R2 Enterprises, Inc. and Ted Reeves v. Vernon Whipple ( 2008 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 2-07-257-CV
R2 ENTERPRISES, INC. APPELLANTS
AND TED REEVES
V.
VERNON WHIPPLE APPELLEE
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FROM THE 158TH DISTRICT COURT OF DENTON COUNTY
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MEMORANDUM OPINION 1
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This case involves a dispute between one of the limited partners of a
limited partnership and the other limited partner and the general partner of the
limited partnership. In one issue with multiple subparts, appellants R2
Enterprises, Inc., the general partner of Rivendell Luxury Homes, L.P., and Ted
Reeves, one of two limited partners, challenge the trial court’s judgment
granting appellee Vernon Whipple’s motion for judgment notwithstanding the
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… See T EX. R. A PP. P. 47.4.
verdict (JNOV) and rendering a take-nothing judgment in Whipple’s favor. We
affirm.
Background Facts
In February 2004, Whipple and Reeves decided to form a limited
partnership to build and sell homes in the Taylor Oaks Estates subdivision in
Double Oak, Denton County, Texas. Whipple had been involved in the
construction business for many years, and Reeves was looking for an
investment opportunity. Whipple and Reeves signed a limited partnership
agreement, which provided that each would own a 49.5% limited partnership
interest in Rivendell. The general partner, R2 Enterprises, was owned solely by
Reeves, and owned a one percent interest in Rivendell.
Rivendell entered into an option contract with Taylor Estates Partners,
Ltd., owned by Ken Hodge, the developer of the subdivision, in which Rivendell
agreed to purchase four lots each year for three years, a total of twelve lots.
Rivendell purchased one of the lots and built a home on it. It also built a home
on another lot that it did not purchase from Taylor Estates Partners. After
Rivendell sold both homes and before it could purchase any of the remaining
lots under contract, Whipple withdrew approximately $89,000 from Rivendell’s
accounts; he testified at trial that he was finished working with Reeves and
wanted to dissolve Rivendell. Reeves, concerned that Rivendell was going to
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lose the earnest money that it had put down on the remaining eleven lots under
contract, entered into a deal with Hodge in which Reeves individually purchased
the three lots that Rivendell was obligated to buy that year with Hodge applying
the earnest money from the remaining eight lots to the purchase of the three
lots. However, Hodge also required Reeves to sign a waiver of his and
Rivendell’s right to purchase the remaining eight lots under contract. Reeves
financed the purchase of the three lots with his own money. Although Reeves
never built on the lots, he eventually was able to sell them to a third party
builder.
Whipple testified at trial that with the money he withdrew from
Rivendell’s accounts, he first paid off several subcontractors and vendors whom
Reeves had not paid for construction of one of the Rivendell houses; he then
invested the remaining money in a company called Restored Investments, LLC,
a rental property business. Restored Investments also purchased the eight
remaining lots from Taylor Estates Partners; Whipple built homes on those lots.
According to Whipple, none of the money from Rivendell’s accounts was used
in the purchase of and construction on the eight lots.
Reeves and R2 Enterprises sued Whipple in March 2005, alleging causes
of action for breach of the limited partnership agreement, tortious interference
with existing and future contracts, conversion, breach of fiduciary duty, and
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breach of loyalty; they later added a claim for fraudulent transfer of the money
Whipple withdrew from Rivendell’s accounts. They pled for actual and
exemplary damages, the imposition of a constructive trust, and attorney’s fees.
Whipple answered and counterclaimed for a partnership accounting, a derivative
action on behalf of Rivendell for breach of fiduciary duty, misappropriation and
conversion, judicial dissolution of Rivendell, trespass to try title, injunctive relief,
and attorney’s fees.
A jury trial began on January 8, 2007. On the second day, the trial court
allowed a trial amendment adding Rivendell as a plaintiff for purposes of the
breach of fiduciary duty, tortious interference, and conversion claims. The jury
awarded Reeves $297,000 and R2 Enterprises $5,973 in future damages for
Whipple’s breach of the limited partnership agreement and the same amounts
for Whipple’s breach of fiduciary duty. The jury also found that Whipple had
breached a fiduciary duty to Rivendell, intentionally interfered with Rivendell’s
option contracts, and converted Rivendell’s property, but it also found that
Rivendell had not suffered any damages as a result.2 The jury also found that
Reeves and R2 Enterprises were entitled to $500,000 each as exemplary
2
… The trial court had rendered a directed verdict as to the constructive
trust, fraudulent transfer, tortious interference with future contracts, and
conversion claims.
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damages; however, although the jury found that Whipple acted with malice
toward Rivendell, it did not award Rivendell any exemplary damages. Finally,
the jury awarded Reeves and R2 Enterprises $75,000 in attorney’s fees. The
jury found against Whipple on all of his counterclaims.
The trial court rendered a final judgment on March 14, 2007, which
incorporated the jury’s verdict in all respects, except that it ordered the
exemplary damages awards reduced to $150,000 for Reeves and $100,000 for
R2 Enterprises. Whipple filed a timely motion for new trial and motion for
JNOV. In his motion for JNOV, Whipple argued, among other things, that
Reeves and R2 Enterprises were not entitled to the future damages awarded by
the jury—which were based on the projected cash distributions Reeves and R2
Enterprises would have received had Rivendell been able to develop the
remaining eight lots under the option contract with Taylor Estates
Partners—because by signing the release, Reeves waived the right to purchase
those lots. Whipple also argued that Reeves and R2 Enterprises did not have
standing or capacity to recover damages, that only Rivendell had such standing,
and that as a matter of law Whipple owed no fiduciary duty to Reeves and R2
Enterprises. The trial court agreed with Whipple’s waiver argument, granted
Whipple’s motion for JNOV, vacated its March 14, 2007 judgment, and
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rendered a take nothing judgment in Whipple’s favor on all claims. Reeves and
R2 Enterprises appeal.
Issues Presented
Reeves and R2 Enterprises present the following issue: “Did the trial
court err in granting the motion for JNOV and ordering the remittitur of
$750,000.00 in punitive damages?” This broad issue has multiple subparts,
including whether the trial court correctly concluded that Reeves had waived
any future damages for himself and R2 Enterprises by waiving Rivendell’s claim
to the remaining eight lots under the option contract, whether the JNOV was
proper based on Whipple’s standing and capacity claims, whether the jury
correctly determined that Whipple breached a fiduciary duty to Reeves and R2
Enterprises, and whether the trial court erred in granting a remittitur of the
exemplary damages awards. We address the standing issue first because it is
dispositive. 3
3
… Although Whipple challenged Reeves’s standing in his pleadings, he
did not raise R2 Enterprises’s standing until after trial. However, because
standing is a component of subject matter jurisdiction, it cannot be waived and
may be raised for the first time on appeal by the parties or the court. Austin
Nursing Ctr., Inc. v. Lovato, 171 S.W.3d 845, 849 (Tex. 2005); City of
Arlington v. Centerfolds, Inc., 232 S.W.3d 238, 244 (Tex. App.—Fort Worth
2007, pet. denied).
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Standard of Review
A trial court may disregard a jury verdict and render JNOV if no evidence
supports the jury findings on issues necessary to liability or if a directed verdict
would have been proper. See T EX. R. C IV. P. 301; Tiller v. McLure, 121 S.W.3d
709, 713 (Tex. 2003); Fort Bend County Drainage Dist. v. Sbrusch, 818
S.W.2d 392, 394 (Tex. 1991). A directed verdict is proper only under limited
circumstances: (1) when the evidence conclusively establishes the right of the
movant to judgment or negates the right of the opponent; or (2) when the
evidence is insufficient to raise a material fact issue. Prudential Ins. Co. v. Fin.
Review Servs., Inc., 29 S.W.3d 74, 77 (Tex. 2000); Ray v. McFarland, 97
S.W.3d 728, 730 (Tex. App.—Fort Worth 2003, no pet.).
To determine whether the trial court erred by rendering a JNOV, we view
the evidence in the light most favorable to the verdict under the well-settled
standards that govern legal sufficiency review. See Wal-Mart Stores, Inc. v.
Miller, 102 S.W.3d 706, 709 (Tex. 2003). The standard for reviewing a
judgment notwithstanding the verdict, like all other motions rendering judgment
as a matter of law, requires a reviewing court to credit evidence favoring the
jury verdict if reasonable jurors could and disregard contrary evidence unless
reasonable jurors could not. Cent. Ready Mix Concrete Co. v. Islas, 228
S.W.3d 649, 651 (Tex. 2007). If the trial court grants a motion for JNOV on
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the wrong ground, we must nevertheless affirm the judgment if any theory in
the motion could support the JNOV. Wallis v. United Servs. Auto. Ass'n, 2
S.W.3d 300, 302 (Tex. App.—San Antonio 1999, pet. denied); see also Guar.
County Mut. Ins. Co. v. Reyna, 709 S.W.2d 647, 648 (Tex. 1986) (holding
that lower court’s judgment must be upheld on any correct legal theory before
it, even if court gave an incorrect reason for the judgment).
Whether Reeves and R2 Enterprises Have Standing
A plaintiff must have standing to bring a lawsuit. Austin Nursing Ctr.,
Inc. v. Lovato, 171 S.W.3d 845, 848 (Tex. 2005); City of Arlington v.
Centerfolds, Inc., 232 S.W.3d 238, 244 (Tex. App.—Fort Worth 2007, pet.
denied). The issue of standing focuses on whether a party has a sufficient
relationship with the lawsuit so as to have a justiciable interest in its outcome.
Lovato, 171 S.W.3d at 848; City of Arlington, 232 S.W.3d at 244. Standing,
therefore, focuses on who may bring an action, M.D. Anderson Cancer Ctr. v.
Novak, 52 S.W.3d 704, 708 (Tex. 2001), and is concerned with whether the
claimant has a particularized injury distinct from that suffered by the general
public. Bland ISD v. Blue, 34 S.W.3d 547, 555–56 (Tex. 2000); City of
Arlington, 232 S.W.3d at 244.
Standing requires that there be a real controversy between the parties
that will actually be determined by the judicial declaration sought. Lovato, 171
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S.W.3d at 849; City of Arlington, 232 S.W .3d at 244. This means that
litigants must be “properly situated to be entitled to [a] judicial determination.”
Lovato, 171 S.W.3d at 849 (quoting 13 C HARLES A LAN W RIGHT, A RTHUR R.
M ILLER, & E DWARD H. C OOPER, F EDERAL P RACTICE AND P ROCEDURE: J URISDICTION 2 D
§ 3531, at 338–39 (2d ed.1984)). Without standing, a court lacks subject
matter jurisdiction to hear the case. Id.; Tex. Ass’n of Bus. v. Tex. Air Control
Bd., 852 S.W.2d 440, 443 (Tex. 1993); City of Arlington, 232 S.W.3d at 244.
An individual stakeholder in a legal entity does not have a right to recover
personally for harms done to the legal entity. Wingate v. Hajdik, 795 S.W.2d
717, 719 (Tex. 1990); Nauslar v. Coors Brewing Co., 170 S.W.3d 242, 250
(Tex. App.—Dallas 2005, no pet.) (applying rule to limited partnership). A
stakeholder does not have standing to seek damages on a cause of action
belonging to an entity alone, such as when the damages are based on
diminution of the entity’s worth or the entity’s loss of profits. Nauslar, 170
S.W.3d at 250; Fredericksburg Indus., Inc. v. Franklin Int’l, Inc., 911 S.W.2d
518, 520–21 (Tex. App.—San Antonio 1995, writ denied). This is true even
when the damages sought by the individual stakeholder are based on the
diminished value of an ownership interest or loss of employee benefits.
Nauslar, 170 S.W.3d at 250; see Mendenhall v. Fleming Co., 504 F.2d 879,
880–81 (5th Cir. 1974). For instance, a partner has no individual, separate
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cause of action for losses suffered by reason of tortious interference with a
contract between the partnership and a third party: damages for loss in value
of the partnership interest or employment losses are subsumed in the
partnership’s causes of action. Nauslar, 170 S.W.3d at 250; see Cates v. Int’l
Tel. & Tel. Corp., 756 F.2d 1161, 1181–82 (5th Cir. 1985) (construing Texas
law).
Analysis
Here, Reeves and R2 Enterprises sought and recovered damages based
on their shares of the projected profit from the development and sale of the
eight lots Rivendell was initially supposed to purchase under the Taylor Estates
Partners contract, in the amounts of their respective partnership interests:
49.5% for Reeves and 1% for R2 Enterprises. Although Reeves and R2
Enterprises did plead and prove personal losses, those losses are indirect and
duplicative of Rivendell’s losses, being based solely on their partnership
interests. See Nauslar, 170 S.W.3d at 250–51; cf. Gonzalez v. Greyhound
Lines, Inc., 181 S.W.3d 386, 392–93 (Tex. App.—El Paso 2005, pet. denied)
(holding that individuals did not plead injuries separate and apart from their
interests in limited partnership); Johnson v. J. Hiram Moore, Ltd., 763 S.W.2d
496, 499 (Tex. App.—Austin 1988, writ denied) (holding that limited partners,
who were also tenants of building owned by limited partnership, were directly
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damaged by general and limited partner’s breach of fiduciary duty because they
had to personally pay construction fees that general and limited partner included
in construction contracts without notice to them). The direct injury was to
Rivendell, the party who actually contracted with Taylor Estates Partners and
the party that was expected to receive the profits from the development and
sale of lots purchased under that contract. Thus, any recovery based on future
earnings on lots under the contract with Taylor Estates Partners belongs to
Rivendell alone. See Nauslar, 170 S.W.3d at 251; cf. Dunnagan v. Watson,
204 S.W.3d 30, 37, 46–47 (Tex. App.—Fort Worth 2006, pet. denied)
(affirming judgment awarding damages to limited partnership based on limited
partner’s breach of fiduciary duty). As the party with the primary legal right to
recover, Rivendell is the exclusive party with a justiciable interest; therefore,
Reeves and R2 Enterprises did not have standing to recover the future damages
awarded by the jury, and the trial court did not err by granting the JNOV and
entering a take nothing judgment in Whipple’s favor. 4
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… Although the jury found in Rivendell’s favor as to breach of fiduciary
duty and interference with the option contract, it failed to award any damages
to Rivendell based on those findings.
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Conclusion
Having determined that the trial court’s JNOV was proper on standing
grounds, we overrule Reeves and R2 Enterprises’s issue and affirm the trial
court’s judgment.
TERRIE LIVINGSTON
JUSTICE
PANEL A: CAYCE, C.J.; LIVINGSTON and HOLMAN, JJ.
DELIVERED: June 26, 2008
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