Valeri S. Varnado, Administratrix of the Estate of Vernon Varnado v. R & D Marble, Inc., Randall Chelette and James Trahan

Citation: Not availableDocket: 09-12-00114-CV

Court: Court of Appeals of Texas; October 31, 2013; Texas; State Appellate Court

Original Court Document: View Document

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In the case from the Court of Appeals for the Ninth District of Texas, Valeri S. Varnado, as the independent administrator of her father Vernon Varnado's estate, is appealing against R&D Marble, Inc., Randall Chelette, and James Trahan over an unpaid amount of $44,309.13 for materials supplied to Southern Manufacturing. Vernon Varnado, who died intestate in October 2006, had his daughter Valeri appointed as the administrator of his estate in May 2007. Valeri received court authority to operate Southern Manufacturing, which included entering contracts and incurring debts.

Chelette, who was managing the business at the time, applied for credit from R&D Marble, Inc. in August 2007 without prior business dealings with them. The probate court later approved the formation of a limited liability company, Southern Manufacturing Co. L.L.C., in September 2007. Disputes arose regarding Chelette's employment status, with Valeri claiming he was fired and Chelette asserting he quit. In February 2010, Valeri terminated Trahan, who had taken over managerial duties.

R&D Marble, Inc. subsequently sued for the unpaid invoices, initially naming Chelette, Trahan, and Valeri as defendants. An amended petition included Valeri in her capacity as administrator. The trial court ruled in favor of Valeri individually and found that R&D had a purchasing agreement with her as administrator, which she did not fulfill. The jury excused Chelette and Trahan from their personal guarantees. The court's judgment required Valeri, as administrator, to pay R&D Marble the unpaid amount along with interest and attorney fees, while Chelette and Trahan's claims against R&D were dismissed. Richard Holt testified about his prior business associations with Chelette and the Varnado family, confirming their roles in Southern Manufacturing before Vernon’s death.

Holt learned from a vendor that Chelette expressed interest in purchasing products from R&D, prompting him to contact Chelette, who confirmed he was still the general manager of Southern Manufacturing following Vernon's death. Holt sent a blank credit application to Southern Manufacturing, which Chelette completed. R&D's president, Todd Downey, acknowledged knowledge of Vernon's death and assumed Valeri inherited the company. Downey processed the credit application based on the credit standings of Southern Manufacturing and Chelette, believing Chelette had the authority to contract on behalf of the company. After Valeri and Chelette's divorce, Downey thought Valeri was managing the company, operating under the assumption that he was dealing with Valeri as the estate administrator of Vernon. Valeri communicated with Downey multiple times, but no one informed him about the formation of a limited liability company.

Downey believed Chelette's and Trahan’s signatures on the applications were personal guarantees. He became aware of the limited liability company's status only after R&D initiated legal action. The credit applications were in Southern Manufacturing's name, with a section for personal guarantees clearly stated. Chelette testified he married Valeri in 1990, became more involved in management by 1998, and was the general manager after Vernon's death. He noted the wording on the 2007 credit application differed from previous applications and indicated he was guaranteeing payment for a "d/b/a" while still expecting the company to cover the debt. The earliest unpaid invoice from R&D dates to December 15, 2009, over a year after Chelette's termination, and did not include any orders made by Chelette.

Trahan stated that following Vernon's death, Valeri owned Southern Manufacturing while Chelette was general manager. After Chelette's departure, Trahan handled most sales but lacked hiring authority and access to bank accounts. Trahan signed the credit application without completing it, indicating he was told by Holt that only a signature was necessary, despite the application's requirement for completeness. He clarified that the writing on the application was not his.

Valeri testified that the business assets were transferred from her father's estate to an L.L.C. and that the business operated under the L.L.C. while still being managed by the estate. She acknowledged never informing R&D that Southern Manufacturing was no longer doing business as a d/b/a. Payments to R&D were made using checks from Southern Manufacturing, despite a change in bank accounts. Valeri stated she did not notify R&D of the L.L.C.'s formation or its intended responsibility for any debts. She claimed that Chelette stopped managing the sole proprietorship and began managing the L.L.C. after its formation. Valeri maintains that any orders received post-September 21, 2007, were for Southern Manufacturing Co. L.L.C. 

As the independent administrator, Valeri appealed, arguing insufficient evidence existed to support the finding that she incurred debts on behalf of the estate. She contended that Chelette and Trahan, employees of the L.L.C., were unauthorized to bind her to agreements with R&D. Valeri asserted no statutory obligation required her to inform creditors about the L.L.C. The appellate review process involves assessing the entire record, favoring evidence that supports the verdict, and acknowledging the jury's credibility determinations. 

Southern Manufacturing Co. L.L.C. was not formed at the time Southern Manufacturing applied for credit with R&D, which sold materials to the sole proprietorship. Valeri, as administrator, was granted the authority to operate Southern Manufacturing and incur debts. R&D remained unaware of the L.L.C.'s formation, believing it was conducting business with Southern Manufacturing. The record lacks a new assumed name certificate or a statement of abandonment for the sole proprietorship, as required by Texas law when information in a certificate becomes misleading.

The jury had the reasonable discretion to dismiss any or all witness testimonies, including those supporting the appellant's claims. It could conclude that R&D operated under the same business name and had no knowledge of the limited liability company, believing instead that it was engaging with the sole proprietorship, Southern Manufacturing, to which credit was extended. Consequently, the establishment of a new entity did not absolve the estate from liability under the existing contract. The evidence sufficiently supported the jury's finding that the appellant, in her representative role, had an agreement with R&D for credit extension, purchased goods linked to unpaid invoices, and was liable for the debt. 

Regarding attorney fees, the appellant contends that the evidence for the jury's $17,500 fee award is inadequate, arguing that R&D's counsel failed to distinguish between recoverable fees related to the breach of contract and non-recoverable fees for quantum meruit and unjust enrichment. R&D argued that the claims were so intertwined that segregation was unnecessary. Generally, attorney fees must be segregated unless they serve both recoverable and unrecoverable claims. Here, the intertwined nature of the claims meant that the appellant remained liable for the fees incurred, despite other defendants avoiding liability. 

In her second issue, the appellant disputes the trial court's award of eighteen percent interest, claiming a lack of written agreement as the independent administrator of her father's estate. The court found sufficient evidence supporting the jury's verdict, affirming the appellant's liability under the contract. For post-judgment interest, if the contract specifies a rate, it is the lesser of that rate or eighteen percent; if not specified, the statutory rate applies. The credit application provided to R&D was tied to Southern Manufacturing.

Approval of Southern Manufacturing's application facilitated the acquisition of materials valued at hundreds of thousands of dollars. It stipulated that any amounts due to R&D not received by the end of each month and aged over 30 days would incur a finance charge of 1.5% per month, translating to an annual percentage rate of 18%. The trial court correctly awarded R&D interest based on this agreed rate, with reference to Tex. Fin. Code Ann. 304.002. The second issue raised was overruled. Regarding indemnification claims by Chelette and Trahan, the appellant contended there was insufficient legal basis and evidence for the damages and attorney fees awarded. However, Chelette and Trahan indicated they no longer sought attorney fees, leading to the trial court's judgment modification to eliminate these fees entirely. The trial court's judgment was ultimately affirmed as modified.