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defining rescission as "a party's unilateral unmaking of a contract for legally sufficient reason..."
Summary of this case from In re SandersOpinion
No. 14-05-00167-CV
Opinion filed November 28, 2006.
On Appeal from the 190th District Court, Harris County, Texas, Trial Court Cause No. 03-06856.
Panel consists of Justices ANDERSON, EDELMAN, and FROST.
MEMORANDUM OPINION
Certain limited partners appeal the trial court's judgment enforcing their settlement agreement with the general partner of their partnership. Under the parties' settlement agreement, the general partner promised to pay the limited partners an agreed amount within a specified period of time, and the limited partners promised to release and dismiss with prejudice their claims against the general partner. The general partner did not pay or tender payment of the agreed amount within the agreed time period. The limited partners filed a supplemental petition in the trial court asserting that the general partner breached the settlement agreement and seeking damages and attorney's fees based on that breach. At a separate bench trial regarding the alleged breach of the settlement agreement, the parties stipulated that (1) the agreement was enforceable, (2) they were all seeking enforcement of the agreement, (3) neither side was seeking rescission of the agreement, and (4) the trial court could "enforce [the agreement] if [the trial court] deemed it appropriate." The trial court ruled that the settlement agreement was enforceable and still in effect, and it rendered judgment ordering the general partner to pay the limited partners the agreed sum in settlement of the claims against him, ordering the limited partners to execute a full release, and awarding the limited partners attorney's fees and costs.
The main issue the limited partners present on appeal is whether the trial court erred in enforcing the settlement agreement despite the general partner's alleged material breach of the settlement agreement. We conclude that the limited partners did not preserve error because they did not assert this complaint in the trial court. Even if they had preserved error and even if the general partner did materially breach the settlement agreement, the limited partners would have had only two options: (1) rescind the settlement agreement and proceed with their claims against the general partner or (2) seek to enforce the settlement agreement against the general partner. The limited partners stipulated that they sought enforcement of the settlement agreement rather than rescission. The trial court did not err in holding the limited partners to their stipulations. Accordingly, we affirm the trial court's judgment.
FACTUAL AND PROCEDURAL BACKGROUND
Appellants/plaintiffs Adela Kupersmith, Sara Goldsmit, and Samuel Goldsmit (herein collectively the "Investors") were limited partners in a partnership in which appellee/defendant Ricardo Weitz was the general partner. The Investors sued Weitz asserting claims for breach of fiduciary duty, breach of contract, constructive trust, fraud, negligent misrepresentation, and conversion (hereinafter collectively the "Claims"). Following mediation, the parties entered into a one-page written agreement settling all of the Claims ("Settlement Agreement"). Under this agreement, Weitz promised to pay the Investors $500,000 within twenty-five days, and the Investors promised to release Weitz from the Claims and to dismiss the Claims with prejudice. Weitz did not pay or tender $500,000 within twenty-five days; rather, he tendered only $325,000. After the twenty-five day period elapsed, the Investors filed a supplemental petition alleging that Weitz had breached the Settlement Agreement and seeking damages and attorney's fees allegedly resulting from this breach. Weitz counterclaimed asserting that the Investors breached the agreement and that he had not breached it because he was required to withhold 35% of the settlement amount under federal tax law. Weitz sought to enforce the Settlement Agreement by specific performance, and he also sought damages and attorney's fees resulting from the Investors' alleged breach.
The trial court granted Weitz's request for a separate trial as to the issues relating to the enforcement of the Settlement Agreement. The parties agreed that this separate trial would be to the bench. However, at the beginning of the trial, the Investors' counsel stated that, although he agreed that the separate trial would be nonjury, he wanted to preserve his right to a jury trial as to the Claims. The trial court stated that, if the Settlement Agreement were not enforceable, then it would allow the Investors to try the Claims to a jury. Shortly thereafter, counsel for both parties stipulated that (1) the Settlement Agreement was enforceable, (2) they were all seeking enforcement of this agreement, (3) neither side was seeking rescission of the agreement, and (4) the trial court could "enforce [the Settlement Agreement] if [the trial court] deemed it appropriate."
Following the bench trial, the trial court signed a final judgment stating that the Settlement Agreement was enforceable and still in effect and ordering Weitz to pay the Investors $500,000 in settlement of the Claims. The judgment also awarded the Investors attorney's fees and costs. The judgment further ordered the Investors to execute a full release in accordance with the terms of the Settlement Agreement. Weitz tendered payment of the judgment and deposited the appropriate amount into the registry of the court.
The Investors filed a motion for reconsideration or new trial, asserting that the trial court should allow the Investors to try the Claims because the trial court allegedly had stated that, if the Investors were successful in the separate bench trial, then they would be allowed to try the Claims. The trial court denied this motion.
II. ISSUES PRESENTED
On appeal, the Investors present the following issues:
(1) Is the trial court's judgment final and appealable?
(2) Having granted Weitz's motion for separate trial, could the trial court render a final judgment without adjudicating all of the claims?
(3) Did the trial court deprive the Investors of an election of remedy?
(4) Did the trial court have special authority or power to alter or modify a settlement agreement under Texas Rule of Civil Procedure 11 or do general contract principles govern?
(5) Did the trial court violate public policy by failing to conduct a jury trial on the Claims?
III. ANALYSIS
A. Is the trial court's judgment final?
In their first issue, the Investors assert that this court lacks appellate jurisdiction because the trial court's judgment is not final based on the trial court's granting of Weitz's request for a separate trial. However, the Investors concede, and the record reflects that, in its judgment, the trial court stated with unmistakable clarity that its judgment is a final judgment. Therefore, the trial court's judgment is final, and this court has appellate jurisdiction. See Lehmann v. Har-Con Corp., 39 S.W.3d 191, 192B93, 205B06 (Tex. 2001). Accordingly, we overrule the Investors' first issue.
B. Did the Investors preserve error as to their argument that, because of Weitz's alleged material breach of the Settlement Agreement, the trial court erred in not conducting a jury trial on the Claims?
In their fourth issue, the Investors assert that general contract principles apply to settlement agreements. This statement is correct but does not point this court toward any error by the trial court. Construing the Investors' appellate brief liberally, they also argue under their fourth issue that, as a matter of law, Weitz materially breached the Settlement Agreement, excusing the Investors from their duty to perform the Settlement Agreement and allegedly requiring the trial court to conduct a jury trial on the Claims. However, before this court can reverse the trial court's judgment based on this complaint, the Investors must have presented it to the trial court and obtained an adverse ruling. See TEX. R. APP. P. 33.1(a); GTE Mobilnet of S. Tex. v. Pascouet, 61 S.W.3d 599, 612, 620 (Tex.App.-Houston [14th Dist.] 2001, pet. denied). A review of the appellate record shows that the Investors did not assert in the trial court that, as a matter of law, Weitz had materially breached the Settlement Agreement. Although the Investors did obtain an adverse ruling on their motion for reconsideration or new trial, that motion did not contain the argument in question. Likewise, while the Investors did request in that motion that they be allowed to try the Claims, the Investors did not assert that Weitz had materially breached the Settlement Agreement or that they wanted to rescind the Settlement Agreement and recover on the Claims. The main argument the Investors asserted in this motion was that the trial court allegedly had promised them at the bench trial that they could try the Claims if they prevailed in the bench trial. This is not the complaint the Investors assert on appeal. Therefore, the Investors did not preserve error as to the argument they now assert. We cannot reverse the trial court's judgment based on a complaint the Investors never voiced in the trial court. See TEX. R. APP. P. 33.1(a); Pascouet, 61 S.W.3d at 612, 620.
Even if the Investors had so argued on appeal, this argument would lack merit because the trial court made no such statement. During the part of the bench trial to which the Investors appear to be referring, the trial court stated that "[i]f there is, in fact, no enforceable settlement agreement, I will try that matter [the Claims] as a jury matter." Shortly thereafter, the parties stipulated that the Settlement Agreement was enforceable and should be enforced. The trial court agreed, rendering judgment enforcing the Settlement Agreement.
In addition, a reversal based on this argument would conflict with the doctrine of invited error because the trial court rendered judgment in reliance on the Investors' stipulations that they sought to enforce rather than rescind the Settlement Agreement. However, if this court were to reverse, it would be holding that the trial court erred in giving the Investors what they requested (enforcement and damages) rather than what they did not (rescission). See Bass v. Walker, 99 S.W.3d 877, 889 (Tex.App.-Houston [14th Dist.] 2003, pet. denied) (concluding appellate court could not reverse trial court's judgment because appealing parties invited the trial court to make the alleged error they asserted on appeal).
C. Did the trial court err in holding the Investors to their stipulations?
Even if the complaint had been preserved, this court still would have to determine if the trial court erred in holding the Investors to their stipulations during the bench trial. In its judgment, the trial court stated that it had tried the issues relating to the enforcement and alleged breach of the Settlement Agreement and that the parties had stipulated that they were not seeking rescission of that agreement. The trial court then enforced the Settlement Agreement, which necessarily would preclude a trial on the Claims.
The Investors also filed a second supplement to their petition in which, although they did not seek to rescind the Settlement Agreement, they did seek actual and exemplary damages based on Weitz's alleged fraudulent inducement of the Investors to enter the Settlement Agreement. In the trial court, the Investors claimed that this fraudulent-inducement claim was not part of the bench trial. The record indicates that this claim was included in the bench trial. In any event, even if it were not, the Investors later withdrew this claim, and it is no longer a part of this case.
Presuming for the sake of argument that Weitz materially breached the Settlement Agreement, the Investors had two options: (1) rescind the Settlement Agreement and pursue their Claims against Weitz or (2) seek to enforce the Settlement Agreement against Weitz. See Hanks v. GAB Bus. Servs., Inc., 644 S.W.2d 707, 708 (Tex. 1982) (holding that, despite election-of-remedies doctrine in Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848 (Tex. 1980), nonbreaching party had to decide whether to rescind the contract or seek to enforce it when the material breach occurred, rather than waiting until after trial and before judgment to decide, and stating that nonbreaching party waived its right to rescind the contract based on the other party's material breach by (1) treating the contract as still in effect following the material breach and (2) by filing suit to enforce the contract); Gupta v. Eastern Idaho Tumor Inst., Inc., 140 S.W.3d 747, 757B58 (Tex.App.-Houston [14th Dist.] 2004, pet. denied) (holding that, as a matter of law, nonbreaching party was bound by the contract despite other party's material breach because nonbreaching party continued to demand performance under the contract following the material breach); Cox, Colton, Stoner, Starr Co., P.C. v. Deloitte, Haskins Sells, 672 S.W.2d 282, 287 (Tex.App.-El Paso 1984, no writ) (stating that, when one party materially breaches its contract, the other party is put to an election of either continuing or ceasing performance, and that any action by the nonbreaching party indicating an intention to continue under the contract operates as a conclusive choice, not depriving the injured party of his claim for the breach of the contract, but depriving it only of any excuse for ceasing performance on its own part); Board of Regents of Univ. of Tex. v. SG Const. Co., 529 S.W.2d 90, 97 (Tex.Civ.App.-Austin 1975, writ ref'd n.r.e.) (stating that, "[i]t is a fundamental proposition of contract law that when one party breaches its contract, the other party is put to an election of continuing or ceasing performance, any action indicating an intention to continue will operate as a conclusive choice, not depriving the injured party of his cause of action for the breach which has already taken place, depriving him only of any excuse for ceasing performance on his own part"); Houston Belt Terminal Ry. Co. v. J. Weingarten, Inc., 421 S.W.2d 431, 436 (Tex.Civ.App.-Houston [1st Dist.] 1967, writ ref'd n.r.e.) (stating that nonbreaching party could still seek damages under the contract but was not able to rescind the contract so as to relieve it of its responsibilities thereunder because it continued to perform under the contract and insisted that the breaching party perform under the contract).
Performance under the Settlement Agreement for the Investors means releasing and dismissing with prejudice the Claims after receipt of $500,000 from Weitz. To enforce the Settlement Agreement would mean that Weitz would be required to pay this amount, and the Investors, in turn, would release and dismiss the Claims with prejudice. Therefore, enforcing this agreement is inconsistent with a trial on the merits of the Claims. Absent the parties' stipulations, if Weitz did materially breach the Settlement Agreement, the Investors would have had the right to unilaterally declare that this agreement was no longer in effect. See, e.g., Gupta, 140 S.W.3d at 757B58. One term frequently used to describe this option is that a nonbreaching party, upon a material breach by the other party, has the option to "rescind" the contract. See BLACK'S LAW DICTIONARY 1308 (7th ed. 1999) (defining "rescission" as "a party's unilateral unmaking of a contract for a legally sufficient reason, such as the other party's material breach"); Hanks, 644 S.W.2d at 708 (describing this option as a right to "rescind"); Browning v. Holloway, 620 S.W.2d 611, 617 n. 6. (Tex.Civ.App.-Dallas 1981, writ ref'd n.r.e.) (same); Texana Oil Co. v. Stephenson, 521 S.W.2d 104, 106B7 (Tex.Civ.App.-El Paso 1975, no writ) (same); Houston Belt Terminal Ry. Co., 421 S.W.2d at 436 (same).
The Investors stipulated at the bench trial that (1) the Settlement Agreement was enforceable, (2) they were seeking enforcement of this agreement, (3) they were not seeking rescission of the agreement, and (4) the trial court could "enforce [the agreement] if [the trial court] deemed it appropriate." To seek judgment on the Claims despite their execution of the Settlement Agreement, the Investors would have had to seek rescission of that agreement rather than enforcement of it. The effect of these stipulations is that, once the trial court granted the Investors' request and enforced the Settlement Agreement, the entire case was resolved, and the trial court did precisely the right thing in granting final judgment without a trial on the Claims. See, e.g., Hanks, 644 S.W.2d at 708. The parties freely entered into the stipulations, and the trial court correctly gave effect to these stipulations. See Johnson v. Swain, 787 S.W.2d 36, 38 (Tex. 1989). Accordingly, we overrule the Investors' fourth issue.
Likewise, the Investors did not seek rescission of the Settlement Agreement in their pleadings, and the Investors stated several times in the trial court, and on appeal, that they are not seeking rescission.
The Investors also seem to indicate at times that, to waive their right to rescind the contract, they were required to seek specific performance of the Settlement Agreement, rather than damages and attorney's fees based on its breach. This position lacks merit based on the authorities cited herein.
D. Did the trial court err in rendering judgment on the Claims without holding a jury trial or granting a summary judgment?
In their second issue, the Investors assert the trial court erred in rendering judgment on the Claims without holding a jury trial on them and without a motion for summary judgment or some other procedural vehicle seeking judgment on these claims. However, this argument lacks merit because, as discussed above, the trial court did have a procedural vehicle — a bench trial at which all parties sought enforcement of the agreement they had entered into settling all of the Claims. Accordingly, we overrule the Investors' second issue.
E. Did the trial court deprive the Investors of an election of remedy?
In their third issue, the Investors assert the trial court erred in depriving them of an election of remedy, namely their election as to whether they would seek judgment based on the Settlement Agreement or based on their Claims. This argument lacks merit because, as discussed above, the trial court gave effect to the parties' stipulation, in which they did make such an election. They elected to enforce the Settlement Agreement. Accordingly, we overrule the Investors' third issue.
F. Did the trial court violate public policy by failing to conduct a jury trial on the Claims?
In their fifth issue, the Investors assert that the trial court violated public policy by failing to conduct a jury trial on the Claims. The Investors did not voice this argument in the trial court and therefore did not preserve error. See TEX. R. APP. P. 33.1(a); Pascouet, 61 S.W.3d at 612, 620. Even if they had preserved error on this issue, it would lack merit. Public policy favors the enforcement of parties' stipulations, and it does not require trial courts to allow parties to try a claim enforcing a settlement agreement and then have a jury trial on the settled claims to see which avenue affords a greater recovery. See Swain, 787 S.W.2d at 38. Accordingly, we overrule the Investors' fifth issue.
G. Is this appeal by the Investors frivolous?
After submitting this case on the briefs, this court requested the parties to file responses addressing whether action is warranted and "just damages" are appropriate under Texas Rule of Appellate Procedure 45 governing frivolous appeals. Both sides filed extensive briefs in response to the court's request.
Weitz asserts that he not only had to correct the Investors' counsel's "misstatements or mischaracterizations, and clarify the true state of the record, but also had to decipher counsel's arguments and distinguish wholly inapplicable cases cited out-of-context." Weitz — "not without some reluctance" — seeks to recover $46,897.11 in attorney's fees and expenses as Rule 45 damages.
In responding to the court's Rule 45 notice, the Investors submitted substantial briefing regarding the merits of their appeal, acknowledging that their prior briefing was not "well structured" or "focused" and "could have been better in developing and presenting the arguments." The Investors raised arguments they failed to raise in their original briefing. They assert that, even if the court finds no merit in their position, any damages should be limited to $5000, the amount of appellate attorney's fees awarded by the trial court to the Investors in the event of a successful appeal to the court of appeals.
This court has only considered this briefing for the purpose of determining whether sanctions should be assessed for filing a frivolous appeal. This court's adjudication of the appeal itself is based on the issues raised in the Investors' initial appellate brief.
Entitled "Damages for Frivolous Appeals in Civil Cases," Rule 45 states:
If the court of appeals determines that an appeal is frivolous, it may — on motion of any party or on its own initiative, after notice and a reasonable opportunity for response — award each prevailing party just damages. In determining whether to award damages, the court must not consider any matter that does not appear in the record, briefs, or other papers filed in the court of appeals.
TEX. R. APP. P. 45. Whether to grant sanctions for a frivolous appeal is a matter of discretion that this court exercises with prudence and caution, and only after careful deliberation. Conseco Fin. Servicing v. Klein Indep. Sch. Dist., 78 S.W.3d 666, 676 (Tex.App.-Houston [14th Dist.] 2002, no pet.). If an appellant's argument on appeal fails to convince the court, but has a reasonable basis in law and constitutes an informed, good-faith challenge to the trial court's judgment, sanctions are not appropriate. Id. Although the Investors' appeal lacks merit, we conclude that it is not frivolous, and therefore, damages under Rule 45 are not appropriate. See id. at 676B77.
IV. CONCLUSION
The trial court's judgment states with unmistakable clarity that it is final. Therefore, this court has jurisdiction over the Investors' appeal from this final judgment. The Investors did not preserve error as to their argument that Weitz materially breached the Settlement Agreement, thereby excusing the Investors from their duty to perform the Settlement Agreement and requiring the trial court to conduct a jury trial on the Claims. Even if they had preserved error, this argument would lack merit because the trial court properly gave effect to the parties' stipulations, under which the Investors sought enforcement rather than rescission of the Settlement Agreement. Therefore, the trial court did not err in rendering judgment based on the parties' stipulations and the bench trial. Though the Investors' appeal lacks merit, it is not frivolous, and therefore no Rule 45 sanctions are warranted. Having overruled all of the Investors' issues, we affirm the trial court's judgment.