Edward J. Sherman and Edward J. Sherman Enterprises Inc. d/b/a Find It Apartment Locators & Citi Homes, Appellants v. LLC

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Court of Appeals of Texas, Houston (14th Dist.).

Edward J. Sherman and Edward J. Sherman Enterprises Inc. d/b/a Find It Apartment Locators & Citi Homes, Appellants v. Datril Boston and Apartment Express, LLC d/b/a Mr. Day Rents, Appellees

NO. 14–14–00764–CV

Decided: January 28, 2016

Panel consists of Chief Justice Frost and Justices Jamison and Busby.

OPINION

Appellants Edward J. Sherman and Edward J. Sherman Enterprises, Inc. d/b/a Find It Apartment Locators and Citi Homes (Find It) appeal from a conversion judgment in favor of appellees Datril Boston and Apartment Express, LLC d/b/a Mr. Day Rents (Mr. Day Rents), which the trial court signed following a bench trial.  Appellants first challenge the trial court's personal jurisdiction over Find It. Because citation was never issued and served on Find It in a manner provided by law, the trial court did not acquire personal jurisdiction over Find It. We therefore reverse the judgment against Find It and render judgment dismissing appellees' claims against Find It.

Sherman also argues that Boston did not have standing to bring his commonlaw conversion claim against him.  Because the evidence establishes that the referral fees allegedly converted by Sherman belonged to Mr. Day Rents, we agree that Boston does not have standing to pursue a common-law conversion cause of action.  We therefore reverse the judgment in favor of Boston and dismiss Boston's conversion cause of action against Sherman.

Finally, appellants contend that the evidence is legally insufficient to support the conversion judgment in favor of Mr. Day Rents because Mr. Day Rents was not represented by a licensed attorney at the time of the bench trial.  Because Mr. Day Rents was not represented, the evidence offered by Boston (proceeding pro se) has no legal effect, rendering the evidence legally insufficient to support the judgment.  We therefore reverse the judgment in favor of Mr. Day Rents and render judgment that Mr. Day Rents take nothing from Sherman.

Background

Sherman and Find It operate a number of apartment locating businesses.  Boston worked off and on as an agent for Find It. As a Find It agent, Boston located apartments for potential tenants in exchange for a referral fee paid by the apartment complex.

Boston eventually obtained his own broker's license through the Texas Real Estate Commission.  Boston stopped working for Find It and formed his own apartment locating business:  Mr. Day Rents.  After forming Mr. Day Rents, Boston approached Sherman about Sherman and his companies factoring apartment complex referral fee invoices.  Sherman testified that under this factoring arrangement, Sherman advanced a percentage of the referral fees to Boston, and Sherman and Find It then received the proceeds when the apartment complex paid the referral fee invoice.  Sherman and Boston signed a Factoring Agreement providing:  (1) that Boston would submit all factored invoices to “the [c]orporate office” for collection, and (2) funds would be advanced to Boston against the factored invoices.1

The renewed relationship lasted about eleven months.  During this time, Boston submitted invoices for factoring totaling approximately $159,000, and Find It advanced about $110,000 through checks made payable to Boston.  From the invoices submitted for factoring, Sherman and Find It collected only about $92,000, creating a shortfall of approximately $18,000.

Sherman eventually grew concerned that Boston was collecting and cashing the apartment complex referral fee checks rather than submitting them in payment of the factored invoices.  Sherman had Find It's accounting department contact various apartment complexes regarding the payment of referral fees.  In Sherman's view, the investigation confirmed that Boston was not bringing Find It the apartment complex referral fee checks against which he had been advanced money, but instead was collecting and cashing the checks himself.  Sherman testified that the investigation revealed that Boston had collected a total of $15,672 in this manner.

As a result of the investigation, Find It stopped making advance payments to Boston.  Find It also sent statements directly to apartment complexes on invoices against which it had advanced money to Boston.  Several of these apartment complexes then sent Find It checks for Mr. Day Rents' apartment placement referral fees.  According to Sherman and Find It's accountant, Find It had already advanced Boston money against each of the checks it received.

Find It sued Boston, alleging multiple causes of action including breach of contract and quantum meruit.  Eventually, an amended petition was filed naming Edward J. Sherman, individually, as the only plaintiff.  Find It was not listed as a party on this or any subsequent petition.  Boston eventually filed an answer.  Soon after filing the answer, Boston's attorney withdrew from representing Boston.

In addition to seeking damages, Sherman also sought a temporary injunction, which the trial court granted.  Among other things, the temporary injunction required Boston “to place all funds previously collected, which were held in [Boston's] former attorney's trust account, into the registry of the court.”  In accordance with the temporary injunction, Boston's former attorney deposited $11,410.04 into the registry of the court.

Boston obtained the services of a second attorney.  That attorney filed breach of contract and conversion counterclaims on behalf of Boston and Mr. Day Rents against Sherman and Find It. Find It was never served with citation and it did not otherwise make an appearance in the lawsuit.  Boston's second attorney soon withdrew from the case, and at no point after that were Boston or Mr. Day Rents represented by legal counsel.

The case went to trial before the bench.  At trial, Boston, appearing pro se, admitted that he had received checks from Find It totaling $110,629.97.  Boston argued that the money was not paid to him pursuant to the Factoring Agreement, which he pointed out had been signed by Sherman and Boston only in their individual capacities.  Boston further testified that he had never actually worked under the Factoring Agreement.  Boston testified that he believed that the $110,629.97 he had received from Find It was a loan for which he had pledged his receivables as collateral.  Boston further testified that he believed Find It had advanced the money to him because he was a “nice guy.”  Boston also argued during trial that Find It had negotiated the checks made out to Mr. Day Rents without authority to do so.

Sherman testified that all of the checks made out to Mr. Day Rents, and negotiated by Find It, were checks against which Boston had already received advances under the Factoring Agreement.  In addition, Find It's accountant testified that Boston had authorized her to negotiate checks made payable to Mr. Day Rents.

After the bench trial concluded, the trial court signed a Final Judgment in favor of Boston and Mr. Day Rents.  The trial court rendered a take-nothing judgment on Sherman's claims against appellees Boston and Mr. Day Rents.  The trial court also rendered a take-nothing judgment on appellees' counterclaim for breach of contract.  Finally, the trial court found in favor of appellees on their conversion counterclaim and awarded them the $11,410.04 that had previously been placed into the registry of the court.  This appeal followed.

Analysis

Appellants Sherman and Find It raise four issues on appeal, none of which challenge the take-nothing judgment rendered on Sherman's causes of action.  Appellants' issues instead focus on the judgment against them.

I. The judgment against Find It is void because the trial court did not re-acquire personal jurisdiction over Find It.

In their first issue, appellants argue that because Find It was never served with process and did not waive service of process or otherwise make an appearance in the trial court after it was dropped from the petition, the trial court did not reacquire personal jurisdiction over Find It. We agree.

A trial court lacks personal jurisdiction over a defendant to whom citation has not been issued and served in a manner prescribed by law unless the defendant waives service or enters an appearance.  See Tex.R. Civ. P. 124;  Wilson v. Dunn, 800 S.W.2d 833, 836 (Tex.1990);  Menon v. Water Splash, Inc., 472 S.W.3d 28, 31 (Tex.App.—Houston [14th Dist.] 2015, pet. filed);  In re D.A.P., 267 S.W.3d 485, 489 (Tex.App.—Houston [14th Dist.] 2008, no pet.).  Whether a trial court has personal jurisdiction over a defendant is a question of law, which we review de novo.  Haaksman v. Diamond Offshore (Bermuda), Ltd., 260 S.W.3d 476, 479 (Tex.App.—Houston [14th Dist.] 2008, pet. denied).

In the original petition initiating this litigation, the plaintiff was identified as Edward J. Sherman Inc. d/b/a Find It Apartment Locators, “an individual whose address is 6800 Bintliff Drive, Houston, Texas 77074.”  Once he was served with the lawsuit, Boston filed a verified denial asserting that the plaintiff did not have the legal capacity to sue in the case.  In response, Sherman filed an amended petition deleting Find It as the plaintiff and inserting himself as the sole plaintiff.  Because Boston had no claim for affirmative relief pending against Find It at the time of the amendment, Find It ceased to be a party to the litigation at that time.  See Tex.R. Civ. P. 162;  In re Greater Houston Orthopaedic Specialists, Inc., 295 S.W.3d 323, 324 (Tex.2009) (stating that plaintiff has unqualified and absolute right to nonsuit as long as defendant has not made claim for affirmative relief);  Sixth RMA Partners, L.P. v. Sibley, 111 S.W.3d 46, 53–54 (Tex.2003) (stating that amended petition is designed to add something to or withdraw something from the amending party's own pleading to cure its deficiencies);  Smith v. CDI Rental Equip., Ltd., 310 S.W.3d 559, 565 (Tex.App.—Tyler 2010, no pet.)  (“Parties to a suit, including plaintiffs, are just as effectively dismissed from a suit by omitting their names from an amended pleading as where a formal order of dismissal is entered.”);  Fraud–Tech, Inc. v. Choicepoint, Inc., 102 S.W.3d 366, 375 (Tex.App.—Fort Worth 2003, pet. denied) (stating general rule that parties to a suit, including plaintiffs, are dismissed from the suit by omitting their names from an amended pleading).

Almost a full year after Find It dismissed its claims, Boston and Mr. Day Rents filed a counterclaim naming Sherman and Find It as counter-defendants.  Nothing in the record establishes that appellees served Find It with citation, or that Find It waived service or otherwise entered an appearance after the counterclaim was filed and before the trial court rendered judgment.2  In Houston Crushed Concrete, Inc. v. Concrete Recycling Corp., we applied Rules 21a and 124 to hold that service of citation was not required with respect to counterclaims against an intervenor who had entered an appearance before the counterclaims were filed and only nonsuited its intervention thereafter.  879 S.W.2d 258, 261 (Tex.App.— Houston [14th Dist.] 1994, no writ).  Those rules do not apply here, however, because Find It ceased to be a party before Boston asserted any claim for affirmative relief against it.  See Tex.R. Civ. P. 124 (“When a party asserts a counterclaim ․ against another party who has entered an appearance, the claim may be served ․ as provided in Rule 21(a).” (emphasis added));  see also Tex.R. Civ. P. 21a (allowing pleadings other than “citation to be served upon the filing of a cause of action” to “be served by delivery a copy to the party to be served, or the party's duly authorized agent or attorney of record” (emphasis added)).

After Find It ceased to be a party, Find It was not served with citation, nor did it waive service or enter an appearance in the lawsuit.  Therefore, the trial court lacked personal jurisdiction to render judgment against Find It. Yuen v. Gerson, 342 S.W.3d 824, 829 (Tex.App.—Houston [14th Dist.] 2011, pet. denied);  In re D.A.P., 267 S.W.3d at 489–90;  see Waterman Steamship Co. v. Ruiz, 355 S.W.3d 387, 398 (Tex.App.—Houston [1st Dist.] 2011, pet. denied) (stating that nonsuit puts the parties back into the position they were in before the suit was brought).  Even if Find It was aware of the counterclaim, it was under no obligation to act.  Yuen, 342 S.W3d at 829 (citing Wilson, 800 S.W.2d at 837).  We therefore sustain appellants' first issue, reverse the judgment against Find It, and render judgment dismissing appellees' claims against Find It for lack of personal jurisdiction.

II. Boston does not have standing to bring a common-law conversion cause of action against Sherman.

In his second issue, Sherman asserts that Boston did not have standing to bring his common-law conversion claim against him because the checks that were allegedly converted belonged to Mr. Day Rents.

Standing, a component of subject-matter jurisdiction, is a constitutional prerequisite to maintaining suit under Texas law.  Tex. Ass'n. of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 444–45 (Tex.1993);  Concerned Cmty. Involved Dev., Inc. v. City of Houston, 209 S.W.3d 666, 670 (Tex.App.—Houston [14th Dist.] 2006, pet. denied).  Standing requires that there exist a real controversy between the parties that will actually be determined by the judicial declaration sought.  Sammons & Berry, P.C. v. Nat'l Indem.  Co., No. 14–13–00070–CV, 2014 WL 3400713, at *3 (Tex.App.—Houston [14th Dist.] July 10, 2014, no pet.) (mem.op.) (citing Nootsie, Ltd. v. Williamson Cnty. Appraisal Dist., 925 S.W.2d 659, 662 (Tex.1999)).  Only the party whose primary legal right has been breached may seek redress for the injury.  Nauslar v. Coors Brewing Co., 170 S.W.3d 242, 249 (Tex.App.—Dallas 2005, no pet.).  Without a breach of a legal right belonging to a specific party, that party has no standing to litigate.  Cadle Co. v. Lobingier, 50 S.W.3d 662, 669–70 (Tex.App.—Fort Worth 2001, pet. denied).  Standing cannot be waived and can be raised for the first time on appeal.  Tex. Ass'n. of Bus., 852 S.W.2d at 444–45.  When reviewing standing on appeal, we construe the petition in favor of the plaintiff and, if necessary, review the entire record to determine whether any evidence supports standing.  Id. at 446.  Whether a party has standing to bring a claim is a question of law reviewed de novo.  Mayhew v. Town of Sunnyvale, 964 S.W.2d 922, 928 (Tex.1998).

Mr. Day Rents is a limited liability company and, as such, is a legal entity separate from Boston, its sole member.  See Geis v. Colina Del Rio, L.P., 362 S.W.3d 100, 109 (Tex.App.—San Antonio 2011, pet. denied) (recognizing limited liability company as legally distinct from member).  Boston, as a member of Mr. Day Rents, does not have an interest in any property of the company.  See Tex. Bus. Orgs.Code Ann. §  101.106(b) (West 2012).  “A member of a limited liability company lacks standing to assert claims individually where the cause of action belongs to the company.”  Barrera v. Cherer, No. 04–13–00612–CV, 2014 WL 1713522, at *2 (Tex.App.—San Antonio April 30, 2014, no pet.) (mem.op.) (citing Wingate v. Hajdik, 795 S.W.2d 717, 719 (Tex.1990)).

The evidence introduced during trial established that the checks allegedly converted by Sherman belonged to Mr. Day Rents.  This evidence includes Boston's own testimony that Mr. Day Rents earned the payments by placing clients into apartments.  Boston also testified that the checks at issue were payable to Mr. Day Rents, which was corroborated by copies of the checks introduced during the trial.  Based on this evidence, the trial court found that the checks at issue had been “issued by the apartment complexes in the name of APARTMENT EXPRESS, LLC and/or MR. DAY RENTS.”  Boston therefore does not have standing to bring a common-law conversion action based on those checks.3  We sustain Sherman's second issue, reverse the part of the judgment awarding damages to Boston, and dismiss Boston's conversion cause of action against Sherman for lack of standing.4

III. The evidence is legally insufficient to support the judgment in favor of Mr. Day Rents.

In his fourth issue, Sherman argues that the conversion judgment in favor of Mr. Day Rents is not supported by legally sufficient evidence because Mr. Day Rents, a limited liability company, was not represented by a licensed attorney during the bench trial.5  We agree.

“Corporations and partnerships, both of which are fictional legal persons, obviously cannot appear for themselves personally.”  Simmons, Jannace & Stagg, L.L.P. v. Buzbee Law Firm, 324 S.W.3d 833, 833 (Tex.App.—Houston [14th Dist.] 2010, no pet.).  Legal entities, such as a corporation or a limited liability company, generally may appear in a district or county court only through a licensed attorney.  See Kunstoplast of Am. v. Formosa Plastics Corp., USA, 937 S.W.3d 455, 456 (Tex.1996);  Apartment Express LLC v. Southchase North Apartments, No. 14–15–00532–CV, 2015 WL 4930908, at * 1, n. 1 (Tex.App.— Houston [14th Dist.] Aug. 18, 2015, no pet.) (mem.op.) (per curiam).

A legal entity that attempts to thwart this rule does so at its peril.  See Rabb Intern., Inc. v. SHL Thai Food Service, LLC, 346 S.W.3d 208, 211 (Tex.App.—Houston [14th Dist.] 2011, no pet.) (citing Dell Dev. Corp. v. Best Indus.  Uniform Supply, 743 S.W.2d 302, 303 (Tex.App.—Houston [14th Dist.] 1987, writ denied)).  Although a non-attorney may perform certain ministerial tasks for a limited liability company, the presentation of a claim at trial is not a mere ministerial act.  See McClane v. New Caney Oaks Apartments, 416 S.W.3d 115, 120 (Tex.App.—Beaumont 2013, no pet.) (citing L'Arte De La Mode, Inc. v. Nieman Marcus Grp., 395 S.W.3d 291, 295 (Tex.App.—Dallas 2013, no pet.)).  Allowing a non-attorney to present a company's claim would permit the unlicensed practice of law.  Id. at 121.  As a result, courts hold that a non-attorney representative cannot appear for a limited liability company or present a case on its behalf.  See L'Arte De La Mode, Inc., 395 S.W.3d at 295.  An attempt to do so has no legal effect.  See McClane, 416 S.W.3d at 121.

Mr. Day Rents was not represented by a licensed attorney during the trial.  Instead, Boston attempted to present evidence supporting Mr. Day Rents' conversion claim against Sherman.6  Because Boston is not an attorney, his presentation had no legal effect, thereby rendering the evidence legally insufficient to support a judgment in favor of Mr. Day Rents.  See McClane, 416 S.W.3d at 121.  We therefore sustain Sherman's fourth issue on appeal, reverse the judgment awarding damages to Mr. Day Rents, and render judgment that Mr. Day Rents take nothing from Sherman on its common-law conversion cause of action.

Conclusion

Having sustained appellants' first issue, we reverse the judgment against Find It and render judgment dismissing appellees' claims against Find It for lack of personal jurisdiction.  In addition, having sustained Sherman's second issue, we reverse the part of the judgment awarding Boston damages for conversion and render judgment dismissing Boston's conversion claim against Sherman for lack of standing.  Finally, having sustained Sherman's fourth issue, we reverse and render a take-nothing judgment on Mr. Day Rents' conversion claim against Sherman.7

FOOTNOTES

1.   Pursuant to the Factoring Agreement, Sherman received a 10% fee for all factored invoices.  Additionally, he would withhold 17% of the invoice amount as a reserve for invoices that could not be collected.  When Boston submitted an invoice to be factored, Sherman would therefore advance 73% of the invoice amount to Boston.

2.   2 Although the judgment recites that Find It appeared and announced ready for trial, the presumptive correctness of this recital is rebutted by the reporter's record, which shows no appearance by Find It and no announcements of readiness for trial by anyone.  See generally Southern Ins. Co. v. Brewster, 249 S.W.3d 6, 13–14 (Tex.App.—Houston [1st Dist.] 2007, pet. denied) (discussing presumption of regularity of judgments and ability to controvert the presumption based upon the record).  The only attorney appearing is listed as the “Attorney for Plaintiff, Edward J. Sherman.”

3.   Boston did not assert any conversion claims under any statute, including the Uniform Commercial Code. We do not address Boston's standing to bring a conversion claim under any statute, nor do we address the merits of Boston's common-law conversion claim.

4.   Because we have reversed and dismissed Boston's conversion cause of action against both Sherman and Find It, we need not reach appellants' third issue challenging the legal sufficiency of the evidence supporting the judgment in favor of Boston.

5.   Because this is an appeal from a judgment following a bench trial, Sherman may raise his sufficiency complaint for the first time on appeal.  Tex.R.App. P. 33.1(d).

6.   Sherman argues in his brief that Boston's evidence was the only evidence offered in support of Mr. Day Rents' conversion claim.  In response, Boston points to no evidence presented by a licensed attorney for any party that is sufficient to support a conversion judgment for Mr. Day Rents, and our review of the record has revealed none.

7.   In this appeal, appellants have not challenged the take-nothing judgment on Sherman's claims, nor have they challenged the trial court's order releasing the funds in the registry of the court.  We therefore do not address what effect, if any, this opinion may have on that order.

J. Brett Busby Justice

(Frost, C.J., joins Parts I and II of the Majority Opinion and dissents as to Part III.)