Kondos Entertainment, Inc. v. Quinney Electric, Inc.

948 S.W.2d 820, 1997 WL 214252

• Court: Court of Appeals of Texas
• Decided: May 30, 1997
• Docket: 04-96-00251-CV
• Status: Published

Opinions

OPINION

HARDBERGER, Chief Justice.

This is a breach of contract case. Quinney Electric, Inc. (Quinney) sued Hondos Entertainment, Inc. (Hondos), V-Ball, Inc. (V-Ball), and Jay Snyder (Snyder) for non-payment of fees associated with electrical services Quinney performed under a contract with the defendants in connection with the construction of a nightclub. V-Ball filed bankruptcy and was severed from the suit. Quinney proceeded to trial against Hondos and Snyder. The ease was tried to the court, which found in favor of Quinney. The trial court entered judgment against Hondos and Snyder. We reverse and render.

FACTS

Quinney was retained to do electrical work for the construction of a nightclub in San Antonio, Texas currently called the Tejano Rodeo. The letter agreement covering the work to be performed was executed by a representative of Hondos. Snyder was the contact person at Hondos, with whom Quin-ney dealt on a regular basis regarding the project. Snyder told Quinney that he was a partner in the project and that he owned a part of the business. Quinney submitted invoices for the work it performed to Hondos. The checks Quinney received in payment of the invoices were issued from an account in the name of V-Ball, Inc. and were signed by Snyder.

During the project, Snyder approached Quinney and requested that Quinney place a number of items on its account with General Electric because there was no time for Hon-dos to get an account with General Electric. Snyder assured Quinney that Hondos would pay the account directly, which it never did. Shortly thereafter, Quinney stopped receiving cheeks for the work it performed. Quin-ney ultimately filed suit against Rondos, V-Ball, and Snyder seeking damages for the unpaid invoices, plus interest and attorney’s fees.

Approximately four months after suit was filed, V-Ball filed bankruptcy. Quinney filed a proof of claim for $83,991.32 with the bankruptcy court. Quinney attached copies of the contract with Rondos and the invoices submitted to Rondos. V-Ball filed an objection to Quinney’s proof of claim asserting that deficiencies in Quinney’s work forced V-Ball to hire another electrical contractor to finish the job. V-Ball also contended that Quin-ney’s proof of claim had not been fully substantiated by invoices. The bankruptcy court ultimately entered an order allowing Quinney’s claim as a general unsecured claim in the amount of $83,724.76 and ordering payment of the claim. Quinney received cheeks in full payment of its allowed claim against V-Ball.

Quinney pursued its claim in state court against Rondos and Snyder. The trial court ultimately entered a judgment in favor of Quinney, awarding Quinney $83,991.21 in actual damages, $18,839.13 in prejudgment interest, $20,000 in attorney’s fees, and $978 in court costs. Post-judgment interest on the foregoing sums was also awarded. The court further ordered that the $83,724.76 previously paid to Quinney in connection with the V-Ball bankruptcy be credited to the amount of the judgment. In the end, Rondos and Snyder were left with a judgment against them in the unsatisfied amount of $40,083.58, plus post-judgment interest, which represented primarily the prejudgment interest, attorney’s fees, and court costs not included in the amount paid in connection with the bankruptcy.

Rondos and Snyder appeal the judgment of the trial court claiming in six points of error that Quinney’s claims are barred by the doctrines of election of remedies, res judicata, and collateral estoppel, and that the trial court erred by (1) finding that an agency relationship existed between Rondos and Snyder and V-Ball, (2) failing to grant a new trial because the evidence is insufficient to support a finding of a single business enterprise or partnership, (3) finding a single business enterprise or partnership when V-Ball did not participate at trial, and (4) failing to grant a new trial because Quinney failed to mitigate damages. We will address the legal sufficiency of the evidence because it is relevant to our discussion of the appellants’ collateral estoppel claim, upon which we base our reversal of this ease. Because the collateral estoppel point is dispositive, we do not reach the remaining points of error asserted by Rondos and Snyder.

SUFFICIENCY OF EVIDENCE

Rondos and Snyder claim in their fourth point of error that the trial court erred in failing to grant a new trial or judgment in their favor because the evidence was insufficient to support a finding that they were involved in a partnership or single business enterprise with V-Ball. Because our reading of the court’s findings of fact and conclusions of law indicates that the court concluded only that a partnership-by-estoppel relationship existed between Rondos, Snyder, and V-Ball, we review the sufficiency of the evidence to support only that conclusion and do not address the sufficiency of the evidence as to whether Rondos and V-Ball constituted a single business enterprise.

We review challenges to the sufficiency of the evidence in a bench trial under the same standard used in reviewing the sufficiency of the evidence in a jury trial. Okon v. Levy, 612 S.W.2d 938, 941 (Tex.Civ.App.—Dallas 1981, writ ref'd n.r.e.). In considering a “no evidence” or legal insufficiency point, we consider only the evidence favorable to the decision of the trier of fact and disregard all evidence and inferences to the contrary. Davis v. City of San Antonio, 752 S.W.2d 518, 522 (Tex.1988). “When the evidence offered to prove a vital fact is so weak as to do no more than create a mere surmise or suspicion of its existence, the evidence is no more than a scintilla and, in legal effect, is no evidence.” Kindred v. Con/Chem, Inc., 650 S.W.2d 61, 63 (Tex.1983).

Viewing the evidence in the light most favorable to the decision of the trier of fact, we find that the evidence was legally sufficient to support the trial court’s conclusion that Kondos, Snyder, and V-Ball were partners by estoppel. The trial court found that because Kondos and V-Ball did not maintain sufficient independence from each other, the two corporations were estopped from denying that they were partners. The court also found that because Snyder held himself out to be a partner with the two corporations, he was estopped from denying that such a partnership existed. First, with regard to the two corporations, the evidence is sufficient to support a finding that Kondos and V-Ball were estopped from denying that they were partners. To find a partnership by estoppel, two elements must be met: (1) there must be a representation that the one sought to be bound is a member of a partnership; and (2) the one to whom the representation is made must rely on the representation by giving credit to the partnership. Paramount Petroleum v. Taylor Rental Ctr., 712 S.W.2d 534, 537 (Tex.App.—Houston [14th Dist.] 1986, writ ref'd n.r.e.). Both elements are met in this case. Kondos and V-Ball represented themselves as partners by contracting with Quinney in the name of Kondos and paying Quinney with cheeks from V-Ball’s account. Kondos further represented that it was a partner by providing office space to V-Ball, free of charge, and providing clerical staff to V-Ball, free of charge. Both corporations had the same president and treasurer, the same majority shareholders, the same registered agent, the same incorporator, shared the same address, and had common employees. Kondos paid bills for V-Ball out of its own account. Both corporations filed assumed-name applications under the name Tejano Rodeo. Kondos made over $500,000 in unsecured loans to V-Ball, and the persons who signed the notes for these loans were officers in the corresponding corporation. Quinney relied on these representations of the relationship between Kondos and V-Ball. Accordingly, the evidence was sufficient to support the court’s finding that Kondos and V-Ball were partners by estoppel.

We find the evidence equally sufficient to support the trial court’s finding that Snyder is estopped from denying his partnership with Kondos and V-Ball. Snyder held himself out to be a partner in his dealings with Quinney. He signed the cheeks submitted to Quinney as payment for work performed. Further, he expressly represented to Quinney that he was a partner and investor in the project, and that he owned a piece of the business. Quinney relied on Snyder’s representations in placing materials on its credit based on Snyder’s assurance that the account would be paid directly by the business. The Texas Legislature has provided that “[w]hen a person, by words spoken or written or by conduct, represents himself ... as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such person to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership.” Tex.Rev.Civ. Stat. Ann. art. 6132b § 16 (Vernon 1977). Snyder’s actions meet this criteria, and the evidence supports a finding that he is estopped from denying that he was a partner in the business.

The fourth point of error asserted by Kon-dos and Snyder is overruled.

COLLATERAL ESTOPPEL

In their second point of error, Kondos and Snyder claim that because the specific issues central to Quinney’s claims were previously adjudicated in bankruptcy court, Quinney should have been collaterally es-topped from relitigating those issues in the state court suit.¹ When the defense of collateral estoppel is asserted in a state court proceeding after a related federal proceeding is concluded, the federal law of collateral estoppel should be applied. Shell Pipeline Corp. v. Coastal States Trading, Inc., 788 S.W.2d 837, 842-43 (Tex.App.—Houston [1st Dist.] 1990, writ denied); Eagle Properties, Ltd. v. Scharbauer, 758 S.W.2d 911, 915 (Tex.App.—El Paso 1988), aff'd in part rev’d in part on other grounds, 807 S.W.2d 714 (Tex.1990). Federal law provides that three elements must be met for the doctrine of collateral estoppel to apply to a subsequent, related state court proceeding: (1) the prior federal decision must have resulted in a final judgment on the merits; (2) the fact issues sought to be litigated in the second action must have been “actually litigated” in federal court; and (3) the disposition of those issues must have been “necessary to the outcome” of the prior federal litigation. Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n. 5, 99 S.Ct. 645, 649 n. 5, 58 L.Ed.2d 552 (1979).

Initially, we note that Kondos and Snyder may assert the defense of collateral estoppel even though they were not parties to the bankruptcy proceeding. The defense does not require mutuality for the invocation of collateral estoppel; rather, it is only necessary that the party against whom collateral estoppel is being asserted be a party or in privity with a party in the prior litigation. See Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313, 329, 91 S.Ct. 1434, 1443, 28 L.Ed.2d 788 (1971); see also Eagle Properties, Ltd. v. Scharbauer, 807 S.W.2d 714, 721 (Tex.1990). Quinney is the party against whom collateral estoppel is being asserted in this ease, and Quinney was both the claimant in the bankruptcy proceeding and the plaintiff in the state court action.

Turning to the merits of this defense, Kondos and Snyder allege that all elements of collateral estoppel are met in this case. We agree. The first element is met because the bankruptcy court’s decision regarding Quinney’s claim resulted in a final judgment on the merits. The order entered by the bankruptcy court was entitled “Order Regarding Claim No. 16 Filed By Quinney Electric, Inc.” This order allowed Quinney’s claim as a general unsecured claim and ordered the claim paid. The bankruptcy court clearly had jurisdiction to enter such an order, and the order was a final judgment on the merits of Quinney’s claim.

The second element of collateral estoppel is met as well because the fact issues Quin-ney sought to relitigate in state court were “actually litigated” in bankruptcy court. It is clear that the issues involved in the state court proceeding were the same issues Quin-ney litigated in bankruptcy court. In both proceedings, Quinney claimed that it had not been paid the fees agreed upon for the electrical services rendered pursuant to its contract with Kondos. The same letter agreement and invoices were attached as exhibits to Quinney’s petitions in state court and its proof of claim in bankruptcy court. Clearly, the contract at issue in this state court litigation is the very agreement that formed the basis of Quinney’s claim in bankruptcy court. The issues in both proceedings were simply the validity and amount of Quinney’s claim under its contract with Kondos. Further, although the bankruptcy court determined V-Ball’s liability for the debt to Quinney, because Kondos, Snyder, and V-Ball were partners by estoppel, they were jointly and severally hable for the debt. Thus, a determination as to V-Ball’s liability equates to a determination of the liability of Kondos and Snyder, its partners. Collateral estoppel is applicable when a plaintiff seeks to relitigate in a second suit an issue upon which it prevailed in the initial suit against one having joint and several liability for the wrong. See El Paso Natural Gas Co. v. Berryman, 858 S.W.2d 362, 364 (Tex.1993).

Fact issues are “actually litigated” when they are properly raised by the pleadings, submitted for determination, and actually determined. Gober v. Terra + Corp., 100 F.3d 1195, 1203 (5th Cir.1996). In this case, Quinney raised the breach of contract issue in its proof of claim filed with the bankruptcy court, the issues of whether Quinney’s claim was valid and the amount of the claim were submitted to the bankruptcy court for determination, and the bankruptcy court determined that Quinney’s claim was valid and should be paid in the amount of $83,724.76. We recognize that the standard process involved in determining whether to allow a creditor’s claim would not normally meet the “actually litigated” requirement under collateral estoppel because normally a proof of claim is prim a facie evidence of the claim’s validity and amount and nothing is litigated. See 11 U.S.C. § 502(a) (1997). However, when a party in interest files an objection to the proof of claim, the claim becomes a contested matter to be decided by the bankruptcy court “after notice and a hearing.” See id. § 502(b). The debtor in this case, V-Ball, who was clearly a party in interest, filed an objection to Quinney’s claim asserting that deficiencies in Quinney’s work forced V-Ball to hire another electrical contractor to finish the job and contending that Quinney’s proof of claim had not been fully substantiated by invoices. Once V-Ball filed this objection, Quinney’s claim became a contested matter, which was “actually litigated” and ultimately decided by the bankruptcy court. This result obtains even though the order was apparently an agreed order because collateral estoppel applies when a party has substantially participated in an action in which he had a full and fair opportunity to defend on the merits even if he subsequently chooses not to do so. See In re Bush, 62 F.3d 1319, 1324 (11th Cir.1995); see also In re Garner, 56 F.3d 677, 680 (5th Cir.1995) (holding that even post-answer default judgment has preclusive effect under doctrine of collateral estoppel because party had opportunity to participate, but chose not to do so).

Having determined that the validity and amount of Quinney’s claim were issues actually litigated, we need only consider whether a determination of these issues was “necessary to the outcome” of the bankruptcy court’s order. We conclude that it was, satisfying the third element of the collateral es-toppel test, because the validity and amount of Quinney’s claim were not only issues necessary for the bankruptcy court to determine in entering its order on the claim, they were the only issues the bankruptcy court considered. All elements of collateral estoppel are met and Quinney was collaterally estopped from relitigating the breach of contract issue decided by the bankruptcy court as to V-Ball in a subsequent state court action against Hondos and Snyder.

We recognize that the result we reach today may seen unjust because there was no double recovery in this case — in the end, Quinney received only the total amount of his claim, albeit from two different sources in two different courts. However, the policies behind the doctrine of collateral estoppel support our decision. As our Texas Supreme Court has noted, the doctrine of collateral estoppel reflects the need to bring all litigation to an end and is designed to protect parties from multiple lawsuits, promote judicial efficiency, and prevent inconsistent judgments by precluding the relitigation of issues. Sysco Food Services, Inc. v. Trapnell, 890 S.W.2d 796, 801 (Tex.1994); Benson v. Wanda Petroleum Co., 468 S.W.2d 361, 363 (Tex.1971). The litigation regarding liability for the debt owed to Quinney should have come to an end when the bankruptcy court entered its order allowing and ordering payment of Quinney’s claim. Further litigation regarding this issue in the state court action subjected the parties to multiple lawsuits and opened the door for a judgment inconsistent with that of the bankruptcy court. Our decision respects the finality of the bankruptcy court’s order and promotes judicial efficiency. The second point of error asserted by Rondos and Snyder is sustained.

We reverse the judgment of the trial court on collateral estoppel grounds and render judgment that Quinney take nothing in this state court proceeding.

1 . Kondos and Snyder also claim in their second point of error that Quinney’s claims are barred by the doctrine of res judicata. We do not reach the res judicata claim, however, as we And that Quinney's claims are barred by collateral estop-pel.