Varosa Energy, Ltd. v. David R. Tripplehorn II, Aspen Development Company, LLC, and 1801 Corporation

• Court: Court of Appeals of Texas
• Decided: March 13, 2014
• Docket: 01-12-00287-CV
• Status: Published

Opinion

Opinion issued March 13, 2014

In The

Court of Appeals For The

First District of Texas ———————————— NO. 01-12-00287-CV ——————————— VAROSA ENERGY, LTD., Appellant V. DAVID R. TRIPPLEHORN, II, ASPEN DEVELOPMENT COMPANY, LLC, AND 1801 CORPORATION, Appellees

On Appeal from the 133rd District Court Harris County, Texas Trial Court Case No. 2006-62660

MEMORANDUM OPINION

Varosa Energy, Ltd., the plaintiff in the trial court, appeals from a judgment

awarding Varosa $892,000 for breach of contract by Jake Rollings d/b/a Jake’s

Equipment and Repair. Varosa’s complaint on appeal is that the judgment did not declare other parties—appellees David R. Tripplehorn, II and Aspen Development

Company, LLC—jointly and severally liable.1

A jury found that Tripplehorn, on behalf of Aspen, and Rollings entered into

a joint venture, but the trial court disregarded that finding. In three points of error,

Varosa contends that the trial court erred in disregarding the jury’s joint venture

finding and in refusing to hold Tripplehorn and Aspen jointly and severally liable.

We affirm.

Background

In March 2006, Varosa contacted Rollings, who refurbishes drilling

equipment, about purchasing a used Cabot Model 750 drilling rig. Rollings knew

of a used rig that was being sold by Gordon Brothers Supply, Inc. for $396,250,

and Varosa and Rollings agreed that Rollings would refurbish and sell the rig to

Varosa for $1.3 million, with payments to be due in installments. Varosa also

agreed to pay Rollings $484,000 for two refurbished mud pumps, in two payments

of $242,000 each. Between March and June 2006, Varosa paid Rollings $600,000

toward the purchase price of the rig. Varosa also paid Rollings the first of the two

$242,000 payments for the two mud pumps. Varosa and Rollings had no written

contract reflecting the terms of these transactions at the time.

1 A brief was filed on behalf of three appellees—David R. Tripplehorn, II, Aspen Development Company, LLC, and 1801 Corporation—but Varosa requests reversal and rendition only as to Tripplehorn and Aspen. 2 Meanwhile, and unbeknownst to Varosa, Rollings contacted Tripplehorn

about investing in the purchase, refurbishment, and sale of the rig. Rollings and

Tripplehorn had agreed to similar investment deals in the past, and their usual

agreement was that Tripplehorn would pay for and hold title to the equipment,

while Rollings would refurbish it, find a buyer, and then have Tripplehorn convey

title to the buyer upon receipt of payment for the refurbished equipment. After

coming to the oral agreement with Varosa described above, Rollings informed

Tripplehorn in May 2006 that he needed to buy a Cabot 750 rig, Tripplehorn

agreed to invest in the rig, and Rollings and Tripplehorn each paid Gordon

Brothers half of the purchase price. Rollings and Tripplehorn agreed that the bill

of sale would be made out to Aspen, Tripplehorn’s wholly-owned corporation, so

that Tripplehorn would hold title to the rig. Rollings would refurbish and sell the

rig, and Tripplehorn would convey title to the new owner upon receipt of payment

from the buyer. Rollings and Tripplehorn agreed to split the profits or losses

equally. Rollings did not inform Tripplehorn that Rollings had already agreed to

sell the refurbished rig to Varosa for $1.3 million, or that Rollings had already

received a $600,000 payment toward the purchase price.

In September 2006, by which time Rollings had made little progress

refurbishing the rig, Varosa and Rollings entered into a written “Agreement and

Amendment of Purchase and Sale Contract.” In it, Rollings acknowledged that

3 Varosa had paid Rollings $600,000 toward the purchase price of the rig and

$242,000 toward the purchase price of the two mud pumps, and Rollings agreed to

complete the refurbishment of the rig and the mud pumps within 60 days. The

agreement also provided for three installment payments of $100,000 each to be

paid to Rollings every two weeks if he achieved certain milestones on the project,

as set forth in an exhibit to the agreement. A third party was to inspect Rollings’s

progress every two weeks and confirm that Rollings had achieved the milestones

contemplated by the agreement. Simultaneously with the execution of this

agreement, Varosa agreed to pay Rollings another $50,000 toward the purchase

price of the rig. This agreement was signed by Oscar Vargas on behalf of Varosa

and Jake Rollings on behalf of Jake Rollings d/b/a Jake’s Equipment and Repair.

Importantly, the contract made no mention of Tripplehorn, Aspen, or 1801

Corporation, nor did it disclose the existence of any joint venture between Rollings

and any other party. But it did include a warranty and representation by Jake’s

Equipment that “Jake Rollings and Jake’s Equipment and Repair hold the Rig and

the Mud Pumps for the benefit of Varosa,” and that “Varosa shall have a security

interest in and to the Rig, Mud Pumps and all attachments that originally came

with the Rig and Mud Pumps to secure the amount paid herein to date toward the

Rig and Mud Pumps.”

4 The third-party inspector concluded that Rollings had not completed the

work required for any of the two week periods in the 60 days following the

execution of the agreement. Accordingly, Varosa did not pay Rollings any of the

$100,000 installment payments referenced in the agreement. At the end of

September 2006, Varosa sued Rollings for breach of contract, fraud, foreclosure of

security interest, and unjust enrichment.

In October 2006, Tripplehorn discovered that Rollings had an agreement to

sell the refurbished rig to Varosa. Shortly thereafter, in November 2006,

Tripplehorn transferred title to the rig from Aspen to 1801 Corporation, a

corporation wholly-owned by Tripplehorn. Aspen and 1801 Corporation then filed

a UCC Financing Statement for the rig. In February 2007, Aspen and 1801

Corporation intervened in the lawsuit between Varosa and Rollings, asserting that

1801 Corporation was the owner of the rig. Aspen and 1801 Corporation filed

cross-claims against Rollings for fraud, negligent misrepresentation, and breach of

contract, and Varosa amended its petition to assert claims against Tripplehorn,

Aspen, and 1801 Corporation. Specifically, Varosa alleged that Tripplehorn and

Rollings entered into a joint venture to purchase, refurbish, and sell the rig and,

therefore, Tripplehorn was jointly and severally liable for Rollings’s breach of the

contract with Varosa. Varosa also asserted claims for fraudulent transfer and

tortious interference against Tripplehorn, Aspen, and 1801 Corporation.

5 The case was tried in October and November 2009. The jury found that both

Varosa and Rollings breached the agreement, but that Varosa breached first.

However, the jury awarded no damages to Rollings and instead awarded Varosa

$892,000. The jury also found that “David Tripplehorn, on behalf of Aspen

Development, LLC, entered into a joint venture with Jake Rollings authorizing

Jake Rollings to purchase and re-sell the used Franks Cabot 750 Drilling Rig.”

The jury found no fraud, fraudulent transfer, or negligent misrepresentation on the

part of any party.

Varosa moved to disregard the jury’s findings that it breached the contract

and was first to breach. It also requested entry of a judgment holding Tripplehorn

and Aspen jointly and severally liable for the damages resulting from Rollings’s

breach of contract, based on the jury’s joint venture finding. Rollings moved for a

take-nothing judgment and asked the trial court to disregard the jury’s findings

awarding Varosa damages. Tripplehorn did not file a motion to disregard the

jury’s findings, but did orally move for a take-nothing judgment at a post-trial

hearing. Tripplehorn also filed a letter brief with the trial court contending it was

entitled to a take-nothing judgment because the jury did not find liability or assess

damages against Tripplehorn, Aspen, or 1801 Corporation.

The trial court disregarded the jury’s findings that Varosa breached the

agreement and was first to breach, and awarded Varosa $892,000 against Rollings,

6 plus attorney’s fees. It also disregarded the jury’s joint venture finding and

rendered a take-nothing judgment as to Tripplehorn, Aspen, and 1801 Corporation.

Varosa appeals.

On appeal, Varosa contends that the judgment should be reversed and that

Tripplehorn and Aspen should be held jointly and severally liable for Rollings’s

breach for two independent reasons: (1) the jury’s joint venture finding was

supported by legally sufficient evidence, and (2) the trial court lacked authority to

disregard the joint venture finding because Tripplehorn and Aspen did not move to

disregard. Tripplehorn and Aspen contend they did move to disregard and thus

gave the trial court the necessary power to do so. They additionally contend that

the trial court’s judgment should be affirmed because Tripplehorn and Aspen did

not know about Rollings’s contract with Varosa or benefit from the transaction.

A. Standard of Review

A trial court may grant a motion for JNOV if a directed verdict would have

been proper. See TEX. R. CIV. P. 301. The jury’s verdict should be set aside only

if the evidence at trial would not enable reasonable and fair-minded people to reach

the verdict under review. See City of Keller v. Wilson, 168 S.W.3d 802, 823, 827

(Tex. 2005). We review a trial court’s grant of JNOV under a legal sufficiency

standard, viewing the evidence and inferences in the light most favorable to the

jury’s finding, crediting favorable evidence if reasonable jurors could and

7 disregarding contrary evidence unless reasonable jurors could not. Id. at 823, 827

(“[T]he test for legal sufficiency should be the same for summary judgments,

directed verdicts, judgments notwithstanding the verdict, and appellate no-

evidence review.”). To sustain the grant of JNOV, the record must show one of

the following: (a) there is a complete absence of evidence of a vital fact; (b) the

court is barred by rules of law or of evidence from giving weight to the only

evidence offered to prove a vital fact; (c) the evidence offered to prove a vital fact

is no more than a mere scintilla; or (d) the evidence establishes conclusively the

opposite of the vital fact. Id. at 810.

B. Applicable Law

A joint venture is a distinct legal entity. Milberg Factors, Inc. v. Hurwitz-

Nordlicht Joint Venture, 676 S.W.2d 613, 616 (Tex. App.—Austin 1984, writ ref’d

n.r.e.). This relationship is similar to a partnership, but the principal distinction is

that a joint venture is usually limited to one particular enterprise. Ben Fitzgerald

Realty Co. v. Muller, 846 S.W.2d 110, 120 (Tex. App.—Tyler 1993, writ denied);

Adams v. Petrade Int’l, Inc., 754 S.W.2d 696, 713 (Tex. App.—Houston [1st Dist.]

1988, writ denied). A joint venture must be based on an agreement, either express

or implied. Coastal Plains Dev. Corp. v. Micrea, Inc., 572 S.W.2d 285, 287 (Tex.

1978). A joint venture exists where there is: (1) a community of interest; (2) an

agreement to share profits; (3) an agreement to share losses; and (4) a mutual right

8 of control or management of the enterprise. Id.; Swinehart v. Stubbeman, McRae,

Sealy, Laughlin & Browder, Inc., 48 S.W.3d 865, 879 (Tex. App.—Houston [14th

Dist.] 2001, pet. denied). A joint venture is not established if any one of the four

elements is missing. Swinehart, 48 S.W.3d at 879.

C. Analysis

Here, the jury responded “yes” to Question 1, which asked, “Did Jake

Rollings d/b/a Jake’s Equipment and Repair fail to comply with the agreement of

September 8, 2006?” In Question 13, the jury found that “David Tripplehorn, on

behalf of Aspen Development, LLC, enter[ed] into a joint venture with Jake

Rollings authorizing Jake Rollings to purchase and re-sell the used Franks Cabot

750 Drilling Rig.” The jury was instructed that “[a] joint venture exists if the

persons concerned have an agreement that has the following elements:

(1) a community of interest in the venture, (2) an agreement to share profits, (3) an express agreement to share losses, and (4) a mutual right of control or management of the venture.”

The evidence at trial was legally sufficient to support the jury’s finding in

Question 13. First, with respect to a community of interest in the venture,

Tripplehorn testified that he and Rollings agreed that each of them would pay half

the purchase price of the rig. Tripplehorn would hold title to the rig, while

Rollings refurbished it. And Tripplehorn would convey the title to the purchaser of

the refurbished rig after Rollings refurbished the rig, found a purchaser, and

9 received payment for the rig. See Hasslocher v. Heger, 670 S.W.2d 689, 693 (Tex.

App.—San Antonio 1984, writ ref’d n.r.e.) (community of interest means a

commonly shared incentive between the parties as to the progress and goals of the

joint venture).

The evidence also demonstrates that the parties had an express agreement to

share all profits and losses, and that they shared a mutual right of control.

Specifically, each time Tripplehorn invested with Rollings, they agreed to share

both profits and losses equally. With respect to control, the evidence showed that

Rollings controlled the refurbishment and was responsible for purchasing and

selling the equipment, while Tripplehorn held title and thus had ultimate control

over whether to enter into a transaction for the sale of the refurbished equipment.

See Coastal Plains Dev. Corp., 572 S.W.2d at 287; Swinehart, 48 S.W.3d at 879;

see also Moody v. Betz, No. 01-96-00220-CV, 1998 WL 394312, at *7 (Tex.

App.—Houston [1st Dist.] July 16, 1998, no pet.) (not designated for publication)

(stating that joint venturers share a mutual right of control, which may or may not

be equal).

Our conclusion that sufficient evidence supports the jury’s joint venture

finding, however, is not dispositive. Rather, to obtain reversal, Varosa must also

show that the trial court’s error in disregarding that finding probably caused the

rendition of an improper judgment. See TEX. R. APP. P. 44.1(a)(1) (“No judgment

10 may be reversed . . . unless the court of appeals concludes that the error

complained of probably caused the rendition of an improper judgment.”); see

Mandell v. Mandell, 310 S.W.3d 531, 542 (Tex. App.—Fort Worth 2010, pet.

denied) (overruling claim that trial court erred in rendering JNOV where there was

no showing that grant of JNOV had resulted in rendition of improper judgment).

Here, the jury found breach on the part of Rollings and found that Rollings

and Tripplehorn, on behalf of Aspen, formed a joint venture. But the jury made no

finding that would support imposing liability for Rollings’s breach of his contract

with Varosa on the joint venture or any individual or entity other than Rollings.

A joint venturer, like a partner in a partnership, is jointly and severally liable

for joint venture debts and obligations. See TEX. BUS. ORGS. CODE ANN. § 152.304

(West 2011); Truly v. Austin, 744 S.W.2d 934, 937 (Tex. 1988). But a joint

venturer may be held liable only for obligations made on behalf of the joint

venture. See R.L. Lipsey, Inc. v. Panama-Williams, Inc., 611 S.W.2d 917, 920

(Tex. App.—Houston [14th Dist.] 1981, writ ref’d n.r.e.) (one joint venturer has

the authority to bind other joint venturers by contracts made in furtherance of the

joint enterprise); see also TEX. BUS. ORGS. CODE ANN. § 152.302 (“[A]n act of a

partner, including the execution of an instrument in the partnership name, binds

the partnership if the act is apparently for carrying on in the ordinary course (1) the

partnership business; or (2) business of the kind carried on by the partnership.”

11 (emphasis added)); First State Bank of Riesel v. Dyer, 151 Tex. 650, 653 (Tex.

1953) (use of an individual name on contract raises a presumption that the

transaction is an individual and not a partnership matter; if partner acts as principal

and not as agent, as a general rule he alone is liable for the transaction); cf. Corinth

Joint Venture v. Lomas & Nettleton Fin. Corp., 667 S.W.2d 593, 595–97 (Tex.

App.—Dallas 1984, writ dism’d) (agreement, executed by joint venturer, was

binding on joint venture where agreement clearly contemplated the existence of the

Here, Rollings is the only party to the contract with Varosa. The contract

does not reflect that any individual or entity other than Rollings is a party to it or

that it is an obligation of a joint venture or any individual or entity other than

Rollings. And it is undisputed that Varosa did not know of the existence of

Tripplehorn, Aspen, or the joint venture when it executed the contract. Because

the contract is not a debt or obligation of the joint venture, as opposed to Rollings,

it is not an obligation for which Tripplehorn may be held liable. See TEX. BUS.

ORGS. CODE ANN. § 152.302; Dyer, 151 Tex. at 653; cf. Corinth Joint Venture, 667

S.W.2d at 595–97. Accordingly, even if the trial court erred in disregarding the

jury’s finding in Question 13, we conclude the error was harmless.

12 Because we have determined that the trial court’s grant of JNOV did not

cause the rendition of an improper judgment, we need not reach Varosa’s claim

that the trial court erred by rendering JNOV sua sponte.

Conclusion

We affirm the judgment of the trial court.

Rebeca Huddle Justice

Panel consists of Justices Keyes, Sharp, and Huddle.