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LLC v. Port Isabel Logistical Offshore Terminal, Inc.

Court of Appeals of Texas, Thirteenth District, Corpus Christi-Edinburg

December 19, 2019


          On appeal from the 107th District Court of Cameron County, Texas.

          Before Chief Justice Contreras and Justices Rodriguez [1] and Benavides


          DORI CONTRERAS Chief Justice

         We issued our opinion and judgment in this case on June 20, 2019. Appellant/cross-appellee Subsea 7 Port Isabel, LLC (Subsea) has filed motions for rehearing and for en banc reconsideration. Without changing our previous disposition, we deny the motions, withdraw our June 20, 2019 opinion and judgment, and issue this substitute opinion and its accompanying judgment in their place.

         This is a landlord-tenant dispute centering on the question of whether a sublease agreement was effectively renewed. The tenant, Subsea, contends by three issues that the trial court erred in awarding damages and prejudgment interest to the landlord, appellee/cross-appellant Port Isabel Logistical Offshore Terminal, Inc. (PILOT), after a jury found that the sublease was not renewed. PILOT brings eleven unenumerated cross-issues challenging (1) the trial court's failure to award attorney's fees, and (2) a provision in the final judgment allowing Subsea to remove improvements from the subject premises. We affirm in part and reverse and remand in part.

         I. Background

         Subsea is an engineering and construction firm that manufactures and installs undersea oil and gas pipelines. Starting in 2007, PILOT leased around fifty-four acres at the port of Port Isabel, Texas, from the Port Isabel-San Benito Navigation District (PISBND). On April 29, 2008, Subsea entered into an agreement with PILOT to sublease about half of that property (the sublease premises or subject property), to be used as a "spoolbase" for its undersea pipeline operations. The agreement stated that "[t]his Sublease shall commence on May 1, 2008, and terminate on May 31, 2012 (the 'Initial Term')." Section II of the agreement, entitled "Option to Renew," stated in its entirety as follows:

[PILOT] represents and warrants that the PRIME LEASES' [i.e., the leases between PILOT and PISBND] initial term expires May 31, 2012, and that [PILOT] has the right to renew the term thereof for up to four (4) additional five (5) year terms through the exercise of renewal options pursuant to this Sublease.

[Subsea] is hereby granted, subject to the terms hereof, and provided [PILOT] has exercised its option to renew the PRIME LEASES, and further provided that [Subsea] is not in default in any particular under this Sublease beyond any notice and cure period as set forth in this Sublease; up to four (4)options to renew and extend the term of this Sublease for a term of five (5) years (i.e., no more than four options for five years each) on the expiration of the said initial lease term (of five [5] years) under this Sublease, and any additional option term, as appropriate, if exercised.

No later than March 31, 2012 (and each fifth (5th) March 31 thereafter to and including March 31, 2027, if [Subsea] has exercised its option to renew this Sublease) [Subsea] shall advise [PILOT] in writing whether it wishes to exercise its option to renew the Sublease for the subsequent five (5) year-term beginning on June 1 of such year. If [Subsea] notifies [PILOT] that it wishes to renew the Sublease, [PILOT] shall advise [Subsea] in writing whether it will renew the PRIME LEASES for the same five (5) year term by no later than 30 calendar days following receipt of [Subsea]'s notice. If [PILOT] notifies [Subsea] that it has elected to renew the PRIME LEASE, [Subsea]'s election to renew the Sublease shall be binding and irrevocable and the Sublease shall be renewed for the following five (5) year term.
Any such option (if exercised) will be under the same terms, covenants and conditions of this Sublease, so far as is applicable, except as to rental fees (which are addressed in Paragraph VI below), and subject to the exceptions and reservations contained in this Sublease.

         As to rental fees, the agreement stated that "[d]uring the 'rental abatement period' (as that term is defined in the PRIME LEASES)," Subsea will pay a base rent of $11, 800 per month, and after that period, the base rent will increase to $20, 000 per month. The agreement further stated:

In the event of a renewal or extension of this Sublease, through the exercise of options or otherwise, the said rental and related fees shall be subject to adjustment, but at no time shall the monthly rentals or charges be less than the foregoing amounts, and same will be calculated by taking the foregoing amounts and adjusting same in accordance with the Producer's Price Index ("for all goods"), as calculated every five (5) years (i.e., in the fifth [5th] year of the relevant term), in conjunction with an option to renew.
Any late payment (i.e., ten days after the due date) will require the payment of a charge of 10% of the amount due to avoid a default; any holding over beyond the expiration of the said "lease term" (or any extension thereof) will require the payment of pro rata rentals, in accordance with the rates above.

         (Brackets and quotation marks in original.) Finally, the sublease agreement provided that any modifications or amendments to the agreement must be in writing and signed by the parties, and "[a]ny oral representations or modifications concerning this instrument shall be of no force or effect."

         Also on April 29, 2008, Subsea, PILOT, and PISBND entered into a "Non-Disturbance Agreement" under which PISBND consented to PILOT subleasing the subject premises to Subsea. The "Non-Disturbance Agreement" provided that PISBND and PILOT will not amend or modify their lease agreement "in any way that affects the [Sublease] Premises or [Subsea]'s rights under the Sublease" without Subsea's prior written consent.

         Subsea claims that it spent over $40 million to improve the subject property by, among other things, building a dock, building facilities for fabricating pipes and loading them onto ships, and stabilizing the ground with crushed rock. But after the Deepwater Horizon oil spill in 2010, drilling activity in the Gulf of Mexico slowed dramatically and the facilities on the sublease premises went virtually unused for several years. Thus, in early 2012, Subsea sought to renegotiate the terms of the Sublease before renewing under the agreement. According to Subsea, its operations manager Greg Donnelly spoke with PILOT's then-president, John Stafford, in February or March 2012 about renewing the sublease and about the possibility of "rent abatement." Subsea asserts that Stafford told Donnelly he would discuss the matter with PILOT's board, and that in the meantime, Subsea did not need to send written notice of its intent to renew the sublease before March 31, 2012, as required by the agreement.

         Steve Bearden, PISBND's executive director, testified that Stafford told him "[Subsea] was going to renew the sublease." However, he acknowledged that Stafford never told him that Subsea "actually renewed the sublease." Bearden testified that PILOT negotiated a new lease with PISBND with a lower rental rate; that the new lease was signed two days after the deadline for Subsea to renew the sublease; and that PISBND would not have signed the new lease if it did not believe that Subsea had already renewed its sublease.

         David Dennis, then PILOT's vice president, testified that Stafford told him prior to March 31, 2012, that Subsea "wanted to renew [its] lease." Laura Butler, a Subsea attorney, testified that Donnelly told her prior to March 31, 2012, that he had conversations with Stafford about renewing the sublease.[2]

         In May 2012, Scott Brown replaced Stafford as PILOT's president. Donnelly sent an email to Brown on May 22 stating that Subsea intended to renew the lease. The following day, Butler sent a notice of renewal via certified mail. PILOT did not respond to the notices, believing that they were untimely and therefore invalid. Nevertheless, PILOT continued to send rent invoices to Subsea for two years after the initial sublease term expired, and Subsea paid those invoices. Brown testified at trial that he did not believe it was necessary for PILOT to advise Subsea that it considered Subsea a holdover tenant in violation of the sublease agreement.

         In April 2014, PILOT sent an eviction notice to Subsea, demanding that Subsea vacate the premises by May 31, 2014. Subsea, believing that the sublease had been effectively renewed, refused to do so, leading to the instant litigation. In its live pleading, PILOT sought a declaratory judgment confirming that the sublease expired and was not renewed, damages for trespass[3] and breach of contract, and attorney's fees. Subsea's live pleading sought a declaration that the sublease was validly renewed, damages for breach of contract and promissory estoppel, and attorney's fees.[4]

         After two weeks of trial, ten of twelve jurors found that: (1) the parties did not orally agree to modify the renewal provisions of the sublease such that Subsea's oral notification and subsequent written notice were sufficient to renew the sublease; (2) PILOT is not estopped from denying that Subsea renewed the sublease; (3) PILOT did not waive strict compliance with the renewal provisions of the sublease such that Subsea's oral notification and subsequent written notice were sufficient to renew the sublease; (4) Subsea trespassed on PILOT's property; (5) PILOT is entitled to $634, 710 in damages for the trespass; and (6) Subsea did not substantially and foreseeably rely to its detriment on PILOT's promise, if any, that Subsea did not need to send written notice of renewal before March 31, 2012.[5]

         The trial court's judgment, dated December 13, 2016, stated that Subsea "became an unlawful trespasser as of June 1, 2014," and it awarded $634, 710 in damages to PILOT, along with pre-judgment interest "at the simple rate of 5% per year beginning on June 1, 2014, through the day preceding the date of this Final Judgment, which is the amount of $80, 425.58 as of December 13, 2016," and post-judgment interest. The judgment further provided:

[Subsea] may remove any or all property and improvements located on the [subject property] (including crushed rock), until thirty days from the date of this Judgment or the expiration of any period during which this Final Judgment is superseded by the filing of a bond (or cash in lieu of bond) in accordance with Texas Rule of Appellate Procedure 24, provided that [Subsea] shall be responsible for any costs or expense to repair any physical damage to the property cased by such removal, and further provided that [Subsea] shall not be entitled to remove the dock located on the property . . . .
All property, whether real or personal, including without limitation fixtures and improvements, remaining on the [subject property] after the expiration of thirty days from the date of this Judgment or after the expiration of any period during which this Final Judgment is superseded by the filing of a bond (or cash in lieu of bond) in accordance with Texas Rule of Appellate Procedure 24, is solely and exclusively the property of PILOT.

         The judgment did not award attorney's fees to PILOT. Both parties perfected appeals.

         II. Subsea's Issues

         A. Affirmative Defenses

         By its first issue, Subsea contends that the trial evidence conclusively established its affirmative defenses of equitable estoppel, quasi-estoppel, and waiver. We construe the argument as challenging the legal sufficiency of the evidence to support the jury's rejection of those defenses.

         1. Standard of Review

         Subsea had the burden to prove estoppel and waiver at trial. See Tex. R. Civ. P. 94. When a party challenges the legal sufficiency of the evidence supporting an adverse finding on an issue on which it had the burden of proof, that party must demonstrate on appeal that the evidence establishes, as a matter of law, all vital facts in support of the issue. Dow Chem. Co. v. Francis, 46 S.W.3d 237, 241 (Tex. 2001). We view the evidence in the light most favorable to the finding, and we assume that jurors credited testimony favorable to the verdict and disbelieved testimony contrary to it. City of Keller v. Wilson, 168 S.W.3d 802, 819 (Tex. 2005). We defer to the jury's determination as to the credibility of the witnesses and the weight to give their testimony, and we indulge every reasonable inference in support of the finding. Id. at 819, 822.

         2. Equitable Estoppel

         The jury found that PILOT is not estopped from denying that Subsea renewed the sublease. Estoppel "generally prevents one party from misleading another to the other's detriment or to the misleading party's own benefit." Ulico Cas. Co. v. Allied Pilots Ass'n, 262 S.W.3d 773, 778 (Tex. 2008) (citing Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 515-16 (Tex.1998)). To establish equitable estoppel, a party must show: (1) a false representation or concealment of material facts; (2) made with knowledge, actual or constructive, of those facts; (3) with the intention that it should be acted on; (4) to a party without knowledge or means of obtaining knowledge of the facts; (5) who detrimentally relies on the representations." Id.[6]

         In support of its first issue, Subsea points to Brown's trial testimony, in which he stated that he received Donnelly's May 22, 2012 email advising him that Subsea intended to renew the sublease. Brown repeatedly testified that he did not reply to the email, or to subsequent correspondence from Subsea, because their efforts to renew the sublease after the time provided in the agreement were "bogus." Brown stated that, after the contractual renewal period expired on March 31, 2012, he considered Subsea a holdover, month-to-month tenant. However, PILOT did not notify Subsea that it believed the attempted renewal was invalid. When asked why he did not so notify Subsea, Brown testified:

I did not send them a notice for several reasons. So first and foremost, when you negotiate a contract or a sublease, you put in the specific things that the parties want to receive notice about. And so, in the sublease itself and in the non-disturbance agreement, there are very clear things that you send a written notice about, where a notice is required. And so, you know, together, committees of each company with their lawyers come up with all the things where a formal written notice where a certified letter is required. And so, a notice that your lease is terminated and now you['re] hold-over is not on that list.
[Subsea] is a multi-billion dollar large corporation with lawyers on staff, lots of sophisticated employees who deal with contracts far more complicated than this, and I, as a businessman, believe and know that, you know, everybody is responsible for reading and operating under contracts on their own. You don't have to hold somebody else's hand and tell them that they are messing up. You know, if you want to give them a notice on something that you can give them notice on, you do that. But there is no hand holding in the business world with sophisticated companies dealing with each other.

         Brown later stated that he declined to notify Subsea that he considered them a holdover tenant because such a notice may have led Subsea to sue. He explained that PILOT was already subject to "another bogus lawsuit" brought by PISBND "for damage to our dock," and because "we are a small company that can't easily afford to be caught up in lawsuits," he "certainly didn't want to trigger a second one, at least until that first one was finished." Brown testified: "I was going to try to lay low, work on business with other customers, and get out of the lawsuit with [PISBND]."

         Brown explained why he thought there were "three major clues" from which Subsea should have known it was being considered a holdover tenant:

[First], they knew that they had to send the notice by March 31, and they didn't do that. So they know they are a ...

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