MAZON ASSOCIATES INC v. HERITAGE WHOLESALE NURSERY INC AND HOME DEPOT INC (2011)

MEMORANDUM OPINION

Opinion By Justice Murphy

Mazon Associates, Inc. appeals a judgment rendered in favor of Heritage Wholesale Nursery, Inc. following a jury trial involving rights to moneys due for delivery of plants to Home Depot U.S.A., Inc. Mazon raises seven issues on appeal, contending the Uniform Commercial Code governs the parties' relationships, challenging the legal and factual sufficiency of the evidence supporting the jury's verdict, asserting jury-instruction error and improper exclusion of expert testimony related to UCC law, and claiming judgment error.   We affirm the trial court's judgment.

Background

Mazon is a family-owned factoring company operating for over thirty-three years in Dallas County.   In 2006, Mazon entered a factoring relationship with a nursery business known as Country Colors Wholesale Bedding Plants, Inc. and Country Colors Greenhouse and Landscape, Inc. (collectively, Country Colors).   The relationship was documented by a factoring-security agreement, power of attorney coupled with an interest in favor of Mazon, and a UCC-1 statement filed with the Texas Secretary of State.¹  The UCC-1 statement listed Country Colors's collateral over which Mazon claimed a secured interest as “all accounts ․ and general intangibles now existing or hereafter acquired of every kind and character wherever located․”  The UCC-1 also included a statement that, pursuant to an agreement between Country Colors and Mazon, Country Colors agreed not to grant a security interest in the listed collateral to any other entity, providing, “THE ACCEPTANCE OF ANY SECURITY INTEREST BY ANYONE OTHER THAN THE SECURED PARTY IS LIKELY TO CONSTITUTE THE TORTIOUS INTERFERENCE WITH THE SECURED PARTY'S RIGHTS.”

In April 2007, Heritage-a newly-incorporated wholesale nursery business-entered into an asset-purchase agreement with Country Colors through which Heritage purchased equipment, inventory, and intangible property such as trade names.   Heritage did not purchase Country Colors's stock or accounts receivable and did not assume any liabilities.

On the date of the asset-purchase agreement, Heritage began selling plants purchased as assets from Country Colors, informing customers such as Home Depot that Heritage had taken over the operational assets of Country Colors.   Home Depot required each vendor to use a unique vendor number for purposes of processing invoices and payments.   Heritage continued to use Home Depot's vendor number assigned to Country Colors when sending invoices to Home Depot;  testimony differed as to whether Home Depot instructed Heritage to use the vendor number knowing the full context of Heritage's asset purchase.

Shortly after the asset purchase, Mazon's chief executive officer and executive vice president, Helma Mazon, contacted Heritage's president, Kelly DeWitt, to discuss the purchase of Country Colors's assets.   During their conversation, Helma expressed her concern that her company would not receive money for the various invoices it factored for Country Colors.   DeWitt informed Helma that Heritage did not purchase the accounts receivable or liabilities, and any revenue for product sold after the date of the asset-purchase agreement would belong to Heritage.   DeWitt also testified that he told Helma any checks coming to Heritage for product sold prior to the close of the asset purchase would be forwarded to Mazon.

Several weeks after closing, Heritage discovered that Home Depot had been sending checks to Mazon for sales by Heritage after April 9, 2007, the closing date of Heritage's asset-purchase agreement.   At that point, Heritage began the process of applying for a new and unique vendor number for its sales to Home Depot but continued to use Country Colors's vendor number until a new one was issued.   In the meantime, Heritage's office manager, Carol Sawyer, contacted Mazon to discuss a resolution for payments by Home Depot on invoices for product sold after April 9. Sawyer testified that Mazon did not respond to several of her efforts to make contact, but she eventually reached an agreement with one of Mazon's employees.   She testified specifically that on May 16, 2007, Mazon and Heritage agreed that, in exchange for Heritage's assistance to Mazon to receive payment on approximately nine invoices that were being held by Home Depot, Mazon would forward to Heritage any payments on invoices for product sold by Heritage after the asset-purchase agreement.   Heritage would reciprocate by forwarding payments on invoices for product sold before the asset-purchase agreement that Mazon had factored.   After May 16, Heritage continued forwarding checks to Mazon, and Mazon forwarded two checks to the attention of DeWitt:  one for approximately $28,400 issued by Mazon and payable to “Country Colors Whlse.   Plants” and another for $3,600 issued by “The Home Depot USA” and payable to “Country Colours Wholesale.”   The Mazon-issued check was signed by John Mazon, Sr., an officer of Mazon and Helma's husband.   Helma testified that these two checks addressed to the attention of DeWitt were sent in error.

Weeks later, Heritage discovered that Home Depot had sent additional checks to Mazon for product sold after the asset purchase, but Mazon had not forwarded the checks to DeWitt.   Helma informed DeWitt “things had changed” because the seller of Country Colors's assets had declared bankruptcy and attorneys would now be involved.   Heritage then filed suit against Mazon alleging breach of contract and later added Home Depot as a defendant.   Mazon denied any agreement with Heritage and counterclaimed for tortious interference with its contract with Country Colors.   Home Depot filed a cross-claim against Mazon.   The parties based their claims on various causes of action;  for purposes of this appeal, the relevant claims involve Heritage's claim against Mazon for breach of contract and Mazon's counterclaim for tortious interference.

The case was tried, and the jury found in Heritage's favor on its breach-of-contract claim against Mazon, against Mazon on its tortious interference claim, and in favor of Home Depot.   The trial court rendered judgment on the jury's findings, awarding damages against Mazon in favor of Heritage in the amount of $87,715.04 and in favor of Home Depot in the amount of $55,309.79.   The judgment included a credit to Mazon for amounts paid to Heritage from a disputed check deposited into the court's registry.   Mazon timely appealed.²

Discussion

Legal and Factual Sufficiency

We begin with issues three and four in which Mazon challenges the legal and factual sufficiency of the evidence to support the jury's verdict for Heritage and against Mazon on its counterclaim.

To preserve a legal-sufficiency challenge for appeal after a jury trial, an appellant must do one of the following:  (1) move for an instructed verdict, (2) move for a judgment notwithstanding the verdict, (3) object to the submission of the jury question, (4) move to disregard the jury finding, or (5) move for a new trial.   See Cecil v. Smith, 804 S.W.2d 509, 510-11 (Tex.1991);  Webb v. Glenbrook Owners Ass'n, 298 S.W.3d 374, 383 (Tex.App.-Dallas 2009, no pet.) (op. on reh'g).   Similarly, to complain on appeal about the factual sufficiency of the evidence, the party must present the specific complaint to the trial court in a motion for new trial.  Tex.R. Civ. P. 324(b)(2), (3);  Cecil, 804 S.W.2d at 510.

Because Mazon did not file a motion for new trial, Mazon has failed to preserve its factual-sufficiency issues on appeal;  issues three and four are thus overruled with respect to factual sufficiency.   See Cecil, 804 S.W.2d at 510.

With respect to legal sufficiency, Mazon did not file a motion for new trial, motion for judgment notwithstanding the verdict, or motion to disregard the jury's answer.   Nor does it specifically identify a jury finding about which it complains on appeal.   During the charge conference, however, Mazon objected to certain questions to be submitted to the jury, only three of which can be construed as preservation of legal-sufficiency issues.   Specifically, Mazon argued there was no evidence to support jury questions five, seven, and nine, which relate to Heritage's claim for breach of contract.³  Mazon did not complain to the trial court about the sufficiency of the evidence to support the jury's finding against Mazon on its tortious-interference claim.   Accordingly, to the extent issues three and four include the legal sufficiency of the evidence as to Mazon's counterclaim, those issues have not been preserved and are overruled.   See Tex.R.App. P. 33.1.

Assuming without deciding Mazon preserved its legal-sufficiency challenge to the jury's findings on Heritage's breach-of-contract claims, we consider all the evidence in the light most favorable to the verdict, crediting favorable evidence if a reasonable jury could and disregarding contrary evidence unless a reasonable jury could not.   See City of Keller v. Wilson, 168 S.W.3d 802, 822 & 827 (Tex.2005).   If more than a scintilla of evidence supports the jury's findings, the legal-sufficiency challenge fails.   See Formosa Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 48 (1998) (sub.op.).   If the evidence offered to prove a vital fact is so weak as to do no more than create a surmise or suspicion of its existence, the evidence is no more than a scintilla and is legally no evidence.  Kindred v. Con/Chem, Inc., 650 S.W.2d 61, 63 (Tex.1983).

In response to questions five, seven, and nine, the jury found that (1) Home Depot had not failed to pay for goods sold and delivered by Heritage to Home Depot, (2) Mazon agreed with Heritage that Mazon would forward to Heritage checks it received from Home Depot for invoices sent by Heritage to Home Depot, and Heritage would forward to Mazon checks it received from Home Depot for invoices sent by Country Colors, and (3) the amount of $87,715.04 would fairly and reasonably compensate Heritage for its damages resulting from Mazon's failure to comply with that agreement.

With regard to Mazon's agreement to forward checks to Heritage, DeWitt testified he authorized Sawyer to contact Mazon to enter into an agreement requiring Heritage to forward to Mazon checks for product sold under Country Colors's vendor number before April 9. In return, Mazon would forward to Heritage checks for product Heritage sold after April 9. Sawyer testified she tried repeatedly to reach a resolution with Mazon but was initially unsuccessful.   Seeking an interim solution, Sawyer testified she spoke with an employee at Home Depot who forwarded her a “release of accounts receivable” for Country Colors that could be forwarded to Mazon for signature.   On Home Depot letterhead, this release stated that a temporary payment block would be initiated “for security purposes” if there was no response within a certain timeframe.   On May 10, Sawyer faxed this release to Mazon;  the next day, she faxed it again and sent a confirmatory e-mail to ensure Mazon received it.   Sawyer received no response, and Home Depot placed a hold on payments.   Sawyer testified that on May 16 she was finally able to discuss the issue with a Mazon employee, and the parties reached the agreement to which DeWitt testified.   Sawyer then instructed Home Depot via telephone and e-mail to release the hold on payments;  she stated that she was comfortable having Home Depot release the hold because she had an expectation that Heritage would be paid pursuant to the agreement with Mazon.

The testimony was undisputed that two checks were forwarded by Mazon to the attention of DeWitt following the date of the agreement identified by Sawyer.   Evidence supports Heritage's position that both the Mazon-issued check for approximately $28,400 and the $3,600 check were matched to invoices for product Heritage sold and delivered to Home Depot.   Both Sawyer and DeWitt testified Heritage continued to forward all checks to Mazon pursuant to the agreement.

Helma testified the two checks forwarded by Mazon were sent in error.   Helma also testified that Sawyer blackmailed Mazon into sending those two checks, asserting Sawyer told Mazon's employee that Sawyer would not have Home Depot release the payment hold until Mazon agreed to send “overages” Mazon received for Country Colors.   Helma was not in the office during the time period, however, and the only evidence identified to suggest her blackmail argument was the Home Depot release that Mazon never executed.   Additionally, the Mazon-issued check allegedly sent in error was signed by another officer of Mazon:  John Mazon, Sr. Helma herself testified that the checks were sent to the attention of DeWitt.   DeWitt also testified that Helma stated “things had changed” after the personal bankruptcy of Country Colors's former owner, from which a jury further could have concluded Heritage and Mazon had reached the agreement testified to by Sawyer and DeWitt.

Although Mazon points to its refusal to execute a release of the Home Depot account as evidence of lack of agreement, that release was forwarded by Heritage on May 10, six days prior to the May 16 agreement to which Sawyer and DeWitt testified.   The release provided for change of the “remit to” address-making “all payments” to Country Colors rather than Mazon-a different agreement from the one the parties reached May 16.   Sawyer's testimony reflects the same:  Sawyer stated Mazon's employee said Mazon was unwilling to sign the release because Mazon wanted to receive its payments, but it was willing instead to send Heritage the checks belonging to Heritage if Heritage was willing to assist in getting Home Depot to release the payment hold.

Considering the evidence in the light most favorable to the jury's finding of an agreement between Heritage and Mazon, more than a scintilla of evidence supports the finding.   Additionally, Mazon has not directed us to any disputed testimony on appeal as to Home Depot's payment of all invoices (question five) or the amount of $87,715.04 owing to Heritage (question nine).   Accordingly, any legal-sufficiency challenge by Mazon as to jury findings five, seven, and nine fails.   See Formosa Plastics, 960 S.W.2d at 48.   Issues three and four are overruled.

Security Interest Priority

In its first issue, Mazon asserts it should be entitled, as a perfected lien holder, to “protect itself to be paid for the money it is owed by Country Colors,” and Heritage ignored this perfected right to collateral and right to be paid when it purchased the assets of Country Colors.   In its second issue, Mazon contends Heritage could not have bought and used the assets of Country Colors secured by Mazon's UCC-1 and thereafter sue Mazon without first paying off Mazon as the lien holder.   Essentially, Mazon argues that, as a matter of law, Heritage could not prevail because of Mazon's security interest and lien status.   Mazon's briefing on this issue focuses on the law regarding filing and perfection of security interests in UCC financing statements, summarily concluding it “met all the requirements to be protected under Chapter 9 of the Texas Business and Commerce Code and Heritage Wholesale violated the Texas Business and Commerce Code. This Court should enforce the statutes of the State of Texas protecting factoring companies and lenders.”

Heritage did not (and does not) contest the validity of Mazon's security agreement with Country Colors or its UCC-1 covering named collateral of Country Colors.   Heritage tried the case on a contract theory-Heritage and Mazon orally agreed Mazon would receive payment from Home Depot for product sold before the asset sale, and Heritage would receive payment from Home Depot for product Heritage sold after the asset purchase.   And the jury found in favor of Heritage on that breach-of-contract theory.

Mazon has offered no authority or argument as to why the UCC-1 or security agreement would continue to control when Mazon and Heritage modified Mazon's payment priority by agreeing how the payments on invoices would be split.   Similarly, Mazon offers no explanation of how the validity of Heritage's asset purchase is relevant to Mazon's subsequent oral contract with Heritage regarding payment allocations.   To the extent Mazon suggests its security interest and lien status trump the jury's finding in favor of Heritage as to the existence of an agreement that modified Mazon's rights to the payments in issue, it offers no supporting argument or authority and has waived any error.   See Tex.R.App. P. 38.1(i);  In re Estate of Miller, 243 S.W.3d 831, 840 (Tex.App.-Dallas 2008, no pet.) (issue waived because appellant did not analyze legal authority and made “no suggested application of it to the facts”);  In re M.A.S., 233 S.W.3d 915, 924 (Tex.App.-Dallas 2007, pet. denied) (“Failure to provide substantive analysis waives an issue on appeal.”).   We overrule issues one and two.

Jury-Instruction Error

In its fifth issue, Mazon contends the trial court erred when it denied Mazon's requested question regarding the validity of Mazon's UCC-1 and definitions of “accounts” and “general intangibles” as set forth in the Texas Business and Commerce Code. After the parties rested and submitted proposed questions and instructions for the charge, the trial court presented an assembled jury charge with accompanying instructions;  this did not include Mazon's submission of the question regarding the validity of the UCC-1 or the accompanying definitions of “accounts” and “general intangibles.”   During the charge conference, the trial court asked if any of the parties had objections to the trial court's charge.   Mazon's counsel stated on the record:

Your honor, ․ we had submitted requested definitions and instructions, questions to the Court concerning the definition of accounts, definitions of general intangible, and a question, did Mazon have on file with the Secretary of State a valid UCC[-]1 financing statement listing accounts and general intangibles.   And it's my understanding the Court has rejected that.

The trial court responded, “Correct, that request is refused.”

When a trial court omits a jury question, the party who relies on that question must tender that question in writing in substantially correct form and obtain a ruling to preserve error requiring reversal.   See Tex.R. Civ. P. 278.   Assuming without deciding error was preserved here, we conclude the trial court did not abuse its discretion in denying the requested question and definitions.

First, the validity of the UCC-1 or the fact that it was filed with the secretary of state was not contested at trial, thus making it an inappropriate question for the jury.   See T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 223 (Tex.1992) (“Only disputed issues must be submitted to the jury.”).   Additionally, trial courts have discretion in submitting instructions and definitions.   See In re A.R., 236 S.W.3d 460, 478 (Tex.App.-Dallas 2007, no pet.);   see also Tex.R. Civ. P. 277 (trial court to submit instructions and definitions “as shall be proper to enable the jury to render a verdict”).   Mazon has presented no reason it would have been an abuse of discretion to refuse to submit definitions that were requested only in conjunction with a question that was inappropriate for jury consideration and were not used elsewhere in the charge.   Cf. Valence Operating Co. v. Anadarko Petroleum Corp., 303 S.W.3d 435, 442 (Tex.App.-Texarkana 2010, no pet.)  (“A definition may properly be submitted to the jury if a term used in the charge has a distinct legal meaning ․”) (emphasis added);  Brookshire Bros., Inc. v. Lewis, 997 S.W.2d 908, 921 (Tex.App.-Beaumont 1999, pet. denied) (“The trial court's charge need not and should not burden the jury with surplus instructions.”).   Accordingly, we overrule issue five.

Exclusion of Expert Witness's Testimony

In its sixth issue, Mazon argues the trial court improperly excluded the testimony of Mazon's designated expert witness, Bruce McGee.   Mazon contends McGee's testimony would have assisted the jury in understanding the “process of [filing and perfection of] a UCC-1 and public constructive notice,” and the trial court erred by excluding this testimony.

We review a trial court's exclusion of expert testimony for abuse of discretion.  K-Mart Corp. v. Honeycutt, 24 S.W.3d 357, 360 (Tex.2000) (per curiam).   A trial court abuses its discretion when its ruling is arbitrary, unreasonable, or without reference to any guiding rules or legal principles.   Bocquet v. Herring, 972 S.W.2d 19, 21 (Tex.1998).   We must uphold the trial court's evidentiary ruling if any legitimate basis exists for the ruling.   Owens-Corning Fiberglas Corp. v. Malone, 972 S.W.2d 35, 43 (Tex.1998).

To admit expert testimony, rule 702 requires (1) the witness be qualified by knowledge, skill, experience, training, or education, (2) the proposed testimony be scientific, technical, or other specialized knowledge, and (3) the testimony assist the trier of fact to understand the evidence or to determine a fact in issue.  Tex.R. Evid. 702;  E.I. du Pont de Nemours & Co. v. Robinson, 923 S.W.2d 549, 556 (Tex.1995).   Once the party opposing the expert testimony objects, the proponent bears the burden of demonstrating the admissibility of the testimony.  Robinson, 923 S.W.2d at 557.   At the time Mazon presented the testimony of McGee, Home Depot and Heritage objected.   Heritage argued that McGee was testifying as to questions of law that were within the sole province of the court;  Mazon's counsel responded that McGee would testify as to “the paperwork and the forms and the formality of how things are done [with respect to UCC filings]” because there was a question of whether Mazon could have “done anything else to protect itself” with regard to its security agreement with Country Colors.   Heritage and Home Depot contended there was no allegation that the UCC-1 filing or other documents were ambiguous, which meant such testimony would either be unnecessary or a question of law for the court.   The trial court sustained the objection, noting that the meanings of “account” and “general intangible” would be issues for the trial court to decide.

On appeal, Mazon argues McGee's testimony “would have helped the jury in understanding the process of a UCC-1 and public constructive notice.”   Specifically, Mazon argues that the jury would have been assisted by McGee's testimony regarding the process of perfection “since they were asked to understand and deal with the process of factoring and perfecting a lien on collateral and understanding the definition of accounts and general intangible and other assets.”

To the extent McGee's testimony involved legal definitions, the trial court did not abuse its discretion when it excluded the testimony.   Legal definitions are questions of law solely within the province of the trial court.   See Neal v. SMC Corp., 99 S.W.3d 813, 815 (Tex.App.-Dallas 2003, no pet.) (determining whether manufacturer was “seller” as defined under UCC was issue of statutory interpretation and question of law for court);  see also Tex. Bus. & Com.Code Ann. § 9.102(2), (42) (West Supp.2010) (defining “account” and “general intangible”);  Upjohn Co. v. Rylander, 38 S.W.3d 600, 611 (Tex.App.-Austin 2000, pet. denied) (noting expert witness may not testify regarding opinion on pure question of law, including matters of statutory construction).   Additionally, the trial court's conclusion that McGee's testimony regarding the filing, perfection, and notice of the UCC-1 would have been unhelpful to the jury was reasonable:  these issues were not contested or at issue.   Cf. Perez v. Embree Const.   Group, Inc., 228 S.W.3d 875, 884 (Tex.App.-Austin 2007, pet. denied) (harmless error to exclude expert testimony as to OSHA regulations not in dispute and not controlling on material issue).

Even if we were to assume the trial court erred by excluding McGee's testimony, any error was harmless.   We may not reverse a judgment on the basis of evidentiary error unless we conclude the error probably caused rendition of an improper judgment.   See Tex.R.App. P. 44.1(a)(1);  Gee v. Liberty Mut. Fire Ins. Co., 765 S.W.2d 394, 396 (Tex.1989).   A trial court's error in excluding evidence requires reversal if the evidence “is both controlling on a material issue and not cumulative.”  Mentis v. Barnard, 870 S.W.2d 14, 16 (Tex.1994).   McGee's testimony was not controlling on a material issue and it would have been cumulative.   Helma Mazon testified as to the business of factoring, factoring and security agreements, how Mazon as a factoring company would take a secured interest in its factoring clients' collateral and file the lien with the Texas Secretary of State for purpose of giving public notice, why notice was important, and the items specifically listed as collateral in Mazon's UCC-1 on Country Colors.   We overrule issue six.

Judgment Error

In its final issue seven, Mazon contends the wording of the final judgment allows for double collection by Heritage against Mazon.   Mazon never filed a motion to amend or correct the judgment, a motion for new trial, or any other motion to bring the issue to the trial court's attention for correction.   Accordingly, Mazon did not preserve this issue for appeal.   See Dal-Chrome Co. v. Brenntag Sw., Inc., 183 S.W.3d 133, 144 (Tex.App.-Dallas 2006, no pet.);  Travelers Ins. Co. v. Wilson, 28 S.W.3d 42, 47 n.3 (Tex.App.-Texarkana 2000, no pet.).   Even if preserved, the credit allowed in the judgment would prevent double recovery.   We overrule issue seven.

Conclusion

For the reasons stated above, we affirm the trial court's judgment.

091218F.P05

FOOTNOTES

FN1. The documents all listed Country Colors Wholesale Bedding Plants, Inc. as the contracting party.   An addendum to the factoring-security agreement dated three days after execution of the agreement stated an intent to include the landscape company, but the record does not include revised versions of the power of attorney and UCC-1. Because it does not affect our analysis, we will assume this addendum was effective in amending the relevant documents to include Country Colors Greenhouse and Landscape, Inc. as a party..  FN1. The documents all listed Country Colors Wholesale Bedding Plants, Inc. as the contracting party.   An addendum to the factoring-security agreement dated three days after execution of the agreement stated an intent to include the landscape company, but the record does not include revised versions of the power of attorney and UCC-1. Because it does not affect our analysis, we will assume this addendum was effective in amending the relevant documents to include Country Colors Greenhouse and Landscape, Inc. as a party.

FN2. Home Depot filed a brief on appeal, but we need not address Home Depot's arguments in light of our resolution of Mazon's issues..  FN2. Home Depot filed a brief on appeal, but we need not address Home Depot's arguments in light of our resolution of Mazon's issues.

FN3. Question five addressed whether Home Depot failed to pay for goods sold and delivered by Heritage to Home Depot, to which the jury answered “no.”   Question seven asked:  “Did Mazon agree with Heritage that Mazon would forward to Heritage checks it received from Home Depot for invoices sent by Heritage to Home Depot and Heritage would forward to Mazon checks it received from Home Depot for invoices sent by Country Colors?”   The jury responded “yes.”   Question nine requested the amount of money, if paid now in cash, that would fairly and reasonably compensate Heritage for its damages resulting from Mazon's failure to comply with the agreement found in question seven..  FN3. Question five addressed whether Home Depot failed to pay for goods sold and delivered by Heritage to Home Depot, to which the jury answered “no.”   Question seven asked:  “Did Mazon agree with Heritage that Mazon would forward to Heritage checks it received from Home Depot for invoices sent by Heritage to Home Depot and Heritage would forward to Mazon checks it received from Home Depot for invoices sent by Country Colors?”   The jury responded “yes.”   Question nine requested the amount of money, if paid now in cash, that would fairly and reasonably compensate Heritage for its damages resulting from Mazon's failure to comply with the agreement found in question seven.

MARY MURPHY JUSTICE