E. Friedman & Associates, Inc. and Elliot Friedman v. ABC Hotel & Restaurant Supply, Inc.
412 S.W.3d 561
Tex. App.2013Background
- In December 2007 ABC and E. Friedman Associates, Inc. (EFA) executed a Stock Purchase Agreement (SPA) for ABC to buy EFA; closing was to occur by February 15, 2008.
- SPA restricted EFA from making payments to seller/Elliott after December 31, 2007 (§1.2) and required ABC to deliver a Security Agreement at closing showing Elliott's lien would be subordinate to JPMorgan Chase (Exhibit B).
- JPMorgan Chase required a separate subordination agreement; EFA refused to sign it. ABC attempted restructuring but could not close and issued a termination notice on February 17, 2008; EFA issued a counter-termination on February 20, 2008.
- ABC sought return of a $178,000 deposit; EFA refused. ABC sued for breach of contract; EFA counterclaimed for breach and fraud.
- Summary judgment proceedings: the trial court granted summary judgment for ABC, found EFA committed three material breaches (late delivery of reviewed financials, failure to segregate funds, and unauthorized post-SPA payments to Elliott totaling $482,044), awarded ABC $356,000 in compensatory damages plus attorney's fees ($150,000), and denied additional fees. Both parties appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether ABC's request that EFA sign JPMorgan's subordination agreement was a prior material breach excusing ABC | Subordination request breached SPA first and thus ABC breached first | ABC: EFA made prohibited post-SPA distributions before subordination request; EFA breached first | Held: EFA breached first by making distributions after Dec 31, 2007; ABC did not first materially breach |
| Whether EFA's distributions after SPA (§1.2) were a material breach | EFA: distributions were not material or would not have deprived ABC of anticipated benefit | ABC: distributions (~$482,044, ~12.67% of purchase) deprived ABC of a significant anticipated benefit | Held: Distributions were a material breach, excusing ABC from further performance |
| Whether ABC waived enforcement of the anti-distribution provision by attempting to salvage the deal | EFA: ABC's post-breach efforts to restructure waived the restriction; waiver can be raised | ABC: no intent to relinquish the right; waiver was not pleaded as affirmative defense per Tex. R. Civ. P. 94 | Held: No waiver — EFA failed to plead waiver and did not timely raise it in summary judgment responses; trial court properly rejected waiver claim |
| Whether ABC was entitled to attorney's fees and scope of post-judgment interest | EFA: fees awarded after first summary judgment (which targeted counterclaims) were improper because AA only defended against counterclaims | ABC: prevailing party entitled to fees under Tex. Civ. Prac. & Rem. Code §38.001; post-judgment interest should run on entire judgment | Held: Fee award affirmed (trial court did not abuse discretion); judgment modified to award post-judgment interest at 5% on entire judgment (damages, fees, costs, pre-judgment interest) |
Key Cases Cited
- Valence Operating Co. v. Dorsett, 164 S.W.3d 656 (Tex. 2005) (summary judgment de novo review; standards for no-evidence and traditional motions)
- Mustang Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195 (Tex. 2004) (material breach by one party can excuse other party's performance)
- Prodigy Commc'ns Corp. v. Agric. Excess & Surplus Ins. Co., 288 S.W.3d 374 (Tex. 2009) (test for materiality focuses on deprivation of expected benefit)
- Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706 (Tex. 1997) (definition of "more than a scintilla" of evidence standard)
- King Ranch, Inc. v. Chapman, 118 S.W.3d 742 (Tex. 2003) (no-evidence summary judgment standard)
- Am. Tobacco Co. v. Grinnell, 951 S.W.2d 420 (Tex. 1997) (traditional summary judgment burdens and inferences for nonmovant)
- Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492 (Tex. 1991) (unpleaded affirmative defenses may support summary judgment if raised in the motion)
- Aaron Rents, Inc. v. Travis Cent. Appraisal Dist., 212 S.W.3d 665 (Tex. App.—Austin 2006) (abuse-of-discretion standard for attorney's fees awards)
- Smith v. Patrick W. Y. Tam Trust, 296 S.W.3d 545 (Tex. 2009) (trial court has discretion in assessing attorney's fees)
- Dallas Cnty. v. Crestview Corner Car Wash, 370 S.W.3d 25 (Tex. App.—Dallas) (post-judgment interest applies to full judgment amount)