KUV Partners, LLC and Eilat, Inc. v. Wael Fares D/B/A Fares Construction ( 2011 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-09-00246-CV
KUV PARTNERS, LLC AND APPELLANTS
EILAT, INC.
V.
WAEL FARES D/B/A APPELLEE
FARES CONSTRUCTION
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FROM THE 141ST DISTRICT COURT OF TARRANT COUNTY
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MEMORANDUM OPINION ON REHEARING1
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Upon consideration of appellant KUV Partners, LLC’s motion for rehearing,
we withdraw our opinion and judgment of December 31, 2010 and substitute the
following to respond to an argument raised in the motion for rehearing.
In this appeal from a bench trial seeking damages and foreclosure of a
materialman’s lien for the construction of improvements to leased premises,
appellants KUV Partners, LLC and Eilat, Inc. bring seven issues. They challenge
the legal and factual sufficiency of the evidence to show that (1) KUV was part of
a joint venture to develop the leased premises as a restaurant, (2) Nabil Dimassi,
1
See Tex. R. App. P. 47.4.
the sublessee of the leased premises, was an agent of KUV, (3) appellee Wael
Fares d/b/a Fares Construction is entitled to recovery under a quantum meruit
theory, and (4) appellee is entitled to recover damages from Eilat. They also
challenge the trial court’s conclusion that Fares perfected and was entitled to
foreclosure of a materialman’s lien on KUV’s leasehold interest, its conclusion
that KUV is liable under the lease agreement to satisfy Fares’s materialman’s
lien, and its denial of a new trial or additional testimony based on newly
discovered evidence. We reverse in part and affirm in part as modified.
Background
Javier Mondragon, an employee of Texas Palomina’s restaurant in
Arlington, Texas, met real estate investors Moshe Epstein and Mac Hargrove
and asked them to find a restaurant for him to operate. Epstein found a property
at 4421 South Freeway, Fort Worth, that had a Chinese buffet restaurant on it; he
signed a lease with the owner on behalf of KUV,2 in which he and Hargrove were
the only members. KUV promised to pay $10,000 per month for a sixty-month
initial term with an opportunity to extend the lease term. The lease also allowed
KUV to sublease the premises to ―the operating entity which will open the
restaurant operations.‖ The lease further provided that any tenant improvements
would remain on the premises and become the property of the landlord at the
expiration of the lease term. Epstein prepared a sublease of the premises to
2
The initial filing with the Texas Secretary of State showed the name as
KUB Partners, LLC; the name was subsequently changed to KUV Partners, LLC,
and they are the same company.
2
Mondragon, but Mondragon refused to sign it. Epstein then approached Nabil
Dimassi, who owned the Arlington Texas Palomina’s restaurant, among others.
In June 2007, Dimassi signed a sublease with KUV for $15,000 a month for an
initial sixty-month term. KUV agreed to pay for all ―utilities, connection charges,
maintenance . . . , and repairs‖ to the premises, as provided in its lease. Any
subtenant improvements were required to comply with KUV’s master lease.
In August or September 2007, Dimassi contracted with Wael Fares d/b/a
Fares Construction to construct improvements in the leased premises for the new
Texas Palomina’s. According to Fares, Dimassi approved all of the work before
it was started. Epstein was at the site almost daily during construction, and a
man named David Goran started paying Fares instead of Dimassi himself. It was
Fares’s understanding from Epstein and Goran that Dimassi was in financial
trouble. At Dimassi’s request, Fares started presenting invoices to Goran’s
company, DFW AUCE, Inc. Eventually, Fares, Epstein, Hargrove, and Goran
became aware that Dimassi had filed for personal bankruptcy.3 At that point,
Dimassi was in default to both KUV and Fares.
Fares stopped working at the site in November 2007 after he learned
about the bankruptcy. KUV attempted to terminate Dimassi’s sublease but could
not do so because of the bankruptcy. Eventually, KUV purchased Dimassi’s
sublease from the bankruptcy trustee for $11,000 and then subleased the
3
Unbeknownst to all, the other Texas Palomina’s restaurants had been the
subject of a corporate bankruptcy since that summer.
3
premises to Eilat, which is owned by Epstein’s family. Eilat contracted with a
third party to finish the work Fares had started and opened a restaurant in the
space named Zorro’s Buffet. Eilat also hired Dimassi as its general manager for
the restaurant.
Fares filed a materialman’s lien in February 2008. In March 2008, he sued
Ngai, L.P.—the original owner of the premises and lessor under the master
lease—KUV, and DFW AUCE for (1) vicarious liability for Dimassi’s obligations
under a single business enterprise, joint venture, partnership, or alter ego theory,
(2) breach of contract, (3) quantum meruit, and (4) foreclosure of the
materialman’s lien. Fares later added Eilat as a defendant. After a bench trial
before a visiting judge, that judge signed a judgment awarding Fares
$155,387.34 in actual damages from KUV, DFW AUCE, and Eilat. It also
awarded trial and conditional appellate attorney’s fees and ordered foreclosure of
Fares’s materialman’s lien ―against the respective leasehold interests and
improvements thereto of KUV . . . and its subtenant, Eilat‖ with the sale proceeds
to be credited to payment of the judgment. KUV and Eilat appealed from the
judgment, but DFW AUCE did not.
Sufficiency Challenges
In the first, second, and fourth issues, KUV alleges that the evidence is
legally and factually insufficient to support the trial court’s findings and
conclusions supporting the judgment against KUV under theories of vicarious
liability, breach of contract, or quantum meruit. In the third issue, KUV and Eilat
4
challenge the sufficiency of the evidence to support the trial court’s findings and
conclusions that Fares perfected a valid materialman’s lien against KUV’s
leasehold interest and Eilat’s sublease interest in the property.
Legal and Factual Sufficiency Standards of Review
We may sustain a legal sufficiency challenge only when (1) the record
discloses a complete absence of evidence of a vital fact; (2) the court is barred
by rules of law or of evidence from giving weight to the only evidence offered to
prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a
mere scintilla; or (4) the evidence establishes conclusively the opposite of a vital
fact. Uniroyal Goodrich Tire Co. v. Martinez, 977 S.W.2d 328, 334 (Tex. 1998),
cert. denied, 526 U.S. 1040 (1999); Robert W. Calvert, ―No Evidence” and
“Insufficient Evidence” Points of Error, 38 Tex. L. Rev. 361, 362B63 (1960). In
determining whether there is legally sufficient evidence to support the finding
under review, we must consider evidence favorable to the finding if a reasonable
factfinder could and disregard evidence contrary to the finding unless a
reasonable factfinder could not. Cent. Ready Mix Concrete Co. v. Islas, 228
S.W.3d 649, 651 (Tex. 2007); City of Keller v. Wilson, 168 S.W.3d 802, 807, 827
(Tex. 2005).
When reviewing an assertion that the evidence is factually insufficient to
support a finding, we set aside the finding only if, after considering and weighing
all of the evidence in the record pertinent to that finding, we determine that the
evidence supporting the finding is so weak, or so contrary to the overwhelming
5
weight of all the evidence, that the answer should be set aside and a new trial
ordered. Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex. 1986) (op. on
reh=g); Garza v. Alviar, 395 S.W.2d 821, 823 (Tex. 1965); In re King=s Estate, 150
Tex. 662, 244 S.W.2d 660, 661 (1951).
Testimony
Because much of the evidence in the four-day trial is pertinent to all of the
sufficiency issues, we will review it together.
Wael Fares
Fares testified that he owns a construction company doing business as
Fares Construction. In 2007, Dimassi asked Fares if he would be interested in
bidding on the ―expansion‖ of Palomina’s in Fort Worth; Fares visited the site and
gave Dimassi a rough estimate. The two shook hands and Fares started the
work.
The work started with the deposit of a $15,000 check written by Goran to
Fares Construction or Dimassi. According to Fares, when he asked who Goran
was, ―they told me this is somebody from the landlord, they paying for the
remodeling, and that would be the deposit check.‖ Fares received various other
amounts from Goran during construction; he also received some payments from
Dimassi. In the middle of the project, Dimassi wanted the billing to be changed
from his name to DFW AUCE. Fares said that he knew DFW AUCE was
―presided by‖ Goran. The payments to Fares were either checks from Goran’s
personal account, checks from DFW AUCE, or cash from Dimassi or Goran.
6
Fares submitted all invoices to Dimassi, however, by hand delivering them to him
onsite. Invoices admitted into evidence were addressed to either Dimassi, Texas
Palomina’s, or Goran at 4421 South Freeway.
Dimassi told Fares he leased the building. Fares testified that one day
Epstein came by the site looking for Dimassi; Epstein told Fares that Dimassi’s
―landlord is here.‖ When Fares confused him for Goran, Epstein said that Goran
was Dimassi’s ―business partner,‖ and Epstein was the landlord. When Dimassi
arrived, Fares asked him who Epstein was, and Dimassi confirmed he was ―one
of the landlords.‖ Fares learned after starting work on the premises that Ngai
was the actual owner of the property and Dimassi was the sublessee.
Fares testified that when he was hired, he was sure he was working for
Dimassi, but after the work started, he was not sure. He became confused
because Epstein was ―constantly there and involved.‖ He saw Epstein up to six
days a week at the site. However, Dimassi was the one to first meet with Fares
and the subcontractors to discuss his vision for remodeling the leased premises.
Dimassi did not provide any blueprints; he simply told Fares what he was
envisioning in his mind. When asked who made the decisions regarding the
aesthetic aspects of the building, Fares answered, ―Primarily Mr. Dimassi, but
has been [a] time when Mr. Goran or Mr. Epstein has given their thoughts, and I
would say instructions to [Dimassi on] how things [should] be done, or discussed
with the subcontractor, but primarily . . . Dimassi, yes.‖ Fares testified that he
7
later learned from Dimassi that Goran was Dimassi’s partner on this project in
―some type of a franchise.‖
As specific examples, Fares testified that Goran wanted the bathrooms
redone and had extensive discussions with Fares on how they should be redone.
Goran also looked at carpet samples provided by Fares and instead went out
and found a different carpet for Fares to order. Fares also testified that Epstein
went with Fares’s tile subcontractor to pick up the tile and pay for it. He also took
the sneeze guard holder to Arlington to have it painted. According to Fares,
Epstein ―was . . . presiding on the site daily[;] always him and [Dimassi] on the
side discussing things.‖
Fares said that when it was time to hook up utilities, Dimassi originally said
they would be in the name of Palomina’s. When the federal tax ID number for
Palomina’s was not satisfactory, Dimassi told Fares to put the utilities under the
name of DFW AUCE, ―the operating entity of that franchise.‖ However, DFW
AUCE’s federal tax ID number did not work either, so Goran suggested putting
the account under Epstein’s information. Epstein agreed and provided his social
security number for the account. Fares admitted on cross-examination that it
was not his responsibility to facilitate the provision of the utilities to the premises
and agreed that he was helping out by doing that because ―it’s helpful for the
project for anyone to contribute to get that thing done.‖
Payment for the project fell behind. Epstein told him they needed to finish
the project, and Fares would make jokes with Goran about when he would be
8
getting money. Fares talked to all three of them about the money; Epstein said
that Dimassi was ―choking‖ and they had to help him. He testified that Goran told
him, ―No matter what happen[s], I will sell cans and pay you.‖
Fares heard about Dimassi filing for bankruptcy in November 2007. He
stopped work the first week of that month because of lack of payment. At the
time, there was a $165,000 balance owed on the work. Fares testified that he
did not perform any other work after that.
Fares had met Hargrove at the site one day and was introduced to him as
Epstein’s partner. Later, after Dimassi had declared bankruptcy, Fares met with
Epstein and Hargrove, and they talked about how to save the restaurant. Fares
discovered that the Palomina’s restaurants were also in bankruptcy. Epstein and
Hargrove discussed whether they could open the restaurant as Palomina’s
anyway and also discussed putting the lease in Goran’s name. At a later
meeting with Epstein and Hargrove and a woman named Laura, Epstein
introduced Laura as follows, ―She could be a potential partner with Goran in this
venture‖ at 4421 South Freeway. When they asked how much it would cost to
get the restaurant open, Fares told them $50,000, but then he said that he would
not do the work until he was paid the $165,000 for the work he had already done.
Epstein and Hargrove offered to pay him only for the cost to finish or to pay him
out of revenue after they opened up the new restaurant, but Fares refused unless
he also received all of the past due amounts.
9
A friend introduced Fares to Kaiss Alahmady in November 2007, and the
two decided to look into buying Palomina’s after the bankruptcy. They formed
KNW Group in November 2007. Fares had contributed $100,000 to KNW Group
and was a 15% minority member. KNW Group purchased the building from Ngai
in August 2008 while the suit was pending.
At the time of trial, the restaurant had a sign for Zorro’s Buffet on it.
According to Fares, Eilat owned Zorro’s; Epstein was the secretary, his wife was
the president, and one of his sons was the treasurer. To the best of Fares’s
knowledge, there is still a lease to ―Epstein, d/b/a KUV‖ with a sublease to Eilat.
Fares had been to Zorro’s; he knew that Dimassi and the Epsteins worked there
in different capacities.
On cross-examination of Fares, the following exchange occurred:
Q. Do you know whether Dimassi and KUV had any common
employees?
....
A. Nobody I know.
Q. Do you know if Dimassi and KUV, during the course of this
construction, had common offices?
A. Not to my knowledge.
Q. Mr. Dimassi and Eilat have common offices?
A. Not to my knowledge.
Q. Did Mr. Dimassi and KUV have common or centralized
accounting?
10
A. I have no access to know if they do or not, but nothing to my
knowledge, no.
Q. Did Dimassi or Eilat have any common or centralized
accounting?
A. I know he works for Eilat.
Q. As an employee?
A. I --
Q. If you don't know, you don't know.
A. No, I do know. I’m trying to find the proper words without --
the previous counsel has testified he's a controlling member of Eilat.
I don’t know what that means.
....
Q. . . . Did Mr. Dimassi ever pay the wages of employees of KUV
or Eilat?
A. I have no idea. Not to my knowledge. I mean, I don’t know.
Q. Did Mr. Dimassi have a common business name with KUV or
Eilat?
A. To the best of my knowledge, Eilat operate Zor[r]o Texas
Buffet in Fort Worth at 4421 South Freeway, and Nabil Dimassi [is]
the owner of the website, Zor[r]o Texas Buffet. That much I can tell
you.
Q. The sign at 4421 South Freeway says what?
A. Zorro’s, the operating entity, Zorro’s Buffet.
Q. What does the sign say?
A. I can’t remember now, but I know it says Zorro’s.
Q. Did Mr. Dimassi ever have employees render services on
behalf of KUV or Eilat?
11
A. I can’t -- I don’t know.
Q. Are you aware of any undocumented transfers of funds
between KUV, Eilat, or Mr. Dimassi -- or Mr. Dimassi and KUV or
Eilat?
A. I do know from the testimony of Mr. Epstein under oath in the
Northern Bankruptcy Court of Nabil Dimassi’s personal bankruptcy,
giving the detail that the cash money was paid to Mr. Epstein from
the Palomina’s in Arlington by Nabil and Nabil’s associates.
Q. And what was the -- what was the purpose of that payment?
A. Different testimony lead to paying deposits, and the master
lease and -- I don’t know, but I do know, yes, there was exchange of
money paid from Nabil and his associate to Mr. Epstein. Now, in his
personal capacity, or KUV member, I cannot tell you.
Q. Did KUV have an agreement to share profits or losses with
Dimassi’s proposed restaurant?
A. I didn’t see any.
Q. Did Eilat have any agreement to share profits or losses of
Dimassi’s proposed restaurant?
A. I didn’t see any.
Q. Did Dimassi and KUV ever express an intent to be partners?
A. I’m not aware of that. I don’t know.
Q. Did Dimassi and Eilat ever express an intent to be partners?
A. Not to me.
Q. Did KUV or Eilat ever have a right to participate in Dimassi’s
restaurant at 4421 South Freeway?
A. I don’t know.
Q. Did KUV or Eilat ever agree to contribute money or capital to
Dimassi’s restaurant?
12
A. I don’t know, except a meeting between KUV members both,
Mr. Hargrove and Epstein, when they offered me money to continue
working, they were going to change the name of the restaurant. And
the same party is still involved in that.
Q. Did KUV or Eilat ever agree to contribute money or capital to
Dimassi?
A. I don’t know.
Q. Did KUV or Eilat have control over Dimassi?
A. He is an employee of Eilat, but my witnessed experienced
[sic], he ha[d] control over Eilat.
Q. Did Dimassi ever perform any acts on behalf of KUV or Eilat?
A. I think he acted on one incidence on behalf of KUV or Mr.
Epstein, and he acted on behalf of Eilat, yes, doing something.
Q. Specifically could you describe for the Court what instance
you are referring with respect to?
A. Okay. If you don’t get bored with the incident. Back when the
-- I started telling this story before -- when the bankruptcy ordered
the locks to be changed and secure the building at 4421 South
Freeway, the Judge ordered Fares Construction to pay for changing
the locks, and we were ordered to go to 4421 South Freeway.
We went there with the representative of the trustee, Mr. Scott
Sidel, with a gentleman named Lupe, myself representing Fares
Construction, and Moshe Epstein was to represent KUV, and their
attorney at the time, Irene Brush.
We get there, and I called the locksmith, and Fares
Construction paid for changing the locks and giving the key to the
trustee. At that p[o]int, Mr. Dimassi was on the premises painting
that same wall I had painted to conform with Palomina’s. He's
repainting the walls, and he came out chasing me in the parking lot
until the Court representative told him he need to step aside. When
we ask Mr. Epstein why he is there, he said he’s representing him.
Q. And what time frame was this?
13
A. This was February 28, 2008 -- or 26th, 2008. It's a Court
order.
Subcontractors
Dale Karickhoff, president of Skyline Electric, a subcontractor on the
project, testified that Dimassi and Epstein personally gave Skyline Electric
employees instructions on how they should do their work. He understood that he
would install whatever Epstein told him to, wherever he told him to. Epstein
―gave [Karickhoff] to understand that they [Epstein and Dimassi] were involved in
the ownership.‖
Ayoub Mehri, the HVAC contractor, testified that Dimassi told him what
work to do and was at the project ―pretty much every day.‖ Dimassi introduced
Epstein to Mehri one time as ―one of the owners, or something like that.‖
Mustafa Dabbakeh, who did carpentry work for the project, testified that
Dimassi was ―supposedly the owner of the place,‖ that Goran was his partner,
and that ―everybody was interfering with how the work should be done.‖ Dimassi
and Epstein both gave him instructions and ideas about the work for the project.
From his discussions with Dimassi and Epstein, it appeared that they had a joint
interest in getting the restaurant completed and opened. According to
Dabbakeh, Epstein told him that he was the holder of the lease and ―it was in his
interest that the place will be finished so he can collect his money on the lease,
because some rent wasn’t getting paid there to him.‖
Clint Nunley from Binswanger Glass testified that Fares was the only
person who gave him instructions at the work site.
14
Moshe Epstein
Moshe Epstein testified that he and his wife operated Zorro’s and a
catering business, which is also owned by Eilat. Dimassi had been the general
manager of Zorro’s since January or February 2008, and he earned a percentage
of the gross sales of the restaurant each month. Zorro’s opened in June 2008.
At the time of trial, Epstein was a member of KUV. Epstein testified that KUV
had signed a lease as lessee for the South Freeway property.
Epstein testified that he initially worked with a man named Javier who
worked at Palomina’s for Dimassi; Epstein and Hargrove eventually decided not
to do business with Javier. They entered into a sublease with Dimassi instead.
Epstein admitted to ―observing‖ at the construction site on a weekly basis and
also to letting his credit card be charged two times for supplies. But Epstein said
he did not give Karickhoff any instructions about what to do until after the project
was being converted to Zorro’s. According to Epstein, Karickhoff told him at that
time that he could not work with him because if he did so, he would not be able to
work with Fares anymore. Epstein also denied giving Mehri instructions while at
the site. Epstein said he agreed to having the electric bill put in his name
because Fares approached him and said it had to be done immediately; Epstein
was simply ―allow[ing] the work to continue.‖ According to Epstein, Dimassi paid
his rent through Goran, which was as if Dimassi had paid the rent himself.
Dimassi started defaulting on rent in November 2007.
15
Epstein later admitted that there were times when he told the
subcontractors that ―I would have done something like that, but not more than
that.‖ It was important to him to get the business up and running so that he could
make his profit. According to Epstein, in the beginning of the project he
introduced Dimassi to Goran and they came to some kind of business
arrangement, with ―the money . . . between them.‖ He did not know what was in
the agreement and it was not his problem.
Epstein testified that if he and Fares were at the site together, they ―talked
about many things, the same as talked [sic] with other people.‖ He understood
that Goran was funding Dimassi for the construction, but he did not know how
much. Epstein did not know Fares was going to abandon the project; when
Epstein came back from a trip to Israel in mid November 2007, there was no one
at the site. At that point, Epstein decided to take over the project to try to earn
back what he and Hargrove had already invested. Epstein discovered Dimassi
was already in personal and corporate bankruptcy but KUV mistakenly locked
Dimassi out for abandoning the project.
Eventually, Epstein and his wife decided that Dimassi would be perfect to
run the restaurant they had envisioned to recoup their losses. KUV eventually
purchased Dimassi’s sublease from the bankruptcy trustee for $11,000. The
assignment of the sublease was subject to ―any existing liens claims and
encumbrances, to the extent they exist as to the Sublease.‖
16
Epstein admitted attending a meeting in December 2007 at which Fares
was present. Fares said at that meeting that it would take approximately $50,000
to finish the restaurant. He said that Hargrove considered having Fares finish the
work, but Epstein did not worry about it because he did not personally owe Fares
any money.
The sublease to Eilat started June 2008; until then KUV financed all the
work on finishing the improvements to the premises.
Appellant recalled Epstein to testify. Epstein said he met Mondragon in
the beginning of 2007. Javier worked at Palomina’s in Arlington, and Epstein met
him there. Javier said he wanted to get out of Palomina’s and open a restaurant
with Epstein and Hargrove as investors. The two decided not to do business with
Mondragon because ―things would change like a moving target,‖ but they did
decide to find a restaurant for him. Epstein was looking for a place for
Mondragon to open a restaurant when he saw the South Freeway building. He
talked with the owner, who offered to either rent or sell the restaurant; after
negotiating with Hargrove and Epstein, the owner agreed to lease terms. After
the lease was signed, Mondragon backed out of signing a sublease. At that
point, Epstein approached Dimassi, the owner of Palomina’s in Arlington.
Epstein and Dimassi talked for a few days and came to an agreement on
the same sublease terms Epstein and Hargrove had offered to Mondragon.
Epstein denied having any discussions about entering into a joint venture or
partnership with Dimassi. He also denied authorizing Dimassi to take any
17
actions on behalf of KUV. According to Epstein, Dimassi paid a security deposit
for the sublease.
Epstein explained that he introduced Dimassi to Goran when Dimassi
approached him saying he needed money; Epstein and Goran did not enter into
a business relationship with respect to the building.4 According to Epstein, Goran
was never a representative of KUV, nor was he authorized to take any action on
KUV’s behalf.
Epstein admitted being at the construction site frequently. He claimed that
he was keeping an eye on Ngai’s equipment that was starting to disappear, that
he would stop by after visiting other properties of his and Hargrove’s in the area,
and that he would ask the subcontractors working at the leased premises to work
on his wife’s rental space in Arlington where she operated her catering business.
Epstein admitted saying from time to time that if the restaurant were his, he
would do the work in a certain way, but because it was not, he would not dictate
what to do. Epstein admitted talking to two subcontractors on the site, including
the electrician.
KUV did not know about the Palomina’s corporate bankruptcies because it
was not a creditor of Palomina’s, only Dimassi’s. Epstein was not aware of
Dimassi’s personal bankruptcy filing until mid November 2007 when he returned
from Israel. KUV attempted to terminate the sublease but could not because of
4
They later became partners in an organic farming business.
18
the pending bankruptcy proceeding; however, Epstein and Hargrove did start to
look for a replacement sublessee.
After Hargrove paid the December rent payment, he told Epstein he could
not do it anymore and discussed abandoning the lease. Epstein then proposed
that his wife open and operate a restaurant in the building. They agreed to finish
out the restaurant and asked Dimassi to supervise the finish out and opening of
the restaurant. Dimassi was paid out of the profits of the restaurant by Eilat, not
KUV. According to Epstein, Dimassi had no authority to contract for KUV or
Eilat, was not an authorized signatory on any of Eilat’s or KUV’s bank accounts,
and did not participate in any of the bookkeeping or accounting.
Epstein testified that after KUV purchased Dimassi’s sublease from the
bankruptcy trustee, it immediately terminated it. However, KUV provided no
evidence of any written termination of the sublease.
The only members of KUV are Epstein and Hargrove. According to
Epstein, KUV did not ask Fares to do any work at the property, nor did Eilat do
so. Epstein answered ―No‖ when asked if there was any common ownership
between KUV and DFW AUCE or between Eilat and DFW AUCE. He also
testified that Dimassi had no interest in KUV or Eilat and that Dimassi had no
common employees with KUV or Eilat, except when Dimassi was helping to get
Zorro’s ready to open; however, the workers during that time were temporary
employees of KUV. KUV had no centralized accounting with Dimassi, nor did
Dimassi pay any wages of employees of KUV or Eilat. There was no common
19
business name, no agreement to share profits or losses, no intent by anyone
from KUV or Eilat to be Dimassi’s partner, no right to participate in Dimassi’s
proposed restaurant, and no agreement by KUV, Hargrove, or Epstein to repay
any of Dimassi’s debts.
On cross-examination, Epstein admitted that the security deposit for KUV’s
lease was $20,000 and that Dimassi paid $15,000 to KUV that they used to pay
part of the security deposit to Ngai. The $15,000 was Dimassi’s security deposit
for the sublease. They received the $15,000 from Dimassi on the day he signed
the sublease; they received around $40,000 from Goran on Dimassi’s behalf
after that. The money was solely for rents and deposits under the sublease.
Dimassi was already in bankruptcy when Epstein agreed to put the
electricity in his name; he said he did so because Fares told him the work could
not be completed if Epstein did not do so. He admitted to meeting with Fares in
a Bennigan’s in Arlington but said he listened to Fares’s problems with Dimassi
and only ―helped or heard.‖
David Goran
Goran identified himself at trial as self-employed in real estate investment;
he is the 100% shareholder and sole officer of DFW AUCE. Epstein approached
Goran about investing in Dimassi’s restaurant, and Goran decided to loan
Dimassi money for tenant improvements. Goran agreed to loan Dimassi up to
$150,000 in installments as work was finished. Goran disbursed funds by paying
20
Fares directly. According to Goran, Epstein was not involved in loaning any
money.
Goran denied telling anyone that he owned two percent of the restaurant.
But he did say that when Dimassi began to have trouble paying the bills, he and
Dimassi had worked out that Goran would be entitled to a percentage of either
net sales or profits until Dimassi could pay him back. They had these
discussions in a meeting with Alahmady, Dimassi, and Fares. Goran denied
being involved in ―any type of business transaction or relationship‖ with Epstein
or Hargrove. On July 30, 2007, Goran wired money to Hargrove’s account, but
Goran does not remember what it was for or what Hargrove did with it.
Goran estimated that he went to the construction site about three to four
times a month for three or four months. He saw Epstein there. He admitted
signing a note to Dimassi but he could not explain the details. On cross-
examination, Goran said that he knew Fares continued to work on the project
after learning of Dimassi’s bankruptcy. He denied ever being a partner of
Dimassi’s or having any commonality with KUV or Eilat.
Mac Hargrove
According to Hargrove, Dimassi defaulted in his rent in either September
or October 2007. Two payments for Dimassi’s obligations under the sublease
came from Goran’s account. One of the payments was for KUV’s obligation as
21
lessee for tax and insurance payments and for a portion of Dimassi’s deposit.5
Hargrove testified that he set up an account at Sterling Bank for the sublease
funds so that all payments KUV received from either Dimassi or Goran were
applied solely to rent, expenses, and deposits under the sublease.
Hargrove testified that he was at a meeting with Epstein and Laurie
Deltuva in December 2007 at the Palomina’s in Arlington when Fares happened
to show up. Epstein and Hargrove began talking with Fares, and Hargrove
asked how much it would cost to finish the work; Fares responded, ―$50,000,‖
and the two asked Fares to complete the work for that price. Hargrove denied
paying any personal money toward the finish out of the space.
Hargrove testified that when the bankruptcy court entered the order
approving of the assignment of the sublease to KUV, Hargrove knew that Fares
claimed a lien on ―some interest in the property.‖
When Hargrove learned that Dimassi was on the premises between
February and May 2008 for the purpose of opening Zorro’s, he was concerned:
Two concerns. Number one is that I was very concerned
about getting the rent paid; and number two, was the fact that the
restaurant seemed to be very delayed in the opening, and I did not
want this to go on indefinitely, and I was reassured that Mr. Dimassi
was an employee, that there was no connection between operation,
which Mr. Epstein had put together, and that he was -- totally be --
he would be totally paid as an employee, and that there would be no
involvement with Mr. Dimassi in the new restaurant.
5
According to Hargrove, based on his extensive experience in Texas real
estate, there is no statute or regulation requiring KUV to keep the security
deposit money received from Dimassi in a separate bank account.
22
Epstein resolved Hargrove’s fears by assuring Hargrove that Dimassi was
only an employee and there was ―no involvement‖ with Dimassi in the new
restaurant. Hargrove characterized himself as merely an investor, with Epstein in
charge of how the businesses were operated.
At one point, Hargrove considered trying to get KUV out of the lease with
Ngai, so he ―insisted to [Epstein] that something be done.‖ Epstein, however,
suggested they try to work it out, which is how they got involved in starting
Zorro’s in the space. Hargrove answered basically the same questions as
Epstein: that Dimassi was never a member of KUV and that they had never
entered into a joint venture with Dimassi, never agreed to repay his debts, never
agreed to give him any interest in KUV, and never agreed to participate in
Dimassi’s restaurant.
Upon returning from Israel and learning that Dimassi was in bankruptcy,
Hargrove attempted to terminate Dimassi’s sublease and show the space to
other prospective tenants. He discussed the possibility with KNW Group, but
they ―were not willing to make the necessary investment.‖ He explained the
difference in the rent Eilat was paying versus the original rent: he had already
lost so much money on the Dimassi sublease that he was trying to make it up,
and his information showed a restaurant in that space could be very profitable.
Upon buying Dimassi’s sublease from the trustee, KUV terminated it immediately
and ―began to work desperately on finding someone else.‖
23
KUV remained current on all but one of its payments to Ngai even though
Dimassi was in default under the sublease.
Ricki Epstein
Ricki Epstein is Epstein’s wife and the president and one of the
shareholders of Eilat. She participates in the daily management of the restaurant
but confirmed that Dimassi is the general manager. Ricki said she met Dimassi
when her husband told her, ―Mac is going to lose a lot of money, we need to see
how to help out and maybe take over the restaurant.‖ When Ricki told Epstein
she did not have the experience to run a restaurant, he suggested Dimassi.
According to Ricki, she and Epstein were very concerned about Hargrove losing
money and wanted to help him any way they could.
Kaiss Alahmady
Kaiss Alahmady testified that in October 2007, he approached Fares about
trying to buy the Palomina’s restaurants out of bankruptcy. He and Fares formed
KNW Group. Alahmady denied being approached by anyone on behalf of KUV
to offer a sublease on the property. KNW Group bought the Palomina’s
restaurants in Arlington and Richardson and took ownership of them in January
2008.
On cross-examination, Alahmady testified that he first heard about the
South Freeway restaurant in October 2007 when he was investigating
purchasing the other Palomina’s restaurants. He visited the site and met
Dimassi and Fares. The few times he was there, he found out about Dimassi’s
24
money troubles; he heard Dimassi ―several times promising payment, promising
that the Fort Worth group will eventually pay Fares Construction.‖ Alahmady said
he knew Dimassi, Epstein, Hargrove, and Goran and ―[i]t appeared to [him] that
they are working as a partner or a working a joint venture with each party
interested in a specific area of the operation with one objective as to operate the
restaurant in Fort Worth.‖ According to Alahmady,
Mr. Dimassi always brought the subject [up] when he discussed Mr.
Epstein and Mr. Goran and Mr. Mac Hargrove, he was talking about
them like partner. He was talking about the venture and trying to --
to put it as a joint venture, where he’s going to operate, he’s going to
be the vehicle for operation of that location as a restaurant, that
eventually Mr. Hargrove will cash in through some mortgage
arrangement, that Mr. Goran has invested some money in, and he’s
looking for two percent partnership equivalent from the revenue.
For those reasons, Alahmady thought it was clear that they were all ―operating
together for one objective of finishing the restaurant.‖
Nabil Dimassi
Dimassi testified that at the time of trial he was an employee of Texas
Zorro’s, employed by Eilat. He was the general manager of the restaurant, and
his compensation was roughly four percent of net sales. He had owned four
companies, Dallas Buffet, Inc., Richardson Buffet Dining, Inc., Sherman Buffet
Dining, Inc., and Valencia, but he filed bankruptcy proceedings for all of them in
June 2007, less than one month after signing the sublease with KUV. He did not
inform Hargrove or Epstein of the filing. Dimassi had not provided any financial
information to Hargrove or Epstein for the sublease; Mondragon did so when he
was discussing opening up his own restaurant.
25
According to Dimassi, Fares never gave him an initial estimate of how
much the work would cost. In addition, Dimassi testified that he instructed Fares
to stop the work several times but that Fares continued working for thirty to forty
days despite the instruction.
Dimassi’s agreement with Goran was that in exchange for the money he
was advancing for the project, Goran would receive two percent of the net sales
from the restaurant until his investment was paid back. During a one-day period
in the fall of 2007 when Dimassi’s bankruptcy was mistakenly dismissed, he had
Goran sign a $200,000 note to him as ―part of a management agreement.‖
According to Dimassi, if Goran ―got to use somebody else or fire me, he’s going
to have to pay me $200,000 as a penalty.‖ In other words, ―it was an umbrella
protection for [him], and also for Mr. Fares.‖
Dimassi paid the $15,000 security deposit from the other Palomina’s
companies. Dimassi was at the job site three to five times per week. He
estimated that Fares had been paid a little over $100,000 for the work done.
On cross-examination, Dimassi said that Mondragon had stolen the
financials for Palomina’s to give to Epstein and Hargrove and that Dimassi had
subsequently sued Mondragon. Dimassi met Epstein when Epstein came into
the restaurant asking whether Dimassi could sell some wholesale food to
Epstein’s wife for her catering business. At that time, they discussed Dimassi’s
possibly entering into the sublease. Dimassi said he told Epstein of his financial
difficulties at that time, but Dimassi also said that he told Epstein he might be
26
able to open the restaurant through an investor. Epstein later introduced Dimassi
to Goran. They made an oral agreement for Goran to loan him $150,000 to be
repaid over a two-year period from the restaurant’s net sales. He did not offer
Goran any interest in the restaurant. He denied discussing a partnership with
Epstein, offering Epstein or Hargrove any interest in the restaurant, or having any
interest in KUV or Eilat.
Dimassi was aware that Fares and Alahmady were interested in buying the
Palomina’s restaurants; he talked to them about it every day. In fact, the ―N‖ in
KNW Group stood for Nabil; he was to participate in the group, but he withdrew
on the advice of his bankruptcy attorney. Consequently, when Dimassi ordered
Fares to stop work, Fares told him that KNW Group was going to get the
restaurant anyway, so he had to finish the work. Dimassi’s conversations with
Alahmady and Fares took place between October 2007 and January 2008.
Hargrove offered the opportunity for KNW Group to take the sublease to Dimassi,
who presented it to Fares and Alahmady, but Alahmady rejected the idea.
According to Dimassi, Fares and Alahmady also approached Ngai to try to
foreclose on the KUV lease.
Dimassi testified that he told Fares he had a sublease with KUV, but he
never told him he was in a partnership or joint venture with KUV. According to
Dimassi, Epstein did not direct work at the site, but he came ―wandering around
the property . . . giving [his] opinion to subcontractors or contractors and talk[ing]
to Mr. Fares or [Dimassi], and basically . . . stick[ing] his nose in things.‖ Dimassi
27
said that Epstein offered suggestions to Dimassi all the time, but he never
countermanded any of Dimassi’s instructions. He characterized the suggestions
as opinions, not instructions, and said Fares should not have followed them.
Dimassi denied having an ownership interest in KUV or Eilat, or having
been a partner, joint venturer, or representative of either. Dimassi never paid the
wages of KUV or Eilat employees; they had no common centralized accounting,
no common business name, no employees render services on behalf of the
other, no undocumented transfers of funds other than rent money, and no
allocation of profits and losses with each other. KUV and Eilat had no right to
participate in the restaurant and never contributed any capital to it.
Whether Evidence Supports Joint Enterprise and Joint Venture
In the first issue, KUV contends that there is no evidence to support a
finding that it is vicariously liable for Dimassi’s obligations to Fares under a joint
enterprise or joint venture theory.6
The essential elements of joint enterprise or joint venture are (1) an
express or implied agreement among the members of the group, (2) a common
purpose to be carried out by the group, (3) a community of pecuniary interest in
that purpose, and (4) an equal voice in the direction of the enterprise, which
6
Fares does not argue that there is evidence supporting the trial court’s
judgment on grounds of partnership, alter ego, or single business enterprise, nor
have we found any such evidence in our review of the record. See Tex. Bus.
Orgs. Code Ann. § 152.052 (Vernon Supp. 2010); Ingram v. Deere, 288 S.W.3d
886, 894–904 (Tex. 2009); SSP Partners v. Gladstrong Invs. (USA) Corp., 275
S.W.3d 444, 454, 456 (Tex. 2009).
28
gives an equal right of control. SSP Partners v. Gladstrong Invs. (USA) Corp.,
275 S.W.3d 444, 451 (Tex. 2009); Omega Contracting, Inc. v. Torres, 191
S.W.3d 828, 850 (Tex. App.––Fort Worth 2006, no pet.) (op. on reh’g). A
common pecuniary interest is a monetary interest among the members of the
group and shared without special or distinguishing characteristics. Bell v. VSPI,
Inc., 205 S.W.3d 706, 722 (Tex. App.––Fort Worth 2006, no pet.); see St. Joseph
Hosp. v. Wolff, 94 S.W.3d 513, 528 (Tex. 2003). However, the benefit must be
more than just a financial one ―from the successful downstream marketing of
the[] goods or services.‖ Wolff, 94 S.W.3d at 528. For instance, a franchisor
may have a common pecuniary interest in the retail sales of its franchisees, but it
does not have a ―community of pecuniary interest‖ because its financial benefit is
indirect whereas the franchisee’s is direct. Id.
Here, there is no evidence of a community of pecuniary interest among
KUV, Goran, DFW AUCE, and Dimassi.7 KUV was the sublessor, obligated
under the lease with Ngai whether Dimassi fulfilled his obligations under the
sublease or not. There is no evidence that KUV had an interest in any of the
proposed Palomina’s profits; it was only entitled to the lease payments from
Dimassi as the sublessee. As appellant’s counsel pointed out in his closing
argument, Epstein’s involvement in the buildout of the premises is not so
7
Fares contends that KUV failed to challenge this implied finding, but in its
brief, KUV states that it is challenging any findings pertaining to joint venture.
Accordingly, we hold that the complaint is preserved. See Tex. R. Civ. P. 299;
Tex. R. App. P. 38.1(f).
29
surprising; landlords frequently have a representative on site during the
construction of improvements. Moreover, Epstein and Hargrove knew KUV
would not receive its rent under the sublease unless and until the restaurant
opened. Thus, evidence of Epstein’s direct involvement with the construction of
the improvements does not show such a direct benefit as would constitute a
community of pecuniary interest among KUV, Dimassi, and DFW AUCE.
Accordingly, there is no evidence supporting the trial court’s implied finding of
such an interest and its conclusion that the parties were involved in a joint
venture. We sustain the first issue.
Agency
KUV additionally contends that there is no evidence supporting the
judgment on the theory that it breached a contract with Fares because there is no
evidence to support a finding that Dimassi was acting as an agent for KUV.
The law does not presume agency. Tex. Cityview Care Ctr., L.P. v. Fryer,
227 S.W.3d 345, 352 (Tex. App.––Fort Worth 2007, pet. dism’d [mand. dism’d]);
Lifshutz v. Lifshutz, 199 S.W.3d 9, 22 (Tex. App.––San Antonio 2006, pets.
denied). The party alleging agency has the burden to prove its existence. Tex.
Cityview Care Ctr., L.P., 227 S.W.3d at 352; Lifshutz, 199 S.W.3d at 22. Absent
actual or apparent authority, an agent cannot bind a principal. Tex. Cityview
Care Ctr., L.P., 227 S.W.3d at 352; Lifshutz, 199 S.W.3d at 22.
Actual authority includes both express and implied authority and usually
denotes the authority a principal (1) intentionally confers upon an agent, (2)
30
intentionally allows the agent to believe he possesses, or (3) by want of due care
allows the agent to believe he possesses. Tex. Cityview Care Ctr., L.P., 227
S.W.3d at 352; 2616 S. Loop L.L.C. v. Health Source Home Care, Inc., 201
S.W.3d 349, 356 (Tex. App.––Houston [14th Dist.] 2006, no pet.); Lifshutz, 199
S.W.3d at 22. Actual authority is created through conduct of the principal
communicated to the agent. Tex. Cityview Care Ctr., L.P., 227 S.W.3d at 352;
Lifshutz, 199 S.W.3d at 22.
Apparent authority arises through acts of participation, knowledge, or
acquiescence by the principal that clothe the agent with the indicia of apparent
authority. Ins. Co. of N. Am. v. Morris, 981 S.W.2d 667, 672 (Tex. 1998); Tex.
Cityview Care Ctr., L.P., 227 S.W.3d at 353. Certain limitations apply in
determining whether apparent authority exists. Tex. Cityview Care Ctr., L.P., 227
S.W.3d at 353; Lifshutz, 199 S.W.3d at 22. First, apparent authority is
determined by looking to the acts of the principal and ascertaining whether those
acts would lead a reasonably prudent person using diligence and discretion to
suppose the agent had the authority to act on behalf of the principal. Tex.
Cityview Care Ctr., L.P., 227 S.W.3d at 353; Lifshutz, 199 S.W.3d at 22. Only
the conduct of the principal may be considered; representations made by the
agent of his authority have no effect. Tex. Cityview Care Ctr., L.P., 227 S.W.3d
at 353; Lifshutz, 199 S.W.3d at 22–23. Second, the principal must either have
affirmatively held the agent out as possessing the authority, or the principal must
have knowingly and voluntarily permitted the agent to act in an unauthorized
31
manner. Tex. Cityview Care Ctr., L.P., 227 S.W.3d at 353; Lifshutz, 199 S.W.3d
at 23. Finally, a party dealing with an agent must ascertain both the fact and the
scope of the agent’s authority, and if the party deals with the agent without
having made such a determination, she does so at her own risk. Tex. Cityview
Care Ctr., L.P., 227 S.W.3d at 353; Lifshutz, 199 S.W.3d at 23.
Here, there is no evidence of any assertions by Epstein or Hargrove that
Dimassi was KUV’s agent; in fact, Fares himself testified that he knew Epstein
was Dimassi’s landlord, but he just did not know the extent of Epstein’s
involvement in the project. However, Fares also admitted that he initially
contracted with Dimassi, and Dimassi approved all the work before Fares started
it. This evidence is not inconsistent with a sublessor/sublessee relationship
between KUV and Dimassi. Moreover, to the extent that any of Fares’s or the
subcontractors’ testimony can be interpreted as representations by Dimassi that
KUV was something more than a landlord, those representations are not
sufficient to prove an agency relationship. See Tex. Cityview Care Ctr., L.P., 227
S.W.3d at 353; Lifshutz, 199 S.W.3d at 22–23. Accordingly, we conclude and
hold that there is no evidence to support a finding or conclusion that Dimassi was
acting as KUV’s agent in entering into the contract with Fares and, thus, no
evidence that KUV is vicariously liable for breach of that contract. We sustain the
second issue.
32
Quantum Meruit
In the fourth issue, KUV contends that there is no evidence supporting a
damage award against it on a quantum meruit theory.
To recover in quantum meruit, a party must prove that (1) he or she
rendered valuable services or furnished materials, (2) for the person sought to be
charged, (3) the services or materials were accepted, used, and enjoyed by the
person sought to be charged, and (4) under such circumstances as reasonably
notified the person sought to be charged that the plaintiff in performing such
services or furnishing such materials was expecting to be paid by the person
sought to be charged. Vortt Exploration Co. v. Chevron USA, Inc., 787 S.W.2d
942, 944 (Tex. 1990); Residential Dynamics, LLC v. Loveless, 186 S.W.3d 192,
199 (Tex. App.––Fort Worth 2006, no pet.). In addition, the evidence must show
that the efforts were undertaken for the person to be charged and not just that
the efforts benefitted that person. McFarland v. Sanders, 932 S.W.2d 640, 643
(Tex. App.––Tyler 1996, no pet.).
The party seeking to recover in quantum meruit must establish that the
work done was accepted by the party to be charged ―under such circumstances
as reasonably notified the recipient that the plaintiff, in performing expected to be
paid by the recipient.‖ Sanders v. Total Heat & Air, Inc., 248 S.W.3d 907, 917
(Tex. App.––Dallas 2008, no pet.) (emphasis added); see Heldenfels Bros. v.
City of Corpus Christi, 832 S.W.2d 39, 41 (Tex. 1992). The evidence must show
that this reasonable notification occurred at the time the services were accepted.
33
Heldenfels Bros., 832 S.W.2d at 41; Myrex Indus., Inc. v. Ortolon, 126 S.W.3d
548, 551 (Tex. App.––Houston [14th Dist.] 2003, pet. denied). Thus, here, the
notice element should focus on what KUV, not Fares, knew or should have
known at the time that it accepted the services if it indeed did. See Heldenfels
Bros., 832 S.W.2d at 41;Tricon Tool & Supply, Inc. v. Thurmann, 226 S.W.3d
494, 504 (Tex. App.––Houston [1st Dist.] 2006, pet. denied).
Here, Fares was assured by Goran and Dimassi of payment, and Goran
even said he would sell cans to pay Fares back. Although Epstein spoke of
helping out Dimassi because he was ―choking,‖ there is no evidence that Epstein
ever offered to pay Fares directly for anything; the few times he paid for
something, he paid directly to the supplier and only for specific items. Cf.
Wohlfahrt v. Holloway, 172 S.W.3d 630, 636–37 (Tex. App.—Houston [14th Dist.]
2005, pets. denied), cert. denied, 549 U.S. 1052 (2006). This situation is similar
to those in Heldenfels and Sanders. In Heldenfels, a subcontractor sought
payment from the property owner, the City of Corpus Christi, but the Supreme
Court concluded that the subcontractor had no reasonable expectation of
payment from the City even though the City had approved payment to the
general contractor for items supplied by the subcontractor. 832 S.W.2d at 40–
41. In Sanders, the Dallas Court of Appeals held that an HVAC subcontractor
had no reasonable expectation of payment from a homeowner even though the
homeowner had attended meetings ―about upgrades, prices, and extra work‖ and
personally approved the invoiced work. 248 S.W.3d at 917.
34
Here, the evidence shows that when Fares was working on the project,
everyone expected either Dimassi or Goran, individually or through DFW AUCE,
to pay for the improvements Fares constructed. All of the invoices admitted into
evidence are addressed to either Texas Palomina’s, Dimassi, or DFW AUCE.8
There is no evidence of any payment from KUV, Epstein, or Hargrove to Fares
for any purpose. Thus, there is no evidence to support a finding or conclusion
that KUV had reasonable notification at the time the improvements were being
constructed that Fares expected payment from it and not Dimassi, Goran, or
DFW AUCE.
This case is distinguishable from Angroson v. Indep. Commc’ns, Inc., 711
S.W.2d 268 (Tex. App.––Dallas 1986, writ ref’d n.r.e.). In that case, a tenant
contracted directly with a contractor to make improvements to leased premises,
and the work was started and completed for the tenant before the tenant entered
into a sublease. Id. at 270. The tenant and sublessor paid $25,000 to the
contractor but then refused to pay any more. Id. In addition, the tenant and
sublessee corporations were owned by the same sole shareholder. Id.
Accordingly, that case is inapposite.
We conclude and hold that there is no evidence to support a finding or
conclusion that Fares reasonably notified KUV that he expected payment from it
8
Fares contended at argument that because the invoices had the property
address on them, he reasonably notified KUV of his expectation of payment from
―the project.‖ But none of the invoices were addressed specifically to Epstein,
Hargrove, or KUV, and Fares admitted that he hand delivered the invoices to
Dimassi at the work site, not to Epstein or Hargrove.
35
for the improvements to the leased premises. Accordingly, there is no evidence
supporting an award of damages based on quantum meruit. We sustain the
fourth issue.
Foreclosure of Materialman’s Lien
In the third issue, appellants contend that the trial court erred by finding or
concluding that Fares perfected a materialman’s lien on KUV’s leasehold interest
and by awarding Fares foreclosure of that lien. In the fifth issue, appellants
contend that the lien on Dimassi’s subleasehold is no longer valid because they
purchased the sublease and terminated it.
To have a valid materialman’s lien, the owner of the land affected must be
a party to the contract creating the lien. 2811 Assocs., Ltd. v. Metroplex Lighting
& Elec., 765 S.W.2d 851, 853 (Tex. App.––Dallas 1989, writ denied); Inman v.
Orndorff, 596 S.W.2d 236, 238 (Tex. Civ. App.––Houston [1st Dist.] 1980, no
writ). A lien on real property cannot be established merely by virtue of a contract
between a lessee of the property and the materialman. 2811 Assocs., 765
S.W.2d at 853. ―If a lessee contracts for construction, the mechanic’s lien
attaches only to the leasehold interest, not to the fee interest of the lessor.‖ Id.
(quoting Diversified Mortg. Investors v. Lloyd D. Blaylock Gen. Contractor, Inc.,
576 S.W.2d 794, 805 (Tex.1978)); see also Grube v. Nick’s No. 2, 278 S.W.2d
252, 253–54 (Tex. App.––El Paso 1955, writ ref’d n.r.e.). ―A mechanic’s lien may
be foreclosed only on judgment of a court of competent jurisdiction foreclosing
the lien and ordering the sale of the property subject to the lien.‖ Tex. Prop.
36
Code Ann. § 53.154 (Vernon 2007); CVN Group, Inc. v. Delgado, 95 S.W.3d 234,
239 (Tex. 2002).
KUV does not challenge the trial court’s conclusion that Fares’s
materialman’s lien attached to Dimassi’s subleasehold; Dimassi directly
contracted with Fares to do the work that was completed. See MG Bldg.
Materials, Ltd. v. Moses Lopez Custom Homes, Inc., 179 S.W.3d 51, 57 (Tex.
App.––San Antonio 2005, pet. denied) (setting forth elements required to
establish valid mechanic’s and materialman’s lien). Pursuant to the bankruptcy
court’s approval, the trustee assigned Dimassi’s sublease to KUV, subject to all
liens and encumbrances that had attached. Thus, upon that assignment, KUV
stood in Dimassi’s place as the sublessee. See State v. Oakley, 181 S.W.3d
855, 860 (Tex. App.––Austin 2005), rev’d in part on other grounds, 227 S.W.3d
58 (Tex. 2007). Accordingly, unless KUV’s leasehold merged with the assigned
subleasehold, the only estate to which Fares’s lien could have attached is KUV’s
subleasehold interest, not its leasehold interest.
Merger of estates is the absorption of a lesser estate in land into the
greater; however, application of this doctrine is disfavored in Texas. Steger v.
Muenster Drilling Co., 134 S.W.3d 359, 376 (Tex. App.––Fort Worth 2003, pet.
denied). For merger to occur, the following elements must be present: (1) there
must be a greater and lesser estate; (2) both estates must unite in the same
owner; (3) both estates must be owned in the same right; (4) there must not be
an intervening estate; (5) merger must not be contrary to the intention of the
37
owner of the two estates; and (6) merger must not be disadvantageous to the
owner of the two estates. Id.
The issue of whether a merger of estates was intended is ordinarily a
question of fact that is determined by considering the estate owner’s interest and
all attending circumstances. Id. Equity will not, however, decree a merger of
estates when it would be disadvantageous to the person acquiring both interests.
Id. Thus, if, ―from all the circumstances, a merger would be disastrous to the
party holding both estates, then his intention that it should not result will be
presumed.‖ Id. at 376–77. Further, when the evidence shows that it was in the
interest of the owner of the estates that they remain separate, the law presumes
an intent corresponding with such an interest. Id. at 377.
KUV contends that it attempted to terminate Dimassi’s sublease after
purchasing it. In addition, it subsequently re-subleased the premises to Eilat
under similar terms as Dimassi’s sublease. Moreover, there is no evidence that
KUV acted as if it owned both a lease and a sublease on the premises or that
Eilat was a second sublessee. Thus, the evidence shows an intent by KUV that
the two estates be merged. See Franz v. Katy ISD, 35 S.W.3d 749, 754 (Tex.
App.––Houston [1st Dist.] 2000, no pet.). Because Fares had already perfected
his lien against the Dimassi sublease when KUV bought it expressly subject to all
liens and encumbrances, that lien became attached to KUV’s leasehold interest
when the lease and sublease merged. See id. at 754–55. Although the
attachment of that lien does work somewhat of a disadvantage to KUV, KUV
38
nevertheless benefitted from the dissolution of the Dimassi sublease and the
subsequent ability to re-sublease the premises to Eilat, thus ensuring a new
revenue stream for payment of its rental under the lease with Ngai. See id. at
755.9 Therefore, the trial court did not err by awarding foreclosure of the
materialman’s lien against KUV’s leasehold interest.
But the trial court did err by ordering foreclosure on Eilat’s subleasehold
interest. Although Eilat’s sublease is subordinate to KUV’s leasehold, that
sublease was executed after the perfection and attachment of the materialman’s
lien to KUV’s leasehold interest, and the foreclosure of that lien will terminate
Eilat’s sublease so that there will not be any sublease interest to further foreclose
upon. See Aspenwood Apt. Corp. v. Coinmach, Inc., No. 01-08-00636-CV, 2011
WL 478546, at *5 (Tex. App.––Houston [1st Dist.] Feb. 10, 2011, no pet.)
(holding that foreclosure of greater estate terminates lease but subject to
purchaser and lessee entering into new, independent lease agreement); ICM
9
In its motion for rehearing, KUV contends that it could not have intended
that the two estates merge because the disadvantage of having its leasehold
encumbered by the mechanics’ lien greatly outweighs the income stream from
the sublease to Eilat. But the question is whether the merger of the lease and
sublease would disadvantage KUV, not whether its leasehold being subject to
the mechanics’ lien would disadvantage it. Because KUV bought the sublease
subject to the lien, even if the two estates did not merge, KUV’s subleasehold
interest would still be encumbered by the lien. KUV’s ineffective attempt to
extinguish the lien by terminating the sublease therefore does not show that KUV
would be disadvantaged by application of the doctrine of merger or that it never
intended for the two estates to merge.
39
Mortg. Corp. v. Jacob, 902 S.W.2d 527, 530 (Tex. App.––El Paso 1994, writ
denied).10
We overrule the fifth issue as to KUV and Eilat and the third issue as to
KUV. But we sustain the third issue as to Eilat.
Propriety of Damage Award Against Eilat
In the sixth issue, Eilat challenges the trial court’s damage award against it
as improper because (a) Fares never pled a claim for damages against Eilat, (b)
there is no evidence Eilat has any liability to Fares, and (c) there are no express
or implied findings supporting a damage award against it.
Fares did not include a claim for damages against Eilat in his pleadings. In
fact, during closing argument, his counsel told the trial court that Fares was not
claiming that Eilat had any personal liability to Fares but that Eilat was merely the
party with the right to possession of the premises for purposes of foreclosing the
lien. Nothing in the record indicates that any claim for damages against Eilat was
tried by consent. See Herrington v. Sandcastle Condo. Ass’n, 222 S.W.3d 99,
102–03 (Tex. App.––Houston [14th Dist.] 2006, no pet.). Moreover, there are no
10
Both the lease to KUV and the sublease to Eilat provide that all
alterations, improvements, and fixtures to the leased premises remain with the
premises upon termination of the lease or sublease unless required to be
removed by the owner of the premises. Thus, the purchaser of KUV’s leasehold
at any foreclosure sale will obtain KUV’s entire interest in the leasehold but will
not be able to remove any alterations, fixtures, or improvements––whether
installed by Fares or any subsequent contractor––without KNW Group’s consent.
Neither will Eilat be able to remove anything other than movable personal
property that is not affixed to the premises. Moreover, even if there were a need
to distinguish between work performed by Fares and any subsequent contractor,
Fares introduced invoices detailing the type of work performed at the premises.
40
findings or conclusions that support a damage award against Eilat. Accordingly,
there is no basis on which to uphold the inclusion of Eilat in the list of parties
jointly and severally liable to Fares for damages. See Tex. R. Civ. P. 301; Bayou
Terrace Inv. Corp. v. Lyles, 881 S.W.2d 810, 817 (Tex. App.––Houston [1st Dist.]
1994, no writ) (op. on reh’g); Dalon v. City of DeSoto, 852 S.W.2d 530, 537 (Tex.
App.––Dallas 1992, writ denied). We sustain the sixth issue.
Conclusion
Having sustained KUV’s first, second, and fourth issues challenging the
theories of vicarious liability pled and urged by Fares at trial, we reverse that part
of the trial court’s judgment ordering KUV to pay damages to Fares.11 In
addition, having sustained Eilat’s sixth issue challenging the award of damages
to Fares, we reverse that part of the trial court’s judgment ordering Eilat to pay
damages to Fares.12 Having sustained the third issue as to Eilat, we also modify
the judgment to delete the part ordering foreclosure of Eilat’s sublease interest in
the leased premises. See Tex. R. App. P. 43.2(b).
We affirm the part of the judgment ordering foreclosure of Fares’s
materialman’s lien against KUV’s leasehold interest. However, because of our
disposition of the first, second, fourth, and sixth issues, we must also remand the
11
Because the seventh issue pertains only to the amount Fares claimed he
was vicariously owed from KUV, we need not address it. See Tex. R. App. P.
47.1; Horsley-Layman v. Adventist Health Sys./Sunbelt, Inc., 221 S.W.3d 802,
809 (Tex. App.––Fort Worth 2007, pet. denied).
12
Because DFW AUCE did not appeal, we do not disturb the trial court’s
damage award as to DFW AUCE.
41
case to the trial court for a new determination of attorney’s fees. See Tex. Prop.
Code Ann. § 53.156 (Vernon 2007); Tony Gullo Motors I, L.P. v. Chapa, 212
S.W.3d 299, 313–14 (Tex. 2006).
TERRIE LIVINGSTON
CHIEF JUSTICE
PANEL: LIVINGSTON, C.J.; GARDNER and MEIER, JJ.
DELIVERED: March 17, 2011
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