Plan B Holdings v. RSLLP

681 S.W.3d 443

PLAN B HOLDINGS, LLC; CIPE Real Estate Solutions, LLC; and Cheryl Cox, Appellants

v.RSLLP, f/k/a Reed & Scardino LLP, Appellee

NO. 03-21-00260-CV

Court of Appeals of Texas, Austin.

Filed: October 6, 2023

FROM THE 345TH DISTRICT COURT OF TRAVIS COUNTY, NO. D-1-GN-17·002555, THE HONORABLE CATHERINE MAUZY, JUDGE PRESIDING

Gretchen Scardino, for Appellee.

Lance Kassab, David Eric Kassab, Houston, Nicholas Pierce, for Appellants.

Before Justices Baker, Triana, and Jones^*

OPINION

J. Woodfin Jones, Justice

RSLLP, f/k/a Reed & Scardino LLP ("the Firm"), a law firm, sued Plan B Holdings, LLC and CIPE Real Estate Solutions, LLC, as well as the owner of those two companies, Cheryl Cox, for unpaid attorney’s fees. The Firm’s petition alleged claims of sworn account, breach of contract, and quantum meruit against all defendants and further alleged a claim of alter ego—piercing the corporate veil—against Cox individually. By a pretrial order, the trial court assessed $2,500 sanctions against Cox for discovery abuse. After a non-jury trial, the trial court rendered judgment that the Firm recover from all defendants, jointly and severally, actual damages for the unpaid fees in the amount of $83,509.63, attorney’s fees and expenses in the amount of $117,689.64, and post-judgment interest. The judgment did not attribute the recovery to any particular theory or cause of action. Cox and the companies perfected this appeal. They argue that (1) as limited liability companies, Plan B and CIPE are not liable for attorney’s fees under Section 38.001 of the Texas Civil Practice and Remedies Code; (2) Cox is not liable for damages under theories of sworn account, breach of contract, and quantum meruit because she was not individually a client of the Firm’s; (3) the evidence is insufficient to find Cox individually liable for damages under a theory of piercing the corporate veil; and (4) the trial court abused its discretion in assessing sanctions against Cox for discovery abuse. We will affirm in part and reverse and render in part.

FACTUAL AND PROCEDURAL BACKGROUND

Pursuant to engagement letters, the Firm performed legal services for Plan B and CIPE, two limited liability companies owned by Cox. The Firm argues that pursuant to those same engagement letters, its legal services were also performed for Cox individually. These services included (1) defending the companies against a lawsuit brought by a different plaintiff, Sense Corp., to recover fees for services, (2) obtaining a patent for Plan B, and (3) obtaining two trademarks and a copyright for Epic Real Estate Solutions, a company owned by Cox but not part of this appeal.

In 2012 Cox had the idea for a product she called "TitleClose," which was to be used in connection with e-closings of real estate transactions. In April 2012 she engaged the Firm to represent Epic in obtaining two trademarks and a copyright to be used in connection with the TitleClose online platform.

To get the TitleClose product running, Cox located a Missouri company, Sense Corp., to develop a real estate platform, i.e., a software package. Because she was going to be selling Epic in the near future, she had CIPE enter into the contract with Sense. A billing dispute thereafter arose between CIPE and Sense. In October 2014 Sense sent a demand letter to CIPE for approximately $335,000 in unpaid invoices. The Firm was then separately engaged to represent CIPE in this dispute. Shortly thereafter the Firm was engaged to represent Plan B in obtaining a patent for the TitleClose product.

In December 2014 Sense sued CIPE for its unpaid invoices. Sense’s petition alleged that "[u]ntil CIPE’s obligations under the Contract are met, ownership of the Products ha[s] not vested with CIPE and Plaintiff retains all ownership and title to the Products." Two months later Cox registered Plan B to do business in Texas. The "Fictitious Name"—d/b/a—listed on the registration form for Plan B was "Shop TitleClose LLC."

During 2015 the Firm performed work on the Sense lawsuit as well as the patent, trademark, and copyright applications. In October 2015 Sense added Plan B and Epic Real Estate as defendants in the lawsuit. In December 2015 the companies settled the Sense lawsuit for $185,000. The money for the settlement was borrowed from another of Cox’s companies.

At some point in 20l5, Cox's companies stopped paying the Firm’s invoices, which were sent to Cox monthly. Cox testified that she first became aware of past-due invoices when, in November 2016, the Firm sent her an email with a more urgent tone. She testified that the unpaid bills had been overlooked because she and her staff had been overwhelmed by the process of selling one or more of her companies. Nonetheless, Cox thereafter disputed some of the invoices. At this point, the TitleClose product was primarily under the control of Plan B.

Shortly after learning of her companies’ past-due debt to the Firm, Cox formed a new corporation, Yellow Frame, Inc., of which she owns 55%. Cox met with members of the Firm in January 2017 to see if the issue of the overdue bills could be resolved. The meeting was unsuccessful, and a month later Cox registered Yellow Frame to do business in Texas. Yellow Frame later took over the use and marketing of TitleClose and by the time of trial was reaping the profits from the product.

In June 2017 the Firm filed suit against Plan B, CIPE, and Cox for its unpaid invoices. The unpaid bills related to the work that the Firm had done on the Sense lawsuit as well as the trademark, copyright, and patent applications. At the time of trial, Cox still owned the TitleClose trademark and was, through Yellow Frame, still using the TitleClose trademark and platform as her business. While Yellow Frame was making a profit from the TitleClose product, Plan B and CIPE were insolvent.

After a non-jury trial, the trial court rendered judgment that the Firm recover from all defendants, jointly and severally, actual damages of $83,509.63, attorney’s fees and expenses in the amount of $117,680.64, and post-judgment interest. Cox and the companies appeal.

DISCUSSION

The Companies' Appellate Issue

Attorney’s Fees Against the Companies

[1] Appellants do not challenge the award of actual damages against CIPE and Plan B. They do, however, complain of the trial court's award of attorney's fees against those entities. It is undisputed that CIPE and Plan B were limited liability companies (LLCs). Appellants assert that an award of attorney’s fees against the LLCs was improper under the circumstances of this case.

[2] Under the "American Rule," which is followed in Texas, litigants may recover attorney’s fees only if specifically provided for by contract or statute. Epps v. Fowler, 351 S.W.3d 862, 865 (Tex. 2011); Benge v. Thomas, No. 13-18-00619-CV, 2020 WL 5054800, at *16 (Tex. App.—Corpus Christi-Edinburg Aug. 27, 2020, no pet.) (mem. op.). The Firm does not assert that any contract between the parties provided for a recovery of attorney's fees, so the award of attorney’s fees here must have a statutory foundation.

The Firm sought attorney’s fees solely pursuant to Section 38.001 of the Texas Civil Practice and Remedies Code. As currently worded, that section provides that for certain types of claims, including rendered services, a sworn account, and an oral or written contract, attorney's fees may be recovered from

an individual or organization other than a quasi-governmental entity authorized to perform a function by state law, a religious organization, a charitable organization, or a charitable trust, in addition to the amount of a valid claim and costs[.]

Tex. Civ. Prac. & Rem. Code § 38.001(b). LLCs fit within the definition of "organization." See id. § 38.001(a); Tex. Bus. Org. Code § 1.002.

The foregoing language, however, has been part of Section 38.001 only since September 1, 2021. Before that date, the statute allowed for the recovery of attorney’s fees only from "an individual or corporation." Act of May 17, 1985, 69th Leg., R.S., ch. 959, § 1, sec. 38.001, 1985 Tex. Gen. Laws 3242, 3278. Suits filed before September 1, 2021, are governed by the prior language.¹ Because the present case was filed on June 8, 2017, the older statutory language governs this case.

Texas cases construing the older version of Section 38.001 have uniformly held that attorney’s fees are not allowed against LLCs under that statutory language. See Benge Gen. Contracting, LLC v. Hertz Elec., LLC, No. 05-19-01506-CV, 2021 WL 5317840, at *3-4 (Tex. App.—Dallas Nov. 16, 2021, no pet.) (mem. op.) ("Under the plain language of section 38.001, a trial court cannot order limited liability partnerships (LLP), limited liability companies (LLC), or limited partnerships (LP) to pay attorney’s fees."); Spicer v. Maxus Healthcare Partners, LLC, 616 S.W.3d 59, 128-29 (Tex. App.—Fort Worth 2020, no pet.) ("Convinced by our sister courts’ reasoning, we hold that an LLC is not liable for attorney’s fees under Section 38.001 ….") (collecting cases).

Accordingly, the trial court erred in awarding attorney’s fees against CIPE and Plan B.²

Cox’s Appellate Issues

Sanctions Award Against Cox

[3] In their first issue, Appellants complain that the trial court erred in assessing monetary sanctions against Cox for her failure to appear for her scheduled deposition. The appellate record shows that in July 2019 the parties agreed to have Cox deposed on November 9 at her attorney’s office in Austin. The day before the deposition was to be taken, the Firm was informed that Cox would not appear in person for her deposition but instead would be appearing via "Skype" from Dallas. The Firm’s attorney indicated that this was not acceptable.

The next day, the scheduled deposition date, the attorney for the Firm appeared at Cox’s attorney’s office, as did the court reporter the Firm had hired to transcribe the deposition. Cox’s attorney also appeared, but Cox did not. As presaged the day before, Cox called her...