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.