Court Opinion

ID: 2987555
Source: CourtListenerOpinion
Date Created: 2015-09-23 00:52:09.31533+00
Date Added: 2024-06-11T18:01:09.954601
License: Public Domain

Affirmed in Part, Reversed and Remanded in Part, and Opinion filed March
5, 2013.

                                      In The

                    Fourteenth Court of Appeals

                              NO. 14-12-00377-CV

         SOUTHERN MANAGEMENT SERVICES, INC., Appellant

                                        V.

                      SM ENERGY COMPANY, Appellee

                    On Appeal from the 157th District Court
                            Harris County, Texas
                      Trial Court Cause No. 2011-21747

                                   OPINION

      Southern Management Services, Inc. (―Southern‖) appeals a summary
judgment granted in favor of SM Energy Company (―SM‖). Southern argues that
the judgment is improper because SM did not conclusively establish the elements
of its claims on sworn account and for breach of contract. Southern also argues that
the judgment erroneously disposes of third-party defendants. We affirm in part,
and reverse and remand in part.
                                  BACKGROUND

      This dispute focuses on costs allegedly owed for operating certain oil and
gas leases in Nacogdoches County. In 2005, EnCana Oil & Gas (USA) Inc.
(―EnCana‖) and Goodrich Petroleum Corporation (―Goodrich‖) executed a Joint
Operating Agreement (―JOA‖) to explore and develop the leases at issue. In 2008,
EnCana and Goodrich amended the JOA and designated SM’s predecessor-in-
interest as operator. EnCana subsequently assigned its interests under the JOA to
Southern, making Southern a thirty-percent working interest owner in the leases.

      In 2010, SM delivered Southern a series of letters, offering Southern its
proportionate share in the renewal of leases covered by the JOA. Cost sheets were
attached to the letters explaining Southern’s share. Southern signed and returned
each letter, electing to participate in each of the renewals. Despite these elections,
Southern did not pay its proportionate share of the costs.

      In April 2011, SM sued to recover on a sworn account and for breach of
contract. The sworn account was supported by the affidavit of David Dubiel, SM’s
regional land manager, and by an itemized record of invoices, charges, and offsets.
In his affidavit, Dubiel attested that the total amount due and owing from Southern
was $536,690.35, not including interest and attorney’s fees. Southern answered
with an unsworn general denial.

      SM moved for summary judgment in September 2011. Apparently realizing
the procedural consequences of its original pleading, Southern filed an amended
answer and verified denial of SM’s claimed account. Southern also filed a response
to SM’s motion, contesting summary judgment for several reasons. Southern
argued, for instance, that SM had not proved its breach of contract claim because,
having failed to attach the JOA to any of its pleadings, SM had not established the
existence of a valid contract. Southern also argued that SM could not recover on a
                                          2
sworn account because the claimed expenses were neither goods nor services. To
assert a fact issue, Southern also attached an affidavit from David Disiere, its
corporate secretary, denying the correctness of SM’s account. Finally, in October
2011, Southern filed a third-party petition against EnCana and Goodrich, claiming
that those parties might be liable for part of the amounts sought by SM.

      SM filed an amended petition in December 2011, which updated many
aspects of the sworn account and included the JOA as an exhibit. The amended
account was supported by the affidavit of a different representative, Greg Little,
who attested that Southern owed SM $486,747.23. The smaller balance was
attributable in part to seven months of new revenue, which SM had withheld
pursuant to a lien. The accounting also reflected other changes, including the
addition of more than a dozen unpaid invoices issued since the date of the original
petition, and the revision of charges for at least two invoices listed under the first
accounting.

      SM filed an amended motion for summary judgment on the same day as its
amended petition. In its amended summary judgment response, Southern argued
that SM’s claim for breach of contract still failed because SM could not show a
valid, enforceable contract in which Southern and SM were signatories. Southern
also asserted that there was a genuine fact issue regarding its proportionate share of
the leases. Southern repeated its argument regarding the sworn account, contending
that judgment could not be granted where an account was not based on the
provision of goods or services. Southern also challenged the sufficiency of the
accounting, arguing that SM had not attached a systematic record of the
transactions consistent with the rules of civil procedure.

                                          3
      The trial court granted judgment in favor of SM. The judgment was
denominated as final and expressly disposed of ―all parties.‖ From this judgment,
Southern now appeals.

                                     ANALYSIS

      The parties have organized their briefs around a discussion of SM’s two
―claims:‖ sworn account and breach of contract. As an initial matter, we note that a
suit on a sworn account is not an independent cause of action. See Rizk v. Fin.
Guardian Ins. Agency, Inc., 584 S.W.2d 860, 862 (Tex. 1979). It is based instead
on Rule 185, which affords a procedural right of recovery in certain contract
disputes. See Tex. R. Civ. P. 185. The rule provides that when an action is based
on an open account in which a systematic record has been kept, the account shall
be taken as prima facie evidence of the claim if it is supported by affidavit. Id. The
affidavit must specifically state that the ―claim is, within the knowledge of [the]
affiant, just and true, that it is due, and that all just and lawful offsets, payments
and credits have been allowed.‖ Id. When prima facie evidence of the claim is
established, the movant is entitled to summary disposition of the case. See Powers
v. Adams, 2 S.W.3d 496, 498 (Tex. App.—Houston [14th Dist.] 1999, no pet.).
However, Rule 185 further provides that the party resisting the claim may counter
the evidentiary effect of the account by filing a written denial under oath. See Tex.
R. Civ. 185. In such cases, a sworn denial forces the movant to put on proof of the
claim. See Rizk, 584 S.W.2d at 862. A party who does not file a sworn denial may
not dispute either the receipt of the items or services or the correctness of the stated
charges. See id.

      SM argues that it is entitled to judgment as a matter of law because Southern
did not file a sworn denial of its amended account. Southern counters that the
amended account is fundamentally flawed. Citing other procedural reasons,

                                           4
Southern also argues that the absence of a second sworn denial is not dispositive.
In resolving these disputes, we begin our analysis with an examination of SM’s
stated account. We consider such issues as whether the account is based on the
provision of goods or services, whether such provision is supported by evidence of
a contract, and whether the account sufficiently states a systematic record of the
transactions. We then examine the impact of Southern’s responses to determine
whether SM was entitled to judgment on its sworn account.

      Our review of the trial court’s summary judgment is de novo. Ferguson v.
Bldg. Materials Corp. of Am., 295 S.W.3d 642, 644 (Tex. 2009) (per curiam); Tex.
Mun. Power Agency v. Pub. Util. Comm’n of Tex., 253 S.W.3d 184, 192 (Tex.
2007). With a traditional motion for summary judgment, the movant bears the
burden of showing that there is no genuine issue of material fact and that she is
entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c); Mann Frankfort
Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). We take
as true all evidence favorable to the nonmovant, indulging every reasonable
inference and resolving any doubts in the nonmovant’s favor. Valence Operating
Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). The nonmovant has no burden to
respond to a traditional motion for summary judgment unless the movant
conclusively establishes each element of her cause of action or defense as a matter
of law. Rhône-Poulenc, Inc. v. Steel, 997 S.W.2d 217, 222–23 (Tex. 1999).

A.    The account is based on a contract for services.

      According to Little’s affidavit, SM sought recovery against Southern for
Southern’s ―proportionate share in the leases and its proportionate share in
development and operating costs.‖ Southern argues that SM is not entitled to this
recovery because there is no evidence of a contract making Southern liable for
such costs. In support of this argument, Southern relies on the fact that it is not a

                                          5
signatory to the JOA and SM is not a signatory to the assignment. Southern also
complains that, to whatever extent the lease renewals evidence a contract, these
renewals are deficient because they do not define Southern’s ―proportionate share,‖
how much that share costs, or the terms of payment.

      Under the terms of the JOA, each party is liable for its ―proportionate share
of the costs of developing and operating‖ the leasehold interests. The amendments
to the JOA reflect that EnCana held a thirty-percent working interest in one
leasehold, up to a certain depth beneath the surface. EnCana assigned that interest
to Southern subject to Southern’s express consent to be bound by and to bear all
costs and expenses arising out of that leasehold. Southern agreed to bear the costs
of renewal when it elected to participate in the renewal and returned its elections to
SM. Its terms of payment are governed by the JOA. We reject Southern’s argument
that there is no evidence of a valid, enforceable contract.

      Southern next argues that SM cannot recover on the sworn account because
the account is not for the provision of goods or services. See Tex. R. Civ. P. 185
(indicating that an account may be for goods or for personal service rendered).
Citing SM’s own summary judgment evidence, Southern contends that the amount
owed under the account is limited to just Southern’s ―proportionate share in the
leases.‖ Southern insists that the sworn account must fail because leases are real
property interests, and not goods or services.

      As previously mentioned, SM alleged that the account represented
Southern’s ―proportionate share in the leases and its proportionate share in
development and operating costs‖ (emphasis added). The supreme court has held
that a sworn account may be based on the costs for developing and operating oil
and gas interests. See Vance v. Holloway, 689 S.W.2d 403, 403–04 (Tex. 1985)
(per curiam) (holding that operator was entitled to recover operating expenses on

                                           6
sworn account where interest holder failed to file a sworn denial). Accordingly, the
costs alleged by SM are costs for services recoverable under Rule 185.

B.     The account is sufficiently stated.

       Attached to Little’s affidavit is a lengthy accounting of SM’s transactions
with Southern. The accounting lists each invoice issued to Southern by its
identifying number. It also lists the dates of the invoices, the amounts charged, and
other payment information. Southern argues that this accounting is deficient for
two reasons: it contains no statement of exactly what services were provided, and
the accounting denotes ―Source‖ information with unexplained abbreviations.
Southern contends that because the account contains no ―specifics or details‖ as to
how the amounts alleged were calculated, SM failed to strictly comply with Rule
185.

       Southern relies mostly on older authority which required that an account
state each item with reasonable particularity. In 1983, however, Rule 185 was
amended by order to expressly provide that sworn accounts should be subject to
ordinary rules of pleadings and practice. In its current form, the rule states that
―[n]o particularization or description of the nature of the component parts of the
account or claim is necessary unless the trial court sustains special exceptions to
the pleadings.‖ Tex. R. Civ. P. 185.

       Southern specially excepted on the basis that SM’s ―claim is not one for the
provision of goods or personal services.‖ It did not except further for lack of
specificity. SM did not attach copies of the invoices to the sworn account, but
Southern could have demanded them had it so desired. In the absence of a special
exception, we hold that the account was not deficient for purposes of Rule 185. See
Enernational Corp. v. Exploitation Eng’rs, Inc., 705 S.W.2d 749, 751 (Tex.
App.—Houston [1st Dist.] 1986, writ ref’d n.r.e); see also Larcon Petroleum, Inc.
                                         7
v. Autotronic Sys., Inc., 576 S.W.2d 873, 876 (Tex. App.—Houston [14th Dist.]
1979, no writ) (holding that statement was sufficient under old rule where, in
addition to listing the nature of each item charged, the statement contained just the
invoice date, the ticket number, the amount charged, the amount paid, and the
remaining balance).

C.    SM is entitled to judgment as a matter of law.

      A plaintiff who complies with the requirements of Rule 185 is entitled to
judgment as a matter of law unless the defendant files a verified denial. See Tex. R.
Civ. P. 185; Tandan v. Affordable Power, L.P., 377 S.W.3d 889, 894 (Tex. App.—
Houston [14th Dist.] 2012, no pet.). It is undisputed that Southern filed a verified
denial of SM’s original account, but not of SM’s amended account. Because the
amended account was substantially different, we hold that Southern’s sworn denial
of the original account was ineffective to counter the evidentiary effect of the
amended account.

      Under Rule 92, when a defendant has pleaded a general denial and the denial
is ―not required to be denied under oath,‖ the denial is presumed to extend to all
matters subsequently alleged if the plaintiff amends her pleadings. See Tex. R. Civ.
P. 92. In the context of a sworn account, however, a written denial is not effective
unless it is filed under oath. See Tex. R. Civ. P. 93(10); Tex. R. Civ. P. 185. The
rules of procedure do not establish a similar presumption that a sworn denial
extends to new matters alleged in an amended pleading. This omission suggests to
us that a denial requiring verification must generally be filed again if the plaintiff
amends the pleadings.

      The First Court of Appeals reached the same conclusion in another case
involving a sworn account. In Fortinberry v. Freeway Lumber Co., a merchant
sued two patrons for the unpaid costs of furnishing building materials. 453 S.W.2d
8
849, 850 (Tex. Civ. App.—Houston [1st Dist.] 1970, no writ). After the patrons
filed a sworn denial of the account, the merchant amended its pleadings to name
the patrons’ legal partnership as a party defendant. The amended account was also
revised to include an additional invoice. The account balance remained unchanged,
however, apparently because the earlier invoice had been paid. The patrons did not
file a second sworn denial, and the trial court granted judgment in favor of the
merchant.

      On appeal, the primary question was whether the sworn denial of the
original account had any effect on the amended account. The court of appeals held
that the sworn denial was effective to preclude summary disposition of the case
because, although amended in name, the account remained unchanged. The court
reasoned further, ―It is our belief that if the account in the plaintiff’s amended
petition had substantially differed from that made a part of its original petition, [the
patrons’] denial of the original account, even though complying with the
requirements of Rule 185, would not have been sufficient to destroy the probative
force of the amended account.‖ Id. at 852. Accordingly, when an amended account
substantially differs from the original account, the party resisting the account must
file another sworn denial. See id.; cf. Moriarty v. Williams, 752 S.W.2d 610, 612
(Tex. App.—El Paso 1988, writ denied) (holding that motion to transfer venue
should not have been granted where nonmovant amended pleadings to allege new
causes of action and movant failed to specifically deny new venue facts).

      In this case, SM’s amended account was substantially different from its
original account. The amended account revised the charges for two invoices listed
on the original account. It also included new charges and credits that had accrued
since the date of the original petition. Altogether, the balances differed by almost
fifty thousand dollars. Persuaded by Fortinberry, we hold that Southern was

                                           9
required to deny the amended account under oath and its failure to do so entitles
SM to judgment as a matter of law.

         Southern raises a procedural challenge to the summary judgment, focusing
on the theories expressly alleged in SM’s amended motion for summary judgment.
Because the amended motion was filed on the same day as the amended petition,
SM had no basis for arguing that judgment should be granted for lack of a second
sworn denial. At that time, such an allegation would have been premature. SM did
not raise the fact of the absent sworn denial until its reply to Southern’s amended
summary judgment response. On appeal, Southern argues that summary judgment
was inappropriate because judgment may not be granted on an argument raised in a
reply.

         We conclude that there is no error. Under Rule 185, the plaintiff establishes
prima facie evidence of the account by attaching an affidavit showing that a
systematic record of the account has been kept. The burden then shifts to the party
resisting the account to file a written denial under oath. The absence of a sworn
denial is not an element the plaintiff is required to prove. See Airborne Freight
Corp. v. CRB Mktg., Inc., 566 S.W.2d 573, 575 (Tex. 1978) (per curiam) (holding
that an ―unsworn denial did not place in issue any element of the plaintiff’s cause
of action‖). Accordingly, SM was not required to explicitly argue that judgment
should be granted because Southern had not filed a second sworn denial.

         Finally, we note that the outcome of this case would have been the same
even if the probative force of SM’s account had somehow been countered. A
movant can still recover a debt by offering proof of the claim. See Rizk, 584
S.W.2d at 862. In this case, SM attached Little’s affidavit and all of the exhibits
supporting the sworn account to its amended motion for summary judgment.
Because SM’s summary judgment evidence established proof of the debt, it was

                                           10
incumbent upon Southern to raise some issue of material fact. Southern failed to
meet its burden. The only evidence attached to Southern’s amended summary
judgment response is the affidavit from David Disiere, which predated the
amended petition by nearly three months. This evidence only contested the
correctness of the original account, not the amended account. The original account
was no longer an issue, however, because SM sought judgment on the amended
account instead. Therefore, even if SM could not recover under the procedures of
Rule 185, SM was still entitled to judgment as a matter of law because it
established proof of its claim and the proof was uncontested.

D.    The judgment erroneously disposes of third-party defendants.

      SM moved for judgment exclusively on its claims against Southern; its
motion did not address Southern’s third-party claims against EnCana and
Goodrich. By the time the motion had been set for hearing, the trial court had
granted Southern leave to add EnCana and Goodrich as third-party defendants.
Prior to the hearing, EnCana and Goodrich had been served with process, but the
returns of service were not on file with the court. Also, neither third-party
defendant had filed an original answer. Yet when the trial court granted SM’s
summary judgment, it declared, ―This judgment is final, disposes of all parties, and
is appealable.‖ Southern now complains that the trial court’s judgment erroneously
disposed of its claims against EnCana and Goodrich.

      Unless otherwise authorized, an appeal may be taken only from a final
judgment or order. See Tex. Civ. Prac. & Rem. Code §§ 51.012, 51.014. A
judgment issued without a conventional trial is final for purposes of appeal if and
only if either it actually disposes of all claims and parties then before the court,
regardless of its language, or it states with unmistakable clarity that it is a final
judgment as to all claims and all parties. See Lehmann v. Har-Con Corp., 39

                                         11
S.W.3d 191, 192–93 (Tex. 2001). Because a final judgment does not have to be in
any particular form, deciding whether a judicial decree is a final judgment must be
determined from its language and the record in the case. Id. at 195. If the order
does not dispose of every pending claim but is ―clearly and unequivocally‖ final on
its face, the order is not interlocutory merely because the record does not afford a
legal basis for the adjudication. Id. at 206. Rather, the order is final but erroneous.
―In those circumstances, the order must be appealed and reversed.‖ Id.

      The claims against EnCana and Goodrich were not addressed in SM’s
motion for summary judgment. Yet the trial court’s judgment contains clear
language of finality. Disposition of the third-party claims was error. See Ritzell v.
Espeche, 87 S.W.3d 536, 538 (Tex. 2002) (per curiam); Lehmann, 39 S.W.3d at
206. Accordingly, we sustain Southern’s last issue and reverse the trial court’s
judgment for an adjudication of its third-party claims.

                                  CONCLUSION

      The trial court’s judgment is affirmed to the extent it grants SM recovery on
the sworn account and breach of contract. Because the judgment erroneously
disposed of other claims that have not been adjudicated, the trial court’s judgment
is reversed and those claims are remanded for additional proceedings consistent
with this opinion.

                                        /s/    Adele Hedges
                                               Chief Justice

Panel consists of Chief Justice Hedges and Justices Boyce and Donovan.

                                          12