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Carter v. Harvey

Court of Appeals of Texas, Second District, Fort Worth

June 29, 2017






         In this dispute related to a partition of real property, appellant Jay Warne Carter, Jr. appeals the trial court's order appointing a receiver and authorizing a public sale of the property, of which he owns a 1/8 fee simple interest. He argues that the trial court erred by granting summary judgment against his claim for an equitable adjustment and by concluding that the property was incapable of an in-kind partition as an alternative to the sale. He also contends that the trial court's order is void because appellee Erwin Lee Harvey, Sr. did not join a necessary party-Carter's son Matthew-to the partition suit. We reject each of Carter's arguments, so we affirm the trial court's judgment.

         Background Facts

         Carter owns a 1/8 fee simple interest in a parcel of real property in Wichita County. He acquired that interest in 1982 when his mother died. Harvey owns the remaining 7/8 fee simple interest. He bought it from some of Carter's relatives for $185, 000 in September 2014. The property contains several longstanding buildings, and it once served as the location for Carter Wind Systems, Inc. (CWS), a wind turbine company whose shares were owned by Carter and several other individuals. CWS dissolved in 1994. Since then, the property has also been used (but not owned) by Carter Wind Energy, LLC (CWE), a company formed by Carter and his son in approximately 1991 that likewise manufactures and sells wind turbines.

         CWE placed a turbine on the property, and the turbine provides electricity to the buildings. Neither Carter nor Harvey own the turbine; Matthew owns it. The turbine sits on a 160-foot-tall tower. The property has road access only toward the northern part of its western side. The trial court admitted the following photograph of the property at trial (with the outlined rectangular shape in the center of the photograph representing the property):

         (IMAGE OMITTED)

         In October 2014, Harvey filed a petition for a partition of the real property.[1]He pled that the property was not susceptible to a partition in kind because it contained substantial improvements and "valuable industrial fixtures." He asked the trial court to appoint someone to sell the property. Carter answered with a general denial.

         During discovery, Carter raised a claim for equitable adjustment. He argued that the improvements on the property (the buildings) had been constructed by CWS and that although CWS had dissolved in 1994, he owned a 27.9526 percent interest in CWS upon dissolution and could therefore assert an equitable adjustment claim. In a response to a request for disclosure, Carter wrote,

[Carter] claims a credit for improvements he made through a corporation. More specifically, the property has significant improvements consisting of a 20, 000 sq. ft. manufacturing facility, a 1, 800 sq. ft. outbuilding, and a 192 sq. ft. outbuilding. . . . The improvements were constructed by [CWS]. . . . CWS voluntarily dissolved in 1994. . . . [Carter] is entitled to a credit of 27.9526% of the improvements.

         Harvey filed a motion for partial summary judgment with respect to Carter's claim for equitable adjustment. In the motion, Harvey contended that Carter could not raise an equitable adjustment claim based on CWS's improvements to the property because (1) Harvey was a bona fide purchaser for value without notice of the alleged claim for CWS's improvements, (2) the equitable claim for construction of improvements by CWS was a corporate claim that a Texas statute required to be brought within three years of CWS's dissolution, (3) the claim was barred by the general four-year statute of limitations governing actions on a debt, and (4) laches barred the claim because Carter failed to notify Harvey of the claim during Harvey's purchase of his interest.

         Carter responded to the motion. He contended that because CWS had distributed its assets to shareholders in 1994 and because he was one of the shareholders (and the largest one), he could bring an equitable adjustment claim for the value of improvements that CWS had contributed to the property. Carter also argued, in part, that Harvey had actual knowledge that he was not purchasing all the property and that a partition suit was likely and therefore could not assert his status as a bona fide purchaser, that limitations is not a defense to an equitable adjustment claim, and that laches could not bar the claim because he asserted the claim soon after Harvey filed the partition suit.

         To his response, Carter attached evidence showing that he owned 27.9526 percent of CWS until its dissolution and that he had told Harvey of his claim for equitable adjustment before Harvey bought the property. He also attached CWS's articles of dissolution, which stated that he was the president of the corporation and that the corporation's assets had been "distributed to its shareholders in accordance with their respective rights and interests."

         The trial court granted Harvey's motion for partial summary judgment against Carter's claim for equitable adjustment. The court found "that the claim in question [was] a corporate claim of [CWS] that was required to have been brought within three years of [CWS's] dissolution . . . [and] was not. The claim is barred by the statute of limitations."

         Later, the trial court conducted a bench trial on the remaining issues related to Harvey's partition petition. The court heard testimony from Carter, Harvey, and Jim Henderson, a real estate appraiser. After considering the parties' evidence and the written arguments they presented after the trial, the trial court found that the property was not subject to a partition in-kind because such a partition "would impair significantly the value of the tract [of land]." Thus, the court's judgment[2] ordered the property to be publicly sold and for the net proceeds to be divided between Harvey and Carter in accordance with their respective interests. The court also appointed a realtor as a receiver to execute the sale. The court described the turbine as a removable trade fixture and stated that Carter had not pled a claim for equitable adjustment concerning the turbine.[3]

         In a motion for new trial, Carter argued that the trial court had erred by "summarily dismissing his claims for equitable adjustment and by ordering a partition [of] sale." He also contended for the first time that the trial court's judgment was rendered without jurisdiction because Harvey had failed to join Matthew as a necessary party. He argued that Matthew owned the wind turbine that was affixed to the property, that it would cost $75, 000 to remove the wind turbine, that complete and just relief could not be given in Matthew's absence, and that Matthew should have therefore been made a party. The motion for new trial was overruled by operation of law, [4] and Carter brought this appeal.

         Equitable Adjustment Claim

         In Carter's first issue, he contends that the trial court erred by granting summary judgment against his claim for an equitable adjustment. We review a summary judgment de novo. Travelers Ins. Co. v. Joachim, 315 S.W.3d 860, 862 (Tex. 2010). We consider the evidence presented in the light most favorable to the nonmovant, crediting evidence favorable to the nonmovant if reasonable jurors could, and disregarding evidence contrary to the nonmovant unless reasonable jurors could not. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). We indulge every reasonable inference and resolve any doubts in the nonmovant's favor. 20801, Inc. v. Parker, 249 S.W.3d 392, 399 (Tex. 2008). A defendant is entitled to summary judgment on an affirmative defense if the defendant conclusively proves all the elements of the affirmative defense. Frost Nat'l Bank v. Fernandez, 315 S.W.3d 494, 508-09 (Tex. 2010), cert. denied, 562 U.S. 1180 (2011); see Tex. R. Civ. P. 166a(b), (c).

         In a partition suit, a trial court may determine the value of improvements as to provide for the adjustment of equities between the parties. See Tex. R. Civ. P. 760; Snow v. Donelson, 242 S.W.3d 570, 572 (Tex. App.-Waco 2007, no pet.); Yturria v. Kimbro, 921 S.W.2d 338, 342 (Tex. App.-Corpus Christi 1996, no writ) ("[P]roof is made to the factfinder at trial of the existence and value of improvements to the property at the time of partition and of other equitable considerations which may warrant awarding a particular portion of the property to one of the parties."). Harvey has never contested this principle. Instead, in the trial court, he argued that Carter could not claim an equitable adjustment based on improvements made by CWS. More specifically, Harvey argued that "the claim in question, if it exists, belongs to [CWS], rather than to its stockholders, and, because the corporation was dissolved more than three years ago, any action to enforce such claim is barred as a matter of law."

         In presenting this argument, Harvey relied on section 11.356 of the business organizations code, which states,

(a) Notwithstanding the termination of a domestic filing entity under this chapter, the terminated filing entity continues in existence until the third anniversary of the effective date of the entity's termination only for purposes of:
(1) prosecuting or defending in the terminated filing entity's name an action or proceeding brought by or against the terminated entity;
(2) permitting the survival of an existing claim by or against the terminated filing entity;
(3) holding title to and liquidating property that remained with the terminated filing entity at the time of termination or property that is collected by the terminated filing entity after termination;
(4) applying or distributing property, or its proceeds, as provided by Section 11.053; and
(5) settling affairs not completed before termination.

Tex. Bus. Orgs. Code Ann. § 11.356(a) (West 2012) (emphasis added); see id. § 11.359(a) (West 2012) ("[A]n existing claim by or against a terminated filing entity is extinguished unless an action or proceeding is brought on the claim not later than the third anniversary of the date of termination of the entity."); Cohen Acquisition Corp. v. EEPB, P.C., No. 14-14-00330-CV, 2015 WL 2404869, at *2 (Tex. App.-Houston [14th Dist.] May 19, 2015, pet. denied) (mem. op.) (applying section 11.356 and holding that a corporation's claims had been extinguished under that section). Harvey contended that under section 11.356, any equitable adjustment claim must have been brought by the corporation itself-as opposed to one of its stockholders-within three years of dissolution. The trial court granted summary judgment on that basis.

         On appeal, Carter states that a dissolved corporation cannot assert a cause of action "in its own name more than three years after its dissolution. That is not disputed, and it is not an issue in this appeal. What is an issue is whether a corporation is precluded, as a matter of law, from assigning its cause of action to a third-party." Carter contends that CWS at one time had a right to assert a claim for equitable adjustment; that the right was legally assignable; and that upon dissolution, CWS assigned the right to him through a provision in the articles of dissolution.[5] He asserts that as a 27.9526 ...

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