Opinion
No. 04-16-00831-CV
07-11-2018
WONG GROCERY CO., LLC, Appellant v. Patrick LAMBKIN, Felipe Valdez dba Raw Happiness Juice Bar, Appellees
DISSENTING OPINION
From the 166th Judicial District Court, Bexar County, Texas
Trial Court No. 2015-CI-10644
Honorable Solomon Casseb III, Judge Presiding Opinion by: Rebeca C. Martinez, Justice
Dissenting Opinion by: Patricia O. Alvarez, Justice Sitting: Karen Angelini, Justice Rebeca C. Martinez, Justice Patricia O. Alvarez, Justice
The trial court's remedy is unorthodox but, for these facts, within its discretion. The trial court expressly stated it was granting rescission, and it granted special damages and attorney's fees in conjunction with rescission—equitable remedies. In equity, Raw Happiness was not entitled to attorney's fees, and I would reverse that portion of the trial court's judgment. But the pleadings and evidence support the trial court's damages award, and I would affirm that portion of the judgment. Because the majority decides the damages question incorrectly, I respectfully dissent.
DISCUSSION
A. Background
In its sixth amended petition, Raw Happiness (1) claimed Wong Grocery breached its lease agreement, (2) alleged several bases to show material breaches, and (3) pled in the alternative for rescission and special damages. The trial court heard the evidence, implicitly found that Raw Happiness lacked an adequate remedy at law, and fashioned a remedy using its equitable powers. The majority concludes the evidence does not relate to the proper measure of damages, but its analysis is incomplete; it fails to address Raw Happiness's plea for equitable relief: rescission and special damages. I first consider Raw Happiness's plea for rescission.
B. Flexible, Adaptable Equitable Power
Where there is no adequate remedy at law, a trial court has power to act in equity. See Johnson v. Cherry, 726 S.W.2d 4, 8 (Tex. 1987); Ferguson v. DRG/Colony N., Ltd., 764 S.W.2d 874, 886 (Tex. App.—Austin 1989, writ denied) (opining that a legal remedy may not be adequate if its relief cannot make the injured party whole). "The equitable power of the court exists to do fairness and is flexible and adaptable to particular exigencies, 'so that relief will be granted when, in view of all the circumstances, to deny it would permit one party to suffer a gross wrong at the hands of the other.'" Johnson, 726 S.W.2d at 8 (quoting Warren v. Osborne, 154 S.W.2d 944, 946 (Tex. Civ. App.—Texarkana 1941, writ ref'd w.o.m.)); accord Hausman v. Hausman, 199 S.W.3d 38, 42 (Tex. App.—San Antonio 2006, no pet.). In acting to prevent a gross wrong, "[t]he equitable power of a court is not bound by cast-iron rules but exists to do fairness and is flexible and adaptable to particular exigencies." Hausman, 199 S.W.3d at 42; accord Warren, 154 S.W.2d at 946; see also Ford Motor Co. v. Castillo, 279 S.W.3d 656, 665 (Tex. 2009) ("Equitable rules by necessity are flexible and adaptable.").
C. Equitable Remedy of Rescission
Acting on Raw Happiness's plea for rescission and special damages, the trial court found that Raw Happiness complied with the lease agreement, Wong Grocery committed multiple material breaches, and it granted Raw Happiness's plea for rescission.
On appeal, the only element of rescission Wong Grocery even arguably challenged was the lack of an adequate remedy at law, but there is substantial evidence to support an implicit finding that Raw Happiness's legal remedy was not adequate, see Ferguson, 764 S.W.2d at 887, and exercised its discretion to fashion an equitable remedy, see Johnson, 726 S.W.2d at 8; Hausman, 199 S.W.3d at 42; see also Isaacs v. Bishop, 249 S.W.3d 100, 109 (Tex. App.—Texarkana 2008, pet. denied) ("Rescission of a contract is an equitable remedy used as a substitute for monetary damages when such damages would not be adequate.").
Because Wong Grocery failed to challenge on appeal any of the other essential elements of rescission, it waived any complaint of lack of proof of the other essential elements of rescission, and I do not address them.
Although the trial court did not state its reasons for each portion of its judgment, it expressly stated it was rescinding the lease agreement—granting an equitable remedy. See Isaacs, 249 S.W.3d at 109 ("Whether to grant rescission lies within the trial court's discretion."). The trial court acted within its discretion to grant rescission. See Johnson, 726 S.W.2d at 8; Isaacs, 249 S.W.3d at 109; Hausman, 199 S.W.3d at 42. I turn now to the question of special damages.
D. Special Damages in Equity
In conjunction with rescinding the lease agreement, the trial court granted Raw Happiness three months to vacate the leasehold, required Raw Happiness to pay Wong Grocery the lease agreement monthly rental amount for those three months, and awarded special damages.
Special damages are those that "result naturally, but not necessarily, from the defendant's wrongful acts." See Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 816 (Tex. 1997). The damages must be foreseeable, Basic Capital Mgmt., Inc. v. Dynex Commercial, Inc., 348 S.W.3d 894, 901 (Tex. 2011) ("Foreseeability is a fundamental prerequisite to the recovery of consequential damages for breach of contract."), but changing market conditions after contract execution do not negate foreseeability, id. at 903 (imputing foreseeability of damages caused by changing market conditions to a lender because the lender "certainly knew that if market conditions changed and interest rates rose, its refusal to honor [a loan commitment] would leave [the borrower] having to arrange less favorable financing" (emphasis added)).
Raw Happiness produced evidence of special damages it would incur because of Wong Grocery's multiple breaches, and the trial court exercised its equitable powers to award special damages based on the pleadings and the evidence. See Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 345 (Tex. 2011) (recognizing that in exercising the equitable remedy of rescission, "the measure of damage [may include] such further special damage or expense as may have been reasonably incurred by the party wronged on account of the contract"); Atkins v. Beasley, 544 S.W.2d 505, 507 (Tex. Civ. App.—Waco 1976, no writ) ("Rescission is an equitable remedy. Complete and full justice is a fundamental doctrine of equity jurisprudence, and if damages as well as rescission are essential to accomplish full justice, they will both be allowed."); see also Smith v. Nat'l Resort Communities, Inc., 585 S.W.2d 655, 660 (Tex. 1979) (citing Atkins approvingly).
Raw Happiness's relocation damages were foreseeable and resulted naturally from Wong Grocery's wrongful acts. See Arthur Anderson, 945 S.W.2d at 816.
And Raw Happiness's costs to obtain substitute performance were a fair measure to guide the trial court in fashioning an appropriate equitable remedy. See Markham Irrigation Co. v. Brown, 292 S.W. 863, 868 (Tex. Comm'n App. 1927, holding approved), modified on other grounds, 296 S.W. 865 (Tex. Comm'n App. 1927) ("Whatever expense [the plaintiff] incurred in procuring [substitute performance] could properly be charged to the [defendant].").
Because Raw Happiness pled for rescission and special damages, and produced evidence to support its plea, the trial court had the discretion to exercise its equitable power to rescind the lease agreement and award special damages to Raw Happiness. See Italian Cowboy, 341 S.W.3d at 345 (allowing rescission and special damages); Smith, 585 S.W.2d at 660 (same); Atkins, 544 S.W.2d at 507 (same).
I now consider whether each special damage awarded in the judgment was specifically pled by Raw Happiness and whether each was supported by legally and factually sufficient evidence.
E. Special Damages Pleading Requirement
Because special damages "result naturally, but not necessarily, from the defendant's wrongful acts," the plaintiff must give the defendant notice of the plaintiff's claims for special damages. See Arthur Andersen, 945 S.W.2d at 816.
Raw Happiness had to plead special damages, and pleading one type of special damage is not notice of another type of special damage. See Sherrod v. Bailey, 580 S.W.2d 24, 28 (Tex. Civ. App.—Houston [1st Dist.] 1979, writ ref'd n.r.e.) (noting that each type of special damage must be pled). Raw Happiness pled rent differential, but it did not specifically plead damages for moving, replacement leasehold buildout, or advertising. Contra TEX. R. CIV. P. 56; Sherrod, 580 S.W.2d at 28. Nevertheless, Raw Happiness produced evidence at trial of its moving, buildout, and advertising expenses, and the parties argued their respective positions on the special damages. Wong Grocery did not specially except in writing before the judgment was signed; thus, the trial court was not precluded from awarding special damages for moving, leasehold buildout, and advertising expenses. See TEX. R. CIV. P. 90; Italian Cowboy, 341 S.W.3d at 345-46.
F. Affirm Damages Award
In balancing the equities, the trial court fashioned the relief based on the pleadings and the evidence. See Cooper v. Cochran, 288 S.W.3d 522, 533 (Tex. App.—Dallas 2009, no pet.). The trial court's judgment was supported by legally and factually sufficient evidence. See City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005) (legal sufficiency); Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex. 2001) (per curiam) (factual sufficiency).
Because the evidence was sufficient and the trial court exercised its "flexible and adaptable" equitable powers to fashion an equitable remedy based on the pleadings and the evidence, I conclude the trial court acted under appropriate rules and principles and within its discretion. See Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241 (Tex. 1985); Isaacs, 249 S.W.3d at 110. I would affirm the portion of the trial court's judgment awarding damages to Raw Happiness. See Castillo, 279 S.W.3d at 665 ("Equitable rules by necessity are flexible and adaptable."); see also Italian Cowboy, 341 S.W.3d at 345 (recognizing special damages may be awarded in conjunction with rescission); Smith, 585 S.W.2d at 660 (same).
G. Attorney's Fees
On the other hand, the trial court's award of attorney's fees in equity is problematic. Generally, a trial court may not award attorney's fees "unless authorized by statute or contract." Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 311 (Tex. 2006).
Without a statutory basis to award attorney's fees, e.g., TEX. CIV. PRAC. & REM. CODE ANN. §§ 37.009, 38.001 (West 2014), a trial court may award attorney's fees on equitable grounds under certain circumstances, see Knebel v. Capital Nat'l Bank in Austin, 518 S.W.2d 795, 799 (Tex. 1974) (common-fund doctrine); Turner v. Turner, 385 S.W.2d 230, 234 (Tex. 1964) (attorney's fees as damages). If a plaintiff is represented by an attorney, pleads for attorney's fees, prevails in the lawsuit, and incurs reasonable and necessary attorney's fees, the plaintiff may recover attorney's fees under equity if the fees claim is based on the common-fund doctrine, see Knebel, 518 S.W.2d at 799, or the attorney's-fees-as-damages theory, see, e.g., In re Nalle Plastics Family Ltd. P'ship, 406 S.W.3d 168, 175 (Tex. 2013) (attorney's-fees-as-damages for breach of contract claim).
Here, neither the common-fund doctrine nor the attorney's-fees-as-damages theory applies; the trial court erred in awarding attorney's fees under equity. See In re Nalle Plastics, 406 S.W.3d at 175; Knebel, 518 S.W.2d at 799. I concur in the majority's reversal of the trial court's award of attorney's fees for the reasons stated in this dissent.
CONCLUSION
The trial court applied appropriate rules and principles when it exercised its equitable power to rescind the contract and award Raw Happiness special damages, but the trial court misapplied the rules for awarding attorney's fees based on equity. Because the majority overlooks a proper basis to affirm the trial court's damages award, I respectfully dissent.
Patricia O. Alvarez, Justice