Zorilla v. Aypco Constr. II, LLC No. 14-0067

JUSTICE GUZMAN delivered the opinion of the court.

Mirta Zorilla (Petitioner) contacted Aypco Construction II, LLC and its owner, Jose Luis Munoz (together as Respondent), for the limited purpose of constructing modifications to the master bedroom and bathroom in a partially finished, 3,740 square foot residence located at North 23rd Street in Edinburg, Texas. After the modifications in the bathroom were completed, Petitioner was satisfied with the work, and the parties entered into negotiations to complete the rest of the North 23rd Street residence. After failing to pay Respondent for the work invoiced on May 2007, Respondent sued Petitioner.

Other than the fact that Petitioner agreed to pay for certain construction services, every other aspect surrounding the relationship between Petitioner and Respondent was disputed. Petitioner stated that the agreement was an oral agreement between her and Munoz, the owner, only. Additionally, Petitioner states she specifically indicated to Respondent that she would not pay for work after April 2007 unless she expressly agreed to it in writing. Furthermore, Petitioner testified that she explicitly told Respondent to discontinue work at the end of April 2007. Thus, Petitioner refused to pay Respondent for the work it completed in May of 2007. On the other hand, Respondent stated that there was, in fact, a written agreement between Petitioner and Respondent and that Petitioner knew that she was contracting not only with Munoz, but with the construction company as well. Additionally, Respondent stated that it was never told to cease working. Respondent worked until the residence was 80% complete, which went into May 2007, and invoiced Petitioner several times during that month. Because Petitioner failed to pay, Respondent sued Petitioner under fraud, breach of contract, and quantum meruit theories.

The jury found that Petitioner defrauded Respondent and awarded $56,654.15 in economic damages and $250,000 in exemplary damages. The jury also found Petitioner breached an agreement to pay Respondent for construction services at her two homes and awarded a total of $56,654.15 in actual damages. In addition to compensatory and exemplary damages, the jury awarded Respondent $150,000 in attorney’s fees through trial and conditional attorney’s fees in the event of an appeal. The court of appeals affirmed the trial court’s judgment except the award of attorney’s fees. Concluding that sufficient evidence supported the jury’s fraud verdict and giving effect to Aypco Construction’s election of its fraud remedies, the court reversed the attorney’s fee award.

Issues: (1) Whether the court of appeals erred in refusing to consider Petitioner’s evidence-sufficiency challenges to the jury’s breach-of-contract findings; (2) Whether the statutory cap on exemplary damages is waived if not pleaded as an affirmative defense or avoidance; (3) Whether the prejudgment-interest rate award to Respondent was excessive; and (4) Whether foreclosure of the statutory and constitutional mechanics and materialman’s liens were proper.

As to the first issue, the court held that the court of appeals did not err in its refusal to consider Petitioner’s evidence-sufficiency challenges to the jury’s breach-of-contract findings. The court’s reasoning was that any obligation imposed by the December 2006 contract impacts the fraudulent-inducement analysis only if the jury necessarily determined that Petitioner had, in fact, agreed to the terms of the December 2006 contract or that there was otherwise an agreement between the parties requiring written approval for modifications. However, the evidence on that point conflicted; the jury was neither asked whether the agreement was in writing nor asked to determine the essential terms of any agreement; and, importantly, both the fraud and breach-of-contract questions permitted the jury to award damages based on the existence of an oral agreement that did not include any such requirement. In the absence of a finding that Petitioner and Respondent agreed that modifications must be approved in writing, Petitioner’s argument concerning the contract-enforcement issue failed.

Secondly, the court held that the exemplary damages award did exceed the statutory cap and thus, reduced the damage award to $200,000. In reaching this decision, the court first looked at whether, because not explicitly stated, the damages cap fell into the residual category of Texas Rules of Civil Procedure Rule 94 governing affirmative defenses. It held that the exemplary damages cap did not bear the characteristics of an affirmative defense or avoidance, and therefore applied automatically. Specifically, it does not require proof of any additional fact to establish its applicability. Moreover, there is no defense to a statutory cap on exemplary damages. Though certain types of claims are excluded from the statute’s application, the statutory cap applies automatically to claims not expressly excepted. Thus, the court stated that the cap is therefore the rule, not the exception, and even though Petitioner did not specifically plead it in the trial court, it still applied.

Regarding Petitioner’s third point of error, the court held that the prejudgment-interest award of 1.5% per month was appropriate. In post-verdict motions filed in the trial court, Petitioner argued that prejudgment interest should be set at 6% per annum because there was no proof of an agreement specifying a different interest rate. The trial court, however, awarded prejudgment interest at the rate of 1.5% per month under the Prompt Payment Act, which applies when a real property owner fails to pay a contractor the amount allowed under a contract within thirty-five days after the owner receives a written payment twenty-three request from the contractor. On appeal, Petitioner argued that the Prompt Payment Act was inapplicable because there was insufficient evidence she agreed to compensate Respondent for the construction work performed in May 2007. The court of appeals concluded that the essential contract finding was subsumed in the jury’s fraud verdict, in which the jury expressly found Petitioner had failed to pay Respondent $56,654.15 for construction services pursuant to an agreement to pay for that work. Because the court of appeals concluded the evidence was sufficient to support the fraud verdict, and based on Respondent’s election of fraud remedies, the court determined that Petitioner’s evidentiary challenges to the jury’s breachof-contract findings were not material to the prejudgment-interest inquiry. The court then indicated that Petitioner’s argument here was “somewhat muddled.” The court stated that it had already concluded that the fraud finding was valid and concluded that there was more than a scintilla of evidence to support the jury’s finding of such an agreement. Therefore, the prejudgment-interest award was affirmed.

Finally, as to Petitioner’s final argument, the court affirmed the court of appeals holding that the liens were proper. Petitioner asserted two reasons for contesting foreclosure on the liens. First, Petitioner continued her evidence-sufficiency challenge to the breach-of-contract charge. Second, Petitioner argued that lien foreclosure was improper as to another property because it was her homestead and there was no proof of a written agreement.

Regarding Petitioner’s first reason, this court agreed with the court of appeals’ analysis upholding the foreclosure of the liens based on the jury’s fraud verdict because (1) the court had found sufficient evidence to support the verdict, as part of the fraud submission, and (2) the jury determined that Respondent was entitled to compensation for the work performed in accordance with an agreement. Performance and existence of a contractual debt were encompassed in the jury’s fraud findings; the court of appeals found the evidence sufficient to sustain the fraud verdict; and Petitioner did not challenge the court of appeals’ analysis of that issue. Therefore, this court rejected Petitioner’s first argument.

This court also rejected Petitioner’s second argument that the other property was her homestead. It rejected this argument because Petitioner failed to establish that it was her homestead and, even if she did establish it was, Petitioner did not preserve the argument in the trial court. To claim the constitutional protection afforded to homesteads, Petitioner carried the initial burden of establishing (1) overt acts of homestead usage and (2) the intention to claim the property as a homestead. The court held Petitioner did not meet her initial burden. Furthermore, the court held that Petitioner waived this argument. Therefore, this court affirmed the court of appeals on this point of error.

Thus, the Court reversed the exemplary damages and rendered them to be $200,000 and affirmed all other points of error.