Court Opinion

ID: 3095823
Source: CourtListenerOpinion
Date Created: 2015-10-16 04:34:00.101045+00
Date Added: 2024-06-11T11:13:45.494448
License: Public Domain

NO. 07-11-0031-CV

                                  IN THE COURT OF APPEALS

                          FOR THE SEVENTH DISTRICT OF TEXAS

                                            AT AMARILLO

                                               PANEL A

                                       NOVEMBER 15, 2012

                              ______________________________

           DIRECT VALUE, L.L.C. AND MARTIN F. CODY, JR., APPELLANTS

                                                   V.

                       STOCK BUILDING SUPPLY, L.L.C., APPELLEE

                            _________________________________

           FROM THE COUNTY COURT AT LAW NO. 1 OF TRAVIS COUNTY;

           NO. C-1-CV-10-000896; HONORABLE J. DAVID PHILLIPS, JUDGE

                             _______________________________

Before CAMPBELL and HANCOCK and PIRTLE, JJ.

                                               OPINION

        Appellants, Direct Value, L.L.C. and Martin F. Cody, Jr.,1 appeal from a judgment

entered in favor of Appellee, Stock Building Supply, L.L.C., in its action for breach of a

1
 Throughout the remainder of this opinion, when we address issues related to Direct or Direct and Cody,
we will refer to Appellant or Appellants as “Direct.” When we address issues related to Cody only, we will
refer to Appellant as “Cody.” We will refer to Appellee, Stock Building Supply, L.L.C. as “SBS.”
construction contract and violation of the Texas Construction Trust Act (Act)2 following a

bench trial. We affirm.

                                         Background

       Following a bench trial, the trial court entered Findings of Fact and Conclusions

of Law which included the following findings. On or about January 27, 2009, Jeffrey

Krisel contracted with Direct, which does business as DirectBuy of Austin, to supply and

install new windows at his residence. Krisel paid Direct the contract price, $34,026.74.

Direct then ordered the windows, including installation, from SBS.              The order was

submitted to SBS by Direct’s employee, B.J. Wiatrek. SBS had previously provided a

quote to Direct for the new windows including installation for $33,124.25. SBS supplied

and installed the windows in Krisel’s home as ordered, but Direct failed to pay SBS its

$33,124.25.

       Cody is the manager, managing director, president and ninety percent owner of

Direct. He transferred Krisel’s payment from Direct’s bank account to a third party

instead of paying SBS. At all times, Cody had the ability and authority to direct payment

to SBS if he had so chosen. In other words, Cody had control and direction over the

funds paid to Direct by Krisel. At trial, SBS’s attorney was permitted to testify regarding

his communications with Cody while attempting to collect the debt.

       In its Conclusions of Law, the trial court determined that (1) Direct breached its

contract with SBS and (2) Cody, as a “trustee” under the Act, misapplied Krisel’s funds.

2
 Tex. Prop. Code Ann. §§ 162.001-.033 (West 2007 and West Supp. 2012). Throughout the remainder of
this opinion, we will refer to provisions of the Act simply as “section ___” or “§ ___.”

                                                2
The trial court entered a Modified Final Judgment, dated September 10, 2010, ordering

that SBS recover from Direct and Cody, jointly and severally, damages in the amount of

$33,124.25 and attorney’s fees in the amount of $10,500.00.3 This appeal followed.

                                            Discussion

       Direct contends (1) the trial court erred by awarding SBS attorney’s fees against

Cody when SBS failed to plead for such fees and they are not permitted under the Act,

(2) the trial court permitted SBS a double recovery by not requiring that SBS elect

between remedies, (3) the trial court erred by entering judgment against Cody for

breach of contract when SBS failed to plead Cody breached any contract with SBS, (4)

the trial court abused its discretion by permitting SBS’s attorney to testify when Direct

received inadequate notice the attorney was testifying and there was no evidence that

the attorney’s disqualification would work a substantial hardship on SBS, and (5) SBS’s

evidence that Direct breached its contract with SBS and Cody was a “trustee” under the

Act was legally and factually insufficient. Logic dictates that we consider Direct’s fifth

issue first.

       I. Sufficiency of the Evidence

       A. Standard of Review

       In an appeal of a judgment rendered after a bench trial, the trial court’s findings

of fact have the same weight as a jury’s verdict, and we review the legal and factual

sufficiency of the evidence used to support them just as we would review a jury’s

3
 The Modified Final Judgment also awarded SBS recovery of additional attorney’s fees in the event of an
unsuccessful pursuit of an appeal.

                                                  3
findings. Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex. 1994); In re K.R.P., 80 S.W.3d
669, 673 (Tex.App.--Houston [1st Dist.] 2002, pet. denied).

       When a party without the burden of proof at trial challenges the legal sufficiency

of the evidence, we consider all the evidence in the light most favorable to the prevailing

party, indulging every reasonable inference in that party’s favor. Associated Indem.

Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 285-86 (Tex. 1998). If there is any

evidence of probative force to support the finding, i.e., more than a scintilla, we will

overrule the issue. Formosa Plastics Corp. USA v. Presido Eng’rs & Contractors, Inc.,

960 S.W.2d 41, 48 (Tex. 1998).

       In our review of the factual sufficiency of the evidence, we must consider and

weigh all of the evidence, and we will set aside a verdict only if the finding is so against

the great weight and preponderance of the evidence that it is clearly wrong and unjust.

Ortiz v. Jones, 917 S.W.2d 770, 772 (Tex. 1996). We review a trial court’s conclusions

of law de novo. In re Moers, 104 S.W.3d 609, 611 (Tex.App.--Houston [1st Dist.] 2003,

pet. ref’d). We independently evaluate a trial court’s conclusions to determine their

correctness, and we will uphold conclusions on appeal if the judgment can be sustained

by any legal theory supported by the evidence. Id.

       A. Breach of Contract

       Direct contends the only evidence of a contract between it and SBS is Krisel’s

purchase order to Direct. We disagree.

                                             4
       At trial, David Julka, an SBS sales representative, testified that he submitted a

bid to Direct for the purchase and installation of new windows at Krisel’s residence. He

subsequently received an e-mail from B.J. Wiatrek, a Direct employee,4 accepting

SBS’s bid and directing SBS to proceed with the work.                      Direct’s acceptance is

documented by Wiatrek’s e-mail which attaches the purchase order from Krisel to Direct

and SBS’s bid documents.5 Julka further testified that SBS installed the windows per its

agreement with Direct. Additionally, Krisel testified that he purchased windows and

installation services through Direct and SBS provided and installed the windows.

       Jason Delgadillo, SBS’s credit manager, testified that, upon completion of the

Krisel project, SBS sent an invoice to Direct in the amount of $33,124.25 for demolition

and installation of Krisel’s new windows.             Although Krisel testified he paid Direct

$34,026.74 for the project, Delgadillo testified Direct had not paid SBS’s invoice for the

project.

       Simply, “[a] breach of contract occurs when a party fails or refuses to do

something he [or she] promised to do.’” B&W Supply, Inc. v. Beckman, 305 S.W.3d 10,

16 (Tex.App.—Houston [1st Dist.] 2009, pet. denied) (quoting Mays v. Pierce, 203
S.W.3d 564, 575 (Tex.App.—Houston [14th Dist.] 2006, no pet.)). The evidence at trial

showed that the essence of this transaction was that Krisel contracted with Direct for the
4
 Regarding Direct’s assertions that Direct and DirectBuy of Austin were unrelated and Wiatrek was not
Direct’s employee, Direct swore in their Responses to Interrogatories and Request for Disclosures, that
Direct did business as DirectBuy of Austin and Wiatrek was a Direct employee that communicated with
SBS regarding SBS’s materials.
5
 Direct asserts the trial court abused its discretion by admitting Wiatrek’s e-mail and its attachments
because they were inadmissible hearsay. The trial court did not abuse its discretion because the e-mail
and its attachments were admissible as admissions of a party opponent. See Tex. R. Evid. 801(e)(2)(D).
See also Cleveland Regional Medical Center, L.P. v. Celtic Properties, L.C., 323 S.W.3d 322, 337
(Tex.App.—Beaumont 2010, pet. denied); Tucker’s Beverages, Inc. v. Fopay, 145 S.W.3d 765, 767-69
(Tex.App.—Texarkana 2004, no pet.).

                                                  5
purchase and installation of windows at his residence and Direct contracted with SBS

for the windows and their installation, i.e., Krisel was the purchaser, Direct was the

contractor, and SBS was the subcontractor. Krisel paid Direct, SBS performed the

work, and Direct refused to pay SBS.

      B. The Act – Trustee

      Cody asserts he may not be held personally liable under the Act as a “trustee”

because there is no evidence that he received or exercised control over any trust funds

or possessed and exercised any power to direct payments.

      The Act was specifically enacted to serve as a special protection for

subcontractors and materialmen when contractors refuse to pay a subcontractor or

materialman for labor and materials. Choy v. Graziano Roofing of Texas, Inc., 322
S.W.3d 276, 282 (Tex.App.—Houston [1st Dist.] 2009, no pet.) (citing Taylor Pipeline

Constr., Inc. v. Directional Road Boring, Inc., 438 F. Supp. 2d 696, 715 (E.D. Tex. 2006)).

Because the Act is a remedial statute, courts must give it a broad construction to

effectuate its protective purposes. Id. (the Act should be construed liberally in favor of

laborers and materialmen). See C & G, Inc. v. Jones, 165 S.W.3d 450, 454 (Tex.App.--

Dallas 2005, pet. denied).

      Under the Act, payments made to a contractor or subcontractor or to an officer,

director, or agent of a contractor or subcontractor under a construction contract for the

improvement of real property are considered trust funds. § 162.001(a). See Vulcan

Materials Co. v. Jack Raus, 157 B.R. 592, 597 (Bankr. W.D. Tex. 1993) (finding that

“once the owner makes payment to either the general contractor or to a subcontractor,

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that payment gives rise to a trust for all parties in the subcontract chain”). Trust funds

may only be distributed for purposes unrelated to the construction project after all

current or past due obligations to the supplier beneficiaries have been paid. See §

162.031. Section 162.005 defines “current and past due obligations” as used in section

162.031 as “those obligations incurred or owed by the trustee for labor or materials

furnished in the direct prosecution of the work under the construction project prior to the

receipt of the trust funds and which are due and payable by the trustee no later than 30

days following receipt of the trust funds.” § 162.005. Beneficiaries of the trust fund

include artisans, laborers, mechanics, contractors, subcontractors, or materialmen who

furnish labor or material for the construction or repair of an improvement. § 162.003.

       A trustee misapplies trust funds if he or she “intentionally or knowingly or with the

intent to defraud, directly or indirectly, retains, uses, disburses, or otherwise diverts trust

funds without first paying all current or past due obligations incurred by the trustee to

the beneficiaries of the trust fund.” § 162.031(a). Any officer or director who has control

or direction over the trust funds is also a “trustee” of the funds. See § 162.002. See

also C & G, Inc., 165 S.W.3d at 454 (citing Lively v. Carpet Servs., Inc., 904 S.W.2d
868, 873 (Tex.App.--Houston [1st Dist.] 1995, writ. denied)). As such, a trustee that

misapplies trust funds under the Act is subject to civil liability to trust-fund beneficiaries

whom the Act was designed to protect. Id.

       In sworn Responses to Interrogatories and Request for Disclosures admitted at

trial, Cody and Direct described Cody as a manager, managing director and ninety

percent owner of Direct. Degadillo, SBS’s credit manager, testified Cody owned Direct

and was the decision-maker. He testified the reason “why we went directly to him”

                                              7
during collection was Cody “was responsible for--or had the authority to disburse the

funds.” In addition, SBS’s business records containing computerized notations of its

collection efforts indicated that nearly every SBS communication to collect the debt was

with Cody who responded, requested information on the debt, and supplied excuses to

SBS regarding why the debt remained unpaid. In one telephone call, Cody indicated he

was seeking SBS’s payment from his franchisor and final payment to SBS was

dependent on the completion of a settlement between Direct and its franchisor. Cody

did not personally appear at trial and his attorney presented no evidence to the contrary.

Based on the evidence, we conclude that Cody was a trustee of construction trust funds

under the Act. See Nuclear Corp. of America v. Hale, 355 F. Supp. 193, 197 (N.D. Tex.

1973), aff’d, 479 F.2d 1045 (5th Cir. 1973) (holding that company’s president was

trustee of trust funds because he had control and direction over the funds).

       Direct contends that, in order to establish personal liability as a trustee, the

beneficiary must prove the officer, director, or agent has the ability to sign the

company’s checks.      Although this type of evidence has been used to establish an

officer’s ability to control or direct payment; see, e.g., Choy, 322 S.W.3d at 289, the Act

does not require direct evidence of such an ability. Rather, the Act requires that a

beneficiary establish that an officer, director, or agent “directly or indirectly retains, uses,

disburses, or otherwise diverts trust funds without first fully paying all current and past

due obligations.” § 162.031 (emphasis added). Further, if Cody’s bright-line test were

allowed, any officer, director, or agent could circumvent liability under the Act by simply

directing an employee without disbursement authority to sign all company checks even

though an officer, director, or agent has the ultimate authority to decide whether to pay

                                               8
a beneficiary. Such an interpretation would emasculate those provisions of the Act

related to a trustee’s liability leading to absurd and unintended consequences. See

Fleming Foods, Inc. v. Rylander, 6 S.W.3d 278, 284 (Tex. 1999).

        Viewing the evidence in a light most favorable to the judgment and indulging

every reasonable inference in its favor, we conclude that the evidence is legally

sufficient to support the challenged findings. See Associated Indem. Corp., 964 S.W.2d

at 285-86. In addition, considering and weighing all the evidence, we conclude that the

challenged findings are not so against the great weight and preponderance of the

evidence as to be clearly wrong and unjust, and therefore the evidence in support of the

challenged findings is factually sufficient. Ortiz, 917 S.W.2d at 772. Direct’s fifth issue

is overruled.

        II. Attorney’s Fees

        Direct asserts the trial court erred by awarding SBS its attorney’s fees because

such fees are not specifically recoverable under the Act6 and SBS did not plead for

them pursuant to the Act.7 Whether a party may recover reasonable attorney’s fees is a

question of law for the trial court which we review de novo. Brent v. Field, 275 S.W.3d
6
 The Act does not expressly authorize an award of attorney’s fees. As a general rule, attorney’s fees are
not recoverable in Texas unless allowed by contract or statute. Brainard v. Trinity Universal Ins. Co., 216
S.W.3d 809, 817 (Tex. 2006).
7
 While SBS did not plead for recovery of attorney’s fees pursuant to the Act, it did plead for the recovery
of attorney’s fees pursuant to section 38.001 of the Texas Civil Practices and Remedies Code, which
permits a person to “recover reasonable attorney fees from an individual or corporation, in addition to the
amount of valid claim and costs, if the claim is for: (1) rendered services; (2) performed labor; [and] (3)
furnished material . . . .” Tex. Civ. Prac. & Rem. Code Ann. § 38.001(1), (2), (3) (West 2008).

                                                    9
611, 621 (Tex.App.—Amarillo 2008, no pet.) (citing Holland v. Wal-Mart Stores, Inc., 1
S.W.3d 91, 94, 95 (Tex. 1999)).

       Two sister courts have addressed the question of whether attorney’s fees may be

recovered under the Act with differing results.     See Perry & Perry Builders, Inc. v.

Galvan, No. 03-02-00091-CV, 2003 Tex. App. LEXIS 6341 (Tex.App.—Austin 2003, no

pet.) (mem. op.); Larrison v. Catalina Design, No. 02-10-00167-CV, 2011 Tex. App.

LEXIS 1196 (Tex.App.—Fort Worth 2011, no pet.) (mem. op.).

       In Perry, the Austin Court of Appeals concluded that “attorney’s fees [were]

available for a claim that construction trust funds were misapplied if the relief requested

is compensation for work performed or materials supplied.” Perry & Perry Builders, Inc.,

2003 Tex. App. LEXIS 6341, at *29. The Perry court reasoned that, because the relief

requested for misapplication of trust funds was similar to the requested relief under the

Plaintiff’s quantum meruit theory, i.e., payment for work performed, the Plaintiff was

entitled to the recovery of attorney’s fees. However, because the court was reversing

the misapplication recovery and remanding the claim for further proceedings, the court

also reversed the attorney’s fee award based in part on that theory. Perry & Perry

Builders Inc., 2003 Tex. App. LEXIS 6341, at *29.

       On the other hand, in Larrison, the Fort Worth Court of Appeals upheld the trial

court’s judgment finding that an inter-company transfer of trust funds, when a

beneficiary had not been timely paid, was a misapplication of trust funds under the Act,

2011 Tex. App. LEXIS 1196, at *7-10, but then denied the recovery of attorney’s fees

holding that “[m]isapplication of trust funds is not one of the causes of action listed in

                                            10
section 38.001 [of the Texas Civil Practice and Remedies Code], and therefore the

section does not apply to [plaintiff’s] claims against Larrison.” Id. at *15. In that case,

unlike here, the Plaintiff did not bring a contract-based cause of action so the appellate

court never conducted any analysis of the Plaintiff’s right of recovery under that theory.

Furthermore, although Larrison was decided after Perry, the Larrison court did not

discuss or distinguish Perry.       Here, unlike the situation in Larrison, SBS sought

attorney’s fees pursuant to section 38.001 and, as in Perry, recovered on both its

breach of contract claim against Direct and its misapplication of trust funds claim

against Cody, jointly and severally.

       Additionally, this case was originally appealed to the Third Court of Appeals in

Austin, and was subsequently transferred to this Court by the Texas Supreme Court

pursuant to its docket equalization efforts. See Tex. Gov’t Code Ann. § 73.001 (West

2005). As such, we “must decide the case in accordance with the precedent of the

transferor court.” Tex. R. App. P. 41.3. Based upon this rule, as well as sound legal

reasoning, we adopt the position of the Austin Court of Appeals and find that the trial

court did not err in awarding SBS its attorney’s fees incurred in the process of litigating

its claim for misapplication of funds. Direct’s first issue is overruled.

       III. Double Recovery

       Direct asserts the trial court erred in entering a joint and several judgment

against it for breach of contract and Cody for breach of duty because the judgment

permits a double recovery.

                                              11
       The judgment of the court should be “so framed as to give the party all the relief

to which he [or she] may be entitled.” Drury Southwest, Inc. v. Louie Ledeaux #1, Inc.,

350 S.W.3d 287, 293 (Tex.App.—San Antonio 2011, pet. denied) (quoting Birchfield v.

Texarkana Mem’l Hosp., 747 S.W.2d 361, 367 (Tex. 1987)).             Although a party is

generally entitled to pursue damages through alternative theories of recovery, “[a] party

is not entitled to double recovery.” Id. (quoting Waite Hill Servs., Inc. v. World Class

Metal Works, Inc., 959 S.W.2d 182, 184 (Tex. 1998)). “A double recovery exists when a

plaintiff obtains more than one recovery for the same injury.” Id.

       Here, SBS instituted suit against Direct and Cody, individually, to recover for a

single injury, i.e., the unpaid costs of its labor and material. SBS did allege alternative

theories of liability against Direct for breach of contract and Cody for misapplying trust

funds under the Act, however, the injury was the same in both instances. Because SBS

prevailed on both theories of liability, the trial court awarded a joint and several

judgment against Direct and Cody meaning either, or both, may pay the judgment, i.e.,

the cost of SBS’s unpaid labor and materials. Under the circumstances, the trial court’s

joint and several judgment is proper; see Ralls-Tex Mill, Inc. v. Plains White Truck

Company, Inc., 446 S.W.2d 917, 918, 920 (Tex.Civ.App.--Amarillo 1969, writ ref’d

n.r.e.), because it does not permit more than one recovery for SBS’s single injury.

Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768, 773 n.2 (Tex. 2009)

(“application of the single injury rule does not arise unless there is more than one

recovery for a single injury”). Hence, there was no need for the trial court to require

SBS to elect a single remedy as Direct suggests. Direct’s second issue is overruled.

                                            12
       IV. Judgment Against Cody

       Direct asserts the trial court erred in granting judgment against Cody for breach

of contract. In so doing, Direct misreads the trial court’s Modified Judgment. The

Modified Judgment orders that “[SBS] recover from [Direct] and [Cody], jointly and

severally, damages in the amount of $33,124.25, for breach of contract and breach of

fiduciary duty, respectively.” (Emphasis supplied). “Respectively” means “separately, in

the order given.” Merriam-Webster’s Collegiate Dictionary 1061 (11th ed. 2003). Thus,

the trial court’s judgment should be read to find Direct liable for breach of contract and

Cody liable for a breach of fiduciary duty. In other words, both Direct and Cody are

liable for paying SBS’s damages of $33.124.25, i.e., one recovery for a single injury.

The Modified Judgment does not find Cody liable for breach of contract. Direct’s third

issue is overruled.

       V. Attorney Testimony

       Direct asserts the trial court erred by allowing Trevor Green, SBS’s attorney, to

testify to a material issue at trial causing a wrongful judgment. At trial, SBS offered

Green’s testimony regarding his communications with Cody while attempting to collect

the debt when it became apparent that Cody would neither appear nor testify at trial.

       The admission of evidence is committed to the sound discretion of the trial court.

In re J.P.B., 180 S.W.3d 570, 575 (Tex. 2005). A trial court abuses its discretion when

its decision is arbitrary, unreasonable, and without reference to any guiding rules or

principles. Goode v. Shoufeh, 943 S.W.2d 441, 446 (Tex. 1997). If an appellant can

show that the trial court’s evidentiary ruling was in error, he or she must further show

                                           13
that the “error probably (though not necessarily) resulted in an improper judgment.”

Nissan Motor Co., Ltd. v. Armstrong, 145 S.W.3d 131, 144 (Tex. 2004) (citing City of

Brownsville v. Alvaredo, 897 S.W.2d 750, 753 (Tex. 1995)).                In making this

determination, this Court must review the entire record. Tex. R. App. P. 44.1. In doing

so, we may look to the efforts made by counsel to emphasize the erroneous evidence

and whether there was contrary evidence that the improperly admitted evidence was

calculated to overcome. Nissan Motor Co., Ltd., 145 S.W.3d at 144.

       Assuming, without deciding the trial court abused its discretion, we find that

SBS’s counsel did not make any effort to overly emphasize Green’s testimony.

Furthermore, there was no contrary evidence that Green’s testimony was calculated to

overcome. Rather, Green’s testimony was cumulative of Delgadillo’s testimony. Had

the trial court not permitted Green to testify, there would still be legally and factually

sufficient evidence on which the trial court could base its judgment. Direct’s fourth issue

is overruled.

                                       Conclusion

       The trial court’s judgment is affirmed.

                                                  Patrick A. Pirtle
                                                      Justice

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