Date: 02-23-2012

Case Style: Crown Ranch Development, Ltd. v. David Cromwell

Case Number: 09-10-00458-CV

Judge: Steve McKeithen

Court: Texas Court of Appeals, Ninth District on appeal from the 284th District Court, Montgomery County

Plaintiff's Attorney: Tony R. Taft and Robert L. Galloway for David Cromwell

Defendant's Attorney: William C. Little for Crown Ranch Development, Ltd.

Description: Appellee David Cromwell sued appellants Crown Ranch Development, Ltd. (“Crown Ranch”) and Affiliated Crown Developments, Ltd. (“Affiliated Crown”) and other defendants for breach of contract, quantum meruit, estoppel, breach of fiduciary duty, and tortious interference with contract in connection with an agreement regarding compensation and buyout for a real estate development project. Affiliated Crown asserted a counterclaim for negligence, breach of contract, unjust enrichment, fraud, and breach of fiduciary duty. At the conclusion of Cromwell’s evidence, the trial court directed a verdict in favor of Affiliated Crown and Crown Ranch on Cromwell’s quantum meruit claim, and overruled appellants’ motion for directed verdict with respect to breach of contract (in which appellants asserted that the statute of frauds applied to the agreement) and promissory estoppel. The jury found in favor of Cromwell on his breach of contract claim and awarded damages in the amount of $4,000,000 for loss of the benefit of the bargain. The jury also found in favor of Affiliated Crown on its negligence counterclaim, determined that Cromwell’s proportionate responsibility was 40%, and awarded damages totaling $636,000. Appellants filed a motion for new trial, which the trial court denied. Affiliated Crown also filed a motion for JNOV asserting, among other things, that the amount of its damages was “conclusively shown to be $3.6 million.” The trial court signed a judgment that awarded damages to Cromwell and Affiliated Crown in accordance with the jury’s verdict.

Crown Ranch and Affiliated Crown both appealed from the judgment. Crown Ranch challenges the legal and factual sufficiency of the evidence to support the jury’s finding that Crown Ranch and Cromwell intended to bind themselves to an agreement, and Crown Ranch also contends that the alleged agreement is unenforceable pursuant to the statute of frauds. Affiliated Crown argues that the trial court erred by failing to render judgment in its favor because the amount of damages found by the jury “are inadequate as a matter of law” and that the trial court erred by failing to grant Affiliated Crown a new trial because the evidence supporting the amount of damages awarded by the jury is factually insufficient and the verdict is against the great weight and preponderance of the evidence. We affirm the trial court’s judgment in part and reverse and render in part.

THE EVIDENCE

Cromwell has worked in real estate development and sales for forty years, and he became a developer for Harold Estes on a residential development project called Crown Oaks. Pursuant to a verbal agreement, Cromwell was to receive a ten percent commission from the gross sales of each lot and ten percent of the total profits. Cromwell never considered himself a partner in Crown Oaks because he was hired “as an independent contractor or real estate broker” and “was also the developer.” Estes testified that he is a limited partner in Affiliated Crown and Crown Ranch, and his company, Estex, Inc., of which he is president, a member of the board of directors, and sole shareholder, is a general partner of both entities. Estes has the authority to hire, fire, and set compensation with respect to Affiliated Crown. After Crown Oaks was completed, Cromwell and Estes decided to begin the Crown Ranch development. Cromwell explained that Estes was the “finance man” and owner, and Cromwell was a “working partner” who would acquire and develop the land, act as project manager, and direct the marketing of the project. After a meeting, he and Estes agreed that Cromwell would receive thirteen percent of the sales (but the salesman would receive part of Cromwell’s percentage) and twelve percent of the total profits.

Cromwell explained that he took a sheet of paper setting forth the terms of his compensation to the meeting in an attempt to memorialize the agreement in writing. By means of written resolutions signed by Estes in January 2005, Estex authorized Cromwell to execute any “necessary or convenient” documents concerning land sales and operations of Affiliated Crown. The resolutions also ratified and affirmed all of Cromwell’s previous actions on behalf of Affiliated Crown. Cromwell testified that he never had a written contract with Affiliated Crown, and both Estes and Cromwell testified that Cromwell could have resigned or had his services terminated at any time.

Estes’s nephew, Mike Weingrad, eventually joined the Crown Ranch development project as sales manager, and Weingrad decided a lake (“Majestic Lake”) should be built at the Crown Oaks development to create lakefront property. Estes’s son, Eric, also eventually joined the project. Cromwell told Estes that building a lake was feasible, and Cromwell suggested that the clay-like dirt that would be excavated could be sold to the homeowners as clay for slabs. According to Cromwell, Weingrad instead gave the dirt to homeowners. When Majestic Lake did not fill as expected, Cromwell hired numerous engineers to evaluate the problem and he discussed the issue with Estes on a regular basis. The engineers worked with Cromwell to try to correct issues that a Texas Commission on Environmental Quality (“TCEQ”) dam safety engineer had with the dam at Majestic Lake. TCEQ had a checklist of items that had to be completed before the dam would be approved and the lake could be completed. Cromwell testified that TCEQ informed him that the level of Majestic Lake was very low due to the lack of rainfall. Estes testified that he learned in early 2008 that the lake might have been intentionally over-excavated, and that Cromwell told him that he had authorized a contractor to excavate dirt from the lake.

In 2007, Estes and his various development entities formed Crown Ranch, which invalidated the previous resolutions that authorized Cromwell to act, so Cromwell asked Estes to sign a new resolution. According to Cromwell, a few months passed without Estes having signed a resolution. Estes told Cromwell that there was a problem, so on April 10, 2007, Cromwell met with Estes at Estes’s office in Lufkin. Cromwell testified that at the meeting, Estes told him that he could no longer pay Cromwell large commissions, and Estes retained someone else, I-10 Poorman Investments, Inc. (“I-10 Poorman”), to develop the property and repair Majestic Lake. Cromwell testified that he told Estes to buy him out, and Estes testified, “I don’t know if he phrased it a buyout, but we did talk about me giving him some money[.]” Estes testified that he agreed to a $4,000,000 buyout contingent upon there being no problems with Majestic Lake. Cromwell explained that he and Crown Ranch’s accountant, Trish Inselmann, had projected that the revenue from the sale of lots would be $171,000,000, of which Cromwell’s percentage would have been approximately $8,500,000, and the net profits would have been $74,500,000, of which Cromwell’s percentage would have been $7,890,000 to $8,000,000. Cromwell offered to allow Estes to buy him out for $8,000,000, which Cromwell estimated was approximately half of what he would have made if he had remained with the project, to account for problems with Majestic Lake. According to Cromwell, Estes said, “I can’t do that[,]” and they continued speaking for three to four hours. Cromwell testified that he and Estes agreed that Cromwell would remain on the project for one year and receive $20,000 per month and six percent of the profits. Estes testified that Cromwell “might have said” at the meeting that he would retire within one year, but Estes explained that he did not “specifically remember that[.]”

Cromwell testified that Estes also agreed to pay Cromwell $4,000,000 over time. Cromwell explained that they agreed that at the end of one year, Estes would pay Cromwell $2,000,000 on the anniversary date of the agreement, $1,000,000 on the second anniversary date, and $1,000,000 on the third anniversary date. Cromwell testified that Estes wrote these terms on a piece of paper, which was admitted into evidence at trial. According to Cromwell, Estes gave Cromwell a copy of the handwritten note made during the meeting.

Cromwell testified that Estes said, “Look, I’ll . . . reduce this to writing, which, you know, put it in a legal form and put a notary on it and I’ll get it to you.” Estes initially testified that he told Cromwell that he would have the document typed up so that both parties could sign it, but he said that when Cromwell asked him to sign the document, he refused, telling Cromwell, “we’ve got other stipulations in there we’ve discussed.” Estes testified that he has on other occasions acknowledged and accepted handwritten notes of an agreement, but he denied accepting the handwritten notes from the April 2007 meeting, and he explained that he made it clear to Cromwell that the notes were not a final, binding agreement. Estes subsequently testified that he never promised to sign the handwritten document or a typewritten version of it.

Cromwell testified that Estes never placed any stipulations or conditions upon the $4,000,000. Cromwell explained that he and Estes arrived at the $4,000,000 figure because Cromwell felt he was “giving up 12 million” because of the problems with Majestic Lake. Estes testified that he wrote notes by hand on paper during the meeting, but he characterized his notes as “points of discussion” rather than a binding document. Estes testified that he and Cromwell “discussed” the $4,000,000 figure. In addition, Estes testified, “I don’t know that I knew that [Cromwell] was going to retire within a year.” Cromwell testified that after the meeting, he told Inselmann about the $4,000,000 buyout agreement. Inselmann testified that Cromwell told her that he “had worked out a deal where he was going to retire and leave in a year” and “they had worked out where he was going to receive $4 million . . . over a period of time.” Inselmann testified that Cromwell also told her that Estes said he would have a written agreement prepared. According to Inselmann, after the meeting, Estes recounted basically the same information to her that Cromwell told her, but Estes “said that he had talked to [Cromwell] about the lake, meaning Majestic Lake. And he said . . . I’m going to make the agreement contingent on the lake.”

After the meeting, Cromwell received a document entitled “Independent Contractor Agreement” from Estes’s counsel. The document included a contingency paragraph because, according to Estes, “we were still discussing the potential problems with that lake.” Cromwell made some comments about the document and returned it to Estes without signing it. Cromwell testified that an agreement was in place, but “they were trying to make some amendments to it that weren’t agreed to.” Estes testified that after Cromwell received the proposed independent contractor agreement, Cromwell never said that the proposed agreement did not accurately reflect the parties’ understanding from the April 2007 meeting. Weingrad testified that he recalled Cromwell saying after the meeting with Estes that Cromwell would retire in one year, but Weingrad explained, “there was no buyout agreement reached as far as I’m aware of.” In addition, the president and owner of I-10 Poorman, Troy Maxwell, testified, “[t]o my knowledge, he did not have a buyout agreement.”

According to Cromwell, Crown Ranch circulated a brochure that introduced the new management, congratulated Cromwell for his work, and stated that Cromwell would be retiring in one year. Cromwell explained that he believed the money was owed to him because “we made a deal. It was a done deal, and [Estes] was supposed to send me an agreement. He didn’t send me the agreement.” Weingrad eventually approached Cromwell about forgoing retirement and doing land acquisitions for one percent of any land Cromwell procured, and Estes testified that Weingrad had the authority to do so. Cromwell continued working at Crown Ranch from April 10, 2007, until February 2008, and Crown Ranch paid Cromwell $20,000 per month during that time.

Crown Ranch’s agreement with I-10 Poorman defined “Profit From Sales Of The Property” as gross sales, less the sum of six items, one of which included “$500,000 annually for each full year from the date of this Agreement to the date the Property is completely sold out for up to eight years for the buyout costs incurred for buying out the original developer, David Cromwell[.]” The agreement also provided that “any cost incurred over and above this amount toward the buyout of Cromwell shall be paid by Estes and shall not be a deduction used in calculating Profits From The Sale Of The Property.” Estes testified that Weingrad sent an e-mail to Maxwell which set forth these terms of the agreement with I-10 Poorman and did not include any contingencies regarding the payment of the $4,000,000.

Cromwell testified that one of the contractors informed him that if the lake bed was defective, it could be repaired for $200,000 to $250,000. According to Estes, Majestic Lake was over-excavated by “thousands of cubic yards[,]” and Crown Ranch had to replace approximately 20,000 loads of dirt to make the lake compliant with environmental requirements, as well as have clay brought in to line the bottom of Majestic Lake. Estes testified that bringing in dirt and re-claying the bottom of Majestic Lake cost “right at $3 million.” In addition, Estes explained that the hydrology study, soil testing, and engineering costs were approximately $700,000, and Crown Ranch also paid I-10 Poorman $30,000 per month.

When I-10 Poorman became involved with the lake, Maxwell retained Costello, Inc., an engineering firm with specialized knowledge of hydrology, as well as Fugro, a firm that specialized in soil testing. Maxwell testified that Costello, Inc. “drew up repair plans but also presented options on what we could do in order to fix the lake to where it would hold water.” Poorman “looked at multiple bid sources and then qualified the bidders[,]” and ultimately selected Lindsey Construction to repair Majestic Lake. Maxwell testified that repairing Majestic Lake cost approximately $3,000,000.

CROWN RANCH’S SECOND ISSUE

In its second issue, Crown Ranch argues that because the agreement was barred by the statute of frauds, the trial court erred by failing to direct a verdict on Cromwell’s breach of contract claim. Because this issue is dispositive with respect to Crown Ranch, we address it first.

An agreement that is not to be performed within one year from the date of the agreement is not enforceable against a party unless the agreement, or a memorandum of it, is in writing and signed by the party. Tex. Bus. & Com. Code Ann. § 26.01 (West 2009); see also Nagle v. Nagle, 633 S.W.2d 796, 799 (Tex. 1982). The statute of frauds exists to prevent fraud and perjury with respect to certain types of transactions. Haase v. Glazner, 62 S.W.3d 795, 799 (Tex. 2001); Barrand, Inc. v. Whataburger, Inc., 214 S.W.3d 122, 142 (Tex. App.—Corpus Christi 2006, pet. denied). The statute of frauds is an affirmative defense in a suit for breach of contract, and it renders a contract that falls within its purview voidable and unenforceable. Tex. R. Civ. P. 94; Moritz v. Bueche, 980 S.W.2d 849, 856 (Tex. App.—San Antonio 1998, no pet.); Fisher v. Wilson, 185 S.W.2d 186, 189 (Tex. Civ. App.—Dallas 1944), aff’d, 144 Tex. 53, 188 S.W.2d 150 (1945).

The issue of whether a contract falls within the statute of frauds is generally a question of law. Bratcher v. Dozier, 162 Tex. 319, 346 S.W.2d 795, 796 (1961); Lathem v. Kruse, 290 S.W.3d 922, 926 (Tex. App.—Dallas 2009, no pet.). The party pleading the statute of frauds bears the initial burden of establishing its applicability. See Otto Vehle & Reserve Law Officers Ass’n v. Brenner, 590 S.W.2d 147, 152 (Tex. Civ. App.—San Antonio 1979, no writ). Once the applicability of the statute of frauds is established, the burden then shifts to the plaintiff to establish that the contract falls within an exception to the statute of frauds. Mann v. NCNB Tex. Nat’l Bank, 854 S.W.2d 664, 668 (Tex. App.—Dallas 1992, no writ); Adams v. Petrade Int’l, Inc., 754 S.W.2d 696, 705 (Tex. App.—Houston [1st Dist.] 1988, writ denied); Brenner, 590 S.W.2d at 152. “Whether the circumstances of a particular case fall within an exception to the statute of frauds is generally a question of fact.” Adams, 754 S.W.2d at 705. A party who contends that an agreement falls within an exception to the statute of frauds must request and obtain a jury finding on the exception. Barbouti v. Munden, 866 S.W.2d 288, 295 (Tex. App.—Houston [14th Dist.] 1993, writ denied), overruled on other grounds by Formosa Plastics Corp., USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41 (Tex. 1998); Nagle, 633 S.W.2d at 800; Adams v. H & H Meat Prods., Inc., 41 S.W.3d 762, 775 (Tex. App.—Corpus Christi 2001, no pet.); see also Tex. R. Civ. P. 279. Cromwell did not plead any exceptions to the operation of the statute of frauds. See Parks v. Landfill Mktg. Consultants, Inc., No. 14-02-01243-CV, 2004 WL 1351545, at *4 (Tex. App.—Houston [14th Dist.] June 17, 2004, pet. denied) (mem. op.) (citing Tex. R. Civ. P. 94; Mann, 854 S.W.2d at 668).

As previously discussed, the statute of frauds applies to agreements that are not to be performed within one year. Tex. Bus. & Com. Code Ann. § 26.01(b)(6). The compensation and buyout agreement at issue here would not be completely performed within one year, since the agreement involved a $2,000,000 buyout payment on the first anniversary date of the agreement, and a $1,000,000 buyout payment on the second and third anniversary dates. Cromwell argues that the statute of frauds does not bar the agreement because the promissory estoppel and partial performance exceptions apply. However, Cromwell did not secure a jury finding concerning any exceptions to the statute of frauds. See Nagle, 633 S.W.2d at 800; Adams, 41 S.W.3d at 775; Barbouti, 866 S.W.2d at 295; see also Tex. R. Civ. P. 279.

Cromwell contends that the portions of the agreement that are to be performed within one year are severable from those which are not. See Upson v. Fitzgerald, 129 Tex. 211, 103 S.W.2d 147, 150 (1937) (“[I]f the contract is severable, that is, is susceptible of division and apportionment, having two or more parts not necessarily dependent on each other, the fact that one such part is unenforceable does not prevent a recovery as to the other.”). Cromwell argues that the statute of frauds does not apply to the first $2,000,000 payment under the buyout agreement, which was to occur on the first anniversary date.

We are not persuaded by Cromwell’s argument. First, the $2,000,000 payment was to occur on the first anniversary of the agreement, not “within” one year. See Tex. Bus. & Com. Code Ann. § 26.01(b)(6). Second, even if we were to construe the $2,000,000 payment as occurring “within” one year, we conclude that the $2,000,000 payment is not severable from the remainder of the agreement. Contractual provisions that are dependent upon one another are not severable for purposes of the statute of frauds. Upson, 103 S.W.2d at 150. If the contractual provisions to which the statute of frauds applies are not severable from those to which it does not, the entire contract is unenforceable unless it satisfies the statute of frauds. Id. The contractual provisions here regarding payment of the $4,000,000 buyout over a three-year period all pertain to the same purported buyout agreement, and we conclude that they are not severable. See id. It is undisputed that all of the terms of the agreement were not contained in a writing signed by Estes (on behalf of Crown Ranch).

For all of the reasons discussed above, the statute of frauds renders the agreement voidable and unenforceable against Crown Ranch. See Fisher, 185 S.W.2d at 189;

Upson, 103 S.W.2d at 150; Moritz, 980 S.W.2d at 856. We sustain Crown Ranch’s second issue. Accordingly, we reverse the portion of the trial court’s judgment that awarded $4,000,000 to Cromwell for his breach of contract claim and render judgment that Cromwell take nothing from Crown Ranch. Because Crown Ranch’s first issue would not result in greater relief, we need not address it. See Tex. R. App. P. 47.1.

AFFILIATED CROWN’S ISSUES

In its first issue, Affiliated Crown contends that the trial court erred by failing to enter judgment in its favor for $3,631,797.06 on its negligence claim against Cromwell because the evidence established as a matter of law that Affiliated Crown paid $3,631,797.06 to investigate and repair Majestic Lake, and the damages assessed by the jury are insufficient. In its second issue, Affiliated Crown asserts that the trial court erred by failing to grant its motion for new trial because the evidence is factually insufficient to support the amount of damages found by the jury. We address issues one and two together.

We review a trial court’s ruling on a motion for directed verdict under a legal sufficiency standard. City of Keller v. Wilson, 168 S.W.3d 802, 823 (Tex. 2005). Likewise, we review the trial court’s ruling on a motion for JNOV under a legal sufficiency standard. Tanner v. Nationwide Mut. Fire Ins. Co., 289 S.W.3d 828, 830 (Tex. 2009) (citing City of Keller, 168 S.W.3d at 823). In reviewing the legal sufficiency of the evidence, we review the evidence in the light most favorable to the jury’s verdict, crediting evidence favorable to that party if reasonable jurors could, and disregarding contrary evidence unless reasonable jurors could not. City of Keller, 168 S.W.3d at 827. When a party challenges the legal sufficiency of the evidence supporting an adverse finding on which the opposing party had the burden of proof, the challenging party will prevail if the record shows (1) there is no evidence supporting a vital fact, (2) the evidence offered to prove a vital fact is no more than a mere scintilla, (3) the evidence conclusively establishes the opposite of a vital fact, or (4) the court is barred by law or the rules of evidence from considering the only evidence offered to prove a vital fact. Id. at 810 (quoting Robert W. Calvert, “No Evidence” & “Insufficient Evidence” Points of Error, 38 Tex. L. Rev. 362-63 (1960)).

More than a scintilla of evidence exists when the evidence supporting the finding, as a whole, would enable reasonable and fair-minded people to differ in their conclusions. Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997). If the evidence is so weak that it does no more than create a mere surmise or suspicion of its existence, it is no evidence. Haynes & Boone v. Bowser Bouldin, Ltd., 896 S.W.2d 179, 182 (Tex. 1995). Evidence conclusively establishes a vital fact when the evidence is such that reasonable people could not disagree in their conclusions. City of Keller, 168 S.W.3d at 814-17. In reviewing the factual sufficiency of the evidence, we weigh all of the evidence “and will set aside the verdict only if it is so against the great weight and preponderance of the evidence that it is clearly wrong and unjust.” Id. at 826; see also Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986). To set aside the verdict on factual sufficiency grounds, we must be able to “detail the evidence relevant to the issue” and then state how the contrary evidence greatly outweighs the evidence that supports the verdict. Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex. 2001) (per curiam). The jury is the sole judge of the weight and credibility of the evidence, and is entitled to resolve any conflicts in the evidence and to choose which testimony to believe. City of Keller, 168 S.W.3d at 819; see also Golden Eagle Archery, Inc. v. Jackson, 116 S.W.3d 757, 761 (Tex. 2003). We may not substitute our judgment for that of the jury. Jackson, 116 S.W.3d at 761.

The jury found that the reasonable and necessary repair expenses were $480,000, the market value of the dirt removed from Majestic Lake without compensation was $156,000, and the reasonable and necessary expenses for investigating the damage to Majestic Lake and the dam were $0. The jury could reasonably have believed or given more weight to Cromwell’s testimony that repairing the lake would cost approximately $200,000 to $250,000 and disbelieved the evidence from Estes and Maxwell concerning the expenses associated with repairing Majestic Lake. See City of Keller, 168 S.W.3d at 819.

With respect to the jury’s finding of zero damages for reasonable and necessary expenses of investigating the problems with Majestic Lake, the charge instructed the jury to answer the damages question only if it had answered the negligence question in the affirmative. The jury could have believed that some of the expenses Affiliated Crown incurred were to solve environmental problems that were unrelated to Cromwell’s negligence. We conclude that there is more than a scintilla of evidence supporting the jury’s verdict with respect to Affiliated Crown’s damages, and the evidence did not conclusively establish that $3,631,797.06 was the only measure of damages shown by the evidence, since reasonable people could differ in their conclusions. See id. at 814-17, 827; Merrell Dow Pharms., 953 S.W.2d at 711. We further conclude that the jury’s verdict on Affiliated Crown’s damages is not so against the great weight and preponderance of the evidence that it is clearly wrong and unjust. See City of Keller, 168 S.W.3d at 826; Cain, 709 S.W.2d at 176. The evidence is legally and factually sufficient to support the jury’s verdict. Accordingly, we overrule Affiliated Crown’s issues and affirm the trial court’s judgment as to Affiliated Crown.

* * *

See: http://www.9thcoa.courts.state.tx.us/opinions/PDFOpinion.asp?OpinionId=12222

Outcome: AFFIRMED IN PART; REVERSED AND RENDERED IN PART.

Plaintiff's Experts:

Defendant's Experts:

Comments: