Stephen Monteith Clarke v. Harris L. Kempner, et al.--Appeal from 133rd District Court of Harris County

Annotate this Case

WITHDRAWN

12-31-02

 

IN THE

TENTH COURT OF APPEALS

 

No. 10-01-263-CV

 

STEPHEN MONTEITH CLARKE,

Appellant

v.

 

HARRIS L. KEMPNER, ET AL.,

Appellees

 

From the 133rd District Court

Harris County, Texas

Trial Court # 00-06086

O P I N I O N

Stephen Clarke (Clarke) and Harris Kempner, III (Kempner) owned separate businesses in Houston that provided facilities and services for special events such as receptions, banquets, and parties. Clarke and Kempner had separate contracts with Dan Blasingame s businesses to cater the food and alcoholic beverages served at the events. In the summer of 1997, after a restaurant project involving Clarke and Blasingame failed to develop as planned, they sued each other. There was a mediation which included Kempner, because a possible resolution of the disputes between Clarke and Blasingame might include a business arrangement among the three. The mediation was successful. To carry the settlement agreement into effect, documents were signed which resulted in (a) dismissal of the lawsuit, (b) establishment of a limited partnership // between Kempner, Clarke, and 2840 GP, L.L.C. (L.L.C.), a limited liability company owned by Kempner, (c) execution of an Exclusive Beverage Services Agreement and a Premier Catering Agreement between Clarke, // the limited partnership, and Blasingame s companies, and (d) a mutual release. The limited partnership thus formed was named 2840 Chimney Rock, Ltd. (the limited partnership). L.L.C. was the general partner and Clarke and Kempner were limited partners. Clarke s interest was thirteen percent of the gross revenue and twenty percent in the capital of the limited partnership.

The purpose of the limited partnership was to renovate a building which had been purchased by Kempner in October 1997 and conveyed to 2840 Chimney Rock, Ltd. in January 1998 and turn it into another facility, to be called La Bella Terraza, for receptions, banquets, and parties. Under the partnership agreement, Clarke was to make an initial capital contribution of: (a) an assignment of his interest in a copyright to plans and drawings he had made; (b) a license to use, copy, and modify the trade dress rights which he had in the project; and (c) design assistance, as requested by the partnership, during construction of La Bella Terraza. Clarke provided no money for his interest in the partnership, but the partnership agreement valued his contributions at $166,035.

THE DISPUTE

The work on La Bella Terraza lasted from June 1998 to January 1999. However, things did not go well between Clarke and Kempner, who accused Clarke of not providing his expertise in the design of the facility or assigning his design-concept to the partnership. Kempner also claimed that Clarke owed his share (twenty percent) of the 1997 taxes due on the building in the amount of $2,757.48. // He made demand for payment on Clarke under specific provisions of the partnership agreement. Kempner said that on October 30, 1998, he sent Clarke a letter demanding payment in twenty days, and on November 24, 1998, he sent Clarke another letter informing him that his interest in the partnership had been repossessed under the terms of the partnership agreement. Kempner also claimed he sent a final letter, dated December 26, 1998, which informed Clarke that his interest had been forfeited. La Bella Terraza opened in February 1999 under the operation of Blasingame.

In February 2000, Clarke sued Kempner, L.L.C., and the limited partnership. Among other claims, Clarke accused Kempner of only pretending to send the notice letters about the taxes by mailing empty envelopes to obtain mailing receipts, or, in the alternative, of burglarizing Clarke s office to take the notice letters so Clarke would not see them. His requested relief included: (1) a declaration that he was still a partner in the partnership; (2) a receiver for the partnership, or an order removing L.L.C. as the general partner; (3) an accounting; (4) actual and punitive damages; (5) a charging order for amounts he was entitled to under the partnership agreement; and (6) attorney s fees.

Kempner and the partnership (but not L.L.C.) countersued, alleging that Clarke never intended to work on the La Bella Terraza project and that his real motive was to undermine the project so it would not compete with his own facility. They requested: (1) a declaration that Clarke no longer held an interest in the partnership and attorney s fees associated therewith; (2) over $168,000 in damages for breach of contract because Clarke failed to fulfill duties under the partnership agreement; (3) over $166,000 in damages because Clarke defrauded them by making false representations about his abilities and the assignment of the trade dress ; (4) over $500,000 in damages for breach of fiduciary duty; (5) over $500,000 in damages for violations of the Deceptive Trade Practices Act (DTPA); (6) repayment of a $15,000 loan made by Kempner to Clarke when the partnership was formed and attorney s fees associated therewith; and (7) punitive damages.

A jury trial was held in May 2001. The jury found:

" Kempner and 2840 Chimney Rock GP., L.L.C. did not breach a fiduciary duty to Clarke by either (a) requesting the 1997 taxes or (b) failing to provide notices to Clarke of the forfeiture.

" Clarke failed to comply with the partnership agreement, but there were no damages as a result. // Damages were defined as [t]he market value of Clarke s services and support to the Bella Terrazza that were not provided.

" Clarke defrauded Kempner. // As a result, damages to Kempner and the partnership were owed in the amount of $83,000.

" Clarke breached his fiduciary duty to Kempner and the partnership. As a result, damages were owed to Kempner and the partnership in the amount of $30,000.

" Clarke did not act with malice.

" Clarke made misleading representations to Kempner and the partnership (DTPA Claim). As a result, damages to Kempner and the partnership were $83,000.

" Clarke knowingly made the misrepresentations, resulting in $2,757.48 in damages to the partnership. //

" Reasonable attorney s fees for Kempner and the partnership were $80,000, plus $10,000 for a direct appeal, $5,000 if a petition for review is filed or responded to, and $5,000 if the petition were granted.

" No attorney s fees for Kempner regarding a $15,000 loan, on which there was an unopposed instructed verdict.

" Reasonable attorney s fees for Clarke were $70,000, plus $10,000 for a direct appeal, $5,000 if a petition for review is filed or responded to, and $5,000 if the petition were granted.

 

The judgment against Clarke awarded (1) $15,000 to Kempner plus prejudgment interest, (2) $83,000 to both defendants plus prejudgment interest, (3) $2,757.48 to the partnership as punitive damages, and (4) the defendants attorney s fees. The judgment denied Clarke s request for declaratory relief, and all other relief regarding both parties was denied.

ISSUES ON APPEAL

Clarke complains:

1. The 1997 taxes were incurred before the partnership agreement, and so Clarke had no duty under the partnership agreement to pay them. Therefore, the forfeiture of his partnership interest was invalid, the defendants breached their fiduciary duty by forfeiting his interest, and judgment should be rendered in his favor on this claim.

2. Evidence of his thirteen-percent share of the gross revenues of the limited partnership was undisputed, and judgment for damages should be rendered in his favor.

3. He is entitled to judgment for his attorney s fees.

4. The jury s answers that Clarke breached the contract, but there were no damages, establish that he substantially performed the contract.

5. The evidence was legally insufficient to support the jury s damages findings for the claims of fraud, breach of fiduciary duty, and violations of the Deceptive Trade Practices Act. And without actual damages, the award of $2,757.48 in damages for a knowing violation cannot stand.

6. The evidence is legally and factually insufficient to support the jury s failure to find that the defendants did not breach their fiduciary duty to Clarke.

Clarke s Claim for a Declaratory Judgment

The partnership agreement states [t]he General Partner may issue notices for additional Capital Contributions to each Partner based on each Partner s Capital Interest for (i) taxes and insurance associated with the project, (ii) costs associated with the improvement, development, expansion, and remodeling of the Project which may accrue after the 3rd anniversary date of this Agreement, and (iii) other costs and expenses incurred in connection with the Project. [Section 5.2] The following definitions are provided in Section 1.1 of the agreement:

" Project : [T]he Property and the Development, in whatever stage of completion, and all rights associated with the development which belong to the Partnership, including all business operated on or out of the Property.

" Property : Lots 43, 44, and 45 of Westheimer Estates, a subdivision in Harris County, Texas according to the map or plat thereof recorded in Volume 25, Page 29 of the Map Records of Harris County, Texas (also known as 2840 Chimney Rock, Houston, Texas 77056).

" Development : (a) [T]he acquisition and ownership of the Property, and (b) the planning, engineering, construction, operation, financing, management, leasing, and/or sale of all or portions of the Property.

Also applicable is Section 5.5(c): A Partner s Capital Account shall be debited with (i) the amount of cash and the Book Value of any Partnership property distributed to such Partner pursuant to any provision of this Agreement, (ii) such Partner s allocable share of Losses, and (iii) the amount of any liabilities of such Partner that are expressly assumed by the Partnership or that are secured by any property contributed by such Partner to the Partnership.

By the agreement s express wording, Clarke was obligated to pay taxes . . . associated with the project. The project includes the property and the development. The property is the building which was renovated. The development includes the acquisition . . . of the Property. Both parties assert that the plain language of these provisions support their respective positions. However, Section 5.5(c) makes liabilities of a partner that are assumed by the partnership, or that are secured by property contributed to the partnership, the responsibility of that partner.

A partnership agreement is construed under the general law of contracts. Park Cities Corp. v. Byrd, 534 S.W.2d 668, 672 (Tex. 1976); Kahn v. Seely, 980 S.W.2d 794, 797 (Tex. App. San Antonio 1998, pet. denied); Murphy v. Seabarge, LTD, 868 S.W.2d 929, 933 (Tex. App. Houston [14th Dist.] 1994, no writ). In construing a contract, the goal is to determine the intent of the parties. Nat. Union Fire Ins. v. CBI Industries, 907 S.W.2d 517, 520 (Tex. 1995); Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1993); Kahn, 980 S.W.2d at 797. A contract is construed according to the plain meaning of its express wording. Lyons v. Montgomery, 701 S.W.2d 641, 643 (Tex. 1985); Kahn, 980 S.W.2d at 797.

The evidence concerning the unpaid taxes is undisputed. When Kempner acquired the property in 1997, he received credit for the seller s portion of the 1997 taxes, which then went unpaid. When he conveyed the property to the partnership in 1998, before the partnership between Clarke, Kempner and the L.L.C. was formed, the deed provided: Reservations from and Exceptions to Conveyance and Warranty: . . . Real estate taxes for the year 1998 which are hereby assumed by [Grantee]. Thus, Kempner remained responsible for 1997 taxes left unpaid when the property was purchased. It may be that when Kempner executed the partnership agreement he was unaware that back taxes were owing for 1997, but that does not change our conclusion that the 1997 taxes were his personal liability and should have been debited to his capital account under Section 5.5(c) of the partnership agreement.

Because we find that, as a matter of law under the partnership agreement, Clarke was not responsible for payment of any part of the 1997 taxes, then, also as a matter of law, Kempner and L.L.C. wrongfully repossessed or forfeited Clarke s interest in the partnership. We sustain Clarke s first issue. We will render the judgment that the trial court should have rendered, i.e., judgment for Clarke on his claim for declaratory relief and judgment that Kempner and the partnership take nothing by their counterclaim for a declaratory judgment based on an assertion of Clarke s breach of the partnership agreement by failing to pay the assessment.

Clarke s Claim for Partnership Revenues

Clarke claims that, because his share of the partnership was wrongfully forfeited and he remains a partner, he is entitled to his thirteen percent share of the gross profits under the partnership agreement. He claims that the undisputed evidence at trial established this amount at $40,533.49. Clarke preserved his complaint by a motion for judgment notwithstanding the verdict.

Section 4.3 of the limited partnership agreement provides that Clarke s Operational Interest in the partnership is based on the volume of Gross Sales. The Annual Gross Revenue is computed for each calendar year and was to be prorated for the year 1998. Section 9.2(a) requires the limited partnership to distribute to Clarke monthly, beginning April 15, 1998, his operational interest in gross revenues received by the partnership during the previous month. His second issue asserts that the amount to which he is entitled was conclusively established by the evidence. We agree. Furthermore, although there was no jury question about these damages, matters conclusively proven require no jury question. Henshaw v. Kroenecke, 656 S.W.2d 416, 420 (Tex. 1983); Transit Ent. v. Addicks Tire & Auto Supply, 725 S.W.2d 459, 462 (Tex. App. Houston [1st Dist.] 1987, no writ); Tex. R. Civ. P. 279.

We sustain this issue and will render judgment in favor of Clarke for $40,533.49.

Attorney s Fees

Having found that the trial court should have entered judgment for Clarke on his request for declaratory relief and damages, we now address his third issue relating to attorney s fees. In response to questions to find the reasonable attorney s fees for each party s necessary services, the jury found: $70,000 for Clarke and $80,000 for Kempner and the partnership for trial of the case, $10,000 for an appeal to the court of appeals, $5,000 for making or responding to a petition for review to the supreme court, and $5,000 if the petition is granted. The parties further stipulated that the amount of attorney s fees should be increased by $15,000 for post-trial motions.

Kempner s Attorney s Fees

In Utley v. Marathon Oil Co., we said:

Under the declaratory judgments act, the granting of attorney's fees is with the discretion of the trial court. See Tex. Civ. Prac. & Rem. Code Ann. 37.009 (Vernon 1997); Bocquet v. Herring, 972 S.W.2d 19, 20 (Tex. 1998). The act, however, imposes four limitations on that discretion. See Bocquet, 972 S.W.2d at 21. The attorney's fees must be (1) reasonable, (2) necessary, (3) equitable, and (4) just. See id. Whether the attorney's fees are reasonable and necessary are fact questions. See id. Whether the attorney's fees are equitable and just are matters of law, which come within the trial court's discretion. See id. The court may conclude it is not equitable or just to award reasonable and necessary attorney's fees. See id.

 

Utley v. Marathon Oil Co., 31 S.W.3d 274, 281 (Tex. App. Waco 2000, no pet.) (quoting Stephenson v. LeBoeuf, 16 S.W.3d 829, 843 (Tex. App. Houston [14th Dist.] 2000, no pet.)).

The jury determined the fact questions; it was asked to find the reasonable attorney s fees for each party s necessary services. The parties stipulated to an increase in the amount for post-trial services. Clarke does not assert that the amounts are unreasonable or unnecessary. Thus, we must address the legal questions of equitable and just. See Stephenson, 16 S.W.3d at 843 (court of appeals found that an award of attorney's fees was neither equitable nor just); see also Bocquet, 972 S.W.2d at 20.

Based on this record and in light of our holdings, we find that the award of attorney s fees to Kempner and the partnership under the declaratory judgment act is neither equitable nor just. Stephenson, 16 S.W.3d at 843. Thus, the trial court abused its discretion in awarding attorney s fees to Kempner and the partnership.

Clarke s Attorney s Fees

We find that Clarke should have been awarded attorney s fees under section 38.001(8) of the Civil Practice and Remedies Code. Tex. Civ. Prac. & Rem. Code Ann. 38.001(8) (Vernon 1997). Neither party objected to the jury questions on attorney s fees. Tex. R. Civ. P. 274. Nor were the amounts of attorney s fees disputed. Id. 279. Therefore, we sustain Clarke s third issue, and we will render judgment that Clarke is entitled to his attorney s fees as determined by the jury and the stipulation.

Breach of Contract by Clarke

The obligations that were the subject of Kempner s and the partnership s counterclaim for breach of contract arose by virtue of Clarke s agreement with the partnership for his capital contribution. In issue four, Clarke asserts that the jury s finding of zero damages, although it found that he had breached the agreement, entitles him to judgment on that claim. We agree. We will render judgment that Kempner and the partnership take nothing by virtue of their breach of contract claim.

Breach of Fiduciary Duty, Fraud, and DTPA Claims

Clarke s fifth issue attacks the findings that he committed fraud against Kempner and breached a fiduciary duty and violated the Deceptive Trade Practices Act with respect to Kempner and the partnership.

Fraud

In question seven the jury found that Clarke committed fraud against Kempner by a misrepresentation or by failing to disclose a material fact. In question eight, however, the jury was asked to assess damages for that fraud accruing to both Kempner and the partnership. It found $83,000.

Clarke s obligation was to make his capital contribution as set forth in the partnership agreement. That obligation was to the partnership, not to Kempner. The jury found that he breached that obligation, but it awarded no damages. Ordinary breach of contract is not fraud. Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 435 (Tex. 1986) ("Failure to perform, standing alone, is no evidence of the promisor's intent not to perform when the promise was made. However, that fact is a circumstance to be considered with other facts to establish intent."). We find no evidence that Clarke committed fraud, as defined in the charge, against Kempner. We sustain the fifth issue as to the finding of fraud and will render judgment for Clarke on that claim.

Fiduciary Duty

Question nine asked whether Clarke breached a fiduciary duty to Kempner and the partnership. // None of the parties has asked, either at trial or on appeal, whether limited partners owe a fiduciary duty to anyone or, if so, to whom. Clarke did assert in a motion for judgment notwithstanding the verdict that there was no evidence that would allow a recovery for breach of a fiduciary duty.

Under the Texas Revised Limited Partnership Act ( TRLPA ) of 1987, limited partners do not ordinarily participate in control of the business and are not (with a few exceptions not applicable here) liable for partnership obligations. Tex. Rev. Civ. Stat. Ann. art. 6132a-1, 3.03(a) (Vernon Supp. 2002). The TRLPA makes the law of general partnerships applicable to limited partnerships in the absence of another governing statute and is silent with respect to the duties of a limited partner. Id. 13.03. However, section 4.03 of the TRLPA provides that general partners of a limited partnership have, with exceptions, the same rights, powers, and liabilities of partners in a general partnership. Id. 4.03. This can be read to include duties. By implication, limited partners do not have those rights, powers, and duties. Indeed, article VI of the agreement creating the limited partnership so limits the rights, duties, and liability of each limited partner. Furthermore, under the Texas Revised Partnership Act (TRPA), general partners owe only duties of loyalty and care as defined by that act. Tex. Rev. Civ. Stat. Ann. art. 6132b-4.04(a), (b), (c) (Vernon Supp. 2002). And article 6132b-4.04 of the act states that a partner is not held to the same standards as a trustee. Id. art. 6132b-4.04(f) (Vernon Supp. 2002). This is not a traditional fiduciary duty. Id. (Comment of the Bar Committee 1993).

Furthermore, a limited partner would be liable for a breach of the partnership agreement only if we applied section 13.03 of article 6132a-1. Id. art. 6132a-1, 13.03(a) (Vernon Supp. 2002). Although article 6132b-4.05 refers to both a breach of the agreement and a violation of a duty (as defined in the article), only general partners have duties. The TRLPA is silent about what duty a limited partner owes; by the enactment of a statute concerning the duties of loyalty and care of a general partner, we infer that the absence of a statute about similar duties of a limited partner means the Legislature intended that they have none.

But the parties, in their pleadings and by the charge as submitted, tried the case as though Clarke and Kempner, as the limited partners, had the same duties to each other and to the partnership as L.L.C., the general partner. Furthermore, the charge used the term fiduciary duty with respect to the duty each owed to the other and then mixed parts of the common law definition with the statutory definitions of duty found in article 6132b-4.05.

Finally, the limited partnership agreement provides that it contains the entire agreement by and among the parties and supersedes any prior understandings and agreements among them.

The jury found that Clarke breached a fiduciary duty to Kempner and to the limited partnership, resulting in damages of $30,000. // Clarke, as a limited partner, owed no fiduciary duty to Kempner or to the partnership. We sustain issue five with respect to the finding of a breach of fiduciary duty and will render judgment for Clarke on that claim.

DTPA

By question twelve, the jury was asked whether Clarke had committed a false, misleading, or deceptive act or practice that was a producing cause of damage to Kempner and the limited partnership. Clarke was contractually obligated to make a specified capital contribution under the limited partnership agreement. The jury found that his failure to do so was a breach of contract. The Supreme Court has repeatedly held that a mere breach of contract, without more, is not a DTPA violation. Crawford v. Ace Sign, Inc., 917 S.W.2d 12, 14-15 (Tex. 1996); La Sara Grain Co. v. First Nat l Bank, 673 S.W.2d 558, 565 (Tex. 1984); Ashford Dev., Inc. v. USLife Real Estate Servs.Corp., 661 S.W.2d 933, 935 (Tex. 1983).

Because the finding of a DTPA violations fails, the findings of a knowing violation and the attendant award of punitive damages must also fail.

We sustain issue five as to the DTPA claim and will render judgment for Clarke on that claim.

Clarke s Claim of Breach of Fiduciary Duty

Clarke s final issue asserts that the evidence conclusively shows a breach of fiduciary duty by Kempner and L.L.C. Alternatively, he says the jury s failure to find such a breach is against the weight and preponderance of the evidence.

Question one asked if Kempner and/or 2840 Chimney Rock G.P., L.L.C. failed to comply with a fiduciary duty. Thus, L.L.C. s name was blended with the name of the limited partnership to read 2840 Chimney Rock G.P., L.L.C. That mistake was not repeated throughout the rest of the charge. First, Kempner, as a limited partner, owed Clarke, a fellow limited partner, no duty. Second, there can be no evidence of a breach of fiduciary duty by an entity that does not exist, i.e., 2840 Chimney Rock G.P., L.L.C. Thus, we conclude that under the question asked: (a) Kempner had no fiduciary duty to Clarke; (b) the other entity inquired about does not exist; and (c) Clarke did not submit a proper jury question inquiring about a breach of fiduciary duty by L.L.C. We overrule issue six.

Debt due Kempner by Clarke

Clarke concedes that the judgment awarding Kempner $15,000 plus six per cent interest is correct. Accordingly, we will affirm the judgment on that claim.

JUDGMENT

We affirm that part of the judgment that Harris L. Kempner III recover from Stephen M. Clarke the sum of $17,919.45 which amount includes prejudgment interest as of the date of judgment. Said sum may be offset against any amount awarded to Clarke herein;

We affirm that part of the judgment that Stephen M. Clarke take nothing by virtue of his claim for appointment of a receiver, appointment of a general partner for 2840 Chimney Rock Ltd., and for an accounting of the affairs of 2840 Chimney Rock Ltd. up to the time of trial;

We reverse that part of the judgment denying Stephen M. Clarke a declaratory judgment and render a declaratory judgment that Stephen M. Clarke is a limited partner of 2840 Chimney Rock Ltd. and that Harris L. Kempner III, 2840 GP, L.L.C., and 2840 Chimney Rock Ltd. were not entitled to foreclose on or forfeit Stephen M. Clarke s interest in the partnership based on unpaid taxes for the year 1997;

We render judgment that Stephen M. Clarke recover under of his claim for distribution of amounts due him under the limited partnership agreement of 2840 Chimney Rock Ltd. as of the date of trial, in the sum of $40,533.49 which amount includes prejudgment interest as of the date of judgment;

We reverse that part of the judgment awarding Harris L. Kempner III and 2840 Chimney Rock Ltd. $83,000 plus prejudgment interest and punitive damages of $2,757.48 on their counterclaims based on fraud and/or a violation of the Deceptive Trade Practices Act and render judgment that they take nothing by virtue of their counterclaims based on (1) an asserted right to forfeit Stephen M. Clarke s interest in the partnership, (2) breach of contract, (3) fraud, (4) breach of fiduciary duty, and (5) a violation of the Deceptive Trade Practices Act;

We reverse the judgment for attorney s fees awarded to Harris Kempner and 2840 Chimney Rock Ltd. and render judgment that Stephen M. Clarke recover of and from Harris L. Kempner III and 2840 GP, L.L.C., jointly and severally, attorney s fees in the amount of $105,000; provided that $10,000 of this award shall be remitted in the event Stephen M. Clarke does not file a petition for review and is not required to respond to a petition for review filed by any other party in the Supreme Court of Texas, and $5,000 shall be remitted if a petition for review is filed in but not granted by the Supreme Court of Texas; and

Postjudgment interest on all sums awarded herein shall run from the date of the trial court s judgment.

We assess costs of the trial and appeal against Harris L. Kempner III and 2840 GP, L.L.C., jointly and severally.

 

BILL VANCE

Justice

 

Before Chief Justice Davis,

Justice Vance, and

Justice Gray

Judgment affirmed in part, reversed and rendered in part

Opinion delivered and filed December 11, 2002

Do not publish

[CV06]