HMC Hotel Properties II Limited Partnership ("HMC") and Host Hotels & Resorts, Inc. F/K/A Host Marriott Corporation and Host Hotels & Resorts, L.P. F/K/A Host Marriott, L.P. ("Host Marriott") (Appellant/Cross-Appellee) v. Keystone-Texas Property Holding Corporation (Appellee/Cross-Appellant)

• Court: Court of Appeals of Texas
• Decided: November 23, 2011
• Docket: 04-10-00620-CV
• Status: Published

Opinion

MEMORANDUM OPINION No. 04-10-00620-CV

HMC HOTEL PROPERTIES II LIMITED PARTNERSHIP and Host Hotels & Resorts, Inc. f/k/a Host Marriott Corporation and Host Hotels & Resorts, L.P. f/k/a Host Marriott, L.P., Appellants/Cross-Appellees

v.

KEYSTONE-TEXAS PROPERTY HOLDING CORPORATION, Appellee/Cross-Appellant

From the 166th Judicial District Court, Bexar County, Texas Trial Court No. 05-CI-14229 Honorable Martha Tanner, Judge Presiding

Opinion by: Catherine Stone, Chief Justice

Sitting: Catherine Stone, Chief Justice Phylis J. Speedlin, Justice Marialyn Barnard, Justice

Delivered and Filed: November 23, 2011

AFFIRMED IN PART; REVERSED AND RENDERED IN PART

This lawsuit arises out of actions taken in relation to a proposed sale of property in San

Antonio commonly known as the Rivercenter Mall and Marriott Rivercenter Hotel. Keystone-

Texas Property Holding Corp. owned the mall and the land underlying the hotel. HMC Hotel

Properties II Limited Partnership leased the land underlying the hotel from Keystone pursuant to

a long-term ground lease. HMC sued Keystone for breach of the lease. Keystone filed

counterclaims against HMC for slander of title and tortious interference with an agreement 04-10-00620-CV

Keystone had with a third party to purchase the property. Keystone also asserted the same

claims against HMC’s parent corporation, Host Hotels & Resorts, Inc. f/k/a Host Marriott

Corporation and Host Hotels & Resorts, L.P. f/k/a Host Marriott, L.P. A jury rejected HMC’s

breach of contract claim, and instead found in favor of Keystone on both of its claims.

HMC/Host appealed the resulting judgment raising numerous issues, and Keystone filed a cross-

appeal.

BACKGROUND

In 1992, the Pennsylvania Public School Employees’ Retirement System (PSERS)

acquired both the land underlying the Marriott Rivercenter Hotel, subject to HMC’s ground

lease, and Rivercenter Mall. PSERS formed Keystone as a subsidiary to own the property. L&B

Realty Advisors was retained to manage the property. In 2000, PSERS decided to sell its direct-

owned real estate.

In October of 2003, Michael Grubic, the portfolio manager with PSERS responsible for

overseeing L&B’s actions relating to the Rivercenter property, contacted John Gerdes, the

executive vice-president with L&B in charge of the Rivercenter property, and urged him to

consider whether Keystone should sell the property. Grubic contacted Gerdes after learning that

a mall in Maine had sold for a very good price. Based on recommendations by Grubic’s

supervisor, on April 27, 2004, the PSERS board of directors authorized the property to be

marketed for sale. In June of 2004, Keystone retained a law firm to represent it in the marketing

and potential sale of the property. In July of 2004, Holliday, Feloglio, and Fowler (“HFF”), an

investment brokerage firm, was retained to market the property. HFF decided to use a marketing

price of $170-180 million and believed the property would sell for $155-165 million.

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An offering memorandum was prepared and sent to a list of potential investors.

Host/HMC was not on the list. Based on the offers received, L&B recommended that PSERS

accept an offer made by Ashkenazy Acquisition Corporation for $175 million. Ashkenazy had

recently sold other real property and needed to close on the sale by December 31, 2004, in order

for the capital tax on the prior sale to be deferred pursuant to a section 1031 exchange. After the

recommendation was made that the PSERS board approve the offer by Ashkenazy, Ashkenazy

had “buyer’s remorse” about the price. Although the PSERS board approved a reduction in price

to $165 million, the sale was not closed because Ashkenazy pursued a different asset,

presumably to ensure the timing of his section 1031 exchange. HFF extended the deadline for

offers based on the prior memorandum. Ashkenazy was again recommended as the proposed

purchaser for $166 million. In December of 2004, the parties exchanged drafts of a letter of

intent, and L&B received a $1 million escrow deposit on December 31, 2004.

Also in December 2004, following communication between Gerdes and Grubic, Gerdes

determined that notice was required to be sent to HMC under section 14.02 of the ground lease

which was entitled “Tenant’s First Right of Negotiation.” 1 Gerdes based the notice letter on a

similar letter sent to HMC in connection with PSERS’s purchase in 1992. Recognizing that

HMC had requested an allocation of the purchase price between the mall property and the hotel

property in 1992, Ashkenazy was asked to make an allocation of the $166 million purchase

price. Ashkenazy allocated $65 million to the hotel property.

On January 7, 2005, Keystone sent HMC a letter notifying it of the pending sale of the

hotel land to Ashkenazy for $65 million. The letter stated the sale was expected to close in

seventy-five days. The letter further stated that HMC had a period of thirty days to notify

1 Section 14.02 is quoted, in pertinent part, on pages 5-6 of this opinion.

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Keystone of its intent to negotiate a purchase of the hotel land; however, Keystone requested that

HMC sign a waiver of its rights to enable Keystone to proceed with the sale.

On February 1, 2005, Daniel Burke, the vice-president for asset management for Host,

emailed Gerdes requesting more information about the specifics of the deal. After Gerdes and

Burke spoke on February 8, 2005, Burke sent Gerdes an email dated February 11, 2005,

expressing a potential interest in negotiating, stating HMC was unprepared to waive its rights,

and requesting additional information. Burke informed Gerdes that Host believed the value of

the hotel land was around $30 million. At that time, the sale of both the mall property and the

hotel land was scheduled to close on March 28, 2005 (this date was important to Ashkenazy for

another section 1031 deadline). On February 23, 2005, Gerdes sent Burke an email asking Burke

to confirm whether he had received the requested information. Burke acknowledged receiving

the information and informed Gerdes he would get back with him regarding a timeline.

In order to meet the section 1031 deadline, a decision was made to split the closing of the

sale of the mall and the sale of the hotel land. The agreements contained a “clawback” provision

that would enable Keystone to reacquire the mall if Ashkenazy defaulted on his purchase of the

hotel land. The mall sale closed on March 29, 2005, and the sale of the hotel land was scheduled

to close on April 28, 2005.

On March 17, 2005, Burke sent Gerdes an email stating that the waiver was close to

being signed and sent back. Burke stated that he would like to speak with Ashkenazy and

requested that Gerdes facilitate the contact. Burke stated that after he spoke with Ashkenazy, he

would send the waiver back promptly.

Gerdes promptly contacted Ashkenazy to facilitate a meeting. Burke and another Host

executive, Andrew Bruce Lewis, met with Ashkenazy, and Ashkenazy entertained the thought of

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flipping the hotel land to Host. At a subsequent meeting between Ashkenazy and Lewis,

however, Ashkenazy explained that the financing of the transaction would not permit him to flip

the land. Based on these meetings, HMC/Host developed the opinion that the allocation of the

purchase price was a sham intended to get HMC/Host out of the way as an impediment to the

sale. Although HMC/Host formulated this opinion and believed that Section 14.02 of the lease

had been violated, HMC/Host did not share this opinion with Keystone.

On April 15, 2005, HMC signed an estoppel certificate stating that the lease was not in

default. Around this same time, Ashkenazy’s lender requested a different estoppel certificate

form that contained language waiving the Section 14.02 first right of negotiation. Gerdes

continued to request updates from Burke and received one message in which Burke stated that

Host’s acquisition people were supposed to contact Gerdes to discuss a purchase.

Finally, on April 18, 2005, Host sent a letter to Keystone stating that Keystone was in

default under Section 14.02. Host demanded an additional 90-day period in which to negotiate

the purchase of the hotel land. The sale of the hotel land to Ashkenazy, which was scheduled to

occur on April 28, 2005, did not close, and the underlying litigation ensued.

SECTION 14.02 OF THE LEASE

Section 14.02 of the ground lease to HMC (“Lease”) entitled “Tenant’s First Right of

Negotiation” provides, in pertinent part:

If Landlord decides to sell the Leased Premises to a third party, Landlord will give Tenant notice of such decision and afford Tenant a reasonable period of time as specified in such notice, but in no event more than ninety (90) days, in which to attempt to negotiate a mutually satisfactory agreement for purchase of the Leased Premises. If after expiration of ninety (90) days following the date of Landlord’s notice of its desire to sell the Leased Premises Landlord and Tenant are not able or willing to enter into a mutually acceptable agreement for purchase of the Leased Premises, Landlord shall be free to sell the Leased Premises to a third party at a sales price and upon financing arrangements, if any, not more favorable to such third party than Landlord was willing to sell the Leased

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Premises to Tenant and subject to the following further condition: Landlord shall give Tenant notice of the proposed sale of the Leased Premises, which notice shall disclose the identity of the proposed purchaser and all information regarding such purchaser and all material information regarding the terms and conditions of such sale.

The first question submitted to the jury asked whether Keystone failed to comply with Section

14.02 of the Lease. The jury was instructed that Section 14.02 required that Keystone notify

HMC sufficiently prior to selling the hotel land to permit a proper notice period for HMC to

negotiate. The jury answered “no.”

In its first issue, HMC/Host contends the jury’s answer to Question No. 1 was fatally

flawed because the trial court’s construction of Section 14.02 was incorrect as a matter of law,

and the evidence conclusively established that Keystone breached the Lease. Alternatively,

HMC/Host asserts: (1) Section 14.02 is ambiguous requiring a new trial; or (2) the trial court’s

erroneous instructions relating to Question No. 1 require a new trial. In its cross-appeal,

Keystone contends the trial court erred in failing to enter a declaratory judgment that Section

14.02 is unenforceable as a matter of law.

A. Enforceability of Section 14.02

Whether a particular agreement is legally enforceable is a question of law reviewed de

novo. Martin v. Martin, 326 S.W.3d 741, 747 (Tex. App.—Texarkana 2010, pet. denied);

Parker Drilling Co. v. Romfor Supply Co., 316 S.W.3d 68, 72 (Tex. App.—Houston [14th Dist.]

2010, pet. denied). In general, an agreement is legally binding only if its terms are sufficiently

definite to enable a court to understand the parties’ obligations. Fort Worth Ind. Sch. Dist. v.

City of Fort Worth, 22 S.W.3d 831, 846 (Tex. 2000). An agreement to make a future contract is

legally enforceable only if it does not leave material terms open for future negotiation. Id.;

Martin, 326 S.W.3d at 749. Under Texas law, an agreement to negotiate in the future is

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unenforceable, even if the agreement calls for a good faith effort in the negotiations. See

Radford v. McNeny, 129 Tex. 568, 104 S.W.2d 472, 474-75 (1937); Martin, 326 S.W.3d at 750-

51; John Wood Group USA, Inc. v. ICO, Inc., 26 S.W.3d 12, 21 (Tex. App.—Houston [1st Dist.]

2000, pet. denied); Maranatha Temple, Inc. v. Enter. Prods. Co., 893 S.W.2d 92, 104 (Tex.

App.—Houston [1st Dist.] 1994, writ denied). Such an agreement to negotiate is unenforceable

because “[t]here would be no way by which the court could determine what sort of a contract the

negotiations would result in, no rule by which the court could ascertain whether any, or, if so,

what damages might follow a refusal to enter into such future contract.” Radford, 104 S.W.2d at

474-75.

Generally, the cases are fairly clear in applying the law that an agreement to negotiate in

the future is unenforceable because the terms are insufficiently definite to enable a court to

ascertain damages. For example, in Radford, the court considered whether a commission was

owed to a realtor where the contract provided for payment of the commission upon the making of

a lease “on such terms, or such others as I may accept.” 104 S.W.2d at 473. The court held that

since the contract between the lessor and the lessee was subject to the lessor negotiating and

agreeing to the terms, the agreement was too indefinite to enforce where no actual lease was

signed. Id. at 474. Similarly, in Maranatha Temple, Inc., the oral agreement in question stated

that an individual was to meet with a company’s representatives in good faith to address a

problem. 893 S.W.2d at 104. The court held that the parties had agreed to do nothing more than

enter into good faith negotiations in the future concerning what to do about the problem. Id.

Finally, and most similar to the facts of the instant case, in Martin, two shareholders

reached a settlement agreement containing multiple provisions, including a provision stating that

they would negotiate a shareholder agreement in good faith for sixty days (later extended to

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ninety days) that would be applicable to all shareholders. 326 S.W.3d at 744, 747-48. Because

the shareholders never agreed on the content of a shareholder agreement, such an agreement was

never executed. Id. at 748. One of the two shareholders, Ruben, argued that the agreement

required the shareholders to both negotiate and reach a shareholder agreement in order for the

settlement agreement to be enforceable. Id. at 749. The other shareholder, Scott, argued that the

obligation was simply to negotiate, and the settlement agreement was still enforceable even

though no shareholder agreement was signed. Id. at 750. The court rejected Scott’s argument,

concluding:

Scott’s argument, though creative, does not conform to Texas law. The shareholder agreement must be executed, not merely negotiated. The agreement itself supports this conclusion. Paragraph one states that the brothers “will negotiate a shareholder agreement” that “will be applicable to all shareholders.” Since the goal of negotiation is agreement, if the parties are required to “negotiate an agreement,” they must necessarily and ultimately conclude with a negotiated agreement. Otherwise, the parties have only attempted to negotiate an agreement. Additionally, paragraph one contains obligatory language which supports the conclusion that its terms require the execution of a shareholder agreement. It requires that (the shareholder agreement) “will provide,” “will contain,” and “will require.” Imperative statements such as these envision the object to be accomplished will, in fact, be accomplished. In failing to negotiate a shareholder agreement, the parties fell short of accomplishing this goal. Thus, the completion date--meaning completion “of all of the obligations under this Settlement Agreement”--was not reached because the obligation of executing a shareholder agreement was not completed. Without a completion date, Ruben contends the agreement is merely an agreement to agree in the future, which is not legally binding.

Id. at 751. The court agreed with Ruben’s argument. After concluding that the shareholder

agreement was an essential provision of the overall agreement, the court concluded, “Because

the settlement agreement leaves this essential provision open for future agreement that never

occurred, it is not binding and merely constitutes an agreement to agree in the future.” Id. at 754.

Accordingly, the court held the settlement agreement was unenforceable as a matter of law. Id.

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Section 14.02 of the Lease is distinguishable from the settlement agreement in Martin in

one very important detail. Section 14.02 recognizes on its face that an actual agreement may not

result from the negotiations. The goal of the negotiations required by Section 14.02 is, therefore,

not an actual enforceable agreement. Instead, the goal of the negotiations is to establish the

terms on which the HMC was willing to purchase the hotel land. The establishment of these

terms is important in and of itself because those terms would establish a threshold below which

Keystone could not go in selling the property to a third party. Under Section 14.02, Keystone

was free to sell to a third party only at a sales price not more favorable than the sales price

established in the negotiations between HMC and Keystone. As a result, a court could readily

determine whether Keystone breached Section 14.02 by selling to a third party on more

favorable terms. Because the terms of Section 14.02 are sufficiently definite to enable a court to

understand the parties’ obligations thereunder, the trial court properly determined that Section

14.02 was enforceable. Fort Worth Ind. Sch. Dist., 22 S.W.3d at 846.

B. Construction/Interpretation of Section 14.02

The interpretation or construction of an unambiguous contract is a question of law for the

court, which is reviewed on appeal de novo. Willis v. Donnelly, 199 S.W.3d 262, 275 (Tex.

2006); Alamo Cmty. College Dist. v. Browning Const. Co., 131 S.W.3d 146, 155 (Tex. App.—

San Antonio 2004, pet. denied). “In construing a written contract, the primary concern of the

court is to ascertain the true intentions of the parties as expressed in the instrument.” Coker v.

Coker, 650 S.W.2d 391, 393 (Tex. 1983). When discerning the contracting parties’ intent, courts

must examine the entire agreement in an effort to harmonize and give effect to each provision so

that none is rendered meaningless. Seagull Energy E & P, Inc. v. Eland Energy, Inc., 207

S.W.3d 342, 345 (Tex. 2006). “No single provision taken alone will be given controlling effect;

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rather, all the provisions must be considered with reference to the whole instrument.” Coker,

650 S.W.2d at 393.

HMC/Host contends the agreement required Keystone to provide notice when it reached

a decision to market the property for sale. HMC/Host argues that notice was required to be

provided before Keystone hired consultants to market and solicit bids. HMC/Host strenuously

argues that notice was required before Keystone targeted a potential buyer and agreed to

negotiate exclusively with that buyer. Finally, HMC/Host asserts Section 14.02 required

Keystone to negotiate with HMC before it negotiated with third parties.

On the other hand, Keystone contends that notice was not required until a decision was

made to sell to an identified third-party buyer. Keystone asserts Section 14.02 contains no

language requiring it to exclusively negotiate with HMC, and courts cannot “rewrite agreements

to insert provisions parties could have included or to imply restraints for which they have not

bargained.” Tenneco, Inc. v. Enter. Prods. Co., 925 S.W.2d 640, 646 (Tex. 1996).

Examining Section 14.02 in its entirety, we agree with the trial court’s and Keystone’s

interpretation of the provision. We are persuaded by the language following the effect of the

inability or unwillingness of Keystone and HMC to enter into a mutually acceptable agreement.

Section 14.02 provides that in such an event, “Landlord shall be free to sell the Leased Premises

to a third party . . . .” (emphasis added). If Keystone was required to negotiate exclusively with

HMC, this provision would have read, “Landlord shall be free to negotiate the sale of the Leased

Premises to a third party . . . .” We are also persuaded by Keystone’s argument regarding an

identified third party. If the third party and the potential terms of a sale are unknown, how could

the Landlord “decide” to “sell” the hotel land to a third party? In the absence of a known

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purchaser and price, the Landlord might have decided to negotiate the sale of the hotel land, but

certainly could not have decided to sell it.

Finally, HMC/Host’s interpretation would raise concerns with the following scenario: a

third-party purchaser unexpectedly approaches Keystone and offers to purchase the property for

$1 billion. Keystone could immediately “decide” to “sell” the hotel land to that person;

however, there would have been no opportunity for prior notice and negotiation with HMC. As a

result, according to HMC/Host’s interpretation, Keystone would be in breach of Section 14.02.

This necessarily would be inconsistent with the true intentions of the parties.

C. Ambiguity

In an alternative argument, HMC/Host contends Section 14.02 is ambiguous; therefore, a

new trial is necessary. Deciding whether a contract is ambiguous is a question of law for the

court. Dynegy Midstream Servs., Ltd. P’ship v. Apache Corp., 294 S.W.3d 164, 168 (Tex.

2009); J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003). A contract is

unambiguous if it can be given a definite or certain legal meaning. J.M. Davidson, Inc., 128

S.W.3d at 229. “A contract is ambiguous when its meaning is uncertain and doubtful or is

reasonably susceptible to more than one interpretation.” Dynergy Midstream Servs., Ltd. P’ship,

294 S.W.3d at 168. “A contract is not ambiguous simply because the parties disagree over its

meaning.” Id.

In this case, Section 14.02 can be given a definite or certain legal meaning and, for the

reasons previously stated, HMC/Host’s interpretation of Section 14.02 is not reasonable

considering the language as a whole. The contract is not ambiguous simply because the parties

disagree over its interpretation. See id. Accordingly, we hold Section 14.02 is not ambiguous. 2

2 Keystone contends HMC/Host waived the argument that Section 14.02 is ambiguous by not objecting to the jury charge and requesting questions pertaining to its ambiguity. The Texas Supreme Court, however, has rejected such

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D. Jury Charge

In a second alternative argument, HMC/Host contends the trial court impermissibly

commented on the weight of the evidence in providing the instruction that accompanied

Question No. 1 and in providing a supplemental instruction in response to a note from the jury.

A trial court is required to give “such instructions and definitions as shall be proper to

enable the jury to render a verdict.” TEX. R. CIV. P. 277. “An instruction is proper if it (1) assists

the jury, (2) accurately states the law, and (3) finds support in the pleadings and evidence.”

Columbia Rio Grande Healthcare, L.P. v. Hawley, 284 S.W.3d 851, 855-56 (Tex. 2009).

“Determining necessary and proper jury instructions is a matter within the trial court’s discretion,

and appellate review is for abuse of that discretion.” Id.

The instruction that accompanied Question No. 1 stated, “Section 14.02 required that

Keystone notify HMC sufficiently prior to selling the Land to permit a proper notice period for

HMC to negotiate.” The jury sent a note during deliberations stating, “We need clarification of

‘prior to selling’ wording [sic] is it before it’s sold, or before they even market & find a buyer.”

In response, the trial court submitted the following instruction, “You are instructed that Section

14.02 of the lease did not require Keystone to immediately notify HMC upon deciding to sell the

land, upon marketing the property or upon finding a buyer.”

HMC/Host initially argues that the original instruction was erroneous because it went

further than simply tracking the language of Section 14.02. HMC/Host appears to be arguing

that the instruction was required to mirror the contractual language. The case cited by

HMC/Host in support of its contention, however, is readily distinguishable. See Sterling Trust

Co. v. Adderley, 168 S.W.3d 835, 846-47 (Tex. 2005). In Sterling Trust Co., the trial court

a waiver argument. In responding to a dissenting opinion, the majority of the court in J.M. Davidson, Inc., asserted, “Justice Schneider implies that, because the parties do not contend the agreement is ambiguous, we may not hold that it is. This is contrary to Texas law.” 128 S.W.3d at 231.

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submitted an instruction to the jury listing three actions that would constitute a breach of

fiduciary duty; however, the instruction failed to take into consideration the parties’ contractual

agreement which expressly modified the nature of the fiduciary duty that was owed. Id.

Keystone responds that the instruction simply informed the jury of the proper

interpretation of Section 14.02, which the trial court had determined as a matter of law. “If the

construction of a contract provision is in dispute, and the trial court resolves the dispute by

interpreting the provision (i.e., rather than by finding it ambiguous), the court should include its

interpretation in submitting the question on whether the contract was breached.” Union Natural

Gas Co. v. Enron Gas Marketing, Inc., 14-98-00183-CV, 2000 WL 350546, at *5 (Tex. App.—

Houston [14th Dist.] Apr. 6, 2000, no pet.) (not designated for publication) (citing comment to

Texas Pattern Jury Charges). We agree with this reasoning. Because the trial court interpreted

the contract as a matter of law, the jury was required to follow that interpretation. Accordingly,

the instruction accurately stated the law and assisted the jury.

The supplemental instruction is also a correct statement of the law. HMC/Host cites

cases concluding that sometimes the submission of correct statements of the law is nonetheless

an erroneous comment on the weight of the evidence. In this case, however, allowing the jury to

resolve the question posed would have erroneously permitted the jury to decide a question of

law. As a matter of law, based on the trial court’s interpretation of Section 14.02, the activities

raised in the question by the jury would not result in a breach of Section 14.02. Instructing the

jury on that basis was not a comment on the weight of the evidence; it was an instruction on the

applicable law.

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SLANDER OF TITLE

HMC/Host challenges the sufficiency of the evidence to support various elements of

Keystone’s slander of title claim arguing that Keystone offered “no evidence” to support those

elements. 3 To prove slander of title, Keystone was required to show that HMC/Host published

false statements maliciously, and these statements caused special damage to Keystone’s estate or

interest in land. See Santa Fe Energy Operating Partners, L.P. v. Carrillo, 948 S.W.2d 780, 785

(Tex. App.—San Antonio 1997, writ denied).

We review a legal sufficiency or “no evidence” challenge under the well-established

principles set forth in City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). Reviewing the

evidence in the light most favorable to the finding and indulging every inference that would

support it, we sustain a no-evidence challenge only if: (1) the record reveals a complete absence

of evidence of a vital fact; (2) the court is barred by rules of law or of evidence from giving

weight to the only evidence offered to prove a vital fact; (3) the evidence offered to prove a vital

fact is no more than a mere scintilla; or (4) the evidence establishes conclusively the opposite of

the vital fact. Id. at 810, 822. The trier of fact is the sole judge of the credibility of the witnesses

and the weight to be given to their testimony. Id. at 819.

A. Publication

As previously noted, one of the elements of slander of title is the “publication” of a false

statement. Id. Santa Fe Energy Operating Partners, L.P., 948 S.W.2d at 785. It is undisputed

that Keystone provided HMC’s April 18 letter to Ashkenazy and the title companies. HMC/Host

provided the letter only to Keystone.

3 Although HMC/Host makes reference to factual insufficiency in the heading of this issue, HMC/Host only argues that Keystone offered “no evidence.”

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Both parties briefed the publication issue based on the law governing self-publication

which several intermediate courts, including this court, have recognized through the adoption of

Comment M to section 577 of the Restatement (Second) of Torts. See, e.g., Austin v. Inet Tech.,

Inc., 118 S.W.3d 491, 499 (Tex. App.—Dallas 2003, no pet.); Gonzales v. Levi Strauss & Co.,

70 S.W.3d 278, 283 (Tex. App.—San Antonio 2002, no pet.); AccuBanc Mortg. Corp. v.

Drummonds, 938 S.W.2d 135, 147-48 (Tex. App.—Fort Worth 1996, writ denied); Doe v.

SmithKline Beecham Corp., 855 S.W.2d 248, 259 (Tex. App.—Austin 1993), aff’d as modified

on other grounds, 903 S.W.2d 347 (Tex. 1995). The problem with this approach, however, is

that the trial court denied Keystone’s requested jury charge relating to self-publication.

The jury charge, as submitted, asked, “Did Host Marriott slander Keystone’s title to the

Land.” The jury charge then listed the five elements that were required to be proven to show

slander of title, including, “the defendant publishes its false statement with legal malice.” The

jury charge defined “publishing” as “intentionally or negligently communicating the matter to a

person other than Keystone who is capable of understanding its meaning.” Keystone requested

that the jury also be instructed as follows, “If the circumstances indicate that communication to a

third party is reasonably forseeable, then it is proper to find that a publication occurred.” At the

formal charge conference, Keystone’s attorney objected to the jury charge’s failure “to include

an instruction regarding communications that a maker can reasonably foresee will be

disseminated to a third party.”

Based on the law, it is clear that Keystone was requesting an instruction on self-

publication. The record is unclear, however, regarding the reason the trial court denied the

request. The trial court could have denied the request believing that self-publication requires

both that the dissemination to a third party was reasonably foreseeable, and that the defamed

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person’s communication of the defamatory statements to the third person was made without an

awareness of their defamatory nature. See, e.g., Austin, 118 S.W.3d at 499; Gonzales, 70 S.W.3d

at 283; AccuBanc Mortg. Corp., 938 S.W.2d at 147-48; Doe, 855 S.W.2d at 259; but see

Chasewood Const. Co. v. Rico, 696 S.W.2d 439, 445-46 (Tex. App.—San Antonio 1985, writ

ref’d n.r.e.). Regardless of the trial court’s reasoning, neither party has complained on appeal

that the jury charge was erroneous as submitted.

More importantly for purposes of our analysis, neither party objected or requested an

additional instruction regarding the definition of the term “negligently communicating” as that

term was used in defining “publishing.” In considering whether the evidence supports the jury’s

finding with regard to the publication element of the slander of title claim, however, this court

must consider whether the jury could have believed that Host Marriott negligently published the

April 18 letter.

Comment K to the Restatement (Second) of Torts explains that a party’s communication

to a third party is negligent “[i]f a reasonable person would recognize that an act creates an

unreasonable risk that the defamatory matter will be communicated to a third person.”

RESTATEMENT (SECOND) OF TORTS § 577 cmt. k (1977); see also Wheeler v. Methodist Hosp., 95

S.W.3d 628, 639-40 (Tex. App.—Houston [1st Dist.] 2002, no pet.) (citing comment k); First

State Bank of Corpus Christi v. Ake, 606 S.W.2d 696, 701 (Tex. App.—Corpus Christi 1980,

writ ref’d n.r.e.) (citing comment k). Negligent publication exists where the speaker makes a

statement “expecting that the statement would have to be repeated” to a third party. Chasewood

Const. Co., 696 S.W.2d at 449 (Reeves, J., dissenting). Under negligent publication,

communication to the third party rises to the level of necessity, i.e., the speaker’s words are

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required to be repeated because of some necessity. Id. This is a far more stringent test than the

reasonable foreseeability required in relation to self-publication under Comment M.

Although neither party requested that the jury be expressly instructed regarding the

definition of negligent publication, Keystone’s attorney referred to negligent publication in his

closing argument as follows:

Did they utter and publish a disparaging comment about the plaintiff’s title to property? Well, what does publish mean? Intentionally or negligently communicating to a person other than Keystone. Well, I’ve already argued until I’m blue in the face about what they knew was going to happen when they sent that letter. And they knew we were going to give it to them. And they could have expected that and they sure would have wanted to get it. We believe that is negligently publishing it so that it goes to third parties.

Ashkenazy’s attorney, David Kriss, testified that he believed Keystone was required to

disclose the April 18 letter. Moreover, as noted by Keystone’s attorney during oral argument,

section 5.5 of the Agreement for Sale and Purchase required Keystone to deliver to Ashkenazy

any correspondence pertaining to the Lease. One of Keystone’s attorneys, Laura Sims, testified

that Keystone was required to forward the letter to all material parties to the transaction. Sims

stated that Keystone had an obligation to send the letter to the buyer and the title companies or

risk being accused of fraud by concealing a material fact. Therefore, the evidence supports the

jury’s finding based on negligent publication.

B. Malice

Actual malice is characterized by ill-will, spite, evil motive, or purposing the injuring of

another. Continental Coffee Prods. Co. v. Cazarez, 937 S.W.2d 444, 452 (Tex. 1996). Implied

or legal malice, on the other hand, exists when wrongful conduct is intentional and without just

cause or excuse. Id. Slander of title requires proof of “legal malice,” which this court has

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defined as “making false statements regarding title in absence of color of title or a reasonable

belief that parties have title.” Santa Fe Energy Operating Partners, L.P., 948 S.W.2d at 785.

HMC/Host contends malice is negated by the fact that it relied on an attorney’s advice in

sending the letter. In Humble Oil & Refining Co. v. Luckel, 171 S.W.2d 902, 906 (Tex. Civ.

App.—Galveston 1943, writ ref’d w.o.m.), the court stated, “It is also well settled that a claim of

title does not constitute malice where such claim is made under color of title upon the advice of

attorneys, or upon reasonable belief that a party has title to the property acquired.” In order for

the advice of an attorney to negate legal malice, however, the claim still must be made under

color of title. HMC/Host argues that no evidence was presented showing that it acted with legal

malice because asserting HMC/Host’s “§ 14.02 rights [was] a reasonable course of conduct

under the circumstances.” We disagree.

HMC/Host’s letter is based on its erroneous belief about the rights it had under Section

14.02. As previously discussed in relation to HMC/Host’s issues regarding the breach of

contract claim, however, the contract is unambiguous and is not “reasonably” susceptible to

more than one interpretation. Section 14.02 did not provide HMC/Host with a contractual right

to exclusively negotiate with Keystone before Keystone negotiated with a third party.

Accordingly, HMC/Host was not acting under color of title in claiming that Section 14.02

entitled them to such a right. Moreover, Keystone had provided notice to HMC/Host on January

7, 2005; however, HMC/Host’s letter demanded an additional ninety day period to negotiate

despite the fact that ninety days had elapsed since HMC/Host received notice and never made a

purchase offer during that ninety day period. Because Section 14.02 unambiguously did not

provide HMC/Host the rights demanded in the April 18 letter, the evidence supports the jury’s

finding that HMC/Host was not acting under a color of title, but sent the letter maliciously.

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C. False Statement

To establish slander of title, the evidence must show that a “false” statement was

published. Santa Fe Energy Operating Partners, L.P., 948 S.W.2d at 785. If only true

statements are published, no cause of action for slander of title lies. McCarty v. Montgomery,

290 S.W.3d 525, 540 (Tex. App.—Eastland 2009, pet. denied).

The assertion by HMC/Host that no false statements were published is again based on its

contention that it properly construed the Lease. Because we have held that the Lease did not

provide HMC/Host with a right to an exclusive negotiating period, the statements in the April 18

letter were false.

D. Damages

The plaintiff must demonstrate the loss of a specific sale in order to recover for slander of

title. Marrs & Smith P’ship v. D.K. Boyd Oil & Gas Co., 223 S.W.3d 1, 20 (Tex. App.—El Paso

2005, pet. denied). The jury charge instructed that the damages to be awarded for slander of title

were “[t]he difference, if any, between the price for which the Land would have been sold to

Ashkenazy and the market value of the Land today, less the costs, if any, that Keystone would

have incurred in completing the sale.”

HMC/Host contends the evidence is insufficient to support the damage award because

Keystone relied on a year-old appraisal as proof of the fair market value of the hotel land at the

time of trial. In Finch v. Finch, 825 S.W.2d 218, 223 (Tex. App.—Houston [1st Dist.] 1992, no

writ), the appellant argued that a trial court could not consider an appraisal of real estate made

one year before the date of divorce in dividing real estate on the date of divorce. The Houston

court rejected this argument. Id. The court first noted that the appellant cited no authority in

support of the contention. Id. Similarly, no authority is cited by HMC/Host. Furthermore, the

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court asserted, “whether an appraisal is near enough in time to the date of divorce to be

considered in determining the value of the land in question is left to the discretion of the trial

court.” Id. That discretion in this case was left to the jury in evaluating the weight to be given to

the appraisal in question.

CAUSATION

In its second issue, HMC/Host challenges the sufficiency of the evidence to prove

causation with regard to Keystone’s tortious interference claim and its slander of title claim.

More than one act may be the proximate cause of the same injury. Lee Lewis Const., Inc.

v. Harrison, 70 S.W.3d 778, 784 (Tex. 2001). Proximate cause has two elements: cause in fact

and foreseeability. Akin, Gump, Strauss, Hauer & Feld, L.L.P. v. Nat’l Dev. & Research Corp.,

299 S.W.3d 106, 122 (Tex. 2009); Lee Lewis Const., Inc., 70 S.W.3d at 784. Cause in fact must

be established by proof that (1) the act or omission was a substantial factor in bringing about the

harm at issue; and (2) absent the act or omission (“but for” the act or omission), the harm would

not have occurred. Akin, Gump, Strauss, Hauer & Feld, L.L.P., 299 S.W.3d at 122; Lee Lewis

Const., Inc., 70 S.W.3d at 784. Proof of causation does not require the exclusion of all other

possible causes, but rather requires a showing that the greater probability is that the act or

omission in question caused the harm. City of Gladewater v. Pike, 727 S.W.2d 514, 518 (Tex.

1987); Farley v. M M Cattle Co., 529 S.W.2d 751, 755-56 (Tex. 1975). A greater probability is

shown when in the absence of other reasonable causal explanations it becomes more likely than

not that the injury was a result of the act or omission in question. Parker v. Employers Mut.

Liability Ins. Co., 440 S.W.2d 43, 47 (Tex. 1969); Bradley v. Rogers, 879 S.W.2d 947, 954 (Tex.

App.—Houston [14th Dist.] 1994, writ denied).

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The question presented in this sufficiency challenge is whether the letter sent by

HMC/Host on April 18 caused the hotel property sale not to close or whether Keystone’s failure

to meet the conditions of closing, i.e., delivery of an SNDA, 4 estoppel certificate, and waiver,

caused the transaction not to close.

Ashkenazy’s attorney, David Kriss, sent letters prior to the April 28th closing date

insisting on compliance with all of the required deliveries. Kriss testified, however, that the

SNDA could have been waived, and the previously delivered estoppel certificate would have

been acceptable if the title company had insured around the Section 14.02 issue. Kriss informed

Keystone’s attorney that there was a difference between HMC/Host sitting back (suggesting the

90 day argument would work) and sending the letter stating Keystone was in default. Kriss

testified that when he read the April 18 letter, he knew the deal was in trouble and that the letter

would impact the closing. Kriss also testified he could not say whether the deal failed to close

based on the letter or the lease provision. Kriss further testified that he was unsure if the letter

materially impacted closing. He was sure it had an impact, but could not speak for the

underwriter.

Ashkenazy did not recall seeing the April 18 letter, but agreed with Kriss on whether the

deal would close if the title companies insured over the Section 14.02 issue.

Barry Brown with HFF testified that the April 18 letter was intended to either delay the

deal or blow it up. When he saw the letter, he knew the deal was going south and that the title

company would object. The letter was a major concern and a surprise given that the estoppel

certificate had been signed and returned. Brown compared the letter to a bomb.

4 SNDA is an acronym for subordination, attornment, and non-disturbance agreement in which a tenant agrees to subordinate its rights to the lender while the lender agrees not to terminate a lease upon foreclosure unless the lease is in default.

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Gerdes testified that the April 18 letter was devastating and prevented the deal from

closing.

Keystone’s attorney, Laura Sims, acknowledged that the title company had listed a

waiver as a requirement in its original title commitment and that Kriss’s letters regarding the

failure to close listed the failure to deliver all of the required documents. Sims described the

April 18 letter as a “sucker punch” that ratcheted up the risk to the title company by making the

risk “live” and making it more difficult to write around. The letter caused the issue to go from

being potential to actual. Sims testified that the title company would have insured around the

Section 14.02 issue but for the letter.

Jennifer Flynn Maxwell, the closing agent for Land America, testified that the waiver

was always a requirement, and she did not believe the policy would issue without the waiver.

Maxwell believed the April 18 letter changed things and was a substantial contributing factor in

the title company’s decisions. Maxwell testified that the discussions at Land America revolved

around the April 18 letter.

Samuel Edward Smith, the commercial account manager for Fidelity, testified that

Fidelity was looking for a waiver because the title commitment was issued listing it as a

requirement on Schedule C. Smith also testified that the April 18 letter was a substantial

contributing factor in Fidelity’s decision not to insure; however, he later stated that Fidelity was

going to have the issue regardless, and the waiver was needed both before and after the April 18

letter.

As previously noted, we must defer to the jury’s role in judging the credibility of the

witnesses and the weight of the testimony and determine whether the evidence at trial enabled

reasonable and fair-minded people to find that the April 18 letter proximately caused the sale to

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Ashkenazy not to close. See City of Keller v. Wilson, 168 S.W.3d at 827. Having reviewed the

record as a whole, including the testimony summarized above, we hold that the evidence is

sufficient to support the jury’s causation finding.

ABSOLUTE JUDICIAL PRIVILEGE

HMC/Host next contends the April 18 letter was protected by an absolute judicial

privilege. “Communications in the due course of a judicial proceeding will not serve as the basis

of a civil action for libel or slander, regardless of the negligence or malice with which they are

made.” James v. Brown, 637 S.W.2d 914, 916 (Tex. 1982). “This privilege extends to any

statement made by the judge, jurors, counsel, parties or witnesses, and attaches to all aspects of

the proceedings, including statements made in open court, pre-trial hearings, depositions,

affidavits and any of the pleadings or other papers in the case.” Id. at 916-17.

In Russell v. Clark, 620 S.W.2d 865, 868 (Tex. App.—Dallas 1981, writ ref’d n.r.e.), the

Dallas court noted, “Although Texas has not yet extended the doctrine of absolute privilege to

out-of-court communications made by attorneys preliminary to a judicial proceeding, or in

connection therewith, we think the doctrine should be so extended. Public policy demands that

attorneys be granted the utmost freedom in their efforts to represent their clients.” Persuaded by

section 586 of the Restatement (Second) of Torts, which extended the privilege to attorneys with

regard to communications preliminary to a proposed judicial proceeding, the Dallas court held

that such a privilege should be adopted. Id. at 869-70. Following Russell, several courts,

including this court, have extended the privilege to out-of-court communications by an attorney

if the statement has some relationship to a contemplated proceeding. See, e.g., Daystar

Residential, Inc. v. Collmer, 176 S.W.3d 24, 27-29 (Tex. App.—Houston [1st Dist.] 2004, pet.

denied) (attorney’s statements to newspaper in reference to proposed lawsuit); Krishnan v. Law

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Offices of Preston Henrichson, P.C., 83 S.W.3d 295, 302-03 (Tex. App.—Corpus Christi 2002,

pet. denied) (letter from attorney to doctor alleging he committed negligence; Bell v. Lee, 49

S.W.3d 8, 10-12 (Tex. App.—San Antonio 2001, no pet.) (letter from attorney to police officer

with copies to police department and city attorney threatening lawsuit for slanderous comments

officer made to a bank).

Unlike other courts, this court has held, “the privilege attaches if the statement has some

relationship to a contemplated proceeding, regardless of whether it in fact furthers the

representation.” Bell, 49 S.W.3d at 11; see also Daystar Residential, Inc., 176 S.W.3d at 27-28

(requiring that the communication further the attorney’s representation, but noting Bell holds to

the contrary). This court has also recognized the following comments to section 586 of the

Restatement (Second) of Torts:

As to communications preliminary to a proposed judicial proceeding the rule stated in this Section applies only when the communication has some relation to a proceeding that is contemplated in good faith and under serious consideration. The bare possibility that the proceeding might be instituted is not to be used as a cloak to provide immunity for defamation when the possibility is not seriously considered.

Bell, 49 S.W.3d at 11 (quoting Restatement (Second) of Torts § 586 cmt. 3, at 248 (1977)); see

also DeLeon v. Eilers, No. 04-96-00497-CV, 1997 WL 81650, at *2 (Tex. App.—San Antonio

Feb. 26, 1997, no writ) (not designated for publication) (quoting last sentence of comment).

Whether an alleged defamatory communication is related to a proposed judicial

proceeding is a question of law. Daystar Residential, Inc., 176 S.W.3d at 28; Bell, 49 S.W.3d at

10. All doubt is resolved in favor of the communication’s relation to the proceeding. Daystar

Residential, Inc., 176 S.W.3d at 28; Bell, 49 S.W.3d at 10-11.

Keystone argues that the letter sent by HMC/Host does not qualify for the absolute

privilege because: (1) it was not sent by an attorney; and (2) it does not refer to litigation. With

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regard to the first argument, HMC/Host cites cases in which the communication was not sent by

an attorney. However, in Bird v. W.C.W., 868 S.W.2d 767, 768 (Tex. 1994), the affidavit was a

document submitted directly to the court in a judicial proceeding; therefore, it was not an out-of-

court communication. Similarly, in 5-State Helicopters, Inc. v. Cox, 146 S.W.3d 254, 258-59

(Tex. App.—Fort Worth 2004, pet. denied), the letter was submitted directly to the FAA in a

quasi-judicial proceeding relating to an on-going investigation and, thus, was not an out-of-court

communication. Because the extension of the privilege to out-of-court communications is based

on the adoption of section 586 of the Restatement (Second) of Torts (which only pertains to

communications by attorneys) and because the reason for the adoption of section 586 was a

public policy rationale in favor of attorneys as officers of the court, we disagree that the privilege

extends to out-of-court communications by non-attorneys.

Moreover, the letter in question is written by HMC/Host regarding alleged violations of

the Lease as HMC/Host interpreted it. Although the letter demands that Keystone comply with

the Lease by taking certain actions, the letter never refers to a judicial proceeding. In Eilers,

1997 WL 81650, at *1, this court considered whether the privilege extended to a letter written by

an attorney to a chief of police. The attorney was retained by Julie Esparza, who claimed to be

the common-law wife of Valentine DeLeon and with whom she had purchased a truck prior to

his death. Id. The truck was being driven by a second woman also claiming to be the decedent’s

wife. Id. The company that loaned Esparza the money to purchase the truck told her she would

not be relieved of liability under the purchase contract unless she reported the truck stolen. Id.

Esparza hired an attorney who wrote a letter to the chief of police setting forth the facts and

asserting the woman in possession of the truck did not have a valid claim to the truck and that the

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truck should be reported as stolen. Id. This court held that the letter was not privileged because

it did not “refer to a judicial proceeding.” Id. at *2.

In addition to not referring to a judicial proceeding, the letter in this case does not

sufficiently suggest that a judicial proceeding is under consideration. Although the letter might

be read to suggest that a judicial proceeding might be a possibility if the demands are not met,

this bare possibility is not sufficient to satisfy the applicable standard. See Bell, 49 S.W.3d at 11;

Eilers, 1997 WL 81650, at *2.

JUSTIFICATION

HMC/Host further asserts that Keystone’s tort claims fail as a matter of law because

HMC/Host’s actions were justified in the exercise of its contractual rights. Alternatively,

HMC/Host contends it was exercising a colorable legal right in good faith as a matter of law.

The justification defense is based on either the exercise of: (1) one’s own legal rights; or

(2) a good-faith claim to a colorable legal right, even though that claim ultimately proves to be

mistaken. Tex. Beef Cattle Co. v. Green, 921 S.W.2d 203, 211 (Tex. 1996). If a trial court finds

that a defendant had a legal right to interfere with a contract, then the defendant has conclusively

established the justification defense. Id. If the defendant cannot establish such a legal right as a

matter of law, the defendant may prevail on a justification defense if: (1) the trial court

determines that the defendant interfered while exercising a colorable right; and (2) the jury finds

that, although mistaken, the defendant exercised that colorable legal right in good faith. Id.

Whether the communication is the exercise of a colorable right, therefore, is a question of law for

the court. Prudential Ins. Co. of America v. Fin. Review Servs., Inc., 29 S.W.3d 74, 80 (Tex.

2000). A right is colorable if it appears on its face to be genuine, truthful, valid, or existing.

Bennett v. Computer Assocs. Int’l, Inc., 932 S.W.2d 197, 202 (Tex. App.—Amarillo 1996, writ

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denied). Good faith means having an objectively well-grounded and justifiable belief of a right.

Id. at 203.

As previously discussed in analyzing the sufficiency of the evidence to support the jury’s

malice finding in relation to the slander of title claim, the Lease is unambiguous and does not

require the exclusive negotiation period as asserted by HMC/Host in the April 18 letter.

Accordingly, HMC/Host’s letter was not an exercise of HMC/Host’s legal rights because the

rights asserted did not exist. As a result, justification was not established as a matter of law. We

further question the trial court’s submission of the justification defense to the jury because, as

previously discussed, HMC/Host was not exercising a colorable right.

Even if we consider the sufficiency of the evidence supporting the jury’s finding that

HMC/Host was not acting in “good faith,” a party attempting to overcome an adverse fact

finding as a matter of law must surmount two hurdles. Hartmann v. Solbrig, 12 S.W.3d 587,

595-96 (Tex. App.—San Antonio 2000, pet. denied) (quoting Victoria Bank & Trust Co. v.

Brady, 811 S.W.2d 931, 939 (Tex. 1991)). First, the record must be examined for evidence that

supports the fact finder’s finding, while ignoring evidence to the contrary. Id. Second, if there is

no evidence to support the fact finder’s answer, then, the entire record must be examined to see if

the contrary proposition is established as a matter of law. Id.

In this case, the evidence was conflicting as to the intent of HMC and Host in sending the

letter. The witnesses associated with HMC/Host testified that the letter was intended to protect

its rights under the Lease. The witnesses associated with Keystone testified that the letter was a

“sucker punch” sent in an effort to delay or blow up the deal. This later testimony is supported

by Host’s delay in asserting its position and waiting until either on or after the 90th day from the

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date it received Keystone’s notice to send the letter. 5 Furthermore, Burke’s testimony that he

had a problem with any allocation that was anything higher than HMC/Host’s determination of

the fair market value must be considered. Since we must first ignore evidence contrary to the

jury’s finding of no good faith, we must accept the jury’s decision to believe the witnesses

associated with Keystone. Based on their testimony, the jury could have believed that

HMC/Host was not acting in “good faith.”

ATTORNEYS’ FEES

In its final issue, HMC/Host challenges the award of attorney’s fees to Keystone

asserting: (1) Keystone’s tort claims did not arise out of or concern the Lease; and (2) Keystone

was required to segregate its fees between claims for which such fees were recoverable (arose

out of or concerned the Lease and on which Keystone prevailed) from fees that were not

recoverable (did not arise out of or concern the Lease or on which Keystone did not prevail).

A. Arise Out of or Concern Lease

Section 14.20 of the Lease authorizes the recovery of attorney’s fees by the prevailing

party in any legal action “arising out of or concerning the Lease or the rights of any party

hereto.” See TEX. CIV. PRAC. & REM. CODE ANN. § 38.001 (West 2008) (authorizing recovery of

attorney’s fees for contractual claims). Initially, we note that Keystone prevailed on HMC’s

claim that it breached the Lease. Moreover, Keystone’s tort claims arose out of or concerned

HMC/Host’s allegation that the Lease provided it with certain rights. Although recovery was

based on the finding that HMC/Host did not have the rights it alleged, the litigation arose out of

its contention that such rights existed under the Lease. Accordingly, Keystone was entitled to

recovery of attorney’s fees for its tort claims.

5 Evidence was presented that in a subsequent letter from Gerdes, he made a reference to January 18 being the start date for the 90-day period. Gerdes testified that the January 18 date was a typographical error and was intended to refer to the January 7th date of Keystone’s notice letter to HMC.

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B. Segregation

“[I]f any attorney’s fees relate solely to a claim for which such fees are unrecoverable, a

claimant must segregate recoverable from unrecoverable fees.” Tony Gullo Motors I, L.P. v.

Chapa, 212 S.W.3d 299, 313 (Tex. 2006). Because we hold that Keystone’s tortious interference

and slander of title claims arise out of or concern the Lease, Keystone was not required to

segregate its fees because it did not assert a claim for which fees were unrecoverable.

PUNITIVE DAMAGES

In its cross-appeal, Keystone contends the trial court erred in granting HMC/Host’s

motion to disregard jury findings and for judgment notwithstanding the verdict as to the jury’s

malice finding. Keystone also challenges the trial court’s granting of HMC/Host’s motion as to

the jury’s finding that HMC authorized or ratified Host’s malice.

HMC/Host’s motion asserted several grounds challenging the sufficiency of the evidence

to support the jury’s findings that: (1) HMC/Host was liable for slander of title; and (2)

HMC/Host did not have a good faith belief that it had the right to send the April 18 letter which

was the question pertaining to HMC/Host’s justification defense. Because we have previously

rejected those sufficiency challenges on appeal, the trial court could not have properly granted

HMC/Host’s motion on those grounds. HMC/Host’s motion also asserted that: (1) the evidence

was legally insufficient to support the jury’s findings that the harm to Keystone resulted from

malice and that HMC authorized or ratified Host’s malice; and (2) the trial court improperly

instructed the jury during its deliberations. Keystone contends that because neither of those

grounds would support the trial court’s granting of HMC/Host’s motion, the motion was

improperly granted.

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A. Legal Sufficiency – Malice Finding

Question 16 asked the jury whether it found by clear and convincing evidence that the

harm to Keystone found in Question 14 (the actual damages caused by the slander of title)

resulted from malice. The jury was instructed that “clear and convincing evidence” meant “the

measure or degree of proof that produces a firm belief or conviction of the truth of the

allegations sought to be established.” The jury also was instructed that “malice” meant “a

specific intent by Host Marriott to cause substantial injury or harm to Keystone.” “Specific

intent means that the actor desires to cause the consequences of his act, or he believes the

consequences are substantially certain to result from it.” In re Estate of Russell, 311 S.W.3d

528, 535 (Tex. App.—El Paso 2009, no pet.); see also Rodriguez v. Naylor Indus., Inc., 763

S.W.2d 411, 412 (Tex. 1998) (applying same definition to term intent). “[T]he term ‘substantial’

has two basic components: real vs. merely perceived, and significant vs. trivial.” Bennett v.

Reynolds, 315 S.W.3d 867, 872 (Tex. 2010).

To recover exemplary damages, Keystone had to present clear and convincing evidence

that (as defined in the court’s charge) Host Marriott’s conduct when viewed objectively from the

standpoint of Host Marriott at the time of its occurrence involved an extreme degree of risk,

considering the probability and magnitude of the potential harm to others. Qwest Int’l

Commc’ns, Inc. v. AT&T Corp., 167 S.W.3d 324, 326 (Tex. 2005). Because clear and

convincing evidence was required, “we review all the evidence in the light most favorable to the

jury’s finding, taking into account contrary undisputed facts, to determine whether reasonable

jurors could have formed a firm belief or conviction regarding malice.” Id. Circumstantial

evidence can be sufficient to prove malice. Nast v. State Farm Fire & Cas. Co., 82 S.W.3d 114,

125 (Tex. App.—San Antonio 2002, no pet.).

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HMC/Host argues that the trial court properly disregarded the jury’s malice finding

because it was merely exercising its contractual rights. This argument is similar to its

justification defense. HMC/Host argues there was “an honest difference of opinion as to the

interpretation or legal effect of” the Lease, and “the sincere pursuance of a claimed legal right

under [a] contract by one of the parties cannot form the basis of an award of punitive damages.”

Exxon Corp. v. Bell, 695 S.W.2d 788, 790-91 (Tex. App.—Texarkana 1985, no writ). Keystone

counters that the contractual rights were clear, and the jury could imply malice because

HMC/Host knew or should have known it did not have a contractual right to require the type of

notice of the sale that it demanded. First Interstate Bank of Ariz., N.A. v. Interfund Corp., 924

F.2d 588, 596 (5th Cir. 1991).

We initially note that in the case HMC/Host cites in support of its argument, the court

held that the contract in question was ambiguous before addressing the malice finding. Exxon

Corp., 695 S.W.2d at 790. The court concluded that a term that was in dispute was reasonably

susceptible to both parties’ interpretation. Id. In this case, however, we previously held that the

Lease is not ambiguous because it is not reasonably susceptible to more than one interpretation.

Moreover, as indicated above in addressing the sufficiency points, the evidence regarding

HMC/Host’s intent was conflicting. Given the language of the Lease, the language of the April

18 letter, the timing of the April 18 letter, and the testimony, we hold the evidence was sufficient

for the jury to have formed a firm belief or conviction that Host Marriott had a specific intent to

cause substantial injury or harm to Keystone. Accordingly, the trial court would have erred in

granting HMC/Host’s motion on this basis.

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B. Jury Communication

Keystone also contends that the trial court could not have granted a judgment

notwithstanding the verdict on the basis of improper communication with the jury. The record

establishes that when the bailiff initially brought the jury’s verdict to the trial judge, the trial

judge looked the verdict over and instructed the bailiff to take it back to the jury. When the jury

was being brought into the courtroom after it reached its verdict, the trial judge informed the

attorneys that the jury had not answered a couple of the questions and that the trial judge had

asked them to answer the questions. HMC/Host argued that the returning of the verdict was

improper under Rule 295 of the Texas Rules of Civil Procedure which provides that if the jury’s

verdict is incomplete, “the court shall in writing instruct the jury in open court of the nature of

the incompleteness . . . , provide the jury such additional instructions as may be proper, and retire

the jury for further deliberations.” TEX. R. CIV. P. 295.

Rule 301 of the Texas Rules of Civil Procedure permits a trial court to render a judgment

notwithstanding the verdict “if a directed verdict would have been proper.” TEX. R. CIV. P. 301.

Furthermore, Rule 301 permits a trial court to “disregard any jury’s finding on a question that

has no support in the evidence.” Id.

On appeal, Keystone argues that HMC/Host’s complaint about the trial judge returning

the jury’s verdict cannot be made in a motion to disregard. HMC/Host responds that a judgment

notwithstanding the verdict can be granted if a legal principle bars recovery. One of the cases

cited by HMC/Host to support its contention is McIntyre v. Comm’n for Lawyer Discipline, 247

S.W.3d 434 (Tex. App.—Dallas 2008, pet. denied). In that case, the court does state, “A motion

for jnov should be granted when (1) the evidence is conclusive and one party is entitled to

recover as a matter of law or (2) a legal principle precludes recovery.” Id. at 441. The court

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prefaces this statement, however, by stating, “A jnov is proper when a directed verdict would

have been proper.” Id.; see also Fort Bend Drainage Dist. v. Sbrusch, 818 S.W.2d 392, 394

(Tex. 1991) (“A court may render a judgment n.o.v. if a directed verdict would have been

proper.”). Reading the statements in context, a judgment notwithstanding the verdict is proper if

a directed verdict would have been proper because a legal principle bars recovery. See AMS

Const. Co. v. K.H.K. Scaffolding Houston, Inc., No. 01-09-00360-CV, 2011 WL 1598745, at 8

(Tex. App.—Houston [1st Dist.] Apr. 28, 2011, pet. abated); see also Schindley v. Northeast Tex.

Cmty. Coll., 13 S.W.3d 62, 65 (Tex. App.—Texarkana 2000, pet. denied) (noting judgment

notwithstanding the verdict is appropriate when “as a matter of law, the claim or defense

presented is not viable and should never have been presented to the jury”).

HMC/Host’s reliance on the propriety of a directed verdict on the issue of improper jury

communication is erroneous for several reasons. First, a motion for directed verdict “is a

procedural device to ask the court to render judgment without submitting the charge to the jury

because there is nothing for the jury to decide.” Michael O’Connor & Byron P. Davis,

O’Connor’s Texas Rules – Civil Trials 659 (2011). HMC/Host’s complaint in this instance is not

that the questions should not have been submitted to the jury. Rather, HMC/Host’s complaint is

that the trial judge’s communication with the jury after the questions were submitted was

improper. Moreover, the complaint raised by HMC/Host pertaining to improper jury

communication would not “bar” recovery such that the trial court could render judgment on that

basis. At most, improper jury communication could, if proven, entitle HMC/Host to a new trial.

Accordingly, the trial court could not have properly granted a judgment notwithstanding the

verdict and thereby rendered judgment in favor of HMC/Host on Keystone’s punitive damages

claim on the basis that the trial court improperly communicated with the jury.

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C. Liability of HMC

Keystone also argues that both Host and HMC should be held liable for the punitive

damages. Keystone contends the trial court improperly disregarded the jury’s finding that HMC

authorized or ratified the malice by Host.

A corporation is liable for punitive damages if it authorizes or ratifies an agent’s malice.

Mobil Oil Corp. v. Ellender, 968 S.W.2d 917, 921 (Tex. 1998). “In Texas for purposes of legal

proceedings, subsidiary corporations and parent corporations are separate and distinct ‘persons’

as a matter of law.” Valero South Tex. Processing Co. v. Starr County Appraisal Dist., 954

S.W.2d 863, 866 (Tex. App.—San Antonio 1997, pet. denied). Accordingly, a subsidiary

corporation could be an agent of its parent if the evidence supported such a finding.

The jury charge defined the term agent as “one who acts with the party’s authority or

apparent authority.” The jury was further instructed that the principal must agree that the agent

act on its behalf and for its benefit, and if the agent is authorized, the agent may do whatever is

proper, usual, and necessary to perform the act expressly authorized. Finally, the jury was

instructed that apparent authority exists if a party: (1) knowingly permits another to hold himself

out as having authority; or (2) through lack of ordinary care, bestows on another such indications

of authority that lead a reasonably prudent person to rely on the apparent existence of authority

to his detriment. Only the acts of the party sought to be charged with responsibility for the

conduct of another may be considered in determining whether apparent authority exists.

Daniel Burke testified that HMC is a wholly owned subsidiary of Host. HMC is the

tenant under the ground lease; however, the April 18 letter was sent by Host. Burke testified that

Host was making decisions for itself and for HMC regarding the transaction. Burke testified that

Host was acting as an agent for HMC. Accordingly, this testimony was sufficient evidence to

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support the jury’s finding that Host was acting as HMC’s agent and authorized or ratified Host’s

malice.

D. Conclusion

The record provided no proper basis for the trial court to grant HMC/Host’s motion for

judgment notwithstanding the verdict.

CONCLUSION

The portion of the trial court’s judgment granting HMC/Host’s Motion to Disregard Jury

Findings and for Judgment Notwithstanding the Verdict as to Question Nos. 16 and 17 is

reversed, and judgment is rendered that Keystone shall have and recover $5,000,000 in punitive

damages against Host Marriot and $2,500,000 in punitive damages against HMC. The remainder

of the trial court’s judgment is affirmed.

Catherine Stone, Chief Justice

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