Jacpen Properties, LLC v. Waterfront Development, LLC, Charles Von Schmidt and Vacation Home Builders, Inc.

• Court: Court of Appeals of Texas
• Decided: January 30, 2020
• Docket: 09-18-00222-CV
• Status: Published

Opinion

In The

Court of Appeals

Ninth District of Texas at Beaumont

__________________

NO. 09-18-00222-CV __________________

JACPEN PROPERTIES, LLC, Appellant

V.

WATERFRONT DEVELOPMENT, LLC, CHARLES VON SCHMIDT AND VACATION HOME BUILDERS, INC., Appellees __________________________________________________________________

On Appeal from the 411th District Court Polk County, Texas Trial Cause No. CIV29515 __________________________________________________________________

MEMORANDUM OPINION

JacPen Properties, LLC appeals the trial court’s summary judgment in favor

of Waterfront Development, LLC, Charles Von Schmidt, and Vacation Home

Builders, Inc. (collectively “Appellees”). JacPen presents three issues on appeal

asserting: (1) the trial court erred in granting final summary judgment on the issue

of res judicata because the indemnity and/or guaranty claims raised in this lawsuit

did not ripen until after the trial court granted summary judgment against it in a prior 1 lawsuit; (2) the trial court erred in granting summary judgment for Appellees

because the indemnity and guaranty claims were based on documents that provided

the broadest protections possible to JacPen and specifically allocated any risk of loss

to Appellees; and, (3) the trial court erred in granting summary judgment for

Appellees because the indemnity provision and guaranty agreement remained

enforceable by JacPen even though the underlying loan agreement was not

enforceable against the actual borrower. We affirm the trial court’s judgment.

I. Background

In 2006, Von Schmidt met Jack and Rowanne “Penny” Uselton when Von

Schmidt remodeled their home. The Useltons and Von Schmidt thereafter agreed to

partner to develop a subdivision near Lake Livingston in Polk County, Texas. Von

Schmidt formed Waterfront as the operating entity for the development, and the

Useltons formed JacPen.1 The members of Waterfront were JacPen and Vacation

Home Builders, with each owning a fifty percent interest.2

On October 1, 2008, JacPen assigned its ownership interest in Waterfront to

Von Schmidt. In addition to the Transfer and Assignment of Limited Liability

1 JacPen initially had two members, Jack and Penny Uselton. In 2007, the SEC indicted Jack for securities fraud. Thereafter, Jack assigned his interest in JacPen to Penny, who became the sole member. 2 Von Schmidt was the president of Vacation Home Builders, Inc. 2 Company Interest, the parties executed four documents: (1) a Promissory Note; (2)

a Deed of Trust; 3 (3) Charles Von Schmidt’s Personal Guaranty Agreement; and (4)

a Loan and Security Agreement.

With JacPen as the “Lender” and Waterfront as the “Borrower,” the Loan and

Security Agreement was executed in the amount of $3,077,424.94. Von Schmidt

personally guaranteed the debt up to $1,077.424.94 in his Personal Guaranty

Agreement. The Loan and Security Agreement contained an indemnity provision

providing that

Borrower agrees to protect, indemnify, defend and save harmless Lender and its affiliates, directors, officers, agents and employees from and against any and all liability, expense or damage of any kind or nature and from any suit, claims, or demands, including, without limitation, reasonable legal fees and expenses on account of any matter or thing or action or failure to act of the Borrower, whether in suit or not, arising out of this Loan Agreement, the Loan, the Deed of Trust or in connection herewith or therewith unless said suit, claim or damage is caused by the gross negligence or willful malfeasance of Lender. This indemnity is not intended to excuse either party from performing hereunder. This obligation shall survive the closing of the Loan and the repayment thereof.

3 Waterfront did not execute the Deed of Trust and Security Agreement until October 30, 2008. 3 II. Procedural History

A. First Lawsuit

JacPen sued Waterfront, Von Schmidt, and Vacation Home Builders in 2014

in trial cause number CIV27570 (the “first lawsuit”). JacPen alleged in its Second

Amended Petition that on or about October 1, 2008, JacPen transferred its interest

in Waterfront to Von Schmidt, and in consideration for its interest, Waterfront

agreed to pay JacPen $3,077,424.94. JacPen claimed that Waterfront defaulted on

the payment and sued to collect the balance due under the note, including principal

and interest. JacPen expressly referenced the October 1, 2008 Promissory Note, the

Loan and Security Agreement, the Commercial Loan Agreement, and the Deed of

Trust and Security Agreement. Additionally, JacPen alleged that Von Schmidt

executed a written guaranty in the amount of $1,077,424.94 dated October 1, 2008,

and sought recovery against Von Schmidt on his guaranty.

In the first lawsuit, JacPen (1) sought payment of the promissory note owed

by Waterfront against both Von Schmidt and Vacation Home Builders, (2) alleged

that the three had commingled funds and sought to disregard the corporate entity,

and (3) claimed that the defendants were jointly and severally liable. JacPen also

sought foreclosure of all lots described in the deed of trust and security agreement,

the proceeds of which would be applied to the claimed indebtedness. JacPen prayed

4 that it “recover judgment of and from Defendants for all sums due under the

Promissory Note dated October 1, 2008 in the original principal sum of

$3,077,424.94; judgment on the guaranty against Charles von Schmidt, Individually,

[and] judgment against all Defendants jointly and severally.” The trial court

ultimately granted Appellees’ Traditional Motion for Summary Judgment and

entered a Final Take-Nothing Judgment.

B. Current Lawsuit

Within six months of the entry of judgment against JacPen in the first lawsuit,

it initiated the present suit in trial cause number CIV29515 against the same

defendants. JacPen alleged causes of action for breach of the indemnity agreement

contained in the Loan and Security Agreement and for breach of the personal

Guaranty Agreement. JacPen alleged that the trial court in the first suit entered a

judgment in favor of the three defendants. JacPen further claimed that the

consideration recited in the Loan and Security Agreement finalizing the parties’ land

development deal before interest was $3,077,424.94, and it had been damaged in the

total amount of $4,323.560.46.

In the current suit, JacPen claimed that the cause of action for breach of the

indemnity provision contained in the Loan and Security Agreement did not accrue

until the trial court granted Appellees’ summary judgment in the first suit. JacPen

5 contended that the indemnification clause is broad and “does not preclude recovery

for damages incurred as a result of suits between [the] parties[.]” Again, JacPen

sought to disregard the corporate entities and hold all three defendants liable. In the

current suit, JacPen also asserted a claim for breach of the personal Guaranty

Agreement against Von Schmidt in the amount of $1,077,424.94.

Appellees filed a Traditional Motion for Summary Judgment, which the trial

court denied. Appellees later filed an Amended Traditional Motion for Summary

Judgment, arguing JacPen’s claims in the current suit were barred by res judicata, or

in the alternative, JacPen’s suit was barred because the indemnity provision does not

apply to claims between the parties. Appellees argued further in the alternative that

even if the indemnity provision applied, they were still entitled to summary

judgment because the indemnity provision was not triggered in this case. The trial

court granted Appellees’ Amended Traditional Motion for Summary Judgment

without specifying the basis and subsequently entered a Final Summary Judgment

disposing of all claims and parties. JacPen timely appealed.

III. Standard of Review

We review a trial court’s grant of a traditional motion for summary judgment

under a de novo standard. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661

(Tex. 2005). The moving party has the burden to show with competent summary

6 judgment evidence, that no genuine issue of material fact exists, and it is entitled to

summary judgment as a matter of law. See Tex. R. Civ. P. 166a(c); Mann Frankfort

Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009); Nixon v.

Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548 (Tex. 1985). Res judicata is an

affirmative defense. Tex. R. Civ. P. 94. When a defendant moves for summary

judgment based on an affirmative defense, it must prove all essential elements of its

defense. Chau v. Riddle, 254 S.W.3d 453, 455 (Tex. 2008). When a trial court grants

a summary judgment without specifying the basis, we will affirm if any one of the

movant’s theories has merit. See Star-Telegram, Inc. v. Doe, 915 S.W.2d 471, 473

(Tex. 1995).

IV. Analysis

JacPen first contends that because the indemnity and/or guaranty claims raised

in the present suit “did not ripen until after summary judgment had been granted[,]”

they are not barred by res judicata. Res judicata, or claim preclusion, bars subsequent

actions by parties and those in privity with them on matters litigated in a previous

suit and on claims “‘which, through the exercise of diligence, could have been

litigated in a prior suit.’” Getty Oil Co. v. Ins. Co. of N. Am., 845 S.W.2d 794, 799

(Tex. 1992) (quoting Barr v. Resolution Trust Corp., 837 S.W.2d 627, 631 (Tex.

1992)); see also Hallco Tex., Inc. v. McMullen Cty., 221 S.W.3d 50, 58 (Tex. 2006).

7 Courts apply a “transactional approach” to res judicata that requires claims arising

from the same subject matter to be litigated in a single lawsuit. Hallco, 221 S.W.3d

at 58; Barr, 837 S.W.2d at 631. Court precedent recognizes that res judicata

promotes the finality of judgments, and prevents “needless, repetitive litigation[.]”

Hallco, 221 S.W.3d at 58 (citing San Remo Hotel, L.P. v. San Francisco, 545 U.S.

323, 345 (2005); John G. and Marie Stella Kenedy Mem’l Found. v. Dewhurst, 90

S.W.3d 268, 288–89 (Tex. 2002)). A party relying on the affirmative defense of res

judicata must prove: (1) a prior final determination on the merits by a court of

competent jurisdiction; (2) identity of parties or those in privity with them; and (3)

a second action based on the same claims as were or could have been raised in the

first action. Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 652 (Tex. 1996).

Appellees provided the following summary judgment evidence: (1) the Loan

and Security Agreement; (2) Plaintiff’s Second Amended Petition in the first suit

filed on March 10, 2014; (3) Plaintiff’s Supplement to its Second Amended Petition

in the first suit, which included the Loan and Security Agreement, the Promissory

Note, the Deed of Trust, and Von Schmidt’s Personal Guaranty; (4) a Commercial

Loan Agreement dated April 1, 2008; (5) JacPen’s demand letters to Waterfront; (6)

the Order granting Defendants’ Traditional Summary Judgment in the first suit; (7)

the Final Judgment in the first suit; and (8) JacPen’s First Amended Petition in the

8 current suit. JacPen does not dispute that a court of competent jurisdiction in the first

suit made a determination on the merits or that the parties are identical in the current

lawsuit as in the first. JacPen’s argument on appeal goes to the third element of

Appellees’ res judicata affirmative defense. Specifically, it contends that its claims

for breach of the indemnity provision in the Loan and Security Agreement and Von

Schmidt’s breach of the Personal Guaranty did not ripen until judgment was

rendered against it in the first suit. Therefore, JacPen argues the claims in the second

action could not have been raised in the first action.

“[F]actors to consider in determining whether facts constitute a single

‘transaction’ are ‘their relatedness in time space, origin, or motivation, and whether,

taken together, they form a convenient unit for trial purposes.’” Getty, 845 S.W.2d

at 798–99 (quoting Restatement (Second) of Judgments § 24 cmt. b (1980)).

JacPen’s claims for breach of the indemnity provision and personal guaranty arose

out of the same real estate transaction. While JacPen seeks to enforce a specific

indemnity provision in the current suit, it relies on identical documents in both suits.

Ultimately, JacPen sued the same parties in the current lawsuit seeking repayment

of the same money it claimed to have loaned Waterfront in the first lawsuit. No

matter the theory of recovery, the underlying transaction giving rise to the dispute is

the same, and the relief JacPen seeks is the same.

9 Although JacPen argues that its claims for breach of the indemnity provision

and the personal guaranty did not ripen until it received a judgment against it in the

second suit, the indemnity provision it relies on was a part of the Loan and Security

Agreement that JacPen claimed Appellees breached in the first suit. Likewise, in the

first suit, JacPen litigated Von Schmidt’s liability on his personal guaranty. Although

JacPen’s theories of recovery may have been different, what it sought to recover

from Appellees and how the dispute arose in each suit was the same.

We will assume, without deciding, that the indemnity provision at issue

applied to claims between the parties. Generally, a cause of action for indemnity

accrues when “‘the indemnitee’s liability to the party seeking damages becomes

fixed and certain, generally by a judgment.’” Am. Star Energy & Minerals Corp v.

Stowers, 457 S.W.3d 427, 432–33 (Tex. 2015) (quoting Ingersoll-Rand Co. v.

Valero Energy Corp., 997 S.W.2d 203, 208 (Tex. 1999) (internal quotations

omitted)); see also Gunn v. McCoy, 554 S.W.3d 645, 677–78 (Tex. 2018). However,

an indemnitee may bring a claim against an indemnitor before a judgment—before

the cause of action accrues and before limitations begins to run. Gunn, 554 S.W.3d

at 678 (citing Stowers, 457 S.W.3d at 432–33). “[O]ur law does not require that a

judgment be fixed and payable on appeal in order to sustain a claim for indemnity.”

Id.

10 While JacPen’s cause of action for indemnity may not have accrued until the

judgment, nothing precluded JacPen from bringing its indemnity claim against

Appellees in the first suit. See id. In Getty Oil, the Texas Supreme Court rejected the

argument that res judicata did not bar the appellant’s present indemnity claims

because the claims did not accrue until judgment was rendered against it in the first

suit. 845 S.W.2d at 799. The Court noted that the contingent nature of the indemnity

claim does not preclude the operation of res judicata. See id. Courts have

acknowledged that “[f]orcing the indemnity suit to wait for judgment in the liability

suit ‘would contravene the policy of the courts to encourage settlements and to

minimize litigation.’” See id. (quoting K&S Oil Well Serv., Inc. v. Cabot Corp., 491

S.W.2d 733, 739 (Tex. Civ. App.—Corpus Christi 1973, writ ref’d n.r.e.)). A

subsequent suit is barred when it arises from the same subject matter of the prior suit

and which, through the exercise of diligence could have been litigated in a previous

suit. Barr, 837 S.W.2d at 631.

With the exercise of diligence, JacPen’s indemnity claim could have been

litigated in the first suit. The claims arose out of the same set of circumstances, and

JacPen sought payment under the same agreements for the same alleged wrongs.

The law did not require JacPen to wait for a judgment before asserting its indemnity

claim. See Gunn, 554 S.W.3d at 677–78. Moreover, despite its contention otherwise

11 on appeal, in the first suit, JacPen relied on Von Schmidt’s personal guaranty as a

basis for recovery and specifically requested “judgment on the guaranty against

Charles Von Schmidt[.]” Thus, we determine that the action for breach of the

indemnity provision could have been raised in the first lawsuit, and JacPen expressly

asserted a claim for breach of the Guaranty Agreement against Von Schmidt in the

first suit. See Amstadt, 919 S.W.2d at 652.

We overrule JacPen’s first issue on appeal. Having determined that Appellees’

affirmative defense of res judicata supports the trial court’s grant of summary

judgment as to all causes of action raised in the current suit, we need not address

JacPen’s remaining issues. See Provident Life & Accident Ins. Co. v. Knott, 128

S.W.3d 211, 216 (Tex. 2003) (holding that we must affirm summary judgment if any

ground presented to the trial court is meritorious).

V. Conclusion

We conclude JacPen’s claims were barred by res judicata and affirm the trial

court’s judgment.

AFFIRMED.

_________________________ CHARLES KREGER Justice

12 Submitted on July 22, 2019 Opinion Delivered January 30, 2020

Before McKeithen, C.J., Kreger and Horton, JJ.