Supreme Court of Texas Update: Vernco Constr., Inc. v. Nelson

Supreme Court of Texas

Vernco Constr., Inc. v. Nelson

08-10-00222-CV

Case Summary written by Garrett Couts, Staff Member.

PER CURIUM.

The 45th District Court, Bexar County granted relief totaling in excess of $6 million dollars for Vernco Construction, the Plaintiff. On appeal before the 8th Court of Appeals, the judgment was vacated and the case dismissed. The appellate court accepted the defendant’s argument that Vernco had no standing to bring suit as it had assigned its commercial tort claims to its lender after filing of the suit. The Supreme Court of Texas reversed and remanded the cause for reconsideration based upon an error below in failing to consider evidence.

Vernco Construction signed a forbearance agreement (the agreement) with its commercial lender. The agreement required the lender to refrain from foreclosing upon Vernco’s promissory note, and Vernco was required to assign its “receivables and claims” involved in the current litigation. This included Vernco’s commercial tort claims.

Thus, the Respondents argued that Vernco no longer had standing to bring suit. Vernco countered by submitting an addendum to the forbearance agreement and alternatively that as an “assignor in a representative capacity” they maintained valid standing. The addendum stated that Vernco and the commercial lender did not intend for “actual legal ownership” of claims to transfer in the original agreement. At the hearing, Vernco was found to have standing and the case was sent to the district court for trial. During trial the Respondents repeatedly attempted to argue the standing issue, but the judge would not allow the agreement into evidence for that purpose. Eventually, the Respondents presented the agreement for other evidentiary purposes. Only the original agreement, not the addendum, was entered into evidence at trial. The trial court rendered judgment for Vernco in excess of $6 million.

On appeal, the court vacated the judgment and dismissed for lack of standing. The appellate court refused to consider the addendum because it was not entered into the record at trial. They only considered the contents of the original agreement. In addition, the appellate court rejected Vernco’s claim to standing acting in a representative capacity.

The issue of standing was the only contention brought before the Supreme Court of Texas. The Court reiterated its precedence that jurisdictional issues are subject to the Court’s determination and should be decided in priority of other claims because a court should not continue adjudicating a case over which it does not hold proper jurisdiction.

As for the standing issue of this case, first, the Court mentioned that the court of appeals failed to mention that the addendum to the agreement had been included as an exhibit in Vernco’s response to the motion to dismiss filed before trial by the Respondents. The Court determined that the appellate court erroneously concluded that the trial court ruled upon the standing issue, when in fact, the only substantive ruling on the issue of standing was made during the pretrial hearing regarding the Respondent’s motion to dismiss.

Additionally, it was error for the court of appeals to find that the addendum was not entered into the record. The addendum had been presented at the hearing regarding the motion to dismiss before the pretrial judge, and the trial and appellate courts should have considered all the evidence.

Finally, although pretrial hearings are generally considered nonevidentiary, “a specific indication or assertion to the contrary” may establish the evidentiary nature of the hearing and a record will be necessary for a party seeking review for error.[1] Here, the Court found that Vernco’s pretrial hearing was evidentiary. The Court considered Vernco’s assertion of legal and factual issues in its response to the motion to dismiss, the pretrial judge’s order, and the duration of the hearing.

Although a record should have been included from the pretrial hearing, due to its evidentiary nature, no such record was presented. Regardless, the Court determined that “[c]learly . . . the addendum is part of the clerk’s record before the trial court and certainly must be considered if the matter was determined on the pleadings.” The Court reversed the judgment and remanded the case for reconsideration due to the error by the appellate court in failing to consider the “relevant portion” of the record—particularly the addendum to the forbearance agreement.

[1] Michiana Easy Livin’ Country, Inc. v. Holten, 168 S.W.3d 777, 782-83 (Tex. 2005).

Back to top