Juan Julio Morales , Kathryn Alyce Murphy, and Vanderlei Bernardi v. 6800 Southwest Freeway, Inc. ( 2013 )

Opinion issued August 6, 2013
In The
Court of Appeals
For The
First District of Texas
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NO. 01-11-00775-CV
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JUAN JULIO MORALES, KATHRYN ALYCE MURPHY, AND
VANDERLEI BERNARDI, Appellants
V.
6800 SOUTHWEST FREEWAY, INC., Appellee
On Appeal from the County Civil Court at Law No. 2
Harris County, Texas
Trial Court Case No. 976,947
MEMORANDUM OPINION
6800 Southwest Freeway, a commercial property owner in Houston, entered
into a lease agreement with Juan Julio Morales, Kathryn Alyce Murphy, and
Vanderlei Bernardi, investors in a joint venture to open and operate Tradiçao
Brazilian Steakhouse, a fine dining restaurant. During the term of the lease
agreement, various disputes arose among the parties, which culminated in the
underlying lawsuit.
After a trial on the merits, the jury found, among other things, that (1) both
6800 and the restaurant failed to comply with the lease agreement; (2) neither of
the parties’ failure to comply was excused; and (3) the restaurant was the first party
to fail to comply. 6800 moved for judgment on the jury’s findings that favored it
and to disregard the jury’s finding against it. The trial court granted the motion.
The restaurant appeals, contending that the trial court erred in: (1) disregarding the
jury’s finding that 6800 breached the lease agreement; (2) allowing 6800 to
recover back rent; (3) refusing to submit the restaurant’s Deceptive Trade Practices
claim to the jury; and (4) denying the restaurant’s request for declaratory relief and
attorney’s fees. Finding no error, we affirm.
Background
6800 bought a large commercial property at a foreclosure sale. It operated
an automobile repair shop out of part of the building, but the building was larger
than it needed, so it decided to rent the remainder of the premises. The building
had previously housed a buffet restaurant, and much of the restaurant equipment
remained inside. Bernardi, who was looking for a location in which to operate the
restaurant, saw a “For Lease” sign while driving by the property. He walked
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through the premises several times and eventually met with a part-owner and
manager Joe Chan. Bernardi and Joe Chan negotiated the lease terms and signed a
lease in June 2008, whereupon the restaurant investors began remodeling the
restaurant space, a project that they anticipated would take at least two months.
Hurricane Ike struck the Houston area on September 13, 2008. The building
sustained damage to the exterior; the wind tore off roof shingles and vinyl siding.
6800’s property maintenance manager testified that he walked through the tenant
space about two days before the hurricane and walked through again immediately
after, and he did not see any interior damage. The maintenance manager recounted
that, at the time, he asked the tenants if they noticed any damage, and they had said
no. Chan testified that the parties did not discuss the installation of a separate
electrical system before they signed the lease. The parties looked into sharing the
existing electrical system, but discovered that the City would not permit it. In
August 2008, after Bernardi looked into the cost of installing a separate system, he
asked Chan for a loan to help pay for the installation, and Chan agreed to loan him
$11,000.00.
The restaurant investors planned to open the restaurant in October 2008. By
the beginning of October, the restaurant was not ready to open. Bernardi told Chan
that the remodeling was taking longer than they expected, and he asked Chan if he
could pay $8,000.00 for the rent that month instead of the $12,925.00 due under
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the lease. Chan agreed to accept the lower payment. Bernardi approached Chan
again in November and December, and, after some negotiation, Chan agreed to
accept a discounted rental payment of $10,000.00 for each of those months as well.
The restaurant opened in January 2009. By that summer, the restaurant
investors had made numerous complaints about the air conditioning system’s
inadequate ventilation and cooling capacity. 6800 made various attempts to repair
the system, but did not resolve the problems in a satisfactory manner.
As the lease term continued, the relationship among the parties became more
contentious. Bernardi failed to repay the $11,000.00 loan, and the restaurant failed
to make timely rental payments. The restaurant did not pay any rent for September
and October 2010, claiming that the lease had relieved them of the obligation to
pay rent in September and October 2008, and that 6800 should apply a credit for
the rental payments that the investors had made during that period.
6800 instituted a suit to evict the restaurant and for damages resulting from
the restaurant’s alleged breach of the lease agreement. The restaurant investors
answered and counterclaimed for breach of the lease and violation of the Texas
Deceptive Trade Practices Act.
The jury found that both 6800 and the restaurant investors had failed to
comply with the lease agreement; that neither was excused from its failure to
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comply; and that the restaurant investors were the first to fail to comply with the
lease agreement.
Discussion
I. Breach of Lease Agreement
A. Applicable law
The essential elements of a breach of contract claim are (1) the existence of
a valid contract; (2) performance or tendered performance by the plaintiff;
(3) breach of the contract by the defendant; and (4) damages sustained as a result
of the breach. Valero Mkt’g & Supply Co. v. Kalama Int’l, 51 S.W.3d 345, 351
(Tex. App.—Houston [1st Dist.] 2001, no pet.). “A breach of contract occurs
when a party fails or refuses to do something he has promised to do.” B&W
Supply, Inc. v. Beckman, 305 S.W.3d 10, 16 (Tex. App.—Houston—[1st Dist.]
2009, pet. denied) (quoting Mays v. Pierce, 203 S.W.3d 564, 575 (Tex. App.—
Houston [14th Dist.] 2006, pet. denied)). When, as here, the parties on both sides
have allegedly failed to comply with their agreement, the fact finder must find not
just whether each party materially breached the agreement, but which material
breach occurred first. See Mustang Pipeline Co. v. Driver Pipeline Co., 134
S.W.3d 195, 200 (Tex. 2004). The second inquiry answers which side is released
from its obligations and which side is liable for contract damages. See id. “It is a
fundamental principle of contract law that when one party to a contract commits a
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material breach of that contract, the other party is discharged or excused from
further performance.” Id. at 196.
B. Reconciling the Jury’s Verdict
The jury made the following findings on the parties’ breach of contract
claims:
1. Did either of the parties named below fail to comply with the July
1, 2008 lease agreement?
Answer “Yes” or “No” for each of the following:
A. 6800 Southwest Freeway, Inc.
Answer: Yes
B. Juan Julio Morales, Kathryn Alyce Murphy, and Vanderlei
Bernardi
Answer: Yes
2. Was the failure to comply with the July 1, 2008 lease agreement
excused?
Failure to comply with the agreement is excused by the other
parties’ previous failure to comply with a material obligation of the
same agreement.
Answer “Yes” or “No” for each of the following:
A. 6800 Southwest Freeway, Inc.
Answer: No
B. Juan Julio Morales, Kathryn Alyce Murphy, and Vanderlei
Bernardi
Answer: No.
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Because the jury answered “No” to Question 2 for both 6800 and the
restaurant investors, it also answered the following:
3. Who failed to comply with the July 1, 2008 lease agreement first?
Answer: Tenants Juan Julio Morales, Kathryn Alyce Murphy,
Vanderlei Bernardi
The restaurant investors complain that the trial court erred in disregarding the
jury’s finding that 6800 also breached the lease agreement and granting 6800’s
motion for judgment notwithstanding the verdict [jnov] on that issue.
1. Standard of review
A trial court may disregard a jury’s verdict and render a jnov if the evidence
is legally insufficient to support the jury’s findings or if a directed verdict would
have been proper because a legal principle precludes recovery. TEX. R. CIV. P.
301; see Fort Bend County Drainage Dist. v. Sbrusch, 818 S.W.2d 392, 394 (Tex.
1991); Williams v. Briscoe, 137 S.W.3d 120, 124 (Tex. App.—Houston [1st Dist.]
2004, no pet.). The test for legal sufficiency is “whether the evidence at trial
would enable reasonable and fair-minded people to reach the verdict under
review.” City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). In making
this determination, we credit favorable evidence if a reasonable fact-finder could
and disregard contrary evidence unless a reasonable fact-finder could not. Id. So
long as the evidence falls within the zone of reasonable disagreement, we may not
substitute our judgment for that of the fact-finder. Id. at 822. The fact-finder is the
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sole judge of the credibility of the witnesses and the weight to give their testimony.
Id. at 819. Although we consider the evidence in a light most favorable to the
challenged findings, indulging every reasonable inference that supports them, we
may not disregard evidence that allows only one inference. Id. at 822.
2. Analysis
The restaurant contends that 6800 breached the lease agreement by failing to
pay for the permitting and contracting costs associated with installing the separate
electrical system. It cites Bernardi’s testimony that Chan orally agreed that 6800
would get “whatever is necessary for us to open the restaurant, all the permits,”
asserting that Chan’s promise necessarily included installation of the new electrical
system, because that, too, required a permit. That alleged oral promise, however,
cannot alter the obligations set forth in the lease, which allows for modification
“only by a further writing that is duly executed by both parties.” Bernardi’s
testimony thus does not raise a fact issue concerning 6800’s duties under the lease.
In a “special provision” in the lease, 6800 expressly agreed to “build and
install air conditioning, interior walls, and [r]estrooms.” No provision exists
concerning the electrical system. The lease places the responsibility to repair
“major mechanical systems” on the landlord, but it provides that the “Tenant shall
comply with all laws, orders, ordinances, and public requirements now or hereafter
pertaining to Tenant’s use of the Leased Premises.”
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Chan agreed to loan Bernardi $11,000.00 for the electrical system build-out,
and Bernardi signed an IOU in which he acknowledged that he was:
borrowing $11,000.00 from [6800] for building the electricity at [the
restaurant]. I will pay first payment of $5,500 back to [6800] on
January 01, 2009, and pay the second and last payment of $5,500.00
back to [6800] on February 1, 2009, I understand that there will be
late fee[s] and interest . . . if I don’t make the payments on time.
The jury found that Bernardi breached that loan agreement by failing to repay it,
and Bernardi does not challenge that finding on appeal. Crediting all favorable
evidence that reasonable jurors could believe and disregarding all contrary
evidence except that which they could not ignore, we hold there was no evidence
to support a finding that 6800 breached the lease agreement by failing to bear the
responsibility for installing the separate electrical system in the restaurant’s space.
The restaurant investors also point to evidence of 6800’s failure to
adequately repair the air conditioner in the restaurant, contending that legally
sufficient evidence supports the jury’s breach finding on this ground. The
evidence shows that the air conditioner’s performance was a source of contention
among the parties over much of the lease term. Nevertheless, the trial court did not
err in disregarding the breach finding against 6800, because the jury also found
that the restaurant was the first party to materially breach the lease agreement. As
a result, 6800 was excused from further performance under the lease. See Mustang
Pipeline Co., 134 S.W.3d at 196. The trial court correctly granted 6800’s motion
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for jnov, because this fundamental principle of contract law forecloses the
restaurant’s claim to damages flowing from the later breach.
This principle also precludes the restaurant investors’ argument that the trial
court should have entered offsetting judgments in favor of both parties. The
restaurant investors point to the jury’s finding that 6800’s breach was not excused
as in conflict with its finding that the restaurant investors were the first to breach,
but they did not bring this issue to the trial court’s attention before the jury was
dismissed and therefore waived it. See TEX. R. CIV. P. 295; TEX. R. APP. P. 33.1.
We hold that the trial court did not err in concluding that the jury’s finding that the
restaurant investors were the first to breach provides a reasonable basis for
reconciling any conflict by disregarding the finding that 6800’s breach was not
excused. See Shamoun v. Shough, 377 S.W.3d 63, 69 (Tex. App.—Dallas 2012,
pet. denied) (“[W]e may not strike down jury answers on the basis of conflict if
there is any reasonable basis on which they can be reconciled.”).
C. Judgment in Favor of 6800 for Unpaid Rent
The restaurant investors contend that the trial court should not have entered
judgment on the jury’s finding that 6800 was entitled to recover two months’ rent
payments, because the evidence conclusively shows that Hurricane Ike rendered
the restaurant space unfit for occupancy and that, as a result, the lease agreement
excused the restaurant investors from their obligation to pay rent for October and
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November 2008. We interpret this contention as a challenge to the legal
sufficiency of the evidence supporting the verdict. See Merrell Dow Pharms., Inc.
v. Havner, 953 S.W.2d 706, 711 (Tex. 1997) (holding that legal sufficiency
challenge “will be sustained when (a) there is a complete absence of evidence of a
vital fact, (b) the court is barred by rules of law or of evidence from giving weight
to the only evidence offered to prove a vital fact, (c) the evidence offered to prove
a vital fact is no more than a scintilla, or (d) the evidence conclusively establishes
the opposite of the vital fact.”).
Paragraph 14 of the lease provides that the “Tenant [is] relieved from paying
rent and other charges” during any period of the lease term in which “the Leased
Premises or any part thereof . . . is so damaged by fire, windstorm, mother nature,
casualty or structural defects that the same cannot be used for Tenant’s purposes.”
The record shows that the parties disputed whether Hurricane Ike rendered
the restaurant unfit for occupancy. Although Bernardi testified to the contrary,
6800’s property maintenance manager told the jury that he viewed the property
both before and shortly after the storm and did not see any damage to the interior.
At the time, no one from the restaurant notified 6800 of any damage in need of
repair. The restaurant continued the remodeling immediately after the storm, and
slow progress in the remodeling delayed the restaurant’s opening, not any storm-
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related damage. We hold that sufficient evidence supports the jury’s finding that
the restaurant investors owed 6800 two months’ of rent.
II. Refusal to Charge the Jury on the Restaurant’s DTPA Claim
The restaurant also challenges the propriety of the trial court’s refusal to
submit its DTPA claim to the jury. We review a challenge to the trial court’s jury
charge under an abuse of discretion standard. Tex. Dep’t of Hum. Servs. v. E.B.,
802 S.W.2d 647, 649 (Tex. 1990); Powell Elec. Sys. v. Hewlett Packard Co., 356
S.W.3d 113, 122 (Tex. App.—Houston [1st Dist.] 2011, no pet.). A trial court
abuses its discretion when it acts in an arbitrary or unreasonable manner, or if it
acts without reference to any guiding rules or principles. Tex. Dep’t of Hum.
Servs., 802 S.W.2d at 649; Powell Elec. Sys., 356 S.W.3d at 122. A trial court has
wide discretion in submitting instructions and jury questions. Powell Elec. Sys.,
356 S.W.3d at 122.
“The DTPA grants consumers a cause of action for false, misleading, or
deceptive acts or practices.” Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 649
(Tex. 1996); There are three elements to a DTPA claim: “(1) the plaintiff is a
consumer, (2) the defendant engaged in false, misleading, or deceptive acts, and
(3) these acts constituted a producing cause of the consumer’s damages.” Doe v.
Boys Clubs of Greater Dallas, Inc., 907 S.W.2d 472, 478 (Tex. 1995) (citing TEX.
BUS. & COM. CODE ANN. § 17.50(a)(1)).
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The restaurant premised its DTPA claim, in part, on allegations that Chan
told Bernardi 6800 would get “whatever is necessary for us to open the restaurant,
all the permits.” That alleged oral representation, however, directly contradicts the
written lease, which provides that the “[t]enant shall comply with all laws, orders,
ordinances, and public requirements now or hereafter pertaining to Tenant’s use of
the Leased Premises.” Because the parties did not execute a signed writing
modifying this lease provision—which holds the restaurant responsible for
complying with any permitting requirements—Chan’s statement cannot, as a
matter of law, constitute a producing cause of any damages.
Relying on Continental Dredging, Inc. v. De-Kaizered, Inc., 120 S.W.3d
380, 390 (Tex. App.—Texarkana 2003, pet. denied), the restaurant contends that
6800 impliedly warranted that it would perform the electrical system build-out in a
good and workmanlike manner, and its alleged failure to do so violates the DTPA.
But no implied warranty can attach to a nonexistent obligation. Thus, the trial
court did not err in refusing to submit the restaurant investors’ DTPA claim based
on that implied warranty theory.
II. Denial of the Restaurant’s Requests for Declaratory Relief
and Attorney’s Fees
The restaurant investors sought declaratory relief addressing their rights
under the lease agreement, including their obligation to pay rent for the two
months following the hurricane. Their request for a declaration that 6800 breached
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the lease agreement, however, does not change the basic character of the litigation
as a breach of contract claim. See AVCO Corp. v. Interstate Sw., Ltd., 251 S.W.3d
632, 663 (Tex. App.—Houston [14th Dist.] 2007, 1994). The restaurant investors’
claim for declaratory relief fails for the same reason that its breach of contract
claim fails: the finding, supported by the evidence, that the restaurant was the first
party to breach the lease agreement renders the restaurant liable for contract
damages and relieves 6800 of its contractual duties. See Mustang Pipeline Co.,
134 S.W.3d at 196.
The restaurant cannot rely on its declaratory relief claim solely as a basis for
recovery of attorney’s fees absent appropriate relief. See Cytogenix, Inc. v.
Waldroff, 213 S.W.3d 479, 490 (Tex. App.—Houston [1st Dist.] 2006, pet. denied)
(holding that Declaratory Judgments Act did not supply basis for recovery of
attorney’s fees where claim for declaratory relief mirrored defense of breach of
contract claim and company did not recover actual damages on breach of contract
claim). Because the restaurant did not prevail on its breach of contract claim, the
trial court did not err in refusing to award attorney’s fees on based on the requested
declaratory relief. See TEX. CIV. PRAC. & REM. CODE ANN. § 38.001(8) (West
2010); MBM Fin’l v. Woodlands Operating Co., 292 S.W.3d 660, 666 (Tex. 2009)
(contract litigant may not recover fees under section 38.001(8) unless it prevails on
breach of contract claim and recovers damages).
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Conclusion
We hold that the trial court properly reconciled the jury’s verdict. We
further hold that the trial court did not err in refusing to submit the restaurant’s
Deceptive Trade Practices claim to the jury or in denying the restaurant’s request
for declaratory relief and attorney’s fees. We therefore affirm the judgment of the
trial court.
Jane Bland
Justice
Panel consists of Justices Jennings, Bland, and Massengale.
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