Case Information
*0 FILED IN 3rd COURT OF APPEALS AUSTIN, TEXAS 7/16/2015 5:26:54 PM JEFFREY D. KYLE Clerk 03-14-00738-CV THIRD COURT OF APPEALS 7/16/2015 5:26:54 PM JEFFREY D. KYLE AUSTIN, TEXAS 03-14-00738-CV *1 ACCEPTED [6106044] CLERK In the Court of Appeals
For the Third District of Texas at Austin Elness, Swenson, Graham Architects, Inc. , Appellant ,
v. RLJ II-C Austin Air, LP, RLJ II-C Austin Air Lessee, LP, and RLJ Lodging Fund II Acquisitions, LLC, Appellees .
On Appeal from the
200th Judicial District Court of Travis County, Texas Cause Number: D-1-GN-002325 The Honorable Stephen Yelenosky, Presiding Judge REPLY IN SUPPORT OF APPELLANT’S BRIEF Attorneys for Appellant
Gregory N. Ziegler Texas Bar No. 00791985 M ACDONALD D EVIN , PC GZiegler@MacdonaldDevin.com 3800 Renaissance Tower Weston M. Davis Dallas, Texas 75270 Texas Bar No. 24065126 214.744.3300 telephone WDavis@MacdonaldDevin.com 214.747.0942 facsimile Steven R. Baggett Texas Bar No. 01510680 SBaggett@MacdonaldDevin.com Oral argument requested *2 T ABLE OF C ONTENTS
Table of Contents ..................................................................................................... i
Index of Authorities .............................................................................................. iii
Summary ................................................................................................................... 1
I. The “no net recovery” rule does not apply to credits based on third-party settlements (Issue No. 1) ................................. 2 II. RLJ did not receive an assignment of any claims against ESG (Issue No. 2). ......................................................................................... 6 A. The PSA did not include an assignment of any causes of action .................................................................................... 6 B. RLJ’s alleged, invalid assignment of ESG’s contract did not convey pre-existing causes of action ................................... 11
III. RLJ failed to establish evidentiary requisites for admission of the ESG contract (Issue No. 3). .................................................... 14
IV. ESG did not agree to warrant or “perform” structural engineering services (Issue No. 4). ................................................... 15
V. The trial court erred in awarding RLJ diminution in value damages because the evidence was legally insufficient (Issue No. 5). ...................................................................................... 16 A. Mr. Hornsby’s ipse dixit is not competent evidence ................ B. RLJ provides no legal basis for the legally insufficient appraisal date .............................................................................. 17
C. Two wrongs don’t make a right: RLJ’s improper Appraisal Date is not cured by submission of an improper jury question. ............................................................................... 19 i .1 402/122 *3 D. RLJ did not provide required evidence to support the alleged lost market value of the Hotel attributable to ESG ................. 21
E. The determination of lost market value damages requires admissible expert testimony, which RLJ did not provide....... 23
Prayer ..................................................................................................................... 24
Certificate of Service ............................................................................................. 25
Certificate of Compliance ..................................................................................... 25
ii .1 402/122 *4 I NDEX OF A UTHORITIES Cases
A.D. Willis Co. v. Metal Bldg. Components, Inc..,
No. 03-99-00574, 2000 Tex. App. LEXIS 6812
(Tex. App. Austin Oct. 12, 2000, pet. denied) ............................................... 3 Adams v. Great American Lloyd’s Ins.,
891 S.W.2d 769 (Tex. App.–Austin 1995, no writ) ....................................... 7 Allodial Ltd. v. N. Texas Tollway Auth.,
176 S.W.3d 680 (Tex. App.–Dallas 2005, pet. denied) ............................... 12 Baroid Equipment, Inc. v. Odeco Drilling, Inc.,
184 S.W.3d 1 (Tex. App.–Houston [1 st Dist.]
2010, pet. denied) ........................................................................................ 11 Barraza v. Koliba,
933 S.W.2d 164 (Tex. App.–San Antonio, 1996, writ denied) .................... 18 Barry v. Jackson,
309 S.W.3d 135 (Tex. App.-Austin 2010, no pet.) ...................................... 18 Birchfield v. Texarkana Mem’l Hosp.,
747 S.W.2d 361 (Tex. 1987) ........................................................................ 17 Birnbaum v. Swepi LP.,
48 S.W.3d 254 (Tex. App – San Antonio 2001, pet. denied) ........................ 7 Browne v. King,
196 S.W. 884 (Tex. Civ. App.–San Antonio 1917) ....................................... 7 Buccaneer Homes of Ala., Inc. v. Pelis,
43 S.W.3d 586 (Tex. App.–Houston [1 st Dist.] 2001, no pet.) ....................... 4 Ceramic Tile Int’l, Inc. v. Balusek,
137 S.W.3d 722 (Tex. App.–San Antonio, 2004, no pet.) ............................. 9 iii .1 402/122 *5 C.M. Asfahl Agency v. Tensor, Inc.,
135 S.W.3d 768 (Tex. App.–Houston [1 st Dist.]
2004, no pet.) .............................................................................................. 20 City of Austin v. Houston Lighting & Power Co.,
844 S.W.2d 773 (Tex. App–Dallas 1992, pet. denied) ............................... 15 City of Keller v. Wilson,
168 S.W.3d 802 (Tex. 2005) ....................................................................... 17 Coastal Transp. Co. v. Crown Cent. Petroleum Corp.,
136 S.W.3d 227 (Tex. 2004.) ....................................................................... 17 Commerical Structures & Interiors, Inc. v. Liberty Edu. Ministries, Inc. ,
192 S.W.3d 827 (Tex. App.–Fort Worth 2006, no pet.) .......................... 9, 12 David J. Sacks, P.C. v. Haden,
266 S.W.3d 447 (Tex. 2008) ........................................................................ 10 E.I. du Pont Nemours and Co. v. Robinson,
923 S.W.2d 549 (Tex. 1995) ........................................................................ 22 Felton v. Lovett,
388 S.W.3d 656 (Tex. 2012) ........................................................................ 21 Galle, Inc. v. Pool,
262 S.W.3d 564 (Tex. App.— Austin 2008, pet. denied) ......................... 3, 6 Gharda USA, Inc. v. Control Solutions, Inc.,
No. 12-0987, 2015 Tex. LEXIS 432
(Tex. May 8, 2015) ................................................................................ 23-24 Gibraltar Resources, Inc.,
211 B.R. 216 (Bkrtcy. N.D. Tex. 1997) ....................................................... 12 Goldman v. Olmstead,
414 S.W.3d 346 (Tex. App.-Dallas 2013, pet. denied) ............................... 18 iv .1 402/122 *6 G.R.A.V.I.T.Y. Enterps. v. Reece Supply Co.,
177 S.W.3d 537 (Tex. App. – Dallas Aug. 9, 2005, no pet.) ........................................................................................................... 4 Green Intern., Inc. v. Solis,
951 S.W.2d 384 (Tex. 1997) ...................................................................... 4-6 Guadalupe-Blanco River Auth. v. Kraft, Davis,
77 S.W.3d 805 (Tex. 2002) ......................................................................... 19 Guevara v. Ferrer,
247 S.W.3d 662 (Tex. 2007) ....................................................................... 24 Gulley v. Davis,
321 S.W.3d 213 (Tex. App.–Houston (1 st Dist.] 2010, pet. denied) ........... 10 Hoffman-La Roche, Inc. Zeltwanger,
144 S.W.3d 438 (Tex. 2004) ....................................................................... 21 Holland v. Wal-Mart Stores,
1 S.W.3d 91 (Tex. 1999) ............................................................................. 21 Houston Unlimited, Inc. v. Mel Acres Ranch,
443 S.W.3d 820 (Tex. 2014) ................................................................. 23-24 Imperial Lofts, Ltd. v. Imperial Woodworks, Inc.,
245 S.W.3d 1 (Tex. App.—Waco 2007, pet. denied) ................................... 4 Intercontinental Group Partnership v. KB Home Lone Star L.P.,
295 S.W.3d 650 (Tex. 2009) ......................................................................... 5 Island Recreational Develop. Corp. v. Republic of Texas Savings Ass’n,
710 S.W.2d 551 (Tex. 1986) ....................................................................... 13 Keller Founds., Inc. v. Wausau Underwriters Ins. Co.,
626 F.3d 871 (5 th Cir. 2010) .................................................................. 13-14 Kingsbery v. Phillips Petroleum Co.,
315 S.W.2d 561 (Tex. Civ. App.-Austin 1958,
v .1 402/122 *7 writ ref’d n.r.e.) ............................................................................................ 11 KMG Kanal-Muller-Gruppe Deutschland v. Davis,
175 S.W.3d 379 (Tex. App.–Houston [1 st Dist] 2005, no pet.) .................... 19 LMB, Ltd. v. Moreno,
201 S.W.3d 686 (Tex. 2006) ........................................................................ 17 Marquis Acquisitions, Inc. v. Steadfast Ins. Co.,
409 S.W.3d 808 (Tex. App.-Dallas 2013, no pet.) ...................................... 21 MBM Financial Corp. v. Woodlands Operating Co., L.P.,
292 S.W.3d 660 (Tex. 2009) ......................................................................... 5 McCrea v. Commerce Title Co.,
No. 04-08-00521, 2009 Tex. App. LEXIS 5597
(Tex. App.-San Antonio July 22, 2009, no pet.) ......................................... 12 McGinty v. Hennen,
372 S.W.3d 625 (Tex. 2012) ................................................................. 18, 21 McKinley v. Drozd,
685 S.W.2d 7 (Tex. 1985) .......................................................................... 2-5 Minnesota Mining and Mfg. Co. v. Nishika Ltd.,
953 S.W.2d 733 (Tex. 1997) ....................................................................... 22 Osbourne v. Jaregui,
252 S.W.3d 70 (Tex. App. - Austin 2008, pet. denied) ............................. 3-6 Osterberg v. Peca,
12 S.W.3d 31 (Tex. 2000) .......................................................................... 19 Pape Equip. Co. v. I.C.S., Inc.,
737 S.W.2d 397 (Tex. App.–Houston [14 th Dist.]
1987, writ ref’d n.r.e.) ............................................................................... 8-9 Reuben H. Donnelley Corp. v. McKinnon,
688 S.W.2d 612 (Tex. App.-Corpus Christi 1985, writ re’f n.r.e.) ............. 14 vi .1 402/122 *8 Richey v. Stop N Go Markets of Texas,
654 S.W.2d 430 (Tex. 1983) ................................................................... 9, 13 Seaview Hospital, Inc. v. Medicenters of Am., Inc.,
570 S.W.2d 35 (Tex. Civ. App.–Corpus Christi 1978, no writ) ................. 15 Senn v. Texaco, Inc.,
55 S.W.3d 222 (Tex. App.–Eastland 2001, pet. denied) ............................. 13 State Dept. of Highways v. Payne,
838 S.W.2d 235 (Tex. 1992) ....................................................................... 20 Stewart Title Guar. Co. v. Sterling,
822 S.W.2d 1 (Tex. 1991) ........................................................................... 22 Stone v. Midland Multifamily Equity REIT,
334 S.W.3d 371 (Tex. App.–Dallas 2011) ................................................... 10 Texarkana Mem’l Hosp. v. Murdock,
946 S.W.2d 836 (Tex. 1997) ....................................................................... 22 Texas Development Co. v. Exxon Mobil Corp.,
119 S.W.3d 875 (Tex. App.–Eastland 2003, no pet.) .................................. 14 Thomas v. Bobby D. Assocs.,
No. 12-08-00007, 2008 Tex. App. LEXIS 5881
(Tex. App. – Tyler Aug. 6, 2008, no pet.) ..................................................... 3 THPD, Inc. v. Continental Imports, Inc.,
260 S.W.3d 593 (Tex. App.–Austin 2008, no pet.) ..................................... 19 University Gen. Hosp., LLC v. Prexus Health Consultants, LLC
403 S.W.3d 547 (Tex. App.-Houston [14 th Dist.]
2013, no pet.) ............................................................................................... 22 Waffle House, Inc. v. Williams,
313 S.W.3d 796 (Tex. 2010) ....................................................................... 21 vii .1 402/122 *9 Westminster Falcon/Trinity L.L.P. v. Shin,
No. 07-11-0033-CV, 2012 Tex. App. LEXIS 8833 (Tex. App.—Amarillo Oct. 23, 2012, no pet.) ........................................... 18 Rules
Tex. R. Evid. 901(a) ................................................................................................. 14
Tex. R. Civ. P. 274 .................................................................................................. 20
Tex. R. App. P. 9.4 ................................................................................................. 26
viii .1 402/122 *10 03-14-00738-CV
In the Court of Appeals For the Third District of Texas at Austin Elness, Swenson, Graham Architects, Inc. , Appellant ,
v. RLJ II-C Austin Air, LP, RLJ II-C Austin Air Lessee, LP, and RLJ Lodging Fund II Acquisitions, LLC, Appellees .
On Appeal from the
200th Judicial District Court of Travis County, Texas Cause Number: D-1-GN-002325 The Honorable Stephen Yelenosky, Presiding Judge TO THE HONORABLE JUSTICES OF THE COURT OF APPEALS:
Appellant Elness, Swenson, Graham Architects, Inc. (“ESG”) files this Reply in Support of Appellant’s Brief, and shows:
SUMMARY It is undisputed that Appellees RLJ II-C Austin Air, LP, RLJ II-C Austin Air Lessee, LP, and RLJ Lodging Fund II Acquisitions, LLC (collectively, “RLJ”) did
not recover any damages. As a result, RLJ cannot avoid Texas Supreme Court
precedent precluding recovery of attorney’s fees under Texas Civil Practice and
Remedies Code Chapter 38 (“Chapter 38”). It is also undisputed that RLJ was not
a party to the contract underlying its breach of contract claim. Because RLJ did
not receive an express assignment of pre-existing causes of action from the
previous Hotel [1] owner, South Ausaircourt, L.P. (“South Ausaircourt”), RLJ had no
standing or capacity to sue ESG.
The trial court erred in admitting ESG’s contract into evidence because RLJ failed to provide an adequate foundation or authentication for admissibility and in
submitting a breach of contract question to the jury that included contractual
responsibilities outside the scope of ESG’s contract.
Finally, the jury’s verdict cannot stand because RLJ did not present legally or factually sufficient evidence to support the jury’s lost market value damages
finding.
I. The “no net recovery” rule does not apply to credits based on third-
party settlements (Issue No. 1).
RLJ argues that the “no net recovery” rule, established by the Texas Supreme Court in McKinley v. Drozd, allows RLJ to recover attorney’s fees even
though RLJ did not recover any damages. Response, 8. RLJ’s argument
contradicts numerous opinions both from this Court and the Texas Supreme Court.
Under the “no net recovery” rule, a party who prevails on a breach of contract claim, but has damages for that claim completely offset by the other
*12 party’s counterclaim may still recover attorney’s fees under Chapter 38. McKinley ,
685 S.W.2d at 10-11; A. D. Willis Co. v. Metal Bldg. Components, Inc ., No. 03-99-
00574, 2000 Tex. App. LEXIS 6812, at *15-16 (Tex. App. Austin Oct. 12, 2000,
pet. denied). The “no net recovery” rule does not apply in this case because RLJ’s
damages were not offset by any counterclaim pursued by ESG. In fact, ESG did
not file or pursue any counterclaim. No counterclaim was submitted to the jury.
No offset scenario exists here. RLJ settled with another party, so RLJ’s damages
were paid before the jury issued its verdict.
This Court, in Osbourne v. Jaregui, Inc ., directly addressed and refuted RLJ’s argument, holding the following:
the rule that a net recovery is not necessary for a plaintiff to be considered a prevailing party “ does not apply in a case in which a consumer has already received payment of an amount equal to or greater than the damages found by the fact finder in the trial of the consumer's case against the non-settling defendant . . . the [Texas Supreme Court in McKinley ] did not hold that a claim entirely offset by the settlement of that same claim by other defendants could support an award of attorney's fees.
252 S.W.3d 70, 75-76 (Tex. App.—Austin 2008, pet. denied) (citations omitted)
(emphasis added). Four months later this Court reversed a trial court’s award of
attorney’s fees where settlement credits exceeded the jury’s breach of contract
damage award and ordered that the trial court enter a take nothing judgment.
Galle, Inc. v. Pool , 262 S.W.3d 564, 574 (Tex. App.—Austin 2008, pet. denied).
There is no Texas case holding that RLJ is entitled to attorney’s fees under these circumstances. See e.g., Thomas v. Bobby D. Assocs ., No. 12-08-00007,
2008 Tex. App. LEXIS 5881, at *4 (Tex. App.—Tyler Aug. 6, 2008, no pet.);
Imperial Lofts, Ltd. v. Imperial Woodworks, Inc ., 245 S.W.3d 1, 7 (Tex. App.-
Waco 2007, pet. denied); G.R.A.V.I.T.Y. Enterps. v. Reece Supply Co ., 177 S.W.3d
537, 550-51 (Tex. App.—Dallas Aug. 9, 2005, no pet.); Buccaneer Homes of Ala.,
Inc. v. Pelis , 43 S.W.3d 586, 591 (Tex. App.—Houston [1st Dist.] 2001, no pet.).
RLJ attempts to graft the analysis in McKinley to this case, arguing that a jury’s verdict awarding damages triggers liability for attorney’s fees under Chapter
38. Response, 8-10. Under RLJ’s theory, a jury’s verdict awarding damages
entitles the claimant to attorney’s fees, regardless of any action that nullifies the
damages thereafter. Id .
RLJ’s theory cannot apply here because the Texas Supreme Court has expressly held that “[t]o recover attorney's fees under Section 38.001, a party must
(1) prevail on a cause of action for which attorney's fees are recoverable, and (2)
recover damages . Green Intern., Inc. v. Solis, 951 S.W.2d 384, 390 (Tex. 1997)
(emphasis added). RLJ attempts to discount this precedent by stating that the Solis
opinion did not refer to McKinley (Response, 14, n.11), but McKinley simply does
not apply where there is no offset resulting from a counterclaim. Osbourne ,
S.W.3d at 75-76. Solis is the law in this state. [2] See Intercontinental Group P’ship
v. KB Home Lone Star L.P ., 295 S.W.3d 650, 652, n.1 (Tex. 2009) (stating that
Solis provides the definition of “prevailing party” under Chapter 38).
RLJ’s proposed rule would also violate Texas Supreme Court precedent where a trial court issues a judgment notwithstanding the verdict. Under RLJ’s
proposed rule, as long as a claimant follows the presentment procedures in Chapter
38, attorney’s fees are recoverable the instant the jury returns a verdict in the
claimant’s favor. Response, 15-21. RLJ’s rule would allow recovery of attorney’s
fees even after a jury verdict is overturned by a judgment notwithstanding the
verdict.
RLJ’s argument directly contradicts the Texas Supreme Court’s holding in MBM Financial Corp. v. Woodlands Operating Co., L.P ., 292 S.W.3d 660 (Tex.
2009). There, the jury awarded $1,000 in damages and $150,000 in attorney’s
fees, but there was insufficient evidence to support the $1,000 damage award. Id .
at 663, 666. The Supreme Court reversed the damage award and attorney’s fees.
Id . at 666. According to RLJ, the claimant in MBM Financial was entitled to
attorney’s fees despite the insufficient evidence supporting damages. RLJ’s
argument does not comport with Texas Supreme Court precedent.
*15 RLJ also argues that failing to award Chapter 38 attorney’s fees in this case would provide a disincentive to settlement during trial. Response, 18-20.
However, nothing in Chapter 38 or its legislative history evinces any intent to
assist settlements. Indeed, RLJ cites the legislative history, which identifies the
effects of attorney’s fees on the “losing party” and the “winner.” Response, 24.
Chapter 38 was not intended to induce settlements, but to provide recompense to a
prevailing party. Id .; Solis, 951 S.W.2d at 390. Texas law clearly establishes that
such recompense is not appropriate where, prior to any verdict or judgment, the
plaintiff is fully compensated for its damages. Osbourne , S.W.3d at 75-76; Galle ,
262 S.W.3d at 574. The trial court erred in awarding attorney’s fees under Chapter
38 because RLJ did not recover any damages.
II. RLJ did not receive an assignment of any claims against ESG
(Issue No. 2).
A. The PSA [3] did not include an assignment of any causes of action . RLJ cannot identify any contractual language expressly assigning pre- existing causes of action against ESG. Response, 25-38. Absent such express
language, RLJ argues that the transfer of “intangible assets,” an undefined term,
constitutes an express assignment. Despite RLJ’s textual distortions, it cannot
make the agreements at issue include an assignment that does not exist.
*16 No dictionary definition or Texas precedent addressing the term “intangible asset” includes causes of action. [4] RLJ conflates the term “intangible asset” with
the terms “personal property right” and “intangible property ,” attempting to
incorporate a meaning of the term “intangible asset” not supported by the contract.
Response, 27-34. Contractual terms are given their plain, ordinary, and generally
accepted meaning unless the instrument shows that the parties used such terms in a
technical or different sense. Birnbaum v. Swepi LP , 48 S.W.3d 254, 257 (Tex.
App.—San Antonio 2001, pet. denied). The term “intangible asset,” on its face,
does not include “property” or “causes of action.” The PSA does not define the
term.
The PSA defines the terms “Assets,” “Property,” and “Personal Property,” none of which include pre-existing causes of action. CR:613; 618-19. RLJ turns
to the general definition of “property,” which includes the “right of possession” or
“right of ownership,” and argues that the transfer of personal property to RLJ
included causes of action. Response, 27-29. [5] However, South Ausaircourt did not
*17 assign RLJ any “intangible property” or any other property outside of the defined
terms identified above. In fact, South Ausaircourt specifically excluded from the
sale “all property owned by [South Ausaircourt] or any of its Affiliates not
normally located at such Property and used, but not exclusively, in connection with
the operation of such Property.” CR:615. South Ausaircourt specifically reserved
and did not transfer these “Excluded Assets.” CR:615; 621.
RLJ argues that the assignment of intangible assets operated as a “Mother Hubbard” clause that assigned all pre-existing causes of action and that the PSA
required South Ausaircourt to “cooperate with RLJ to enforce any rights” [6] under
ESG’s contract. Response, 30. RLJ argues this agreement to “cooperate” in the
future proves assignment of all pre-existing causes of action. [7] Id . Such linguistic
gymnastics fails to reach the platform of intent to assign anything, let alone causes
of action, falling flat on its face.
Because RLJ cannot identify any express words of transfer, this argument addresses an equitable assignment. Unlike an express assignment, an equitable
assignment does not require express words of transfer. Pape Equip. Co. v. I.C.S.,
Inc ., 737 S.W.2d 397, 402 (Tex. App.—Houston [14th Dist.] 1987, writ ref'd
*18 n.r.e.). An equitable assignment requires evidence of intent to transfer the interest
and the transferor’s relinquishment of control over the interest. Id . RLJ cannot
make this argument because it did not plead equitable assignment. [8] CR:184-202;
Commercial Structures & Interiors, Inc. v. Liberty Edu. Ministries, Inc ., 192
S.W.3d 827, 834 (Tex. App.—Fort Worth 2006, no pet.).
Further, longstanding Texas law requires express assignment of pre-existing causes of action. See Pape Equip. , 737 S.W.2d at 402-403 (explaining differences
between express and equitable assignments); Richey v. Stop N Go Mkts. of Tex .,
654 S.W.2d 430, 432 (Tex. 1983). RLJ attempts to distinguish these cases by
arguing that they did not address the conveyance of personal property, which RLJ
contends includes causes of action. Response, 32-33. However, (1) RLJ was not
assigned all personal property related to the Hotel, (2) RLJ was not assigned any
intangible “property,” and (3) the PSA specifically reserved “Excluded Assets.”
CR:615, 618, 621, 701. There is no intent discernable from the actual words of the
PSA that South Ausaircourt transferred RLJ all personal property or any pre-
existing causes of action. Those words are not in the contract.
Lastly, RLJ argues that assignment is confirmed by an affidavit excluded from summary judgment evidence by the trial court. Response, 34-35. ESG
objected to this affidavit (CR:760-764), which the trial court sustained in a written
*19 order (CR:1064). The trial court excluded this affidavit based on “violation of the
parol evidence and best evidence rules, improper legal and/or factual conclusions,”
hearsay, and relevance. CR:1064. [9]
RLJ did not challenge the trial court’s evidentiary rulings on appeal, precluding this Court from considering the evidence. Stone v. Midland Multifamily
Equity REIT , 334 S.W.3d 371, 378 (Tex. App.—Dallas 2011). Even if properly
before the Court, RLJ’s argument only addresses the trial court’s exclusion based
on the parol evidence rule. Response, 34-35. RLJ’s failure to address the trial
court’s remaining bases for excluding this evidence precludes any potential
reversal. See Gulley v. Davis , 321 S.W.3d 213, 218 (Tex. App.—Houston [1st
Dist] 2010, pet. denied).
RLJ also misconstrues the contours of the parol evidence rule to argue that, because the inadmissible affidavit was authored after the contract, it is outside the
rule. Response, 35. The date of authorship is irrelevant—the testimony constitutes
evidence seeking to establish an agreement (assignment of causes of action)
entered contemporaneously with the PSA. [10] That is parol evidence. David J.
Sacks, P.C. v. Haden , 266 S.W.3d 447, 451 (Tex. 2008).
*20 RLJ also appears to argue that the alleged assignment was a collateral agreement consistent with the PSA, but that exception cannot apply because the
terms in the affidavit vary from the PSA. Id . Specifically, the affidavit purports to
include an assignment of “tangible and intangible rights” associated with ESG’s
contract, which were not assigned or addressed by the PSA. CR:603. RLJ’s last
argument, that ESG does not have standing to assert the parol evidence rule, is
belied by RLJ’s own authority. See Baroid Equip., Inc. v. Odeco Drilling, Inc. ,
184 S.W.3d 1, 13-14 (Tex. App.—Houston [1st Dist.] 2005, pet. denied) (if used to
provide evidence of contractual intent the parol evidence rule “would apply, even
though the evidence is being offered by or against a person not a party to the
instrument”) (quoting Kingsbery v. Phillips Petroleum Co ., 315 S.W.2d 561, 571-
72 (Tex. Civ. App.—Austin 1958, writ refd n.r.e.)). Because the PSA does not
include an assignment of South Ausaircourt’s pre-existing causes of action against
ESG, the trial court erred in finding that RLJ had standing to pursue its breach of
contract claim against ESG.
B. RLJ’s alleged invalid assignment of ESG’s contract did not convey pre-existing causes of action .
RLJ also argues that the PSA’s introductory clause stating that RLJ “desires” to purchase “right, title, and interest” to the Properties constitutes an express
assignment of South Ausaircourt’s pre-existing causes of action. Response, 36. It
does not. An agreement is not an assignment where there are no present words of
transfer. Allodial Ltd. v. N. Texas Tollway Auth. , 176 S.W.3d 680, 683 (Tex.
App.—Dallas 2005, pet. denied). The statements by the sellers and purchaser in
the PSA regarding the “desire” to purchase “right, title, and interest” to the
Properties were contingent on completion of the agreement and did not constitute a
“present” transfer of any rights. Id .
The Fifth Court in Allodial found that a subsequent property owner did not have standing where the agreement stated that the seller “shall assign over to
Allodial all rights” to pre-existing causes of action. Id . Despite this language, the
agreement did not include an express assignment. Id . Like RLJ, Allodial argued
(including reference to extrinsic affidavit testimony) that the language established
a present assignment of rights. Id . The Fifth Court “defer[red] to the language of
the contract” and found no assignment and no standing. Id .; see also McCrea v.
Commerce Title Co ., No. 04-08-00521, 2009 Tex. App. LEXIS 5597, at *6-8 (Tex.
App.—San Antonio July 22, 2009, no pet.); Commercial Structures , 192 S.W.3d at
833-34; In re Gibraltar Resources, Inc ., 211 B.R. 216, 220 (Bankr. N.D. Tex.
1997) (“A transaction that requires a further act to complete a transfer will not
effect an assignment.”).
The PSA was undisputedly a preliminary agreement, subject to additional obligations and later closing of the purchase. Response, 4-5. The initial statement
regarding “right, title, and interest” to the Properties was not a present transfer of
anything. South Ausaircourt’s subsequent transfer of contracts, leases, and
licenses associated with the Hotel confirms this fact. CR:695-705. The
assignment documents comprise the scope of rights, contracts, and other items
assigned and do not include pre-existing causes of action.
RLJ’s argument also fails because the “right, title, and interest” language at issue is identical to language found insufficient to transfer causes of action relating
to real property. The Texas Supreme Court in Richey found that conveyance of
land “together with all and singular the rights and appurtances thereto” did not
convey pre-existing causes of action. Richey v. Stop N Go Markets of Texas , 654
S.W.2d 430, 431 (Tex. 1983); see also Senn v. Texaco, Inc ., 55 S.W.3d 222, 226-
27 (Tex. App.—Eastland 2001, pet. denied).
Finally, even if something in the PSA or ancillary agreements did purport to assign ESG’s contract, Texas law enforces anti-assignment provisions and voids
assignments in violation. See Island Recreational Develop. Corp. v. Republic of
Texas Sav. Ass’n , 710 S.W.2d 551, 556 (Tex. 1986) (“by the terms of the
paragraph in question the letter of commitment was not assignable without
consent” and “any attempted assignment . . . would be of no force and effect”).
RLJ argues that assignment of a contract in the face of an anti-assignment provision does not void the assignment if it occurs post-performance. Response,
37-38. This directly contradicts Texas law. See Keller Founds., Inc. v. Wausau
Underwriters Ins. Co ., 626 F.3d 871, 874 (5th Cir. 2010) (Texas law enforces anti-
assignment clauses even for assignments made post-performance or loss).
RLJ’s only Texas authority, Reuben H. Donnelley Corp. v. McKinnon , 688 S.W.2d 612 (Tex. App.—Corpus Christi 1985, writ ref'd n.r.e.), has never been
followed for this proposition and has been distinguished by other Texas courts.
See Texas Dev. Co. v. Exxon Mobile Corp ., 119 S.W.3d 875, 881 (Tex. App.—
Eastland 2003, no pet.) (declining to follow Donnelley and holding that the court
was bound by the Island Recreational decision, among others).
The trial court erred in allowing RLJ to proceed with its breach of contract claim against ESG because the claim was never assigned to RLJ.
III. RLJ failed to establish evidentiary requisites for admission of the ESG
contract (Issue No. 3).
RLJ argues that various pre-trial procedures predetermined the admissibility of the ESG contract, but ignores the actual testimony and evidence offered at trial.
Response, 39-41. RLJ could have authenticated the ESG contract via affidavit
testimony, or possibly the testimony of its witness, Carl Mayfield. See Tex. R.
Evid. 901(a). At trial, RLJ did neither and, after the trial court overruled ESG’s
evidentiary objection, simply entered the contract without proper authentication.
RR:V.3, 109:11-110:11. The trial court erred in admitting this unauthenticated
evidence.
IV. ESG did not agree to warrant or “perform” structural engineering
services (Issue No. 4).
ESG’s contract provided that it would “include” structural engineering services. CR:72 (§2.4.1). RLJ conflates the term “include” with the term
“perform,” contending that ESG was responsible for the quality of the structural
engineering work provided because “reasonable performance is implied in every
contractual undertaking.” Id . (emphasis added). The trial court erred in submitting
this question to the jury because there is no evidence to support RLJ’s contention
that ESG contractually agreed to perform structural engineering services. ESG
agreed to arrange for structural engineering services and satisfied this contractual
duty by hiring Marlin, Bridges & Associates (“MBA”) as an independently-
contracted structural engineer. This fact is not disputed.
RLJ misconstrues the purpose of ESG’s citation to Seaview Hosp., Inc. v. Medicenters of Am., Inc. , 570 S.W.2d 35, 39-40 (Tex. Civ. App.—Corpus Christi
1978, no writ), which was to identify the difference between “including” and
“performing” services. Response, 48-50. Inclusion of services provided via an
independent contractor does not impose an implied duty of skill and care on the
party including (as opposed to “performing”) the services. See City of Austin v.
Houston Lighting & Power Co. , 844 S.W.2d 773, 789 (Tex. App.—Dallas 1992,
pet. denied). Contracting with an engineer to perform those services satisfied
ESG’s contractual duty, regardless of any failure to perform by the engineer. Id .
The gravamen of ESG’s issue is that RLJ failed to present any evidence that ESG violated its contract because (1) it is undisputed that ESG did “include”
structural engineering services and (2) ESG did not contractually agree to
“perform” those services. RLJ presented no evidence that ESG failed to comply
with the contractual requirement to “include” structural engineering services and
ESG objected to the charge on that basis. RR:V.9, 152. ESG was not required to
specially except or otherwise plead this issue because RLJ failed to provide any
evidence at trial to support a breach of contract on this basis. [11] Accordingly, the
trial court erred in submitting a contract question to the jury outside of the
contractual terms at issue in the ESG contract.
V. The trial court erred in awarding RLJ diminution in value damages
because the evidence was legally insufficient (Issue No. 5).
A. Mr. Hornsby’s ipse dixit is not competent evidence.
RLJ’s only evidence to support its alleged lost market value damages was the irrelevant and unreliable expert testimony of appraiser Paul Hornsby
(“Hornsby”). RLJ argues this Court should disregard the deficiencies in Hornsby’s
testimony and consider only evidence supporting the jury’s verdict because
Hornsby’s testimony included a “scintilla” of factual support. Response, 51.
RLJ’s own authority holds the contrary, finding that appellate courts are
*26 empowered to consider whether “evidence” supporting a judgment is competent,
and throw out the judgment if it is not.
Specifically, the Texas Supreme Court stated “evidence that might be ‘some evidence’ when considered in isolation is nevertheless rendered ‘no evidence’
when contrary evidence shows it to be incompetent.” City of Keller v. Wilson , 168
S.W.3d 802, 812 (Tex. 2005) (cited in Response, 51). Hornsby’s mere ipse dixit is
not competent evidence that can support a judgment. See LMB, Ltd. v. Moreno ,
201 S.W.3d 686, 688-89 (Tex. 2006); Coastal Transp. Co. v. Crown Cent.
Petroleum Corp. , 136 S.W.3d 227, 231-33 (Tex. 2004) .
B. RLJ provides no legal basis for the legally insufficient appraisal date.
RLJ asserts Hornsby’s opinion concerning the Hotel’s alleged impaired and unimpaired values as of August 31, 2010 (the “Appraisal Date”) complied with
applicable appraisal standards. Response, 52-53. RLJ ignores that the appraisal in
this case must support recovery of breach of contract damages. To be relevant,
Hornsby’s opinions on market value had to be based on applicable legal standards.
See Birchfield v. Texarkana Mem’l Hosp ., 747 S.W.2d 361, 365 (Tex. 1987)
(stating that expert opinion must be based on “relevant issues” and “proper legal
concepts”).
In determining lost market value damages for breach of a contract related to real estate and improvements, “the measure of damages is the difference between
the contract price and the property’s market value at the time of the breach .”
Barry v. Jackson , 309 S.W.3d 135, 140 (Tex. App.—Austin 2010, no pet.)
(emphasis added); see also McGinty v. Hennen , 372 S.W.3d 625, 628 (Tex. 2012);
Goldman v. Olmstead , 414 S.W.3d 346, 361 (Tex. App.—Dallas 2013, pet.
denied). [12]
Based on the nature of RLJ’s breach of contract claim, the relevant date for measuring any lost market value damages is the date the Hotel was completed.
Barry , 309 S.W.3d at 141; see also Westminster Falcon/Trinity L.L.P. v. Shin , No.
07-11-0033-CV, 2012 Tex. App. LEXIS 8833, at *2, 8-9 (Tex. App.—Amarillo
Oct. 23, 2012, no pet.) (mem. op.). Use of that date was “essential to the damages
calculation” in determining lost market value damages. Barraza v. Koliba , 933
S.W.2d 164, 170 (Tex. App.—San Antonio 1996, writ denied). Instead of using
that date, however, Hornsby used an arbitrary date several years after completion
of the Hotel. [13] See Opening Brief, 39. As a consequence, Hornsby’s market value
opinions are not relevant to RLJ’s legal claim to recover damages, and cannot
support the Final Judgment in this case. See McGinty , 372 S.W.3d at 628-29.
*28 C. Two wrongs don’t make a right: RLJ’s improper Appraisal Date is not cured by submission of an improper jury question .
Despite the improper Appraisal Date, RLJ argues Hornsby’s testimony is admissible because the damages question submitted to the jury used the same
improper date. Response, 54-55. Unlike this case, RLJ’s supporting authority did
not involve inadmissible expert testimony or the use of a date several years after
the date required. See Osterberg v. Peca , 12 S.W.3d at 55; THPD, Inc. v.
Continental Imports, Inc. , 260 S.W.3d 593, 608 (Tex. App.—Austin 2008, no
pet.).
ESG properly objected to the improper Appraisal Date. RR:V.9, 143:14- 145:9-147:13; 153:6-11; CR:1130-37. RLJ asserts that ESG’s objection was not
sufficiently specific, precluding ESG’s challenge to Mr. Hornsby’s improper
testimony. Response, 54-55. A party complaining about the admissibility of
expert testimony fully reserves its right to complain on appeal by filing a motion to
exclude the testimony prior to trial. See Guadalupe-Blanco River Auth. v. Kraft ,
77 S.W.3d 805, 807 (Tex. 2002); KMG Kanal-Muller-Gruppe Deutschland v.
Davis , 175 S.W.3d 379, 389-90 (Tex. App.—Houston [1 st Dist.] 2005, no pet.).
That is exactly what ESG did in this case. CR:920-1056. The trial court heard
ESG’s objections and entered a written order denying ESG’s motion to strike Mr.
Hornsby’s testimony. CR:1082. RLJ cites no authority requiring specific
objections to a jury question in order to complain about the admissibility of expert
testimony . [14]
ESG also objected to the submission of the jury question on damages based on the improper Appraisal Date. Prior to submission of the damages question to
the jury, counsel for ESG specifically objected in ESG’s motion for directed
verdict that Hornsby’s market value testimony was improperly “based on the
wrong date.” RR:V.9, 145:11-13 (“Mr. Hornsby's testimony was lacking in
foundation and is based on the wrong date.”). ESG’s counsel then incorporated
that objection in ESG’s objection to the damages question, which was based on the
Appraisal Date. [15] RR:V.9, 153.
“There should be but one test for determining if a party has preserved error in the jury charge, and that is whether the party made the trial court aware of the
complaint, timely and plainly, and obtained a ruling.” State Dept. of Highways v.
Payne , 838 S.W.2d 235, 241 (Tex. 1992). ESG made its objection to the Appraisal
*30 Date known from its pre-trial motion to exclude Hornsby’s testimony through its
motion for directed verdict and objections to the jury charge.
Even if ESG had not objected to the damages question, RLJ cannot recover lost market value damages based on the Appraisal Date because it is several years
after any alleged breach. See McGinty , 372 S.W.3d at 628-29. Because the jury’s
answer to the question on lost market value damages as of the Appraisal Date was
legally immaterial, no pre-submission objection was even necessary. See Felton v.
Lovett , 388 S.W.3d 656, 660 n.9 (Tex. 2012); Waffle House, Inc. v. Williams , 313
S.W.3d 796, 802 (Tex. 2010); Hoffman-La Roche, Inc. v. Zeltwanger , 144 S.W.3d
438, 450 (Tex. 2004).
D. RLJ did not provide required evidence to support the alleged lost market value of the Hotel attributable to ESG.
RLJ bore the burden of establishing the damages “resulting” from ESG’s alleged breach. See Marquis Acquisitions, Inc. v. Steadfast Ins. Co., 409 S.W.3d
808, 813 (Tex. App.—Dallas 2013, no pet). Hornsby freely acknowledged,
however, that his testimony did not distinguish lost market value allegedly caused
by ESG from lost market value caused by other parties whose acts and omissions
allegedly resulted in defects to the Hotel. RR:V7, 159-60.
Hornsby’s testimony regarding the alleged total loss in market value attributable to all contractors does not answer the question of the amount of
damages “resulting” from ESG’s alleged breach. Because Hornsby’s testimony
was not “sufficiently tied to the facts of the case that it will aid the jury” in
answering the question of what alleged damages are attributable to ESG, it cannot
support a judgment for damages against ESG. See E.I. du Pont Nemours and Co.
v. Robinson , 923 S.W.2d 549, 556 (Tex. 1995).
RLJ cannot support its argument that Hornsby’s testimony is still “some” evidence of lost market value damages. Response, 61-62. The court in each
authority cited by RLJ actually reversed the judgment in favor of the plaintiff and
only used the findings that the non-specific evidence was “some evidence” of
damages to justify remand instead of rendition of judgment in favor of the
defendant. See Minesota Mining and Mfg. Co. v. Nishika Ltd. , 953 S.W.2d 733,
738-39 (Tex. 1997); Stewart Title Guar. Co. v. Sterling , 822 S.W.2d 1, 12 (Tex.
1991).
Moreover, none of these cases involved a complete absence of competent evidence to support damage claims. University Gen. Hosp., LLC v. Prexus Health
Consultants, LLC , 403 S.W.3d 547, 555 n.4 (Tex. App.—Houston [14 th Dist.]
2013, no pet.). Hornsby’s testimony is neither relevant nor reliable, and cannot
establish any amount of recoverable lost market value damages with reasonable
certainty. See Opening Brief, 38-52. See also University Gen. Hosp. , 403 S.W.3d
at 555, 558.
E. The determination of lost market value damages requires admissible expert testimony, which RLJ did not provide.
RLJ also incorrectly argues that expert testimony was not required to prove damages resulting from ESG’s alleged breach. Response, 62-63. Without expert
testimony regarding alleged lost market value of the Hotel attributable to ESG, the
evidence is legally insufficient to support any recovery of such damages. See
Houston Unlimited, Inc. v. Mel Acres Ranch , 443 S.W.3d 820, 838 (Tex. 2014).
Within the last few weeks, the Texas Supreme Court reaffirmed the well-
established principle that “[e]xpert testimony is required when an issue involves
matters beyond jurors’ common understanding.” Gharda USA, Inc. v. Control
Solutions, Inc. , No. 12-0987, 2015 Tex. LEXIS 432, at *18 (Tex. May 8, 2015).
RLJ attempts to argue that juries are often asked to make determinations regarding
the proportionate responsibility of multiple parties for injuries in other cases
without expert testimony. Unlike finding percentages of proportionate
responsibility, a jury’s “guess” as to actual and hypothetical values of commercial
property is not as good as the determination of a qualified expert. These types of
complex and specialized issues are clearly not within the common understanding
of typical jurors, and thus require expert testimony. See, e.g ., Gharda USA , 2015
Tex. LEXIS 432, at *19; Guevara v. Ferrer , 247 S.W.3d 662, 669-70 (Tex. 2007).
In this case, there is no evidence in the record to support any jury finding on lost
market value damages, and this lack of evidence requires a reversal of any award
of such damages. See Houston Unlimited , 443 S.W.3d at 838.
PRAYER
WHEREFORE, PREMISES CONSIDERED, Appellant Elness, Swenson,
Graham Architects, Inc. prays that this Court reverse the Final Judgment of the
trial court and render a take-nothing judgment in favor of ESG; and for general
relief.
Respectfully submitted, /s/ Weston M. Davis Gregory N. Ziegler Texas Bar No. 00791985 GZiegler@MacdonaldDevin.com Weston M. Davis Texas Bar No. 24065126 WDavis@MacdonaldDevin.com Steven R. Baggett Texas Bar No. 01510680 SBaggett@MacdonaldDevin.com M ACDONALD D EVIN , PC 1201 Elm Street 3800 Renaissance Tower Dallas, Texas 75270 214.744.3300 telephone 214.747.0942 facsimile Attorneys for Appellant Elness, Swenson, Graham Architects, Inc.
C ERTIFICATE OF S ERVICE
The undersigned attorney certifies that a true and correct copy of the foregoing Appellant’s Reply Brief was served on all counsel of records in
accordance with the Texas Rules of Appellate Procedure via eFiling, on July 16,
2015:
Michael Huddleston
Stephen Gibson
Benton T. Wheatley
Tracy L. McCreight
Jessica C. Neufeld
M UNSCH H ARDT K OPF & H ARR , P.C.
401 Congress Ave, Suite 3050
Austin, Texas 78701
512.391.6100
512.391.6149 fax
/s/ Weston M. Davis Weston M. Davis C ERTIFICATE OF C OMPLIANCE Pursuant to Tex. R. App. P. 9.4, I hereby certify that this petition contains 5,558 words. This is a computer-generated document created in Microsoft Word,
using 14-point typeface for all text, except for footnotes which are in 12-point
typeface. In making this certificate of compliance, I am relying upon the word
count provided by the software used to prepare the document.
/s/ Weston M. Davis Weston M. Davis
[1] The “Hotel” refers to the Courtyard Austin Airport Hotel located at 7809 East Ben White Boulevard, Austin, Texas. CR:9.
[2] RLJ’s analysis of the legislative history of Chapter 38 and the presence of the word “judgment” in that statute (Response, 9-10), which mirrors the analysis in McKinley , cannot contradict precedent set by the Texas Supreme Court.
[3] “PSA” refers to the “New Hotels Purchase and Sale Agreement.” CR:606-76.
[4] RLJ cites bankruptcy cases identifying causes of action as “intangible assets” according to federal law interpreting bankruptcy statutes. Response, 28. These cases do not apply here because federal bankruptcy statutes do not apply to this case. RLJ cannot cite any case in which “intangible assets” associated with the voluntary transfer of property or contracts were held to expressly include causes of action.
[5] RLJ’s case law in support refers to intangible “rights,” none of which were assigned. See Adams v. Great Am. Lloyd’s Ins ., 891 S.W.2d 769, 772 (Tex. App.—Austin 1995, not writ) (“a chose in action is an intangible property right ”); Browne v. King , 196 S.W. 884, 887 (Tex. Civ. App.—San Antonio 1917) (“The chose in action is an intangible or incorporeal right ”) (cited in Response, 27).
[6] RLJ cites numerous portions of the record to support this proposition excluded by the trial court from the summary judgment evidence. Response, 26 (citing CR:602-04); 29 (citing CR:692). As established below, these statements cannot be considered on appeal.
[7] RLJ’s contradictory interpretation of ESG’s definition of the term “intangible asset” is incorrect and inconsequential. Notably, RLJ does not identify any source that defines “intangible asset” to expressly include causes of action. Response, 28-29.
[8] RLJ did plead equitable subrogation, a different legal theory, but the trial court disposed of that claim by summary judgment, which RLJ did not appeal.
[9] RLJ also cites, without explanation, affidavit testimony of Carl Mayfield that the trial court excluded. See Response, 29 (citing CR:692). Paragraphs 11-13 of RLJ’s citation were excluded from the summary judgment evidence. CR:1064.
[10] RLJ’s interpretation is a logical fallacy. It would allow parties to introduce extrinsic evidence of any kind, so long as the evidence is created after execution of the contract.
[11] Further, ESG did file a verified denial of liability in the capacity sued. CR:48 (“Defendants deny that Plaintiffs are entitled to recover in the capacity in which they sue”).
[12] RLJ asserts that cases involving sales of real estate should not be applied to this case, but offers no legal authorities to support that assertion or to justify Hornsby’s use of the Appraisal Date in this case.
[13] At trial, Hornsby testified the Appraisal Date was chosen primarily because it coincides with the first date Hornsby happened to inspect the Hotel after RLJ retained him to provide expert testimony in this case. RR:V.7, 124-25.
[14] RLJ also argues that ESG failed to submit a question with the proper date. Response, 54. This is incorrect. ESG submitted a question (despite that RLJ bore the burden of proof on this issue) identifying the proper date as “the time and place of ESG’s performance.” CR:1111.
[15] RLJ appears to incorporate analysis from a First Court of Appeals decision, C.M. Asfahl Agency v. Tensor, Inc ., 135 S.W.3d 768, 795-96 (Tex. App.—Houston [1st Dist.] 2004, no pet.), to argue that ESG improperly incorporated its directed verdict arguments into objections to the jury charge. Response, 55. Rule 274 provides that an objection to one part of the charge may not be adopted by reference for another part of the charge . Tex. R. Civ. P. 274. Nothing precludes the specific references to specific objections in ESG’s directed verdict motion issued minutes before the charge objection. Unlike the circumstances in C.M. Asfahl , the trial court understood the content of the objection, which is clearly evident in the record. RR:V.9, 145-153.