Tom Kartsotis v. Richard L. Bloch, Individually and as a Trustee of the Richard and Nancy Bloch Family Trust, and Nancy Bloch as a Trustee of the Richard and Nancy Bloch Family Trust ( 2016 )

Reverse and Render in part; Affirm in part; Remand and Opinion Filed July 7, 2016
S In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-14-01294-CV
TOM KARTSOTIS, Appellant
V.
RICHARD L. BLOCH, INDIVIDUALLY AND AS A TRUSTEE OF THE RICHARD
AND NANCY BLOCH FAMILY TRUST, AND NANCY BLOCH AS A TRUSTEE OF
THE RICHARD AND NANCY BLOCH FAMILY TRUST, Appellees
On Appeal from the 134th Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-11-04489
OPINION
Before Justices Myers, Stoddart, and Whitehill
Opinion by Justice Whitehill
This case arises from a series of related contracts in which appellant Tom Kartsotis,
appellee Richard Bloch, individually and as trustee of the Richard and Nancy Bloch Family
Trust and Nancy Bloch (Bloch), and Will Cureton agreed to allocate among themselves
secondary responsibility for numerous real estate development loans and liabilities should the
primary debtors not pay their debts. The underlying facts are essentially undisputed.
A core dispute is whether the defined term “Existing Obligations” in the parties’
Contribution and Indemnity Agreement (CIA) means the primary debtors’ financial obligations
listed as “Existing Obligations” on Exhibit A to the CIA, as Kartsotis contends, or whether
“Existing Obligations” means the CIA parties’ secondary liabilities, such as guaranties and
indemnities, related to the Exhibit A obligations, as Bloch asserts. If Kartsotis is correct, he does
not owe Bloch any money under the CIA. Conversely, if Bloch is correct, Kartsotis must
reimburse him for a portion of the sums Bloch paid to settle claims against him based on his
guaranties and indemnities.
Another dispute concerns a Guaranty Bank Agreement (GBA), and whether Kartsotis’s
refusal to seek a third loan extension before paying Bloch’s share of the debt and seeking
reimbursement from Bloch constitutes a failure to mitigate damages.
After considering the parties’ cross-summary judgment motions, the trial court awarded
judgment for Kartsotis against Bloch on Kartsotis’s GBA claims and for Bloch against Kartsotis
on Bloch’s contribution and reimbursement CIA claims. The trial court, among other relief, also
awarded both parties attorney’s fees, netted the total sums due each party, and gave Bloch a net
judgment against Kartsotis for $200,982.93 plus contingent appellate attorneys’ fees and interest.
Kartsotis’s appeal asserts seven issues, and Bloch’s cross-appeal presents three cross-
issues. For the reasons explained below, we conclude that, among other things, as a matter of
law:
(i) the term “Existing Obligations” in the CIA means the primary debtor’s liabilities
listed on Exhibit A to the CIA, and the trial court thus erroneously awarded Bloch relief on his
CIA claims;
(ii) the trial court correctly awarded Kartsotis relief regarding his GBA claims against
Bloch.
Accordingly, we reverse the judgment as to Bloch’s damages and requested declaratory
relief and render judgment that he take nothing on those claims. We also affirm the amount of
attorney’s fees and interest on those fees awarded to Bloch, but in the interest of justice, remand
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the issue of whether it is equitable and just for Bloch to recover those fees under chapter 37.
Finally, we affirm the judgment for Kartsotis.
I. The Sealed Record
Writing this opinion presents an unusual problem because large parts of the record are
under a sealing order that we must respect. The appellate briefs are also sealed. But the parties’
appellate issues require construction of key documents that are arguably included in the sealed
materials. And the sealed briefs do not indicate what facts and evidence should be considered
confidential and under seal.
However, we must hand down a public opinion explaining our decisions based on the
record. See TEX. R. APP. P 47.1, 47.3 (all opinions are open to the public and must be made
available to public reporting services); TEX. GOV’T CODE ANN. § 552.022(a)(12) (“final
opinions, including concurring and dissenting opinions, and orders issued in the adjudication of
cases” are “public information”). This we cannot do without mentioning the key documents and
certain specific facts. See Masterguard, L.P. v. Eco Tech. Int’l LLC, 441 S.W.3d 367, 371 (Tex.
App.—Dallas 2013, no pet.).
Accordingly, we told the parties that the trial court’s sealing order appeared to be overly
broad and asked them to specify the materials not sealed for purposes of this appeal. Although
the parties responded by designating the items that should remain sealed, those items include
entire volumes of the reporter’s record, motions for summary judgment and responses, objections
to summary judgment evidence, and affidavits (including an affidavit authenticating many of the
key documents in the case).
Additionally, the parties appeared at oral argument through their respective counsel. We
conducted that oral argument in open court without any party asking us to do so confidentially by
excluding non-parties from the proceeding or otherwise. Therefore, at least to the extent that in
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oral argument key facts, documents, claims, or arguments were knowingly and intentionally
discussed, any alleged confidentiality regarding those matters has been waived. See In re Gen.
Elec. Corp., 203 S.W.3d 314, 316 (Tex. 2006) (waiver is the intentional relinquishment of a
known right or intentional conduct inconsistent with claiming that right).
We have nonetheless strived to preserve the confidentiality of the materials we believe
the parties intended to be confidential. Thus, we avoid referring to those materials where
possible and make some references deliberately vague. See Trilogy Software, Inc. v. Callidus
Software, Inc., 143 S.W.3d 452, 456 n.1 (Tex. App.—Austin 2004, pet. denied) (deliberately
vague references to protect confidentiality); R.V.K. v. L.L.K., 103 S.W.3d 612, 614–15 (Tex.
App.—San Antonio 2003, no pet.) (attempting to “strike a fair balance” between parties’
confidentiality interest and fulfilling responsibilities as a court of record).
II. Background
A. Key Persons and Entities
The key persons and entities involved in this case include:
 Kartsotis, who made real estate investments through Bedrock Dirt, LP.;
 Bloch, who made real estate investments through CLB Partners, LTD;
 Cureton, who made real estate investments through CLB Partners, LTD;
 CLB Partners, LTD (CLB Partners), which is a limited partnership that Bloch and
Cureton created to make real estate investments before Kartsotis began investing
with them;
 CLB Capital Partners, LP (CLB Capital), which is a limited partnership that
Bloch, Cureton, and Kartsotis formed to make investments in real estate projects
after Kartsotis began investing with Bloch and Cureton; and
 Black Bull Run Development, LLC (BBR), which was a special purpose entity
established to create a golf-course community in Montana.
The following chart illustrates these relationships at the relevant point in time:
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Kartsotis v. Bloch Organization Chart
Bloch Cureton Kartsotis
CLB Capital Partners  CLB Partners, LTD  Bedrock Dirt, LP
GP, LLC (CLB Capital GP) (CLB Partners) (Bedrock)
[1% General Partner [~66% limited  [~33% limited
partner]  partner]
Equity Cash
CLB Capital Partners, LP
(CLB Capital)
Black Bull Run
B. The Parties Pursue a Real Estate Development Business
Bloch and Cureton previously conducted a real estate development business through CLB
Partners. Kartsotis joined the business in November 2007, signing three agreements: (i) the CIA;
(ii) the Put and Call Agreement (Put Agreement); and (iii) the Limited Partnership Agreement
(CLB Capital Partnership Agreement).
C. The Partnership Agreement
The CLB Capital Partnership Agreement created CLB Capital as the new parent entity
for the parties’ projects. CLB Capital would purchase, maintain, manage and sell real property,
and borrow money for these activities.
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CLB Partners and Bedrock each held an interest in CLB Capital. The remaining interest
was held by CLB Capital GP.
D. The BBR Project
Before CLB Capital was created, BBR had borrowed money to develop its project.
These funds included a construction loan and a letter of credit from La Jolla Bank (the BBR
Loans).1 The La Jolla Bank loan was later transferred to OneWest Bank and is a focal point in
this case. The loan amount and letter of credit appear to be under seal.
Bloch had previously guaranteed the BBR Loans. And, because the loans were secured
by real property, BBR had to obtain title insurance. The title insurer, Commonwealth Title, had
required Bloch to indemnify it for any loss due to mechanics’ liens on the property.
BBR had also signed a golf equipment lease with Wells Fargo Financial Leasing, Inc.
(Wells Fargo Lease). Bloch had personally guaranteed the Wells Fargo Lease.
E. The CIA
The CIA, executed in 2007, determined how Bloch, Kartsotis, and Cureton, defined in
that agreement as “Guarantors,” would share responsibility for CLB Capital’s liabilities. The
CIA acknowledged that each Guarantor, directly or indirectly, owned a one-third interest in
Capital Partners and defined those interests as their “Pro Rata Percentage.”
The CIA’s recitals distinguished between “Existing Obligations” and “Future
Obligations” and then collectively defined both as “Obligations”:
B. CLB Capital and its subsidiaries have incurred indebtedness (“Loans”) with
respect to various lenders in conjunction with the business of CLB Capital and its
subsidiaries and Bloch and Cureton have executed certain guaranties, indemnities
or other agreements, relating to the Loans, which are set out on Exhibit “A”
hereto (the “Existing Obligations”).
1
BBR borrowed one amount in 2006, and then an additional amount in 2007.
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C. The Guarantors contemplate that, from and after the date of this Agreement,
they will each execute certain guaranties, indemnities or other agreements related
to loans to CLB Capital and its subsidiaries (“Future Obligations”, the Existing
Obligations and Future Obligations being collectively referred to as the
“Obligations”). The Guarantors desire to enter into this Agreement to effect an
equitable sharing of their risk and liability in respect of the Obligations.
(Emphasis original).
The Exhibit A “Existing Obligations” list included the BBR Loans and the Wells Fargo
Lease. Exhibit A, however, did not mention Commonwealth Title.
The CIA’s substantive terms stated the Guarantors’ responsibility for Obligations thusly:
Section 1. Contribution and Reimbursement. If any Guarantor makes a payment
in respect of the Obligations, such Guarantor shall have the rights of contribution
and reimbursement set forth below, and shall be indemnified as set forth below.
The CIA then provided the following duty to pay trigger point and related terms:
Section 2. Reimbursement; Joint and Several Liability. lf any Guarantor (the
“Paid Guarantor”) makes a payment upon or in respect of the Obligations that is
greater than its Pro Rata Percentage [1/3] of the Obligations, the Paid Guarantor
shall have the right to receive, from the other Guarantors who have not paid their
Pro Rata Percentage (each an “Unpaid Guarantor”), and each Unpaid Guarantor
agrees to pay to the Paid Guarantor, an amount such that the net payments made
by the Paid Guarantor in respect of the Obligations shall be shared by Guarantors
pro rata in proportion to their Pro Rata Percentage. Each Unpaid Guarantor shall
pay amounts due to Paid Guarantor within ten (10) business days following
delivery to the Unpaid Guarantor of a notice setting out the amount due from the
Unpaid Guarantor. Any amounts not paid by an Unpaid Guarantor to the Paid
Guarantor within such ten (10) business day period shall bear interest at fourteen
percent (14%) per annum from the due date until paid. Each Unpaid Guarantor
hereby indemnifies any Paid Guarantor, and agrees to hold such Paid Guarantor
harmless from and against, any and all amounts which such Paid Guarantor shall
ever be required to pay in respect of the Obligations in excess of such Paid
Guarantor’s Pro Rata Percentage of the Obligations.
(Underlines original, italics added).
Construing these recitals and terms is at the heart of this dispute.
F. The Put Agreement
The Put Agreement gave Kartsotis the right to withdraw from CLB Capital after two
years and be indemnified for any subsequent, post-withdrawal liability. Specifically, it gave
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Bedrock a put right through which Kartsotis could require CLB Partners to purchase Bedrock’s
interests in CLB Capital.
G. The Guaranty Bank Loan
In 2008, CLB Capital borrowed money from Guaranty Bank (Guaranty Bank Loan).
Bloch, Cureton, and Kartsotis each guaranteed the full loan amount.
CLB Capital, however, could not pay that loan and negotiated a Guaranty Bank Loan
modification and extension under which Kartsotis and Bloch paid a certain amount and
Cureton’s portion was extended. The loan was subsequently modified again. The loan amount,
as well as the amounts paid under the extensions, appear to be under seal.
The GBA, executed in 2009, expressly incorporates the CIA but removes the Guaranty
Bank Loan from the CIA Obligations:
Section 1. Guaranty Loan. The Guaranty Loan shall no longer be one of the
Obligations (as defined in the Contribution Agreement [CIA]) which is covered
by the Contribution Agreement, and the agreement among the Guarantors as to
the payment of the Guaranty Loan and rights of contribution, reimbursement and
indemnification with respect thereto shall be as set out in this Agreement.
The GBA also defines Bloch and Kartsotis as Guaranty Bank Loan guarantors. That
agreement further requires Bloch and Kartsotis, as guarantors, to each pay fifty percent of the
guaranty obligation if Cureton does not timely pay his share.
H. Kartsotis exercises his put right under the Put Agreement
Kartsotis on December 1, 2009, exercised his put right, thereby triggering CLB Partners’
duty to purchase Bedrock’s ownership in CLB Capital.
I. BBR Bankruptcy
The BBR project was unsuccessful. Consequently, BBR filed bankruptcy and was
considered insolvent at the time of the lawsuit.
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J. The BBR Obligations
After BBR’s bankruptcy, OneWest Bank sued Bloch and Cureton on their guarantees.
Bloch and Cureton settled these lawsuits (the OneWest Settlement).2
Commonwealth Title and Wells Fargo Leasing, Inc. also sued Bloch, and he settled these
lawsuits as well (the Commonwealth and Wells Fargo Settlements). (These Settlements are
collectively referred to as the “BBR Settlements” and appear to be under seal).
K. Kartsotis pays the Guaranty Bank Loan
After two extensions, the Guaranty Bank Loan matured and CLB defaulted. The bank’s
successor then demanded payment from the Guarantors.
Bloch urged Kartsotis to agree to extend the loan’s payment date for a year, and offered
to pay the loan’s debt service for that year. Kartsotis did not agree, and paid his share of the
Guarantors’ debt. When Bloch did not pay his share, Kartsotis paid it for him in order to retire
the Guaranty Bank Loan. These payment amounts also appear to be under seal.
L. The Lawsuit
After making Bloch’s payment on the Guaranty Bank Loan, Kartsotis demanded that
Bloch reimburse him for Bloch’s share of that debt which Kartsotis had paid. When Bloch did
not do so, Kartsotis sued him for breaching the GBA. Bloch counterclaimed for breaching the
CIA and requested declaratory relief concerning the parties’ rights and obligations under the
CIA, plus attorney’s fees.
M. Summary Judgment
Kartsotis moved for summary judgment regarding: (i) his claims for breaching the GBA
and attorney’s fees, (ii) Bloch’s related affirmative defenses, and (iii) Bloch’s counterclaims for
declaratory judgment, breach of contract, and other claims related to the CIA.
2
OneWest Bank, FSB was La Jolla Bank’s successor.
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Bloch cross-moved for summary judgment on his claim for declaratory judgment,
breaching the CIA, and attorney’s fees.
The trial court granted Kartsotis’s motion regarding breach of the GBA and awarded him
damages but no attorney’s fees or interest. The court also granted Kartsotis’s summary judgment
motion on Bloch’s counterclaims and affirmative defenses, except the contract, declaratory
judgment, and setoff claims.
The trial court granted Bloch summary judgment on his breach of contract and
declaratory judgment claims and awarded him damages and attorney’s fees, plus interest. The
trial court’s three judicial declarations explain the trial court’s reasoning behind its reading of
CIA section 2 and prospectively apply the trial court’s reading to certain situations.
The trial court, however, denied Bloch’s requested finding that he was entitled to
indemnity under section 2 of the CIA.
N. Bench Trial and Final Judgment
The remaining issues were tried to the bench, including payments Bloch claimed to have
made regarding the Obligations after the summary judgment was entered, and Bloch’s and
Kartsotis’s attorney’s fees.
The trial court signed a judgment awarding Kartsotis $2,507,507.99, and Bloch
$2,708,480.92. Both parties were awarded interest and attorney’s fees.
On September 10, 2014, the trial court signed an amended final judgment that offset the
awards, leaving a single award for Bloch of $200,982.93, plus awarding Bloch conditional
appellate fees and interest. The trial court also made findings of fact and conclusions of law, and
subsequently amended those findings.
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III. Analysis
A. Kartsotis’s First, Second, Fifth, and Seventh Issues
1. Kartsotis’s First and Second Issues: Did the trial court err in determining
that the CIA’s reimbursement requirement was triggered, requiring
Kartsotis to reimburse Bloch?
Kartsotis’s first two issues argue that the trial court misconstrued the CIA’s section 2
triggering threshold and its application to the facts:
1. Did the trial court err by granting summary judgment for the Blochs and
denying summary judgment for Kartsotis on the Bloch’s counterclaims for
declaratory judgment and breach of the Contribution Agreement?
2. Did the trial court err in its construction of the Contribution Agreement?
Both issues turn on the meaning of the CIA’s defined term “Existing Obligations.”
As explained below, we conclude that, as a matter of law, “Existing Obligations” as
defined in the CIA means the primary debtors’ obligations listed on Exhibit A. Accordingly, the
CIA’s payment requirements were not triggered for any BBR Settlement because Bloch’s
settlement amounts were less than one-third of the corresponding outstanding obligation amount
determined by the primary debtor’s default. Therefore, the trial court erred as a matter of law in
awarding damages to Bloch under the CIA. It follows that the trial court’s declaratory judgments
are also erroneous.
a. Standard of Review and Applicable Rules of Construction
We review the trial court’s grant of a summary judgment de novo. 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).
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When both parties move for summary judgment on the same issues and the trial court
grants one motion and denies the other, we review both parties’ summary judgment evidence and
determine all questions presented. Dorsett, 164 S.W.3d at 661. Each party, however, bears the
burden of establishing that it is entitled to judgment as a matter of law. City of Santa Fe v.
Boudreaux, 256 S.W.3d 819, 822 (Tex. App.—Houston [14th Dist.] 2008, no pet.). If we
determine that the trial court erred, we render the judgment that the trial court should have
rendered. Dorsett, 164 S.W.3d at 661.
The construction of an unambiguous contract is a question of law, which we review de
novo. Matheson Tri–Gas, Inc. v. Atmel Corp., 347 S.W.3d 339, 343 (Tex. App.—Dallas 2011,
no pet.).
Our primary concern is to determine the parties’ true intent as expressed in their
agreement. Frost Nat’l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310, 311–12 (Tex. 2005) (per
curiam). To that end, we consider the entire writing and attempt to harmonize and give effect to
all the contract’s provisions by analyzing its terms with reference to the whole agreement. Id. at
312. Accordingly, no single provision alone will be controlling. Rather, all provisions must be
considered with reference to the entire agreement. Hackberry Creek Country Club, Inc. v.
Hackberry Creek Homeowners Ass’n, 205 S.W.3d 46, 56 (Tex. App.—Dallas 2000, pet. denied).
In determining the parties’ intent, we may consider the construction the parties placed on
the contract as evidenced by their conduct. See Tettleton v. Emp. Staffing Servs., Inc., No. 05-94-
00707-CV, 1995 WL 437201, at *5 (Tex. App.—Dallas July 19, 1995, writ denied) (mem. op.).
Separate writings may be construed together if the connection appears on the face of the
documents by express reference or by internal evidence of their unity. Devonshire Place
Neighborhood Ass’n v. Devonshire Place, Ltd., No. 01-98-00732-CV, 1999 WL 82617, at *4
(Tex. App.—Houston [1st Dist.] Feb. 4, 1999, pet. denied) (mem. op.). Documents incorporated
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into a contract by reference become part of that contract. In re 24R, Inc., 324 S.W.3d 564, 567
(Tex. 2010) (orig. proceeding) (per curiam). When a document is incorporated into another by
reference, both instruments must be read and construed together. Pritchett v. Gold’s Gym
Franchising, LLC, No. 05-13-00464-CV, 2014 WL 465450, at *5 (Tex. App.—Dallas Feb. 4,
2014, pet. denied) (mem. op.).
b. Reimbursement from other Guarantors under the CIA
The focus of this dispute is the CIA’s section 2 contribution, reimbursement, and
indemnity terms, and in particular that section’s “If Clause” triggering threshold. Kartsotis
contends that the CIA’s payment requirements were never triggered because Bloch did not pay
more than his pro rata percentage of any BBR Obligation, which he construes to be the primary
obligor’s debt amounts (determined by the primary debtor’s default). Stated differently, he
argues that section 2 payments are not required unless a Guarantor pays more than his pro rata
share of the borrower’s (that is, BBR’s) total outstanding debt, rather than the individual
guarantor’s secondary obligation (as resolved against that Guarantor).
Bloch, on the other hand, calculates the reimbursement trigger differently. He claims that
the parties agreed to share one third of the Guarantor’s contingent liability for individual debts
and not one third of the primary level debtor’s debts. According to Bloch, Kartsotis
misinterprets the CIA by treating “Loans”—as opposed to his payments to settle suits based on
his individual guaranty or indemnity debts—as “Obligations.” Based on that reading, Bloch
asserts that he paid more than his share of his BBR settlement because, for example, he paid
100% of the amount he paid to settle OneWest’s claims against him based on his guaranty. We
disagree.
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Turning to the CIA’s terms, section 1 provides that a Guarantor has a right to
contribution, reimbursement, and indemnity when he makes a payment “in respect of the
Obligations.”
Section 2, which provides a triggering calculation and mechanics for such payments, has
four parts:
(1) a calculation that triggers when a Guarantor must make a payment to another
Guarantor for payments that the latter made “upon or in respect of the Obligations”;
(2) a formula for calculating the reimbursement amount to be paid;
(3) mechanics for requesting payment and what happens if payments are not made; and
(4) the indemnity clause.
Under this structure, a Guarantor who makes a payment “upon or in respect of the
Obligations” must first exceed the threshold test before being entitled to a reimbursement,
contribution, or indemnity payment. If, but only if, the paying Guarantor’s payments on an
Obligation exceed the threshold, all of his payments on that Obligation are to be reimbursed on a
pro rata basis.3
Thus whether Bloch’s BBR settlement payments triggered Kartsotis’s duty to reimburse
or indemnify him regarding those payments depends on the CIA’s meaning of “Obligations,”
which in turn depends on the CIA’s meaning of “Existing Obligations.”
Reasonable arguments can be made for both Kartsotis and Bloch if one considers only the
text of the CIA’s recitals and sections 1 and 2. But our analysis does not stop there. We also
consider the CIA’s Exhibit A, titled “Existing Obligations,” and the interpretation the parties
gave the CIA in the GBA before their present dispute arose.
3
The indemnity clause may provide for a different cap on the indemnitor’s liability, but, as discussed below, we do not need to resolve that
potential conflict.
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The CIA expressly refers to its Exhibit A, which must be read together with the rest of
that contract. See Gold’s Gym, 2014 WL 465450 at *5. It is undeniable that Exhibit A is entitled
“Existing Obligations”—the same term the CIA makes a defined term—and lists multiple
primary level debtor obligations. Exhibit A thus resolves the question of what the parties
objectively intended when they agreed to that defined term. See Matagorda Cty. Hosp. Dist. v.
Burwell, 189 S.W.3d 738, 740 (Tex. 2006) (per curiam) (objective rather than subjective intent
controls); see also Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323,
333 (Tex. 2011) (court’s primary concern is to give effect to the written expression of parties’
intent).
Furthermore, the CIA parties’ GBA, which expressly incorporates the CIA, confirmed
their agreement that “Existing Obligations” under the CIA means primary level debtor
obligations. Specifically, GBA section 1 provides:
Guaranty Loan. The Guaranty Loan shall no longer be one of the Obligations (as
defined in the Contribution Agreement) which is covered by the Contribution
Agreement, and the agreement among the Guarantors as to the payment of the
Guaranty Loan and rights of contribution, reimbursement, and indemnification
with respect thereto shall be set out in this Agreement.
This is a direct statement that CIA “Obligations,” and thus CIA “Existing Obligations,” are
measured at the primary debtor level rather than by a CIA party’s secondary guaranty or
indemnity obligations. Otherwise, the Guaranty Loan would not have been considered to be an
“Obligation” in the first place and there would have been no reason to exclude it from the CIA’s
“Obligations.”
Accordingly, we conclude as a matter of law that the CIA’s defined term “Existing
Obligations” unambiguously means primary debtor level obligations. Thus, it is only when a
paying Guarantor’s payments on that primary obligor debt exceeds one-third of that debt amount
that the other Guarantors’ duty to reimburse or indemnify the Paying Guarantor arises.
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Bloch nonetheless insists that a statement in the CIA’s recitals supports his
interpretation. That statement says that the Guarantors “desire to enter into [the] agreement to
effect an equitable sharing of their risk and liability in respect of the Obligations.” Bloch
maintains that since “Obligations” are defined as “guaranties, indemnities, or other agreements”
relating to loans or future loans, the recital reflects an intent to share individual risk (i.e., on the
guaranties) rather than primary debtor’s risk (i.e., on the loans).
We reject this argument for four reasons:
One, the argument is premised on misreading “Obligations” as defined in the CIA. As
previously discussed, reimbursement is not required unless a Guarantor pays more than his pro
rata share of the primary lender’s total outstanding debt.
Two, a contract’s recitals are not strictly part of the contract, and they will not control the
operative phrases of the contract unless the phrases are ambiguous. Koch v. Boxicon, LLC, No.
05-14-01424-CV, 2016 WL 1254048, at *6 (Tex. App.—Dallas Mar. 30, 2016, no pet.) (mem.
op.). Section 2 is not ambiguous.
Three, even if we were to consider the recitals, the phrase “equitable sharing” is vague,
and provides no guidance.
Finally, the recital is general, and section 2 is specific. If we perceived a conflict
between the two provisions, specific provisions in a contract control over general provisions.
See G.T. Leach Builders, LLC v. Sapphire V.P., LP, 458 S.W.3d 502, 531 (Tex. 2015). This is
particularly true here where the specific provisions in the CIA are unambiguous.
Applying our reading to the Obligations at issue is straightforward.
First, the OneWest Settlement result is straightforward because Bloch never paid more
than one-third of the OneWest Obligation (primary level debt) as determined at the time of the
primary debtor’s default. Thus, Kartsotis never had a ripe duty to either contribute to, reimburse
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or indemnify for, any part of Bloch’s payments to OneWest. Consequently, the trial court erred
as a matter of law in awarding Bloch any recovery regarding the OneWest Settlement.
Second, the Commonwealth Settlement result is straightforward because there is no
record evidence of what the outstanding Commonwealth debt was when Commonwealth called
on Bloch to honor his duty to pay. Absent that amount, we cannot determine whether Bloch’s
payment exceeded the section 2 trigger threshold. Because Bloch was required to prove his
right to payment for the Commonwealth debt and he did not carry that burden, the trial court
erred as a matter of law in awarding Bloch any recovery regarding the Commonwealth debt.
The Wells Fargo Settlement, however, is less clear because the amount that Bloch paid
Wells Fargo to settle the lawsuit exceeds more than one-third of that debt’s amount as stated on
the Exhibit A “Existing Obligations” identified in the CIA. This suggests that the threshold
might have been met and Kartsotis incurred a duty to contribute or indemnify Bloch for
Kartsotis’s one-third of Bloch’s payments. But the record does not contain any evidence by
which we can confirm the actual debt amount determined by the primary debtor’s default. That
is, there is no record evidence of the actual amount we are to use when performing the threshold
calculation. Accordingly, Bloch did not prove that he is entitled to a payment from Kartsotis
regarding this debt.
For the above reasons, we agree with Kartsotis’s first two issues and conclude that the
trial court erred as a matter of law by awarding Bloch damages and declaratory relief based on
the trial court’s legally improper reading of the section 2 triggering calculation.
2. Kartsotis’s Fifth and Seventh Issues: Did the trial court err by awarding
Bloch damages and by including miscellaneous expense payments in the
contribution calculation?
Kartsotis’s fifth and seventh issues challenge certain items included in the trial court’s
damage award to Bloch. Specifically, Kartsotis argues that the CIA does not include
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contribution for legal fees paid to avoid liability under a Guarantor’s guaranty or indemnity or
sums paid for maintenance obligations. He also argues that the evidence is insufficient to
support the awards.
Bloch counters that attorney’s fees and expenses are included in the amount a non-paying
Guarantor must pay because these fees and expenses are payments made “in respect of” an
obligation. Thus, he claims he is entitled to recover the attorney’s fees he paid to defend the
Commonwealth and OneWest lawsuits. He also claims he is entitled to recover payments he
made for “maintenance and obligations” regarding the BBR project.
We agree with Kartsotis because there is no basis in the CIA, or any other agreement in
this case, for including Bloch’s miscellaneous expense payments when calculating contribution
liability under the CIA. A court may not add language to a contract under the guise of
interpretation. See Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 162 (Tex. 2003).4
Accordingly, the trial court erred as a matter of law by treating those expense items as potential
CIA section 2 contribution, reimbursement, or indemnity obligations.
3. Conclusion
We have previously concluded that Bloch did not prove that he was entitled to
contribution on any of the BBR Settlements. And the contribution calculation does not include
attorney’s fees and expenses. Therefore, the trial court erred in granting summary judgment on
Bloch’s counterclaims and in awarding damages on those claims.
Based on the foregoing, we sustain Kartsotis’s first, second, fifth, and seventh issues, and
need not consider his sixth issue, which complains about certain evidentiary rulings that are moot
given our above holdings. See TEX. R. APP. P. 47.1.
4
Moreover, even if these amounts were included, the contribution threshold is still not met.
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C. Kartsotis’s Fourth Issue: Is the evidence sufficient to support the amount of Bloch’s
attorney’s fees award?
Kartsotis’s attorney’s fees argument focuses on the court’s alleged reliance on fee
statements that were submitted in camera. He argues that without those statements, the evidence
is insufficient to support the award. He further complains that the award erroneously includes
$44,565.50 for unrecoverable litigation expenses.
We begin with the expenses. Expenses incurred in a lawsuit are not recoverable “unless
expressly provided for by statute, rule, or under principles of equity.” Gumpert v. ABF Freight
Sys. Inc., 312 S.W.3d 237, 239 (Tex. App.—Dallas 2010, no pet.). Here, the attorney’s fees
were awarded under Chapter 37 and 38, neither of which provides for the recovery of expenses.
See TEX. CIV. PRAC. & REM. CODE §§ 37.009, 38.001.
But Kartsotis does not identify the particular expenses he contends are not recoverable
with specific record references. Instead, he cites to a chart that lists only the law firm incurring
the expense, a date, and an expense amount. There is no further detail on the expenses, and
without more, we cannot conclude the expenses were improper. See TEX. R. APP. P. 33.1.
We next consider the sufficiency argument. Kartsotis complains that the fee statements
were too heavily redacted and the attorney expert’s testimony was conclusory, and therefore
Bloch should not recover attorney’s fees under Chapter 38.
We agree with Kartsotis, but for a different reason. Because Bloch was not entitled to
any recovery under the CIA, there is no basis under Chapter 38 for him to recover attorney’s fees
on his breach of contract claim. Therefore, the trial court erred as a matter of law in awarding
Bloch any attorney’s fees under Chapter 38. See Ashford Partners, Ltd. v. ECO Res., Inc., 401
S.W.3d 35, 40 (Tex. 2012) (litigant must prevail on contract claim and recover damages to
recover fees under the statute); see also TEX. CIV. PRAC. & REM. CODE § 38.001.
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But the trial court also based the attorney’s fees award on Chapter 37. See TEX. CIV.
PRAC. & REM. CODE § 37. Reversal of a trial court’s decision on a declaratory judgment does not
necessarily require reversal of the attorney’s fees award. See City of Temple v. Taylor, 268
S.W.3d 852, 858 (Tex. App.—Austin 2008, pet. denied). Indeed, Chapter 37 provides that “the
court may award costs and reasonable attorney’s fees as are equitable and just.” TEX. CIV. PRAC.
& REM. CODE ANN. § 37.009.
And awarding attorney’s fees to a non-prevailing party is not in itself an abuse of
discretion. Vincent v. Bank of Am., N.A., 109 S.W.3d 856, 868 (Tex. App.—Dallas 2003, pet.
denied). Nonetheless, after a declaratory judgment is reversed on appeal, an attorney’s fees
award may no longer be equitable and just. SAVA gumarska in Kemijska industria d.d. v.
Advanced Polymer Sciences, Inc., 128 S.W.3d 304, 324 (Tex. App.—Dallas 2004, no pet.).
“Whether it is ‘equitable and just’ to award attorney’s fees depends, not on direct proof,
but on the concept of fairness, in light of all the circumstances of the case.” Austin Jockey Club,
Ltd. v. Dallas City Limits Prop. Co., L.P., No. 05-14-00114-CV, 2015 WL 3549645, at *8 (Tex.
App.—Dallas June 5, 2015, pet. denied) (mem. op.) (citing Approach Res. I, L.P. v. Clayton, 360
S.W.3d 632, 639 (Tex. App.—El Paso 2012, no pet.)).
Here, the trial court’s attorney’s fees award is implicitly premised on the fact that Bloch
was awarded affirmative relief. The record is silent as to whether the trial court would deem the
fee award equitable and just if Bloch is not a prevailing party.
Consequently, we reverse the trial court’s award of attorney’s fees under Chapter 38, and
in the interests of justice, remand for the trial court to determine whether such attorney’s fees
should be awarded to Bloch under chapter 37. See TEX. R. APP. P. 43.3(b); In re A.A.L, No. 12-
11-00161-CV, 2012 WL 1883763, at *4 (Tex. App.—Tyler May 23, 2012, no pet.) (mem. op.).
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C. Kartsotis’s Third Issue: Did the trial court erroneously conclude that Kartsotis’s
indemnity claim was a defensive issue resolved by summary judgment?
Kartsotis’s answer to Bloch’s counterclaim asserted that he was entitled to indemnity
under the Put Agreement.5 After granting Bloch’s summary judgment motion on his declaratory
judgment and breach of contract counterclaims, the court concluded that Kartsotis’s indemnity
claim was resolved because it was raised as a defense to Bloch’s counterclaims (and thus not as
an affirmative claim for relief). Kartsotis, however, argues that the trial court erred because his
indemnity claim did not accrue unless and until Bloch established liability, and therefore could
not have been resolved by summary judgment.
We have concluded that Bloch did not establish Kartsotis’s liability. Therefore, we need
not consider this issue. See TEX. R. APP. P. 47.1.
D. Bloch’s First Cross-Issue: Did the trial court err in concluding that Bloch was not
entitled to Indemnity under the CIA?
Bloch argues that the trial court erred in concluding that he was not entitled to indemnity
under the CIA. The CIA’s indemnity duty, however, does not arise unless the paying
Guarantor’s payments on that Obligation exceed the section 2 trigger:
Each Unpaid Guarantor hereby indemnifies any paid Guarantor, and agrees to
hold such Paid Guarantor harmless from and against, any and all amounts which
such Paid Guarantor shall ever be required to pay in respect of the Obligations in
excess of such Paid Guarantor’s Pro Rata Percentage of the Obligations.
Because we concluded above that the section 2 threshold was not met, it follows that
Bloch is not entitled to indemnity for such payments. We thus resolve Bloch’s first cross-issue
against him.
5
The Put Agreement provides for indemnity “from any and all claims, losses, liabilities, damages, costs, expenses, judgments, penalties,
interest and any other obligations . . . .”
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E. Bloch’s Second Cross-Issue: Did Bloch raise a fact issue regarding whether
Kartsotis failed to mitigate his damages by refusing to agree to an extension of the
Guaranty Bank Loan?
Bloch raised a failure to mitigate defense in response to Kartsotis’s claim for breach of
the GBA. He now argues that the trial court erred in rejecting this defense by summary
judgment. As discussed below, we disagree with Bloch’s argument because there is legally no
evidence that would support (i) a duty by Kartsotis to agree to a third extension and (ii) a finding
that Bloch would have performed had Kartsotis agreed to Bloch’s request.
The mitigation-of-damages rule prevents a party from recovering damages that result
from a breach of contract that the non-breaching party could avoid by reasonable efforts. Great
Am. Ins. Co. v. N. Austin Mun. Util. Dist. No. 1, 908 S.W.2d 415, 426 (Tex. 1995). Reasonable
efforts are those that a party can avoid at a trifling expense or with reasonable exertions. Id. The
party raising the failure to mitigate defense must prove lack of diligence as well as the amount by
which the damages were increased as a result of the failure to mitigate. See Cocke v. White, 697
S.W.2d 739, 744 (Tex. App.—Corpus Christi 1985, writ ref’d n.r.e.).
We note at the outset that it is particularly difficult to discuss the factual basis for a
summary judgment ruling without referring to the evidence that is largely sealed in this case.
Nonetheless, having reviewed the evidence, sealed or otherwise, we conclude that Bloch did not
raise a genuine issue of material fact concerning Kartsotis’s alleged failure to mitigate.
Specifically, the essence of Bloch’s claim was that Kartsotis declined his request to seek
a third extension of the Guaranty Bank Loan when Bloch could not pay his share. According to
Bloch, however, he could have paid the loan’s remaining balance had the loan been extended for
a year.
But the loan was already in default when Bloch asked Kartsotis to agree to another
extension, and there is no evidence that the bank would have granted an extension. The GBA
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did not obligate Kartsotis to seek or agree to an extension to give Bloch more time to satisfy his
obligation. And evidence that the bank had extended the loan twice before is not evidence that it
would have agreed to a third extension, particularly after the loan was in default and demand had
been made for the guarantors’ payments. Nor is Bloch’s unsupported conclusion that the bank
would have done so legally any evidence of that premise. See Nguyen v. Citibank, N.A., 403
S.W.3d 927, 931 (Tex. App.—Houston [14th Dist.] 2013, pet. denied) (conclusory statements
that fail to provide underlying facts supporting conclusions are not proper summary judgment
evidence).
In addition, there was legally no summary judgment evidence establishing that Bloch
would have been able to satisfy his debt had an extension been granted. Bloch summarily relies
on evidence that he was able to pay other debts to establish that he would also have been able to
pay this one, but does not identify the specific record evidence from which such a broad
inference might be drawn. He also relies on his sealed affidavit as evidence of his ability to pay.
The affidavit, however, is speculative at best. Thus, there is no evidence establishing the amount
by which the damages were increased by the alleged failure to mitigate.
Therefore, on the record before us, we conclude that the trial court did not err in granting
Kartsotis’s summary judgment motion on Bloch’s failure to mitigate defense. We thus resolve
Bloch’s second cross-issue against him.
F. Bloch’s Third Cross-Issue: Did Bloch raise a fact issue regarding whether Kartsotis
repudiated the CIA because that agreement was incorporated into the GBA?
Bloch’s third cross-issue argues that the trial court erred in granting Kartsotis’s summary
judgment motion on his repudiation defense. Specifically, Bloch contends that because Kartsotis
allegedly repudiated the CIA and the GBA incorporates the CIA by reference, Kartsotis
repudiated the GBA. We disagree.
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“A party repudiates a contract if the party manifests, by words or actions, a definite and
unconditional intention not to perform the contract according to its terms.” See Chapman v.
Olbrich, 217 S.W.3d 482, 491 (Tex. App.—Houston [14th Dist.] 2006, no pet.); see also
Builder’s Sand, Inc. v. Turtur, 678 S.W.2d 115, 120 (Tex. App.—Houston [14th Dist.] 1984, no
writ). The refusal to perform must be absolute and unconditional. See Bans Props., L.L.C. v.
Housing Auth. of Odessa, 327 S.W.3d 310, 315 (Tex. App.—Eastland 2010, no pet.).
Bloch’s repudiation argument rests on communications between counsel after Kartsotis
exercised his put option under the Put Agreement. Bloch contends that when counsel observed
that the CIA would not survive the closing of the put option, it was evidence of an intent not to
honor the CIA. But even if this were true, repudiation of the CIA does not by implication
establish repudiation of the GBA.
Incorporating the CIA into the GBA does not in this case alter the otherwise separate
character and obligations of these two agreements. The GBA incorporated the CIA to remove
the Guaranty Bank Loan from the Obligations controlled by the CIA. Because the parties agreed
that the CIA’s terms would not govern the Guaranty Bank Loan, it follows that repudiating the
CIA would not affect the obligations under the GBA.
Because Bloch did not raise a fact issue on his repudiation defense, the trial court did not
err in granting Kartsotis’s summary judgment motion on that defense. Accordingly, we resolve
Bloch’s third cross-issue against him.
IV. Conclusion
We resolve Kartsotis’s first, second, fifth, and seventh issues for him, as well as his
fourth issue as it pertains to fees under chapter 38. We resolve his third issue against him. We
need not consider Kartsotis’s sixth issue. We resolve Bloch’s three cross-issues against him.
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Based on the foregoing, we reverse and render in part, affirm in part, and remand to the
trial court for further proceedings consistent with this opinion. Specifically, we reverse the trial
court’s judgment for Bloch and render judgment that Bloch take nothing for damages
(specifically, reversing the damages and interest on damages awarded in paragraphs 4, 5, 6, 7,
and 8 of the amended final judgment) or declaratory relief. We reverse the trial court’s award of
attorney’s fees and interest under Chapter 38, (set forth in paragraphs 4, 5, and 9 of the amended
final judgment) and in the interests of justice, remand to the trail court the sole issue of whether
such fees should be awarded to Bloch under Chapter 37. Finally, we affirm the remainder of the
judgment for Kartsotis (specifically, affirming paragraphs 1, 2, and 3 of the amended final
judgment).
/Bill Whitehill/
BILL WHITEHILL
JUSTICE
141294F.P05
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S
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
TOM KARTSOTIS, Appellant On Appeal from the 134th Judicial District
Court, Dallas County, Texas
No. 05-14-01294-CV V. Trial Court Cause No. DC-11-04489.
Opinion delivered by Justice Whitehill.
RICHARD L. BLOCH, INDIVIDUALLY Justices Myers and Stoddart participating.
AND AS A TRUSTEE OF THE RICHARD
AND NANCY BLOCH FAMILY TRUST,
AND NANCY BLOCH AS A TRUSTEE
OF THE RICHARD AND NANCY BLOCH
FAMILY TRUST, Appellees
In accordance with this Court’s opinion of this date, the judgment of the trial court is
REVERSED and judgment is RENDERED that: RICHARD L. BLOCH, INDIVIDUALLY
AND AS A TRUSTEE OF THE RICHARD AND NANCY BLOCH FAMILY TRUST, AND
NANCY BLOCH AS A TRUSTEE OF THE RICHARD AND NANCY BLOCH FAMILY
TRUST take nothing for damages or declaratory relief. The trial court’s award of attorney’s fees
and interest under Chapter 38 to RICHARD L. BLOCH, INDIVIDUALLY AND AS A
TRUSTEE OF THE RICHARD AND NANCY BLOCH FAMILY TRUST, AND NANCY
BLOCH AS A TRUSTEE OF THE RICHARD AND NANCY BLOCH FAMILY TRUST is
REVERSED and the case is REMANDED to the trial court to determine whether such fees
should be awarded to RICHARD L. BLOCH, INDIVIDUALLY AND AS A TRUSTEE OF
THE RICHARD AND NANCY BLOCH FAMILY TRUST, AND NANCY BLOCH AS A
TRUSTEE OF THE RICHARD AND NANCY BLOCH FAMILY TRUST under Chapter 37.
The judgment of the trial court for TOM KARTSOTIS is AFFIRMED.
It is ORDERED that appellant TOM KARTSOTIS recover his costs of this appeal from
appellees RICHARD L. BLOCH, INDIVIDUALLY AND AS A TRUSTEE OF THE
RICHARD AND NANCY BLOCH FAMILY TRUST, AND NANCY BLOCH AS A
TRUSTEE OF THE RICHARD AND NANCY BLOCH FAMILY TRUST.
Judgment entered July 7, 2016.
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