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Elness Swenson Graham Architects, Inc. v. RLJ II-C Austin Air

Court of Appeals of Texas, Third District, Austin

May 3, 2017

Elness Swenson Graham Architects, Inc. Cross-Appellants, Appellant,
RLJ II-C Austin Air, LP; RLJ II-C Austin Air Lessee, LP; and RLJ Lodging Fund II Acquisitions, LLC Cross-Appellee, Appellees, RLJ II-C Austin Air, LP; RLJ II-C Austin Air Lessee, LP; and RLJ Lodging Fund II Acquisitions, LLC Elness Swenson Graham Architects, Inc.



          Before Chief Justice Rose, Justices Puryear, Pemberton, Goodwin, Field and Bourland;


          Cindy Olson Bourland, Justice.

         RLJ filed a motion for rehearing, motion for reconsideration en banc, and motion to redesignate our "Memorandum Opinion" as an "Opinion." We deny RLJ's motion for rehearing, grant in part and overrule in part RLJ's motion for reconsideration en banc, and grant RLJ's motion to redesignate our memorandum opinion as an opinion. We withdraw our earlier memorandum opinion and judgment dated January 20, 2017, and substitute the following opinion and judgment in their place.

         Appellant Elness Swenson Graham Architects, Inc. (Elness) appeals from a final judgment in favor of appellees RLJ II-C Austin Air, LP; RLJ II-C Austin Air Lessee, LP; and RLJ Lodging Fund II Acquisitions, LLC (collectively, RLJ). RLJ also filed a cross-appeal against Elness. Elness raises five issues on appeal, challenging RLJ's right to bring suit for breach of contract, the trial court's admission of certain evidence and award of attorney's fees to RLJ, the propriety of the jury charge, and the sufficiency of the evidence to support RLJ's damages. RLJ raises two issues in its cross-appeal, contending that the trial court erred in applying settlement credits to the damages awarded to RLJ at trial and in failing to award attorney's fees to RLJ for its claims against two other defendants with which it ultimately settled before the end of trial. We will reverse the trial court's final judgment and render judgment that RLJ take nothing.


         The record shows that this case arises from alleged defects in the design and construction of a hotel near the airport in Austin. RLJ, the owner of the hotel at the time that the alleged defects were discovered, filed suit against multiple defendants involved in the design and construction of the hotel, alleging that the defendants' work caused the hotel to have a defective foundation that caused building movement and further damage. RLJ had previously purchased the hotel from White Lodging Services Corporation (White Lodging), [1] which had previously entered into contracts with the defendants for development of the hotel. In the trial court's pre-trial ruling on cross-motions for summary judgment on the issue of RLJ's capacity to bring suit as an assignee of the contract between White Lodging and Elness, the trial court concluded that RLJ had capacity to bring suit.

         Based on other pre-trial rulings by the trial court and non-suits filed by RLJ, RLJ's only remaining claims as trial neared were breach-of-contract claims against three defendants: Elness, an architectural firm; EBCO General Contractor, Ltd., and EBCO/Warrior Management, LLC (collectively, EBCO), a general contractor; and Terracon Consultants, Inc. (Terracon), a geotechnical engineering firm. RLJ then entered into a settlement agreement with Terracon before trial and a settlement agreement with EBCO during trial. The only defendant remaining when the case was submitted to the jury was Elness.

         At the close of trial, the jury found that Elness had "fail[ed] to comply with the [contract between Elness and White Lodging] regarding the structural engineering services required by the contract" and awarded RLJ $785, 000 in damages. Elness then filed a motion asking the trial court to apply settlement credits to the damage amount based on the payments RLJ received from its settlements with Terracon and EBCO. The trial court granted Elness's motion. The parties agreed to submit the issue of attorney's fees to the trial court, and RLJ submitted evidence of its attorney's fees in the amount of $1, 388, 019 for its claims against Elness, EBCO, and Terracon. In the alternative, RLJ requested its fees against Elness only, which it alleged were $920, 847. The trial court ultimately awarded RLJ fees in the amount of $901, 650.96 for RLJ's suit against Elness only. In its final judgment, the trial court applied the settlement credits (a total of $1, 170, 000) to the amounts awarded in damages and attorney's fees and ordered that RLJ recover the remaining amount, which was $516, 650.96. Both parties appeal from the trial court's judgment.


         Elness raises several issues on appeal, and RLJ raises two issues as well as several sub-issues on cross-appeal. We will address these issues in their logical order, which will sometimes require us to turn to an issue on cross-appeal before returning to an issue on appeal.

         RLJ's Capacity to Bring Suit

         A. Background

         Elness and White Lodging entered into a contract (the hotel contract) in March 2005 in which Elness agreed to provide architectural services for the development of the hotel. The hotel contract contained an anti-assignment provision stating that neither party could assign the contract to another entity without the written consent of the other party. In September 2005, with Elness's consent, White Lodging assigned the hotel contract to a company called South Ausaircourt (Ausaircourt). In March 2016, RLJ entered into a purchase and sales agreement with several sellers, including Ausaircourt, Whiteco Industries, and White Lodging, who served as the manager and agent for Whiteco Industries.

         In December 2007, the parties closed on the sale of the hotel. On the same date as the closing, RLJ and Ausaircourt executed an "Assignment and Assumption of Licenses, Permits and Intangibles" (the Assignment). The Assignment assigned Ausaircourt's "interest" in the hotel to RLJ and further stated that "[Ausaircourt] hereby sells, transfers, conveys and assigns to [RLJ] all of [Ausaircourt's] right, title, and interest in and to all licenses, permits and all other intangible assets relating to the [hotel] (collectively, "Licenses"), subject, however, to the terms and covenants of the Licenses and this Assignment." At some point after RLJ took possession of the hotel, it noticed alleged problems in the hotel's foundation and eventually filed suit against Elness and other defendants.

         After RLJ filed suit, Elness filed traditional and no-evidence summary-judgment motions arguing, among other things, that RLJ had not been validly assigned the hotel contract or a cause of action for breach of the hotel contract and thus could not bring a breach-of-contract suit against Elness. RLJ filed its own partial summary-judgment motion in which it contended that the hotel contract and all causes of action arising from it had been assigned to it in the Assignment. The trial court denied Elness's motions and granted RLJ's motion.

         B. Standard of Review

         To prevail on a traditional motion for summary judgment, the movant must show that "there is no genuine issue as to any material fact and the [movant] is entitled to judgment as a matter of law[.]" Tex.R.Civ.P. 166a(c); Browning v. Prostok, 165 S.W.3d 336, 344 (Tex. 2005). To prevail on a no-evidence motion for summary judgment, the movant must first allege that there is no evidence of one or more specified elements of a claim or defense on which the nonmovant would have the burden of proof at trial. Sudan v. Sudan, 199 S.W.3d 291, 292 (Tex. 2006); see Tex. R. Civ. P. 166a(i). A nonmovant will defeat a no-evidence summary judgment motion if the nonmovant presents evidence that raises a genuine issue of material fact regarding the elements challenged by the motion. Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 582 (Tex. 2006). When we review cross-motions for summary judgment, we consider both motions de novo and render the judgment that the trial court should have rendered. See Texas Mun. Power Agency v. Public Util. Comm'n of Tex., 253 S.W.3d 184, 192 (Tex. 2007); Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005).

         C. Analysis

         Elness contends that the trial court erred in determining that RLJ had capacity to bring suit for breach of the hotel contract because, Elness argues, the Assignment did not assign causes of actions under the hotel contract to RLJ. Both the trial court and the parties at times referred to this issue as a challenge to RLJ's standing rather than its capacity, but all of the arguments made by Elness in the summary-judgment proceedings and on appeal with respect to this issue challenge only RLJ's privity of contract with Elness, which is a challenge to capacity, not standing.[2] See Schlein v. Griffin, No. 01-14-00799-CV, 2016 WL 1456193, at *5 (Tex. App.-Houston [1st Dist.] Apr. 12, 2016, pet. denied) (mem. op.); Highland Credit Opportunities CDP, L.P. v. UBS AG, 451 S.W.3d 508, 516 (Tex. App.-Dallas 2014, no pet.); see also MCI Telecomms. Corp. v. Texas Utils. Elec. Co., 995 S.W.2d 647, 651-52, 654 (Tex. 1999) (concluding that entity was neither party nor third-party beneficiary entitled to sue on contract and reversing and rendering take-nothing judgment on merits of contract claim rather than dismissing for lack of jurisdiction); Ganter Grp., L.L.C. v. Choice Health Servs., Inc., No. 11-12-00297-CV, 2014 WL 5562945, at *2 (Tex. App.-Eastland Oct. 31, 2014, no pet.) (mem. op.) ("[A] privity-of-contract argument goes to capacity, which does not implicate jurisdiction."). Privity is established by proof that the defendant was a party to an enforceable contract with either the plaintiff or a party who assigned its cause of action to the plaintiff. Brown v. Mesa Distribs., Inc., 414 S.W.3d 279, 284-85 (Tex. App.-Houston [1st Dist.] 2013, no pet.); OAIC Commercial Assets, L.L.C. v. Stonegate Vill. L.P., 234 S.W.3d 726, 738 (Tex. App.-Dallas 2007, pet. denied). RLJ asserts that it had the right to bring a cause of action against Elness because it received the right by assignment.

         To recover on an assigned cause of action, the party claiming the assignment occurred must show the existence of a cause of action capable of being assigned and that the cause of action was in fact assigned to that party. See Pain Control Inst., Inc. v. GEICO Gen. Ins. Co., 447 S.W.3d 893, 897 (Tex. App.-Dallas 2014, no pet.); Capital One, N.A. v. Nationstar Mortg. LLC, No. 14-10-00733-CV, 2011 WL 3332145, at *3 (Tex. App.-Houston [14th Dist.] Aug. 4, 2011, no pet.) (mem. op.); Texas Farmers Ins. Co. v. Gerdes, 880 S.W.2d 215, 217 (Tex. App.-Fort Worth 1994, writ denied).

         Absent specific circumstances not present in this case, causes of action in Texas are freely assignable. See PPG Indus., Inc. v. JMB/Houston Ctrs. Partners Ltd. P'ship, 146 S.W.3d 79, 106 (Tex. 2004); State Farm Fire & Cas. Co. v. Gandy, 925 S.W.2d 696, 705-07 (Tex. 1996); Tate v. Goins, Underkofler, Crawford & Langdon, 24 S.W.3d 627, 633 (Tex. App.-Dallas 2000, pet. denied). "As a rule, parties have the right to contract as they see fit as long as their agreement does not violate the law or public policy." In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 129 & n.11 (Tex. 2004); see also Restatement (Second) of Contracts § 317(2)(b) (1981) ("A contractual right can be assigned unless . . . the assignment is forbidden by statute or is otherwise inoperative on grounds of public policy.").

         In construing a written assignment, an appellate court applies the rules of interpretation and construction applicable to contracts. Commercial Structures & Interiors, Inc. v. Liberty Educ. Ministries, Inc., 192 S.W.3d 827, 832-33 (Tex. App.-Fort Worth 2006, no pet.); MG Bldg. Materials, Ltd. v. Moses Lopez Custom Homes, Inc., 179 S.W.3d 51, 58 (Tex. App.-San Antonio 2005, pet. denied). A court's primary goal is to ascertain the intent of the parties as it is expressed in the written assignment. See Commercial Structures, 192 S.W.3d at 832. When an appellate court concludes that contract language can be given a certain or definite meaning, then the language is not ambiguous, and the appellate court is obligated to interpret the contract as a matter of law. Id. Further, unless the agreement shows the parties used a term in a technical or different sense, the terms are given their plain, ordinary, and generally accepted meaning. Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996). Neither party contends that the language used in the Assignment is ambiguous.

         The portion of the Assignment that RLJ relies on in asserting that Ausaircourt assigned causes of actions arising from the contract to RLJ states:

Assignment of Licenses, Permits and Intangibles
[Ausaircourt] hereby sells, transfers, conveys and assigns to [RLJ] all of [Ausaircourt's] right, title and interest in and to all licenses, permits and all other intangible assets relating to the Property (collectively, "Licenses"), subject, however, to the terms and covenants of the Licenses and this Assignment.

         RLJ contends that the phrase "all other intangible assets relating to the Property" includes causes of actions arising from the contract. In interpreting the meaning of the term "intangible assets, " we first note that neither the term nor each individual word within the term is defined in the Assignment. Thus, we look to the plain, ordinary, and generally accepted meaning of the words. See id. "Intangible property" is defined as "property having no physical substance apparent to the senses: incorporeal property (as choses in action) often evidenced by documents (as stocks, bonds, notes, judgments, franchises) having no intrinsic value or by rights of action, easements, goodwill, trade secrets." See Webster's Third New Int'l Dictionary 1173 (2002) (emphasis added). A "chose in action" is defined as "the right to bring an action to recover a debt, money, or thing" or "any right to a personal as opposed to a real thing that is not in one's possession or actual enjoyment but is recoverable by suit at law; esp: any right to an act or forebearance (as in case of debts, stocks, shares, and negotiable instruments or claim of reparation for a tort)." See Black's Law Dictionary 275 (9th ed. 2009); Webster's at 399. The Texas Supreme Court has also noted that it has used the terms "claim, " "cause of action, " and "chose in action" interchangeably "to refer to the facts giving rise to a right that is enforceable in [a lawsuit]." See Jaster v. Comet II Constr., Inc., 438 S.W.3d 556, 565 (Tex. 2014) (citing Gandy, 925 S.W.2d at 698-708).

         In addition to Webster's, case law also indicates that choses in action are intangible property. See In re Marriage of Malacara, 223 S.W.3d 600, 603 (Tex. App.-Amarillo 2007, no pet.) (stating that "choses-in-action or contract rights" are types of "intangible property"); Adams v. Great Am. Lloyd's Ins. Co., 891 S.W.2d 769, 772 (Tex. App.-Austin 1995, no writ) (noting that a Texas court "ha[d] indicated that a chose in action is an intangible property right"); see also American Multi-Cinema v. Hegar, No. 03-14-00397-CV, 2017 WL 74416, at *6 (Tex. App.-Austin Jan. 6, 2017, no pet. h.) (mem. op.) (using Webster's Dictionary definition of "intangible property" in defining the "common and ordinary meaning" of the term). Because a chose in action is included in the definition of "intangible property, " we conclude that the assignment of "all of [Ausaircourt's] right, title and interest in and to . . . all other intangible assets relating to the Property" included an assignment of causes of action arising from the hotel contract. See Webster's at 1173; In re Malacara, 223 S.W.3d at 603; Adams, 891 S.W.2d at 772; Hegar, 2017 WL 74416, at *6.

         Elness argues that the assignment of "intangible assets" here was still not sufficient to assign causes of action because "[a] subsequent owner who did not own the property at the time of the injury may only bring suit where the subsequent owner receives an express assignment of the cause of action, " and the provision assigning "intangible assets" was not an express assignment. In support of its argument, Elness cites to a line of cases that require an express assignment for a claim for damages under certain circumstances. See Exxon Corp. v. Emerald Oil & Gas Co., L.C., 331 S.W.3d 419, 424 (Tex. 2010); Richey v. Stop N Go Mkts. of Tex., 654 S.W.2d 430, 432 (Tex. 1983); Vann v. Bowie Sewerage Co., 90 S.W.2d 561, 562-63 (Tex. 1936); La Teirra de Simmons Familia, Ltd. v. Main Event Entm't, L.P., No. 03-10-00503-CV, 2012 WL 753184, at *16 (Tex. App.-Austin Mar. 9, 2012, pet. denied) (mem. op.); Boerschig v. Southwestern Holdings, Inc., 322 S.W.3d 752, 767 (Tex. App.-El Paso 2010, no pet.); Brooks v. Chevron USA Inc., No. 13-05-00029-CV, 2006 WL 1431227, at *7 (Tex. App.-Corpus Christi May 25, 2006, pet. denied) (mem. op.); Ceramic Tile Int'l, Inc. v. Balusek, 137 S.W.3d 722, 724 (Tex. App.-San Antonio 2004, no pet.); Cook v. Exxon Corp., 145 S.W.3d 776, 781 (Tex. App.-Texarkana 2004, no pet.); Exxon Corp. v. Pluff, 94 S.W.3d 22, 27 (Tex. App.-Tyler 2002, pet. denied); Senn v. Texaco, Inc., 55 S.W.3d 222, 226 (Tex. App.-Eastland 2001, pet. denied); Indigo Oil, Inc. v. Wiser Oil, Co., No. 05-96-00984-CV, 1998 WL 839591, at *32 (Tex. App.-Dallas Dec. 7, 1998, pet. denied) (not designated for publication); Lay v. Aetna Ins. Co., 599 S.W.2d 684, 686 (Tex. Civ. App.-Austin 1980, writ ref'd n.r.e.).

         In a letter from the trial court to the parties explaining the trial court's decision on this issue, the trial court stated that all of the cases cited by Elness were distinguishable from this case. We agree. The cases cited by Elness address injury to land or property and the issue of whether a previous owner or current owner of the property had standing to pursue a cause of action arising from the injury. In all of the cases, there was no assignment at all, much less an express assignment. In several of the cases where property had been sold, the courts concluded that a mere transfer of the land by deed did not assign or otherwise transfer a claim for damages to the land. See Vann, 90 S.W.2d at 563; Brooks, 2006 WL 1431227, at *7; Cook, 145 S.W.3d at 785-86; Pluff, 94 S.W.3d at 27-28; Senn, 55 S.W.3d at 225, 226. All of the cases but two do not in any way address a cause of action arising from a contract between the parties, as is present here. The first case that involved a breach-of-contract claim was about a lessee's alleged breach of a lease and whether a subsequent lessor could recover damages for the breach, but there was no assignment clause involved in that case. See Richey, 654 S.W.2d at 432. The second case addressed whether a subsequent owner of property could sue an oil company for an injury that occurred to the property before the owner purchased it, and again, there was no assignment clause in the case. See Cook, 145 S.W.3d at 785. Because the cases cited by Elness are distinguishable from the circumstances of this case, and because causes of action are freely assignable, we reject Elness's contention that the assignment of Ausaircourt's causes of action to RLJ was required to be express. See PPG Indus., 146 S.W.3d at 106; Gandy, 925 S.W.2d at 705-07. Given that the evidence shows as a matter of law that the Assignment in this case included an assignment of causes of action arising from the hotel contract, we conclude that the trial court did not err in granting RLJ's motion for partial summary judgment and denying Elness's traditional and no-evidence motions for summary judgment on this issue.[3] Accordingly, we overrule this issue.

         Admission of Hotel Contract

         Elness also contends that the trial court erred in admitting the hotel contract into evidence over Elness's objections. Elness contends that the trial court should not have admitted the contract because the contract was inadmissible hearsay and was not properly authenticated. We review the admission or exclusion of evidence under an abuse-of-discretion standard. Southwestern Energy Prod. Co. v. Berry-Helfand, 491 S.W.3d 699, 721 (Tex. 2016); City of Brownsville v. Alvarado, 897 S.W.2d 750, 753 (Tex. 1995); ICON Benefit Adm'rs II, L.P. v. Abbott, 409 S.W.3d 897, 906 (Tex. App.-Austin 2013, pet. denied). A trial court abuses its discretion when it acts without reference to any guiding rules or principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985). Even if an appellant establishes error, appellate courts reverse a judgment based on an erroneous evidentiary ruling only if the error probably resulted in an improper judgment. Tex.R.App.P. 44.1; Owens-Corning Fiberglass Corp. v. Malone, 972 S.W.2d 35, 43 (Tex. 1998).

         In arguing that the hotel contract is inadmissible hearsay, Elness points out that the witness who testified about the contract was an employee of RLJ and was therefore not a party to the contract and did not have personal knowledge of the terms of the contract. Elness further argues that RLJ failed to establish an exception to the hearsay rule. However, a signed instrument, such as a contract, that creates legal rights is not hearsay because it has legal effect independent of the truth of any statement contained in it. See Kepner-Tregoe, Inc. v. Leadership Software Inc., 12 F.3d 527, 539-40 (5th Cir. 1994); Sanders v. Worthington, 382 S.W.2d 910, 915-16 (Tex. 1964); Rogers v. RREF II CB Acquisitions, LLC, - S.W.3d -, No. 13-15-00321-CV, 2016 WL 6804451, at *10 (Tex. App.-Corpus Christi, Nov. 17, 2016, no pet.); Humphrey v. Yancey & Nationwide Slate, No. 05-15-00653-CV, 2016 WL 3568042, at *5 (Tex. App.-Dallas June 30, 2016, pet. denied) (mem. op.); Rockwall Commons Assocs. v. MRC Mortg. Grantor Trust I, 331 S.W.3d 500, 511 (Tex. App.-El Paso 2010, no pet.); Reeves v. ...

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