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Residences at Riverdale, LP v. Dixie Carpet Installations, Inc.

Court of Appeals of Texas, Fifth District, Dallas

July 7, 2017


         On Appeal from the 199th Judicial District Court Collin County, Texas Trial Court Cause No. 199-04903-2012

          Before Justices Bridges, Lang-Miers, and Whitehill



         This appeal arises from underlying contracts involving the installation of carpet at an apartment complex. The jury returned a verdict in favor of appellee Dixie Carpet Installations, Inc. (Dixie) on all of its claims against appellants Residences at Riverdale, LP and Residences at Riverdale GP, LLC (Riverdale) and awarded Dixie $142, 898 in tort damages and $285, 796 in exemplary damages. The jury also awarded Dixie $142, 898 in breach of contract damages and $234, 816.90 in attorneys' fees against Nations Construction Management, Inc. (Nations); however, Nations has not challenged the judgment on appeal.

         Riverdale raises seven issues in which it challenges aspects of the judgment, the sufficiency of the evidence to support the jury's fraud findings and punitive damages award, and the application of the economic loss rule to its contract and conversion claims. We reverse the trial court's judgment based on the jury's fraud findings against Riverdale, including its award of exemplary damages and joint and several liability with Nations, and render a take-nothing judgment against Dixie on its fraud claims. We remand the case to the trial court for Dixie to make a new election of remedies. In all other respects, the judgment of the trial court is affirmed.


         On May 21, 2008, Riverdale hired Nations, as general contractor, to build the Residences at Riverdale Apartments (the project). Nations and Dixie entered into a purchase order agreement on January 19, 2010 for $142, 128, in which Dixie agreed to provide carpet, vinyl plank, and rubber flooring to Nations for the project. Linda Kutac, Dixie's president, signed the purchase agreement on behalf of Dixie and John Czapski, Nations' president and owner, signed on behalf of Nations. According to the agreement, Nations was responsible for paying Dixie.

         Czapski supervised Connie Strawbridge, the Nations employees responsible for writing checks and paying subcontractors. Nations received draw payments from Riverdale, which Nations used to pay subcontractors. Strawbridge generated the checks and Czapski signed them. Nations received draw payments from Riverdale for draw requests 1 through 9.

         In March 2010 and after draw request 9, the payment structure changed. Riverdale learned payments from Nations were not flowing through to its subcontractors on the project. David Stapleton, a limited partner/managing member of Riverdale, explained Riverdale took over the check writing responsibility around March 19, 2010 and initiated a joint checking system to pay subcontractors. When the funds came in, Riverdale asked Czapski or Strawbridge who to pay and how much. Based on their information, Riverdale cut the joint checks for the subcontractors. Howard Akin, a Riverdale limited partner and managing member, also testified Nations decided which subcontractors received payment because "it was their vendors and they instructed them and they knew whether or not they deserved to be paid." When there was not enough in a draw to pay certain vendors, Akin worked with Strawbridge on the pay applications. According to Riverdale, the ultimate payment decision was Nations.

         According to Czapski, however, Riverdale took over the responsibility in March 2010 of determining which subcontractors received payment and then dispersing funds. Czapski claimed the reason for the switch in payment scheme was because Riverdale wanted to have "full control of what was going on." According to Czapski, from March 2010 forward, Nations neither received money from Riverdale to pay subcontractors, nor was responsible for such payments.

         Dixie sent its first invoice to Nations on April 12, 2010 for $142, 128.[1] Dixie did not receive payment. Stapleton instructed Czapski to offer Dixie a discount on the original invoice.

         In November 2010, Czapski called Kutac. During the conversation, Czapski told her there was not enough money to pay all the vendors in full. Czapski told Kutac that Dixie would get paid "if we agreed to take a 20-percent discount on our invoices" and signed a lien release. Czapski told her Dixie would receive its money from an escrow account with Chicago Title Insurance Company (Chicago Title) within two weeks of Chicago Title's receipt of the lien release.

         Kutac later called Strawbridge and accepted Czapski's discounted offer. Strawbridge said she would tell Czapski and Riverdale that Dixie accepted the offer. Strawbridge indicated Riverdale would provide payment.

         On November 19, 2010, Strawbridge sent an email to Dixie, with the lien release form attached for execution, indicating Dixie would receive information concerning when and where to pick up its check the following week. The lien release indicated Dixie agreed to a discounted payment of $114, 318.40. Kutac signed the lien release on behalf of Dixie on November 22, 2010.

         Stapleton executed an escrow agreement, with Riverdale as borrower, Legacy Texas Bank as lender, and Chicago Title as escrow agent, on December 7, 2010 for $669, 278.09. A list of subcontractors with unpaid claims, including Dixie, was attached as an exhibit to the escrow agreement. The agreement provided that upon receipt of the lien release, the escrow agent "shall immediately pay, without further instruction, the Unpaid Claims in the amounts and to the parties" listed in the exhibit. Nations was not a party to the escrow agreement.

         After Dixie did not receive payment, Kutac reached out to Strawbridge. Strawbridge emailed back on December 6, 2010 requesting Kutac resend the original executed lien release to Chicago Title because Chicago Title never received it. Once Chicago Title received it, Chicago Title would send the check. Kutac executed another (albeit identical to the first) lien release on January 12, 2011.

         Chicago Title cut a check to Dixie on January 5, 2011 for $114, 318.40 but did not release it. Czapski and Strawbridge said Stapleton instructed Chicago Title to hold the January 5 check. Stapleton denied telling Chicago Title to hold the check or knowing why Chicago Title was holding it. He claimed someone from Nations requested the hold, but admitted Nations did not have such authority under the escrow agreement. A January 31, 2011 email from Chicago Title to Strawbridge indicated Chicago Title still had Dixie's check in its possession and "WAS REQUESTED I STILL HOLD." Riverdale was not included on this communication.

         On February 7, 2011, Stapleton, on behalf of Riverdale, sent an email to Chicago Title instructing it to void Dixie's check. The circumstances surrounding the decision to void the check were contested.

         Stapleton said he was part of a conference call with Czapski, Strawbridge, and Akin on February 7 that centered on the fact Snell-Northcutt, another subcontractor on the project, had filed a lien and lawsuit for non-payment. At that time, there was not enough money to pay all the vendors. Dixie's check was the only one left big enough to void and pay Snell-Northcutt. Stapleton said Czapski agreed Nations would take care of Dixie and instructed Stapleton to void Dixie's check. Riverdale would then pay Snell-Northcutt from the escrow account.

         Akins could not recall any details of the conference call. However, he knew Snell-Northcutt had sued Riverdale and filed a lien against the property. He said Snell-Northcutt's lien, as well as the threats of other subcontractors' liens "popping up, " was discussed. He also testified, in contradiction to his previous deposition testimony, [2] that it was Czapski's idea to void Dixie's check and that Czapski said Nations would handle paying Dixie.

         Czapski said it was Stapleton's idea to void Dixie's check and then pay Snell-Northcutt. Strawbridge could not recall who set up the conference call or what anyone said during the conversation. However, she remembered the purpose of the call was to discuss Dixie and Snell-Northcutt.[3]

         There was no paperwork confirming the alleged agreement reached during the conference call regarding which party was responsible for paying Dixie. However, it is undisputed Stapleton sent the email to Chicago Title on February 7, 2011 instructing it to void Dixie's check and issue a check to Snell-Northcutt.

         On March 8, 2011, Kutac emailed Strawbridge demanding to know when Dixie would receive payment. Strawbridge did not respond to the email. Kutac testified it was her understanding, based on what Czapski and Strawbridge said, that Dixie never received payment because its check was voided and used to pay other vendors who had filed liens against the property. Dixie was the only subcontractor on the project that had a check held, later voided, and received nothing.

         Dixie filed suit against Nations, Czapski, Strawbridge, Riverdale, Stapleton, Akin, and Chicago Title. Prior to trial, Dixie nonsuited Akin and Strawbridge, and the court granted summary judgment in favor of Chicago Title. The court granted a directed verdict in favor of Czapski and Stapleton. The jury returned a verdict in favor of Dixie on its breach of contract, quantum meruit, fraud, promissory estoppel, conversion, and conspiracy claims against Riverdale, LP. The jury found in favor of Dixie on its quantum meruit claim against Riverdale, GP, LLC. The jury also found in favor of ...

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