Eagle Rock Timber, Inc. v. Rock Hard Rental, LLC

672 S.W.3d 438

EAGLE ROCK TIMBER, INC., Appellant

v.ROCK HARD RENTAL, LLC and Solid Rock Crushing, LLC, Appellees

No. 04-21-00372-CV

Court of Appeals of Texas, San Antonio.

Delivered and Filed: March 15, 2023

APPELLANT ATTORNEY: R. Wes Johnson, Gardner Law, 745 E. Mulberry Ave., Ste. 500, San Antonio, TX 78212-3167.

APPELLEE ATTORNEY: David Pipal, Zakary Presley, Marshall Presley & Pipal PLLC, 5343 Spring Valley Rd., Dallas, TX 75254, Mark K. Thompson, 4927 34th Ave. South, Minneapolis, MN 55417.

Sitting: Patricia O. Alvarez, Justice, Luz Elena D. Chapa, Justice, Lori I. Valenzuela, Justice

Opinion by: Lori I. Valenzuela, Justice

Appellant Eagle Rock Timber, Inc. ("ERT") owns certain machinery used in crushing rocks. Appellee Rock Hard Rentals, LLC ("RHR") rented ERT's equipment and sublet ERT's equipment to appellee Solid Rock Crushing, LLC ("SRC"), who used it in a Kerr County mining operation under a contract with Wheatcraft, Inc. ("Wheatcraft"). This appeal comes before this court after a bench trial in which the trial court found ERT liable to (1) RHR for over $350,000 and (2) SRC for approximately $600,000. We affirm.

BACKGROUND

RHR has one member, Sonny Heittola, who has over forty years’ experience in the rock crushing business. Heittola has a longstanding relationship with ERT and one of its owners, Rick Gokey.

ERT Becomes Indebted to RHR

When Heittola met Gokey in 2013, Heittola was working for Hanson Custom Crushing, Inc. ("HCC") in North Dakota on a project with ERT. Although the amount was disputed, ERT owed HCC money:

As part of a buyout from HCC in early 2017, Heittola assumed HCC's potential liability for an allegedly out-of-specification material on the North Dakota project. HCC also assigned Heittola its account receivable for ERT. While negotiating the buyout, Heittola and Gokey discussed the account receivable and the potential liability for the allegedly out-of-specification material.

In one discussion, Gokey agreed to pay Heittola $90,000 to resolve ERT's account receivable and forgive any potential liability for the allegedly out-of-specification material. However, ERT never paid any of the $90,000. Gokey claims the $90,000 debt was to be credited to leasing ERT's equipment to RHR for a project in Kerr County, Texas. Heittola denies that was part of any deal.

Another part of Heittola's buyout from HCC involved the assignment of equipment to Heittola which HCC owned and rented to ERT. Since 2017, HCC's equipment had been in ERT's possession. When Heittola later went to retrieve the equipment in 2021, he found that it had been damaged. Heittola assigned to RHR his interest in the account receivable, the liability on the out-of-specification material, and the title to the equipment from the HCC buyout:

ERT Agrees to Rent Equipment for Wheatcraft Project

Heittola also held a one-half ownership interest in SRC. On September 27, 2017, Wheatcraft retained SRC as a contractor on the Wheatcraft project in Kerr County, Texas:

Heittola met with Gokey in early October 2017 to discuss renting some of ERT's equipment to use on the Wheatcraft Project. Heittola knew ERT was having cash flow problems and was having trouble making payments on its financed equipment, so he thought he could get a good rental rate for the equipment.

ERT orally agreed to rent the equipment to RHR, and although draft agreements were exchanged, no written agreement was ever executed. On October 16, 2017, ERT's principal signed a draft agreement reflecting certain terms, including the payment of approximately $14,000 per month for RHR's rental of ERT's equipment. The trial court found that ERT agreed to lease its equipment to RHR for ERT's payments on the financing in place on the equipment. Gokey testified that the rental rate for RHR was a "pass-through" of ERT's monthly payments on the equipment (because the rate was the exact monthly payment ERT was making to its lenders):

RHR Begins Wheatcraft Project

Pursuant to their oral agreement, ERT allowed RHR to move equipment from North Dakota to Texas. Over the next six weeks, Gokey sought to have RHR sign draft lease agreements. One draft contained a rental rate of $23,850 per month, and one had a rental rate of $31,850 per month. RHR refused to sign and instead modified one of the draft lease agreements (and returned it to ERT) reflecting a lower amount. Heittola testified he would not sign a written lease agreement unless it contained the rental rates agreed to in early October 2017. By December 8, 2017, Gokey knew ERT would never have an acceptable equipment lease agreement in writing with RHR. Nevertheless, ERT did not seek the return of the equipment and allowed it to remain in Texas for months.

On December 15, 2017, SRC began working on the Wheatcraft project using ERT's equipment rented from RHR. According to testimony adduced at trial, it is standard industry practice to not begin rental charges on rented heavy equipment until the equipment is set up and producing. After December 15, 2017, SRC and RHR were unable to reach Gokey by phone or text message.

ERT Repossesses Equipment and Files Lien

On February 14, 2018, ERT appeared at the Wheatcraft project and presented invoices for use of equipment from November 2017 to February 2018. The invoices were allegedly sent to RHR two days earlier. The invoices listed no past-due amounts and all had sequential invoice identification numbers. They were all created concurrently in February 2018 and were prepared for Gokey to provide to Wheatcraft.

After arriving in Texas, Gokey met with Wheatcraft and then with RHR and SRC, from whom he demanded to be immediately paid $127,000, reflecting a rental cost of $31,750 per month. Gokey testified that amount represented "the entire amount of November, December, and January, then whatever days we went into February." RHR and SRC offered ERT payment of $42,000 (representing three months of rent at $14,000 per month). Gokey rejected the offer.

On February 26, 2018, ERT notified Wheatcraft of ERT's intent to file a lien on Wheatcraft's property. In response, Wheatcraft "trapped" funds payable to SRC based on ERT's threat that Wheatcraft's owner would face personal liability if he violated the fund trapping requirement under the lien. Two days later, ERT shut down Wheatcraft project operations and repossessed the equipment. RHR and SRC helped ERT dismantle the crushing equipment so that it could be hauled off site by seven trucks ERT brought to the site. ERT's repossession occurred less than thirty days after the invoices were allegedly sent to RHR and SRC. SRC asserted that approximately $190,000 in work (with a profit of $65,000 to SRC) remained incomplete on the Wheatcraft project.

On April 5, 2018, ERT filed a lien on the Wheatcraft property for $242,395.44 to secure payment for the equipment ERT furnished on the project:¹

On April 13, 2018, SRC and RHR sent a letter advising ERT to remove its lien on the basis it was invalid and fraudulent; ERT refused. Also on April 13, 2018, Century Asphalt signed a deal with SRC on a new project that the two had previously orally agreed on. SRC claims it was damaged because it was ultimately unable to undertake this project because of ERT's fraudulent lien. SRC projected the profits from the Century Asphalt to be around $440,000. According to SRC, it lacked sufficient funds to procure the necessary equipment to commence the Century Asphalt project because of ERT's inflated lien. Thus, SRC could not make it to the Century Asphalt project in time, and the job was lost:

Litigation History

On November 15, 2018, ERT filed its original petition against SRC, RHR, and Wheatcraft for breach of contract, quantum meruit, and lien-related claims. Among other causes of action, SRC and RHR counterclaimed for breach of contract and for a fraudulent lien under the Fraudulent Lien Statute (Chapter 12 of the Texas Civil Practice & Remedies Code). In full settlement of claims against it, Wheatcraft paid ERT $100,000 that it had trapped, and Wheatcraft was nonsuited. After a bench trial, the trial court awarded SRC and RHR damages, attorneys’ fees, and costs. ERT took nothing. The trial court subsequently entered findings of fact and conclusions of law. On appeal, appellant asserts thirteen issues.

STANDING UNDER FRAUDULENT LIEN STATUTE

In its first issue, ERT asserts SRC does not have standing to pursue a claim under the fraudulent lien statute because SRC is not an "obligor or debtor." Although ERT did not raise this argument below, ERT asserts this issue is jurisdictional and, therefore, not waived.

The Fraudulent Lien Statute is found in Chapter 12 of the Texas Civil Practice & Remedies Code. Section 12.003 ("Cause of Action") provides: "The following persons may bring an action to ... recover damages under this chapter ... in the case of a fraudulent lien or claim against real or personal property or an interest in real or personal property, the obligor or debtor , or a person who owns an interest in the real or personal property." TEX. CIV. PRAC. & REM. CODE § 12.003(a)(8) (emphasis added).

In Pike v. Tex. EMC Mgmt., LLC , the Supreme Court of Texas determined, "[W]hether a party can prove the merits of its claim or satisfy the requirements of a particular statute does not affect the court's subject-matter jurisdiction." 610 S.W.3d 763, 777 (Tex. 2020). "[T]he question whether a plaintiff has established his right to go forward with [his] suit or satisfied the requisites of a particular statute pertains in reality to the right of the plaintiff to relief rather than to the [subject-matter] jurisdiction of the court to afford it. Thus, a plaintiff does not lack standing in its proper, jurisdictional sense simply because he cannot prevail on the merits of his claim; he lacks standing [when] his claim of injury is too slight for a court to afford redress." Id. at 774 (internal quotations omitted) (alterations in original); see also Tex. Bd. of Chiropractic Examiners v. Tex. Med. Ass'n , ...