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E.L. & Associates, Inc. v. Pabon

Court of Appeals of Texas, Fourteenth District

May 18, 2017

E.L. & ASSOCIATES, INC., Appellant

         On Appeal from the 80th District Court Harris County, Texas Trial Court Cause No. 2011-30394

          Panel consists of Justices Boyce, Busby, and Wise.


          William J. Boyce Justice.

         E.L. & Associates, Inc. ("EL&A") sued two of its former directors and their adult son after EL&A lost a lease for a restaurant it operated and the directors' son opened a nearly identical restaurant in the same location. A jury found that the directors, Jorge H. Pabon and Ruth Pabon, breached their fiduciary duties to EL&A. The jury further found that the Pabons' son, William Solis, assisted in the Pabons' breaches of fiduciary duty. The jury awarded no damages to EL&A.

         On appeal, EL&A contends that the jury's zero damages award was the result of the trial court's improper submission of a mitigation instruction as part of the damages question; EL&A contends a mitigation instruction should not have been submitted because there was no evidence supporting any failure to mitigate by EL&A. More specifically, EL&A contends that the only evidence of any potential mitigation involved actions that would have predated its damages. EL&A contends that a party cannot be required to mitigate damages before they occur.

         Because we conclude that a party may be required to mitigate damages before those damages occur if the party has knowledge of a breach and the impending damages resulting from that breach, we affirm.


         EL&A was formed in 1999 for the purpose of opening up two locations of a Mexican restaurant called "Ruthie's Mexicana." Efrain Lopez was the president of EL&A and the Pabons were officers and directors. Efrain owned 55 percent of EL&A; the Pabons collectively owned the remaining 45 percent. Efrain and the Pabons orally agreed that Efrain would provide the startup capital for the restaurants and that the Pabons would be responsible for running the restaurants, including securing the restaurant location leases and serving as guarantors for the leases.

         The dispute forming the basis of this lawsuit surrounds the lapse of the lease for the Ruthie's Mexicana Sugar Land location. Jorge Pabon signed a 10-year lease for the Sugar Land location of Ruthie's Mexicana in 1999; that lease identified the tenants as "George and Ruth Pabon DBA Ruthie's Mexicana"[1] and the guarantors as "George and Ruth Pabon." Later that year, Jorge and the Sugar Land landlord amended the lease to change the tenant name to "E. L. and Associates DBA Ruthie's Mexicana." All other lease terms remained the same.

         The Pabons opened the restaurants and ran them for the next 10 years. The lease for the Sugar Land location came up for renewal in October 2009. Shortly before the renewal deadline, the Pabons indicated to Efrain and Efrain's son, George Lopez, that they no longer desired to continue the business venture as part of EL&A. To that end, the Pabons sent Efrain a letter 10 days before the lease renewal deadline offering to purchase all outstanding shares in EL&A.

         At the time, George was managing Efrain's interest in EL&A on Efrain's behalf. George declined the Pabons' offer to purchase Efrain's interest. Instead, George secured from the landlord a lease renewal form. Jorge allegedly told George he did not want to sign it because Jorge was attempting to negotiate better renewal terms with the landlord. The lease was not renewed before the deadline, but instead continued on a month-to-month basis until February 2011.

         During the approximately 16 months that the Sugar Land restaurant was on a month-to-month lease, neither the Pabons nor Efrain (or George on Efrain's behalf) signed a renewal lease for EL&A. George later testified that Jorge repeatedly represented during that time period that he was attempting to negotiate better lease terms.

         Evidence was presented that the Pabons and their son, William Solis, began preparations during this period to open a different Mexican restaurant in the same location.[2] Solis filed an assumed name record with the Fort Bend County Clerk the day before the lease expired in October 2009 identifying the address of his business as the same address as the Sugar Land Ruthie's Mexicana, and identifying the assumed business name for the new business as "Ruthie's Mexican Grill." Likewise, Jorge emailed the landlord for the Sugar Land location in March 2010 requesting that a new lease be prepared for Solis's signature for a business called "Ruthie's Mexican Grill."

         In August 2010, the Pabons again made an offer to Efrain; this time, they offered to buy Efrain's interest in EL&A or to sell their own interest to him. That same month, Jorge wrote to Efrain and George that the restaurant lease renewals required immediate attention and that "[t]he current circumstances preclude me from signing any personal guarantees on either lease." Jorge further indicated in that letter that "[t]he president of the company and majority owner is the one most indicated to contact the landlords and work the appropriate terms and conditions for approval by the corporation."

         In December 2010, the Pabons' personal attorney informed the landlord for the Sugar Land restaurant that there was "a majority shareholder involved with significantly more financial involvement [than] the current personal guarantor." The landlord then demanded that Efrain, as the majority shareholder, become the personal guarantor for the new lease, and required a number of personal and financial documents from Efrain. The landlord stated that the lease would terminate in February 2011 if not renewed by Efrain before then.

         The Pabons sent Efrain a letter expressing concern about the impending lease termination and again stated that "Efrain as the President of the company and majority owner needs to take care of this situation." Efrain did not produce the requested documents or become the personal guarantor on the lease. Accordingly, the landlord locked the doors of the restaurant on February 28, 2011.

         Ruth resigned her position with EL&A on March 1, 2011. On March 15, 2011 - approximately two weeks after EL&A was locked out of the restaurant location - Solis signed a new lease for the same location. Jorge resigned his position with EL&A on March 19, 2011. The Pabons signed as guarantors for Solis's lease on April 12, 2011. Shortly thereafter, Solis opened a Mexican restaurant at the former Ruthie's Mexicana location, calling it "Ruthie's Tex-Mex."

         EL&A sued the Pabons in May 2011 and added Solis and Ruthie's 5022, LLC[3] as defendants in early 2012. EL&A originally asserted numerous causes of action against the defendants including fraud, breach of contract, breach of fiduciary duty, and conversion. At the conclusion of trial, EL&A abandoned all causes of action other than its claims that the Pabons breached fiduciary duties owed to EL&A and that Solis and his company assisted in the Pabons' breaches of fiduciary duty. The jury found that the Pabons breached their fiduciary duties to EL&A, and that Solis assisted in the breach.[4] The jury further determined, however, that EL&A suffered no past or future lost profits damages due to the loss of the Sugar Land restaurant. The trial court signed a take-nothing judgment against all defendants on April 24, 2015, and EL&A appealed.

         Standard of Review

         The trial court must "submit the questions, instructions, and definitions" that are "raised by the written pleadings and the evidence." Tex.R.Civ.P. 278. A trial court has broad discretion in submitting jury questions. DeWolf v. Kohler, 452 S.W.3d 373, 394 (Tex. App.-Houston [14th Dist.] 2014, no ...

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