Kenneth M. Hardin v. Joseph Lella ( 2015 )

ACCEPTED
03-14-00607-CV
5072679
THIRD COURT OF APPEALS
AUSTIN, TEXAS
4/28/2015 5:33:33 PM
JEFFREY D. KYLE
CLERK
No. 03-14-00607-cv
FILED IN
3rd COURT OF APPEALS
IN THE COURT OF APPEALS FOR AUSTIN, TEXAS
THE THIRD DISTRICT OF TEXAS AT AUSTIN
4/28/2015 5:33:33 PM
JEFFREY D. KYLE
Clerk
KENNETH M. HARDIN,
Appellant
vs.
JOSEPH LELLA,
Appellee
REPLY BRIEF OF APPELLANT KENNETH M. HARDIN
On appeal from the County Court at Law No. 2 of Travis County, Texas
Cause No. C-1-CV-14-006415
Honorable Eric Shepperd, Judge Presiding
Mark L. Aschermann
SBN 01368700
BARRON & NEWBURGER, PC
6300 West Loop South, Suite 341
Bellaire, Texas 77401
Telephone (713) 942-0808
Facsimile (713) 942-0449
maschermann@bn-lawyers.com
ATTORNEYS FOR APPELLANT
ORAL ARGUMENT REQUESTED
Appellant’s Reply Brief
1
TABLE OF CONTENTS
I. RESPONSES TO APPELLEE’S BRIEF . . . . . . . . . . . . . . . . . . . . . . . . . . 4
II. SUMMARY OF THE ARGUMENT
Reply Issue Number One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The trial court erred in granting the Motion for Summary Judgment
because the Appellee Joseph Lella’s claims for breach of contract,
unjust enrichment and declaratory relief are barred by limitations.
(Reply to Appellee Issues 1, 7 and 8)
Reply Issue Number Two. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The trial court erred in granting the Motion for Summary Judgment
because the Second Promissory Note was a novation of the First
Promissory Note and constituted consideration to support the
Novation. (Reply to Appellee Issues 4, 5, 9 and 10)
III. ARGUMENT AND AUTHORITIES
Reply Issue Number One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Reply Issue Number Two . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
IV. CONCLUSION AND REQUEST FOR RELIEF . . . . . . . . . . . . . . . . . . . 16
Appellant’s Reply Brief
2
INDEX OF AUTHORITIES
Cases
Barnes v. LPP Mortg., Ltd., 358 S.W.3d 301, 303 (Tex. App. Dallas 2011) ................... 12
Crego v. Lash, 2014 Tex. App. 3272 (Tex. App.—Corpus Christi, 2014, no pet.) .......... 10
CTTI Priesmeyer v. K & O Ltd. Partnership, 164 S.W.3d 675, 680-681 (Tex. App.--
Austin 2005, no pet.) ...................................................................................................... 15
Elledge v. Friberg-Cooper Water Supply Corp., 240 S.W.3d 869, 871 (Tex. 2007) ... 5, 13
Joiner v. Elrod, 716 S.W.2d 606, 609 (Tex. App.- Corpus Christi 1986, no pet.) ....... 9, 10
Koch Oil Co. v. Wilber, 895 S.W.2d 854, 858 (Tex. App. Beaumont 1995) .................... 12
Loomis v. Republic Nat'l Bank, 653 S.W.2d 75, 77 (Tex. App. Dallas 1983) .................. 11
Mart. v. Ford, 853 S.W.2d 680, 682 (Tex. App. Texarkana 1993) ................................ 12
National Mar-Kit, Inc. v. Forrest, 687 S.W.2d 457, 458 (Tex. App. Houston 14th Dist.
1985) ............................................................................................................................... 11
Vandeventer v. All American Life & Casualty Co., 101 S.W.3d 703, 712 (Tex. App.--Fort
Worth 2003, no pet.) ....................................................................................................... 15
Wiman v. Tomaszewicz, 877 S.W.2d 1, 3 (Tex. App. Dallas 1994) .................................. 12
Statutes
Texas Civil Practice and Remedies Code §16.003........................................................ 5, 13
Texas Civil Practice and Remedies Code §16.004.............................................................. 7
Appellant’s Reply Brief
3
I. RESPONSES TO APPELLEE’S BRIEF
1. The trial court erred in granting the Motion for Summary Judgment
because the Appellee Joseph Lella’s claims are barred by limitations. (Reply
to Appellee Issues 1, 7 and 8)
2. The trial court erred in granting the Motion for Summary Judgment
because the Second Promissory Note was a novation of the First Promissory
Note and constituted consideration to support the Novation. (Reply to
Appellee Issues 4, 5, 9 and 10)
II. SUMMARY OF THE ARGUMENT
Reply Issue Number One
1. The trial court erred in granting the Motion for Summary Judgment
because the Appellee Joseph Lella’s claims for breach of contract, unjust
enrichment and declaratory relief are barred by limitations. (Reply to
Appellee Issues 1, 7 and 8)
Three Promissory Notes (C.R. 50-55) are at issue in this matter, each for the
principal amount of $30,000.00 plus interest. Each included the following
language: “The initial loan shall be for a minimum period of six months, thereafter
paymant [sic] of the entire balance plus any unpaid interest compounded monthly,
Appellant’s Reply Brief
4
is due upon demand in writing, sixty days prior to expected date of receipt thereof,
to the undersigned at the address herein below.” The Appellee Lella argues that
his cause of action did not accrue and limitations did not begin to run until he made
demand for payment of the First Promissory Note in February 2013 (C.R. 56).
No interest was paid to Lella after 2003, as all interest was paid to his wife
consistent with the Second and Third Promissory Notes. Accordingly, the First
Promissory Note was in default, the cause of action accrued, and the statute of
limitations began to run in 2003. Additionally and/or alternatively, a fact issue
precluding summary judgment exists as to the date of accrual of the cause of action
related to the unreasonable delay in making demand for payment.
Lella advanced the money in 1996 and received interest pursuant to the First
Promissory Note through 2003. Unjust enrichment claims are governed by the
two-year statute of limitations the Texas Civil Practice and Remedies Code
§16.003. Elledge v. Friberg-Cooper Water Supply Corp., 240 S.W.3d 869, 871
(Tex. 2007). As noted in Issue Number One, Lella’s cause of action accrued no
later than January 2004. Thus, the limitations period expired in January 2006,
more than 7 years before he made this claim. As a result, the Trial Court’s
summary judgment on unjust enrichment must be reversed.
As to the Appellee’s request for Declaratory Relief, any cause of action for
Declaratory Relief was contemporaneous with the breach of contract cause of
Appellant’s Reply Brief
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action on the Promissory Note so that the same limitations period applies.
Otherwise the declaratory judgment cause of action would be become the safe
haven for all time barred claims.
Reply Issue Number Two
2. The trial court erred in granting the Motion for Summary Judgment
because the Second Promissory Note was a novation of the First Promissory
Note and constituted consideration to support the Novation. (Reply to
Appellee Issues 4, 5, 9 and 10)
In 2003 the First Promissory Note was replaced by the Second Promissory
Note, which lowered the interest rate and changed the Payee to Elisabeth Lella,
Appellee’s wife. The Second Promissory Note was the consideration to support
the novation of the First Promissory Note. The facts and circumstances of these
transactions create a fact issue which precludes summary judgment.
III. ARGUMENT AND AUTHORITIES
Reply Issue Number One
1. The trial court erred in granting the Motion for Summary Judgment
because the Appellee Joseph Lella’s claims for breach of contract, unjust
enrichment and declaratory relief are barred by limitations. (Reply to
Appellee Issues 1, 7 and 8)
Appellant’s Reply Brief
6
Joseph Lella filed his Plaintiff’s Original Petition on May 9, 2013 (C.R. 8).
Thus, if Lella’s cause of action accrued on or before May 9, 2009, Lella’s claim is
barred by the statute of limitations. Tex. Civ. Prac. Rem. Code §16.004.
Appellee’s causes of action accrued at least by the year 2003 when all interest
payments were sent to Appellee’s wife Elisabeth Lella.
In his Conclusion, Appellee avers: “It is unchallenged that Appellant is in
breach of his contract under the note with Appellee. Appellant did not breach the
contract until demand for payment was made and ignored.” The Appellant and
Appellee are in agreement that the First Promissory Note is in default, assuming it
was not replaced by novation through the Second Promissory Note.
The question before the Court is: When did the cause of action accrue on
the First Promissory Note? Was it upon demand by the Appellee in 2013? Was it
when the note was made? Or was it the default in 2003 after which Appellee no
longer received any interest payments as the payments were sent to his wife
Elisabeth?
Both Appellant and Appellee agree that interest was paid to Appellee’s wife
Elisabeth (Appellee’s Brief p. 5). The payment to Elisabeth was accompanied by
correspondence, the Second Promissory Note, a reduced interest rate, and tax
reporting of the interest to Elisabeth (CR 50-55, 130-136). Appellee silently
agreed to these changes, complaining that he was the rightful recipient of the debt
Appellant’s Reply Brief
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only after Richard Crawford filed a bankruptcy petition and ceased paying interest
to Elisabeth. (CR 71) He explains his silence as:
Formal demand for full interest payments were not made in an attempt to
help Crawford, the husband of Appellee’s niece, in his business. (C.R. 48)
Mrs. Lella had conversations with Crawford in which she tried to discuss the
attempt to change the terms of the agreement, and the fact that the interest
payments being made were not as promised. These attempted discussions
proved fruitless. (CR 48; CR 60)
Appellee’s Brief p 6; (emphasis added).
Appellee has offered no written documentation of these ‘fruitless’ conversations by
Mrs. Lella with her niece’s husband. It should also be noted that Mrs. Lella, not
Appellee, had these conversations with Crawford.
Regardless of whether the Second Promissory Note is considered a legal
novation of the First Promissory Note, there is no factual dispute that Joseph Lella
received NO interest payments after 2003.
The Kenneth Hardin affidavit states that: “Based upon this new note we sent
all interest payments to Elisabeth Lella along with IRS 1099 report. To my
knowledge both Elisabeth and Joseph Lella agreed to this change, accepted the
interest payments and never complained about the reduced interest rate or the
direction of payments to Elisabeth Lella” (CR 125). A copy of the Americus
Diamonds handwritten note ledger (CR 130-131), general ledger payments to
Elisabeth Lella, and IRS reporting statements to Elisabeth Lella (CR 133-136)
Appellant’s Reply Brief
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were part of Appellant’s Summary Judgment Response.1 Elisabeth Lella
cooperated by providing her Canadian tax information to Appellant and his partner
(CR 130, 136).
The Appellee’s Brief for Lella is silent as to Lella’s explanation for this lost
decade other than stating that payments were made to his wife at his request. One
must refer back to Lella’s Motion for Summary Judgment to obtain his legal
position on this point.
Lella defended his decade of inaction by saying that “Plaintiff did not make
formal demand earlier “in an attempt to help (his) niece’s husband in his business”
(C.R. 148). Lella also attempts to excuses this forbearance with the statement “a
party can waive contractual provisions for his own benefit. Joiner v. Elrod, 716
S.W.2d 606, 609 (Tex. App.- Corpus Christi 1986, no pet.).”
As stated in Appellant’s Brief at page 20, in Joiner, the real estate buyer
Elrod, through a Trustee, offered to buy real estate owned by Joiner. A written
offer was sent to Joiner with a deadline by which the offer expired. Joiner
accepted the offer after the deadline and mailed the contract to Elrod but later that
day sent a telegram revoking that consent. Elrod sued for specific performance.
The above quote needs to be placed in context as a few lines later the Joiner
court said:
1
Appellant notes that the Trial Court excluded this evidence to the extent it
supports the novation defense but not as to the limitations defense. (RR 11)
Appellant’s Reply Brief
9
Moreover, a party can waive provisions for his benefit. As notification of
acceptance is required for the benefit of the person who makes the offer, the
person who makes the offer may dispense with notice to himself. If the
offeror intimates a particular mode of acceptance is sufficient to make the
bargain binding, it is only necessary that the offeree follow the indicated
method of acceptance.
Joiner, supra, at 609
Therefore, Joiner can be distinguished from the instant case.
Hardin and Crawford acted in reliance on the Second and Third Promissory
Notes, paying interest to Elisabeth Lella, not Joseph Lella, and paying a lower rate
of interest. Additionally, the timing of the receipt of acceptance of the offer was a
minor matter in the Joiner transaction for which agreement was readily made.
Lella attempts to waive a decade of continued effort by Hardin and then Crawford.
Lella’s attempted waiver is only for his own benefit and should be disregarded.
All of the documentation of the loans, the correspondence between the
parties, and the later behavior of the parties was consistent with the replacement of
the First Promissory Note by novation through the Second Promissory Note. If
there was not a novation of the First Promissory Note, Appellant was in breach of
its provisions because no interest was paid to Appellee after 2003, as all interest, at
a reduced rate, was paid to his wife Elisabeth Lella.
Appellee refers to only three cases on the limitations issue. The first is
Crego v. Lash, 2014 Tex. App. 3272 (Tex. App.—Corpus Christi, 2014, no pet.),
which Appellee attempts to distinguish.
Appellant’s Reply Brief
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The second is National Mar-Kit, Inc. v. Forrest, 687 S.W.2d 457, 458 (Tex.
App. Houston 14th Dist. 1985) which involves an oral agreement followed by a
written contract during a time when there were different limitations period for oral
and written contracts. The limitations argument was rejected because the
Legislature changed the limitations statute to a single four year limitations period
for both oral and written contracts.
The third is Loomis v. Republic Nat'l Bank, 653 S.W.2d 75, 77 (Tex. App.
Dallas 1983) which involved an installment note from Loomis to Republic
National Bank payable “on demand or if no demand be made 1-31-77.” Republic
National Bank filed suit on January 28, 1981. Loomis argued that the obligation
was a demand note and that the cause of action accrued on July 30, 1976, the date
of the making of the note. The Loomis court held:
We construe the note to mean that it was due on January 31, 1977, unless a
prior demand had been made. In the event that no demand was made prior to
January 31, 1977, the note provides that demand was waived. We hold that
the note matured on January 31, 1977, and that suit was brought thereon
within the four year statute of limitations.
Loomis, supra at 78
It is unclear how that holding is applicable to the case at bar.
There is a brief but clear written record of the dealings between Appellant
and Appellee on this matter. There are the three Promissory Notes with
contemporaneous correspondence (CR 50-55) and the records of the Americus
Diamonds business on the payment of the interest (CR 130-136). Appellee has no
Appellant’s Reply Brief
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written evidence of his position in 2003, other than his gratuitous comments in his
April 10, 2014 Affidavit (CR 47-49), more than a decade after the key events
transpired.
Even if a Note is payable after formal demand, the demand must be made in
a reasonable time, depending on the circumstances of each case. Absent
mitigating circumstances, demand is reasonable if made within the period of
limitations. Martin v. Ford, 853 S.W.2d 680, 682 (Tex. App. Texarkana 1993),
Barnes v. LPP Mortg., Ltd., 358 S.W.3d 301, 303 (Tex. App. Dallas 2011), Wiman
v. Tomaszewicz, 877 S.W.2d 1, 3 (Tex. App. Dallas 1994), Koch Oil Co. v. Wilber,
895 S.W.2d 854, 858 (Tex. App. Beaumont 1995).
In the alternative, if the claim on the First Promissory Note is not barred by
limitations as a matter of law, a fact issue precluding summary judgment exists as
to the day the cause of action accrued as Lella unreasonably delayed making
demand for payment of the First Promissory Note. When a cause of action accrues
is uniquely a fact issue. At a minimum, Appellant raised a fact issue as to whether
Lella’s cause of action accrued more than four years before the date of suit.
Accordingly, the First Promissory Note was in default, the cause of action
accrued, and the statute of limitations began to run in 2003. Additionally and/or
alternatively, a fact issue precluding summary judgment exists as to the date of
Appellant’s Reply Brief
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accrual of the cause of action related to the unreasonable delay in making demand
for payment.
The Appellant did not respond with a laches defense in the trial court so no
response is made here.
Lella advanced the money in 1996 and received interest pursuant to the First
Promissory Note through 2003. Unjust enrichment claims are governed by the
two-year statute of limitations, Texas Civil Practice and Remedies Code §16.003.
Elledge v. Friberg-Cooper Water Supply Corp., 240 S.W.3d 869, 871 (Tex. 2007).
As noted in Issue Number One, Lella’s cause of action accrued no later than
January 2004. Thus, the limitations period for any unjust enrichment claim
expired in January 2006, more than 7 years before he made this claim. As a result,
the Trial Court’s summary judgment on unjust enrichment must be reversed.
As to the Appellee’s request for Declaratory Relief, any cause of action for
Declaratory Relief was contemporaneous with the breach of contract cause of
action on the Promissory Note so that the same limitations period applies.
Otherwise the declaratory judgment cause of action would become the safe haven
for all time barred claims.
Appellant’s Reply Brief
13
Reply Issue Number Two
2. The trial court erred in granting the Motion for Summary Judgment
because the Second Promissory Note was a novation of the First Promissory
Note and constituted consideration to support the Novation. (Reply to
Appellee Issues 4, 5, 9 and 10)
Appellant raised novation as a fact issue precluding summary judgment in
his Response to Motion for Summary Judgment. Appellant supported his
Response with competent summary judgment evidence establishing that the
Second Promissory Note was a replacement of the First Promissory Note. As
further evidence of the intent of the parties to make the obligation payable to
Elisabeth Lella, paragraph 4 of the Second Promissory Note stated: “This NOTE
replaces and invalidates all previous NOTEs between American Diamond and
(handwritten) Elisabeth Lella” (C.R. 53).
Ample evidence exists in the record to support the novation defense. As a
result, there was a fact issue as to whether novation applied and summary
judgment was improper.
Appellee argues that there was no consideration to support a novation.
However, the record clearly shows that the Second Promissory Note was the
consideration for the novation of the First Promissory Note (C.R. 53).
Appellant’s Reply Brief
14
Novation is the creation of a new obligation in place of an old one. Under
the novation, the parties may agree that a new obligor is substituted to perform the
duties agreed on in the old contract and the original obligor is released from
performing those duties. Vandeventer v. All American Life & Casualty Co., 101
S.W.3d 703, 712 (Tex. App.--Fort Worth 2003, no pet.).
The consent to substitute a new obligor and release the original obligor may
be express or implied. Vandeventer v. All American Life & Cas. Co., 101 S.W.3d
703, 712-713 (Tex. App.--Fort Worth 2003, no pet.). In the absence of an express
agreement, whether a new contract operates as a novation of an earlier contract is
usually a question of fact. It becomes a question of law only if the evidence would
not cause reasonable minds to differ as to its effect. CTTI Priesmeyer v. K & O
Ltd. Partnership, 164 S.W.3d 675, 680-681 (Tex. App.--Austin 2005, no pet.).
Accordingly, the First Promissory Note was in default, the cause of action
accrued, and the statute of limitations began to run in 2003. Additionally and/or
alternatively, a fact issue precluding summary judgment exists as to the date of
accrual of the cause of action related to the unreasonable delay in making demand
for payment.
The three Promissory Notes and related correspondence (C.R. 50-55, 83)
show that Hardin and Lella intended for the Second Promissory Note to replace the
First Promissory Note. Hardin’s affidavit (C.R. 125) stated that Joseph Lella
Appellant’s Reply Brief
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agreed, and in fact asked, that his wife Elisabeth be the payee on the Second
Promissory Note(s) and that interest payments be directed to her. Even without
this testimony from Hardin, the actions (and lack of action) of the Lellas speak
loudly to this outcome.
Joseph Lella was aware of the Second Promissory Note and accepted the
benefit of the changes, while failing to protest for over 10 years.
IV. CONCLUSION AND REQUEST FOR RELIEF
In 2003, if not earlier, Lella asked that interest on the First Promissory Note
be paid to his wife Elisabeth. Hardin and his partner Richard Crawford
accommodated this request by preparing, signing, and forwarding the Second
Promissory Note to Joseph and Elisabeth Lella and paying the required interest to
her. Joseph Lella did not object to this change until he made demand in 2013,
almost a decade later. Lella’s breach of contract claim on the First Promissory
Note, any unjust enrichment claim, and his request for declaratory relief are thus
barred by the statute of limitations.
Additionally, the claim for relief under the theory of unjust enrichment is
invalid because the existence of the First Promissory Note, a valid existing
contract, precludes recovery on the theory of unjust enrichment and as with the
Appellant’s Reply Brief
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claim for breach of contract, is barred by limitations. Finally, the request for
declaratory relief is not supported by either pleadings or an order so that no relief
should be granted.
For these reasons, Kenneth M. Hardin, Appellant, requests that this court
reverse and remand this matter to the trial court. Hardin also requests any other
relief to which he may be entitled.
Respectfully Submitted,
_/s/ Mark L. Aschermann______
Mark L. Aschermann
SBN 01368700
BARRON & NEWBURGER, PC
6300 West Loop South, Suite 341
Bellaire, Texas 77401
Telephone (713) 942-0808
Facsimile (713) 942-0449
maschermann@bn-lawyers.com
ATTORNEYS FOR APPELLANT
CERTIFICATE OF COMPLIANCE
I certify , according to the word count feature of the Word program used to
create this Brief, this Brief contains a total of 3,026 words in pages numbered 3
through 17.
_/s/ Mark L. Aschermann______
Mark L. Aschermann
Appellant’s Reply Brief
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CERTIFICATE OF SERVICE
This is to certify that on the 28th day of April, 2015, a true and correct copy
of the foregoing document was served on the parties listed below at the address
and in the manner indicated.
William M. Nichols _/s/ Mark L. Aschermann______
WILLIAM M. NICHOLS, P.C. Mark L. Aschermann
9601 McAllister Freeway, Suite 1250
San Antonio, Texas 78216-5150
Via E Delivery and Facsimile to (210) 340-8885
Appellant’s Reply Brief
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