Court Opinion

ID: 6318266
Source: CourtListenerOpinion
Date Created: 2022-03-01 12:11:22.790988+00
Date Added: 2024-06-11T09:00:50.034971
License: Public Domain

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

                                     NO. 03-20-00131-CV

   Sterling/Suggs Limited Partnership, Neal E. Suggs, and Nadine R. Suggs, Appellants

                                              v.

                Canyon Lake Island Property Owners Association, Appellee

              FROM THE 207TH DISTRICT COURT OF COMAL COUNTY
       NO. C2012-1457B, THE HONORABLE DANIEL H. MILLS, JUDGE PRESIDING

                           MEMORANDUM OPINION

               Sterling/Suggs Limited Partnership, Neal E. Suggs, and Nadine R. Suggs

(collectively, the Suggses) appeal from the district court’s order granting Canyon Lake Island

Property Owners Association’s (CLIPOA’s) second motion to enforce the Rule 11 settlement

agreement. For the following reasons, we reverse the order and remand the case for further

proceedings consistent with this opinion.

                                       BACKGROUND

               In 2012, CLIPOA sued the Suggses regarding an easement dispute, and the long

procedural history of this case is well-known to the parties. See Canyon Lake Island Prop.

Owners Ass’n v. Sterling/Suggs Ltd. P’ship, No. 03-14-00208-CV, 2015 WL 3543125, at *1–2

(Tex. App.—Austin June 5, 2015, pet. denied) (mem. op.) (describing background of case in
earlier procedural posture). We limit our discussion here to the relevant procedural history and

undisputed factual background necessary to decide this appeal. See Tex. R. App. P. 47.1, .4.

               During trial in early 2017, the parties announced a Rule 11 settlement agreement

in open court and dictated the terms on the record.          CLIPOA drafted related settlement

documents, 1 but the Suggses refused to execute them. CLIPOA then moved to enforce the Rule

11 agreement. At the hearing on the motion, the district court ordered the parties to binding

arbitration. In May 2018, the arbitrator signed an order, stating:

       Defendant Suggs contend the CLIPOA Board of Directors acting through
       [CLIPOA’s counsel] did not have authority to enter into the Rule 11 Agreement,
       there was Mutual Mistake or Impossibility, a Conflict exist between CLIPOA and
       Cindy Griffin (an owner of property in CLIPOA), and urged a Motion to Enforce
       was not the proper method to be used to enforce a Rule 11 agreement. The
       Plaintiffs filed a response in opposition to each of those assertions.

       The parties do agree however that CLIPOA did not file the bylaws of CLIPOA
       until June 2017. In Plaintiff’s Response to Defendant’s Arbitration position they
       concede they did not have the bylaws of CLIPOA recorded in the real property
       records at the time of the Settlement Agreement. This admission is significant for
       the following. V.T.CA 202.001 of the Texas Property Code defines “Dedicatory
       instruments” to be any document governing the establishment, maintenance, or
       operation of a residential subdivision, planned unit development, condominium or
       townhouse regime, or any similar planned development. Section (1(a) includes
       the “bylaws” of a property owners association. V.T.C.A. Section 2002.006(b) of
       the Property Code states “a Dedicatory instrument has no effect until the
       instrument is filed in accordance with this section.”

       The undersigned Arbiter would have found the Rule 11 Agreement to be
       Enforceable but the undersigned Arbiter finds CLIPOA did not have the authority
       to enter into any agreement as they had not filed their bylaws which would
       create and empower the Board of Directors to act. As such, the CLIPOA Board
       of Directors had no legal authority to act and as such, there is no enforceable
       Rule 11 agreement.

       1 These include a settlement agreement, easement agreement, declaration of restrictive
covenants, joint motion to dismiss with prejudice, and order of dismissal with prejudice.
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(Emphases, capitalization, and grammatical and typographical errors in original.) CLIPOA

moved for reconsideration, which the arbitrator denied by order that states, in part:

       Plaintiff urges CLIPOA may operate under Tex. Bus. Orgs. Code § 22.201 which
       provides a statutory grant of authority for managing the affairs of a non-profit
       corporation. Texas Government Code § 311.026 precludes this argument as it
       requires a more specific statute to control over a general statutory authority. With
       the specific statutory authority of Tex. Prop. Code § 202.001 directly governing
       property owners associations, it must be given effect.

       Arbiter continues to find CLIPOA did not have the authority to enter into any
       agreement as they had not filed their bylaws which would create and empower the
       Board of Directors to act. As such, the CLIPOA Board of Directors had not legal
       authority to act and as such there is no enforceable Rule 11 agreement.

The district court adopted both orders.

                 In September 2019, CLIPOA filed its second motion to enforce the Rule 11

settlement agreement. CLIPOA noted that the Legislature amended Chapter 22 of the Texas

Business Organizations Code, effective September 1, 2019, by adding Subchapter J:

“Ratification of Defective Corporate Acts; Proceedings” (the RDCA). See Act of May 22, 2019,

86th Leg., R.S., ch. 664, § 1, 2019 Tex. Gen. Laws 1922, 1922–29 (codified at Tex. Bus. Orgs.

Code §§ 22.501–.516). CLIPOA attached to its motion a September 16 resolution adopted by

CLIPOA’s board of directors.       CLIPOA alleges that the resolution ratified “the ‘defective

corporate act’ of entering into the Settlement Agreement on February 1, 2017 without the proper

authority due to the unfiled bylaws” and that therefore “the Settlement Agreement should be

enforced since the issue of [CLIPOA]’s lack of authority has been ratified through the

Resolution, which under the [RDCA] relates back to the date the Settlement Agreement was

entered into.”

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               The Suggses responded, arguing that “[t]he defect was failure to file the bylaws of

record, not a defective corporate act” as defined by the RDCA, and that “CLIPOA cannot ratify

its acts taken in violation of the requirements of the Texas Property Code.” Thus, according to

the Suggses, the RDCA “does not absolve CLIPOA of its failure to comply with the Property

Code”; “[t]he Property Code requires dedicatory instruments—including bylaws of a property

owner’s association—to be filed of record, because these instruments affect real property and

should be filed to give the public notice”; and “CLIPOA now seeks to internally ratify its failure

to provide public notice, which is neither the intent nor the language of the [RDCA] upon which

it relies.” In a motion to reconsider the ruling on CLIPOA’s second motion to enforce the Rule

11 settlement agreement, which the Suggses filed prior to the signing of an order on CLIPOA’s

motion, the Suggses also argued that “CLIPOA now asks the District Court to reconsider and

overturn the arbitration award, but CLIPOA does not ask for a vacatur”; that “[d]espite clear law

to the contrary, CLIPOA’s motion assumes the arbitration ruling is an ordinary ruling that can

simply be reconsidered by the trial judge, on any basis the trial judge deems appropriate”; and

that “[b]ecause CLIPOA has failed to bring any evidence that vacatur is warranted, its motion for

vacatur (incorrectly titled a second motion to enforce) must be denied.” 2

               In November 2019, the district court granted CLIPOA’s second motion to enforce

the Rule 11 settlement agreement, ordered that the Suggses execute the settlement documents

“within ten days of the date this Order becomes final and unappealable,” and denied the Suggses’

motion to reconsider. The Suggses requested findings of fact and conclusions of law, which the

district court signed on January 26, 2020. The Suggses then perfected this appeal.

       2  In their motion to reconsider, the Suggses also raised the “additional problems” of
“mutual mistake” and “impossible situation,” attached “the entire Defendants’ Arbitration
Position Statement and Memorandum,” and “ask[ed] the Court to reconsider same.”
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                                        DISCUSSION

              On appeal, the Suggses argue that the district court’s order granting CLIPOA’s

second motion to enforce the Rule 11 settlement agreement must be reversed because

(1) “vacatur was improper as a matter of law,” (2) “the settlement agreement is unenforceable

because CLIPOA’s representative lacked authority to enter into the agreement, and CLIPOA

failed to obtain the consent of its members,” and (3) “a litany of mutual mistakes and

impossibility of the terms of the agreement render the agreement legally unenforceable.” 3 In

response, CLIPOA asserts that “[n]o vacatur ever occurred” and that “[i]nstead, [the district

court] decided a new, independent development in Texas law that occurred after the arbitration

was ended [and] retroactively cured the authority defect that he found existed in February 2017.”

Because we conclude that CLIPOA’s subsequent alleged ratification of the Rule 11 settlement

agreement did not cure a “defective corporate act” as defined by the RDCA, we neither address

whether the district court effectively and improperly vacated the arbitration order nor consider

the Suggses’ other arguments on appeal. 4

       3   Generally, a party seeking enforcement of a settlement agreement, where consent is
withdrawn, must pursue an action based on proper pleading and proof. See, e.g., Mantas v. Fifth
Court of Appeals, 925 S.W.2d 656, 658 (Tex. 1996) (per curiam) (“Where consent is lacking,
however, a court may not render an agreed judgment on the settlement agreement, but rather may
enforce it only as a written contract. Thus, the party seeking enforcement must pursue a separate
breach-of-contract claim, which is subject to the normal rules of pleading and proof.” (citing
Padilla v. LaFrance, 907 S.W.2d 454, 462 (Tex. 1995))). But the parties do not raise any
complaint on appeal regarding CLIPOA’s procedure taken to enforce the settlement agreement.
       4  CLIPOA admits on appeal that because the arbitrator “had already made the decision”
and “denied [CLIPOA]’s Motion for Reconsideration,” “[t]he ship had sailed on that argument
[to vacate the arbitration decision], leaving the settlement agreement enforceable but for the
authority of the Board of Directors of [CLIPOA] to approve it because the Bylaws were not filed
at the time the agreement was reached.” Accordingly, as the issue is not before us, we do not
opine on the merits of the arbitration order.
                                               5
                A district court’s decision to enforce a rule 11 agreement is reviewed for abuse of

discretion. Infiniti Hotel Grp. v. Patel, No. 03-09-00610-CV, 2011 WL 1344605, at *6 (Tex.

App.—Austin Apr. 8, 2011, pet. denied) (mem. op.) (citing Mantas v. Fifth Court of Appeals,

925 S.W.2d 656, 659 (Tex. 1996) (per curiam)). “[A] trial court has no discretion in determining

what the law is or in applying it to the facts” and “abuses its discretion if it fails to correctly

analyze or apply the law.” In re Dawson, 550 S.W.3d 625, 628 (Tex. 2018) (orig. proceeding)

(per curiam). Here, the dispositive issue on appeal turns on a question of statutory interpretation,

which we review de novo. Cadena Comercial USA Corp. v. Texas Alcoholic Beverage Comm’n,

518 S.W.3d 318, 325 (Tex. 2017). “When interpreting statutes, we presume the Legislature’s

intent is reflected in the words of the statute” and “analyze statutes ‘as a cohesive, contextual

whole, accepting that lawmaker-authors chose their words carefully, both in what they included

and in what they excluded.’” In re H.S., 550 S.W.3d 151, 155 (Tex. 2018) (quoting Sommers v.

Sandcastle Homes, Inc., 521 S.W.3d 749, 754 (Tex. 2017)).

                As relevant here, the RDCA provides that “a defective corporate act is not void or

voidable solely as a result of a failure of authorization if the act is: (1) ratified in accordance with

this subchapter.” 5 Tex. Bus. Orgs. Code § 22.502. The RDCA defines “[d]efective corporate

act” to include:

        any act or transaction purportedly taken by or on behalf of the corporation that is,
        and at the time the act or transaction was purportedly taken would have been,
        within the power of a corporation to take under the corporate statute, but is void
        or voidable due to a failure of authorization.

        5 The Suggses argue that “CLIPOA incorrectly contends that Subchapter J should be
applied retroactively despite the absence of language provided for its retrospective application.”
CLIPOA responds that the RDCA expressly provides for retrospective application. See Tex.
Bus. Orgs. Code §§ 22.501(6)(A), .509. We assume without deciding that CLIPOA is correct.
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Id. § 22.501(2)(B).      The RDCA also defines both “[c]orporate statute” and “[f]ailure of

authorization.” Id. § 22.501(1), (4). The former means “this code, the former Texas Non-Profit

Corporation Act, or any predecessor statute of this state that governed the action or the filing.”

Id. § 22.501(1) (internal citation omitted). The latter, as relevant here, means:

        the failure to authorize or effect an act or transaction in compliance with the
        provisions of the corporate statute, the governing documents of the corporation, a
        corporate resolution, or any plan or agreement to which the corporation is a party,
        if and to the extent the failure would render the act or transaction void
        or voidable.

Id. § 22.501(4)(A).

                CLIPOA claims that the “defective corporate act” is “the Board’s entering into the

Settlement Agreement” and that this act “is void or voidable due to a ‘failure of authorization,’

i.e., [CLIPOA]’s failure to have its bylaws recorded in the Official Public Records of Comal

County, Texas at the time the agreement was approved.” And according to the arbitration order,

which CLIPOA asserts it was not contesting with its second motion to enforce the settlement

agreement, the failure to authorize the settlement agreement was due to a failure to file the

bylaws, as required by the Texas Property Code, before agreeing to the settlement.

                The Texas Property Code, however, is not included within the RDCA’s definition

of “[c]orporate statute.” See id. § 22.501(1). Thus, the failure to authorize the settlement

agreement was not a “failure to authorize” as defined by the RDCA because it was not “the

failure to authorize . . . an act . . . in compliance with the provisions of the corporate statute . . . if

and to the extent the failure would render the act . . . void or voidable.” Id. § 22.501(4)(A)

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(emphasis added). 6    Nor was it a failure to authorize an act “in compliance with . . . the

governing documents of the corporation, a corporate resolution, or any plan or agreement to

which the corporation is a party.” Id. Rather, as determined by the arbitration order, the

“CLIPOA Board of Directors had no legal authority to act” due to a failure to comply with the

Texas Property Code. And because the act was not a “failure to authorize” as defined by the

RDCA, CLIPOA’s entering into the settlement agreement was not a “defective corporate act”—

i.e., an act that at the time it was purportedly taken would have been “within the power of a

corporation to take under the corporate statute, but is void or voidable due to a failure of

authorization.” Id. § 22.501(2)(B) (emphasis added). For the same reason, the act was not “void

or voidable solely as a result of a failure of authorization.” Id. § 22.502 (emphasis added). 7

       6    After citing the RDCA’s definition of “[c]orporate statute” as including the Texas
Business Organizations Code, CLIPOA notes that “[t]he Business Organizations provides that
‘the affairs of a corporation are managed by a board of directors,’” quoting Section 22.201 of the
Texas Business Organizations Code. But CLIPOA fails to explain how it was not “in
compliance with” Section 22.201 such that there was a “failure to authorize” as defined by the
RDCA. And the arbitration order denying CLIPOA’s motion for reconsideration already
rejected its argument that Section 22.201 controlled over the Texas Property Code’s requirement
that bylaws must be filed to have effect.
       7    The dissent argues that “the Board failed to authorize or effect the settlement
agreement in conformity with its bylaws because the bylaws were not yet filed” and that this
constitutes “‘the failure to authorize or effect an act or transaction in compliance with the
provisions of . . . the governing documents of the corporation.’” Post at ___ (quoting Tex. Bus.
Orgs. Code § 22.501(4)(A)). But this misreads the meaning of “in compliance with.” CLIPOA
does not allege that any noncompliance with the provisions of the bylaws led to the failure to
authorize the settlement agreement. Rather, the legal ineffectiveness of the bylaws due to
CLIPOA not having filed the bylaws pursuant to the Texas Property Code, as determined by the
arbitration order that has not been challenged on appeal, precluded the authorization of the
settlement agreement that CLIPOA now seeks to ratify. The failure to authorize or effect an act
or transaction because of noncompliance with the Texas Property Code, however, is not a
“failure of authorization” as defined by the RDCA. See Tex. Bus. Orgs. Code § 22.501(4)(A).
Thus, the entering into the settlement agreement would not be a “defective corporate act,” as it is
not an “act or transaction” that “is void or voidable due to a failure of authorization.” See id.
§ 22.501(2)(B).
                                                  8
               Accordingly, we conclude that the district court failed to correctly analyze or

apply the law in concluding that the settlement agreement had been ratified under the RDCA.

And because this was the sole ground CLIPOA asserted for the district court to enforce the

settlement agreement, the district court therefore abused its discretion in granting CLIPOA’s

second motion to enforce the Rule 11 settlement agreement.

                                         CONCLUSION

               For these reasons, we reverse the district court’s order granting CLIPOA’s second

motion to enforce the Rule 11 settlement agreement and remand the case for further proceedings

consistent with this opinion.

         The dissent also references subpart (B) of the RDCA’s definition of “failure of
authorization” as further support. Post at ___ n.1. Before the trial court and this Court, however,
CLIPOA neither cited nor relied on this subpart, which concerns “the failure of the board . . . to
authorize or approve an act or transaction . . . that required the prior authorization or approval of
the board.” Tex. Bus. Orgs. Code § 22.501(4)(B). The dissent creates an argument on
CLIPOA’s behalf that “[a]bsent any legal authority to act, the Board could not have provided
prior approval for its representative to enter into the settlement agreement.” Post at ___ n.1. But
even if the dissent’s position correctly describes a “failure of authorization” under this subpart,
CLIPOA’s resolution ratifying the alleged defective corporate act of the settlement agreement
does not discuss a representative or the board’s prior approval for its representative. See Tex.
Bus. Orgs. Code § 22.503(a)(3) (requiring resolution to state “the nature of the failure of
authorization with respect to each defective corporate act to be ratified”). Rather, CLIPOA’s
resolution merely states, as relevant here, “The Settlement Agreement . . . and all of the terms
and conditions set forth therein, are hereby ratified and approved” and “The failure to file the
updated Bylaws of the Association prior to the negotiation of the Settlement Agreement in the
Easement Litigation shall not be an impediment to the enforceability of the Settlement
Agreement in the Easement Litigation, and said Settlement Agreement is hereby approved ab
initio, retroactively, and effective as of February 1, 2017.”
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                                             __________________________________________
                                             Melissa Goodwin, Justice

Before Justices Goodwin, Triana, and Smith
 Dissenting Opinion by Justice Triana

Reversed and Remanded

Filed: February 25, 2022

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