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R. Hassell Builders, Inc. v. Texan Floor Service, Ltd.

Court of Appeals of Texas, First District

March 1, 2018

R. HASSELL BUILDERS, INC., Appellant
v.
TEXAN FLOOR SERVICE, LTD., Appellee

         On Appeal from the 157th District Court Harris County, Texas Trial Court Case No. 2015-48906

          Panel consists of Chief Justice Radack and Justices Keyes and Massengale.

          OPINION

          Evelyn V. Keyes Justice

         In this breach of contract case concerning services and labor provided in connection with the expansion of the Houston Transtar building, Texan Floor Service, Ltd. ("Texan Floor") sued R. Hassell Builders, Inc. ("R. Hassell Builders") for non-payment of Texan Floor's retainage fee and attorney's fees. R. Hassell Builders answered and filed a "Suggestion of Bankruptcy and Notice of Automatic Stay" concerning a bankruptcy proceeding involving an entity in the same corporate family as R. Hassell Builders. R. Hassell Builders was not the debtor in the bankruptcy proceeding. While the automatic stay was in place, Texan Floor filed a motion for traditional and no-evidence summary judgment. Within thirty days after the bankruptcy court lifted the stay, the trial court granted summary judgment in favor of Texan Floor and awarded it damages, attorney's fees, and interest. On appeal, R. Hassell Builders contends it was entitled to the protection of the automatic stay despite its not being the bankruptcy debtor and, as a result, the trial court erred in rendering summary judgment in favor of Texan Floor within the thirty-day grace period following the lifting of an automatic stay pursuant to Bankruptcy Code section 108(c).

         We affirm.

         Background

         R. Hassell Builders, the sole defendant in the trial court and appellant here, is part of a corporate family of entities, all of which are involved in various aspects of the construction business.[1] Royce Hassell is the President of R. Hassell Builders and R. Hassell Holding Company, Inc. Phillip Hassell is the President of Hassell Construction Company, Inc. In 2012, R. Hassell Holding Company, Hassell Construction Company, and another related entity, Hassell Management Services, L.L.C., entered into a joint venture agreement and created the Hassell 2012 Joint Venture, a general partnership, and the Springwoods Joint Venture. Although R. Hassell Holding Company, Hassell Construction Company, and Hassell Management Services were all partners of the Hassell 2012 Joint Venture, the record does not indicate whether R. Hassell Builders was also a partner.

         A couple of the Hassell entities, including Hassell Construction Company and R. Hassell Builders, were involved in a construction project relating to expanding the building that houses Houston Transtar. As part of this project, R. Hassell Builders subcontracted with Texan Floor in September 2012 to supply labor, materials, and services for the project. Although the appellate record includes a copy of this contract, the copy is nearly illegible in places. However, some parts of the contract are legible, including the first page, which states, "R. Hassell Builders, Inc. & Texan Floor Service, " and "Subcontract for New Construction" for the "Transtar Emergency Building Expansion." The contract contains repeated references to "R. Hassell Builders, Inc." and "Texan Floor Service, " and the signature page lists the parties as R. Hassell Builders, Inc. and Texan Floor Service.[2] The "project schedule" attached to the contract, although mostly illegible, indicates the involvement of Hassell Construction Company with the Transtar project, with each page containing a footer reading, "Hassell Construction Co., Inc. Transtar Emergency Building Exp."

         In June 2014, Texan Floor sent an invoice to R. Hassell Builders for $6, 511.04, reflecting its earned, but unpaid, retainage fee. This invoice reflected that the total contract price, including change orders, was $130, 220.40 and that Texan Floor had received $123, 709.36 of the contract price.

         In February 2015, Royce Hassell, as the president of R. Hassell Holding Company, one of the general partners of the Hassell 2012 Joint Venture, filed an involuntary bankruptcy petition against the Hassell 2012 Joint Venture and the Springwoods Joint Venture, as the debtors, in the United States Bankruptcy Court for the Southern District of Texas. R. Hassell Holding Company alleged in the bankruptcy petition that the Hassell 2012 Joint Venture was not generally paying its debts as they became due. Appellant R. Hassell Builders was not listed as a debtor in this bankruptcy petition. On May 8, 2015, the bankruptcy court signed a Memorandum Opinion in response to a motion to dismiss filed by James Hassell, Hassell Construction Company, and Hassell Management Services. See In re Hassell 2012 Joint Venture, No. 15-30781, 2015 WL 2265414 (Bankr.S.D.Tex. May 8, 2015). In this Memorandum Opinion, the bankruptcy court set out the relationship of several of the Hassell entities, although it did not mention appellant R. Hassell Builders, and it ruled that the Hassell 2012 Joint Venture was a general partnership under Texas law and was entitled to respond to the involuntary bankruptcy petition. Id. at *1, 4.

         In August 2015, more than a year after submitting its invoice for the retainage fee to R. Hassell Builders, which remained unpaid, Texan Floor sent a demand letter to a principal of Hassell Construction Company. In this demand letter, Texan Floor's attorney stated, "Hassell Construction, Inc./R. Hassell Builders, Inc. ("Hassell") contracted [Texan Floor] to furnish labor and materials for the Transtar Emergency Building Expansion Project in accordance with the parties' September 6, 2012 Construction Subcontract . . . ." Texan Floor's counsel stated that Texan Floor had completed its contractual obligations, and he demanded payment of the retainage fee within a week and stated that if it were not paid Texan Floor would file suit.

         Texan Floor did not receive payment of the retainage fee in response to its demand letter. On August 20, 2015, Texan Floor filed suit solely against R. Hassell Builders, asserting causes of action for breach of contract, promissory estoppel, and unjust enrichment/quantum meruit. Texan Floor also sought attorney's fees.

         R. Hassell Builders answered on September 18, 2015, and asserted the affirmative defense of impossibility of performance. R. Hassell Builders simultaneously filed a "Suggestion of Bankruptcy and Notice of Automatic Stay, " informing the trial court that an involuntary bankruptcy proceeding against the Hassell 2012 Joint Venture and the Springwoods Joint Venture had been filed in February 2015, and requesting that the trial court acknowledge the protections of the automatic stay.

         Two months later, in November 2015, Texan Floor moved for traditional and no-evidence summary judgment, seeking summary judgment on its breach of contract claim and damages in the amount of $6, 511.04, attorney's fees, and pre-judgment interest. Texan Floor sought traditional summary judgment on its breach of contract claim, arguing that there was no dispute that R. Hassell Builders had subcontracted with it to perform work on the Transtar project, that Texan Floor had timely performed its contractual obligations in full, and that R. Hassell Builders had breached the contract by failing to pay Texas Floor its earned retainage fee. Texan Floor sought no-evidence summary judgment on R. Hassell Builders' affirmative defense of impossibility of performance, arguing that R. Hassell Builders failed to plead this affirmative defense with particularity and that R. Hassell Builders could produce no evidence of any of the limited circumstances in which Texas courts find impossibility of performance.

         As summary judgment evidence, Texan Floor attached its demand letter, the contract, the invoice it sent to R. Hassell Builders for the retainage fee, and the affidavit of Jeffrey Hill, its President. Hill averred that R. Hassell Builders retained Texan Floor to furnish labor, materials, and services for the Transtar project, that R. Hassell Builders approved change orders for the project, that Texan Floor invoiced R. Hassell Builders for the retainage fee of $6, 511.04, and that R. Hassell Builders had failed to pay the retainage fee.

         On January 4, 2016, the trial court signed an order noting that Texan Floor had filed its summary judgment motion despite receiving notice that R. Hassell Builders had filed a suggestion of bankruptcy and automatic stay. The trial court stated, "[Texan Floor] needs to explain why this motion was filed despite the automatic stay."

         On February 1, 2016, Texan Floor filed a response to this order. In its response, Texan Floor argued that the automatic stay did not apply because R. Hassell Builders was not, and never had been, a debtor in bankruptcy. Texan Floor cited federal law holding that the automatic stay does not apply to non-debtors, even if the non-debtor is a corporate affiliate of the debtor. Texan Floor argued that because the automatic stay did not apply to its claim against R. Hassell Builders, the trial court should proceed to hear Texan Floor's summary judgment motion. R.

         Hassell Builders did not file a response to this filing by Texan Floor, nor did it file a response to Texan Floor's summary judgment motion.

         No further action happened in the underlying case for several months. Then, on September 23, 2016, the bankruptcy court issued a second Memorandum Opinion, in which it ruled on Hassell Construction Company's summary judgment motion seeking dismissal of the involuntary bankruptcy petition against the Hassell 2012 Joint Venture. See In re Hassell 2012 Joint Venture, No. 15-30781, 2016 WL 5369475 (Bankr.S.D.Tex. Sept. 23, 2016). Hassell Construction Company argued in its summary judgment motion that R. Hassell Holding Company could produce no evidence that the Hassell 2012 Joint Venture was not generally paying its debts as they came due. Id. In response, R. Hassell Holding Company listed several alleged debts of the Hassell 2012 Joint Venture and included Texan Floor's claim for its retainage fee, the subject of the underlying case, as an alleged debt of the Joint Venture. Id. at *2. In reply, Hassell Construction Company responded that this debt was disputed, stating that the debt refers to a "pending lawsuit[] against [Hassell Construction Company.]" Id. at *7. The bankruptcy court did not analyze Texan Floor's claim, but it did rule that Hassell Construction Company had "met its burden of demonstrating that a bona fide dispute exists as to" this alleged debt to Texan Floor. Id. Ultimately, the bankruptcy court concluded that R. Hassell Holding Company had not demonstrated that the Hassell 2012 Joint Venture was not paying its debts as they became due, and it dismissed the involuntary bankruptcy petition. Id. at *9.

         Ten days later, on October 3, 2016, Texan Floor filed a second notice of submission of its summary judgment motion. The trial court granted Texan Floor's summary judgment motion on October 12, 2016, awarding Texan Floor $6, 511.04 in damages, $515.67 in pre-judgment interest, and $10, 673.89 in attorney's fees, for a total judgment of $17, 700.60.

         R. Hassell Builders subsequently moved for a new trial, arguing that Texan Floor had moved for summary judgment in violation of the automatic stay and that, pursuant to Bankruptcy Code section 108(c), R. Hassell Builders was entitled to a thirty-day grace period following the expiration of the automatic stay in which to respond to Texan Floor's summary judgment motion, but the trial court rendered judgment before that thirty-day period expired.[3] As evidence, R. Hassell Builders attached the suggestion of bankruptcy that it filed contemporaneously with its answer, the trial court's January 4, 2016 order requesting that Texan Floor explain why it filed a motion for summary judgment despite the automatic stay, the bankruptcy court's September 23, 2016 Memorandum Opinion, and the bankruptcy court's order dismissing the involuntary bankruptcy petition.

         The trial court denied R. Hassell Builders' motion for a new trial. This appeal followed.

         Meanwhile, the Hassell 2012 Joint Venture appealed the bankruptcy court's September 23, 2016 memorandum opinion to the District Court for the Southern District of Texas. On July 24, 2017, while R. Hassell Builders' appeal of the trial court's underlying summary judgment was pending in this Court, the District Court issued a memorandum opinion affirming the bankruptcy court's opinion in part and remanding in part. See In re Hassell 2012 Joint Venture, No. H-16-3220, 2017 WL 3141168 (S.D. Tex. July 24, 2017). Relevant to this case, the District Court addressed whether the bankruptcy court had properly found that Texan Floor's claim for the retainage fee, which R. Hassell Holding Company had listed as an alleged debt of the Joint Venture in the bankruptcy proceeding, was subject to a "bona fide dispute." Id. at *6-7. The District Court held that, in making its ruling, the bankruptcy court had relied solely on a conclusory statement in Hassell Construction Company's summary judgment reply, which had stated that Texan Floor's lawsuit was "answered and disputed." Id. at *7. The District Court noted that the record contained only Texan Floor's original petition and summary judgment motion filed in the Harris County district court and did not include an answer or other pleading, and thus the court could not make an "independent review" of whether "there appeared to be a bona fide dispute as to the Joint Venture owing the debt or [whether] instead it was just not paying the debt and got sued." Id. The District Court thus remanded the case to the bankruptcy court to make a determination whether the debt was the subject of a bona fide dispute. Id.

         The bankruptcy court issued a memorandum opinion addressing this question on September 21, 2017. See In re Hassell 2012 Joint Venture, No. 15-30781, 2017 WL 4220425 (Bankr.S.D.Tex. Sept. 21, 2017). In considering Texan Floor's claim, the bankruptcy court noted, after quoting portions of Texan Floor's original petition filed against R. Hassell Builders, that "Texan Floor[] sought only retainage amounts and related fees, interest and costs." Id. at *2. The bankruptcy court stated that the retainage amount was not payable until the Hassell entities received payment of that amount from Harris County for the Transtar project. Id. The court concluded that because "[t]here was never a moment in time when the retainage was due and not paid, " Texan Floor's claim was subject to a bona fide dispute. Id. The bankruptcy court again dismissed the involuntary bankruptcy petition against the Hassell 2012 Joint Venture. Id. at *3.

         Summary Judgment

         In its sole issue, R. Hassell Builders contends that the trial court erred in granting summary judgment in favor of Texan Floor because R. Hassell Builders, despite not being the debtor in the bankruptcy proceeding, was entitled to the protection of the automatic stay. R. Hassell Builders argues that, as a result, the trial court erred in ruling on Texan Floor's summary judgment motion before the thirty-day grace period following the lifting of an automatic stay pursuant to Bankruptcy Code section 108(c) had expired.

         A. Stand ...


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