Deed restrictions, injunctions: Owens vs. Ousey (Tex.App.- Austin, Aug. 30, 2007)

Appellants, Robert L. Owens, Jr. and Sylvia Lee Owens//Cross-Appellees, Michael Ousey, Kirsten Ousey, Robert F. West and Elizabeth West v. Appellees, Michael Ousey, Kirsten Ousey, Robert F. West and Elizabeth West//Cross-Appellants, Robert L. Owens, Jr. and Sylvia Lee Owens, No. (Tex.App.- Austin, August 30, 2007)(Opinion on rehearing by Justice Pemberton)(restrictive covenant injunction)(Before Chief Justice Law, Justices Pemberton and Waldrop)
Appeal from 207th District Court of Hays County

FROM THE DISTRICT COURT OF HAYS COUNTY, 207TH JUDICIAL DISTRICT
NO. 03-1778, HONORABLE CHARLES R. RAMSAY, JUDGE PRESIDING


OPINION BY JUSTICE BOB PEMBERTON

We withdraw our opinion and judgment issued June 8, 2007, and substitute the following in its place. We overrule appellees' motion for rehearing.

This is an appeal from a final judgment granting a mandatory permanent injunction to enforce restrictive covenants. The injunction compelled Robert L. Owens, Jr. and Sylvia Lee Owens to remove a mobile home from a lot they owned adjacent to lots owned by Michael and Kirsten Ousey and Robert and Elizabeth West. The Owenses appeal, contending that the injunction purported to enforce restrictive covenants that had expired in 2001, that purported 2003 "amendments" to "extend" the covenants were void, and that the covenants cannot be enforced under an implied negative reciprocal easement theory.

Appellees bring a cross-appeal contending that the district court erred in refusing to award them damages for the Owenses' breaches of restrictive covenants both on the lot in question and on an adjacent Owens-owned lot where the Owenses had initially placed the mobile home. For reasons explained below, we affirm in part, reverse in part, render in part, and remand in part.

BACKGROUND

Appellees and the Owenses own adjoining properties in a residential, unincorporated area of Hays County near San Marcos. The Owenses own two adjoining lots, a .23-acre lot located to the immediate west of, and sharing a common boundary with, a .715-acre lot. The Owenses' lots are located at essentially the southeast corner of three lots owned by appellees. Along the north and west boundaries of the Owenses' .23-acre lot are two lots totaling roughly 15 acres owned by the Ouseys. The Wests own a .716-acre lot bordering the Owenses' .715-acre lot to the north and one of the Ouseys' lots to the east. (1)

The deeds to both of the Owenses' lots contain restrictive covenants prohibiting, among other things, the placement of mobile homes on the property. The deed to the .715-acre lot, executed in 1976, specifies that the restrictive covenants:

shall be in full force and effect for a period of twenty-five years. However, any restrictive covenant or covenants may be renewed at the end of said 25 year period, or may, at any time, be altered amended or cancelled by a majority vote of the owners of the property, each lot, whether owned by one or more persons, having and being entitled to one vote, on any question of alteration, amendment of [sic] cancellation of any restriction. (2)

By contrast, the deed to the .23-acre lot, executed in 1984, does not specify a time limit or term for its restrictive covenants.

In October 2003, the Owenses placed a mobile home on the .23-acre lot. Appellees notified the Owenses of their objection to the placement of the mobile home on that lot, maintaining that it violated restrictive covenants on the property. On October 22, 2003, appellees voted to "amend" and "extend" the deed restrictions on the .715-acre lot. On the same date, appellees notified the Owenses of this action. Thereafter, on or about November 3, 2003, the Owenses moved the mobile home to their .715-acre lot. On or about November 6, 2003, appellees recorded a document entitled "Amendment/Extension of Deed Restrictions," pertaining to the Owenses' .715-acre lot, in the real property records of Hays County. This document purported to "extend and amend the covenants" applicable to the .715-acre lot, including those prohibiting mobile homes, and added some new restrictions.

After the Owenses refused to remove the mobile home from their .715-acre lot, appellees sued for damages and a mandatory permanent injunction requiring the Owenses to remove the mobile home from their property. Appellees asserted claims that (1) the Owenses violated "a deed restriction" applicable to the .23-acre lot by placing a mobile home there on or about October 1 and refusing to remove it until on or about November 4, 2003; (2) the Owenses violated "applicable deed restrictions" on the .715-acre lot by "moving and installing a mobile home" there and refusing to remove it; and alternatively, (3) the placement of the mobile home on either lot violated implied reciprocal negative easements applicable to both lots. Appellees also alleged that the Owenses' actions constituted a nuisance. The Owenses counter-claimed alleging that appellees' "Amendment/Extension of Deed Restrictions" "creates a cloud on Counter-Plaintiffs's land title" and requested a declaratory judgment that the instrument "is void and of no force or effect."

The case was tried to the court on mostly stipulated facts. The district court rendered judgment that:

1. The Owenses violated deed restrictions applicable to their .23-acre lot (those without a specified term or duration) by placing a mobile home there between October 1 and November 3, 2003.
2. The Owenses violated deed restrictions applicable to their .715-acre lot (those effective "for a period of twenty-five years") by placing a mobile home on that lot on November 3, 2003, and refusing to remove it. The court granted a mandatory injunction compelling the Owenses to move the mobile home off their property within thirty days after the judgment was signed.
3. "The Court finds for [the Owenses] as to [appellees'] claims of nuisance . . . and denies [appellees'] claim."
4. "[Appellees] not recover actual damages or any other kind of damages or interest from [the Owenses] and [the Owenses] not recover actual damages or any other kinds of damages from [appellees]."
5. Neither party would be awarded attorney's fees but, in the event of an appeal, each party would recover appellate attorney's fees if successful.

The district court subsequently entered findings of fact and conclusions of law. Among other facts, the court found that appellees had proven statutory damages as to the Owenses' .23-acre lot of $6,000 and $99,000 as to the Owenses' .715-acre lot. See Tex. Prop. Code Ann. § 202.004(c) (West 2007) (providing that a court "may assess civil damages for the violation of a restrictive covenant in an amount not to exceed $200 for each day of the violation"). It also found that the Wests had incurred loss of value to their property of $36,000 and that the Ouseys had incurred a loss of $60,000. However, the district court concluded that "[i]n accordance with the Court's discretion," appellees were "not entitled to recover damages" or interest.

The district court also found that appellees had incurred $14,024.70 in attorney's fees through trial, that the Owenses had incurred $20,000 in attorney's fees through trial, and that each party would incur $5,000 and $3,000 in attorney's fees on appeal to the court of appeals and the supreme court, respectively. The court concluded that "[i]n accordance with the Court's discretion," neither party was entitled to recover their attorney's fees through judgment, but each party could recover their appellate attorney's fees if successful.

ANALYSIS

The Owenses bring eight issues on appeal. They do not challenge the judgment that they violated restrictive covenants encumbering their .23-acre lot (where they initially placed the mobile home) but assert that the district court erred in rendering judgment that they violated restrictive covenants encumbering their .715-acre lot and in awarding mandatory injunctive relief. In their first issue, the Owenses argue that the restrictions encumbering their .715-acre lot made the basis for appellees' claims expired by their terms in August 2001 and could not be "amended" or "extended" by appellees' actions over two years after that date. The Owenses contend in their eighth issue that the district court erred in refusing to grant their request for a declaration that appellees' purported "amendment" or "extension" of the deed restrictions is void. In their second and seventh issues, the Owenses assert that appellees lack standing to enforce the restrictive covenants encumbering their .715-acre lot. The Owenses' remaining issues challenge the applicability of the implied negative restrictive easement theory on several grounds, including their contention that this theory cannot apply when, as here, the subject property is covered by express deed restrictions that had expired by their terms.

Appellees bring a cross-appeal asserting that the district court abused its discretion in denying their claims for statutory damages, common-law damages as to the .715-acre lot, (3) and attorney's fees. They also complain that the district court abused its discretion in awarding the Owenses conditional appellate attorney's fees.

The Owenses' appeal

Applicability of express deed restriction

We consider first whether express deed restrictions applied to the Owenses' .715-acre lot. When construing restrictive covenants, we apply the general rules of contract construction. Pilarcik v. Emmons, 966 S.W.2d 474, 478 (Tex. 1998). We examine the covenants as a whole in light of the circumstances present when the parties entered into the agreement. Id. Our primary concern is to ascertain and give effect to the true intention of the parties as expressed in the instrument. See Gulf Ins. Co. v. Burns Motors, 22 S.W.3d 417, 424 (Tex. 2000). Like other questions of law, we review a trial court's construction of restrictive covenants de novo. Raman Chandler Props., L.C. v. Caldwell's Creek Homeowners Ass'n, 178 S.W.3d 384, 390 (Tex. App.--Fort Worth 2005, pet. denied); City of Pasadena v. Gennedy, 125 S.W.3d 687, 692 (Tex. App.--Houston [1st Dist.] 2003, pet. denied).

The deed to the Owenses' .715-acre lot contains restrictive covenants prohibiting "noxious or other offensive activity," structures other than "one single family dwelling unit not to exceed two stories in height," any "mobile home, house trailer, tent, shack, garage or other out building [that] shall be used for residential purposes," or moving a dwelling situated outside the lot onto the lot or allowing it to remain there. It further provided that these restrictions:

shall be in full force and effect for a period of twenty-five years. However, any restrictive covenant or covenants may be renewed at the end of said 25 year period, or may, at any time, be altered, amended or cancelled by a majority vote of the owners of the property, each lot . . . having and being entitled to one vote, on any question of extension of said restrictions, and on any question of alteration, amendment of [sic] cancellation of any restriction.

The deed was executed on October 22, 1976. Under its terms, the restrictive covenants were to remain "in full force and effect for a period of 25 years," or only until October 22, 2001. Appellees contend that the "amendments" and "extension" of the deed restrictions that they voted to approve on October 22, 2003, and recorded on or about November 3--two years after the 25-year period had expired--made the restrictions effective through the relevant period. The Owenses contend that because the deed restrictions expired by their terms in October 2001, appellees necessarily could not have "extended" or "amended" the restrictions two years thereafter. Appellees point to the provisos that "any restrictive covenant or covenants may be renewed at the end of said 25 year period, or may, at any time, be altered, amended or cancelled." (Emphasis added.) They urge that these terms allow them to amend the restrictions "at any time," even two years after the "end of said 25 year period." We agree with the Owenses.

We must construe restrictive covenants as a whole, give effect to every sentence, clause, and word of a covenant, and avoid constructions that would render parts of the covenant superfluous or inoperative. See City of San Antonio v. City of Boerne, 111 S.W.3d 22, 29 (Tex. 2003). Appellees' construction, while literally supported by the words "at any time" if read in isolation, is inconsistent with the deed restrictions as a whole and renders the explicit 25-year term superfluous. Read in its proper context, the provision necessarily means that the restrictions may be amended "at any time" while they remain in effect. Similarly, the provision that the restrictions may be extended "at the end of said 25 year period" does not contemplate a time two years after the end of that period. (Emphasis added.) The fact that the property code requires restrictive covenants to be "liberally construed," see Tex. Prop. Code Ann. § 202.003(a) (West 2007), does not change our analysis--even under a liberal construction, the plain language of the deed states that the restrictive covenants are in effect for a 25-year period.
For these reasons, we conclude that the express restrictive covenants in the deeds to the Owenses' .715-acre lot had expired long before October 2003, when the Owenses moved a mobile home onto the property, and that appellees' purported "extensions" and "amendments" to the restrictions were void and ineffective. We sustain the Owenses' first and eighth issues, and need not reach their second and seventh issues, which concern appellees' standing to enforce these restrictions.

Implied reciprocal negative easement

In the alternative, appellees plead that even if the express deed restrictions had expired, the
Owenses were still barred from placing a mobile home on their property under an implied reciprocal negative easement theory. An implied reciprocal negative easement may arise or operate when:

an owner of real property subdivides it into lots and sells a substantial number of those lots with restrictive covenants designed to further the owner's general plan or scheme of development. The central issue is usually the existence of a general plan of development. The lots retained by the owner, or lots sold by the owner from the development without express restrictions to a grantee with notice of the restrictions in the other deeds, are burdened with what is variously called an implied reciprocal negative easement, or an implied equitable servitude, or negative implied restrictive covenant, that they may not be used in violation of the restrictive covenants burdening the lots sold with the express restrictions. Evans v. Pollock, 796 S.W.2d 465, 466 (Tex. 1990). The Owenses challenge the application of this principle on several grounds, (4) including that an implied reciprocal negative easement cannot arise where, as here, the subject property was sold with express restrictions that are the same as those allegedly implied. We agree with the Owenses.

As the supreme court observed in Evans, the implied reciprocal negative easement doctrine applies to enforce restrictions against lots "retained by the owner, or lots sold . . . without express restrictions to a grantee with notice of the restrictions in the other deeds." Id. (Emphasis added). The reason courts imply restrictions on these lots is to give effect to the general development scheme intended by the grantor. Id. But here, the deed to the Owenses' .715-acre lot contains express restrictions that reflect the grantor's intent. We conclude that no restrictions may be implied in the face of the express deed restrictions. We sustain the Owenses' third issue and need not reach their remaining issues.

Disposition

In light of our disposition of the Owenses' issues, we must reverse the portions of the district court's judgment holding that the Owenses violated restrictive covenants encumbering their .715-acre lot and granting injunctive relief compelling them to move the mobile home off this lot. The Owenses are also entitled to a declaration that appellees' post-expiration "extension" or "amendment" of the restrictive covenants applicable to the .715-acre lot is void.
As the Owenses are now the prevailing party on their declaratory judgment claim, we will remand the issue of their attorney's fees to afford the district court the opportunity to exercise its discretion to decide whether to award them. See Tex. Civ. Prac. & Rem. Code Ann. § 37.009 (West 1997); McMillin v. State Farm Lloyds, 180 S.W.3d 183, 211 (Tex. App.--Austin 2005, pet. denied).

On rehearing, appellees complain that this Court erred in its original opinion in rendering a declaratory judgment in favor of the Owenses and remanding the issue of their attorney's fees under that cause of action. Appellees insist that the Owenses' declaratory-judgment counterclaim presented no new controversy apart from the issues raised in appellees' suit and therefore could not support an attorney's fee award. We disagree.

The "Declaratory Judgment Act is not available to settle disputes already pending before a court," BHP Petroleum Co. v. Millard, 800 S.W.2d 838, 841 (Tex. 1990), and it cannot be used as a vehicle for defendants to obtain attorney's fees merely for resisting the plaintiff's right to recover. See HECI Exploration Co. v. Clajon Gas Co., 843 S.W.2d 622, 638-639 (Tex. App.--Austin 1992, writ denied). However, a counterclaim for declaratory relief is appropriate where it is more than a mere denial of the plaintiff's claim and it has greater ramifications than the original suit. BHP Petroleum Co., 800 S.W.2d at 842. "A counterclaim has greater ramifications than the original suit if it seeks affirmative relief." Howell v. Mauzy, 899 S.W.2d 690, 706 (Tex. App.--Austin 1994, writ denied). To state a claim for affirmative relief, a defendant must allege a cause of action "independent of the plaintiff's claim on which the defendant could recover benefits, compensation, or relief, even if the plaintiff were to abandon or fail to establish his cause of action." Id. For example, in the context of suits asserting breaches of contracts or deeds, declaratory counterclaims seeking construction of such instruments may constitute claims for affirmative relief because, in contrast to a "one-time occurrence" giving rise to the plaintiff's suit, they concern the parties' ongoing and future relationship. BHP Petroleum Co., 800 S.W.2d at 840-42; Indian Beach Prop. Owners' Ass'n v. Linden, 222 S.W.3d 682, 702 (Tex. App.--Houston [1st Dist.] 2007, no pet.).

Appellees attempt to equate this case with decisions of this Court holding that certain declaratory counterclaims failed to state claims for affirmative relief. In Howell v. Mauzy, Howell sued Mauzy for violating the Texas Election Code and Mauzy counterclaimed for a declaratory judgment that all of his campaign activities complied with the Election Code. Howell, 899 S.W.2d at 706. This Court found that Mauzy was not entitled to recover on his declaratory judgment counterclaim because the claim "was expressly confined to denying liability on the claims Howell raised in his pleadings, and did not seek independent relief." Id. at 706-707. Similarly, in HECI Exploration Co., this Court held that a defendant gas company could not recover attorney's fees on its counterclaim in which it sought a declaration of its rights and obligations under a gas-purchasing contract with the plaintiff. HECI Exploration Co., 843 S.W.2d at 638-639. This Court noted that the parties had no ongoing relationship and that the alleged harm resulted from a one-time occurrence that was fully covered by the plaintiff's original suit. Id. Because the defendant's declaratory-judgment counterclaim sought nothing more than to avoid liability for its allegedly deficient performance under the contract, the defendant could not recover attorney fees under the declaratory judgments act. Id.

The Owenses' declaratory-judgment counterclaim is distinguishable from those in Howell and HECI because it seeks affirmative relief beyond the subject of appellees' suit. While appellees' suit is predicated on the violation of restrictive covenants prohibiting the placement of mobile homes on the Owenses' property, the Owenses counterclaim alleges that appellees' "Amendment/Extension of Deed Restrictions" "creates a cloud on Counter-Plaintiffs' land title" and seeks a declaration that the instrument is void in its entirety. The restrictions contained in the instrument include not only prohibitions against mobile homes, but also a ban on using the property for "any business, commercial, trade, mercantile or professional purpose"; a prohibition against subdividing the property; limitations on structures to single-family dwellings, minimum and maximum size restrictions on same, and prohibitions against using "modular, prefabricated or pre-built exterior or interior walls, or wall sections" in such structures; bans on the raising, breeding, or keeping of rabbits, poultry, dogs, cats or other animals other than household pets ("so long as no such household pets are kept in such numbers as to constitute an annoyance or nuisance to owners of other lots"); and a prohibition on "oil drilling, refining, or mining" on the lot. By seeking to invalidate these and other restrictions contained in the "Amendment/Extension of Deed Restrictions," the Owenses' counterclaim is one for affirmative relief extending beyond the subject matter of appellees' suit. We further observe that the declaration sought does not merely concern a past or current violation of restrictive covenants, but clarifies and defines the parties' ongoing relationship into the future. BHP Petroleum Co., 800 S.W.2d at 840-42; Indian Beach Prop. Owners' Ass'n., 222 S.W.3d at 702. We hold that the Owenses asserted a proper declaratory-judgment claim that potentially could support an award of attorney's fees, if the district court exercises its discretion to award them. See Tex. Civ. Prac. & Rem. Code Ann. § 37.009.

Appellees' cross-appeal

Damages

In their first issue, appellees complain that the district court abused its discretion in refusing to award them statutory damages on their claims to enforce the restrictive covenants applicable to the Owenses' two lots. Section 202.004 of the property code authorizes trial courts to assess civil damages for the violation of a restrictive covenant for an amount up to $200 per day of violation. See Tex. Prop. Code. Ann. § 202.004(c). The district court found that appellees had proven statutory damages of $6,000 from the roughly one-month period in which the Owenses had placed the mobile home on their .23-acre lot, and $99,000 from the period after the Owenses moved the mobile home to their .715-acre lot. Section 202.004, however, states that the court "may" award these damages, see Tex. Prop. Code. Ann. § 202.004(c), and the district court exercised its discretion not to award appellees any statutory damages.

Having held that the restrictive covenants in the deed to the Owenses' .715-acre lot were no longer in effect when they placed the mobile home on that property, we affirm the district court's judgment denying appellees statutory damages based on those acts. However, the Owenses have not challenged the district court's judgment that they violated the restrictive covenants on their .23-acre lot. The district court chose to exercise its discretion to deny appellees statutory damages for these violations in the context of rendering a judgment that granted appellees mandatory injunctive relief compelling them to remove the mobile home from their other lot. Now that we have reversed that injunction, we believe that the district court should have the opportunity to revisit how it should exercise its discretion in deciding whether to award appellees statutory damages for the Owenses' breach of the restrictive covenants on their .23-acre lot. Accordingly, we will remand this issue to the district court.

Appellees also complain that the district court abused its discretion in refusing to award them common-law damages for the Owenses' breach of restrictive covenants on the .715-acre lot. For the same reasons that they were not entitled to injunctive relief based on the Owenses' placement of a mobile home on this lot, appellees were not entitled to damages from those acts. Further, having reviewed the record, we find no evidence of such damages. Consequently, the district court did not abuse its discretion in its ultimate determination not to award appellees common-law damages for the Owenses' breach of restrictive covenants on the .715-acre lot.

Appellees' attorney's fees

Appellees also contend that the district court abused its discretion in refusing to award the
$14,024 that it found they had incurred in attorney's fees. Appellees rely on section 5.006 of the property code, which provides that a trial court "shall allow as to a prevailing party" who asserted an action based on breach of restrictive covenant "reasonable attorney's fees." Tex. Prop. Code Ann. § 5.006(a) (West 2003) (emphasis added). Appellees are no longer a prevailing party on their claims that the Owenses breached restrictive covenants encumbering their .715-acre lot. However, they remain a prevailing party on their claims concerning the Owenses' .23-acre lot. Accordingly, we remand to the district court to segregate and award the attorney's fees relating to this claim. See Varner v. Cardenas, 218 S.W.3d 68, 69 (Tex. 2007); Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 314 (Tex. 2006) (remanding because evidence of attorney's fees for entire case is some evidence of what amount of segregated fees should be).
The Owenses' appellate attorney's fees.

Finally, appellees contend that the district court erred as a matter of law in awarding the Owenses appellate attorney's fees conditioned on their success on appeal. They observe that, under the court's original judgment, the Owenses had no statutory or contractual basis for an attorney's fees award. The Owenses do not dispute this argument. We reverse this award but remand the issue to the district court for consideration alongside the Owenses' entitlement to attorney's fees under their declaratory judgment action.

CONCLUSION

We reverse the portions of the district court's judgment holding that the Owenses' .715-acre lot was encumbered by restrictive covenants past August 2001, that they violated such restrictions by placing a mobile home on that lot, and enjoining them to remove the mobile home from that property. We render judgment declaring that appellees' 2003 post-expiration "extensions" or "amendments" to these deed restrictions are void and ineffective. We affirm the district court's judgment denying appellees recovery of statutory and common-law damages for the Owenses' alleged breach of restrictive covenants on the .715-acre lot.

To enable the district court to exercise its discretion in light of our ruling, we reverse and remand the issues of (1) whether the Owenses should be awarded attorney's fees under their declaratory judgment claim, including appellate attorney's fees, and (2) whether appellees should be awarded their statutory damages under section 202.004 of the property code relating to the Owenses' breach of restrictive covenants encumbering their .23-acre lot. We also remand the issue of appellees' attorney's fees under section 5.006(a) of the property code so the district court can segregate and award the portion relating to the .23-acre lot.
__________________________________________
Bob Pemberton, Justice
Before Chief Justice Law, Justices Pemberton and Waldrop

Affirmed in part; Reversed and Rendered in part; Reversed and Remanded in part on
Motion for Rehearing
Filed: August 30, 2007

APPENDIX A

1. A survey plat illustrating the locations of the lots is attached as Appendix A.
2. The parties dispute whether the deed clearly identifies "owners of the property" authorized to amend the restrictions. Ultimately, we need not reach that issue.
3. On rehearing, appellees have clarified that "[n]o common law damages were sought for the .23 acre lot deed violation."
4. It is unclear whether the district court's judgment is also predicated on this theory. The court did not explicitly address this theory, although it made fact findings that appear possibly to address some but not all of its elements. To avoid deemed findings, the Owenses requested additional fact findings regarding each element, which the district court declined to make. However, because both parties briefed the issue, and because we ultimately conclude that the implied reciprocal easement theory cannot apply here, we proceed to address it.

Countrywide Home Loans v. Howard (Tex.App.-Austin, Jun. 19, 2007)

Countrywide Home Loans, Inc. v. Howard (Tex.App.- Austin, June 19, 2007)(Henson)

REVERSED AND RENDERED IN PART; REVERSED AND REMANDED IN PART:
Opinion by Justice Diane Henson
Before Chief Justice Law, Justices Puryear and Henson

Countrywide Home Loans, Inc. v. James A. Howard, Receiver for Tesher Corp.
Appeal from 200th District Court of Travis County

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 200TH JUDICIAL DISTRICT
NO. D-1-GN-05-002580, HONORABLE MARGARET A. COOPER, JUDGE PRESIDING

OPINION BY JUSTICE HENSON

Countrywide Home Loans, Inc. appeals a summary judgment rendered in favor of James A. Howard, as receiver for Tesher Corp. The trial court found that Howard's rights in a piece of real property have priority over Countrywide's lien on the same property because Howard had filed a notice of lis pendens before Countrywide filed its lien, which provided constructive notice to Countrywide of Howard's interest in the property. Countrywide argues that Howard's notice of lis pendens was improper and should be given no legal effect because Howard sought only a constructive trust on the property, which is a collateral interest in the property. Countrywide urges that in holding that Howard's rights have priority, the trial court necessarily decided that Howard's filing of the lis pendens was proper. Countrywide also complains that the trial court abused its discretion by awarding attorney's fees to Howard. Because we agree that the interest claimed by Howard was merely collateral and not a direct interest in the property, the lis pendens was improper and we will reverse the trial court's judgment.

BACKGROUND

Tesher Corp., an insurance entity with a short and unseemly history, was formed in January 2001. After only 18 months in business, Tesher was placed into receivership by the 345th Judicial District Court of Travis County. Upon being appointed receiver, Howard discovered that in October 2001, Rebecca J. McLain, a Tesher employee involved in an "intimate personal relationship" with Tesher's president and sole shareholder, John Tesseyman, obtained $144,500 of Tesher's funds to purchase a piece of real property located in Tyler, Texas. (1) The company also purchased a 2001 Volvo for McLain using $31,808.11 in company funds despite the fact that the car was titled in McLain's name. In addition, the company paid $10,000 in cash to McLain from Tesher's premium "trust" account.

After uncovering these questionable transactions, Howard sued McLain in August 2003, alleging that McLain had borrowed money from Tesher on an oral promise to repay, and that McLain had agreed to repay the funds to Tesher when she refinanced the property. Howard pleaded the following causes of action in his original petition: common-law fraud, constructive fraud, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, breach of contract, conversion, and negligence. Howard prayed for a judgment awarding actual damages of $185,300 and an unspecified amount of exemplary damages and, in the alternative, prayed for a judgment decreeing a constructive trust on the Tyler property and Volvo with McLain as the constructive trustee for the benefit of Tesher and a judgment ordering McLain to convey the property to Tesher.

Shortly after filing the lawsuit against McLain, on September 5, 2003, Howard filed a notice of lis pendens in the real-property records of Smith County, where the Tyler property was located, stating that he had filed an action that "ultimately seeks title to the property via a constructive trust." On September 25, 2003, McLain borrowed $100,000 from Aames Funding Corporation using the Tyler property as collateral. A week later, Aames assigned the loan to Countrywide. Neither Aames nor Countrywide searched the Smith County real-property records; neither had actual notice of Howard's claim against the property.

On June 28, 2005, Countrywide intervened in Howard's suit against McLain, requesting a declaratory judgment that its lien on the Tyler property securing the $100,000 loan to McLain has priority over any rights that Howard may acquire in the property. Countrywide argued that because the claims made by Howard did not authorize the filing of a notice of lis pendens, the notice of lis pendens did not provide constructive notice to Countrywide of Howard's claim against the property. Howard also requested a declaratory judgment that his rights in the property have priority over Countrywide's lien. Both parties filed summary-judgment motions. The trial court granted Howard's motion and denied Countrywide's. This appeal followed.

DISCUSSION

Standard of Review

Summary judgment is proper where the movant establishes that "there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law on the issues expressly set out in the motion." Tex. R. Civ. P. 166a(c). We review the summary judgment de novo, take as true all evidence favorable to the nonmovant, and indulge every reasonable inference and resolve any doubts in the nonmovant's favor. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). When both parties move for summary judgment on the same issue and the trial court grants one motion and denies the other, we review the evidence presented, determine the questions presented, and render the judgment the trial court should have rendered if we determine that it erred. Id.

Lis Pendens

A lis pendens is a "notice, recorded in the chain of title to real property . . . to warn all persons that certain property is the subject matter of litigation." Black's Law Dictionary 942-43 (7th ed. 1999). The purposes of a notice of lis pendens are to put those interested in a particular tract of land on inquiry about the facts and issues involved in the suit and to put prospective buyers on notice that they acquire any interest subject to the outcome of the pending litigation. Gene Hill Equip. Co. v. Merryman, 771 S.W.2d 207, 209 (Tex. App.--Austin 1989, no writ). As one author recently noted,

Lis pendens can be a powerful tool that can provide significant protection and leverage to the party seeking to establish an interest in a specific parcel of real estate. A lis pendens timely and properly filed can effectively halt very large real estate sales involving millions of dollars pending the outcome of litigation.

Gary Powell, Real Estate Remedies: Lis Pendens, 32 Tex. St. Bar Sec. Litig. Rep. 70, 70 (2005) (footnote call numbers omitted).

A notice of lis pendens may be filed during the pendency of an action involving (1) title to real property, (2) the establishment of an interest in real property, or (3) the enforcement of an encumbrance against real property. Tex. Prop. Code Ann. § 12.007(a) (West 2004). "An instrument that is properly recorded in the proper county is . . . notice to all persons of the existence of the instrument . . . ." Id. § 13.002(1) (West 2004). However, a document filed for record without statutory authorization does not impart constructive notice to third parties. See Burnham v. Chandler, 15 Tex. 441, 443 (1855) ("[A]s the registration law does not require or authorize the instrument of assignment referred to in this case to be recorded, the record would not be notice of the existence of such instrument.") (internal citations omitted); Tandy v. Dickinson, 371 S.W.2d 81, 82-83 (Tex. Civ. App.--Amarillo 1963, no writ) ("[T]he fact that Defendants' Exhibit I had been filed of record did not constitute constructive notice to appellee and his predecessor in title because it . . . was not such an instrument as to authorize it to be recorded."); City of Abilene v. Fryar, 143 S.W.2d 654, 659 (Tex. Civ. App.--Eastland 1940, no writ) ("[A]n instrument filed or recorded in violation of an express statutory prohibition would not constitute constructive notice.")

To satisfy section 12.007, the suit on which the lis pendens is based must claim a direct interest in real property rather than a collateral interest. In re Collins, 172 S.W.3d 287, 293 (Tex. App.--Fort Worth 2005, no pet.). In other words, the property against which the lis pendens is filed must be the subject matter of the underlying lawsuit. If the suit seeks a property interest only to secure the recovery of damages or other relief that the plaintiff may be awarded, the interest is merely collateral and will not support a lis pendens. Flores v. Haberman, 915 S.W.2d 477, 478 (Tex. 1995).

Pleadings to be Considered

Before turning to the merits, we must resolve a dispute between the parties concerning what evidence may be considered when determining whether Howard's notice of lis pendens was properly filed. (2) Countrywide asserts that only Howard's original petition, which was the pleading on file at the time the loan was made to McLain, may properly be considered. Howard, on the other hand, argues that his amended petition, which was filed after Aames had loaned the money to McLain, after the loan had been assigned to Countrywide, and after Countrywide intervened in Howard's suit against McLain, may be considered. (3)

We agree with Countrywide--the validity of a filing of a notice of lis pendens is judged by the pleadings on file at the time the transaction with respect to the property occurred. Letcher v. Reese, 24 Tex. Civ. App. 537, 540, 60 S.W. 256, 257 (Fort Worth 1900, no writ) ("Unless the suit as made by the pleadings on file at the time the Reeses bought was of such a nature as to authorize the court to declare and foreclose a lien on the lots, no amendment changing the nature of the case would affect a purchaser who took title before such amendment was filed."); Mansur & Tebbetts Implement Co. v. Beer, 19 Tex. Civ. App. 311, 313, 45 S.W. 972, 973 (San Antonio 1898, writ ref'd) ("The suit pending at the time of the transfer of the notes is the one that must serve as a basis for the rule of lis pendens and not matters raised by subsequent amendments or suits.").

Howard asks us to apply the relation-back doctrine to this situation, arguing that any after-filed pleading containing new legal theories that arise out of the same transaction or occurrence as those asserted in the original pleading should relate back to the date of the original filing, citing Lovato v. Austin Nursing Centers, Inc., 113 S.W.3d 45 (Tex. App.--Austin 2003) (op. on reh'g), aff'd, 171 S.W.3d 845 (Tex. 2005). In Lovato, this Court held that the relation-back doctrine applied to bar a defense of limitations against a survival action because of section 16.068 of the civil practice and remedies code and equitable principles. Id. at 54-55. Section 16.068 "is designed to protect litigants from loss of their claims by a plea of limitations." Id. at 54; see Tex. Civ. Prac. & Rem. Code Ann. § 16.068 (West 1997) ("If a filed pleading relates to a cause of action, cross action, counterclaim, or defense that is not subject to a plea of limitation when the pleading is filed, a subsequent amendment or supplement to the pleading that changes the facts or grounds of liability or defense is not subject to a plea of limitation unless the amendment or supplement is wholly based on a new, distinct, or different transaction or occurrence.").

The relation-back doctrine "originated as an equitable remedy" and "enables the court to arrive at conclusions that will effectuate justice." Lovato, 113 S.W.3d at 55. Extending the relation-back doctrine applicable in a limitations context to a lis pendens situation would not necessarily effectuate justice. To the contrary, inequitable results could occur, especially in light of the draconian nature of a lis pendens. A lis pendens has been called "the functional equivalent of an involuntary lien" because "it acts as a cloud on title." FDIC v. Walker, 815 F. Supp. 987, 990 (N.D. Tex. 1993). Such remedies should not be broadly construed. Under Howard's interpretation, any party could hold a piece of real property hostage simply by filing a notice of lis pendens--no one would be able to determine the validity of the lis pendens until after judgment was rendered because pretrial or trial amendments could retroactively validate the notice of lis pendens. We decline to extend the doctrine of relation-back to a lis pendens matter and will consider only Howard's original petition against McLain.

Collateral vs. Direct Interest

In its first issue, Countrywide claims that Howard's notice of lis pendens was invalid because Howard's underlying suit sought only a constructive trust in the real property and as such sought only a collateral interest in the real estate and cannot pass muster under Flores. Although the supreme court in Flores held that a claim for a "collateral interest" in real property does not authorize the filing of a notice of lis pendens, the court did not hold that the filing of a notice of lis pendens in connection with a lawsuit seeking a constructive trust on real property is per se unauthorized. 915 S.W.2d at 478. Rather, the court held that the interest asserted in Flores was collateral because "the plaintiffs seek a constructive trust in the purchased properties only to satisfy the judgment they seek." Id.

In actions seeking the imposition of a constructive trust on real property, the question whether an interest sought is collateral or direct is often a close one. Typically, in a conversion suit, the claimant alleges that the proceeds of the converted property were used to purchase real estate and then seeks a constructive trust on that real property. In these cases, the courts have found that imposing a constructive trust on the real estate to satisfy the judgment against the adversary is asserting only a collateral interest in the real property and that a lis pendens is improper. Id.; In re Wolf, 65 S.W.3d 804, 806 (Tex. App.--Beaumont 2002, orig. proceeding). In contrast, where the constructive trust is sought to restore to the aggrieved party the actual property that was misappropriated, the action is seeking to establish an interest in the property itself, so that a lis pendens is appropriate. First Nat'l Petroleum Corp. v. Lloyd, 908 S.W.2d 23, 25 (Tex. App.--Houston [1st Dist.] 1995, no writ).

To determine whether Howard's filing of a notice of lis pendens was proper, we must examine what the nexus is between the underlying suit against McLain and the property in question. Here, the crux of the claim against McLain is that she illegally obtained corporate funds and used those funds to buy real property. This is not a case where the corporation owned certain real property and McLain tricked or deceived the company into transferring the real property to her. In this case, Howard sought a constructive trust on McLain's real property to secure payment of a judgment. Thus, there is an insufficient nexus between the subject matter of the claim and the real property to authorize the filing of a notice of lis pendens. Flores, 915 S.W.2d at 478; In re Wolf, 65 S.W.3d at 806; Moss v. Tennant, 722 S.W.2d 762, 763 (Tex. App.--Houston [14th Dist.] 1986, orig. proceeding).

Howard argues that First National Petroleum Corp. v. Lloyd and Teve Holdings Ltd. v. Jackson, 763 S.W.2d 905 (Tex. App.--Houston [1st Dist.] 1988, no writ), support his assertion that his allegations against McLain are sufficient to support the filing of a notice of lis pendens. We disagree. Jackson was decided before Flores, the controlling supreme court precedent, and Lloyd is distinguishable. In Lloyd, the intervenor alleged that one of the defendants fraudulently induced it to convey real property and sought "rescission of the parties' agreement and restitution of [the property]." 908 S.W.2d at 24-25. Unlike Howard, the intervenor in Lloyd sought a direct interest in the property because the subject matter of its suit concerned the property.

Because Howard alleged that McLain used funds that were illegally obtained from Tesher to purchase real property in Tyler and that Howard should thus be awarded a constructive trust on the property, Howard asserted only a collateral interest in the property, which was insufficient to authorize his filing of a notice of lis pendens. Consequently, the notice of lis pendens did not impart constructive notice of Howard's claim to Countrywide. Accordingly, we sustain Countrywide's first issue, reverse the trial court's summary judgment in favor of Howard, and render judgment that Countrywide's lien on the Tyler property has priority over any rights in the property that Howard may have acquired in his suit against McLain.

Attorney's Fees

In its second issue, Countrywide urges that the trial court abused its discretion by awarding attorney's fees to Howard, arguing that the award of fees was not equitable or just because the trial court wrongly decided the merits. The Uniform Declaratory Judgments Act provides that a court may award court costs and reasonable and necessary attorney's fees as long as the award is "equitable and just." Tex. Civ. Prac. & Rem. Code Ann. § 37.009 (West 1997). A court may even award costs and fees to a party who did not prevail. Barshop v. Medina County Underground Water Conservation Dist., 925 S.W.2d 618, 637 (Tex. 1996); Scottsdale Ins. Co. v. Travis, 68 S.W.3d 72, 77 (Tex. App.--Dallas 2001, pet. denied). But in light of our disposition of this case, the trial court may wish to reconsider its award of attorney's fees to Howard. We therefore reverse the trial court's ruling regarding attorney's fees and remand the issue to the trial court for further consideration. See Barshop, 925 S.W.2d at 637-38; Travis, 68 S.W.3d at 77.

CONCLUSION

Having concluded that the trial court erred by granting summary judgment in favor of Howard, we reverse the trial court's summary judgment and render judgment that Countrywide's lien on the Tyler property has priority over any rights that Howard has in the property. Because of this holding, we reverse the trial court's award of attorney's fees and remand that issue for further consideration.
_____________________________________
Diane Henson, Justice
Before Chief Justice Law, Justices Puryear and Henson
Reversed and Rendered in part; Reversed and Remanded in part
Filed: June 19, 2007

1. McLain stated that the funds represented a gift.
2. It is unclear whether the trial court considered Howard's first amended petition. The first amended petition was included in Howard's summary-judgment evidence. Countrywide objected to its inclusion, but the record does not contain a ruling on that objection. The trial court's order granting summary judgment states that "[t]he Court has considered the summary judgment evidence presented," but the final judgment, which was entered after resolution of an attorney's fee issue, mentions only the original petition.
3. Howard's first amended petition added allegations that "Tesher Corp. was to be the purchaser of the Property," that "the Property would not have been titled in the Defendant's name but for the Defendant's wrongdoing," and that "Tesher Corp. is the equitable owner of the Property."

Smith v. Lagerstam (Tex.App.- Austin, Jun. 1, 2007)(Dissent by Patterson)

DISSENTING OPINION: Dissenting Opinion by Justice Patterson
(Before Chief Justice Law, Justices Patterson and Puryear)

Jackie Doss Smith v. Virginia Lagerstam, Emil Lagerstam, Kathryn Lagerstam Wilbeck, Vivian Lagerstam Savage, and Annika Lagerstam Kaye
Appeal from 345th District Court of Travis County

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 345TH JUDICIAL DISTRICT
NO. GN402753, HONORABLE MARGARET COOPER, JUDGE PRESIDING

D I S S E N T I N G O P I N I O N

Mindful that we may not relax a movant's burden in a summary judgment proceeding so as to deprive a litigant of the right to trial by jury, I would conclude that this case turns on the inadequacy of the Lagerstams' motion for summary judgment--an issue clearly preserved on appeal. Because a material fact issue exists on elements of Smith's causes of action and the Lagerstams' motion is entirely inadequate with respect to Smith's cause of action for unilateral mistake, I respectfully dissent.

BACKGROUND

Smith's father, Clarence T. Doss--now deceased--and his sister, Virginia Lagerstam, inherited identical mineral interests to land in Robertson County, Texas. Smith inherited her father's interest when he died. In 1984, Smith and Virginia Lagerstam leased their mineral interests to XTO Energy by separate oil and gas leases. These leases were included in a pooled unit known as the Biggs Gas Unit. Under the terms of their leases and the unit designation, Smith and Virginia were each entitled to receive a .0009901 royalty interest on production from wells on the unit.

From 1985 to 2002, Smith received small royalty payments on the Biggs Gas Unit, which had one well, the Biggs #1 Well. In 2002, a second well was drilled on the unit, the Biggs #2,
and in 2003, a third well, the Biggs #12 well, was drilled. In January 2004, Smith and Virginia were both receiving royalty payments on the three wells in the approximate amount of $350 per month. (1)

In February 2004, Smith received an unsolicited offer in the mail from San Saba Royalty to purchase her .0009901 royalty interest in the Biggs Gas Unit for $6658.99. At about the same time, Smith learned that her disabled son needed $6000 to pay back taxes on his home. In her affidavit in response to the summary judgment motion, Smith averred that she was a widow, had no other source of income, and had been unable to help her son. Because the offer provided an opportunity for her to help her son, she decided to investigate the offer further. Knowing that her aunt Virginia had a royalty interest identical to hers, and assuming that Virginia had received the same offer, Smith called Virginia for advice. Smith averred that she believed Virginia and her husband Emil had greater business knowledge, particularly about matters related to royalties and oil and gas. Smith explained her son's tax problem and her desire to help him, and sought Virginia's advice. Smith averred that Virginia said she would talk to Emil and call Smith back. In her deposition, Virginia confirmed that Smith needed the money for her son.
The parties dispute other aspects of the telephone call.

After discussing the matter with Emil, the next day Virginia contacted Smith and offered to purchase Smith's royalty interest for the same price offered by San Saba. Virginia explained that she wanted to give the interest to her three daughters. Smith averred that she told Virginia that she was not aware she could sell her interest to someone other than the company that had made the offer. Virginia assured her that they could buy the interest and expressed her desire that Smith deed the interest in the wells directly and in equal portions to the daughters. Because she considered the sale a good way to help her son and also to keep the royalty interest in the family, Smith agreed to sell her interest to the Lagerstams and deed the interest over to the daughters.

The Lagerstams proceeded to prepare the papers. Smith received her last royalty check before signing over the deeds; the check dated February 20, 2004, was in the amount of $353.85. On March 9, 2004, Virginia and Emil Lagerstam traveled to Austin and met with Smith. Smith executed three royalty deeds prepared by the Lagerstams' attorney and received a check from the Lagerstams for $6660. Smith averred that she "trusted Virginia and Emil to have the deeds prepared to reflect" their agreement. She understood that she was selling to the Lagerstams exactly the same interest that San Saba offered to purchase--her royalty interest in the Biggs Gas Unit. Smith sent the $6660 to her son to pay his back taxes on his home.

After executing the deeds, Smith received three royalty checks from XTO Energy which she understood were for production prior to the sale. On March 19, she received a check for $510.10 as royalty on the Biggs #'s 1, 2, and 12 wells. For the first time, however, the check included royalties for a new well known as the Biggs #7 well. On April 20, she received a check in the amount of $1025.90 as royalties for the Biggs #1, 2, 7, and 12 wells, as well as another new well, the Biggs #4. On May 20, she received a third check in the amount of $974.85 as royalties on production from all five wells--Biggs #'s 1, 2, 4, 7, and 12. Because she thought that the payments on the two additional wells were a mistake, she attempted to contact XTO Energy to inquire about them.

On June 10, 2004, Smith received by mail (i) a transfer order from XTO Energy showing the transfer of her royalty interest to the Lagerstams' daughters and (ii) a new offer to purchase her royalty interest from San Saba--this one for $62,651.38. The transfer order listed all five Biggs Gas Unit wells. Smith immediately contacted XTO Energy and obtained confirmation that her interest had included five wells, rather than three. She also spoke with Hal Coons of San Saba who reaffirmed the offer to purchase. Smith averred that she learned for the first time through these conversations that there were five wells and that her interest in all of the wells had been conveyed to the Lagerstams' daughters.

After receiving the revised San Saba offer, Smith contacted Virginia and told her about the additional offer and the two new wells. Smith explained the mistake and asked Virginia if they could "undo" the transaction. Virginia declined and said that it was impossible to undo the transaction.

Smith subsequently learned that the Biggs #7 well, on which she first received royalties on approximately March 19, was completed in January 2004 and that the Biggs #4 well, on which she first received royalties on April 20, was completed in February 2004. Thus, both wells had been completed and were producing before Smith agreed to sell her royalty interest to the Lagerstams, but she received no payments on the wells until after she had signed the deeds over to the Lagerstam daughters. Smith wrote a letter to the three daughters explaining the background of the wells and how she learned of the two new wells. She advised them: "I assumed that I was only selling a royalty interest that would pay $200-$300 per month. I don't know if Virginia knew about the two new wells, but if she did, she didn't tell me." Smith offered to refund the purchase price and to pay for any legal fees necessary to transfer the interests to her own children who had had a "tough time economically" and to whom the additional income would mean a lot. She concluded, "I hope you can find it in your heart to help me and, more important, my children."

In her affidavit filed in response to the summary judgment motion, Smith averred that she did not know of the two additional wells when she signed over the deeds. According to Virginia's affidavit in support of the Lagerstams' motion, neither did the Lagerstams:
As of March 9, 2004, I had no knowledge of the status of the wells existing being drilled and/or being planned to be drilled. My only knowledge consisted of the information attached to the monthly royalty checks which would be the same information that Plaintiff would receive. I had no knowledge that additional wells were being drilled or had been drilled, or were being planned to be drilled. I made no representation to the Plaintiff on any of these matters because I had no knowledge about the wells.

The Lawsuit

In two causes of action, Smith filed suit to rescind the three deeds on the grounds that the deeds were the result of a mutual or a unilateral mistake. Specifically, she urged that the deeds by mutual mistake conveyed more than the parties intended. In her second cause of action, she alleged that she executed the deeds in error and that the transaction did not reflect her understanding and agreement as to the interests being sold. She alleged that she did not fail to exercise ordinary care under the circumstances in signing the deeds as prepared by her aunt and uncle's attorney. Smith asked that the deeds be reformed to convey only her interest in royalties on production from the Biggs Gas Unit Well #'s 1, 2, and 12 or, in the alternative, that the transaction be rescinded.

Summary Judgment Motion

In a one-and-a-half-page motion for summary judgment filed pursuant to Texas Rule of Civil Procedure 166a(b) and (i) with no citation to authority, the Lagerstams contend that they were entitled to summary judgment because Smith failed to adduce any evidence that the mistake was mutual and that the Lagerstams "never said or did anything to indicate that the sale was supposed to be a transfer only of an interest that involved a certain number of then existing wells." They assert that "[t]he Affidavit evidence conclusively establishes that the Defendants, the Purchasers of the interest, never intended for their purchase to be anything other than for the entire interest owned by Plaintiff," and that "[n]either law nor fact supports the Plaintiff's attempt to set aside the transaction on the basis of an alleged unilateral mistake on her part." Attached to the motion are Virginia's affidavit; San Saba's February 9, 2004 letters with the initial purchase offer; the three mineral and royalty deeds conveying Smith's interest to the three daughters; Emil Lagerstam's check payable to Smith in the amount of $6660; an offer to purchase Virginia's interest in the amount of $1087.50, dated March 5, 2004, from another company; and Smith's letter to the daughters requesting rescission, dated July 1, 2004. The Lagerstams also submitted excerpts of the deposition transcripts of Smith, Virginia Lagerstam, and Emil Lagerstam.

To controvert the Lagerstams' motion, Smith filed a response to which she attached the following evidence: Smith's affidavit appending five exhibits showing the San Saba offers, the conveyancing documents, and the division transfer order and XTO Energy documents showing the additional wells; the affidavit and resume of Wayman T. Gore, Jr., a consulting petroleum engineer who opined as to the present value of Smith's royalty interest in the existing and additional wells; excerpts of the depositions of Virginia and Emil Lagerstam; and Virginia's affidavit.

The trial court granted the Lagerstams' motion without specifying its grounds. Smith now appeals, claiming the trial court erred in granting summary judgment because the summary judgment proof establishes evidence in support of the elements challenged by the motion and, in any event, raises genuine issues of material fact.

ANALYSIS

On appeal, Smith contends that the trial court erred when it granted the Lagerstams' motion because issues of material fact exist regarding whether the deeds should be rescinded on the basis of a mutual or unilateral mistake. Citing only to Rule 166a(b) and (i) and relying on no case law, the Lagerstams' motion does not otherwise specify the type of summary judgment they seek. Nor do they join issue on appeal as to whether their motion is a "traditional" or a no-evidence motion. (2) They claim that they always intended to acquire Smith's entire royalty interest, that any mistake alleged was not mutual, and that any unilateral mistake was the result of Smith's carelessness.

Standard of Review

We review summary judgments de novo. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). A party filing a traditional motion for summary judgment must prove that "there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law on the issues expressly set out in the motion." Tex. R. Civ. P. 166a(c); Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548 (Tex. 1985). If the movant's motion and summary judgment evidence establish its right to judgment as a matter of law, the burden shifts to the nonmovant to defeat summary judgment. The nonmovant then has the burden to respond to the motion and to present to the trial court any issues that would preclude summary judgment. City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex. 1979). Summary judgment is appropriate only when there are no disputed issues of material fact and the moving party is entitled to judgment as a matter of law. Nixon, 690 S.W.2d at 548. In deciding whether there exists a disputed fact issue precluding summary judgment, we treat evidence favorable to the nonmovant as true, and we must resolve every doubt and indulge all reasonable inferences in the nonmovant's favor. Id. at 548-49. The Lagerstams--in their motion--had the burden to disprove as a matter of law at least one essential element of each of Smith's theories of recovery or to plead and conclusively establish each element of an affirmative defense. See Centeq Realty, Inc. v. Siegler, 899 S.W.2d 195, 197 (Tex. 1995). Because they did not plead or seek to establish an affirmative defense, they were required to disprove an element of Smith's theories of recovery.

The party moving for no-evidence summary judgment must assert only that there is no evidence of one or more essential elements of a claim or defense on which the nonmovant would have the burden of proof at trial. Tex. R. Civ. P. 166a(i). The burden then shifts to the nonmovant to produce evidence raising a fact issue on the challenged elements. Id. In reviewing a no-evidence motion for summary judgment, we ascertain whether the nonmovant pointed out summary judgment evidence of probative force to raise a genuine issue of fact as to the essential elements attacked in the no-evidence motion. Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193, 206-08 (Tex. 2002). A no-evidence motion for summary judgment must be granted if the party opposing the motion does not respond with competent summary judgment evidence that raises a genuine issue of material fact. Tex. R. Civ. P. 166a(i).

A no-evidence summary judgment is improper if the respondent brings forth more than a scintilla of probative evidence to raise a genuine issue of material fact. Id.; Forbes Inc. v. Granada Biosciences, Inc., 124 S.W.3d 167, 172 (Tex. 2003). "Less than a scintilla of evidence exists when the evidence is 'so weak as to do no more than create a mere surmise or suspicion' of a fact." King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 751 (Tex. 2003) (quoting Kindred v. Con/Chem, Inc., 650 S.W.2d 61, 63 (Tex. 1983)). More than a scintilla of evidence exists if it would allow reasonable and fair-minded people to differ in their conclusions. Id. As with a Rule 166a(c) summary judgment, we take as true all evidence favorable to the nonmovant, and we make all reasonable inferences therefrom in the nonmovant's favor, disregarding all contrary evidence and inferences. Id.

A summary judgment motion under Rule 166a(b) may be combined with a Rule 166a(i) motion as it appears it was here. The fact that the Lagerstams as movants attached evidence to the motion does not foreclose it from also asserting that there is no evidence of a particular element. See Binur v. Jacobo, 135 S.W.3d 646, 650-51 (Tex. 2004).

When, as in this case, the order granting summary judgment does not specify the grounds upon which the trial court relied, we must affirm the summary judgment if any of the theories advanced in the motion is meritorious. Joe v. Two Thirty Nine Joint Venture, 145 S.W.3d 150, 157 (Tex. 2004).

Mutual Mistake

In their motion for summary judgment, the Lagerstams first contend that there is no evidence that the Lagerstams "intended for the transaction to be limited as Plaintiff claims." Virginia's affidavit, they claim, "conclusively establishes that the Defendants, the Purchasers of the interest, never intended for their purchase to be anything other than for the entire interest owned by the Plaintiff." They assert that "the most basic element of this cause of action is that the mistake was mutual" and there is "no evidence that the Defendants intended for the transaction to be limited as Plaintiff claims."

When parties have contracted based on misconception or ignorance of a fact, mutually held by the parties, which materially affects the agreed-upon exchange, either party is entitled to have the transaction set aside. Williams v. Glash, 789 S.W.2d 261, 264 (Tex. 1990). The elements of mutual mistake that must be proved by the plaintiff to prevail at trial are (i) a mistake of fact; (ii) held mutually by the parties; (iii) which materially affects the agreed-upon exchange. Barker v. Roelke, 105 S.W.3d 75, 84 (Tex. App.--Eastland 2003, pet. denied); de Monet v. PERA, 877 S.W.2d 352, 357 (Tex. App.--Dallas 1994, no writ) (citing Restatement (Second) of Contracts § 152 (1981)).

A motion for summary judgment must rest on the grounds expressly presented in the motion. McConnell v. Southside Indep. Sch. Dist., 858 S.W.2d 337, 339 (Tex. 1993). The motion must state, with specificity, the grounds upon which the movant is relying. Brewer & Pritchard, P.C., 73 S.W.3d at 204. The rationale for this requirement is to force the movant to define the issues and give the nonmovant adequate notice for opposing the motion. McConnell, 858 S.W.2d at 343-44. To determine if the grounds are expressly presented in the motion, neither the court nor the movant may rely on supporting briefs or summary judgment evidence. Id. at 340-41.
By their motion for a traditional summary judgment, the Lagerstams were required to show that they were entitled to judgment as a matter of law and that no genuine issue of material fact exists. See Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215-16 (Tex. 2003). A summary judgment movant bears this burden only when moving for traditional summary judgment. When the movant does not meet its burden of proof to show its entitlement to summary judgment, the burden does not shift to the nonmovant to raise a fact issue. M. D. Anderson Hosp. v. Willrich, 28 S.W.3d 22, 23 (Tex. 2000). (3)

In their motion, the Lagerstams first moved for summary judgment on Smith's causes of action, seeking to prove with summary judgment evidence that Smith has no cause of action. They assert that there is no evidence of mutual mistake because there is no evidence that the Lagerstams intended to purchase only Smith's interest in the three wells on which they were both receiving royalties. They assert as grounds for the motion that they "never intended for their purchase to be anything other than for the entire interest owned by the Plaintiff." But Smith is not asserting that the deeds conveyed more than she intended to convey; rather, she asserts that the transaction was founded on the parties' mutually mistaken belief that, at the time of the transaction, there were three wells on the Biggs Gas Unit, when in fact there were five. Thus, the parties present contradictory evidence as to what was known at the time of conveyance and what was intended to be conveyed.

In the first instance, the Lagerstams did not establish that they were entitled to summary judgment as a matter of law. By merely disputing that the mistake was mutual, they did not carry their burden to disprove at least one element of the plaintiff's theory of recovery. At most, they created a fact issue. In a traditional summary judgment motion, evidence and reasonable inferences are viewed in the light most favorable to the nonmovant, Smith, and we must indulge every reasonable inference and resolve all doubts in Smith's favor. See Nixon, 690 S.W.2d at 549. The burden did not shift to Smith until the Lagerstams conclusively established their entitlement to summary judgment. See M. D. Anderson Hosp., 28 S.W.3d at 23. Even then, Smith's summary judgment response did not have to establish a fact as a matter of law. Rather, Smith had only to raise an issue of fact material to the outcome of the case. See Tex. R. Civ. P. 166a(c); Centeq Realty, Inc., 899 S.W.2d at 197.

Accordingly, after reviewing the evidence, I would hold that a fact question exists as to the only ground asserted for summary judgment: whether any mistake of fact was mutual. In light of the conclusory nature of the motion and the questions of Smith's and Virginia's intent, state of mind, and credibility on the issues in the case, these issues pose classic questions of fact for resolution by a jury. The majority missteps into the shoes of the fact finder and resolves these issues without reference to the requirement that we resolve such doubts and inferences in the nonmovant's favor.

Moreover, by urging that Smith "is put to the burden of proving the essential elements" of her causes of action and that there is "no evidence that the Defendants intended for the transaction to be as limited as Plaintiff claims," the Lagerstams in effect are asserting a no-evidence motion rather than a traditional motion. And the only ground asserted in the motion is that the mistake was not mutual because the belief was not also held by the Lagerstams.

The mistake of fact alleged by Smith is the number of producing wells on the Biggs Gas Unit at the time of the sale. Smith's affidavit and Virginia's affidavit agree that neither knew any more about the number of wells on the unit than the information provided on their check stub from XTO Energy. According to the check stubs they were receiving prior to the sale, there were three producing wells on the gas unit, paying royalties to Smith of approximately $350 per month. The summary judgment evidence is undisputed that neither of the parties knew anything about the two additional producing wells at the time of the sale. Smith was only required to produce more than a scintilla of evidence to defeat summary judgment. This evidence alone raises a fact issue that there was a mistake of fact held mutually by the parties. The Lagerstams did not show their entitlement to summary judgment and, in any event, Smith raised questions of material fact to defeat the motion.

Unilateral Mistake

Even assuming the Lagerstams carried their burden as to Smith's mutual mistake theory, their motion was deficient with respect to their second ground, which attacked in one sentence Smith's second cause of action. In their second ground for summary judgment, the Lagerstams refer to Smith's allegation of unilateral mistake. The entirety of their motion as to unilateral mistake states: "Neither law nor fact supports the Plaintiff's attempt to set aside the transaction on the basis of an alleged unilateral mistake on her part." They cite no authority and, except for a reference to Virginia's affidavit, they fail to point to relevant facts. This declaration is deficient and fails to satisfy the Lagerstams' summary judgment burden under either traditional or no-evidence summary judgment requirements.

A party is entitled to set aside a transaction for unilateral mistake if (i) the mistake relates to a material feature of the contract, (ii) the mistake is so great that to enforce the contract would be unconscionable, (iii) the mistake was not the result of a lack of ordinary care, and (iv) rescission does not result in prejudice to the other party, other than the loss of his bargain. James T. Taylor & Son, Inc. v. Arlington Indep. Sch. Dist., 335 S.W.2d 371, 373 (Tex. 1960). A contract cannot be avoided for unilateral mistake where a party's "ignorance of the facts was the result of carelessness, indifference, or inattention." Roland v. McCullough, 561 S.W.2d 207, 213 (Tex. Civ. App.--San Antonio 1978, writ ref'd n.r.e.).

Regardless of whether we view the Lagerstams' motion as to unilateral mistake as a traditional or no-evidence motion, it is defective and insufficient. A summary judgment motion must clearly set forth its grounds and meet the rule's requirements. Binur, 135 S.W.3d at 651. Consisting of only a single sentence, the Lagerstams' motion cites to no authority and refers to no evidentiary facts. Because it fails to show any entitlement to summary judgment, it fails to satisfy the requirements of a traditional summary judgment motion. The Lagerstams' single sentence did not shift the rule 166a(c) summary judgment burden from the Lagerstams, the movants, to Smith, the nonmovant. See M. D. Anderson Hosp., 28 S.W.3d at 23.

In addition, the declaration that "neither law nor facts supports plaintiff's attempt to set aside the transaction on the basis of" unilateral mistake is deficient to qualify as a 166a(i) motion because the motion fails to specify either the elements of the cause of action or the elements challenged as lacking evidence to support them. Although the mere filing of a proper no-evidence motion shifts the burden to the nonmovant, and the motion need not be detailed, it must still meet certain requirements. It must first state the elements for which there is no evidence. Tex. R. Civ. P. 166a(i); Southwest Elec. Power Co. v. Grant, 73 S.W.3d 211, 215 (Tex. 2002). A defendant's motion must state the elements of the plaintiff's cause of action and specifically challenge the evidentiary support for an element of that claim. Tex. R. Civ. P. 166a(i) cmt.; Lampasas v. Spring Ctr., Inc., 988 S.W.2d 428, 436 (Tex. App.--Houston [14th Dist.] 1999, no pet.).

Second, the motion cannot be conclusory or generally allege that there is no evidence to support the claims. Id. A motion, as here, that merely states that there is no evidence to support the other party's claim is insufficient. See, e.g., David Hittner and Lynne Liberato, Summary Judgments in Texas, 47 S. Tex. L. Rev. 409, 416 (2006) (citing Abraham v. Ryland Mortgage Co., 995 S.W.2d 890, 892 (Tex. App.--El Paso 1999, no pet.) and Lampasas, 988 S.W.2d at 436). The Lagerstams fail both to specify the elements of Smith's claim and to state which elements lacked evidentiary support.

In any event, assuming arguendo that the Lagerstams' motion was sufficient in any respect, Smith was required to produce more than a scintilla of evidence in response to the Lagerstams' 166a(i) motion. This she did. Smith produced ample evidence on each element of this cause of action; the Lagerstams did not reply to Smith's response.

The mistake alleged by Smith--her understanding that there were three producing wells on the Biggs Gas Unit--relates to a material feature of the agreement. The facts as adduced by Smith at least raise a fact issue as to whether Smith showed such carelessness, indifference, inattention or lack of good faith to deny her equitable relief. The Lagerstams do not dispute that Smith had no knowledge about mineral interests. Virginia disputes that Smith called the Lagerstams for advice because they had superior knowledge of the business of royalty interests and oil and gas, but Virginia avers that they did not investigate the status of the Biggs Gas Unit any more than Smith did before agreeing to the transaction. Although the Lagerstams argue on appeal that Smith should have known that her royalty interest involved multiple wells and that the number of wells on the unit was increasing, in her affidavit Virginia averred that "I had no knowledge of the status of the wells existing being drilled and/or being planned to be drilled." Smith averred as to how she came to learn after the transaction that two new wells were drilled on the property just prior to the conveyance. This evidence alone raises a fact issue that there was a material mistake of fact that was not the result of a lack of ordinary care. Moreover, the evidence shows--and is undisputed--that the magnitude of the mistake was considerable and that rescission would not result in prejudice to the other party other than the loss of the bargain. The Lagerstams failed to carry their summary judgment burden.

CONCLUSION

I would hold that the Lagerstams did not carry their burden to demonstrate their entitlement to summary judgment, that Smith demonstrated that genuine issues of material fact exist on elements of her causes of action, and that the district court erred in rendering summary judgment in favor of the Lagerstams.

__________________________________________
Jan P. Patterson, Justice
Before Chief Justice Law, Justices Patterson and Puryear
Filed: June 1, 2007

1. The January and February 2004 royalty checks were $329.90 and $353.85, respectively.
2. Although Smith on appeal characterized the Lagerstams' motion for summary judgment as a traditional motion, she nevertheless responded to both types of motions. While a party may move for both traditional and no-evidence summary judgment in a single document, it is advisable to use headings to separate the different claims, see Binur v. Jacobo, 135 S.W.3d 646, 651 (Tex. 2004), or, at least, because the motions are distinct and invoke different standards of review, that the motions be set forth so that they give adequate notice of the grounds on which they are based. A summary judgment must stand or fall on its own merits. In determining whether grounds are expressly presented, reliance may not be placed on briefs or summary judgment evidence. McConnell v. Southside Indep. Sch. Dist., 858 S.W.2d 337, 341 (Tex. 1993). For purposes of this discussion, I have assumed that the Lagerstams asserted both traditional and no-evidence motions.
3. A movant must establish its entitlement to summary judgment, the motion must stand on its own merit, and even a nonmovant's failure to respond cannot supply by default the summary judgment proof necessary to establish the movant's right. City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex. 1979).