Ralph P. Larrison, Jr. v. Catalina Design

• Court: Court of Appeals of Texas
• Decided: February 17, 2011
• Docket: 02-10-00167-CV
• Status: Published

Opinion

COURT OF APPEALS SECOND DISTRICT OF TEXAS FORT WORTH

NO. 02-10-00167-CV

RALPH P. LARRISON, JR. APPELLANT/APPELLEE

V.

CATALINA DESIGN APPELLEE/APPELLANT

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FROM THE 48TH DISTRICT COURT OF TARRANT COUNTY

MEMORANDUM OPINION1 ----------

In twenty-nine issues, Ralph P. Larrison Jr. appeals the trial court‘s finding

that he misapplied construction trust funds held in trust for Catalina Design. We

modify the trial court‘s judgment and affirm it as modified.

I. Background Facts

Larrison Construction Texas, Inc. (LCTI), a general contractor, contracted

with Catalina on three commercial construction projects—a project for the Texas

Motor Speedway, the First Baptist Church of Dennis, and an office building for 1 See Tex. R. App. P. 47.4. the law firm of Canas & Flores—for Catalina to provide masonry services. Until

May 5, 2006, Larrison was the owner of LCTI. Larrison also owns another

company called Larrison Construction, Inc. (LCI). On May 5, Larrison sold LCTI

to Stephen McCune. When Larrison sold the company, Catalina had not

received final payment on any of the projects.

Sometime after the sale, there was a work-order change on the church

project. LCTI asked Catalina to perform additional work, but they did not agree

on a price. McCune told them to go forward with the change anyway, but

Catalina did not. McCune claims that LCTI stopped paying Catalina because

Catalina did not complete the church project, their work was unacceptable, LCTI

incurred various fines for OSHA violations, and LCTI had to pay someone else to

complete the work on the church.

Catalina filed suit against LCTI, LCI, Larrison, and McCune, alleging that it

was owed $21,862 for work it performed on the projects ($7,034 for the office

building; $9,528 for the church; and $5,300 for the Speedway). Catalina filed a

sworn account affidavit and verification with its petition. Larrison did not file a

sworn denial. Immediately before the trial was to begin, the trial court granted an

interlocutory agreed judgment against LCTI in favor of Catalina for $26,862

($21,862 in damages and $5,000 in attorney‘s fees). Pursuant to the terms of

the agreed judgment, Catalina nonsuited McCune.

At the end of the trial, LCI and Larrison moved for judgment on all the

claims against them. The trial court granted LCI‘s motion and denied Larrison‘s

motion. The trial court then granted judgment in favor of Catalina and against

Larrison for $25,088 ($17,088 in damages and $8,000 in attorney‘s fees) plus

conditional appellate attorney‘s fees and postjudgment interest at 5% per annum.

2 The final judgment did not award prejudgment interest, but the findings of fact

and conclusions of law included a finding that Catalina was entitled to

prejudgment interest at 18% per annum under the Prompt Payment Act (PPA).

Larrison appealed the trial court‘s judgment. Catalina appealed the trial

court‘s failure to award prejudgment interest. Because we hold that the trial court

did not err by finding Larrison liable; that the award of attorney‘s fees was error;

and that Catalina was not entitled to prejudgment interest, we affirm the trial

court‘s judgment as modified.

II. Standard of Review

Findings of fact entered in a case tried to the court have the same force

and dignity as a jury‘s answers to jury questions. Anderson v. City of Seven

Points, 806 S.W.2d 791, 794 (Tex. 1991). The trial court‘s findings of fact are

reviewable for legal and factual sufficiency of the evidence to support them by

the same standards that are applied in reviewing evidence supporting a jury‘s

answer. Ortiz v. Jones, 917 S.W.2d 770, 772 (Tex. 1996); Catalina v. Blasdel,

881 S.W.2d 295, 297 (Tex. 1994).

We may sustain a legal sufficiency challenge only when (1) the record

discloses 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 a vital

fact. Uniroyal Goodrich Tire Co. v. Martinez, 977 S.W.2d 328, 334 (Tex. 1998),

cert. denied, 526 U.S. 1040 (1999); Robert W. Calvert, "No Evidence" and

3 "Insufficient Evidence" Points of Error, 38 Tex. L. Rev. 361, 362–63 (1960). In

determining whether there is legally sufficient evidence to support the finding

under review, we must consider evidence favorable to the finding if a reasonable

factfinder could and disregard evidence contrary to the finding unless a

reasonable factfinder could not. Cent. Ready Mix Concrete Co. v. Islas, 228

S.W.3d 649, 651 (Tex. 2007); City of Keller v. Wilson, 168 S.W.3d 802, 807, 827

(Tex. 2005).

When reviewing an assertion that the evidence is factually insufficient to

support a finding, we set aside the finding only if, after considering and weighing

all of the evidence in the record pertinent to that finding, we determine that the

credible evidence supporting the finding is so weak, or so contrary to the

overwhelming weight of all the evidence, that the answer should be set aside and

a new trial ordered. Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex. 1986)

(op. on reh‘g); Garza v. Alviar, 395 S.W.2d 821, 823 (Tex. 1965).

III. Discussion

A. Issue 1–9, 12, 13, 18–24, 26: Misapplication of Trust Funds

In his first issue, Larrison argues that the court erred by finding him liable

for misapplication of trust funds. Larrison‘s issues 2–9, 12, 13, 18–24, and 26

attack the evidence supporting the elements of Catalina‘s claim of misapplication

of trust funds.

A person has misapplied trust funds under chapter 162 of the property

code if

(a) he is a trustee;

4 (b) who intentionally or knowingly, or with intent to defraud;

(c) directly or indirectly retains, uses, disburses, or otherwise diverts

trust funds;

(d) without first fully paying all current or past due obligations incurred

by the trustee to the beneficiaries of the trust funds.

Tex. Prop. Code Ann. § 162.031(a) (Vernon Supp. 2010). The statute provides

that ―[c]onstruction payments are trust funds under this chapter if the payments

are made to a contractor . . . under a construction contract for the improvement

of specific real property in this state.‖ Tex. Prop. Code Ann. § 162.001(a)

(Vernon Supp. 2010).2 Any ―contractor, subcontractor, or owner . . . who

receives trust funds or who has control or direction of trust funds, is a trustee of

the trust funds.‖ Id. § 162.002 (Vernon 2007). The money LCTI received for the

work on the projects therefore constitutes trust funds subject to the statute.

Further, Larrison is a trustee because he was the owner of LCTI and had control

over the trust funds.3

2 Larrison argues that the parties did not agree that the money earned under their agreements would be considered trust funds. However, the monies are trust funds by statute, regardless of whether the parties agreed. See Tex. Prop. Code Ann. § 162.001(a). 3 Larrison complains that the trial court erred by finding him a trustee after he sold LCTI on May 5, 2006, and that he received trust funds after that date. The trial court did not make a finding of fact that Larrison was a trustee after May 5, 2006. Finding of fact number twelve states only that Larrison was a trustee. Further, the award granted to Catalina was for amounts owed to Catalina as shown on an open invoice record dated April 20, 2006, prior to the sale. The trial court did not award Catalina the retainage, which would not have been due until after Larrison sold the company. The trial court therefore did not commit the errors of which Larrison complains.

5 Around the time of the sale of LCTI to McCune, roughly $30,000 was

transferred from LCTI‘s bank account to LCI‘s bank account. Larrison testified

that this was part of the sale price that McCune was to pay to Larrison for the

company. This evidence directly contradicts Larrison‘s argument that LCTI could

have ―simply paid out all of the money and [did] not [have] any money left to pay

[Catalina].‖ LCTI clearly had at least $30,000 left in the account. Further,

McCune testified that he had decided to stop paying Catalina because he

believed they did not complete their work on the church, not because LCTI did

not have the money.

Both Larrison and McCune testified that the contracts with Catalina

mandated payment to Catalina within ten days of receipt of the funds. The PPA

mandates payment within seven days. Id. § 28.002(b) (Vernon 2000). The

Construction Trust Funds Act defines ―current or past due obligations‖ as ―those

obligations . . . which are due and payable by the trustee no later than 30 days

following receipt of the trust funds.‖ Id. § 162.005(2) (Vernon 2007). LCTI

received funds for the Speedway project on March 16, 2006, and funds for the

church project on April 12, 2006. Both of those payments matched payment

applications submitted by LCTI to the property owners that included work by

Catalina. Catalina‘s payments for the Speedway and the church were current or

past due obligations before Larrison sold the company. Larrison‘s business

records show that he knew that Catalina was owed $17,088 prior to the sale.

This total matches the damages awarded by the court.

6 Larrison did not direct payment to Catalina but instead retained those

funds in LCTI‘s account. The open invoice record showing $17,088 due to

Catalina was dated April 20, 2006. Two weeks later, Larrison allowed for a

payment from LCTI‘s account to be made to an account for his other company,

LCI, as part of his payment for the sale of LCTI. Larrison knew that the funds

were coming from LCTI‘s account and that Catalina had not been paid. Larrison

was also aware that McCune had continued to refuse to pay Catalina.

Larrison argues that there was no evidence that Catalina provided proper

lien claim waivers. The lien claim waivers released Catalina‘s liens on the

property and were required by LCTI to be submitted with applications for

payment. Larrison argues that without evidence that Catalina released its liens,

Catalina cannot establish that a final payment was due.

The supreme court has recently commented on the delicate balance of

leverage between trustees and beneficiaries under the construction trust

statutes. See Solar Applications Eng’g, Inc. v. T.A. Operating Corp., 327 S.W.3d

104, 110–112 (Tex. 2010). In Solar, the supreme court looked at contractual

language between an owner and a contractor that required ―complete and legally

effective releases or waivers . . . of all Lien rights‖ to accompany applications for

payment. Id. at 107 n.5. It noted that the payment process at issue was a

common payment process in construction contracts. Id. at 110. Despite the

language that implies that the lien release must be executed prior to payment,

the supreme court held that it was not a condition precedent to payment but a

covenant to provide the lien release in exchange for payment. Id. at 112.

7 David Oeff, owner of Catalina, testified at trial that his practice was to sign

the lien waivers when he received a check for the previous month‘s work. He

further testified that the lien release contained language that said he had

received payment and that he would not want to sign a lien waiver with that

language until he had actually received payment. Larrison did not dispute Oeff‘s

testimony.

We hold that there is sufficient evidence to support the trial court‘s finding

that Catalina properly made demand for payment; that LCTI received the funds;

and that Larrison retained, used, disbursed, or diverted trust funds without first

paying his current or past due obligations to Catalina. We overrule Larrison‘s

issues 1–9, 12, 13, 18–24, and 26.

B. Issues 28 and 29: Affirmative Defenses

Larrison argues that Catalina failed to prove that Larrison had not ―simply

paid out all of the money and [did] not [have] any money left to pay [Catalina].‖

Paying other ―actual expenses directly related to the construction‖ is an

affirmative defense and it was therefore Larrison‘s burden to establish the

defense. See Lively v. Carpet Servs., Inc., 904 S.W.2d 868, 875–76 (Tex.

App.—Houston [1st Dist.] 1995, writ denied) (noting that the burden of proof is on

the defendant to demonstrate that he used trust funds to pay actual expenses);

see also Scoggins Constr. Co. v. Dealers Elec. Supply Co., No. 13-06-00368-CV,

2009 WL 3390324, at *8 (Tex. App.—Corpus Christi Oct. 22, 2009, pet. denied)

(mem. op.) (holding that defendants waived affirmative defenses by failing to

request findings of fact addressing the elements of their affirmative defenses);

Tex. Att‘y Gen. Op. No. JM-945 (1988) (noting that the amendment adding the

8 affirmative defense language ―plac[ed] on criminal defendants the burden of

proving that expenditures were for ‗actual expenses‘ rather than requiring the

state to prove that expenditures were not for actual expenses‖). Larrison

provided no evidence of any actual expenses directly related to the construction

that were paid with the trust funds. Larrison therefore failed to meet his burden

for his first affirmative defense.

The Construction Trust Funds Act also provides the trustee an affirmative

defense if the trustee retains the funds ―as a result of the trustee‘s reasonable

belief that the beneficiary is not entitled to such funds.‖ Tex. Prop. Code Ann.

§ 162.031(b) (Vernon 2007). That defense requires a notice to the beneficiary of

the trustee‘s intent to retain the funds. Id. Catalina requested an admission from

all of the defendants that none of the defendants sent Catalina such notice. The

court deemed the admission admitted. According to the trial transcript,4

Larrison‘s response was ―Cannot admit or deny. [LCI] and Ralph Larrison do not

know what the other defendants did or did not do.‖

A response to a request for admission based on lack of information or

knowledge is insufficient ―unless the responding party states that a reasonable

inquiry was made but that the information known or easily obtainable is

insufficient to enable the responding party to admit or deny.‖ Tex. R. Civ. P.

198.2. Larrison‘s response does not state that a reasonable inquiry was made,

as required by the rules of civil procedure. The trial court was correct in ruling

that the answer was insufficient.

4 Catalina‘s first request for admissions, in which this request was made, was not admitted into evidence.

9 When a party fails to give a sufficient response to a request for admission,

the request is deemed admitted. See Tex. R. Civ. P. 198.2(c) (―If a response is

not timely served, the request is considered admitted without the necessity of a

court order.‖). Larrison argues that the trial court erred by holding LCI‘s deemed

admission binding against him. See Tex. R. Civ. P. 198.3 (stating that a matter

admitted is conclusively established as to the party making the admission).

However, Larrison himself made the same insufficient response. Therefore it

was proper for the trial court to hold the admission binding on Larrison. And

because it was deemed admitted that no defendant gave Catalina the required

notice, Larrison failed to meet his burden regarding his second affirmative

defense. We overrule Larrison‘s issues 28 and 29.

C. Issues 10, 11, 15–17: LCI

Larrison challenges a number of findings of fact relating to LCI. The claims

against LCI were dismissed and LCI is not a party to this appeal. We overrule

Larrison‘s issues 10, 11, 15, 16, and 17.

D. Issue 25: The PPA

In its appeal, Catalina argued that the trial court failed to award

prejudgment interest under the PPA. See Tex. Prop. Code Ann. § 28.004

(Vernon 2000). Larrison‘s issue 25 complains of the trial court‘s finding that LCTI

violated the PPA and therefore owed Catalina interest under the act. Catalina

alleged a violation of the act against LCTI, not against Larrison. The trial court

found that LCTI violated the act and did not make a similar finding against

Larrison. Because Catalina did not allege a cause of action against Larrison

under the PPA, it is not entitled to prejudgment interest under the act. We

overrule Catalina‘s sole issue. And because the trial court did not allow Catalina

10 to recover prejudgment interest under the PPA against Larrison, there is no error,

and we overrule Larrison‘s issue 25.

E. Issues 14 and 27: Attorney’s Fees

In his issues 14 and 27, Larrison argues that Catalina cannot recover

attorney‘s fees from him. Attorney‘s fees cannot be awarded unless such

recovery is provided for by statute or by contract between the parties. See

Dallas Cent. Appraisal Dist. v. Seven Inv. Co., 835 S.W.2d 75, 77 (Tex. 1992).

The parties agree that the Construction Trust Funds Act does not allow for the

recovery of attorney‘s fees. See Tex. Prop. Code Ann. §§ 162.001–.032 (Vernon

Supp. 2010). Section 38.001 of the civil practice and remedies code allows for

the recovery of attorney‘s fees for claims for

(1) rendered services;

(2) performed labor;

(3) furnished material;

(4) freight or express overcharges;

(5) lost or damaged freight or express;

(6) killed or injured stock;

(7) a sworn account; or

(8) an oral or written contract.

Tex. Civ. Prac. & Rem. Code Ann. § 38.001 (Vernon 2008). In this case, the trial

court made a specific finding that LCTI ―breached and repudiated its contracts‖

with Catalina. It did not make a similar finding in regard to Larrison. The only

cause of action that Catalina had against Larrison was for misapplication of trust

funds. Misapplication of trust funds is not one of the causes of action listed in

section 38.001, and therefore the section does not apply to Catalina‘s claims

11 against Larrison. Because there is no statute allowing for the recovery of

attorney‘s fees againt Larrison, we sustain Larrison‘s issue 27. Because we hold

that the award of attorney‘s fees was error, we do not need to reach Larrison‘s

issue 14. See Tex. R. App. P. 47.1.

IV. Conclusion

We overrule Larrison‘s issues 1 through 26, 28, and 29 and Catalina‘s sole

issue. We sustain Larrison‘s issue 27 and hold that the award of attorney‘s fees

was error. We therefore modify the trial court‘s judgment to remove the award of

attorney‘s fees and affirm the judgment as modified. See Tex. R. App. P.

43.2(b).

LEE GABRIEL JUSTICE

PANEL: GARDNER, WALKER, and GABRIEL, JJ.

DELIVERED: February 17, 2011