Silver Lion, Inc. v. Larsen (Tex.App.- Houston [1st Dist.] May 21, 2009) (Hanks)
(commercial lease, tortious interference, personal guaranty)
AFFIRM TC JUDGMENT IN PART, REVERSE TC JUDGMENT IN PART, AND RENDER JUDGMENT:
Opinion by Justice Hanks
Before Justices Jennings, Hanks and Bland)
01-07-00370-CV Silver Lion, Inc. v. R. Kent Larsen
Appeal from 157th District Court of Harris County
Trial Court Judge: Randall Wilson
MEMORANDUM OPINION
Appellant, Silver Lion, Inc., challenges the trial court’s entry of a take-nothing judgment on its
claims against appellees, Dolphin Street, Inc. and R. Kent Larsen, and the court’s award of
damages, attorney’s fees and costs to Dolphin Street and Larsen. We overrule Silver Lion’s first and
second issues and hold that the evidence is legally and factually sufficient to support the trial court’s
finding that Silver Lion tortiously interfered with the sale of Dolphin Street and materially breached
the Management Agreement. We overrule Silver Lion’s third issue and hold that the evidence is
legally and factually sufficient to support the trial court’s finding that Dolphin Street and Larsen did
not breach the Lease and Guaranty at issue. We sustain Silver Lion’s fourth issue in part, and hold
that the trial court erred in awarding attorney’s fees to Dolphin Street because it was not a signatory
to the Guaranty. We dismiss Dolphin Street and Larsen’s cross-point on appeal because it has been
waived by failure to file a notice of appeal.
Background
In April 2002, Silver Lion, as landlord, leased commercial space to Dolphin Street for the
operation of a nightclub. The lease agreement (“the Lease”) had a five-year term and was secured
by a guaranty agreement executed by Kent Larsen, Dolphin Street’s owner (the “Guaranty”). Under
the Lease, Dolphin Street agreed to pay monthly rent, which would increase on an annual basis, and
to pay for maintenance of common areas of the premises.
In November 2002, shortly after opening for business, Dolphin Street began to fall behind on its
rent. In January 2003, Dolphin Street executed a promissory note, assigning Esperanza Martinez,
Butcher’s girlfriend, a lien on the furniture, fixtures, equipment and other assets of the club in
exchange for $163,000. Ms. Martinez then forwarded a check for January’s rent to Silver Lion. On
January 29, 2003, Doug Butcher, Silver Lion’s representative, signed a subordination agreement
agreeing that any security interest Silver Lion had or obtained in the future would be subordinated to
Martinez’s interest.
The Management Agreement
In March 2003, Larsen informed Butcher that Silver Lion would not be able to continue to pay
rent. Larsen and Butcher agreed that it would be a “win/win” situation for both of them if Butcher
managed the club to keep it open until Larsen could find a buyer for the business. They believed
that such an arrangement would maintain Dolphin Street as a viable, ongoing business, something
Larsen could sell, and assist Butcher by “keeping his premises leased and looking busy and keeping
the value up.” Larsen and Butcher then entered into a Management Agreement (the “Agreement”)
that they both drafted, effective March 31, 2003, under which Silver Lion agreed to pay for the
continued operation of the club for 90 days in order to enable Dolphin Street and Silver Lion to “find
a buyer for the operations and to maintain continuity of Dolphin Street nightclub, to protect the value
of the operations, supporting lease and location and to stop any accrual of additional operating debt
on the part of Dolphin Street, Inc.” The Lease and Larsen’s Guaranty are attached to the Agreement.
The Agreement directly addresses the issue of future rent that would come due under the
existing Lease. Paragraph 5 of the Agreement states that Silver Lion would either “forgive or pay as
an operating expense all rents due during the period of the agreement.” Under the Agreement,
Silver Lion accepted responsibility for, among other things, paying all liabilities associated with all
activities that were customary and normal or necessary to the club’s operation as of March 31, 2003,
purchasing and paying for all supplies, timely payments to employees, filing and paying various
taxes, timely payments to all vendors, maintaining insurance, and “timely filing and payment of all
other taxes, fees and liabilities owed to any governmental agency.” The parties agreed that any
profits or losses sustained from Silver Lion’s operation of Dolphin Street during the pendency of the
Agreement would belong to Silver Lion.
The Agreement also lists several vendors to whom Dolphin Street owed money, and noted that
these vendors held personal guarantees from Larsen. Silver Lion promised to keep current on the
payments to these vendors “so as to limit credit or legal action against Mr. Larsen.” Silver Lion
promised to indemnify and hold Larsen harmless from “any and all liabilities, claims and causes of
action raised by third parties, taxing authorities or governmental entities which in any way relate to
the management of the business of Dolphin Street, Inc. or the operation of Dolphin Street nightclub
after the date of this agreement.” As an attachment to the Agreement, Dolphin Street provided Silver
Lion with a list of accounts payable, and agreed to adjust it to reflect all liabilities incurred or payable
as of April 1, 2003.
For its part, Dolphin Street agreed that “[u]pon the sale of Dolphin Street, Inc. or Dolphin Street
nightclub the amount of the prior obligations actually paid by the landlord . . . will be reimbursed to
landlord from the sales proceeds.” Finally, the parties agreed that any potential buyer of the
business would be subject to the approval of Silver Lion, and that Silver Lion would not
unreasonably withhold that approval.
Soon after Butcher, on behalf of Silver Lion, began managing the nightclub, he discovered that
Dolphin Street had not provided a complete list of accounts payable. Various vendors began
demanding past due payments. Butcher testified that the cash flow of the business was so poor that
he had his family members work in the business to reduce costs, and that he even worked in the
club on weeknights as a DJ to save money on entertainment. In May 2003, almost three months after
Silver Lion began operating Dolphin Street, the Texas Comptroller placed a freeze on Dolphin Street’
s assets for failure to pay franchise, sales and mixed beverage gross receipts taxes. Other expenses
incurred during this time also went unpaid, as did obligations incurred prior to Silver Lion’s
assumption of the nightclub’s management. In all, Larsen testified at trial that he eventually paid
$32,369.91 in past due debts, penalties and interest either incurred while Silver Lion was managing
the club, or pre-existing debts that Silver Lion had agreed to bring current under the Management
Agreement. In mid-May, Larsen learned that the insurance on the nightclub had been cancelled.
Based on these developments, Larsen and Butcher agreed to close the nightclub.
Prior to the club’s closure, a potential buyer had expressed interest in the business. The buyer,
Jack Speer, negotiated the purchase with both Larsen and Butcher for several months, offering to
buy the business for $115,000. According to Larsen, Butcher stated that Silver Lion would withhold
its approval of Speer as a purchaser for the club unless Speer paid Silver Lion for the club’s rent in
April, May and June of 2003, plus additional expenses that Silver Lion had incurred by managing the
club. During the sale negotiations, Butcher sent Speer’s attorney two letters indicating that Dolphin
Street owed Silver Lion $19,288.26 in back rent for the months of April, May and June 2003, plus an
additional amount for the expenses that Silver Lion had paid on Dolphin Street’s behalf.
Speer ultimately decided not to purchase Dolphin Street. Dolphin Street was not reopened after
its initial closure. Instead—months later—Speer opened an entirely new nightclub in the same space
by forming a new corporation, purchasing many of Dolphin Street’s assets from Esperanza Martinez
and entering into a new and independent lease with Silver Lion.
Silver Lion sued Larsen and Dolphin Street, Inc. for breaching the original Lease as well as the
Agreement, and for fraud. Dolphin Street and Kent Larsen counterclaimed for breach of the
Agreement, conversion, indemnity, and tortious interference with a prospective contract, namely
Speer’s purchase of the club. Both sides sought attorney’s fees. After a bench trial, the trial court
entered judgment that Silver Lion take nothing on its claims, and awarded damages to Dolphin
Street and Larsen on their claims for tortious interference ($115,000), breach of contract ($100),
and attorney’s fees. The trial court entered findings of fact and conclusions of law, including the
following findings of fact:
. . . .
3. Effective April 01, 2003, when Dolphin Street, Inc. could not long continue making its lease
payments the parties materially amended the lease by a Management Agreement whereby Silver
Lion, Inc., at its sole expense and liability would operate the “Dolphin Street” nightclub for 90 days
while the parties sought a purchaser.
4. Silver Lion, Inc. materially breached the Management Agreement relieving both Dolphin Street,
Inc. and R. Kent Larsen from performance of the lease and guaranty.
5. Silver Lion, Inc.’s breach of the Management Agreement resulted in nominal $100 damages to
Dolphin Street, Inc. and R. Kent Larsen.
6. Silver Lion, Inc. tortiously interfered with the purchase and sale contract for Jack Speer to
purchase Dolphin Street, Inc. and satisfy the lease obligations.
7. The tortious interference by Silver Lion, Inc. with the purchase and sale contract has damaged R.
Kent Larsen, in the amount of $115,000.00.
On appeal, Silver Lion argues that the evidence is legally and factually insufficient to support the
trial court’s findings that (1) Silver Lion tortiously interfered with a prospective contract between
Dolphin Street, Larsen and Speer; (2) Silver Lion breached the Management Agreement; and (3)
Dolphin Street and Larsen’s failure to pay rent was excused. Additionally, Silver Lion argues that
Dolphin Street and Larsen failed to plead the affirmative defense of excuse. Finally, Silver Lion
challenges the trial court’s award of attorney’s fees to Dolphin Street and Larsen on the grounds
that the trial court awarded only nominal damages for their breach of contract claims, and they
raised no other grounds upon which they could be awarded attorney’s fees.
Analysis
A. Tortious Interference
Silver Lion complains that the evidence is legally and factually insufficient to support the trial
court’s finding that it tortiously interfered with a prospective contract. We disagree.
Standard of Review
Findings of fact in a nonjury trial have the same force and dignity as a jury’s verdict; however,
they are not conclusive when a complete reporter’s record appears in the appellate record. Lewis v.
Dallas Soundstage, Inc., 167 S.W.3d 906, 912 (Tex. App.—Dallas 2005, no pet.); see also Bernal v.
Chavez, 198 S.W.3d 15, 18 (Tex. App.—El Paso 2006, no pet.). When a complete reporter’s record
is filed, the trial court’s fact findings may be reviewed for legal and factual sufficiency under the same
standards as jury verdicts. Lewis, 167 S.W.3d at 912. In doing so, we do not substitute our judgment
for that of the fact finder, even if we would have reached a different conclusion when reviewing the
evidence. Id.
In deciding whether legally sufficient evidence supports a challenged finding, we must consider
evidence favorable to the finding if a reasonable fact finder could consider it and disregard evidence
contrary to the finding unless a reasonable fact finder could not disregard it. City of Keller v. Wilson,
168 S.W.3d 802, 822, 827 (Tex. 2005). Circumstantial evidence may be used to establish any
material fact, but it must establish more than mere suspicion. Lozano v. Lozano, 52 S.W.3d 141, 149
(Tex. 2001) (citing Browning-Ferris, Inc. v. Reyna, 865 S.W.2d 925, 928 (Tex. 1993)). Only
reasonable inferences drawn from the known circumstances establish a material fact. Id. (inference
is merely a deduction from proven facts). We consider the totality of the known circumstances in
determining the legal sufficiency of the circumstantial evidence and the reasonable inferences to be
drawn from it. See Felker v. Petrolon, Inc., 929 S.W.2d 460, 464 (Tex. App.—Houston [1st Dist.]
1996, writ denied).
When an appellant attacks the legal sufficiency of an adverse finding on an issue on which it did
not have the burden of proof, it must demonstrate that no evidence supports the finding. Croucher v.
Croucher, 660 S.W.2d 55, 58 (Tex. 1983). When attacking the legal sufficiency of the evidence to
support an adverse finding on an issue for which they had the burden of proof, appellants must
demonstrate the evidence conclusively established all vital facts in support of the issue. Sterner v.
Marathon Oil Co., 767 S.W.2d 686, 690 (Tex. 1989); Marrs & Smith P’ship v. D.K. Boyd Oil & Gas
Co., Inc., 223 S.W.3d 1, 13—14 (Tex. App.—El Paso 2005, pet. denied).
In reviewing the factual sufficiency of the evidence to support a trier of fact’s finding, we conduct
a neutral review of all the evidence and set aside the finding only if it is “so against the great weight
and preponderance of the evidence as to be clearly wrong and unjust.” Ortiz v. Jones, 917 S.W.2d
770, 772 (Tex. 1996); see also Minucci v. Sogevalor, S.A., 14 S.W.3d 790, 794 (Tex. App.—Houston
[1st Dist.] 2000, no pet.).
Elements of the claim
To establish a cause of action for tortious interference with prospective business relationships, a
plaintiff must show that (1) there was a reasonable probability that the parties would have entered
into a business relationship; (2) the defendant committed an independently tortious or unlawful act
that prevented the relationship from occurring; (3) the defendant either acted with a conscious
desire to prevent the relationship from occurring or knew the interference was certain or
substantially certain to occur as a result of the conduct; and (4) the plaintiff suffered actual harm or
damages as a result of the defendant’s interference. Richardson-Eagle, Inc. v. William M. Mercer,
Inc., 213 S.W.3d 469, 475 (Tex. App.—Houston [1st Dist.] 2006, pet. denied) (citing Wal-Mart
Stores, Inc. v. Sturges, 52 S.W.3d 711, 713 (Tex. 2001)); Brown v. Swett & Crawford of Texas, Inc.,
178 S.W.3d 373, 381–82 (Tex. App.—Houston [1st Dist.] 2005, no pet.) Here, Silver Lion argues that
the evidence is legally and factually insufficient to establish a claim for tortious interference because
Dolphin Street produced no evidence that Silver Lion’s actions (1) amounted to an independent tort
or unlawful act that (2) actually prevented the sale from going forward. Silver Lion also argues that
the evidence is legally and factually insufficient to establish a claim because Silver Lion did not
intend for its representations to interfere with the sale. We examine both of these arguments in turn.
1. Independent Tort or Unlawful Act
To establish the second element of a tortious interference claim, Dolphin Street was required to
provide evidence that Silver Lion’s conduct amounted to an independent tort or unlawful act. See, e.
g., Richardson-Eagle, Inc., 213 S.W.3d at 475. It is undisputed that Silver Lion represented to Speer,
the prospective buyer, that upon the closing of the sale, Silver Lion was owed $19,288.26 in past
due rent for the months of April, May and June of 2003, in addition to the expenses that Silver Lion
had paid on behalf of Dolphin Street. In this case, Dolphin Street provided legally and factually
sufficient evidence that these statements to Speer were fraudulent misrepresentations.
First, Dolphin Street produced evidence that these representations regarding the amount of past
due rents were false and that Silver Lion either knew that the statements were false or made them
recklessly without any knowledge of the truth and as a positive assertion. Specifically, there is
evidence demonstrating that, under the terms of the Agreement, Silver Lion had promised to forgive
the past due rent for April, May, and June of 2003, and it therefore had no contractual right to
receive these payments from anyone upon the sale of Dolphin Street. Pursuant to the clear and
unequivocal language of Paragraphs 5 and 14 of the Agreement—which was admitted into
evidence—rents coming due during the period of the Agreement were to be either forgiven outright
or paid by Silver Lion as operating expenses and then used to calculate whether Silver Lion made a
profit or a loss from its operation of the club. This profit or loss would accrue to Silver Lion, not to
Dolphin Street or a subsequent buyer:
5. Landlord will forgive or pay as an operating expense all rents due Silver Lion, Inc. during the
period of this agreement.
* * *
14.It is understood that any profit or loss from the operation of the Dolphin Street Club during the
period of landlord’s management hereunder shall be for the account of the landlord.
(emphasis added). At trial, Larsen testified that, under the terms of the Agreement, the rents for
April, May, and June 2003 were to be forgiven and were not to be paid to Silver Lion from the club’s
sale proceeds.
Second, the evidence shows that Silver Lion intended Speer to rely on its claim that rent for
these three months was due and to pay these rents to Silver Lion at the time of the closing. Butcher,
acting on behalf of Silver Lion, made those representations in response to an inquiry by Speer’s
attorney, who was trying to determine the amount of Dolphin Street’s outstanding liabilities that would
need to be paid if the sale was completed. At the time these representations were made, Speer
understood that Silver Lion expected him to pay for Dolphin Street’s outstanding liabilities and Speer
had in fact already paid some of Dolphin Street’s outstanding liabilities in anticipation of the sale
going through. Speer had also set up an escrow account to pay any additional outstanding liabilities
that needed to be paid at the time of closing. In addition, Larsen testified that Butcher told him that
Silver Lion would withhold its consent to the sale unless it received payment of the rent for April,
May, and June of 2003 from the sales proceeds. Larsen’s testimony is supported by the language of
the Landlord’s Consent to the sale to Speer, signed by Silver Lion, requiring Speer to agree to pay
Silver Lion these allegedly past due rents from the sales proceeds.
As the Texas Supreme Court explained in Wal-Mart Stores, Inc. v. Sturges, such evidence of
fraudulent statements can support a claim for tortious interference with a prospective contract:
By independently tortious we do not mean that the plaintiff must be able to prove an independent
tort. Rather, we mean only that the plaintiff must prove that the defendant’s conduct would be
actionable under a recognized tort. Thus, for example, a plaintiff may recover for tortious
interference from a defendant who makes fraudulent statements about the plaintiff to a third person
without proving that the third person was actually defrauded. If, on the other hand, the defendant’s
statements are not intended to deceive . . . then they are not actionable. . . . . These examples are
not exhaustive, but they illustrate what conduct can constitute tortious interference with prospective
relations.
52 S.W.3d at 713 (emphasis added).
Silver Lion has not presented, nor have we found, any case law holding that a party cannot prove a
claim for tortious interference unless it has specifically pled each of the elements of theunderlying
independent tort or unlawful act. Nor do we believe that Sturges imposes such arequirement where,
as here, Silver Lion did not specially except to Dolphin Street’s tortiousinterference pleadings.
Close
Nevertheless, Silver Lion appears to contend that there is evidence that these representations
were “reasonable” and made in “good faith” under the terms of the Agreement, and therefore there
is no evidence that it intended to deceive Speer and the representations cannot serve as the basis
of a tortious interference claim. We disagree. Even a cursory review of the Agreement reveals that
Silver Lion’s representations that the past due rents were due upon the completion of the sale were
neither reasonable nor made in good faith. Contrary to Silver Lion’s construction of the Agreement,
paragraph 8 of the Agreement states that, upon the sale of the nightclub, Silver Lion shall be repaid
only for those amounts that were (1) incurred prior to the formation of the Agreement and (2)
actually paid by Silver Lion. This paragraph provides in pertinent part that:
8. Upon the sale of Dolphin Street, Inc. or Dolphin Street nightclub the amount of the prior
obligations actually paid by landlord (less $750 pass on at transfer) will be reimbursed to landlord
from the sales proceeds. In the event the amount that is due at the time of sale is less than the prior
obligations actually paid by landlord the entirety of the net sales proceeds will be paid to the landlord.
(emphasis added). In this case, Larsen provided unrefuted testimony that the rent obligations
identified in the letter to Speer’s attorney were incurred after the date of the Agreement, March 31,
2003. Further, there was no evidence that Silver Lion accounted for these rents as actually “paid” on
its books. Accordingly, we hold that there was both legally and factually sufficient evidence at trial to
establish this element of a tortious interference claim.
At oral argument, Silver Lion contended that paragraph 2 of Agreement also supports itsargument
that Speer was required to pay these rents upon purchasing the nightclub. This paragraphprovides
in pertinent part that:
2. . . . However, this agreement does not transfer, relieve or indemnify
DolphinStreet, Inc. from any and all liabilities, regarding the supporting lease.
This paragraph, however, cannot be read in isolation from the clear language of
the rest ofthe Agreement. See Phillips Petroleum Co. v. St. Paul Fire & Marine Ins. Co., 113 S.W.3d
37, 40(Tex. App.—Houston [1st Dist.] 2003, pet. denied). When read with the entire Agreement,
thisparagraph merely provides that Dolphin Street continued to incur obligations under the lease
afterMarch 31, 2003. In paragraph 5, the parties agreed how they would treat one of these
obligations,past due rent, during the 90 days that Silver Lion operated Dolphin Street—i.e., forgiven
outrightor paid by Silver Lion as an operating expense and used to calculate profits and losses. As
notedabove, no evidence shows that Silver Lion chose to “pay” itself these rents as an operating
expense.
Close
2. Actual Interference
To establish the second element of a tortious interference claim, Dolphin Street also had the
burden to show that Silver Lion’s fraudulent representations prevented the sale from occurring.
Texas courts have construed this element to require, at a minimum, that the fraudulent
representations constitute a cause in fact that prevented a contract from forming. The test for cause
in fact, or “but for causation,” is whether the act or omission was a substantial fact in causing the
injury without which the harm would not have occurred. Johnson v. Baylor Univ., 188 S.W. 3d 296,
304 (Tex. App.—Waco 2006, pet. denied).
Silver Lion argues that there is no evidence that Butcher’s representations caused the sale to
fall through because Speer’s testimony at trial conclusively establishes that Speer caused the deal
to fail, not any false statement made by Butcher. Silver Lion points to Speer’s testimony, in response
to a question as to whether he would have purchased the club if not for Butcher’s actions, that “It
wasn’t just Mr. Butcher I was having problems with, it was several things. . . . It was several things, it
wasn’t just Mr. Butcher or it wasn’t just Mr. Larsen, most of it was Mr. Speer, I didn’t feel comfortable.”
Other evidence, however, contradicts Speer’s testimony. For example, Larsen testified as to the
circumstances surrounding the sale, including those that prevented the sale from occurring. This
testimony reveals that both Larsen and Speer thought that they had a “done deal” sometime in late
June 2003: (1) all of the papers had been prepared, and Larsen signed them and returned them to
Speer for signature; (2) Speer signed a letter of intent outlining the deal and his accountant had
prepared a detailed loan proposal to be submitted to a bank; (3) Speer’s lawyer prepared a draft
purchase and sale agreement, a seller’s indemnity agreement a landlord’s indemnity agreement and
a purchaser’s indemnity agreement; and (4) Speer also paid the July rent to Silver Lion. According to
Larsen’s testimony, the reason the sale did not go through after all this work had been completed
was because “Mr. Butcher persisted in demanding additional moneys outside the scope of our
management agreement” from the proceeds of the sale to Speer and Speer was concerned that
Silver Lion would sue Larsen and Dolphin Street.
The resolution of whether Butcher’s false representations prevented the sale from occurring
turns almost entirely on the credibility of the testimony of the two parties to the sale of Dolphin
Street: Speer and Larsen. The trial court, sitting as fact finder, was the sole judge of the witnesses’
credibility and the weight to give their testimony. City of Keller, 168 S.W. 3d at 819. It was free to
believe one witness and disbelieve another. See id. As a reviewing court, we cannot impose our own
opinion to the contrary. Id. Instead, we must assume that the trial court decided credibility questions
in accordance with its fact findings if a reasonable person could do so. See id. Reviewing all the
evidence under this standard, we assume that the trial court credited testimony that supports its
findings of fact and disbelieved testimony contrary to them. See id. Nor is it necessary to have
testimony from both parties before the trial court may disbelieve either. Id. at 819—20. A trial court
may disregard even uncontradicted and unimpeached testimony from disinterested witnesses. Id. Of
course, a trial court’s credibility decisions must be reasonable. Id. It cannot ignore undisputed
testimony that is clear, positive, direct, otherwise credible, free from contradictions and
inconsistencies, and could have been readily controverted. Id. Furthermore, it is not free to believe
testimony that is conclusively negated by undisputed facts. Id. But whenever a trial court may decide
what testimony to discard, a reviewing court must assume that the trial court did so consistently with
its fact findings, and disregard it in the course of legal sufficiency review. See id.
Here, both Speer and Larsen testified that the sale was almost complete at or near the time of
Butcher’s misrepresentations and Larsen specifically testified that these false statements were a
cause of the sale falling through. The record does not contain any undisputed facts that would
conclusively negate Larsen’s testimony. See id. Furthermore, Speer’s testimony is far from clear,
positive and direct on the issue of whether Butcher’s representations were a cause in fact of the sale
not occurring. At first, Speer testified that there were “several reasons” for the sale falling through,
including “another investment” that was not identified as well as the conduct of both Larsen and
Butcher:
Q: Do you recall why your purchase for Dolphin Street did not go through?
A: Yes, there were several reasons it didn’t go through. First off, it was my decision. I was looking at
another investment. I was buying the whole corporation. I couldn’t get an answer from Mr. Butcher or
Mr. Larsen as to exactly what was owed and where. And I know your indemnity agreements and stuff
like this, but it wasn’t my first time around the block.
Q: Okay. Can you recall some of the critical reasons?
A: . . . I just didn’t feel comfortable with it. I couldn’t get a—the main reason is Mr. Butcher or Mr.
Larsen couldn’t tell me the debt load on it, the liabilities against it, not down to the penny, not down
to the hundred, not even a thousand, not even $10,000, because they were both - it was getting
kind of touchy between the two of them. And I started feeling like a piece of meat between two pieces
of bread, and I’m not going to feel that way when I’m trying to buy a business. That was a critical part.
When pressed further, Speer testified that it was not “just” Butcher’s or “just” Larsen’s conduct that
caused the deal to fail but that “most of it was Mr. Speer” because Speer became uncomfortable with
the deal. Speer further testified as follows:
Q: If you had not encountered the problems with Mr. Butcher, would you have completed the
purchase for Dolphin Street?
A: It wasn’t just with Mr. Butcher I was having problems with, it was with several things.
Q: Go ahead.
A: It was several things, it wasn’t just Mr. Butcher or it wasn’t just Mr. Larsen, most of it was Mr.
Speer, I didn’t feel comfortable.
Here, it was not unreasonable for the trial court to conclude that Speer’s testimony was not
credible and disregard this testimony in reaching its verdict. Further, the trial court could have
discredited Speer’s testimony because he appeared to have a reason to testify favorably to Silver
Lion and Butcher. The record reflects that Speer would not have appeared at trial without a
subpoena from Dolphin Street and he still had ongoing business relations with Silver Lion at that
time. The record also reflects that Speer purchased the physical assets of Dolphin Street from
Larsen’s girlfriend, Esperanza Martinez, and that Silver Lion was his current landlord. Finally Speer’s
testimony as to his state of mind at the time of the closing, i.e., that he did not close the sale
because he was not “comfortable” with the deal, is not conclusive on the issue of causation in light of
the other evidence presented at trial. See City of Keller, 168 S.W. 3d at 819–20.
Under these facts and reviewing the record as a whole, under the applicable standard of review,
we hold the evidence is legally sufficient to establish the causation element of Silver Lion’s tortious
interference claim. Similarly, reviewing the entire record as a whole and giving deference to the trial
court’s credibility determinations, we also hold that the evidence is factually sufficient to establish
that Butcher’s representations were a cause in fact of the failure of the sale.
3. Intent to Interfere
To establish the third element of a tortious interference claim, Dolphin Street had the burden to
show that Silver Lion intended its representations to interfere with the sale. “Interference is
intentional if the actor desires to bring it about or if he knows that the interference is certain or
substantially certain to occur as a result.” Baty v. Protech Ins. Agency, 63 S.W. 3d 841, 859–60
(Tex. App.—Houston [14th Dist.] 2001, pet. denied).
In this case, the evidence establishes that Silver Lion intended to interfere with the formation of a
contract between Dolphin Street and Speer by making false statements about the past due rent
owed. Specifically, Larsen testified that Silver Lion told him that it would withhold consent to the sale
unless Speer paid Dolphin Street’s past due rent with the sales proceeds. Silver Lion made clear in
the language of the Lease Extension, which was necessary to allow time for closing the sale of the
nightclub, that it would require Speer to pay the past rent for April 2003. Similarly, the Landlord’s
Consent through which Silver Lion agreed to the sale to Speer, also required Speer to agree to pay
Silver Lion the past due rents for April, May, and June 2003 from the sales proceeds of any contract
between Speer and Dolphin Street. Both of these documents were executed by Butcher on behalf of
Silver Lion. Finally, both Larsen and Speer testified that the false statements were made directly to
Speer at or near a time when they considered the sale close to completion.
Nevertheless, Silver Lion argues that the evidence that it intended to interfere with the
Speer/Dolphin Street relationship is insufficient because there is undisputed evidence that Silver
Lion wanted the sale to close and not fail. We find this argument unpersuasive. While Silver Lion
may have desired a sale to be completed, the evidence reviewed above establishes that (1) Silver
Lion did not want any sale to be completed if it did not include the payment of the rents it alleged
were owed to it, in spite of the Agreement, and (2) Silver Lion made the false representations to
Speer and drafted language into the Lease Extension and Landlord Consent to ensure that Silver
Lion would receive such payment from the proceeds of the sale of Dolphin Street to Speer.
Particularly in light of the specific language of the Agreement—which did not entitle Silver Lion to the
rents it demanded Speer pay—we conclude that evidence of such conduct supports a finding that
Silver Lion intended to interfere with the formation of a contract between Dolphin Street and Speer
and not merely that Silver Lion’s legitimate conduct resulted in incidental interference. Accordingly,
reviewing the record under the applicable standards of review, we hold that there is also legally and
factually sufficient evidence to establish this element of a tortious interference claim.
We overrule Silver Lion’s first issue.
B. Breach of Management Agreement
In its next issue, Silver Lion argues that the evidence supporting the trial court’s finding that it
breached the Management Agreement is legally and factually insufficient, and that this Court should
set aside the trial court’s award of nominal damages to Dolphin Street. First, Silver Lion argues that
the trial court’s finding that Silver Lion materially breached the Agreement is legally insupportable.
Second, Silver Lion argues that the evidence does not support the trial court’s finding that Silver
Lion committed any of the breaches alleged by Dolphin Street.
Standard of Review
Silver Lion challenges the trial court’s finding that it breached the Management Agreement for
legal and factual sufficiency. Accordingly, we apply the same standard of review under which we
analyzed the previous points. See, e.g., City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005);
Ortiz v. Jones, 917 S.W.2d 770, 772 (Tex.1996).
Elements of Claim
The essential elements in a suit for breach of contract are: (1) the existence of a valid contract;
(2) the plaintiff performed or tendered performance; (3) the defendant breached the contract; and
(4) the plaintiff was damaged as a result of the breach. Hussong v. Schwan’s Sales Enters., Inc., 896
S.W.2d 320, 326 (Tex. App.— Houston [1st Dist.] 1995, no pet.). Here, Dolphin Street pled that
Silver Lion breached the Agreement by (1) “mandating that rent . . . for April 1, 2003 through June
30, 2003 be paid by Larsen or Speer prior to purchase of Dolphin Street, Inc.”; (2) failing to file and
pay all mixed beverage and sales taxes from April 1, 2003 to June 30, 2003; (3) closing Dolphin
Street’s operations prior to June 30, 2003; (4) failing to pay operating expenses from April 1, 2003 to
June 30, 2003; (5) cancelling Dolphin Street’s insurance in April 2003; and (6) removing assets of
Dolphin Street from the leased premises and failing to return them.
First, Silver Lion argues that the trial court’s finding that it “materially” breached the Management
Agreement is legally inconsistent with the trial court’s finding that the breach caused only nominal
damages to Dolphin Street and Larsen. The trial court’s award of nominal damages, however, is not
necessarily a commentary on the materiality of the breach. A trial court may award nominal damages
in a breach of contract case when the plaintiff fails to prove actual damages, once the party proves
the existence of a contract and a breach of that contract. Centre Equities, Inc. v. Tingley, 106 S.W.
3d 143, 154 n. 7 (Tex. App.—Austin 2003, no pet.); Fisher v. Westinghouse Credit Corp., 760 S.W.
2d 802, 808 (Tex. App.—Dallas 1988, no writ) (citing Houston Pipe Line Co. v. Oxy Petroleum, Inc.,
597 S.W.2d 57, 59 (Tex. Civ. App.—Corpus Christi 1980, writ dism’d) and Atomic Fuel Extraction
Corp. v. Estate of Slick, 386 S.W.2d 180, 190 (Tex. Civ. App.—San Antonio 1964, writ ref’d n.r.e.)).
The record supports the conclusion that the trial court awarded nominal damages for this reason.
Next, Silver Lion argues that the evidence does not support the trial court’s findings that it
breached the Management Agreement. Silver Lion claims that Butcher’s good faith belief that Silver
Lion was entitled to past due rent justified its demands for payment of those sums, and that the
evidence regarding the unpaid mixed beverage and sales taxes or operating expenses from April 1,
2003 to June 30, 2003 showed that Silver Lion had not received any notice that these sums were
due and owing. However, as noted above—even assuming that there was insufficient evidence that
Silver Lion failed to pay mixed beverage and sales taxes or operating expenses from April 1, 2003 to
June 30, 2003—legally and factually sufficient evidence supports a finding that Silver Lion’s
demands of payment of the allegedly past due rents for April, May and June 2003 upon the
completion of the sale to Speer were neither in good faith or reasonable under the terms of the
Agreement.
Furthermore, the record reveals unrefuted evidence of other alleged breaches of the
Agreement. For example, Larsen’s claim that Silver Lion failed to maintain insurance on the
nightclub—a breach of the Agreement—went unrefuted. Although Butcher laid the blame for the
lapse in insurance at Larsen’s feet, he admitted that the insurance lapsed after the Agreement took
effect, and he did not testify that either he or Silver Lion made any effort to maintain insurance as
required by the Agreement. Under these facts, crediting all favorable evidence that a reasonable
trier of fact could believe, disregarding all contrary evidence, except that which cannot be ignored,
viewing the evidence in the light most favorable to the trial court’s fact findings, and indulging every
reasonable inference that would support them, we hold that the trial court could reasonably have
concluded that Silver Lion breached the Management Agreement. City of Keller v. Wilson, 168 S.W.
3d at 827. Further, we hold that the trial court’s finding on this issue is not “so against the great
weight and preponderance of the evidence as to be clearly wrong and unjust.” Ortiz v. Jones, 917 S.
W.2d at 772. We overrule Silver Lion’s second issue.
C. Trial court’s finding that Dolphin Street and Larsen did not breach the Lease or the Guaranty
Silver Lion next contends that the evidence shows that Dolphin Street and Larsen breached the
Agreement, the Lease and Larsen’s Guaranty by not paying the rents due in April, May and June
2003 in the amount of $19,288.26 and thus, despite the trial court’s ruling that Silver Lion breached
the Agreement, it should have awarded this sum in damages to Silver Lion. We find this argument
unpersuasive. The construction of an unambiguous contract is a question of law for the
reviewing court to consider de novo. MCI Tel. Corp. v. Texas Utilis. 995 S.W.2d 647, 650–51 (Tex.
1999). Under Texas law, instruments pertaining to the same transaction may be read together, even
if the parties execute the instruments at different times and the instruments do not expressly refer to
each other. See Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 840 (Tex. 2000).
In appropriate instances, a court may construe all the transactional documents as if they were part of
a single, unified instrument. Id.
Under the facts of this case, the Agreement, Lease and Guaranty all pertain to the same
transaction, and, accordingly, we construe them together as one instrument. Both the Guaranty and
the Lease are attached to the Agreement. The Agreement refers to the Lease Agreement and
specifically addresses Dolphin Street’s obligation regarding the rents due in April, May, and June of
2003 under the Lease.
The Agreement provides in pertinent part that “Landlord will forgive or pay as anoperating expense
all rents due Silver Lion, Inc. during the period of this agreement.”
Close In turn, the Guaranty refers to the Lease and is a promise by Larsen to pay any and all of
Dolphin Street’s obligations under the Lease. The Guaranty provides in pertinent part that
“Guarantor [Larsen] guarantees the performance of the Tenant’s obligations under the Lease.”
Close
As we held above, under the clear and unequivocal language of Paragraphs 5 and 14 of the
Agreement, Dolphin Street had no obligation under the Lease to pay Silver Lion the amount of
$19,288.26 for the rents due in April, May, and June of 2003. These rents were either forgiven
outright or to be used in calculating Silver Lion’s profits and losses for its operation of the nightclub
during the 90-day period. Since Dolphin Street had no obligation to pay Silver Lion these rents
under the Lease, Larsen cannot have any obligation to pay Silver Lion for these rents under the
Guaranty. Accordingly, we hold that the trial court did not err in concluding that Silver Lion was not
entitled to recover for breach of the Agreement, the Lease or the Guaranty.
Silver Lion argues that the trial court’s conclusion that Silver Lion’s breach of theAgreement relieved
Dolphin Street and Larsen of performance under the Guaranty and Lease cannotstand because
neither pled the affirmative defense of excuse. However, under the facts of this case,neither this
conclusion nor an affirmative pleading of excuse is required to uphold the trial court’stake-nothing
judgment on Silver Lion’s claims.
Close
In a sub-argument, Silver Lion contends that, even if under the Agreement and Lease Dolphin
Street does not owe the rent for April, May, and June of 2003, the Guaranty still obligates Larsen to
pay these sums to Silver Lion. Silver Lion cites the following language from the Guaranty in support
of this argument:
Guarantor [Larsen] guarantees the performance of the Tenant’s obligations under the Lease. . . .
This is a primary, irrevocable, and unconditional guaranty of payment and performance of and not of
collection and is independent of Tenant’ obligations under the Lease. . . .
This guaranty will remain in effect regardless of any modifications or extension of the Lease. . . .
[Larsen’s] obligations will not be diminished by any compromise or release agreed on by Tenant and
Landlord.
However, for purposes of determining the payment of rents, this language cannot be read in
isolation from the Lease because, as the plain language of the Guaranty states, it is a guarantee of
“the performance of the Tenant’s obligations under the Lease.” It is axiomatic that if the tenant has
no obligation to pay rents under the Lease, the guarantor has no obligation to pay the rents either.
Finally, Silver Lion contends that, at the very least, it is entitled to recover sums for “prior
obligations” it paid on behalf of Dolphin Street while it operated the club under the Agreement.
However, the record reveals that Silver Lion failed to present adequate evidence of which payments
it made and which payments it was owed under the Agreement. Further, there is evidence in the
record that Speer and/or Larsen—not Silver Lion—paid some, if not all, of these obligations,
including taxes and other amounts the nightclub owed to various entities. Accordingly, the trial court
could have reasonably concluded that Silver Lion failed to meet its burden of establishing its right to
such payments and that Dolphin Street or Larsen had breached their contracts with Silver Lion. We
therefore overrule Silver Lion’s challenges to the trial court’s breach of contract finding.
D. Attorney’s Fees Awards
Finally, Silver Lion challenges the trial court’s award of attorney’s fees to Dolphin Street and
Larsen on the grounds that the trial court awarded only nominal damages for their breach of
contract claims, and they raised no other grounds to support an award of attorney’s fees. Dolphin
Street and Larsen counter by arguing that the Guaranty signed by Larsen had a provision awarding
the “prevailing party” its fees and that Silver Lion based its lawsuit against Larsen on this Guaranty.
Under Texas statutory law, a party may recover reasonable attorney’s fees from an individual or
corporation, in addition to the amount of a valid claim and costs, if the claim is for breach of an oral
or written contract. See Tex. Civ. Prac. & Rem. Code Ann. § 38.001(8) (Vernon 2008). The phrase in
the statute, “in addition to the amount of a valid claim,” implies that a party must first have been
awarded actual damages before it may be awarded attorney’s fees. In order to recover attorneys
fees under Chapter 38, there “must be a recovery of money, or at least something of value;
otherwise, the attorney’s fee award cannot be described as an ‘addition’ to the claimant’s relief.”
Rodgers v. RAB Invs., Ltd., 816 S.W.2d 543, 551 (Tex. App.—Dallas 1991, no writ) (quoting ITT
Commercial Fin. Corp. v. Riehn, 796 S.W.2d 248, 256 (Tex. App.—Dallas 1990, no writ)). Nominal
damages, in contrast, are damages in name only. Lucas v. Morrison, 286 S.W.2d 190, 191 (Tex. Civ.
App.—San Antonio 1956, no writ). They are given, not as an equivalent for the wrong, but to
recognize a technical right. Van de Putte v. Cameron County Water Control & Improvement Dist. No.
7, 35 S.W.2d 471, 474 (Tex. Civ. App.—San Antonio 1931, no writ). Nominal damages are not the
type of “valid” claim contemplated by the Legislature which will entitle a litigant to the “additional”
relief of attorney’s fees under section 38.001. Riehn, 796 S.W.2d at 257. Thus, as Silver Lion
correctly asserts, nominal damages cannot support a claim for attorney’s fees under Chapter 38.
Parties to a contract may also recover attorney’s fees, however, if they arrange for such
recovery as a contractual term. Alma Group, L.L.C. v. Palmer, 143 S.W.3d 840, 845 (Tex. App.—
Corpus Christi 2004, pet. denied) (citing New Amsterdam Cas. v. Tex. Indus., Inc., 414 S.W.2d 914,
915 (Tex. 1967)). The parties to the contract may create their own terms, and these terms need not
correspond to Chapter 38. Wayne v. A.V.A. Vending, Inc., 52 S.W.3d 412, 417 (Tex. App.—Corpus
Christi 2001, pet. denied) (citing One Call Sys., Inc. v. Houston Lighting & Power, 936 S.W.2d 673,
676 (Tex. App.—Houston [14th Dist.] 1996, writ denied)); see also Cysco Enters., Inc. v. Hardeman
Family Joint Venture, No. 03-02-00230-CV, 2002 Tex. App. LEXIS 8955, at *5, 2002 WL 31833724
(Tex. App.–Austin 2002, no pet.) (mem. op.). The parties may agree to terms for the recovery of
fees that are either more or less liberal than Chapter 38's terms. Wayne, 52 S.W.3d at 417–18. In
such cases, it is the language of the contract, not the statute, that governs. Twelve Oaks Tower I,
Ltd. v. Premier Allergy, Inc., 938 S.W.2d 102, 118 (Tex. App.—Houston [14th Dist.] 1996, no writ). As
Dolphin Street and Larsen correctly point out, Silver Lion sued Larsen for breach of the Guaranty,
which states that “[t]he prevailing party in any dispute arising out of this guaranty will be entitled to
recover reasonable attorney’s fees.”
A prevailing party is the party “who successfully prosecutes the action or successfully defends
against it, prevailing on the main issue, even though not to the extent of its original contention.”
Johns v. Ram-Forwarding, Inc., 29 S.W.3d 635, 637–38 (Tex. App.—Houston [1st Dist.] 2000, no
pet.) (citing City of Amarillo v. Glick, 991 S.W.2d 14, 17 (Tex. App.—Amarillo 1997, pet. denied)).
Determination of whether a party is the prevailing or successful party must be based upon success
on the merits, and not on whether damages were awarded. Glick, 991 S.W.2d at 17; see also
Robbins v. Capozzi, 100 S.W.3d 18, 27 (Tex. App.—Tyler 2002, no pet.). In other words, the
“prevailing party” is the party who is vindicated by the trial court’s judgment. Glick, 991 S.W.2d at 17.
Larsen prevailed in the trial court when the court entered a take-nothing judgment on Silver Lion’
s claim against him for breach of the Guaranty, and he is therefore entitled to his attorney’s fees
under the Guaranty’s terms. Because Dolphin Street was not a signatory to the Guaranty, however,
we find no basis for awarding it attorney’s fees. We therefore reverse the trial court’s award of fees
to Dolphin Street and render judgment in favor of Silver Lion on this issue.
E. Dolphin and Larsen’s Cross-Point
On a “cross-point” raised for the first time in appellants’ response brief, Dolphin Street and
Larsen complain that the trial court erred by awarding only nominal damages for breach of contract
and this court should reverse and render judgment for breach of contract claim in the amount of
$32,369.91. However, the record before us does not reflect that appellants filed a notice of appeal in
the trial court. Thus, they have waived this point. See Tex. R. App. P. 25.1(c) (“The appellate court
may not grant a party who does not file a notice of appeal more favorable relief than did the trial
court except for just cause.”); CHCA E. Houston, L.P. v. Henderson, 99 S.W.3d 630, 635–36 (Tex.
App.—Houston [14th Dist.] 2003, no pet.) (cross-point alleging entitlement to attorney’s fees is a
request for “more favorable relief” under Rule 25.1(c)).
Conclusion
We affirm the trial court’s judgment in part, holding that the evidence is legally and factually
sufficient to support the trial court’s findings that (1) Silver Lion tortiously interfered with the sale of
Dolphin Street and materially breached the Management Agreement, and (2) Dolphin Street and
Larsen did not breach the Lease and Guaranty at issue. We sustain Silver Lion’s fourth issue in
part, holding that the trial court properly awarded attorney’s fees to Larsen as a signatory to the
Guaranty, but erred in awarding attorney’s fees to Dolphin Street because it was not. We reverse
that part of the trial court’s judgment awarding attorney’s fees to Dolphin Street and render judgment
in favor of Silver Lion on that issue. We dismiss Dolphin Street and Larsen’s cross-point because it
was not raised in a timely filed notice of appeal.
George C. Hanks, Jr.
Justice
Panel consists of Justices Jennings, Hanks, and Bland.