Eric E. Perez and Edmundo Perez v. Le Prive Enterprise, L.L.C. D/B/A Mekano Live & Grill and Manuel Arellano ( 2015 )

ACCEPTED
14-15-00291-CV
FOURTEENTH COURT OF APPEALS
HOUSTON, TEXAS
8/19/2015 4:40:06 PM
CHRISTOPHER PRINE
CLERK
CAUSE NUMBER: 14-15-00291-CV
IN THE FILED IN
14th COURT OF APPEALS
HOUSTON, TEXAS
COURT OF APPEALS FOR THE FOURTEENTH DISTRICT
8/19/2015 4:40:06 PM
CHRISTOPHER A. PRINE
Clerk
at HOUSTON
ERIC E. PEREZ and EDMUNDO PEREZ,
Appellants,
V.
LE PRIVE ENTERPRISES, L.L.C. d/b/a and
MEKANO LIVE & GRILL, and MANUEL ARELLANO,
Appellees.
On Appeal from 127' Judicial District Court
Harris County, Texas
Trial Court Cause No. 2013-74140
Brief of Appellant
James Nathan Overstreet
State Bar No. 00784706
J. Nathan Overstreet & Assoc., P.C.
8711 Highway 6 North, Suite #230
Houston, Texas 77095-2477
(281) 855-1000
Fax (281) 855-4580
overstreetlawfirm@gmail.corn
ATTORNEYS FOR APPELLANTS
ERIC E. PEREZ, and EDMUNDO PEREZ
CAUSE NUMBER: 14-15-00291-CV
ERIC E. PEREZ and EDMUNDO PEREZ,
Appellants,
V.
LE PRIVE ENTERPRISES, L.L.C. d/b/a and
MEKANO LIVE & GRILL, and MANUEL ARELLANO,
Appellees.
IDENTITY OF PARTIES AND COUNSEL
The following is a complete list of all parties to the trial court's appealable
order, as well as the names and addresses of all trial and appellee counsel.
PARTIES COUNSEL
Defendants/Appellants
ERIC E. PEREZ, and James Nathan Overstreet
EDMUNDO PEREZ State Bar No. 00784706
J. Nathan Overstreet & Assoc., P.C.
8711 Highway 6 North, Suite #230
Houston, Texas 77095
(281) 855-1000
Fax (281) 855-4580
PARTIES COUNSEL
Plaintiffs/Appellees
LE PRIVE ENTERPRISES, LLC Daniel W. Jackson
D/B/A MEKANO LIVE & GRILL Scott K. Vastine
MANUEL ARELLANO Jennifer H. Frank
The Jackson Law Firm
3900 Essex Lane, Suite #1116
Houston, Texas 77017
(713) 522-4435
Fax (713) 527-8850
daniel@jacksonlaw-tx.corn
Trial Court
Hon. Judge R.K. Sandi11 Presiding Judge
Harris County Civil Courthouse 127th Civil District Court
201 Caroline, 10th Floor
Houston, Texas 77002
(713) 368-6161
TABLE OF CONTENTS
IDENTITY OF PARTIES AND COUNSEL
TABLE OF CONTENTS. iv
INDEX OF AUTHORITIES vi
STATEMENT OF THE CASE ix
ISSUED PRESENTED xi
Issue 1: Did the trial court err in finding that Eric and Emundo Perez
have no ownership interest in Le Prive Enterprises, L.L.C.?
Issue 2: Did the trial court err in limiting the award for Eric Perez
against Le Prive Enterprises, L.L.C. to $2,510.00 when the evidence showed
that Eric Perez invested at least $163,55.26 into the business and failing to
award any recovery to Edmundo Perez where the evidence showed that he
invested time, effort and $66,754.84 into the business?
Issue 3: Did the trial court err in awarding a judgment against Eric E.
Perez and Edmundo Perez in favor of Le Prive Enterprises, LLC in the
amount of $16,500.00 for conversion?
STATEMENT OF THE FACTS. 1
ARGUMENT AND AUTHORITIES 10
I. The trial court erred by determining that the Perez brothers did not
have any ownership interest in Le Prive Enterprises, LLC 10
A. The totality of the circumstances point to the existence of a
partnership. 10
B. The certificate of formation does not preclude finding of Perez'
ownership, because it does not need not identify all members. 12
1V
C. The Texas Business Organizations Code provides for oral
operating agreements by limited liability company amongst
members. 13
D. The Partnership Dissolution Agreement satisfies any writing
requirement, if one exists 14
E. Indefinite duration of partnership means that agreement falls
outside of ambit of Statute of Frauds 16
F. Partial performance insulates partnership agreement from
Statute of Frauds. 18
II. The trial court erred in limiting the award for Eric Perez against Le Prive
Enterprises, L.L.C. to $2,510.00 when the evidence showed that Eric Perez
invested at least $163,55.26 into the business and failing to award any
recovery to Edmundo Perez where the evidence showed that he invested
time, effort and $66,754.84 into the business. 19
III. The trial court erred in awarding a judgment in favor of the Perez brothers
in the amount of $16,000.00 for conversion. 20
PRAYER 23
CERTIFICATE OF COMPLIANCE. 25
CERTIFICATE OF SERVICE 25
INDEX OF AUTHORITIES
Bra tcher v. Dozier,
162 Tex. 319, 346 S.W.2d 795 (1961) 17. 18
Coastal Plains Dev. Corp. v. Micrea, Inc.,
572 S.W.2d 285, 287 (Tex.1978) 10,11
Davis v. City of San Antonio,
752 S.W.2d 518, 522 (Tex. 1988). 19
Dolenz v. Nat'l Bank of Tex. at Fort Worth,
649 S.W.2d 368, 370 (Tex. App.-Fort Worth 1983, writ refd n.r.e.). . . . . 21
Donald v. Phillips, 13 S.W.2d 74,76 (Tex.1929). 10
Eisenbeck v. Buttgen, 450 S.W.2d 696
(Tex.Civ. App. Dallas 1970, no writ) 17
First Nat. Bank of Missouri City v. Gittelman,
788 S.W.2d 165, 169
(Tex. App.--Houston [14th Dist.] 1990, writ denied) 21
Friedlander v. Hillcoat,
14 S.W. 786, 787 (Tex.1890) 10
Hall v. Hall,
158 Tex. 95, 308 S.W.2d 12 (1957) 17
Hooks v. Bridgewater,
111 Tex. 122, 229 S.W. 1114, 1116 (1921) 17
Imperial Sugar Co. v. Torrans,
604 S.W.2d 73, 74 (Tex. 1980). 21
Ingram vs. Deere,
288 S.W.3d 886 (Tex. 2009) 10
vi
Lone Star Beer, Inc. v. Republic Nat'l Bank of Dallas,
508 S.W.2d 686, 687 (Tex. Civ. App.-Dallas 1974, no writ). 20
Morey v. Page,
802 S.W.2d 779, 786 (Tex. App.-Dallas 1990, no writ). 20
Sapphire Royalty Company v. Davenport,
306 S.W.2d 202 (Tex.Civ.App. Houston 1957, writ refd n.r.e.). . . . 16,17
Southwind Aviation, Inc. v. Avendano,
776 S.W.2d 734, 737 (Tex. App.--Corpus Christi 1989, writ denied).. . . . 21
Southern States Transp., Inc. v. State,
774 S.W.2d 639, 640 (Tex. 1989). 19
Stafford v. Stafford,
726 S.W.2d 14, 16 (Tex. 1987). 19
Taiwan Shrimp Farm Village Ass 'n, Inc. v. U.S.A. Shrimp Farm
Development, Inc.,
915 S.W.2d 61, 71 (Tex. App.--Corpus Christi 1996, writ denied). 22
Terrazas v. Sullivan,
470 S.W.2d 904 (Tex.Civ.App. El Paso 1971, writ refd n.r.e ) 17
United Mobile Networks, L.P. v. Deaton,
939 S.W.2d 146, 147-48 (Tex. 1997) 21
Welch v. Coca-Cola Enterprises., Inc.,
36 S.W.3d 532, 539 (Tex.App.Tyler 2000, no pet.). 18
Winkle Chevy-Olds-Pontiac, Inc. v. Condon,
830 S.W.2d 740, 746 (Tex. App.--Corpus Christi 1992, writ dism'd). . . . . 21
vii
TEXAS STATUTES
Tex. Bus. & Corn. Code Ann 16
Tex. Bus. Orgs. Code 13, 14, 15
viii
STATEMENT OF THE CASE
Nature of the Case: Manuel Arellano entered into a partnership agreement
with his cousins, Eric and Edmundo Perez, to own and operate a nightclub,
Mekano Live & Grill. The agreement contemplated that Manuel and Eric would
make capital contributions and that Edmundo Perez would manage the club. The
ownership percentages testified to by Eric and Edmundo and also recited in the
Partnership Dissolution Agreement were as follows: (Manuel Arellano - 35%, Eric
Perez - 35% and Edmundo Perez - 35%). RR vol. 6 at 75, Def.'s Ex. 10.
Prior to opening the nightclub, Manuel Arellano formed the Le Prive Enterprises,
L.L.C. and named himself as the sole member in the formation documents. Manuel
Arellano signed as guarantor of the lease for the club. RR vol. 6 at 47-59, H's Ex.
1 & 2.
The club opened with Edmundo acting as manager. At trial, Manuel denied that
Perez had any ownership rights and feigned ignorance of any of the Perez'
investments in the club. Eric invested $163,000.00+ into the club, and Edmundo
also had to pay in excess of $66,000.00 out of pocket to cover expenses because
Manuel refused to make any additional contributions.
Manuel Arellano unilaterally removed Edmundo Perez as manager and locked the
Perez brothers out. In response, Eric and Edmundo Perez removed some of the
personalty out of the club.
Manuel Arellano brought suit on a conversion claim and under the Texas Theft
Liability Act and set the matter for a temporary injunction hearing. The Court
ordered that the Perez brothers return the clubs' personalty, and the Perez brothers
complied.
Eric and Edmundo filed a counterclaim seeking declaration that they had an
ownership interest in the limited liability company and for damages related to
Manuel's breach of the agreement and fraud.
Trial court disposition: The trial court granted judgment against Eric and
Edmundo Perez, jointly and severally, for $16,500.00 in
favor of Le Prive Enterprises, L.L.C. The found that
ix
Manuel Arellano was the sole owner of the company.
The Court granted a judgment in favor of Eric Perez in
the amount of $2,510.00 against the company. The court
awarded the Perez brothers $9,500.00 for attorney's fees.
The trial court declined to award any damages to the
Perez brothers against Manuel Arellano individually. CR
vol. 2 at 539.
Trial Court: District Court, 127th Judicial District Court, Harris
County, Texas, R.K. Sandill, Cause Number: 2013-
74140
Parties on Appeal: Appellants: Eric Perez and Edmundo Perez
Appellees: Le Prive Enterprises, L.L.C. d/b/a Mekano
Live & Grill, and Manuel Arellano
ISSUES PRESENTED
Issue Number One
Did the trial court err in finding that Eric and Emundo Perez have no
ownership interest in Le Prive Enterprises, L.L.C.?
Issue Number Two
Did the trial court err in limiting the award for Eric Perez against Le Prive
Enterprises, L.L.C. to $2,510.00 when the evidence showed that Eric Perez
invested at least $163,55.26 into the business and failing to award any recovery to
Edmundo Perez where the evidence showed that he invested time, effort and
$66,754.84 into the business?
Issue Number Three
Did the trial court err in awarding a judgment against Eric E. Perez and
Edmundo Perez in favor of Le Prive Enterprises, LLC in the amount of
$16,500.00?
X1
STATEMENT OF FACTS
Factual Background
Eric Perez and Edmundo Perez are brothers and first cousins to Manuel
Arellano. RR vol. 5 at 38. Manuel was a truck driver who lived in Dallas, Eric
owned a car dealership for twelve years, and Edmundo had worked promoting and
managing latino night clubs. RR vol. Sat 131, RR vol. 5 at 38, RR vol. 5 at 130-
132. The Perez brothers lived in Houston. RR vol. 4 at 40-42.
The three cousins formed a partnership agreement in which they agreed to
open a nightclub together. There was consensus among the parties in their trial
testimony that Eric, Edmundo and Manuel agreed to open a nightclub at a meeting
which took place at an IHOP in Houston. All of them recalled that Manuel agreed
to contribute 70 percent of the capital, Eric agreed to front 30 percent of the
needed investment, and Edmundo agreed to actively manage the club at that
meeting. Compare RR vol. 5 at 39 with RR vol. 4 at 39, RR vol. 4 at 153-157, and
RR vol. Sat 129-131, 136.
At that time, the parties agreed that Manuel would put up 70% of the initial
capital and that Eric would be responsible for the remaining 30% of the needed
capital. The parties contemplated and agreed that Edmundo would actively
manage the club and bring his expertise as a person who had past experience
1
managing and working in clubs. The same pro rata allocation would also applied
with respect to the debts of the club; that is, Manuel would be held responsible for
70% and Eric would take on 30% of the expenses until such time as the club
turned profitable. RR vol. 4 at 154-155.
While there was unanimity with respect to the fact that the three cousins
reached an agreement whereby the three would join hands to own and operate a
business, Manuel Arellano testified that the deal was off right after in came to
putting pen to paper on the lease. RR vol. 5 at 39. According to him, the deal
busted because the Perez had neither the capital nor the credit to consummate the
deal. Id.
Manuel Arellano could not keep his story straight between his answers to
interrogatories, deposition and trial testimony. RR vol. 5 at 68 (deposition
testimony refused to answer question of whether Perez brothers had an ownership
interest in the club), RR vol. 5 at 39 (Edmundo would have 20 to 26 percent
ownership), RR vol. 5 at 69-71 (Eric had an obligation to front 30 percent of the
expenses and Eric had no such obligation). Manuel Arellano's strangest version of
the alleged partnership agreement was that he would front all of the money, that
Edmundo Perez would operate the club and Eric Perez would supervise in
2
exchange for 20 percent. Under this scenario, it is unclear what Edmundo Perez
would get for his efforts. The testimony was so garbled it is actually unclear who
would get what according to Manuel Arellano. RR vol. 5 at 72-74.
After equivocating, Manuel Arellano's final answer was that Eric Perez and
Edmundo Perez had no obligation to invest any money into the business. RR vol. 5
at 71.
Manuel Arellano suggested that Edmundo Perez and Eric Perez might some
day obtain ownership in the club in six or seven months time after it turned
profitable. RR vol. 5 at 39-40.
Edmundo and Eric Perez retained Veronica Martinez, a licensed real estate
broker, to negotiate the terms of a lease for the space which they found located at
9344 Richmond Avenue, Houston, Texas 77063. Veronica Martinez understood
that she represented a tripartite partnership even though she never spoke directly
with Manuel. RR vol. 4 at 94-97, 106. Veronica Martinez confirmed that leased
premises was meant to be used for a nightclub, owned and operated by Edmundo,
Eric and Manuel. RR vol. 4 at 95-96. The down payment was tendered by
Edmundo Perez. RR vol. 4 at 99. Shortly before the lease contract was finalized,
Edmundo Perez directed to have Veronica Martinez list Manuel Arellano as the
guarantor. RR vol. 4 at 97.
3
To protect the business, the partners agreed to form a limited liability
company prior to the date of the execution of the lease. RR vol. 4 at 46. This was
accomplished by the filing of formation documents with the Secretary of State in
March of 2012, which was filed by Eric Perez. RR vol. 6 at 1-3, H's Ex. 1, RR vol.
4 at 157. The articles identify Manuel Arellano as its sole member. Id. The cousins
conducted business without a written operating agreement because of mutual trust,
stemming from their family relationship. RR vol. 4 at 157.
Guillermo Altamirano held the liquor license perhaps of Eric Perez's status
in the United States. RR vol. 4 at 50. Later, the articles were amended to reflect
that Guillermo Altamirano as the sole managing member and deleting Manuel
Arellano as a member. RR vol. 5 at 44, RR vol. 6 at 59-61, H's Ex. 6.
Manuel Arellano signed the lease because he had a better credit score. RR
vol. 4 at 59. The electric, Comast and security system contracts were likewise put
in Manuel Arellano's name. RR vol. 4 at 61-62.
A company bank account was opened at Wells Fargo with Manuel Arellano
and Eric Perez as signatories. RR vol. 4 at 63.
Neither Eric Perez nor Edmundo Perez took any money from the business.
RR vol. 4 at 62.
4
Eric Perez invested in excess of $160,000.00 into the business. RR vol. 4 at
158. Eric Perez kept many of the receipts, but many of them were taken by Manuel
Arellano after the lockout. RR vol. 4 at 158-160, RR vol. 5 at 150. Eric Perez
offered $55,000.00 in receipts which were admitted by the Court. RR vol. 6 at
180-183, RR vol. 6, 438-545. Eric Perez showed the court an additional
$106,000.00 worth of expenditures in trial exhibit 9. RR vol. 6 at 546-556.
Eric Perez paid out of pocket for lights at the club, booths, performers,
carpeting, labor, kitchen, fryers, televisions, vent hood, signs, and employees. RR.
vol 4. at 185-199. Eric Perez paid a disproportionate share of the expenses because
Manuel Arellano failed to live up his obligation to pay seventy percent. RR. vol. 4
at 197-198, RR vol. 5 at 132-133, 136. When confronted by Eric Perez about
failing to cover the expenses, Manuel Arellano never denied his obligation;
instead, he simply offered excuses. RR vol. 4 at 188, RR vol. 5 at 136. In fact,
Manuel Arellano suggested to Eric Perez a number of times that the two of them
should go it alone and kick Edmundo Perez out of the business. RR vol. 4 at 197-
198, 201-202. These payments were not made as gifts but, instead, in reliance on
the promises made by Manuel Arellano. RR. vol. 4 at 203.
5
Even though, under any version of the partnership agreement, Edmundo
Perez had no obligation to invest any capital, Edmundo Perez was compelled to
advance in excess of $55,000.00 out of his pocket to keep the enterprise going.
Manuel Arellano called the CBS salesman, Ricardo Mena, who was in charge of
the Mekano Live radio advertising spots. Ricardo Mena confirmed that picked up
payments weekly and that $51,000.00 cleared the bank from Eric Perez's personal
bank account. RR vol. 4 at 84-87, RR vol. 6 at 412-425, RR vol. 4 at 205, RR vol.
5 at 137.
Even though the business was not yet turning a profit, it was on an upward
trajectory and enjoyed an excellent reputation. RR vol. 4 at 209-210. This is not
unusual in that it typically takes a year before a business like this turns a corner
and becomes profitable. RR vol. 5 at 143-145.
Without notice or permission, Manuel Arellano changed the locks on the
club Thanksgiving week in 2013. RR vol. 4 at 206, RR vol. 5 at 146-147. This
lockout was a breach of the partnership agreement. Id. Manuel Arellano simply
called and indicated to Eric Perez that he and his brother were out of the club and
that the locks were changed. RR vol. 4 at 209-210. Manuel Arellano explained
that he had the right to take this step because his name was on the lease. RR vol. 4
at 211.
6
Not surprisingly, Eric Perez and Edmundo Perez were upset with Manuel
Arellano changing the locks since they had invested over $200,000.00 into the
business and paid for many of the personalty. The Perez brothers went back into
the leased space to remove some of their belongings (sofas, lighting, lighting
equipment, and tables) on Saturday after Thanksgiving, but they returned it all in
accordance with the trial court's temporary injunction order on December 20,
2013. RR vol. 4 at 211-215, RR vol. 5 at 149-150, RR vol. 5 at 153.
Prior to filing suit, Manuel Arellano called the police, alleging that the
Perez brothers stole the property. RR. vol. 4 at 211. Cynthia Rayfield acted as their
attorney who spoke on their behalf to law enforcement. Ms. Rayfield, Esquire
provided documentation reflecting that the Perez brothers paid for the items, and
the district attorney declined to accept charges. RR vol. 5 at 116, RR vol. 5 at 150.
Manuel Arellano testified that the Perez brothers took furniture out for
approximately three weeks. RR vol. 5 at 61. Manuel Arellano testified that the loss
of furniture caused the club to lose business, rent furniture, and open one night of
the week. RR vol. 5 at 57. Manuel Arellano speculated that the Perez brothers took
the generator for the light because of a text from Eric and the fact that the
generator was gone the day after the furniture was returned. RR vol. 5 at 63-64.
Manuel Arellano indicated that he did not know the costs of renting but testified
7
that he spent $1,300.00 to get the lights going. RR vol. 5 at 64. Guillermo
Altamirano, the corporate representative for Le Prive Enterprise, LLC, could not
confirm whether the furniture belonged to the company or the Perez brothers. RR
vol. Sat 119-120.
Guillermo Altamirano testified that there was liquor missing, valued at
between 5 to 10 thousand dollars. RR vol. 105. This testimony could not survive
cross examination because he could not explain the fact that the club only spent
$2,650.00 in liquor from the lockout until the temporary injunction hearing. RR
vol. 5 at 124.
Contrary to the allegations made, the Perez brothers did not take the
generator or the alcohol. RR vol. 5 at 158.
Cynthia Rayfield drafted a Partnership Dissolution Agreement. RR vol. 5 at
151, RR vol. 4 at 110. The Partnership Dissolution Agreement correctly spelled
out the relative ownership of Le Prive Enterprises, LLC. RR vol. 5 at 151.
Manuel Arellano acknowledged signing the Partnership Dissolution
Agreement (Def.'s Ex. 10) which spelled out the relative ownership of the parties
as follows:
"This document is an agreement between partners Manuel Arellano, Eric E.
Perez, and Edmundo Perez (said partnership is incorporated as Le Prive
Enterprises, L.L.C. and is doing business as Mekano Live). Manuel
Arellano owns 35% of Le Prive Enterprises, LLC doing business as Mekano
8
Live, Eric Perez owns 35% of Le Prive Enterprises, LLC doing business as
Mekano Live, Edmundo Perez owns 30% of Le Prive Enterprises, LLC
doing business as Mekano Live."
RR vol. 5 at 74-75, RR vol. 6 at 556. Eric Perez and Edmundo Perez did not sign
the document. RR vol. 5 at 151.
Notwithstanding Manuel Arellano's signature on Partnership Dissolution
Agreement, Manuel Arellano maintained that he owned the club outright. RR vol.
5 at 75-81. After much pressing, Manuel Arellano acknowledged that it stood to
reason that he had an obligation to reimburse Eric Perez for all of the funds he
advanced into the business. RR vol. 5 at 84. Manuel Arellano indicated that Eric
Perez would be reimbursed from the corporate account and from him personally.
RR vol. Sat 84, 89.
After the lockout when Manuel Arellano took over, the business
plummeted. In fact, by the time of the trial, the business was not even open and
closed in March of 2014. RR vol. 4 at 213, RR vol. 5 at 122. Edmundo Perez was
not even allowed back onto the property during the pendency of the suit. RR vol. 5
at 153. The employees treated the Perez brothers differently after the lockout as
well. RR vol. Sat 153-154.
9
ARGUMENT AND AUTHORITIES
I. The trial court erred by determining that the Perez brothers did not
have any ownership interest in Le Prive Enterprises, LLC.
A. The totality of the circumstances point to the existence of a
partnership.
The Supreme Court spelled a totality of circumstances test for trial courts
pressed with ascertaining the existence of a partnership. Ingram vs. Deere, 288
S.W.3d 886 (Tex. 2009).
Under the common law, the Court recognized that a partnership or joint
enterprise "presupposes an agreement to that end," which could be either express
or implied. Donald v. Phillips, 13 S.W.2d 74, 76 (Tex.1929). We explained that
the "intention of the parties to a contract is a prime element in determining
whether or not a partnership or joint venture exists." Coastal Plains Dev. Corp. v.
Micrea, Inc., 572 S.W.2d 285, 287 (Tex.1978) (citing Luling Oil & Gas Co. v.
Humble Oil & Ref. Co., 144 Tex. 475, 191 S.W.2d 716, 722 (1946) ("[A] court
would not declare that a partnership existed unless that intention clearly
appeared....")). The common law also considered that profit sharing was the most
important factor shedding light on the intention to establish a partnership. See
Friedlander v. Hilkoat, 14 S.W. 786, 787 (Tex.1890) ("A common interest in the
profits is an essential element to constitute a partnership."). These two elements
10
were incorporated into a five-factor test that developed under the common law for
partnership formation: (1) intent to form a partnership, (2) a community of interest
in the venture, (3) an agreement to share profits, (4) an agreement to share losses,
and (5) a mutual right of control or management of the enterprise. Coastal Plains,
572 S.W.2d at 287 (citing Brown v. Cole, 155 Tex. 624, 291 S.W.2d 704, 709
(1956), and Luling Oil & Gas, 191 S.W.2d at 722). These factors continued to
guide the question of partnership formation when Texas promulgated and later
amended statutory regimes governing partnerships.
The trial testimony of the Perez' brothers was consistent and unimpeachable
concerning the existence of and nature of the partnership. Manuel Arellano offered
inconsistent versions of whether the Perez' brothers had an profit-sharing
agreement with him. Manuel Arellano acknowledged signing the Partnership
Dissolution Agreement which set out the ownership interests of each partner in the
company. Given the trial record, the trial court's determination that they did not is
against the greater weight and preponderance of the evidence. As such, this Court
should reverse this finding.
11
B. The certificate of formation does not preclude finding of Perez'
ownership, because it does not need not identify all members.
Plaintiffs paid much attention to the certificate of formation for the Le Prive
Enterprises, Inc., LLC suggesting that the fact that Eric and Edmundo are not
identified on this document as members means, necessarily, that have no
ownership. In the first place, the Certificate of Formation for Le Prive Enterprises,
LLC does not state that Manuel Arellano is not its sole member, as suggested by
counsel at trial. It merely describes him as the managing member. RR vol. 6 at 2-4,
[I's Ex. 1.
The Certificate of Formation, according to V.T.C.A., Business
Organizations Code §3005, does need not identify all of the members. For privacy
reasons, many limited liability companies refrain from listing them. At most, the
articles only mean that Manuel Arellano was an initial member of the company
who acted as its manager. Contrary to the characterization made by Plaintiffs, the
formation document is not inconsistent with the testimony from the Perez Brothers
that they had ownership in the company from its inception. To the extent that the
trial court concluded that the articles of incorporation necessarily implied that the
Perez did have ownership interest in the company, the trial court erred.
Accordingly, this Court should reverse the trial court's determination that the
Perez brothers had no such interest and remand the matter for a determination of
12
the relative rights, duties and obligations of the parties. Alternatively, this Court
should render that the the profits and the ownership of the club would be as
follows: (1) Manuel Arellano — 35%; (2) Eric Perez — 35%; (3) Edmundo Perez -
30%.
C. The Texas Business Organizations Code provides for oral operating
agreements by limited liability company amongst members.
Contrary to the position taken by the Plaintiffs, the Texas Business
Organizations Code specifically contemplates oral agreements with respect to the
operation of a limited liability company. The Texas and Business Organizations
Code, to which the Plaintiffs rely in contending that the Perez can not have any
ownership rights, specifically contemplates and permits members to enter into an
oral agreement spelling out the corporations operations.
Sec. 101.001 provides as follows:
(1) "Company agreement" means any agreement, written or
oral, of the members concerning the affairs or the conduct of the
business of a limited liability company. A company agreement of a
limited liability company having only one member is not
unenforceable because only one person is a party to the company
agreement. See, Tex. Bus. Orgs. Code 101.103 (b) [emphasis added].
Manuel Arellano acknowledged that Le Prive Enterprises, L.L.C. did not
have a written operating agreement. Given that there is no written operating
agreement, the Court is left deciphering whether Manuel Arellano, who could not
13
even his story straight, or the Perez brothers who have testified consistently and in
exact alignment with the only written document reflecting the relative ownership
of the parties and which was signed by Manuel Arellano.
If the trial court decided that the Perez brothers were not partners because
there was no written partnership agreement, the trial court employed the wrong
legal standard, and this Court should reverse and remand this case for the trial
court's determination of the Perez' declaratory judgment action. Alternatively, this
Court should reverse and render that the Perez brothers had ownership rights.
D. The Partnership Dissolution Agreement satisfies any writing
requirement, if one exists.
After trial, the Plaintiffs submitted a trial brief suggesting that the effective
date of an individual's membership into an limited liability corporation must
contained in writing. In first place, the Plaintiffs fail to provide the court with
entirety of the relevant statutory provision; this omission seems deliberate since
the omitted portion provides that the effective date of membership after the
corporation is formed does not need to be in writing.
Tex. Bus. Orgs. Code, Sec. 101.103 provides:
EFFECTIVE DATE OF MEMBERSHIP
(a) In connection with the formation of a company, a person becomes a
member of the company on the date the company is formed if the person is named
as an initial member in the company's certificate of formation.
14
(b) In connection with the formation of a company, a person being admitted
as a member of the company but not named as an initial member in the company's
certificate of formation becomes a member of the company on the latest of:
(1) the date the company is formed;
(2) the date stated in the company's records as the date the person
becomes a member of the company; or
(3) if the company's records do not state a date described by
Subdivision (2), the date the person's admission to the company is
first reflected in the company's records.
(c) A person who, after the formation of a limited liability company,
acquires directly or is assigned a membership interest in the company or is
admitted as a member of the company without acquiring a membership interest
becomes a member of the company on approval or consent of all of the company's
members. See, Tex. Bus. Orgs. Code
As can be seen, there is really is no requirement that the membership
effective be recorded in writing. Even if the Texas Business Organizations Code
requires the partnership interest be documented in writing, the Partnership
Dissolution Agreement satisfies any such writing requirement. The December 4,
2013 contract makes clear that the Perez brothers are members, and the document
can reasonably be read to mean that the Perez brothers joined the limited liability
company on the day the contract was signed. In fact, the four corners of the
document make clear that the parties had a partnership before the corporation was
formed and that "said partnership is incorporated as Le Prive Enterprises, LLC."
15
In addition, the agreement spells out the relative ownership of the individual
parties to this action enough to meet any writing requirement, if any, actually
exists.
Since the December 4, 2013 contract signed by Manuel Arellano reflects the
Perez brothers' membership in Le Prive, the trial court erred in concluding
otherwise, and this Court should reverse this finding.
E. Indefinite duration of partnership means that agreement falls outside of
ambit of Statute of Frauds.
Plaintiffs suggest that the Perez' brothers' claims are barred by the Statute
of Frauds. Tex. Bus. & Comm. Code Ann. Sec. 26.01(a)(1) and (2), V.T.C.A.,
provides:
``(a) A promise or agreement described in Subsection (b) of this section is
not enforceable unless the promise or agreement, or a memorandum of it, is
(1) in writing; and
(2) signed by the person to be charged with the promise or agreement
or by someone lawfully authorized to sign for him.
According to Sec. 26.01(b)(6), which brings within the prohibition of the
Statute of Frauds: ``(6) an agreement which is not to be performed within one year
from the date of making the agreement; and (R.S. Art. 3995.)'
16
The Perez brothers do not dispute that the oral partnership in this case was
for an indefinite period of time. Manuel Arellano testified that no such agreement
actually exists.
It must be shown that the oral partnership agreement provided for a period
extending beyond a year, not merely that the parties contemplated such agreement
to extend beyond a year. In Sapphire Royalty Company v. Davenport, 306 S.W.2d
202 (Tex.Civ.App. Houston 1957, writ ref d n.r.e.), the Court stated:
"The fact that it is improbable that performance will occur within a year, or,
that the parties think it will continue beyond a year, matters not if the agreement
itself does not provide a period extending beyond the year. And the fact that it
does, as here, continue more than a year does not offend the statute. 49 Amer.Jur.,
s28, p.389; Warner v. Texas & P.R. Co., 164 U.S. 418, 17 S.Ct. 147,41 L.Ed.
495; 20—A Tex.Jur., pp. 322 323; Lennard v. Texarkana Lumber Co., 46
Tex.Civ.App. 402,94 S.W. 383; Rainwater v. McGrew, Tex.Civ.App., 181 S.W.2d
103, writ ref. w.m." See also Hall v. Hall, 158 Tex. 95, 308 S.W.2d 12 (1957);
Bratcher v. Dozier, 162 Tex. 319, 346 S.W.2d 795 (1961); Terrazas v. Sullivan,
470 S.W.2d 904 (Tex.Civ.App. El Paso 1971, writ refd n.r.e.); Eisenbeck v.
Buttgen, 450 S.W.2d 696 (Tex.Civ.App. Dallas 1970, no writ).
17
Given that there is no direct evidence that the partnership actually
contemplated performance for more than one year, the statute of frauds does not
apply. If the Court concluded that the statute of frauds precluded the existence of a
partnership agreement, it erred and this Court can use the Statute of Frauds as a
basis for upholding the improper rendition.
F. Partial performance insulates partnership agreement from Statute of
Frauds.
At trial, the Court correctly pointed out that partial performance insulates
insulate the agreement against the Statute of Frauds. See e.g., Hooks v.
Bridgewater, 111 Tex. 122, 229 S.W. 1114, 1116 (1921) (involving the
conveyance of realty); Welch v. Coca-Cola Enterprises., Inc., 36 S.W.3d 532, 539
(Tex.App.Tyler 2000, no pet.) (involving the placement of vending machines on
school property for five years). Given the evidence of trial of Eric Perez's
substantial investment and Edmundo's effort and out-of-pocket expenses
advanced in reliance on Manuel Arellano's promises, this Court can not affirm the
trial court predicated upon the statute of frauds.
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II. The trial court erred in limiting the award for Eric Perez against Le
Prive Enterprises, L.L.C. to $2,510.00 when the evidence showed that
Eric Perez invested at least $163,55.26 into the business and failing to
award any recovery to Edmundo Perez where the evidence showed that
he invested time, effort and $66,754.84 into the business.
A trial court's findings are reviewable for legal and factual sufficiency of the
evidence by the same standards that are applied in reviewing evidence supporting
a jury's answer. Southern States Transp., Inc. v. State, 774 S.W.2d 639, 640 (Tex.
1989). In reviewing a "no evidence" point of error, a reviewing court may consider
only the evidence and inferences that tend to support challenged findings and will
disregard all evidence and inferences to the contrary. Davis v. City of San Antonio,
752 S.W.2d 518, 522 (Tex. 1988). If there is more than a scintilla of evidence to
support the findings, the "no evidence" challenge cannot be sustained. Stafford v.
Stafford, 726 S.W.2d 14, 16 (Tex. 1987).
The record before the trial court made clear the Perez made substantial
investments into the business. The trial court's final judgment disregarded the
evidence and left the brothers with an inequitable result. The court not only found
that they had no rights of ownership but the court only granted Eric Perez a partial
reimbursement against the corporation. Even if Manuel Arellano's
characterization of the agreement of the parties was taken as true, Manuel
Arellano still had an obligation to reimburse the Perez brothers until such time as
19
they acquired ownership. RR vol. 5 at 80-85. The Perez brothers proved their
entitlement to a recovery of their expenses. For Eric Perez the total was in excess
of $160,000.00 as demonstrated in the receipts in Defendant's Ex. 8 & 9 and trial
testimony. Plaintiffs called Ricardo Mena who confirmed that Edmundo Perez
paid $55,000.00 from his personal bank account. The trial court erred in
concluding that the just amount due and owing to Eric Perez was $2,510.00. The
undersigned could not even find a match in the record for this amount. As such,
this Court should reverse the trial court and render that Eric Perez and Edmundo
Perez have a judgment against Manuel Arellano, individually, in the amount of
their advanced expenses.
III. The trial court erred in awarding a judgment in favor of the Perez
brothers in the amount of $16,000.00 for conversion.
Conversion is the wrongful exercise of dominion or control over the
property of another in denial of, or inconsistent with, the other's rights in the
property. Morey v. Page, 802 S.W.2d 779, 786 (Tex. App.-Dallas 1990, no writ)
(citing Waisath v. Lack's Stores, Inc., 474 S.W.2d 444, 446, (Tex. 1971)).
Conversion has been defined in various ways. Basically, conversion is a wrongful
deprivation of property. Lone Star Beer, Inc. v. Republic Nat'l Bank ofDallas, 508
S.W.2d 686, 687 (Tex. Civ. App.-Dallas 1974, no writ). To constitute conversion,
there must be some repudiation of the owner's right or an exercise of dominion
20
over the property, wrongfully and in denial of or inconsistent with that right; or
there must be an illegal assumption of ownership." Dolenz v. Nat'l Bank of Tex. at
Fort Worth, 649 S.W.2d 368, 370 (Tex. App.-Fort Worth 1983, writ refd n.r.e.). A
conversion defendant must intend to assert some right in the property to be held
liable. Id.
A plaintiff who establishes conversion is entitled to either the return of the
property and damages for loss of use during the tort-feasor's detention, or the
value of the property. Winkle Chevy-Olds-Pontiac, Inc. v. Condon, 830 S.W.2d
740, 746 (Tex. App.--Corpus Christi 1992, writ dism'd); Southwind Aviation, Inc.
v. Avendano, 776 S.W.2d 734, 737 (Tex. App.--Corpus Christi 1989, writ denied).
However, the plaintiff may not generally recover in conversion both for the market
value of the property and for loss of use. See First Nat. Bank of Missouri City v.
Gittelman, 788 S.W.2d 165, 169 (Tex. App.--Houston [14th Dist.] 1990, writ
denied); Southwind Aviation, 776 S.W.2d at 737.
If the plaintiff elects to recover the value of the property, actual damages are
determined by the fair market value at the place and time of conversion together
with legal interest thereon. United Mobile Networks, L.P. v. Deaton, 939 S.W.2d
146, 147-48 (Tex. 1997); Imperial Sugar Co. v. Torrans, 604 S.W.2d 73, 74 (Tex.
21
1980); Taiwan Shrimp Farm Village Ass 'n, Inc. v. U.S.A. Shrimp Farm
Development, Inc., 915 S.W.2d 61, 71 (Tex. App.--Corpus Christi 1996, writ
denied).
The trial court's judgment is unsupported by the evidence adduced at trial.
The Plaintiffs alleged that the Perez brothers must have taken the generator for
the lights. However, there was no evidence in the record that the Perez brothers
either took this generator or had in their possession. Manuel Arellano predicated
his claim on the fact that the generator was missing the day after the court ordered
the Perez brothers to return the furniture. RR vol. 5 at 63-64. This evidence is to
sketchy to support a liability fmding that the Perez converted the generator. Even
so, Manuel Arellano indicated that the cost associated with repairing the lights
was $1,300.00.
Eric Perez and Edmundo Perez acknowledged removing sofas, tables and
lights from the club from Thanksgiving week until the court hearing on December
20, 2015. Manuel Are llano confirmed its return in trial testimony within three
weeks. RR vol. 5 at 61 .Guillermo Altamirano, the corporate representative for Le
Prive Enterprise, LLC, could not confitm whether the furniture belonged to the
company or the Perez brothers. RR vol. 5 at 119-120.
22
Guillermo Altamirano testified that there was liquor missing, valued at
between 5 to 10 thousand dollars. RR vol. 105. This testimony could not survive
cross examination because he could not explain the fact that the club only spent
$2,650.00 in liquor from the lockout until the temporary injunction hearing. RR
vol. 5 at 124. The Perez brothers denied taking either the generator or the alcohol.
RR vol. Sat 158.
While the trial court properly concluded that the Perez brothers were the
prevailing party under the Texas Theft Liability Act, the record contains no
evidence, or insufficient evidence, to support its judgment against them for
conversion. Accordingly, this Court should reverse and render that the limited
company take nothing.
PRAYER
For all of these reasons, the trial court erred in deciding that Eric Perez and
Edmundo Perez did not have any ownership rights in the limited liability
company. Alternatively, Eric Perez and Edmundo Perez should be entitled to a
recovery against Manuel Arellano for their expenses invested into the business in
the amount of $160,000.00 and $55,000.00 respectfully. This Court should reverse
the trial court's determination that Perez brothers converted any of the corporate
property and render that the Plaintiff corporation take nothing.
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Respectfully submitted,
/s/ J. Nathan Overstreet
James Nathan Overstreet
State Bar No. 00784706
J. Nathan Overstreet & Assoc., P.C.
8711 Highway 6 North, Suite #230
Houston, Texas 77095
Overstreetlawfirmgmail.corn
(281) 855-1000; Fax (281) 855-4580
Attorney for ERIC E. PEREZ, and
EDMUNDO PEREZ, Appellants
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CERTIFICATE OF COMPLIANCE
RULE 9.4(i)(3) OF THE TEXAS RULES OF APPELLATE PROCEDURE
I certify that this document was computer generated and that according to
the word count function of the software program used to prepare the document, the
document has 6,824 words.
/s/ J. Nathan Overstreet
James Nathan Overstreet
CERTIFICATE OF SERVICE
As required by Texas Rule of Appellate Procedure 6.3 and 9.5(b), (d), (e), I
certify that I have served this document on all other parties which are listed below
on August 19, 2015, as follows:
Sent Electronically to
Daniel W. Jackson
3900 Essex Lane, Suite #1116
Houston, Texas 77017
(713) 522-4435
fax (713) 527-8850
daniel@jacksonlaw-tx.com
/s/ J. Nathan Overstreet
James Nathan Overstreet
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