Court Opinion

ID: 33262
Source: CourtListenerOpinion
Date Created: 2010-04-25 19:02:58+00
Date Added: 2024-06-11T15:43:53.204113
License: Public Domain

United States Court of Appeals
                                                               Fifth Circuit
                                                            F I L E D
              IN THE UNITED STATES COURT OF APPEALS
                      FOR THE FIFTH CIRCUIT                November 18, 2003
                      _____________________
                                                        Charles R. Fulbruge III
                              No. 02-50321                      Clerk
                         _____________________

              In the Matter of: R.H. Transport Inc.

                              Debtor
_________________________________________________________________
  Rocky Hunt; Sylvia Ayala Hunt; R. H. Transport Inc; Johnny W.
                         Thomas, Trustee,

                  Appellees – Cross-Appellants,

                                versus

Parkway Transport Inc.; Parkway Distributors Inc; Parkway Custom
                          Carriage Inc,

                  Appellants – Cross Appellees.
_________________________________________________________________

          Appeals from the United States District Court
                 for the Western District of Texas
                            (98-CV-393)
_________________________________________________________________

Before WIENER, CLEMENT and PRADO, Circuit Judges.

PRADO, Circuit Judge.1

     Appellants Parkway Transport, Inc., Parkway Distributors,

Inc., and Parkway Custom Carriage, Inc. (collectively “Parkway”)

appeal from a judgment in favor of Rocky Hunt and his wife Sylvia

Hunt, along with R.H. Transport, Inc., – the Hunts’ company– and

RHT’s bankruptcy trustee.     For the following reasons, we vacate

     1
     Pursuant to 5th Cir. R. 47.5, this Court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5th Cir. R.
47.5.4.

                                  1
and remand.

                                Facts

     In November 1991, Rocky and Sylvia Hunt started a business

leasing trucks to Parkway, a subsidiary of San Antonio-based

grocery chain H.E.B.    Hunt, a truck salesman, had never before

run a trucking company.     Hunt bought his first two trucks in

December 1991.   On April 9, 1992, Hunt incorporated as R.H.

Transport, Inc. (RHT).    In 1992, Hunt added six more trucks and

another in early 1993, financing all through the 100% financing

offered by the HEB Credit Union to Parkway operators.    Hunt

ultimately purchased eleven trucks, but never had more than nine

at one time.   Hunt alleges that Roland Hamel, manager of

contractor development at Parkway, told him a single-driver truck

would get 3,000-5,000 miles per week and a team truck, 5,000-

8,000 miles per week.    Hunt says he relied on this representation

when he started his trucking business and financed additional

trucks.   Hamel denies making any promises regarding mileage.

     Parkway and Hunt entered into a lease for each of the eleven

trucks, whereby Hunt leased the trucks to Parkway for hauling

freight and Parkway agreed to pay Hunt based on an attached rate

schedule.   These leases allowed either party to terminate with 15

days notice, but did not contain any provision as to mileage.

Also not in the lease was Parkway’s first-in, first-out policy as

to dispatches, which Hunt testified was breached by Parkway, or

                                  2
Parkway’s exclusivity rule, whereby its contractors could not run

trucks at other carriers who competed with Parkway.    The leases

did, however, contain an integration clause.    When Hunt did not

receive the 3,000/5,000 miles per week that he felt he had been

promised, he complained to Parkway.    In 1993, Hunt was having

severe cash flow problems, and in June 1993, Hunt reduced his

fleet.    On August 26, 1993, Hunt gave written termination notice

to Parkway on five trucks, indicating that he would keep two

trucks, with Parkway.   Jaye Wells, manager of contractor

development for Parkway, asked Hunt to stagger removal of his

trucks and Hunt agreed.    On September 8, 1993, without written

notice, Parkway recalled a Hunt driver from a run and suspended

the leases on all seven Hunt trucks.    Hunt moved the seven trucks

to another company, Pan American Express, in September 1993.      In

February and April of 1994, the credit union repossessed the

trucks, and Hunt and RHT subsequently filed for bankruptcy.

                          Procedural History

     This case has a procedural history few would envy.     A non-

core bankruptcy proceeding, the case originally worked its way

through the bankruptcy court.    After granting summary judgment on

several of Hunt and RHT’s claims, the bankruptcy court held a

bench trial in December 1997 on Hunt and RHT’s contract and fraud

claims.    These claims were: (1) that Parkway breached its oral

promise to provide 3,000-5,000 individual miles and 5,000-8,000

                                  3
team miles; (2) that Parkway committed fraud; (3) that Parkway

breached an implied contract term to provide Hunt with reasonable

miles;    (4) that Parkway breached its first-in,   first-out

policy;(5) that Parkway breached its no-forced-dispatch policy;

(6) that Parkway improperly controlled its contractors’

employees; and (7) that Parkway failed to comply with the

termination provisions in the lease.

     On April 3, 1998, the bankruptcy court issued a report and

recommendation to the district court, finding that Hunt and RHT

had failed to prove that Parkway had promised Hunt any mileage

amount.    Therefore, the claims for fraud and for breach of an

oral promise to provide 3,000-5,000 miles per week for individual

trucks and between 5,000- 8,000 miles for team trucks must fail.

The bankruptcy court did, however, find three breaches of

contract.    First, the bankruptcy court found that the contract

contained an implied provision to provide reasonable miles and

that Parkway breached that provision. In reaching this

conclusion, the bankruptcy court determined that national mileage

averages provided by Parkway’s expert were “reasonable miles.”

Additionally, the bankruptcy court found that Parkway breached

the termination and employee control provisions of Hunt’s leases.

Ultimately, however, the bankruptcy court recommended that Hunt

and RHT take nothing because any calculation of lost profits

would be entirely too speculative in light of RHT’s chronic

                                  4
operation at a loss.

     Hunt and RHT filed motions for reconsideration.   The

district court referred these motions to the bankruptcy court.

On July 28, 1999, approximately one and a half years after the

bench trial, the bankruptcy court altered its conclusions and

determined that it could not consider the national averages as

reasonable miles because these averages were based on hearsay.

Instead, the bankruptcy court determined that the 2,700 / 4,500

miles figure used in Hunt and RHT’s expert’s calculations were

the appropriate measure of “reasonable miles.”   The bankruptcy

court decided, in contrast to its original determination, that

lost profits through the end of the contract were not too

speculative.   Because of this change, the bankruptcy court

recommended awarding Hunt and RHT $337,790.00 in damages, plus

pre-judgment and post-judgment interest.   The bankruptcy court

did not alter its conclusion that future profits were too

speculative.

     On August 6, 1999, Parkway moved for an extension of time to

file its objections to the bankruptcy court’s report and

recommendations.   The bankruptcy court granted this motion,

giving Parkway “an additional twenty (20) days” beyond the

original deadline, “or until September 2, 1999.”    Unfortunately

for Parkway, the two dates were not the same: 20 days from the

original deadline was August 30, not September 2.   Parkway filed

                                 5
its objections with the district court on September 2, 1999, and

Hunt and RHT moved to strike them because they were two days

late.2 Parkway, Hunt, and RHT each filed objections to the

supplemental recommendation; Hunt and RHT also filed a motion to

strike Parkway’s objections as untimely.    The district court

found that Parkway’s objections were untimely, but considered the

objections in accepting the bankruptcy court’s recommendation.

Judgment was entered in favor of Hunt and RHT in the amount of

$337,790.00, plus pre-judgment interest of $285,733.88 and post-

judgment interest.

     On February 5, 2001, the bankruptcy court recommended

awarding fees and expenses in the amount of $246,661.45 to Hunt’s

attorney, $156,903.91 to RHT's attorney and its trustee, and

conditional appellate fees of $100,000 each to Hunt and RHT.     The

district court modified the rate of prejudgment interest,

accepted the remaining findings and entered a judgment.    Parkway

filed a timely notice of appeal, and Hunt and RHT filed timely

notices of cross-appeal.

                       Standard of Review

     Generally, if a party fails to timely file objections to a

report and recommendation, we review the district court’s

acceptance of that report and recommendation only for plain

     2
     Hunt and RHT also filed objections to the bankruptcy
court’s supplemental report and recommendation.

                                6
error.    Douglass v. United Servs. Auto. Ass’n, 79 F.3d 1415, 1417

(5th Cir. 1996) (en banc).   But we engage in de novo review

where, as here, (1) the parties complied in good faith with the

(albeit erroneous) instructions of the trial court (here the

bankruptcy court), and (2) the district court engaged in de novo

review.   See Morin v. Moore, 309 F.3d 316, 320 (5th Cir. 2002).

                    Implied Reasonable Miles Term

     The parties’ contracts did not contain an express mileage

provision.    Hunt and RHT argue that because the contract provides

no obligation on Parkway’s part, a “reasonable miles” term must

be read into the contract to prevent it from lacking mutuality of

obligation.   The bankruptcy and district courts agreed and read

in the term, relying on a Texas intermediate appellate court

case, Holguin v. Twin Cities Services, Inc., 750 S.W.2d 817 (Tex.

App. – El Paso 1988, no writ).

     Texas law generally disfavors reading an implied term into a

contract, permitting it "where no other consideration is shown,

making an implied obligation necessary to avoid holding the

contract void for lack of consideration.” Northern Natural Gas

Co. v. Conoco, Inc., 986 S.W.2d 603, 607 (Tex. 1998)

Consideration is "either a benefit to the promisor or a loss or

detriment to the promisee," id. at 607, or, in other words, “a

bargained-for exchange of promises.”       Fed. Sign v. Tex. S. Univ.,

951 S.W.2d 401, 409 (Tex. 1997).       A court may not, however, read

                                   7
an implied promise into a contract to make it “fair, wise, or

just.”   Nalle v. Taco Bell Corp., 914 S.W.2d 685, 687 (Tex. App.

– Austin 1996, writ denied).

     The court in Holguin held that an otherwise illusory

contract may be saved by reading into it an implied obligation to

provide the subject matter of the contract.     Holguin, 750 S.W.2d

at 819. In Holguin, a carrier and a trucking owner-operator

entered into a three-year contract for freight delivery. Id. at

818. After attempting to renegotiate the contract to add a non-

competition clause, the carrier stopped providing any freight and

attempted to terminate the contract.   Id.    In arguing that its

contract was illusory, and thus void, the carrier contended that

it had no obligation under the contract. Id.     Thus, the carrier

argued that it was not bound at all. The court disagreed, holding

that the contract was enforceable because it contained an implied

obligation on the part of the carrier to provide the subject

matter of the contract. Id. at 819.

     These contracts, like the contract in Holguin, may very well

require us to read in an obligation to provide the subject matter

of the contracts.3   Yet assuming without deciding that they do

     3
      We remain skeptical, however. The Texas Supreme Court
requires that the test for mutuality be applied at the time when
enforcement is sought, not at the time when the promises are
made:
     Though a contract be void for lack of mutuality at the time
     it is made, and while it remains wholly executory, yet, when
     there has been even a part performance by the party seeking
     to enforce the same, and in such part performance such party

                                 8
contain such an implied obligation, we still must reverse the

judgment.

     Even if we follow Holguin and read into the parties’

contracts an “obligation to provide the subject matter of the

contract,” Hunt and RHT have failed to establish the parameters

of this obligation or that it was, in fact, breached.

Originally, Hunt and RHT argued that 3,000 individual and 5,000

team miles (not coincidentally, the miles they claimed – but

failed to prove – they had been promised) were the “reasonable

miles” that must be read into the contract.   This appears to be

little more than an attempt to get around the unchallenged

finding that they had never been promised these, or any, miles.

In its original report and recommendation, the bankruptcy court

     has rendered services or incurred expense contemplated by
     the parties at the time such contract was made, which
     confers even a remote benefit on the other party thereto,
     such benefit will constitute an equitable consideration, and
     render the entire contract valid and enforceable.

Hutchings v. Slemons, 141 Tex. 448, 174 S.W.2d 487, 489 (1943)
(quoting Big Four Ice & Cold Storage Co. v. Williams, 9 S.W.2d
177, 178 (Tex.Civ.App. - Waco 1928, writ ref'd). As a result,
even though the leases may have lacked mutuality at the time they
were signed, once Parkway provided Hunt over 2,300 miles per week
for twenty months and paid Hunt over $1 million dollars for
transporting the freight, these actions constituted equitable
consideration. This was not a de minimus provision of freight.
In fact, this was the bargained-for promise: Parkway promised to
pay Hunt between $0.72 and $0.86 per mile and Hunt promised to
make his truck available and to haul freight. As the bankruptcy
court found, the parties did not bargain for a definite or fixed
amount of miles, and a definite amount of miles is unnecessary to
find mutuality.

                                9
noted that “these amounts [3,000/5,000] are not substantiated.”

After reviewing the record, we agree with the bankruptcy court.

On reconsideration, however, the bankruptcy court determined that

Hunt and RHT’s expert’s mileage calculations, which were based on

3,000/5,000 miles (discounted by 10% for downtime) were

“credible” and “supported by the testimony of other witnesses,

including defendants’ own corporate representative, Mr. Tom

Crouch.” The bankruptcy court, therefore, altered its initial

finding that the 3000/5000 amount was not substantiated.    In

making this alteration, however, the bankruptcy court committed

clear error.

     We conclude that a finding is clearly erroneous “when,

although there is evidence to support it, the reviewing court

based on all of the evidence is left with the definite and firm

conviction that a mistake has been committed." In re Luhr Bros.,

Inc., 325 F.3d 681, 684 (5th Cir. 2003)(quoting Walker v. Braus,

995 F.2d 77, 80 (5th Cir.1993)).

     Initially, we note that the bankruptcy court’s determination

that Dr. Hubbard’s testimony was credible does not support its

finding that 2,700 individual and 4,500 team miles per week must

be read into the contracts as the missing reasonable miles term.

Dr. Hubbard testified that Hunt and RHT had given him these

numbers, and that they were not based on his knowledge of

reasonable miles. His credibility, therefore, is irrelevant to

the whether these mileage amounts constitute the missing term.

                               10
     Second, the bankruptcy court’s initial determination that

these numbers were unsubstantiated comports with the testimony,

whereas the reconsidered findings, made approximately one and a

half years later, leave us with the firm impression of error.

Hunt and RHT rely on testimony by other former owner-operators

that an implied promise of 3,000 miles was reasonable. Yet,

because of these operators’ personal disputes with Parkway, the

bankruptcy court expressly found, in its initial report, that “it

is hard for us to say that [the former owner-operators’]

testimony was entirely disinterested.”      Hunt and RHT also point

to the testimony of Tom Crouch, Parkway’s corporate

representative as evidence that 4,500-5,100 miles were typical

for team trucks.      An analysis of Crouch’s testimony, however,

shows that it does not actually support Hunt and RHT’s

contention.       Crouch’s deposition testimony, introduced at trial,

was that 4,500 to 5,000 miles were the most a team truck could

run in a week because that was typically what drivers would want.4

This does not adequately support the bankruptcy court’s

conclusion that 4,500 team miles should be read into the

contract, particularly in light of the other evidence in this

case.       For example, Hunt indicated on credit applications that he

        4
     We note that Crouch also testified that individual drivers
could only drive 3,000 miles a week on an occasional basis.

                                    11
expected to receive 2,300 miles per week.5

     Similarly, the testimony fails to support the bankruptcy

court’s implied finding that the miles Parkway provided Hunt and

RHT were unreasonable.   The bankruptcy court’s decision does not

specifically provide any support for this implied finding, nor

can we find support for it.   Therefore, Hunt and RHT failed to

establish a breach of the implied requirement to provide the

subject matter of the contract.    This was, of course, their

burden.6

     For these reasons, we conclude that the bankruptcy court was

correct in its original report and recommendation and that the

judgment of the district court, based on the revised report and

recommendation, should be vacated.     We remand for entry of a

take-nothing judgment.

VACATED AND REMANDED.

     5
     This amount is also more in line with what Hunt received at
Pan American Express after the contract with Parkway was
terminated.
     6
     The elements of a breach of contract claim under Texas law
are (1) a valid contract, (2) the plaintiff’s performance, (3)
the defendant’s breach, and (4) damages. Hussong v. Schwan’s
Sales Enters., Inc., 896 S.W.2d 320, 326 (Tex. App. – Houston
[1st Dist.] 1995, no writ).

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