Kondos Entertainment, Inc. and Jay Snyder v. Quinney Electric, Inc.--Appeal from 225th Judicial District Court of Bexar County

96-00251 Kondos Entertainment v Quinney Electric.wpd No. 04-96-00251-CV
KONDOS ENTERTAINMENT, INC. and Jay Snyder,
Appellants
v.
QUINNEY ELECTRIC, INC.,
Appellee
From the 225th Judicial District Court, Bexar County, Texas
Trial Court No. 94-CI-03721
Honorable Michael Peden, Judge Presiding

Opinion by: Phil Hardberger, Chief Justice

Sitting: Phil Hardberger, Chief Justice

Tom Rickhoff, Justice

Sarah B. Duncan, Justice

Delivered and Filed: December 29, 1999

AFFIRMED

This case is on remand from the Texas Supreme Court. In our original decision, we reversed the trial court's judgment based on our conclusion that Quinney Electric, Inc. ("Quinney") was collaterally estopped from relitigating its breach of contract claim. Kondos Entertainment, Inc. v. Quinney Elec., Inc., 948 S.W.2d 820, 825 (Tex. App.--San Antonio 1997), rev'd, 988 S.W.2d 212 (Tex. 1999). The Texas Supreme Court reversed our judgment on the collateral estoppel issue and remanded the case to us to consider the appellants' additional points of error. Quinney, 988 S.W.2d at 214.

Our prior opinion details the facts of the case and also resolves the fourth point of error raised by appellants, Kondos Entertainment, Inc. ("Kondos") and Jay Snyder ("Snyder"). Kondos, 948 S.W.2d at 821-24. Briefly, Quinney sued Kondos, Snyder, and V-Ball, Inc. ("V-Ball") for non-payment of fees associated with electrical services. Id. at 821. During the pendency of the suit, V-Ball filed bankruptcy and was severed from the state court action. Id. The bankruptcy court ordered payment of Quinney's proof of claim in the amount of $83,724.76. Id. at 822. Quinney pursued the state court action and was awarded a judgment against Kondos and Snyder. Id. The trial court credited the amount Quinney was paid on its claim in V-Ball's bankruptcy action, and entered a judgment against Kondos and Snyder in the amount of $40,083.58, plus post-judgment interest. Id. The judgment represented primarily the prejudgment interest, attorney's fees, and court costs not included in the amount paid in connection with the bankruptcy. Id.

In overruling the fourth point of error raised by Kondos and Snyder, we concluded in our original decision that the evidence was sufficient to support the trial court's conclusion that Kondos, Snyder and V-Ball were partners by estoppel. Id. at 822-23. We are left with five additional points to consider: (1) whether Quinney's claims are barred by the doctrine of election of remedies; (2) whether Quinney's claims are barred by the doctrine of res judicata; (3) whether the trial court erred in basing judgment on any finding of an agency relationship involving Kondos, Snyder and V-Ball; (4) whether the trial court erred in finding the existence of a single business enterprise or partnership between Kondos, Snyder and V-Ball absent V-Ball's participation at trial; and (5) whether Quinney failed to mitigate its damages. We overrule each of these contentions and affirm the trial court's judgment.

Election of Remedies

The election of remedies doctrine bars relief only when (1) one has made an informed choice (2) between two or more remedies, rights, or states of facts (3) which are so inconsistent as to (4) constitute manifest injustice. Medina v. Herrera, 927 S.W.2d 597, 600 (Tex. 1996). The purpose of the election of remedies doctrine is to prevent double recovery for a single wrong. In re M.M.O., 981 S.W.2d 72, 78 (Tex. App.--San Antonio 1998, no writ).

In this case, there is no double recovery. The judgment against Kondos and Snyder was credited by the amount Quinney was paid on his bankruptcy claim. Furthermore, the pursuit of the claim in V-Ball's bankruptcy proceeding (that was filed after Quinney filed suit in state court) was not the pursuit of an inconsistent right or remedy. See Brooks v. Eaton Yale & Towne, Inc., 474 S.W.2d 321, 324 (Tex. Civ. App.--Waco 1971, no writ). The appellants' first point of error is overruled.

Res Judicata

Because we are determining the res judicata effect of a bankruptcy court order, the federal law of res judicata applies. Geary v. Texas Commerce Bank, 967 S.W.2d 836, 837 (Tex. 1998). A bankruptcy judgment bars a subsequent suit if: (1) both cases involve the same parties; (2) the prior judgment was rendered by a court of competent jurisdiction; (3) the prior decision was a final judgment on the merits; and (4) the same cause of action is at issue in both cases. Blum v. Restland of Dallas, Inc., 971 S.W.2d 546, 550 (Tex. App.--Dallas 1997, pet. denied).

In order for res judicata to apply in this case, we would need to find that Kondos and Snyder were parties to V-Ball's bankruptcy proceeding. Parties, for purposes of res judicata, does not mean formal, paper parties only, but also includes "parties in interest," that is, persons whose interests are properly placed before the court by someone with standing to represent them. Southmark Properties v. Charles House Corp., 742 F.2d 862, 869 (5th Cir. 1984); see also Geary v. Texas Commerce Bank, 967 S.W.2d at 838-39. In addition, a final judgment is res judicata not only between parties to the bankruptcy proceeding, but also their privies. Southmark Properties, 742 F.2d at 870. A non-party is in privity with a party for res judicata purposes in three instances. Latham v. Wells Fargo Bank, N.A., 896 F.2d 979, 983 (5th Cir. 1990); see also Geary, 967 S.W.2d at 839. First, if he has succeeded to the party's interest in property, he is bound by prior judgments against the party. Latham, 896 F.2d at 983. Second, if he controlled the prior litigation, he is bound by its result. Id. Third, he is bound if the party adequately represented his interests in the prior proceeding. Id. In this case, neither of the first two types of privity are in question; therefore, we must determine whether Kondos and Snyder were "parties in interest" to the bankruptcy proceeding or were in privity with V-Ball through "adequate representation."

In Geary, the Texas Supreme Court held that federal res judicata applied to a bankrupt party's co-obligor because the bankruptcy proceeding and reorganization plan directly addressed the co-obligor's personal interests. 967 S.W.2d at 839. In this case, the personal interests of Kondos and Snyder were not directly addressed by the bankruptcy court's order on Quinney's proof of claim, and there is no indication in the record before us that those interests were ever placed before the bankruptcy court. See Howell Hydrocarbons, Inc. v. Adams, 897 F.2d 183, 188 (5th Cir. 1990) (participation by officers of corporation in corporation's bankruptcy proceeding did not place officers' personal interests before the bankruptcy court); Mathisen v. Commissioner, 22 T.C. 995, 998 (1954) (partners not in privy with other partners solely by reason of partnership relationship for res judicata purposes); Rohdie v. Washington, 641 S.W.2d 317, 320 (Tex. App.--El Paso 1982, writ ref'd n.r.e.) (state suit against general partners not barred by bankruptcy proceeding involving limited partnership); cf. In re Spiers Graff Spiers, 190 B.R. 1001, 1006 (Bankr. N.D. Ill 1996) (no res judicata effect where partners' personal liability not before the court but expressly reserved for another day). Kondos and Snyder were not in privity with V-Ball based on "adequate representation" because there is no evidence of an express or implied legal relationship between V-Ball, Kondos and Snyder. See Benson & Ford, Inc. v. Wanda Petroleum Co., 833 F.2d 1172, 1175 (5th Cir. 1987). Therefore, res judicata does not apply.(1) The appellants' second point of error is overruled.

Agency Relationship

In their third point of error, Kondos and Snyder contend that the trial court erred in entering judgment based on any finding of any agency relationship. The trial court expressly found in its judgment that no agency relationship existed. In addition, our holding that a partnership by estoppel existed is sufficient grounds to impose liability on Kondos and Snyder. See Kondos, 948 S.W.2d at 822-23. The appellants' third point of error is overruled.

Absence of V-Ball's Participation

Kondos and Snyder assert that the trial court erred in finding the existence of a single business enterprise or partnership involving V-Ball absent V-Ball's participation at trial. Kondos and Snyder contend that because V-Ball's rights were affected, it was a necessary and indispensable party to the litigation.

Rule 39 requires the joinder of a person who is subject to service of process if (1) in his absence complete relief cannot be accorded among those already parties; or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impeded his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest. Tex. R. Civ. P. 39. Kondos and Snyder contend that V-Ball had an interest in the trial court's determination that a partnership existed and that V-Ball was a necessary party to the action so that it could protect itself from exposure to "large liabilities" based on the partnership finding. The contention raised by Kondos and Snyder ignores that V-Ball was originally a party to the lawsuit but was severed after it filed bankruptcy. The contention also ignores that our prior decision found the relationship between the parties to be one of partners by estoppel. Kondos, 948 S.W.2d at 823. Where parties are found to be partners by estoppel, their only exposure as a result of that finding is to the person to whom the representation regarding the existence of a partnership was made. See id. (elements of partnership by estoppel include representation of partnership and reliance by one to whom representation made). In this case, the extent of V-Ball's exposure based on the finding of partnership by estoppel is limited to the indebtedness to Quinney. Since V-Ball's liability to Quinney was resolved by the bankruptcy proceeding, V-Ball's interest in that liability could not be impaired or impeded by his absence from the instant proceeding. The appellants' fifth point of error is overruled.

Mitigation

In their sixth point of error, Kondos and Snyder contend that the trial court erred in failing to grant a new trial or judgment for them because Quinney failed to mitigate its damages. Kondos and Snyder assert that if Quinney had filed a mechanic's and materialmen's lien, its claim against V-Ball in bankruptcy would have been secured, and it would have been entitled to recover interest and attorney's fees against V-Ball. By failing to secure its claim by filing the lien, Kondos and Snyder contend that Quinney failed to mitigate its damages.

The doctrine of mitigation requires an injured party to exercise reasonable care to minimize its damages, if the damages can be avoided with only slight expense and reasonable effort. Great American Ins. Co. v. North Austin MUD No. 1, 908 S.W.2d 415, 426 (Tex. 1995). Kondos and Snyder assert Quinney could have mitigated its damages by filing a lien that would have enabled Quinney to collect attorney's fees and interest from V-Ball in the bankruptcy proceeding. This assertion necessarily recognizes that the attorney's fees and interest would not have been "avoided." The lien simply would have enabled Quinney to collect the same amount from a different source. Kondos and Snyder are really contending that Quinney's filing of the lien might have minimized the "loss" to Kondos and Snyder, not the damages to Quinney. The doctrine of mitigation does not apply in that manner. The appellants' sixth point of error is overruled.

Conclusion

The judgment of the trial court is affirmed.

PHIL HARDBERGER,

CHIEF JUSTICE

DO NOT PUBLISH

1. We also note that Quinney's proof of claim expressly reserved the right to pursue a legal claim against Kondos. Res judicata does not apply when a cause of action has been expressly reserved for later adjudication. D & K Properties Crystal Lake v. Mutual Life Ins. Co. of New York, 112 F.3d 257, 259-60 (7th Cir. 1997).