writ denied) (quoting Chien v. Chen, 759 S.W.2d 484, 495
(Tex. App.—Austin 1988, no writ)). Similarly, “[a] managing partner has a duty to
administer the partnership affairs solely for the benefit of the partnership” and “may
not place himself in a position where it benefits him to violate this duty.” Id.
However, the business judgment rule generally protects company officers and
directors, who owe fiduciary duties to the company, from liability for alleged
breaches of duties that are based on actions that are negligent, unwise, or imprudent
if the actions were “‘within the exercise of their discretion and judgment in the
development or prosecution of the enterprise in which their interests are involved.’”
Sneed v. Webre, 465 S.W.3d 169, 178 (Tex. 2015) (quoting Cates v. Sparkman, 11
S.W.846, 849 (Tex. 1889). Nonetheless, the business judgment rule does not apply
to protect a company officer from liability for acts that are dishonest, fraudulent, or
self-dealing. Id.
Defendants claim Chapman’s actions or inactions amount to gross-
negligence, but they do not claim or argue that Chapman’s actions or inactions were
fraudulent, dishonest, or that he engaged in any self-dealing. See id. Negligent or
grossly negligent conduct falls within the business judgment rule. And, the summary
43
judgment evidence is undisputed that Arfeen knew that the entity sued one of
Arfeen’s entities, as Arfeen hired an attorney to defend the suit. Based on our review
of the record, we conclude Chapman established the business judgment rule applied
to the conduct the Defendants relied on for their breach of fiduciary duty and breach
of loyalty claims. We overrule Defendants’ third issue.
V. CONCLUSION
In conclusion, the trial court erred in its February 29, 2016 order that granted
the Ownership Entities’ summary judgment motion against Chapman for his four-
year claims based on limitations. We reverse and remand the case to the trial court
to consider Chapman’s claims governed by the four-year statute of limitations—
declaratory judgment requests, breach of contract, breach of fiduciary duty, and
fraud—against Qamar U. Arfeen; Arfeen Properties, LP; Harbor Hospice of
Beaumont, LP; Harbor Hospice of Gulf Coast, LP; Harbor Hospice of Baytown, LP;
Harbor Hospice of Austin, LP; Harbor Hospice of Oakdale, LP; Harbor Hospice of
Lafayette, LP; Harbor Healthcare System, LP; Harbor Hospital of Southeast Texas,
LP; HHCS Managers, LLC; and Harbor Hospice Managers, LLC. With respect to
Harbor Hospice of Lake Charles, LP and Harbor Hospital Land Investors of
Southeast Texas, we reverse the trial court’s order dated February 29, 2016, barring
Chapman’s claims against them and remand their claims for further proceedings in
44
the court below. We affirm the trial court’s judgment of February 29, 2016
dismissing Chapman’s conversion and theft claims against all parties, except Harbor
Hospice of Lake Charles, LP and Harbor Hospital Land Investors of Southeast
Texas. With respect to Chapman’s claims asserting ownership interests in the Thirty-
Nine Entities, we affirm the trial court’s February 29, 2016 summary judgment order
dismissing all of Chapman’s claims against these entities.
Regarding the Defendants’ claims, we reverse the July 22, 2016 judgment as
to the Defendants’ claims for attorney’s fees and remand the proceeding to the trial
court on those claims. We affirm the trial court’s July 22, 2016 summary judgment
order dismissing all of Defendants’ claims against Chapman for breach of fiduciary
duty and duty of loyalty.
AFFIRMED IN PART; REVERSED AND REMANDED IN PART.
_________________________
CHARLES KREGER
Justice
Submitted on September 28, 2017
Opinion Delivered August 30, 2018
Before McKeithen, C.J., Kreger and Horton, JJ.
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