Court Opinion

ID: 2853707
Source: CourtListenerOpinion
Date Created: 2015-09-04 17:05:40.757183+00
Date Added: 2024-06-11T12:26:26.492447
License: Public Domain

COURT OF APPEALS
                            SECOND DISTRICT OF TEXAS
                                 FORT WORTH

                                  NO. 2-07-257-CV

R2 ENTERPRISES, INC.                                              APPELLANTS
AND TED REEVES
                                              V.

VERNON WHIPPLE                                                       APPELLEE

                                          ------------

            FROM THE 158TH DISTRICT COURT OF DENTON COUNTY

                                          ------------

                           MEMORANDUM OPINION 1

                                          ------------

      This case involves a dispute between one of the limited partners of a

limited partnership and the other limited partner and the general partner of the

limited partnership.       In one issue with multiple subparts, appellants R2

Enterprises, Inc., the general partner of Rivendell Luxury Homes, L.P., and Ted

Reeves, one of two limited partners, challenge the trial court’s judgment

granting appellee Vernon Whipple’s motion for judgment notwithstanding the

      1
          … See T EX. R. A PP. P. 47.4.
verdict (JNOV) and rendering a take-nothing judgment in Whipple’s favor. We

affirm.

                              Background Facts

      In February 2004, Whipple and Reeves decided to form a limited

partnership to build and sell homes in the Taylor Oaks Estates subdivision in

Double Oak, Denton County, Texas.          Whipple had been involved in the

construction business for many years, and Reeves was looking for an

investment opportunity.    Whipple and Reeves signed a limited partnership

agreement, which provided that each would own a 49.5% limited partnership

interest in Rivendell. The general partner, R2 Enterprises, was owned solely by

Reeves, and owned a one percent interest in Rivendell.

      Rivendell entered into an option contract with Taylor Estates Partners,

Ltd., owned by Ken Hodge, the developer of the subdivision, in which Rivendell

agreed to purchase four lots each year for three years, a total of twelve lots.

Rivendell purchased one of the lots and built a home on it. It also built a home

on another lot that it did not purchase from Taylor Estates Partners. After

Rivendell sold both homes and before it could purchase any of the remaining

lots under contract, Whipple withdrew approximately $89,000 from Rivendell’s

accounts; he testified at trial that he was finished working with Reeves and

wanted to dissolve Rivendell. Reeves, concerned that Rivendell was going to

                                       2
lose the earnest money that it had put down on the remaining eleven lots under

contract, entered into a deal with Hodge in which Reeves individually purchased

the three lots that Rivendell was obligated to buy that year with Hodge applying

the earnest money from the remaining eight lots to the purchase of the three

lots.   However, Hodge also required Reeves to sign a waiver of his and

Rivendell’s right to purchase the remaining eight lots under contract. Reeves

financed the purchase of the three lots with his own money. Although Reeves

never built on the lots, he eventually was able to sell them to a third party

builder.

        Whipple testified at trial that with the money he withdrew from

Rivendell’s accounts, he first paid off several subcontractors and vendors whom

Reeves had not paid for construction of one of the Rivendell houses; he then

invested the remaining money in a company called Restored Investments, LLC,

a rental property business. Restored Investments also purchased the eight

remaining lots from Taylor Estates Partners; Whipple built homes on those lots.

According to Whipple, none of the money from Rivendell’s accounts was used

in the purchase of and construction on the eight lots.

        Reeves and R2 Enterprises sued Whipple in March 2005, alleging causes

of action for breach of the limited partnership agreement, tortious interference

with existing and future contracts, conversion, breach of fiduciary duty, and

                                       3
breach of loyalty; they later added a claim for fraudulent transfer of the money

Whipple withdrew from Rivendell’s accounts.              They pled for actual and

exemplary damages, the imposition of a constructive trust, and attorney’s fees.

Whipple answered and counterclaimed for a partnership accounting, a derivative

action on behalf of Rivendell for breach of fiduciary duty, misappropriation and

conversion, judicial dissolution of Rivendell, trespass to try title, injunctive relief,

and attorney’s fees.

      A jury trial began on January 8, 2007. On the second day, the trial court

allowed a trial amendment adding Rivendell as a plaintiff for purposes of the

breach of fiduciary duty, tortious interference, and conversion claims. The jury

awarded Reeves $297,000 and R2 Enterprises $5,973 in future damages for

Whipple’s breach of the limited partnership agreement and the same amounts

for Whipple’s breach of fiduciary duty. The jury also found that Whipple had

breached a fiduciary duty to Rivendell, intentionally interfered with Rivendell’s

option contracts, and converted Rivendell’s property, but it also found that

Rivendell had not suffered any damages as a result.2 The jury also found that

Reeves and R2 Enterprises were entitled to $500,000 each as exemplary

      2
       … The trial court had rendered a directed verdict as to the constructive
trust, fraudulent transfer, tortious interference with future contracts, and
conversion claims.

                                           4
damages; however, although the jury found that Whipple acted with malice

toward Rivendell, it did not award Rivendell any exemplary damages. Finally,

the jury awarded Reeves and R2 Enterprises $75,000 in attorney’s fees. The

jury found against Whipple on all of his counterclaims.

      The trial court rendered a final judgment on March 14, 2007, which

incorporated the jury’s verdict in all respects, except that it ordered the

exemplary damages awards reduced to $150,000 for Reeves and $100,000 for

R2 Enterprises. Whipple filed a timely motion for new trial and motion for

JNOV.   In his motion for JNOV, Whipple argued, among other things, that

Reeves and R2 Enterprises were not entitled to the future damages awarded by

the jury—which were based on the projected cash distributions Reeves and R2

Enterprises would have received had Rivendell been able to develop the

remaining   eight   lots   under   the   option   contract   with   Taylor   Estates

Partners—because by signing the release, Reeves waived the right to purchase

those lots. Whipple also argued that Reeves and R2 Enterprises did not have

standing or capacity to recover damages, that only Rivendell had such standing,

and that as a matter of law Whipple owed no fiduciary duty to Reeves and R2

Enterprises. The trial court agreed with Whipple’s waiver argument, granted

Whipple’s motion for JNOV, vacated its March 14, 2007 judgment, and

                                          5
rendered a take nothing judgment in Whipple’s favor on all claims. Reeves and

R2 Enterprises appeal.

                              Issues Presented

      Reeves and R2 Enterprises present the following issue: “Did the trial

court err in granting the motion for JNOV and ordering the remittitur of

$750,000.00 in punitive damages?” This broad issue has multiple subparts,

including whether the trial court correctly concluded that Reeves had waived

any future damages for himself and R2 Enterprises by waiving Rivendell’s claim

to the remaining eight lots under the option contract, whether the JNOV was

proper based on Whipple’s standing and capacity claims, whether the jury

correctly determined that Whipple breached a fiduciary duty to Reeves and R2

Enterprises, and whether the trial court erred in granting a remittitur of the

exemplary damages awards. We address the standing issue first because it is

dispositive. 3

      3
       … Although Whipple challenged Reeves’s standing in his pleadings, he
did not raise R2 Enterprises’s standing until after trial. However, because
standing is a component of subject matter jurisdiction, it cannot be waived and
may be raised for the first time on appeal by the parties or the court. Austin
Nursing Ctr., Inc. v. Lovato, 171 S.W.3d 845, 849 (Tex. 2005); City of
Arlington v. Centerfolds, Inc., 232 S.W.3d 238, 244 (Tex. App.—Fort Worth
2007, pet. denied).

                                      6
                               Standard of Review

      A trial court may disregard a jury verdict and render JNOV if no evidence

supports the jury findings on issues necessary to liability or if a directed verdict

would have been proper. See T EX. R. C IV. P. 301; Tiller v. McLure, 121 S.W.3d
709, 713 (Tex. 2003); Fort Bend County Drainage Dist. v. Sbrusch, 818
S.W.2d 392, 394 (Tex. 1991). A directed verdict is proper only under limited

circumstances: (1) when the evidence conclusively establishes the right of the

movant to judgment or negates the right of the opponent; or (2) when the

evidence is insufficient to raise a material fact issue. Prudential Ins. Co. v. Fin.

Review Servs., Inc., 29 S.W.3d 74, 77 (Tex. 2000); Ray v. McFarland, 97
S.W.3d 728, 730 (Tex. App.—Fort Worth 2003, no pet.).

      To determine whether the trial court erred by rendering a JNOV, we view

the evidence in the light most favorable to the verdict under the well-settled

standards that govern legal sufficiency review. See Wal-Mart Stores, Inc. v.

Miller, 102 S.W.3d 706, 709 (Tex. 2003).           The standard for reviewing a

judgment notwithstanding the verdict, like all other motions rendering judgment

as a matter of law, requires a reviewing court to credit evidence favoring the

jury verdict if reasonable jurors could and disregard contrary evidence unless

reasonable jurors could not.     Cent. Ready Mix Concrete Co. v. Islas, 228
S.W.3d 649, 651 (Tex. 2007). If the trial court grants a motion for JNOV on

                                         7
the wrong ground, we must nevertheless affirm the judgment if any theory in

the motion could support the JNOV. Wallis v. United Servs. Auto. Ass'n, 2
S.W.3d 300, 302 (Tex. App.—San Antonio 1999, pet. denied); see also Guar.

County Mut. Ins. Co. v. Reyna, 709 S.W.2d 647, 648 (Tex. 1986) (holding

that lower court’s judgment must be upheld on any correct legal theory before

it, even if court gave an incorrect reason for the judgment).

              Whether Reeves and R2 Enterprises Have Standing

      A plaintiff must have standing to bring a lawsuit. Austin Nursing Ctr.,

Inc. v. Lovato, 171 S.W.3d 845, 848 (Tex. 2005); City of Arlington v.

Centerfolds, Inc., 232 S.W.3d 238, 244 (Tex. App.—Fort Worth 2007, pet.

denied). The issue of standing focuses on whether a party has a sufficient

relationship with the lawsuit so as to have a justiciable interest in its outcome.

Lovato, 171 S.W.3d at 848; City of Arlington, 232 S.W.3d at 244. Standing,

therefore, focuses on who may bring an action, M.D. Anderson Cancer Ctr. v.

Novak, 52 S.W.3d 704, 708 (Tex. 2001), and is concerned with whether the

claimant has a particularized injury distinct from that suffered by the general

public.   Bland ISD v. Blue, 34 S.W.3d 547, 555–56 (Tex. 2000); City of

Arlington, 232 S.W.3d at 244.

      Standing requires that there be a real controversy between the parties

that will actually be determined by the judicial declaration sought. Lovato, 171
8
S.W.3d at 849; City of Arlington, 232 S.W .3d at 244.            This means that

litigants must be “properly situated to be entitled to [a] judicial determination.”

Lovato, 171 S.W.3d at 849 (quoting 13 C HARLES A LAN W RIGHT, A RTHUR R.

M ILLER, & E DWARD H. C OOPER, F EDERAL P RACTICE AND P ROCEDURE: J URISDICTION 2 D

§ 3531, at 338–39 (2d ed.1984)). Without standing, a court lacks subject

matter jurisdiction to hear the case. Id.; Tex. Ass’n of Bus. v. Tex. Air Control

Bd., 852 S.W.2d 440, 443 (Tex. 1993); City of Arlington, 232 S.W.3d at 244.

      An individual stakeholder in a legal entity does not have a right to recover

personally for harms done to the legal entity. Wingate v. Hajdik, 795 S.W.2d
717, 719 (Tex. 1990); Nauslar v. Coors Brewing Co., 170 S.W.3d 242, 250

(Tex. App.—Dallas 2005, no pet.) (applying rule to limited partnership). A

stakeholder does not have standing to seek damages on a cause of action

belonging to an entity alone, such as when the damages are based on

diminution of the entity’s worth or the entity’s loss of profits. Nauslar, 170
S.W.3d at 250; Fredericksburg Indus., Inc. v. Franklin Int’l, Inc., 911 S.W.2d
518, 520–21 (Tex. App.—San Antonio 1995, writ denied). This is true even

when the damages sought by the individual stakeholder are based on the

diminished value of an ownership interest or loss of employee benefits.

Nauslar, 170 S.W.3d at 250; see Mendenhall v. Fleming Co., 504 F.2d 879,

880–81 (5th Cir. 1974). For instance, a partner has no individual, separate

                                        9
cause of action for losses suffered by reason of tortious interference with a

contract between the partnership and a third party: damages for loss in value

of the partnership interest or employment losses are subsumed in the

partnership’s causes of action. Nauslar, 170 S.W.3d at 250; see Cates v. Int’l

Tel. & Tel. Corp., 756 F.2d 1161, 1181–82 (5th Cir. 1985) (construing Texas

law).

Analysis

        Here, Reeves and R2 Enterprises sought and recovered damages based

on their shares of the projected profit from the development and sale of the

eight lots Rivendell was initially supposed to purchase under the Taylor Estates

Partners contract, in the amounts of their respective partnership interests:

49.5% for Reeves and 1% for R2 Enterprises.          Although Reeves and R2

Enterprises did plead and prove personal losses, those losses are indirect and

duplicative of Rivendell’s losses, being based solely on their partnership

interests. See Nauslar, 170 S.W.3d at 250–51; cf. Gonzalez v. Greyhound

Lines, Inc., 181 S.W.3d 386, 392–93 (Tex. App.—El Paso 2005, pet. denied)

(holding that individuals did not plead injuries separate and apart from their

interests in limited partnership); Johnson v. J. Hiram Moore, Ltd., 763 S.W.2d
496, 499 (Tex. App.—Austin 1988, writ denied) (holding that limited partners,

who were also tenants of building owned by limited partnership, were directly

                                      10
damaged by general and limited partner’s breach of fiduciary duty because they

had to personally pay construction fees that general and limited partner included

in construction contracts without notice to them). The direct injury was to

Rivendell, the party who actually contracted with Taylor Estates Partners and

the party that was expected to receive the profits from the development and

sale of lots purchased under that contract. Thus, any recovery based on future

earnings on lots under the contract with Taylor Estates Partners belongs to

Rivendell alone. See Nauslar, 170 S.W.3d at 251; cf. Dunnagan v. Watson,

204 S.W.3d 30, 37, 46–47 (Tex. App.—Fort Worth 2006, pet. denied)

(affirming judgment awarding damages to limited partnership based on limited

partner’s breach of fiduciary duty). As the party with the primary legal right to

recover, Rivendell is the exclusive party with a justiciable interest; therefore,

Reeves and R2 Enterprises did not have standing to recover the future damages

awarded by the jury, and the trial court did not err by granting the JNOV and

entering a take nothing judgment in Whipple’s favor. 4

      4
       … Although the jury found in Rivendell’s favor as to breach of fiduciary
duty and interference with the option contract, it failed to award any damages
to Rivendell based on those findings.

                                       11
                                Conclusion

     Having determined that the trial court’s JNOV was proper on standing

grounds, we overrule Reeves and R2 Enterprises’s issue and affirm the trial

court’s judgment.

                                              TERRIE LIVINGSTON
                                              JUSTICE

PANEL A:   CAYCE, C.J.; LIVINGSTON and HOLMAN, JJ.

DELIVERED: June 26, 2008

                                    12