Adnan Khalid Jafar, Individually and Derivatively on Behalf of Beaches & Beaches, Inc. Dba Port Shamrock v. Beaches & Beaches, Inc. Dba Port Shamrock, Mehboob Ali Mohammed, Sarfaraz Mohammed and Aliakbar Mohammed ( 2024 )

Opinion issued June 25, 2024
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-22-00412-CV
———————————
ADNAN KHALID JAFAR, INDIVIDUALLY AND DERIVATIVELY ON
BEHALF OF BEACH & BEACHES, INC. DBA PORT SHAMROCK,
Appellant
V.
BEACH & BEACHES, INC. DBA PORT SHAMROCK, MEHBOOB ALI
MOHAMMED, SARFARAZ MOHAMMED, AND ALIAKBAR
MOHAMMED, Appellees
On Appeal from the 269th District Court
Harris County, Texas
Trial Court Case No. 2017-47968
MEMORANDUM OPINION
Adnan Khalid Jafar appeals the trial court’s judgment ordering him to sell his
interest in a gas station and convenience store (“Port Shamrock”),1 which he jointly
purchased with Beach & Beaches, Inc. (“Beaches”), to his former business partner
Mehboob Ali Mohammed. Jafar contends that the pleadings do not support the trial
court’s judgment; Port Shamrock is the same entity as Beaches, which he owns
together with Mehboob; his interest in Port Shamrock was undervalued; the trial
court improperly awarded attorney’s fees; Port Shamrock should have been sold
instead of partitioned by sale of Jafar’s interest to Mehboob; the amount he was to
receive from the partition was reduced by improper offsets; and other offsets should
have been applied to reduce any award against him.
We affirm the trial court’s judgment under the Texas Theft Liability Act, on
ownership of Port Shamrock and Beaches and their status as separate entities, and
on attorney’s fees. But we reverse and remand the issues of dissolution of the
partnership, determination of value, partition of Port Shamrock and the land it sits
on, and credits and offsets for further proceedings.
Background
In March 2005, Jafar and Mehboob jointly purchased Port Shamrock—a gas
station and convenience store business. That same month, Mehboob incorporated
1
Throughout trial, the parties referred to “Port Shamrock” as “the business.”
2
Beaches and then prepared an amended purchase agreement listing Jafar and
Beaches as Port Shamrock’s buyers. Beaches first leased the land Port Shamrock
was located on, with the lease naming Beaches as the sole tenant, and later purchased
the land in October 2006 for $445,000.
Jafar and Mehboob had a falling out. In February 2016, Jafar stopped
operating Port Shamrock. Five months later, Jafar, individually and derivatively on
behalf of Beaches, sued Beaches, Mehboob, and Mehboob’s two sons (collectively,
“Appellees”) for breach of fiduciary duty, fraud, conversion, and conspiracy.
Appellees answered, and later, Beaches and Mehboob counterclaimed against Jafar.
They sought to “recover any and all sums which [Jafar] improperly and wrongfully
misappropriated from [Port Shamrock],” “dissolve [their] relationship” with Jafar,
and partition Port Shamrock and the land “in accordance with each party’s interest.”
The case proceeded to a bench trial. After Jafar rested, the trial court rendered
judgment for Appellees on all Jafar’s claims and for Beaches and Mehboob on their
counterclaims. The trial court awarded Beaches and Mehboob damages for Jafar’s
misappropriation of funds and attorney’s fees. The trial court also judicially
dissolved “the partnership” between Jafar and Mehboob and ordered that the
“business known as Port Shamrock and the real property” be equitably partitioned.
The trial court found that Jafar owned 49% of Port Shamrock and 15% of the land,
while Mehboob owned 51% of Port Shamrock and 85% of the land. Concluding that
3
neither Port Shamrock nor the land could be partitioned in kind and that an order
“compelling the sale of the property would be futile,” however, the trial court
ordered that Mehboob could purchase “Jafar’s interest in both [Port Shamrock] and
the real property for the sum of $142,368.16.” The trial court allowed the “total
amount of all judgments” awarded to Mehboob to “offset” the purchase price,
authorizing Mehboob to buy Jafar’s interest for the sum of $6,578.50.2
Texas Theft Liability Act
The trial court awarded Beaches and Mehboob $50,000 in damages and
$4,120.50 in attorney’s fees on their misappropriation of funds claim under the
Texas Theft Liability Act (“TTLA”). See TEX. CIV. PRAC. & REM. CODE § 134.005.
Jafar contends that Beaches and Mehboob cannot recover under the TTLA because
(1) they did not plead a claim; (2) any claim is time barred; and (3) there is no
evidence of damages.
A. Sufficiency of the Pleadings
1. Law
Under the TTLA, a person who commits theft is liable for the damages
resulting from the theft. TEX. CIV. PRAC. & REM. CODE § 134.003(a). Theft is the
unlawful appropriation of property as described in certain sections of the Texas
Penal Code, including Section 31.03. Id. § 134.002(2). A person commits an offense
2
The trial court adopted findings of fact and conclusions of law.
4
under Section 31.03 “if he unlawfully appropriates property with intent to deprive
the owner of property.” TEX. PENAL CODE § 31.03(a). Appropriation of property is
unlawful if it is without the owner’s effective consent. Id. § 31.03(b)(1).
Texas follows a fair notice pleading standard. Horizon/CMS Healthcare Corp.
v. Auld, 34 S.W.3d 887, 896 (Tex. 2000); see TEX. R. CIV. P. 47 (pleadings must
contain “a short statement of the cause of action sufficient to give fair notice of the
claim involved”). The opposing party has fair notice when the nature and basic issues
of the claim and the type of evidence that might be relevant can be understood from
the pleading. Horizon/CMS Healthcare Corp., 34 S.W.3d at 896. We liberally
construe pleadings in the pleader’s favor unless the opposing party specially excepts
to the pleading. Id. at 897.
“Special exceptions may be used to challenge the sufficiency of a pleading.”
Friesenhahn v. Ryan, 960 S.W.2d 656, 658 (Tex. 1998); TEX. R. CIV. P. 91. Their
purpose is to compel clarification of pleadings when the pleadings are not clear or
sufficiently specific or fail to plead a cause of action. Baylor Univ. v. Sonnichsen,
221 S.W.3d 632, 635 (Tex. 2007). “An opposing party should use special exceptions
to identify defects in a pleading so that they may be cured, if possible, by
amendment.” Horizon/CMS Healthcare Corp., 34 S.W.3d at 897. If the opposing
party does not specially except to a pleading defect, the defect is waived. See TEX.
R. CIV. P. 90; Italian Cowboy Partners, Ltd. v. Prudential Ins. Co., 341 S.W.3d 323,
5
345–46 (Tex. 2011); see also Roark v. Allen, 633 S.W.2d 804, 810 (Tex.
1982) (party waived any defect by failing to specially except to opposing party’s
pleading).
2. Analysis
Beaches and Mehboob counterclaimed “to recover any and all sums which
[Jafar] improperly and wrongfully misappropriated from [Port Shamrock].” While
they asked for “reasonable attorney[’s] fees” and any other relief to which they were
entitled “both in law and equity,” Beaches and Mehboob did not specify any statute
entitling them to such relief. Without a pleading specifically referencing the TTLA,
Jafar says, the trial court could not treat the misappropriation counterclaim as arising
under the TTLA. We disagree.
Beaches and Mehboob pleaded a claim to recover “improper[ly] and
wrongful[ly]” misappropriated funds from Jafar. Unlawful appropriation or
misappropriation is an element of a cause of action under the TTLA. See Baylor
Scott & White v. Project Rose MSO, LLC, 633 S.W.3d 263, 287 (Tex. App.—Tyler
2021, pet. denied) (explaining that TTLA shares an element with common law
misappropriation). The TTLA also allows recovery of attorney’s fees, which
Beaches and Mehboob requested as part of their counterclaim. TEX. CIV. PRAC. &
REM. CODE § 134.005(b). That they failed to identify the TTLA is without
consequence. See Horizon/CMS Healthcare Corp., 34 S.W.3d at 897.
6
The record does not show that Jafar filed special exceptions challenging
Beaches and Mehboob’s counterclaim requesting fees for misappropriation or
seeking to clarify the counterclaim’s statutory basis.3 See id. (pleadings are liberally
construed in pleader’s favor unless opposing party specially excepts to pleading).
Any pleading defect on this issue is therefore waived. See Italian Cowboy Partners,
341 S.W.3d at 346.
We overrule this issue.
B. Statute of Limitations
1. Law
Limitations is an affirmative defense that must be specifically pleaded and
proved. See TEX. R. CIV. P. 94; Massey v. Columbus State Bank, 35 S.W.3d 697, 700
(Tex. App.—Houston [1st Dist.] 2000, pet. denied). A party asserting an affirmative
defense in a bench trial must request supportive findings to avoid waiver on appeal.
Sears, Roebuck & Co. v. Nichols, 819 S.W.2d 900, 907 (Tex. App.—Houston [14th
Dist.] 1991, writ denied). When the trial court makes fact findings that do not
establish any element of a defense, the party relying on the defense must request
additional findings to avoid waiver of the defense on appeal. Id.3
While Jafar filed special exceptions to Beaches and Mehboob’s misappropriation
counterclaim, he did so on other grounds: seeking to clarify the time-period
involved, the type of mismanagement alleged, and the authority for anyone other
than Mehboob to assert the claim. Jafar did not seek clarification on the statutory
authority for the counterclaim or recovery of fees. It is unclear from the record
whether the trial court ruled on the special exceptions.
7
Additionally, the appellant must present a record that is sufficient to show the
trial court’s error. Nicholson v. Fifth Third Bank, 226 S.W.3d 581, 583 (Tex. App.—
Houston [1st Dist.] 2007, no pet.) (appellant must bring forth sufficient record on
appeal).
2. Analysis
Jafar pleaded the affirmative defense of limitations. See TEX. R. CIV. P. 78
(defining plaintiff’s pleadings as original petition and such supplemental petitions
as are necessary); TEX. R. CIV. P. 81 (“When the defendant sets up a counter claim,
the plaintiff may plead thereto under rules prescribed for pleadings of defensive
matter by the defendant, so far as applicable.”); TEX. R. CIV. P. 94 (listing limitations
as affirmative defense). But he did not raise his limitations defense at trial, he did
not request findings on limitations, and there is no mention of the defense in the trial
court’s findings and conclusions. See Nichols, 819 S.W.2d at 907. Jafar also did not
request additional or amended findings.4 Id. Jafar thus did not preserve his
complaint. See TEX. R. APP. P. 33.1(a); see also Wheelock v. Trim Elec., Inc., No.
01-12-00475-CV, 2013 WL 3233239, at *7 (Tex. App.—Houston [1st Dist.] June
4
Jafar filed a “Motion to Alter or Amend Judgment in the Alternative, Motion for
New Trial,” but he did so one month after the trial court’s findings and conclusions.
The motion did not request any “specified additional or amended findings or
conclusions,” as required. See TEX. R. CIV. PROC. 298 (request for additional or
amended findings of fact and conclusions of law “must be made within ten days
after the court sends the original findings and conclusions”).
8
25, 2013, no pet.) (mem. op.) (“When a trial court’s findings do not address a ground
of recovery, the party relying on that ground must request additional findings in
proper form or else any complaint about the unmentioned ground is waived.”);
Trelltex, Inc. v. Intecx, L.L.C., 494 S.W.3d 781, 785 (Tex. App.—Houston [14th
Dist.] 2016, no pet.) (to avoid waiver, party asserting affirmative defense in bench
trial must request findings in support of defense and, when findings do not establish
any element of defense, must request additional findings).
We overrule Jafar’s statute of limitations issue.
C. Damages
Jafar contends that there is insufficient or no evidence to support damages
under the TTLA. We treat this issue as challenging the legal and factual sufficiency
of the evidence.
1. Law
In a bench trial, findings of fact have the same force and dignity as a jury’s
verdict, and we may review the trial court’s findings of fact for legal and factual
sufficiency under the same standards we apply to jury verdicts. Anderson v. City of
Seven Points, 806 S.W.2d 791, 794 (Tex. 1991); Green v. Alford, 274 S.W.3d 5, 23
(Tex. App.—Houston [14th Dist.] 2008, pet. denied).
In conducting a sufficiency review, we consider the evidence in the light most
favorable to the challenged findings and indulge every reasonable inference that
9
supports them. City of Keller v. Wilson, 168 S.W.3d 802, 822 (Tex. 2005). We credit
favorable evidence if a reasonable factfinder could, and disregard contrary evidence
unless a reasonable factfinder could not. Id. at 827. The evidence is legally sufficient
if it would enable reasonable and fair-minded people to reach the decision under
review. George Joseph Assetts, LLC v. Chenevert, 557 S.W.3d 755, 765 (Tex.
App.—Houston [14th Dist.] 2018, pet. denied). When an appellant attacks a finding
on an issue on which he did not have the burden of proof, he must show that no
evidence supports the adverse finding. Id. Evidence is legally insufficient to support
a finding if (1) there is a complete absence of evidence of a vital fact; (2) rules of
law or evidence bar the court 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 the vital
fact. City of Keller, 168 S.W.3d at 810.
When reviewing findings for factual sufficiency, we consider and weigh all
the evidence and will “set aside the verdict only if it is so contrary to the
overwhelming weight of the evidence as to be clearly wrong and unjust.” Cain v.
Bain, 709 S.W.2d 175, 176 (Tex. 1986) (per curiam); Levine v. Steve Scharn Custom
Homes, Inc., 448 S.W.3d 637, 653 (Tex. App.—Houston [1st Dist.] 2014, pet.
denied). In assessing the evidence, we may not pass on the credibility of the
witnesses or substitute our judgment for that of the factfinder; instead, the trial court,
10
as the trier of fact, is the sole judge of the credibility of the witnesses and the weight
to afford their testimony. City of Keller, 168 S.W.3d at 819; Gunn v. McCoy, 554
S.W.3d 645, 665 (Tex. 2018).
“We review a trial court’s conclusions of law de novo, and we will uphold the
conclusions if the judgment can be sustained on any legal theory supported by the
evidence.” See Cooke v. Morrison, 404 S.W.3d 100, 107 (Tex. App.—Houston [1st
Dist.] 2013, no pet.). A party may not challenge legal conclusions for factual
sufficiency, but the reviewing court may determine the correctness of legal
conclusions drawn from facts. Id. If the reviewing court determines the trial court
erred in its legal conclusions but rendered a proper judgment, reversal is not required.
BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex. 2002).
2. Analysis
The trial court found that Jafar “wrongfully misappropriated a minimum of
$50,000.00” from Port Shamrock and awarded Beaches and Mehboob $50,000.00
in damages. See TEX. CIV. PRAC. & REM. CODE §§ 134.003, .005(a)(1) (authorizing
recovery of actual damages from person who commits theft).
Jafar testified that when he started working at Port Shamrock, he earned $8.00
but his pay later increased to $11.00 per hour. While working at Port Shamrock,
Jafar wrote several checks to himself and made cash withdrawals totaling over
$100,000, allegedly on Mehboob’s instruction. Port Shamrock’s accountant testified
11
that tax documents showed that in 2012, 2013, and 2016—when Jafar operated the
business alone—$545,000 went missing. Jafar denied taking any money from Port
Shamrock, but the trial court was free to disbelieve his explanation of why he wrote
checks to himself from Port Shamrock’s account. See Townsend v. Vasquez, 569
S.W.3d 796, 807–08 (Tex. App.—Houston [1st Dist.] 2018, pet. denied) (factfinder
is sole judge of witness credibility and weight of testimony).
Also, Jafar does not challenge the trial court’s findings—findings of fact 18
through 23—that $545,000 went missing while he exclusively managed and
operated Port Shamrock, from 2005 until February 2016, and that no money went
missing after Mehboob took over. See McGalliard v. Kuhlmann, 722 S.W.2d 694,
696 (Tex. 1986) (appellate court is bound by unchallenged fact findings unless the
contrary is established as matter of law or no evidence supports finding). We thus
conclude the evidence is legally and factually sufficient to support the damages
findings. See Levine, 448 S.W.3d at 653; City of Keller, 168 S.W.3d at 822.
As for the conclusion of law stating that Mehboob is entitled to a judgment of
$50,000 on his counterclaim against Jafar, we have stated that the above findings of
fact are supported by the record. These findings support the trial court’s conclusion
of law based on the evidence showing that Jafar appropriated property without
consent and with intent to deprive the owner of such property. See City of Keller,
168 S.W.3d at 827; Patrick v. State, 906 S.W.2d 481, 487 (Tex. Crim. App.
12
1995) (intent may be inferred from circumstantial evidence surrounding the incident
including accused’s acts, words, and conduct).
We overrule Jafar’s damages issue.
Port Shamrock
Jafar contends that the trial court erred by treating Port Shamrock as a separate
entity from Beaches, despite judicial admissions by Appellees that the entities were
the same, their failure to plead any defenses to that effect, and conclusive evidence
of the entities’ sameness.
A. Judicial Admissions and Affirmative Defenses
Jafar argues that by submitting filings on behalf of “Beach and Beaches, Inc.
dba Port Shamrock,” Appellees judicially admitted that Beaches was the same entity
as Port Shamrock.
1. Law
A judicial admission must be a clear, deliberate, and unequivocal statement,
and occurs when an assertion of fact is conclusively established in live pleadings,
making the introduction of other pleadings or evidence unnecessary. Horizon/CMS
Healthcare Corp., 34 S.W.3d at 905 (internal quotations omitted).
2. Analysis
While Appellees identified “Beach & Beaches, Inc. DBA Port Shamrock” as
a defendant in their filings, their answer denied Jafar’s allegation that he had a stake
13
in Beaches. And in their counterclaim, Beaches and Mehboob distinguished between
Port Shamrock (“the business”) and Beaches. Appellees’ inclusion of the name
“Beach & Beaches, Inc. DBA Port Shamrock” in their filings is not a clear and
unequivocal statement that qualifies as a judicial admission. See Horizon/CMS
Healthcare Corp., 34 S.W.3d at 905.
Jafar also contends that Appellees cannot question his capacity to sue or his
description of the business because they failed to plead that he lacked capacity to
sue derivatively on behalf of Beaches, that there was a defect in parties, or that
Beaches was not incorporated as alleged. But Appellees disputed that Jafar is an
owner of Beaches, and the trial court found that Jafar lacked standing to bring suit
on behalf of Beaches because he was not a shareholder.
An appellant’s brief must contain a clear and concise argument for the
contentions made, with appropriate citations to authorities and to the record. TEX. R.
APP. P. 38.1 (h), (i); see Tesoro Petroleum Corp. v. Nabors Drilling USA, Inc., 106
S.W.3d 118, 128 (Tex. App.—Houston [1st Dist.] 2002, pet. denied). An appellant
waives an issue on appeal if he does not adequately brief that issue by providing
supporting arguments, substantive analysis, and appropriate citations to authorities
and to the record. See Tesoro Petroleum Corp., 106 S.W.3d at 128. This is not
accomplished “by merely uttering brief conclusory statements, unsupported by legal
citations,” so this complaint is waived. Id.14
We overrule Jafar’s issue.
B. Sameness Evidence
Jafar argues that the evidence at trial showed as a matter of law that Port
Shamrock is the same entity as Beaches. We apply the legal sufficiency standard set
out above, noting that Jafar had the burden to prove his own claim and so must show
that the evidence conclusively established all vital facts in support of the claim. See
Orr v. Walker, 438 S.W.3d 766, 768 (Tex. App.—Houston [1st Dist.] 2014, no pet.)
(citing Dow Chem. Co. v. Francis, 46 S.W.3d 237, 241 (Tex. 2001)).
Although Jafar argues that the trial court’s finding that Port Shamrock was a
separate entity from Beaches is unsupported, the evidence shows otherwise. On
March 15, 2005, Jafar and Mehboob entered into a written agreement to buy Port
Shamrock. One week later, on March 22, Mehboob incorporated Beaches. Three
days after Beaches’ incorporation, Jafar and Mehboob amended the Port Shamrock
purchase agreement. The amended purchase agreement listed Beaches and Jafar as
the buyers. Around the time of purchase, Mehboob and Jafar agreed that Mehboob
would have a 51% ownership interest and Jafar would have a 49% ownership interest
in Port Shamrock.
This evidence supports the trial court’s finding that Port Shamrock and
Beaches were separate entities. First, the amended purchase agreement lists Jafar
and Beaches as the buyers of Port Shamrock. Second, tax records showed that
15
Mehboob, not Jafar, owned Beaches. Third, testimony reflected that Port Shamrock
provided partial funding to Beaches to buy the land Port Shamrock was located on.
Fourth, Port Shamrock had accounting records showing a balance sheet for its
operation.
That Jafar points out some contradictory evidence does not carry his burden.
See Dow Chem. Co., 46 S.W.3d at 241 (legal sufficiency issue should be sustained
only if contrary proposition is conclusively established); see also Sterner v.
Marathon Oil Co., 767 S.W.2d 686, 691 (Tex. 1989) (when some evidence supports
the challenged finding, our inquiry on that issue need go no further).
We overrule Jafar’s issue.
Ownership of Beaches
Jafar argues that the evidence shows that he owned 49% of Beaches and its
assets, and thus the trial court erred in not awarding him his proportionate share. We
construe this as a challenge to the legal and factual sufficiency of the evidence, and
we again apply the sufficiency standards of review. See Orr, 438 S.W.3d at 768.
The trial court found that “[n]o stock in Beach & Beaches, Inc. has ever been
issued to any person and no entry reporting any stock issuance to any person has
ever been registered in the share transfer records maintained by the corporation.” It
also concluded that because Jafar was “never issued stock in [Beaches] and because
no entry reporting any stock issuance to [Jafar] has ever been registered in the share
16
transfer records maintained by [Beaches], [Jafar] is not a shareholder of the
corporation.”
Jafar testified that while he was never issued any stock, he understood that he
owned half of Beaches because he invested money equally with Mehboob. But
Jafar’s testimony revealed that he was referring to buying “the store”—Port
Shamrock—when he invested equally with Mehboob. Jafar admitted that he owned
49% of Port Shamrock and Mehboob owned 51%. There are also conflicting tax
records indicating at times that Jafar owned some of Beaches and that Mehboob
owned all of Beaches.
Proving ownership without stock certificates depends on the evidence
presented, including the nature of the parties, the nature of their relationship, and
their representations to each other. See generally Willis v. Donnelly, 199 S.W.3d
262, 277–78 (Tex. 2006) (refusing to recognize shareholder status for experienced
businessman working under both written agreement to transfer stock and oral
agreement to postpone delivery of stock); Greenspun v. Greenspun, 194 S.W.2d 134,
137 (Tex. Civ. App.—Fort Worth), aff’d, 198 S.W.2d 82 (Tex. 1946) (party claiming
transfer of stock must show “whether the minds of transferor and transferee met,
whether there was an intention that the stock should then and there be vested in the
transferee, and whether there were acts in the nature of a symbolical delivery of the
property”); Rio Grande Cattle Co. v. Burns, 17 S.W. 1043, 1044–45 (Tex.
17
1891) (person can be shareholder without possessing stock certificates if person is
entitled to receive stock, but company refuses to issue stock certificates despite
demand to do so).
While it is possible to prove ownership without stock certificates, Jafar did
not present enough evidence to show that Mehboob intended to make Jafar a 49%
shareholder of Beaches. The trial court was free to disbelieve Jafar’s testimony that
he believed he was an equal owner of Beaches. HTS Servs., Inc. v. Hallwood Realty
Partners, L.P., 190 S.W.3d 108, 111 (Tex. App.—Houston [1st Dist.] 2005, no pet.)
(factfinder is sole judge of witness’s credibility).
Having reviewed the evidence in the light most favorable to the trial court’s
fact finding, we conclude that the evidence is legally sufficient to support the finding
that Jafar did not hold stock in Beaches. See City of Keller, 168 S.W.3d at 810. We
have also reviewed the evidence related to this same finding under the factual
sufficiency standard and conclude that it is not contrary to the overwhelming weight
of the evidence. See Cain, 709 S.W.2d at 176.
Because the facts do not show that Jafar is an owner of Beaches, we uphold
the trial court’s challenged conclusion. See Cooke, 404 S.W.3d at 111.
Attorney’s Fees
In his third, fourth, and fifth issues, Jafar contends that the trial court erred in
awarding attorney’s fees to Beaches and Mehboob. The trial court found that they
18
had incurred $82,410.00 in attorney’s fees but awarded only $78,289.50. The award
equals 90% of the total fees for defending Jafar’s derivative action and 5% for the
counterclaim alleging misappropriation of funds.5
A. Derivative Action
In his third issue, Jafar argues that it was error to award attorney’s fees for the
defense of his derivative action because he reasonably believed that he was a
shareholder of Beaches and because Beaches and Mehboob did not plead that he
lacked capacity.
1. Standard of Review
We review a trial court’s award of fees in a derivative action for an abuse of
discretion. Moody v. Nat’l W. Life Ins. Co., 634 S.W.3d 256, 283 (Tex. App.—
Houston [1st Dist.] 2021, no pet.). Under the abuse-of-discretion standard, legal and
factual insufficiency are not independent grounds of error; they are relevant factors
in assessing whether the trial court abused its discretion. In re J.J.G., 540 S.W.3d
44, 55 (Tex. App.—Houston [1st Dist.] 2017, pet. denied). “Whether a case was filed
without reasonable cause or for an improper purpose is a question of law for the
court.” Moody, 634 S.W.3d at 281. We consider whether the trial court had sufficient
information upon which to exercise its discretion and whether it erred in its
5
The remaining 5% that went unawarded was for the counterclaim to dissolve the
parties’ partnership and partition the partnership’s assets.
19
application of discretion. In re J.J.G., 540 S.W.3d at 55. When there is some
evidence to support the trial court’s decision, there is no abuse of discretion. Moody,
634 S.W.3d at 283. A trial court does not abuse its discretion simply by deciding a
matter differently than an appellate court would. Downer v. Aquamarine Operators,
Inc., 701 S.W.2d 238, 242 (Tex. 1985). The appellate court may not substitute its
own judgment for the trial court’s judgment. Bowie Mem. Hosp. v. Wright, 79
S.W.3d 48, 52 (Tex. 2002) (per curiam).
2. Analysis
A party may recover attorney’s fees only if specifically provided for by statute
or contract. Epps v. Fowler, 351 S.W.3d 862, 865 (Tex. 2011). The availability of
statutory attorney’s fees is a question of law that can be raised in a post-judgment
motion. See Holland v. Wal-Mart Stores, Inc., 1 S.W.3d 91, 94 (Tex. 1999).
The Texas Business Organizations Code states that, “[o]n termination of a
derivative proceeding,” the trial court “may order:”
the plaintiff to pay expenses the corporation or other defendant incurred
in investigating and defending the proceeding if the court finds the
proceeding has been instituted or maintained without reasonable cause
or for an improper purpose[.]
TEX. BUS. ORGS. CODE § 21.561(b)(2).
A plaintiff seeking to derivatively enforce the rights of a corporation must be
a shareholder. See Ritchie v. Rupe, 443 S.W.3d 856, 880–81 (Tex. 2014)
(shareholders in closely held corporation can bring derivative action); Somers ex rel.
20
EGL, Inc. v. Crane, 295 S.W.3d 5, 15 (Tex. App.—Houston [1st Dist.] 2009, pet.
denied); see also Neff v. Brady, 527 S.W.3d 511, 521 (Tex. App.—Houston [1st
Dist.] 2009, no pet.) (shareholder must bring derivative suit in corporation’s name
to recover for wrongs done to corporation). When standing has been conferred by
statute, the statute serves as the proper framework for a standing analysis. Cernosek
Ents., Inc. v. City of Mont Belvieu, 338 S.W.3d 655, 663 (Tex. App.—Houston [1st
Dist.] 2011, no pet.); Gilbreath v. Horan, 682 S.W.3d 454, 488 (Tex. App.—
Houston [1st Dist.] 2023, pet. denied).
Because Jafar is not a shareholder of Beaches, he does not “fall[] within the
category of claimants upon whom the Legislature [has] conferred standing.”
Nephrology Leaders & Assocs. v. Am. Renal Assocs. LLC, 573 S.W.3d 912, 916
(Tex. App.—Houston [1st Dist.] 2019, no pet.) (“[C]ourts must determine whether
a particular plaintiff has established that he has been injured or wronged within the
parameters of the statutory language.”). The trial court found that Jafar “is not
currently a shareholder in [Beaches] and has never been a shareholder at any time
relevant to this proceeding, [so] the derivative action which he filed was instituted
and maintained without reasonable cause.” Because evidence supports the finding,
the trial court was justified in awarding attorney’s fees. See Moody, 634 S.W.3d at
283.
21
Jafar also references his prior argument that Appellees had to plead that he
lacked capacity to bring suit. But again, Jafar’s briefing does not provide appropriate
citations to authorities and to the record to support his contention. TEX. R. APP. P.
38.1 (h), (i); see Tesoro Petroleum Corp., 106 S.W.3d at 128. Instead, he offers only
brief conclusory statements. Because Jafar did not adequately brief this issue by
providing supporting arguments, substantive analysis, and appropriate citations to
authorities and the record, this complaint is waived. See Tesoro Petroleum Corp.,
106 S.W.3d at 128.
We overrule Jafar’s derivative action attorney’s fees issue.
B. Texas Theft Liability Act
Jafar contends that the trial court erred in awarding attorney’s fees under the
TTLA because they were not pleaded and there was insufficient or no evidence of
fees because Beaches and Mehboob did not segregate the fees.
1. Standard of Review
The availability of attorney’s fees under a statute is a question of law. Leteff
v. Roberts, 555 S.W.3d 133, 140 (Tex. App.—Houston [lst Dist.] 2018, no pet.). We
review questions of law de novo. Id. at 137.
22
2. Analysis
Beaches and Mehboob contend that they brought their “misappropriation”
counterclaim under the TTLA. The trial court awarded them $4,120.50 in attorney’s
fees under the statute.
Jafar argues that Beaches and Mehboob did not include this claim in their
counterclaim, thus depriving him of fair notice of the relief sought. See Stoner v.
Thompson, 578 S.W.2d 679, 682–83 (Tex. 1979). But fair notice of a claim is given
if the opposing party can understand from the pleading the nature and basic issues
of the claim and the type of evidence that might be relevant. Horizon/CMS
Healthcare Corp., 34 S.W.3d at 896. Jafar could have filed special exceptions
compelling Appellees to clarify the basis of their attorney’s fees request, but he did
not do so.6 See Sonnichsen, 221 S.W.3d at 635. Absent special exceptions, we
construe pleadings liberally in favor of the pleader. Horizon/CMS Healthcare Corp.,
34 S.W.3d at 897. And as we previously concluded, any pleading defect on the
underlying TTLA claim issue is waived.
Here, Beaches and Mehboob brought a counterclaim against Jafar for
misappropriation but did not specify a statute that entitled them to attorney’s fees.
Counterplaintiff brings this action; to recover any and all sums
which Counterdefendant improperly and wrongfully misappropriated
from the business.
6
As stated, Jafar’s special exceptions to the TTLA counterclaim did not address the
statutory authority for the attorney’s fees request.
23
...
It was necessary for Counterplaintiffs to bring this
Counterpetition to present and to prosecute the claims asserted herein.
Counterplaintiffs should be awarded their reasonable attorney fees for
the services of their attorney.
WHEREFORE Counterplaintiffs pray that the Court, after notice
and hearing or trial, enter judgment in favor of Counterplaintiffs,
dissolve the business relationship existing between Counterplaintiffs
and Counterdefendants, enter its order partitioning both the business
and real property and award Counterplaintiffs their costs of court,
attorney’s fees, and such other and further relief as to which
Counterplaintiffs may show themselves to be justly entitled both in law
and in equity.
Beaches and Mehboob argue that their pleadings were general enough to
allow recovery of attorney’s fees on any legal basis presented in the record despite
not citing a specific rule or statute as the sole ground for a fees recovery. Whallon v.
City of Hous., 462 S.W.3d 146, 165 (Tex. App.—Houston [1st Dist.] 2015, pet.
denied) (if party pleads facts which, if true, entitles party to relief sought, party “need
not specifically plead the applicable statute in order to recover [attorney’s fees]
under it”); Heritage Gulf Coast Props., Ltd. v. Sandalwood Apartments, Inc., 416
S.W.3d 642, 660 (Tex. App.—Houston [14th Dist.] 2013, no pet.) (general pleadings
are sufficient to support recovery of fees under any applicable theory, but if party
pleads specific ground, party is “limited to that ground and cannot recover attorney’s
fees on another, unpleaded ground.”). When the opposing party fails to specially
except to a pleaded request for attorney’s fees, courts construe the pleading
24
requesting fees liberally in favor of the pleader. Whallon, 462 S.W.3d at 165; see
Patriot Contracting, LLC v. Shelter Prods., Inc., 650 S.W.3d 627, 656 (Tex. App.—
Houston [1st Dist.] 2021, pet. denied) (pleading supported request for attorney’s fees
in judicial foreclosure proceeding even though parties did not invoke specific statute
authorizing fees when parties sought judicial foreclosure, generally requested
attorney’s fees, and trial court did not sustain special exceptions).
Here, Beaches and Mehboob pleaded the basis for their misappropriation
claim and requested attorney’s fees as part of their pleadings. We conclude their
claim for attorney’s fees is sufficiently general to permit them to argue any available
legal basis to support the award of such fees. See Smith v. Deneve, 285 S.W.3d 904,
916–17 (Tex. App.—Dallas 2009, no pet.) (party’s general pleadings allowed party
to rely on any applicable provisions of law to support award of attorney’s fees when
party did not cite to any specific rule or statute as sole ground for recovery of fees).
We overrule Jafar’s TTLA attorney’s fees issue.
C. Segregation of Fees
Jafar argues that because Beaches and Mehboob have failed to segregate their
attorney’s fees amongst each claim they are not permitted to recover those fees. But
Beaches and Mehboob did segregate fees between the counterclaim and the
remaining claims. For the counterclaims, Beaches and Mehboob segregated the fees
for the TTLA action from the dissolution action. But they did not segregate the
25
remaining claims: the derivative action claims brought by Jafar on behalf of Beaches
and the claims brought by Jafar individually. So, we now turn to our review of
whether the attorney’s fees for those remaining claims required segregation.
1. Standard of Review
“Because attorney’s fees are recoverable only when provided for by statute or
the parties’ contract, a fee claimant must segregate attorney’s fees that are
recoverable from those that are not.” Hillegeist Fam. Enters., LLP v. Hillegeist, 667
S.W.3d 349, 357 (Tex. App.—Houston [1st Dist.] 2022, no pet.) (citing Tony Gullo
Motors I, L.P. v. Chapa, 212 S.W.3d 299, 310 (Tex. 2006)). The need to segregate
attorney’s fees is a question of law, and the extent to which certain claims can or
cannot be segregated is a mixed question of law and fact. Chapa, 212 S.W.3d at
312–13; Khoury v. Tomlinson, 518 S. W.3d 568, 581 (Tex. App.—Houston [1st
Dist.] 2017, pet. denied). The party seeking to recover attorney’s fees must show
that fee segregation is not required. Hellegeist Fam. Enters., 667 S.W.3d at 357.
2. Analysis
If any attorney’s fees relate solely to a claim for which such fees are
unrecoverable, a claimant must segregate recoverable from unrecoverable fees.
Chapa, 212 S.W.3d at 313. “Intertwined facts do not make tort fees recoverable; it
is only when discrete legal services advance both a recoverable and unrecoverable
claim that they are so intertwined that they need not be segregated.” Id. at 313–14.
26
“[T]o meet a party’s burden to segregate its attorneys’ fees, it is sufficient to submit
to the fact-finder testimony from a party’s attorney concerning the percentage of
hours related solely to a claim for which fees are not recoverable.” RM Crowe Prop.
Servs. Co., L.P. v. Strategic Energy, L.L.C., 348 S.W.3d 444, 453 (Tex. App.—
Dallas 2011, no pet.); Young v. Dimension Homes, Inc., No. 01-14-00331-CV, 2016
WL 4536407, at *10 (Tex. App.—Houston [1st Dist.] Aug. 30, 2016, no pet.) (mem.
op.) (“[A]n attorney can satisfy his evidentiary burden by presenting evidence of
unsegregated attorney’s fees and a rough percentage of the amount attributable to
the claims for which fees are not recoverable.”).
Jafar argues that Beaches and Mehboob had to segregate fees between them.
But Jafar has not provided this Court with citations to authorities to support this
contention, so it is waived.7 See TEX. R. APP. P. 38.1(i); Banakar v. Krause, 674
S.W.3d 564, 575 (Tex. App.—Houston [1st Dist.] 2023, no pet.) (“A failure to
provide substantive analysis of an issue or cite appropriate authority waives a
complaint on appeal.”).
This leaves us with reviewing the segregation of fees between recoverable and
unrecoverable claims. See Chapa, 212 S.W.3d at 313. As evidence of their attorney’s
7
Jafar cites to Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1 (Tex. 1991), but that
case is inapposite. Sterling dealt with when a prevailing party was trying to recover
attorney’s fees where there were multiple opposing parties and one opposing party
had settled. Id. at 10–11. Here, no argument has been raised that there are multiple
parties to recover from.
27
fees, Beaches and Mehboob offered the testimony of one of their attorneys and his
billing records. Counsel testified that the reasonable and necessary amount of
attorney’s fees incurred by Beaches and Mehboob was $82,410. Jafar
cross-examined counsel on whether he segregated recoverable from unrecoverable
claims. Counsel responded that he had provided a percentage division of his work
on the derivative action and on the counterclaim. Counsel also testified that
defending against the derivative claim for conspiracy, which involved all claims
raised by Jafar, meant that he could not segregate his work defending against Jafar’s
claims for one defendant as opposed to the others. This included the fraud claim that
was a direct claim by Jafar against Mehboob and not a derivative claim on behalf of
Beaches.
Because Jafar brought a derivative action without reasonable cause, Beaches
and Mehboob may recover attorney’s fees for defending the derivative claims. See
TEX. BUS. ORGS. CODE § 21.561(b)(2). Jafar also pleaded a direct claim of fraud,
which does not permit the recovery of attorney’s fees and would need to be
segregated. See Chapa, 212 S.W.3d at 311. But attorney’s fees do not require
segregation when the claims arise from the same transaction and counsel’s legal
services advance both recoverable and unrecoverable claims. Id. at 313–14 (discrete
legal services that advance both recoverable and unrecoverable claims need not be
segregated). The pleadings on the derivative conspiracy claim alleged:
28
Defendants in combination with one another, agreed to enter an
agreement to conspire to accomplish an unlawful purpose or lawful
purpose by unlawful means detailed in the allegations noted above. The
Defendants acted specifically with the intent to harm and defraud Beach
& Beaches, Inc. DBA Port Shamrock and Jafar from his ownership
interest in the business. Additionally, the Defendants acted in concert
to misappropriate funds owned by Beach & Beaches, Inc. DBA Port
Shamrock. To accomplish the object of their agreement, the Defendants
committed an overt and unlawful act of misappropriating funds from
Beach & Beaches, Inc. DBA Port Shamrock and usurping the stock
owned by Jafar, The agreement by the Defendants caused injury to
Beach & Beaches, Inc. DBA Port Shamrock and Jafar.
Beaches and Mehboob’s counsel testified that the conspiracy claim caused the
defense of one defendant to become the defense of all defendants, so the billing on
Jafar’s claims could not be segregated. Beaches and Mehboob also provided a billing
spreadsheet describing the legal services performed and detailing the dates, hours
spent, and hourly rate. They thus presented enough evidence to support a
presumption of reasonable and necessary attorney’s fees. See Rohrmoos Venture v.
UTSW DVA Healthcare, LLP, 578 S.W.3d 469, 498–99 (Tex. 2019). Because the
conspiracy claim implicated all defendants for the conduct of any of them, the work
for the recoverable and unrecoverable claims were so intertwined that they need not
have been segregated. See Chapa, 212 S.W.3d at 312–14. Beaches and Mehboob
also properly raised that it was not just intertwined facts that made unrecoverable
fees recoverable but that the nature of the claims meant that counsel’s legal services
advanced both a recoverable and unrecoverable claims. Id. at 313 (intertwined facts
29
alone do not make unrecoverable fees recoverable, discrete services provided must
have advanced both types of claims).
We overrule Jafar’s segregation issue.
Partitioning Port Shamrock and the Land
Jafar complains that the trial court erred in partitioning Port Shamrock and the
land it sits on by forced sale from Jafar to Mehboob, rather than ordering a sale and
division of the proceeds. The trial court did not specify the statutory basis for the
partition, and Jafar did not request findings on this point. Two possible bases for
partition have been suggested by the parties—the Texas Property Code and the
Texas Business Organizations Code. See TEX. PROP. CODE § 23.001; TEX. BUS.
ORGS. CODE § 11.314. We apply the de novo standard of review to the trial court’s
legal conclusions. See BMC Software Belgium, 83 S.W.3d at 794.
A. Law
A joint owner or claimant of real property or an interest in real property “may
compel a partition of the interest or the property among the joint owners or
claimants.” TEX. PROP. CODE § 23.001. If the trial court determines property is
incapable of partition in kind, then the trial court must order partition by sale. TEX.
R. CIV. P. 770; See Bowman v. Stephens, 569 S.W.3d 210, 221 (Tex. App.—Houston
[1st Dist.] 2018, no pet.).
30
Section 11.314 of the Texas Business Organizations Code authorizes trial
courts to order the winding up and termination of a domestic partnership on the
application of a partner if it finds that “another owner has engaged in conduct
relating to the entity’s business that makes it not reasonably practicable to carry on
the business with that owner.” TEX. BUS. ORGS. CODE § 11.314(2).
B. Analysis
Jafar is correct that under the Texas Property Code, “[a] joint owner or
claimant of real property or an interest in real property . . . may compel a partition
of the interest or the property among the joint owners or claimants.” TEX. PROP.
CODE § 23.001. And that when a partition in kind is not possible, the trial court must
order a partition by sale. See TEX. R. CIV. P. 770; see also Bowman, 569 S.W.3d at
220. Thus, the trial court’s order of partition of Port Shamrock and the land by
compulsory sale from Jafar to Mehboob is not supported under this legal theory.
Mehboob argues that partitioning Port Shamrock and the land by forced sale
to him is permitted under Sections 11.314 and 11.054 of the Texas Business
Organizations Code. See Guar. Cnty. Mut. Ins. Co. v. Reyna, 709 S.W.2d 647, 648
(Tex. 1986) (per curiam) (judgment that is correct on any legal theory before trial
court will be upheld even if trial court’s reasoning is erroneous); see also
Horizon/CMS Healthcare Corp., 34 S.W.3d at 897 (pleadings are construed liberally
31
in pleader’s favor unless opposing party specially excepts). The counterclaim to
dissolve the partnership between Jafar and Mehboob states:
Additionally, Counterplaintiff brings this action to dissolve his
relationship with Counterdefendant and to partition the business and to
partition the land in accordance with each party’s interest. In that
connection, Counterplaintiff, Mohammed would show that he
contributed more than 50% of the purchase price of the business and he
contributed all of the purchase price of the land and building, in the
event that it is established that Counterplaintiff was reimbursed for any
portion of such purchase price then the parties’ interests should be
adjusted accordingly.
The trial court ordered that the partnership between Jafar and Mehboob “be
and is hereby judicially dissolved.” Section 11.314 authorizes the trial court to order
the winding up and termination of a domestic partnership on the application of a
partner if it finds that “another owner has engaged in conduct relating to the entity’s
business that makes it not reasonably practicable to carry on the business with that
owner.” TEX. BUS. ORGS. CODE § 11.314(2).
When the trial court’s findings of fact address a ground of recovery, but omit
an element, we may infer the missing element because the judgment is presumed
valid. See TEX. R. CIV. P. 299; see also Hailey v. Hailey, 176 S.W.3d 374, 383–84
(Tex. App.—Houston [1st Dist.] 2004, no pet.); Vickery v. Comm’n for Law.
Discipline, 5 S.W.3d 241, 251–53 (Tex. App.—Houston [14th Dist.] 1999, pet.
denied) (presumptive validity of judgment may apply even stronger in bench trial).
Here, the trial court found that Jafar “wrongfully misappropriated a minimum of
32
$50,000.00 from the business of Port Shamrock.” So, there is support for the trial
court’s dissolution of the partnership under section 11.314(2) of the Texas Business
Organizations Code.
Next, we review whether section 11.054 permits the trial court’s order of
partition. It provides that, “[s]ubject to the other provisions of the code,” in
supervising the winding up process, the trial court may “make any other order,
direction or inquiry that the circumstances may require.” TEX. BUS. ORGS. CODE
§ 11.054(3). Mehboob contends that while Rule 770 provides that the trial court
should order a sale when a fair and equitable division of real estate cannot be made,
TEX. R. CIV. P. 770, no similar provision appears in the Texas Business
Organizations Code. See TEX. BUS. ORGS. CODE § 402.005(a)(l). But that is
incorrect.
The trial court ordered the winding up and termination of the “partnership”
between Jafar and Mehboob. See id. § 11.314(2). Winding up of a domestic entity is
required when a court orders the “winding up, dissolution, or termination of the
domestic entity.” Id. § 11.051(5). Once an event requiring the winding up of a
domestic entity occurs, the owners are required to, “as soon as reasonably
practicable, wind up the business and affairs of the domestic entity.” Id. § 11.052(a).
Section 11.052 also requires that the entity shall: “cease to carry on its business,
except to the extent necessary to wind up its business; . . . [and] collect and sell its
33
property to the extent the property is not to be distributed in kind to the domestic
entity’s owners or members . . . .” Id. § 11.052(a)(1–3). Section 11.054 explicitly
states that the powers it grants are “[s]ubject to the other provisions of this code[.]”
Id. § 11.054. Construing Section 11.054 to permit the trial court to force a sale of
Jafar’s interests to Mehboob would directly conflict with the requirements of a
winding up process under Section 11.052. See id. § 11.052(a)(3). So, this alternative
theory for the sale of Jafar’s interest in the business and land also fails.
Lastly, Mehboob argues that the Business Organizations Code provides that a
person ceases to be a partner on an event of wrongful withdrawal, so the partnership
has an automatic right to redeem Jafar’s interest. A partnership may redeem the
“interest of a partner who wrongfully withdraws” on “the completion of a particular
undertaking, or the occurrence of a specified event requiring a winding up of
partnership business . . . .” See id. § 152.602(b). A wrongful withdrawal of a partner
occurs when “the partner is expelled by judicial decree under Section
152.501(b)(5).” See id. § 152.503(b)(3). A trial court may determine to expel a
partner “on application by the partnership or another partner.” See id.
§ 152.501(b)(5). But Mehboob made no claim to expel Jafar from the partnership,
so that claim was not before the trial court. By Mehboob’s own admission, the
counterclaim was for “dissolution.” “A trial court cannot enter judgment on a theory
of recovery not sufficiently set forth in the pleadings or otherwise tried by consent.”
34
Hartford Fire Ins. Co. v. C. Springs 300, Ltd., 287 S.W.3d 771, 779 (Tex. App.—
Houston [1st Dist.] 2009, pet. denied).
Accordingly, we sustain Jafar’s issue about partitioning Port Shamrock and
the land it is on. Given this resolution, we do not address Jafar’s issues on whether
offsets and credits should be considered in partitioning Port Shamrock and the land.
See TEX. R. APP. P. 47.1.
Scope of Remand
Having found reversible error, we now consider the scope of remand. See TEX.
R. APP. P. 44.1(b) (“If the error affects part of, but not all, the matter in controversy
and that part is separable without unfairness to the parties, the judgment must be
reversed and a new trial ordered only as to the part affected by the error.”).
Because the trial court’s dissolution of the partnership, determination of value,
partitioning of partnership assets, and credits or offsets awarded are all interwoven,
they are not separable without unfairness. See Downing v. Burns, 348 S.W.3d 415,
428–29 (Tex. App.—Houston [14th Dist.] 2011, no pet.) (remanding for new trial
on claims that were not separable without unfairness to the parties); see also TEX. R.
APP. P. 44.1(b). We thus reverse and remand those portions, but do not reverse or
remand the TTLA issues, the issues on ownership of Port Shamrock and Beaches
and their status as separate entities, or the attorney’s fees issues.
35
Conclusion
Having sustained Jafar’s final issue, we reverse the trial court’s judgment as
to the dissolution, determination of the value, and partitioning of Port Shamrock and
the land by allowing Mehboob to purchase Jafar’s interest. This includes considering
whether remediation costs and offsets should be applied toward Port Shamrock’s
and the land’s division. We reverse these portions of the judgment and remand them
to the trial court for further proceedings consistent with this opinion. See TEX. R.
APP. P. 44.1(b). We affirm the remainder of the trial court’s judgment.
Sarah Beth Landau
Justice
Panel consists of Chief Justice Adams and Justices Landau and Rivas-Molloy.
36