Vernco Construction, Inc. v. David Nelson, Individually and D/B/A Collective Contracting, a Sole Proprietorship And E.E. Hood & Sons, Inc.

IN THE SUPREME COURT OF TEXAS
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NO . 13-0750
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VERNCO CONSTRUCTION, INC., PETITIONER,
v.
DAVID NELSON, INDIVIDUALLY AND D/B/A COLLECTIVE CONTRACTING, A SOLE
PROPRIETORSHIP; AND E.E. HOOD & SONS, INC., RESPONDENTS
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ON PETITION FOR REVIEW FROM THE
COURT OF APPEALS FOR THE EIGHTH DISTRICT OF TEXAS
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PER CURIAM
In this complex commercial dispute, Vernco Construction, Inc., obtained a multi-million
dollar breach-of-contract and tort judgment against E.E. Hood & Sons, Inc., and David Nelson,
individually and d/b/a Collective Contracting (collectively, the Respondents). The Respondents
appealed the judgment on various grounds, but the only issue before this Court is whether Vernco
lacked standing to maintain the lawsuit because it assigned the claims to its commercial lender either
before or after filing the lawsuit. The trial court found that Vernco had standing, but the court of
appeals reversed, vacated the judgment, and dismissed for want of jurisdiction. 406 S.W.3d 374,
380 (Tex. App.—El Paso 2013). The court of appeals based its analysis on the terms of a
forbearance agreement between Vernco and its lender but declined to consider an addendum to that
agreement, erroneously stating that the document is “not a part of the record on appeal” and “was
not before the trial court.” Id. at 380. Because the court of appeals failed to consider pertinent
evidence before the trial court, we reverse and remand the cause to that court for reconsideration.
The standing issue involves construction of the forbearance agreement Vernco executed with
its commercial lender and an addendum to that agreement. After filing the underlying lawsuit,
Vernco; its president, Jack Claflin, as Guarantor; and its lender, Jefferson State Bank, executed an
agreement in which the Bank promised to abstain from foreclosing on Vernco’s defaulted promissory
notes. Among other things, the forbearance agreement states that “pursuant to applicable law, [the
Bank] is the owner of all of [Vernco’s] receivables (and proceeds therefrom), including . . . the
receivables and claims (including commercial tort claims)” in the underlying litigation. When the
forbearance agreement was produced to the Respondents, they jointly filed a motion to dismiss for
lack of jurisdiction, alleging that Vernco had no standing to pursue the litigation because it had
assigned the claims to the Bank in the forbearance agreement. They requested and scheduled an
evidentiary hearing on the dismissal motion.
In response, Vernco asserted that the Respondents’ standing argument failed as a matter of
fact and law. Vernco alleged that, as a matter of fact, no foreclosure had occurred and the purpose
of the forbearance agreement was to establish precise terms under which Vernco could avoid
foreclosure of the lawsuit, as a corporate asset. Vernco also submitted an addendum to the
forbearance agreement. The addendum, executed in response to the motion to dismiss, explains:
[A]lthough there are other terms in the original Forbearance clearly indicating the parties’
intent for [the Bank] to forbear from acquiring legal ownership in the claims set forth in
the Lawsuit, to the extent there is any recital in the Forbearance Agreement that may be
read by third parties as indicating otherwise, the parties wish to clarify herein that they
never intended that [the Bank] ever acquired actual legal ownership of the claims in the
Lawsuit, and the parties agree that [the Bank] has never acquired legal ownership of the
claims in the Lawsuit and that [Vernco] remains the current owner of the claims being
prosecuted in the Lawsuit[.]
The addendum was authenticated by affidavits executed by signatories to both the forbearance
agreement and the addendum. Although disputing that the claims had been assigned, Vernco
alternatively alleged standing to maintain the lawsuit as the assignor in a representative capacity.
2
Pursuant to the Bexar County central docket system, the motion to dismiss was assigned to
a judge for disposition. After what was evidently a lengthy pretrial hearing, the judge expressly
found that Vernco had standing and that the trial court had subject-matter jurisdiction. There is no
reporter’s record of the hearing on the motion to dismiss.
Shortly thereafter, the case was assigned to a different judge for a jury trial on the merits,
which occurred over several weeks during the course of the following two-month period. On various
occasions before and during the trial, the Respondents again urged that Vernco lacked standing based
on the forbearance agreement. The trial judge repeatedly declined to reconsider the prior ruling. The
trial court further denied the Respondents’ requests to introduce the forbearance agreement at trial
or to question witnesses about it, having previously explained, “I’m not going to hear [your
jurisdictional issue]. [The pretrial judge has] already given you a full day on that and we’re not
going to hear that.” The Respondents therefore offered the forbearance agreement to show Claflin’s
bias and to establish that the Bank owned the claims in the lawsuit. See TEX . R. EVID . 103.
Claflin authenticated the forbearance agreement in the offer of proof and testified that the
agreement had been supplemented but was still in effect as supplemented. In response to the
Respondents’ offer, Vernco reiterated that the issue had already been resolved before trial and argued
that admitting the forbearance agreement would “reopen all kinds of things in terms of additional
evidence that we’d have to put on if [the agreement] was allowed to be tendered.” Although
Vernco’s counsel requested that the addendum be included under the rule of optional completeness,
neither side introduced the addendum as part of an offer of proof. The trial court overruled the
Respondents’ offer of proof.
After the trial court rendered judgment of more than $6 million in Vernco’s favor on
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favorable jury findings, the Respondents appealed, raising numerous complaints and challenging the
trial court’s denial of their motion to dismiss for lack of standing. The court of appeals, relying
solely on the four corners of the forbearance agreement, concluded that Vernco assigned all of its
interest in the claims to the Bank and therefore had no standing to maintain an action for damages
on those claims. 406 S.W.3d at 380. The court therefore vacated the trial-court judgment and
dismissed the case for want of jurisdiction. Id.
The court refused to consider the addendum as part of the standing analysis because it had
not been included in an offer of proof during the trial on the merits. Id. The court further intimated
that the addendum was not in the appellate record at all and had merely been appended to Vernco’s
appellate brief. Id. (declaring that the addendum “was not before the trial court and is not before this
Court” because “Vernco did not make an offer of proof of the [addendum] to the trial court and the
[addendum] was not admitted into evidence but is merely appended to Vernco’s brief”). The court
further rejected Vernco’s claim to possess standing in a representative capacity, noting the absence
of evidence that the Bank had authorized Vernco to pursue the claims against the Respondents on
its behalf. Id. The court never mentioned the hearing on the motion to dismiss or the existence of
the addendum as an exhibit to Vernco’s response to the motion to dismiss.
In declining to consider the addendum, the court of appeals appears to have overlooked the
addendum in the record and misunderstood when the substantive jurisdictional ruling occurred.
According to the court, “[t]he trial court ‘denied the bill,’ and thereafter, in its written order, denied
the motion to dismiss and found Vernco had standing and the trial court had subject[-]matter
jurisdiction.” 406 S.W.3d at 377. In fact, the trial court ruled on the motion to dismiss following
a pretrial hearing, and the ruling was not reconsidered. There was no substantive ruling on the merits
4
of the standing issue after the pretrial judge’s November 9, 2010 order denying the Respondents’
motion to dismiss.
The standing inquiry “focuses on the question of who may bring an action.” Patterson v.
Planned Parenthood, 971 S.W.2d 439, 442 (Tex. 1998). Courts lack subject-matter jurisdiction to
adjudicate disputes initiated by parties lacking standing. The M.D. Anderson Cancer Center v.
Novak, 52 S.W.3d 704, 708 (Tex. 2001); Tex. Ass’n of Business v. Tex. Air Control Bd., 852 S.W.2d
440, 443-44 (Tex. 1993). Whether a court has subject-matter jurisdiction is a question of law. Tex.
Dep’t of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 226 (Tex. 2004).
“Because standing is a component of subject[-]matter jurisdiction, we consider [standing
issues] as we would a plea to the jurisdiction.” Brown v. Todd, 53 S.W.3d 297, 305 n.3 (Tex. 2001).
The trial court can rule on a jurisdictional plea by submission or after an evidentiary hearing: “[A]
court deciding a plea to the jurisdiction is not required to look solely to the pleadings but may
consider evidence and must do so when necessary to resolve the jurisdictional issues.” Bland Indep.
School Dist. v. Blue, 34 S.W.3d 547, 555 (Tex. 2000) (trial court determined jurisdictional issue after
an evidentiary hearing at which witnesses testified); see State v. Lueck, 290 S.W.3d 876, 884 (Tex.
2009) (jurisdictional challenge may be asserted in a motion for summary judgment). When a
jurisdictional issue is not intertwined with the merits of the claims, which is the case here, disputed
fact issues are resolved by the court, not the jury.1 E.g., Bland, 34 S.W.3d at 554-55; Univ. of Tex.
1
The Respondents contend that the standing issue may also properly be characterized as a lack of capacity.
Because they generally challenged Vernco’s capacity as a party in a verified denial, they contend that Vernco was
required to offer proof of capacity at trial and obtain favorable jury findings, but failed to do so. See T EX . R. C IV . P. 93.
“Standing,” however, is distinct from “capacity.” See Nootsie, Ltd. v. Williamson Cnty Appraisal Dist., 925 S.W .3d 659,
661 (Tex. 1996) (“A plaintiff has standing when it is personally aggrieved, regardless of whether it is acting with legal
authority; a party has capacity when it has the legal authority to act, regardless of whether it has a justiciable interest in
the controversy.”). Because the Respondents did not allege lack of capacity as an error on appeal, the issue has been
waived. See Coastal Liquids Transp., L.P. v. Harris Cnty Appraisal Dist., 46 S.W .3d 880, 884 (Tex. 2001) (“[W ]hile
standing as an issue cannot be waived, capacity can be.”); see also Key Operating & Equip., Inc. v. Hegar, 435 S.W .3d
5
v. Poindexter, 306 S.W.3d 798, 806-07 (Tex. App.—Austin 2009, no pet.); see Miranda, 133
S.W.3d at 226 (quoting Cameron v. Children’s Hosp. Med. Ctr., 131 F.3d 1167, 1170 (6th Cir.
1997), for the proposition that “whether a district court has subject[-]matter jurisdiction is a question
for the court, not a jury, to decide, even if the determination requires making factual findings, unless
the jurisdictional issue is inextricably bound to the merits of the case”). The jurisdictional
determination should be made as soon as practicable because a court should not proceed with a case
over which it has no jurisdiction; however, the court has discretion to defer the decision until the
case has been more fully developed. Miranda, 133 S.W.3d at 227.
The Respondents filed a pretrial motion to dismiss for want of jurisdiction, alleging the
absence of standing. The pleading and response were supported by evidence, which included both
the forbearance agreement and the addendum, among other items. The Respondents requested an
evidentiary hearing and gave notice that the hearing had been set. The order denying the motion
states that, as requested, “All Parties appeared by and through counsel, and the Court heard evidence
and argument.” After hearing the evidence and argument, the trial court expressly found that Vernco
had standing and concluded that the court had subject-matter jurisdiction.
The judge presiding over the trial-court proceedings had discretion to consider the
jurisdictional matter in a pretrial hearing rather than awaiting further development of the case. Id.
Furthermore, when the successor judge was assigned to preside over the jury trial, she had discretion
to reconsider the pretrial judge’s interlocutory ruling but was not required to do so. Cf. Velez v.
794, 797 (Tex. 2014) (“An issue raised in [the Supreme Court] must have been assigned as error in the court of appeals
if it originated in the trial court.”); Bunton v. Bentley, 153 S.W .3d 50, 53 (Tex. 2004) (observing that, “ordinarily, an
appellant waives any complaint about the trial court’s judgment that is not raised in the court of appeals”).
6
DeLara, 905 S.W.2d 43, 45 (Tex. App.—San Antonio 1995, no writ) (under Bexar County’s central
docket system “the jurisdiction to reconsider an interlocutory ruling is vested in the court rather than
the individual judge, and since one district judge may hold court for another district judge,” the
successor judge has the right to reconsider a previously entered interlocutory order). After reviewing
the pertinent pleadings, the trial judge declined to reconsider the ruling.2 Accordingly, we must
review the evidence before the trial court at the motion-to-dismiss hearing in considering the trial
court’s determination that, as a legal and factual matter, Vernco has standing. Contrary to the court
of appeals’ suggestion otherwise, we are not limited to reviewing evidence provided in an offer of
proof at the trial on the merits.
This matter presents two issues concerning the contents of the appellate record. First, the
court of appeals erroneously concluded that the addendum was not before the trial court and not part
of the appellate record. Both the forbearance agreement and the addendum are included with the
pleadings germane to the motion to dismiss, which were before the pretrial judge when he
determined the standing issue. The court of appeals should have considered all the evidence
presented for the pretrial judge’s consideration.
The second issue is that there is no record of the plea to the jurisdiction hearing, which may
or may not have been evidentiary. “If all the evidence is filed with the clerk and only arguments by
counsel are presented in open court, the appeal should be decided on the clerk’s record alone.”
Michiana Easy Livin’ Country, Inc. v. Holten, 168 S.W.3d 777, 782 (Tex. 2005). A reporter’s record
2
The Respondents have not alleged that either judge abused their discretion. The circumstances would not
support such a claim in any event. The hearing on the motion to dismiss was held about a month before the trial on the
merits began, and nothing in the record suggests that further development of the evidence was essential. In fact, the
record reflects that the Respondents both requested and set the initial hearing date, and they persistently relied on the
forbearance agreement as the grounds for their jurisdictional challenge.
7
is required, however, to preserve evidentiary complaints for appellate review when evidence is
introduced in open court. Id. at 782, 783. Absent a specific indication or assertion to the contrary,
we generally presume that pretrial hearings are nonevidentiary. Id. at 782-83. But, “[i]f the
proceeding’s nature, the trial court’s order, the party’s briefs, or other indications show that an
evidentiary hearing took place in open court, then a complaining party must present a record of that
hearing to establish harmful error.” Id.
The record here suggests that the pretrial hearing regarding Vernco’s standing was
evidentiary. In the motion to dismiss, the Respondents requested an evidentiary hearing and asserted
that lack of jurisdiction would be established by “the evidence submitted with [the] motion, and the
testimony that will be offered at the hearing.” Although the forbearance agreement and addendum
might be construed as a matter of law, Vernco’s response asserted both legal and factual matters in
opposition to the motion to dismiss, including whether a foreclosure occurred and whether Vernco
was authorized to act as the Bank’s representative. The pretrial judge’s order further states that he
“heard evidence and argument” at the dismissal hearing.3 Elsewhere in the record, there are
statements to the effect that the pretrial judge devoted the better a part of a day to the hearing, which
implies that the hearing encompassed more than counsel’s argument regarding evidence already on
file. On the other hand, the parties have not mentioned any void in the record or discussed how its
absence might impact the standing inquiry. Cf. Schafer v. Conner, 813 S.W.2d 154, 155 (Tex. 1991)
3
The handwritten order states:
On this 9th day of November 2009 came on to be heard Motions to Dismiss from [the
Respondents] . . . . All Parties appeared by and through counsel, and the Court heard evidence and
argument; After hearing the evidence and argument, the Court finds that the Motions should be denied;
It is, therefore, Ordered That the Motions to Dismiss are Denied.
The Court Finds that the Court has jurisdiction to proceed and that Plaintiff has standing.
8
(an appellant challenging sufficiency of the evidence to support the trial court’s judgment cannot
meet that burden without presenting a sufficient record on appeal because it is presumed that the
omitted portions of the record support the trial court’s judgment); Guthrie v. Nat’l Homes Corp., 394
S.W.2d 494, 495 (Tex. 1965) (absent a reporter’s record, the court must presume the evidence at trial
supported the jury’s finding). At this point, we could only speculate as to the nature of the hearing.
Clearly, however, the addendum is part of the clerk’s record before the trial court and
certainly must be considered if the matter was determined on the pleadings. If evidence was
introduced at the motion-to-dismiss hearing, no reporter’s record of that hearing has been included
with the appellate record.4 Because the court of appeals did not consider evidence in the relevant
portion of the appellate record, we reverse the court’s judgment and remand this case to that court
for further proceedings, including reconsideration of the standing issue. See TEX . R. APP . P. 59.1.
OPINION DELIVERED: April 24, 2015
4
Our review of the trial court’s docket sheet suggests that the hearing transcript was not omitted from the
appellate record, but simply does not exist. For nonevidentiary hearings, however, a reporter’s record is superfluous.
Michiana Easy Livin’ Country, Inc. v. Holten, 168 S.W .3d 777, 782 (Tex. 2005).
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