Lentz Engineering, L.C. v. Alden Brown ( 2011 )

Affirmed and Memorandum Opinion filed September 27, 2011.
In The
Fourteenth Court of Appeals
NO. 14-10-00610-CV
LENTZ ENGINEERING, L.C., Appellant
V.
ALDEN BROWN, Appellee
On Appeal from the County Civil Court at Law No. 3
Harris County, Texas
Trial Court Cause No. 923819
MEMORANDUM OPINION
Appellant Lentz Engineering, L.C. sued appellee Alden Brown for breach of
contract and quantum meruit. Lentz claimed that Brown was liable as a partner in a
general partnership with William Wilkins, who contracted for Lentz’s services. After a
bench trial, the court rendered a final judgment that Lentz take nothing from Brown. In
three issues, Lentz argues that Brown judicially admitted he was a partner with Wilkins,
and that the evidence is legally and factually insufficient to support the trial court’s
judgment. We affirm.
BACKGROUND
Wilkins approached Brown in late 2004 or early 2005 with a proposal to purchase
and develop a 20-acre tract of land in Manvel, Texas. Wilkins entered into a contract
with a third party in January 2005 to purchase the property. Brown and Wilkins met with
an attorney in February and agreed to form a Texas limited liability company (LLC).
Brown gave Wilkins $400,000 in March to purchase the property, and Wilkins acquired
the property for himself on April 13, 2005. One day later, the attorney filed articles of
organization for Manvel Villa Development, LLC, which identified Brown and Wilkins
as managers. Brown and Wilkins also established a bank account for the LLC.
Brown became suspicious of Wilkins’s conduct during the summer and undertook
efforts to recover his money and obtain title in the property. Meanwhile, Wilkins entered
into a contract with Lentz in June 2005 for Lentz to provide engineering services related
to the property. Lentz performed these services but did not turn over the work product
because Lentz was never paid.
Lentz sued Brown and Wilkins for breach of contract and quantum meruit, and
Wilkins defaulted. After a bench trial, the court rendered judgment that Lentz take
nothing from Brown. The court issued findings of fact and conclusions of law,
specifically finding that (1) Brown and Wilkins agreed to establish the LLC for the
purpose of owning and developing the property; (2) they never were general partners; and
(3) Brown could not be personally liable for the contract between Lentz and Wilkins.
Lentz appealed.
JUDICIAL ADMISSION
In its first issue, Lentz argues that the trial court erred in finding that there was no
general partnership between Brown and Wilkins because Brown judicially admitted in a
motion for summary judgment that a partnership existed between Brown and Wilkins.
Brown responds that he did not judicially admit this fact, and regardless, Lentz waived
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the right to rely on any admission because Lentz did not object to contrary evidence at
trial.
To be considered a judicial admission, a party’s statement must be clear,
deliberate, and unequivocal. Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887,
905 (Tex. 2000). If the admission is not retracted, it will have conclusive effect and bar
the admitting party from later disputing the admitted fact. See Holy Cross Church of God
in Christ v. Wolf, 44 S.W.3d 562, 568 (Tex. 2001); Griffin v. Superior Ins. Co., 338
S.W.2d 415, 418 (Tex. 1960). A statement made in a motion for summary judgment may
constitute a judicial admission. Sherman v. Merit Office Portfolio, Ltd., 106 S.W.3d 135,
140 (Tex. App.—Dallas 2003, pet. denied); see Valdes v. Moore, 476 S.W.2d 936, 940
(Tex. Civ. App.—Houston [14th Dist.] 1972, writ ref’d n.r.e.). But we consider the entire
motion and other documents in the record to determine whether a statement is clear,
deliberate, and unequivocal. See In re Spooner, 333 S.W.3d 759, 764–65 (Tex. App.—
Houston [1st Dist.] 2010, orig. proceeding [mand. denied])) (finding no admission when
the statement was read ―in the context of the summary judgment proceeding [and] the
mandamus records as a whole‖); Highlands Ins. Co. v. Currey, 773 S.W.2d 750, 755
(Tex. App.—Houston [14th Dist.] 1989, writ denied) (finding no admission based on a
statement made in a motion to dismiss because the party specifically denied the same fact
in its first amended answer and counterclaim); Barstow v. State, 742 S.W.2d 495, 509
(Tex. App.—Austin 1987, writ denied) (finding no admission because the remainder of
the motion contained conflicting statements).
Here, Brown’s motion for summary judgment included the following statements:
(1) ―Although Wilkins and Brown entered into a partnership to acquire the Manvel
property, that partnership was not formed until March 2005‖; (2) ―In March 2005, Brown
and Wilkins entered into a business partnership where Brown agreed to advance funds to
Wilkins for acquisition of the Manvel Property‖; and (3) ―Wilkins and Brown did not
establish their partnership until March 2005.‖
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In his summary judgment reply brief, Brown argued that ―there was no valid
partnership‖ and he and Wilkins ―never had a valid partnership.‖ Brown also filed an
amended answer and counterclaim, specifically denying the existence of a partnership
between him and Wilkins. In the motion for summary judgment itself, Brown argued that
he was not in a general partnership with Wilkins at the time Wilkins entered into the
contract with Lentz — the key time period for determining whether Brown could be
liable for Wilkins’s conduct.1 Viewed in this context, the statements at issue are not
clear, deliberate, and unequivocal.
Even if the statements at issue could be construed as judicial admissions, Lentz
waived this argument by failing to object to the admission of evidence contrary to the
alleged judicial admission. See, e.g., Houston First Am. Sav. v. Musick, 650 S.W.2d 764,
769 (1983) (―The party relying on his opponent’s pleadings as judicial admissions of fact,
however, must protect his record by objecting to the introduction of evidence contrary to
that admission of fact and by objecting to the admission of any issue bearing on the fact
admitted.‖); Field v. AIM Mgmt. Group, Inc., 845 S.W.2d 469, 473 (Tex. App.—Houston
[14th Dist.] 1993, no writ) (holding that the trial court erred when granting a directed
verdict based on a judicial admission because the appellee waived the judicial admission
argument ―when evidence contrary to the purported admission [was] heard without
objection‖). Lentz did not object to the admission of any evidence at trial — including
the following evidence contrary to the alleged admission: (1) Wilkins’s testimony that the
LLC was formed for ―continuing on with the project‖ and ―to finish the project‖; (2)
Brown’s testimony that he and Wilkins formed the LLC ―as a proper business protocol‖
and that they ―never agreed to be partners in the first place‖; and (3) the certificate of
organization for the LLC, which showed Brown and Wilkins as managers and was dated
prior to the contract between Wilkins and Lentz.
1
Lentz originally alleged in its petition that it entered into a contract with Wilkins on or about
December 2004, but in response to Brown’s motion, Lentz argued that the contract was entered into in
June 2005 — after the ―admission‖ by Brown that a partnership was formed in March 2005.
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Lentz’s first issue is overruled.
LEGAL AND FACTUAL SUFFICIENCY OF THE EVIDENCE
In its second and third issues, Lentz challenges the legal and factual sufficiency of
the evidence supporting various findings of fact and conclusions of law made by the trial
court. Essentially, Lentz challenges the trial court’s factual determination that Brown and
Wilkins were not partners in a general partnership at the time Lentz entered into a
contract with Wilkins.2
2
In particular, Lentz challenges the following findings and conclusions:
Findings of Fact
...
5. . . . Wilkins and Brown entered into an agreement to establish a limited
liability company and agreed that the Manvel Property would be owned and developed
by the limited liability company.
6. . . . Wilkins and Brown met with an attorney to establish a limited
liability company called Manvel Villa Development, LLC, for purposes of owning and
developing the Manvel Property.
...
9. . . . [U]sing the funds advanced by Brown and in furtherance of his
scheme, Wilkins acquired the Manvel Property for himself.
10. Wilkins never had any intention of giving Brown and interest in the
Manvel Property as promised. Instead, Wilkins intended to acquire the Manvel Property
in his own name and for his own use and benefit.
...
24. The only business relationship Brown entered into with Wilkins with
respect to the Manvel Property was to establish a limited liability company for the
purposes of owning and developing the Manvel Property. Brown and Wilkins were never
general partners.
...
Conclusions of Law
1. Wilkins alone is liable to Lentz Engineering for breach of contract.
2. Brown is entitled to a declaration that (i) Brown never entered into a
general partnership with Wilkins and/or any company owned and/or operated by Wilkins,
including but not limited to W.C. Financial Corp. and W.C. Mortgage, (ii) Brown’s only
agreement with Wilkins regarding the Manvel Property was to form Manvel Villa
Development, LLC, and to own and develop the Manvel Property through Manvel Villa
Development, LLC, and (iii) Brown is not personally liable for any contracts entered into
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I. Principles of Partnership and LLC Formation and Liability
A general partnership is an association of two or more persons to carry on a
business for profit as owners, regardless of whether the persons intend to create a
partnership or whether the association is actually called a ―partnership.‖ Tex. Bus. Orgs.
Code Ann. § 152.051(b) (Vernon 2009). Factors indicating that persons have created a
partnership include:
(1) receipt or right to receive a share of profits of the business;
(2) expression of an intent to be partners in the business;
(3) participation or right to participate in control of the business;
(4) agreement to share or sharing:
(A) losses of the business; or
(B) liability for claims by third parties against the business; and
(5) agreement to contribute or contributing money or property to the business.
Id. § 152.052(a). Whether a partnership exists depends on the totality of the
circumstances. Ingram v. Deere, 288 S.W.3d 886, 903–04 (Tex. 2009). Although
conclusive evidence of all of these factors will establish the existence of a partnership as
a matter of law, id. at 904, evidence of all of these factors is not required to show the
existence of a partnership, id. at 896. The absence of evidence of all of the factors will
preclude the finding of a partnership. Id. at 904. And even conclusive evidence of only
one of the factors usually will be insufficient to show the existence of a partnership. Id.
An association or organization is not a partnership if it was created under the
statute governing the formation of LLCs. See Tex. Bus. Orgs. Code Ann. § 152.051(c).
An LLC is formed when a certificate of formation is filed with the Secretary of the State
of Texas. See id. §§ 1.002(22), 3.001(c), 4.051.
by Wilkins, including the contract Wilkins entered into with Lentz Engineering at issue in
this case.
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Partners in a general partnership may be held personally liable for debts or
obligations of the partnership. See id. § 152.304. But managers or members of an LLC
generally may not be held personally liable for the debts or obligations of the company.
See id. § 101.114.
II. Legal Sufficiency
When conducting a legal sufficiency review, we view the evidence in the light
most favorable to the verdict and indulge every reasonable inference that would support
it. City of Keller v. Wilson, 168 S.W.3d 802, 822 (Tex. 2005). We credit evidence
favorable to the verdict if reasonable fact finders could and disregard contrary evidence
unless reasonable fact finders could not. Id. at 827. When an appellant challenges the
legal sufficiency of an adverse finding on an issue for which the appellant had the burden
of proof, the appellant must demonstrate that the evidence conclusively establishes all
vital facts in support of the issue. Dow Chem. Co. v. Francis, 46 S.W.3d 237, 241 (Tex.
2001); TH Invs., Inc. v. Kirby Inland Marine, L.P., 218 S.W.3d 173, 189 (Tex. App.—
Houston [14th Dist.] 2007, pet. denied). The appellant must show that there is no
evidence to support the fact finder’s finding and that the evidence conclusively
establishes the opposite of the finding. See Dow, 46 S.W.3d at 241 (citing Sterner v.
Marathon Oil Co., 767 S.W.2d 686, 690 (Tex. 1989)); TH Invs., 218 S.W.3d at 189–90.
The ultimate test for legal sufficiency is whether the evidence would enable a reasonable
and fair-minded fact finder to reach the verdict under review. Wilson, 168 S.W.3d at 827.
Here, Lentz had the burden to establish the existence of a partnership. See Valero
Energy Corp. v. Teco Pipeline Co., 2 S.W.3d 576, 585 (Tex. App.—Houston [14th Dist.]
1999, no pet.); Negrini v. Plus Two Adver., Inc., 695 S.W.2d 624, 631 (Tex. App.—
Houston [1st Dist.] 1985, no writ). Thus, Lentz must show on appeal that there is no
evidence to support the trial court’s finding and that all of the evidence conclusively
establishes the existence of a partnership between Brown and Wilkins when Lentz and
Wilkins entered into a contract. Lentz has not done so.
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First, there is some evidence to support the trial court’s finding of no partnership.
Both parties expressed intent to form an LLC. Wilkins testified that he and Brown
established an LLC ―[f]or purposes of developing the Manvel property,‖ ―[c]ontinuing on
with the project,‖ and ―to finish the project.‖ The purpose of the meeting with an
attorney in February 2005 was in part to establish the LLC. Brown testified that Wilkins
recommended forming an LLC ―as proper business protocol.‖ Brown also testified,
―[W]e never agreed to be partners in the first place. I mean, we — we were doing the
project together. We weren’t planning on doing this, you know, staying together as a
partnership or anything like that.‖ Wilkins testified he opened a bank account in the
name of the LLC ―to do the Manvel,‖ and ―[t]he account was to finish the project.‖ The
certificate of organization for the LLC became effective on April 14, 2005 — before the
date on which Lentz entered into a contract with Wilkins.
Although there is some evidence pointing to the existence of a partnership, all of
the evidence does not conclusively establish this fact. There is uncontroverted evidence
that Brown and Wilkins agreed to split profits from the development and sale of the
property ―50/50‖ after Brown recovered his initial investment costs. There also is
uncontroverted evidence that Brown and Wilkins both participated or had a right to
participate in control of the business: they testified that Wilkins initially was to do all of
the legwork in connection with purchasing and developing the property, but Brown later
sent a cease-and-desist letter to Wilkins claiming that all expenses had to be approved by
Brown in writing. Further, there is evidence of Brown’s expression of intent to be
partners.3 But the evidence of intent is controverted, as discussed above, by Brown’s
testimony at trial and the formation of the LLC.
3
In July 2005, Brown filed a sworn ―declaration of ownership‖ in an attempt to have the property
put in his name; he claimed a 50 percent ownership interest in the property and stated that he had ―an
agreement with William Wilkins to be partners in connection with the purchase, development and/or the
sale of real estate.‖ In a later suit against Wilkins to recover the property, Brown alleged that he and
Wilkins ―entered into a business partnership, where Brown agreed to entrust $605,000 to Wilkins for the
acquisition of certain real estate.‖
8
Thus, we are left with uncontroverted evidence of only two of the factors: splitting
profits and participating in control of the business. We conclude that the totality of the
circumstances does not conclusively establish the existence of a partnership in this case.
Cf. Sysco Food Servs. of Austin, Inc. v. Miller, No. 03-03-00078-CV, 2003 WL
21940009, at *3–4 (Tex. App.—Austin Aug. 14, 2003, no pet.) (mem. op.) (holding,
prior to the totality-of-the-circumstances test, the appellant failed to conclusively
establish the existence of a partnership and individual liability for the appellee; although
there was some evidence of sharing profits and mutual control over the business, there
was no evidence of sharing losses or appellee’s authorization to be liable as a partner, and
the appellant did not enter into a contract with the appellee’s alleged partner until after
the formation of an LLC and without any representation that the appellee was a general
partner).
Lentz also argues that the formation of an LLC does not displace a preexisting
partnership, and that Brown and Wilkins’s conduct before formation of the LLC
established a partnership. For example, Lentz notes that Brown transferred money to
Wilkins in March 2005 and Wilkins purchased the property shortly before the LLC was
formed. Although courts have held promoters of a company may be liable on contracts
made by other promoters prior to formation of the company as if the promoters were
partners, Lentz has not cited any authority to suggest that liability should be imposed on
one promoter because of another promoter’s conduct after the formation of the company.
See Bank of De Soto v. Reed, 50 Tex. Civ. App. 102, 109–10, 109 S.W. 256, 260 (1908,
no writ) (―It is a general principle that until a corporation is legally organized the co-
adventures will, as to third persons, be liable as partners for all debts contracted on behalf
of the aggregated body with their consent, express or implied.‖ (emphasis added)).4 The
mere fact that promoters of a company engage in conduct to further the company’s
4
See also 20 Robert W. Hamilton et al., Texas Practice Series: Business Organizations § 19.2
(2d ed. 2004) (suggesting courts will draw on corporation-promoter cases to resolve LLC-promoter
issues).
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formation and business does not per se establish a partnership under the Texas Business
Organizations Code so that partner-like liability of promoters may be extended beyond
the date of the company’s formation.
III. Factual Sufficiency
When conducting a factual sufficiency review, we consider and weigh all of the
evidence presented at trial. TH Invs., 218 S.W.3d at 190; see Dow Chem., 46 S.W.3d at
242. When an appellant challenges the factual sufficiency of an adverse finding on an
issue for which the appellant had the burden of proof, the appellant must demonstrate that
the finding is against the great weight and preponderance of the evidence. Dow Chem.,
46 S.W.3d at 242; TH Invs., 218 S.W.3d at 190. We will set aside a verdict only if the
finding is so against the great weight and preponderance of the evidence that it is clearly
wrong and unjust. Dow Chem., 46 S.W.3d at 242.
As discussed above, Lentz had the burden to establish the existence of a
partnership; thus, Lentz must show that the trial court’s finding of no partnership is
against the great weight and preponderance of the evidence. We have reviewed all of the
evidence and found that there is some uncontroverted evidence weighing against the trial
court’s finding — namely, evidence of Brown and Wilkins’s agreement to split profits
and their rights to participate in the control of the business. But there also is some
uncontroverted evidence weighing in favor the trial court’s finding — only Brown
contributed money or property to the business. Further, there is some controverted
evidence weighing both against and in favor of the trial court’s finding — in particular,
evidence of the expressions of intent to form a partnership and the formation of an LLC
to carry out the business. Finally, there is no evidence that the parties agreed to share
losses of the business or liability for claims by third parties. Under these circumstances,
we do not believe the trial court’s finding of no partnership is so against the great weight
and preponderance of the evidence that it is clearly wrong and unjust.
Lentz’s second and third issues are overruled.
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CONCLUSION
Brown did not judicially admit the existence of a partnership, and Lentz waived
this argument by failing to object to evidence contrary to the alleged admission. The
evidence in this case does not conclusively establish the existence of a partnership
between Brown and Wilkins, and the trial court’s finding of no partnership is not against
the great weight and preponderance of the evidence. Having overruled all of Lentz’s
issues, we affirm the trial court’s judgment.
/s/ William J. Boyce
Justice
Panel consists of Chief Justice Hedges and Justices Seymore and Boyce.
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