Trinity Drywall Systems, LLC v. TOKA General Contractors, Ltd., and Vineyard Village, MSV, LLC

Citations: 416 S.W.3d 201; 2013 WL 5936420; 2013 Tex. App. LEXIS 13697Docket: 08-12-00041-CV

Court: Court of Appeals of Texas; November 6, 2013; Texas; State Appellate Court

Original Court Document: View Document

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Trinity Drywall Systems, LLC (Trinity) appeals a final judgment from the 67th District Court of Tarrant County, Texas, which ruled in favor of TOKA General Contractors, LTD (TOKA) and Vineyard Village, MSV, LLC (Vineyard). The case involves a construction project at the Shops at Vineyard Village, for which TOKA was hired as the general contractor and subsequently subcontracted Trinity for specific finishing work. After Trinity completed its work, cracking in the stucco was observed, leading to an agreement for Trinity to conduct repairs. Trinity invoiced TOKA for $60,795 for these repairs, which TOKA refused to pay.

In response, Trinity filed a mechanic’s lien and a lawsuit against TOKA and Vineyard for breach of contract, unjust enrichment, and quantum meruit, while also seeking to foreclose on its mechanic’s lien. Vineyard counterclaimed, seeking a declaratory judgment that Trinity’s lien was invalid. Trinity’s motion for summary judgment on its claims was denied by the trial court, which later ruled that Trinity's mechanic’s lien was invalid and unenforceable. A jury found in favor of Trinity for its breach of contract claim against TOKA, but the final judgment reiterated that the mechanic’s lien was invalid and awarded Vineyard $43,585.50 in attorney’s fees plus additional conditional fees for any appeals.

On appeal, Trinity raises four issues: (1) the right of a subcontractor to enforce a constitutional lien without meeting statutory requirements under the 'sham contracts' provision; (2) an erroneous finding by the trial court regarding Trinity's status as a subcontractor; (3) the trial court's error in denying Trinity’s mechanic’s lien and granting Vineyard’s declaratory judgment and attorney’s fees; and (4) entitlement to judgment as a matter of law based on compliance with the sham contract provision.

Trinity contests the final judgment declaring its mechanic’s lien invalid and awarding attorney’s fees to Vineyard. Under the Uniform Declaratory Judgments Act, the purpose is to resolve uncertainties regarding legal rights and relations (TEX. CIV. PRAC. REM. CODE ANN. 37.002(b)). A declaratory judgment requires a justiciable controversy that must be resolved, and the trial court has discretion to enter such a judgment if it serves a useful purpose (Bonham State Bank v. Beadle, 907 S.W.2d 465, 468). Declaratory judgments are reviewed similarly to other judgments (TEX. CIV. PRAC. REM. CODE ANN. 37.010). The standard of review on appeal is determined by the procedure used in the trial court; findings of fact from a bench trial are treated like a jury’s verdict (Anderson v. City of Seven Points, 806 S.W.2d 791). Legal sufficiency reviews consider evidence favorably to the trial court’s findings, while factual sufficiency reviews assess all evidence, overturning only if the verdict is against the overwhelming weight of evidence (Cain v. Bain, 709 S.W.2d 175). The trier of fact retains the authority to judge witness credibility and resolve evidentiary conflicts.

Trial courts' conclusions of law are reviewed de novo, meaning appellate courts examine them without deference to the trial court's decision. A trial court's conclusions will be upheld on appeal if the judgment can be sustained under any legal theory supported by evidence, even if not explicitly stated in the trial court's conclusions. While factual sufficiency challenges are not permitted for conclusions of law, appellate courts can assess the correctness of legal conclusions drawn from the facts.

In Issue One, Trinity claims the right to enforce a constitutional lien without adhering to the perfection requirements under Chapter 53 of the Texas Property Code, asserting it qualifies as an original contractor under the "sham contracts" provision. The source of mechanic’s liens in Texas is rooted in Article 16, Section 37 of the Texas Constitution, which establishes a self-executing lien for mechanics, artisans, and material men for the labor and materials provided. This constitutional provision is independent of legislative action and has been complemented by Chapter 53 of the Texas Property Code, which governs mechanic’s lien assertions and enforcement.

Texas law recognizes two types of mechanic’s liens: constitutional and statutory. A constitutional lien arises directly from the Constitution without statutory prerequisites and is available only to those who contract directly with the property owner or its agent, ensuring the property owner is notified. In contrast, a statutory lien requires compliance with specific statutes and protects both subcontractors and original contractors. Even if an original contractor does not meet statutory lien requirements, they can still access the constitutional lien. Therefore, the classification of a party as an original contractor or subcontractor is crucial.

A subcontractor lacks a constitutional lien and faces significant challenges in establishing a statutory lien. Constitutional liens require a direct contractual relationship with the property owner, excluding subcontractors as they are considered derivative claimants. The definitions of 'contractor' and 'subcontractor' in Chapter 53 of the Property Code clarify that an 'original contractor' directly contracts with the owner, while a 'subcontractor' provides labor or materials to fulfill obligations to an original contractor. In this case, Trinity acknowledges its failure to meet statutory perfection requirements for a statutory lien but argues for a constitutional lien status as an 'original contractor' under Section 53.026. The trial court rejected this claim, stating that Chapter 53 cannot modify rights under the Texas Constitution. The application of Section 53.026 to constitutional liens appears to be a novel issue. Section 53.026, known as the 'Sham Contract' provision, allows individuals who work under certain circumstances with a direct relationship to the owner to be treated as original contractors. Case law indicates that this provision was created to elevate subcontractors to original contractor status when the original contractor has a sham relationship with the owner, thereby protecting subcontractors and materialmen from being exploited by owners and original contractors who act as mere alter egos.

Section 53.026 enhances the position of subcontractors or materialmen within the construction contract hierarchy. Trinity claims that the Texas Constitution establishes mechanics' and materialmen's liens, and Chapter 53 of the Texas Property Code outlines their enforcement. It argues that when a subcontractor is recognized as an original contractor under the sham contracts provision in Chapter 53, they can enforce a constitutional lien without meeting statutory requirements, as the statute details which mechanics and materialmen can rely on constitutional liens. Vineyard counters by asserting that Texas case law indicates the sham contract provision is not applicable to constitutional liens, citing *Southwest Properties, L.P. v. Lite-Dec of Tex. Inc.*, which interpreted Section 53.026 as solely facilitating the filing and perfection of mechanic's liens, not allocating liability to property owners. The *Southwest Properties* court emphasized that the legislature aimed to provide subcontractors with the rights of original contractors to prevent property owners from using sham contracts to deny claims. Vineyard argues that Section 53.026 should only be applied within the statutory lien context, as statutory liens are bound by specific timelines. Additionally, Vineyard references *Shaw v. McPhail Elec. Co. Inc.*, where the court allowed an electrician to enforce a lien, affirming that the absence of a statutory lien for a subcontractor was irrelevant because the electrician did not claim subcontractor status and could assert a lien as an original contractor, thereby following statutory procedures without additional requirements.

Vineyard's argument that the sham contracts provision elevates a subcontractor to original contractor status solely for statutory lien purposes, excluding constitutional lien claims, is rejected. The case of Southwest Properties is deemed irrelevant as it addressed alter ego liability rather than the applicability of Section 53.026 to constitutional liens. Similarly, Shaw did not limit the sham contract provision to statutory liens; it confirmed that a subcontractor can be treated as an original contractor, thus negating the need for typical subcontractor notices. Texas mechanic’s and materialmen’s lien statutes are intended to be broadly interpreted to protect all laborers and material suppliers. The Legislature established Chapter 53 to facilitate the enforcement of mechanic’s liens under Article 16, Section 37 of the Texas Constitution, which does not restrict liens to original contractors. Section 53.026 explicitly states that in cases of sham contracts, the subcontractor is recognized as an original contractor, thereby ensuring they can assert constitutional lien rights due to a deemed direct relationship with the property owner. Consequently, if Trinity is indeed an original contractor under this provision, he is entitled to enforce a constitutional lien.

Section 53.026 of the Texas Property Code allows a subcontractor to be treated as an original contractor, establishing a direct contractual relationship with the property owner. The trial court incorrectly dismissed Trinity's claim for this status, asserting that the Property Code cannot alter the rights under Article 16, Section 37 of the Texas Constitution regarding liens. The court's finding that Trinity acknowledged its role as a subcontractor under TOKA, the general contractor, is challenged by Trinity, which argues it clearly identified itself as an "original contractor" in its petitions, not a subcontractor. Judicial admissions must be clear and unequivocal, and Trinity contends that its pleadings do not support such a classification. The record shows Trinity alleged Vineyard controlled TOKA and sought to enforce its mechanic's lien based on its original contractor status. Furthermore, Trinity’s affidavit for the mechanic's lien explicitly claimed a lien under the constitutional and statutory provisions while identifying Vineyard as the property owner and TOKA as a controlled entity.

Trinity asserts it was contracted by TOKA, which Vineyard may control, and claims a lien as an original contractor under Article 16, section 37 of the Texas Constitution and Section 53.026 of the Property Code. While acknowledging its designation as a 'subcontractor' in some filings, Trinity maintains that it qualifies as an original contractor under the sham contract provision, and thus is entitled to enforce a lien. The trial court found that Trinity admitted to being a subcontractor, which Trinity argues contradicts its pleadings and lacks evidentiary support, leading to an erroneous ruling. Trinity challenges the trial court’s Conclusion of Law Two, which stated that it was a subcontractor and thus ineligible for a constitutional lien. It contends there was no basis for this conclusion and that whether Trinity contracted with TOKA or Vineyard is irrelevant to its entitlement to a lien. It further argues that a subcontractor cannot claim a constitutional lien, but since Trinity has consistently claimed to be an original contractor, the trial court’s determination was incorrect. In Issue Three, Trinity contests the trial court’s denial of its lien foreclosure claim and the granting of Vineyard's declaratory judgment, which deemed Trinity's lien invalid based on its alleged status as a subcontractor. Trinity challenges the trial court’s Conclusion of Law Four, asserting that its lien claim should not have been dismissed.

If a reversal is justified, the appellate court may render the judgment that the trial court should have issued, unless further proceedings are needed. Judgment can only be rendered when material facts are undisputed. It has been established that Section 53.026 permits a subcontractor under a sham contract to assert a constitutional lien, as the subcontractor is considered to have a direct contractual relationship with the owner. The appellate court concluded that the trial court erred in its declaratory judgment favoring Vineyard and denied Vineyard's request due to the absence of further factual determinations.

Trinity also argues that the trial court incorrectly awarded attorney’s fees to Vineyard under Texas law. Section 37.009 of the Texas Civil Practice and Remedies Code and Section 53.156 of the Texas Property Code allow for the award of reasonable and necessary attorney’s fees in declaratory judgment and lien proceedings, respectively. Trinity contends that reversing the judgment declaring Trinity's lien invalid undermines the basis for awarding attorney’s fees. The trial court justified the fee award by stating Vineyard incurred reasonable fees while pursuing its counterclaim, and that the award was equitable and just under the relevant statutes.

The discretion to award attorney’s fees in declaratory actions is not limited to the prevailing party. The Texas Supreme Court has noted that while the trial court has discretion in awarding fees, they must be reasonable, necessary, equitable, and just. Unreasonable fees cannot be awarded, even if deemed just by the court, and if a declaratory judgment is reversed, the award of attorney's fees may also no longer be considered equitable and just.

The trial court's discretion to award attorney's fees must consider the specific facts and circumstances of each case. Following the appellate court's decision, the award of attorney's fees is reversed, and the matter is remanded for the trial court to reassess the fees, particularly since the claimant is no longer the prevailing party, as established in relevant case law.

In a separate issue, Trinity claims it qualifies as an original contractor under Section 53.026 of the Texas Property Code, asserting entitlement to a valid constitutional lien. The statute allows for a subcontractor to be classified as an original contractor if there is sufficient evidence of control between the parties involved, without the necessity of actual control being exercised. Trinity presented evidence indicating that Vineyard and TOKA can effectively control each other through ownership structures and interlocking relationships.

Specifically, Trinity's evidence includes that Burk Collins, who manages TOKA, has the authority to influence its operations significantly. Furthermore, Collins is linked to Vineyard through Market Street Village, LTD., which he oversees. Testimony reveals that while Collins has the capacity to direct TOKA's bidding, the decision to bid on the Vineyard project was attributed to another individual, indicating complexities in the relationships among the parties involved. Additionally, ownership stakes were noted, with Collins and his wife controlling 50% of TOKA and the companies sharing the same business address, further supporting Trinity's assertion of their interconnectedness.

Trinity has failed to demonstrate that Vineyard can effectively control TOKA in relation to the sham contract provision. Vineyard argues that the trial court's denial of Trinity's summary judgment motion is justified by evidence indicating a factual dispute. Specifically, Collins' deposition testimonies reveal that he only serves as an investor for TOKA, did not influence its bid for Vineyard's shopping center project, considers TOKA a standard contractor, was unaware of Trinity's involvement in the project, and has a fiduciary duty to treat TOKA equitably among contractors. Additionally, Collins' affidavit reinforces that he does not control TOKA’s actions or decisions and is not involved in its daily operations. The existing evidence allows for an inference that Vineyard could effectively control TOKA, thereby creating a genuine issue of material fact regarding the existence of a sham contract, which is pertinent to determining Trinity's qualification as an original contractor under Section 53.026. Consequently, the matter is remanded to the trial court for further proceedings. The court reverses the trial court's decision on Vineyard's counterclaim for a declaratory judgment and attorney’s fees, denying Vineyard’s declaratory judgment while remanding for reconsideration of attorney’s fees. The trial court's judgment regarding TOKA is affirmed.