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Excela Energy, LLC v. Exalt Real Estate Group, LLC

Court of Appeals of Texas, Fourteenth District

May 25, 2017

EXCELA ENERGY, LLC, Appellant
v.
EXALT REAL ESTATE GROUP, LLC, Appellee

         On Appeal from the 11th District Court Harris County, Texas Trial Court Cause No. 2015-57965

          Panel consists of Justices Christopher, Busby, and Jewell.

          MEMORANDUM OPINION

          Kevin Jewell Justice.

         This appeal involves an alleged unenforceable penalty. Appellee Exalt Real Estate Group, LLC sued appellant Excela Energy, LLC for, as relevant here, breach of contract. Excela asserted a counterclaim for breach of the same contract-a commercial lease-on which Exalt sued. The trial court granted Exalt's motion for summary judgment for affirmative relief on its breach of contract claim, granted summary judgment in Exalt's favor on Excela's counterclaim, and awarded Exalt damages. Excela appeals the summary judgment as to damages only, not liability. Concluding Excela's unenforceable penalty defense is not preserved, we affirm.

         Background

         Exalt is the landlord of a commercial building, in which Excela was a tenant. The parties entered into a written lease for office space, for a four-year term. Excela defaulted on the lease by failing to pay rent. Exalt terminated Excela's right of possession of the leased premises and filed this lawsuit for breach of contract, seeking all rents and damages under the lease. Exalt also named Excela's co-tenant, Oiltech Solutions, LLC, as a defendant.[1] In addition to its claim for damages, Exalt asserted a claim to foreclose on its contractual landlord's lien on the personal property remaining in the leased premises. Excela answered, generally denying Exalt's allegations and pleading the affirmative defense of unclean hands.

         Exalt moved for summary judgment, arguing that the unambiguous language of the lease conclusively established Excela's breach. According to Exalt, the lease provides that failure to pay rent when due constitutes an "event of default." Excela's failure to pay rent therefore constituted a breach, and Exalt offered evidence of its damages, including past-due rent. Exalt also sought future rent that would have accrued through the remainder of the lease term, under the lease's "Remedies" clause, which provided:

Upon any Event of Default, Landlord may . . . [t]erminate this Lease by written notice to Tenant. . . . If this Lease is terminated hereunder, Tenant shall pay to Landlord: (1) all Rent accrued through the date of termination, (2) all amounts due under Section 22, and (3) an amount equal to: (A) the total Rent that Tenant would have been required to pay for the remainder of the Term discounted to present value . . . .

         Excela did not file a response to Exalt's motion, but instead moved to adopt its co-defendant Oiltech's response.[2] Oiltech argued that Exalt's motion should be denied because: (1) Exalt based its arguments on an incorrect interpretation of the lease; (2) Exalt miscalculated the rent owed, if any, as damages, including the future rent Exalt claimed it was owed for the remainder of the lease term; and (3) Exalt's prior breach excused Oiltech's nonperformance.

         The trial court granted Exalt's motion for summary judgment and ordered that Exalt recover from Excela and Oiltech, jointly and severally, $178, 509.94, plus prejudgment interest, postjudgment interest, attorney's fees, and court costs. The trial court also ordered that Exalt have foreclosure of its contractual landlord's lien on the personal property of Oiltech and/or Excela remaining in the leased premises. The final judgment specified that Excela was to take nothing on its claims against Exalt.

         Excela appeals from the trial court's judgment as to damages only; Excela does not challenge the judgment on liability, on Exalt's lien, or on Excela's counterclaim.[3]

         Analysis

         On appeal, Excela argues, in two interrelated issues, that the contractual provision Exalt relied on when seeking the future rent owed for the remainder of the lease term is an unenforceable penalty as a matter of law, and thus the trial court erred in granting summary judgment on damages. Exalt responds that the issue is waived, because Excela never asserted an affirmative defense of illegality or argued the issue to the trial court in response to Exalt's motion for summary judgment. We agree with Exalt.

         Regardless whether the contractual-damages clause here is a penalty as a matter of law, an assertion that a contractual provision creates an unenforceable penalty is an affirmative defense that a party must raise in responsive pleadings. See Grace Interest, LLC v. Wallis State Bank, 431 S.W.3d 110, 128 (Tex. App.- Houston [14th Dist.] 2013, pet. denied) (citing Tex.R.Civ.P. 94); see also Tesch v. Equity Secured Capital, L.P., No. 03-13-00539-CV, 2015 WL 8587311, at *3 & n.5 (Tex. App.-Austin Dec. 11, 2015, pet. denied) (mem. op.); Dunlap v. Gayle, No. ...


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