                                                                                    ACCEPTED
                                                                                03-15-00088-CV
                                                                                        5434027
                                                                     THIRD COURT OF APPEALS
                                                                                AUSTIN, TEXAS
                                                                           5/27/2015 1:43:19 PM
                                                                              JEFFREY D. KYLE
                                                                                         CLERK




                     No. 03-15-00088-CV                   FILED IN
               ____________________________________3rd COURT OF APPEALS
                                                   AUSTIN, TEXAS
                                                5/27/2015 1:43:19 PM
                    IN THE COURT OF APPEALS       JEFFREY D. KYLE
                FOR THE THIRD DISTRICT OF TEXAS         Clerk
                          AUSTIN, TEXAS
            __________________________________________

           GRAYCO TOWN LAKE INVESTMENT 2007 LP,

                                          Appellant,

                                 v.

                   COINMACH CORPORATION,

                                         Appellee.
          ______________________________________________

              Appealed from the County Court at Law No. 1
                        of Travis County, Texas
          ______________________________________________

                       BRIEF OF APPELLEE
         ________________________________________________

LAW OFFICES OF                  CARDWELL, HART & BENNETT, L.L.P.
R. KEMP KASLING, P.C.           J. Bruce Bennett
R. Kemp Kasling                 State Bar No. 02145500
State Bar No. 11104800          807 Brazos, Suite 1001
301 Congress Ave., Suite 300    Austin, Texas 78701
Austin, Texas 78701             Telephone: 512-322-0011
Telephone: (512) 472-6800       Facsimile: 512-322-0808
Facsimile: (512) 472-6823       E-mail: jbb.chblaw@sbcglobal.net
Email: kkasling@khdalaw.com
                        ATTORNEYS FOR APPELLEE
                  ORAL ARGUMENT NOT REQUESTED
                  IDENTITY OF PARTIES AND COUNSEL

Appellant             Grayco Town Lake Investment 2007, LP (“Grayco”)

Represented by:       Frederick T. Johnson
                      Cody W. Stafford
                      Akilah F. Craig
                      DOBROWSKI, LARKIN & JOHNSON, LLP
                      4601 Washington Ave., Suite 300
                      Houston, Texas 77007
                      (Trial and Appellate Counsel)

Appellee:             Coinmach Corporation (“Coinmach”)

Represented by:       R. Kemp Kasling
                      LAW OFFICES OF R. KEMP KASLING, P.C.
                      301 Congress Ave., Suite 300
                      Austin, Texas 78701
                      (Trial and Appellate Counsel)

                      J. Bruce Bennett
                      CARDWELL, HART & BENNETT, LLP
                      807 Brazos, Suite 1001
                      Austin, Texas 78701
                      (Appellate Counsel)




                                   ii
                                     TABLE OF CONTENTS

IDENTITY OF PARTIES AND COUNSEL ........................................................... ii

TABLE OF CONTENTS ........................................................................................ iii

INDEX OF AUTHORITIES .................................................................................... v

STATEMENT OF THE CASE ............................................................................. vii

ISSUES PRESENTED ................................................................................... vii, viii

    1. Does legally and factually sufficient evidence support the trial court’s
       finding that Grayco was not a bona fide purchase of the leased
       premises and was therefore bound by the lease with Coinmach? (In
       response to Appellant’s Issue 1)

    2. Does legally and factually sufficient evidence support the trial court’s
       finding that Grayco materially breached its obligations under the lease
       with Coinmach? (In response to Appellant’s Issue 2).

    3. Does legally and factually sufficient evidence support the trial court’s
       finding that Coinmach suffered damages resulting from Grayco’s
       breach of the lease with Coinmach? (In response to Appellant’s Issue
       3).

    4. Does legally and factually sufficient evidence support the trial court’s
       damages award to Coinmach? (In response to Appellant’s Issue 4).

STATEMENT REGARDING ORAL ARGUMENT .......................................... viii

STATEMENT OF FACTS………………………………………………………...1

        I.      Preliminary statement……………………………………………...…1

        II.     The 1992 lease between De Narde and McNair ….………………….1

                                                     iii
           III.      The 2002 lease between Bridge and Coinmach………………………2

           IV.       The supplement to the 2002 lease .…………………………………...3

           V.        The memorandum of the 2002 lease …………………………………5

           VI.       Grayco acquires the lease premises…………………………………..6

           VII. Grayco demolishes the lease premises……………………………….7

           VIII. The lawsuit and the final judgment…………………………..………9

SUMMARY OF THE ARGUMENT ..................................................................... 11

BRIEF OF ARGUMENT ....................................................................................... 12

STANDARD OF REVIEW .................................................................................... 12

ARGUMENT AND AUTHORITIES UNDER ISSUES 1 AND 2 ........................ 13

    I.            Grayco failed to prove that it was a bona fide purchaser without notice of
                  the 2002 lease ..…………………………………………………………13

    II.           Grayco was on notice of the 2002 lease because of Coinmach’s
                  possession of the laundry rooms..………………………………………17

    III.          Legally and factually sufficient evidence shows that Grayco breached the
                  2002 lease by wrongfully terminating it before its expiration………….19

ARGUMENT AND AUTHORITIES UNDER ISSUE 3 AND 4 .......................... 23

CONCLUSION AND PRAYER ............................................................................ 27

CERTIFICATE OF COMPLIANCE ..................................................................... 28

CERTIFICATE OF SERVICE .............................................................................. 29

                                                    iv
                                  INDEX OF AUTHORITIES

CASES

Alonso v. Alvarez, 409 S.W.3d 754
(Tex. App. – San Antonio 2013, pet. denied) ........................................................ .12

Birkenfeld v. Metro General Management, Inc., 2008 WL 696174
(Tex. App. – Amarillo 2008, no pet.) ..................................................................... 21

Beutell v. United Coin Meter Co., 462 S.W.2d 334
(Tex. Civ. App.—Waco 1970, writ ref’d n.r.e.) ..................................................... 17

Case Corp. v. Hi-Class Business Sys. of Am., Inc., 184 S.W.3d 760
(Tex. App. – Dallas 2005, no pet.)..………………………………………………22

City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005) ........................................... 12

Coleman v. Rotana, Inc., 778 S.W.2d 867
(Tex. App. – Dallas 1989, writ denied) .................................................................. 21

Daftary v. Prestonwood Market Square, 404 S.W.3d 807
(Tex. App. – Dallas 2013, pet. denied) ................................................................... 21

Doss v. Blackstock, 466 S.W.2d 59
(Tex. Civ. App. – Austin 1971, writ ref’d n.r.e.) .................................................... 13

Herbert v. Herbert, 754 S.W.2d 141 (Tex. 1988) .................................................. 12

Kerrville HRH, Inc. v. City of Kerrville, 803 S.W.2d 377
(Tex. App. – San Antonio 1990, writ denied) .................................................. 21, 26

Madison v. Gordon, 39 S.W.3d 604 (Tex. 2002) ................................................... 13

Rego Co. v. Brannon, 682 S.W.2d 677
(Tex. App. – Houston [1st Dist.] 1984, writ ref’d n.r.e.) ......................................... 12


                                                     v
Silberstein v. Laibovitz, 200 S.W.2d 647
(Tex. Civ. App. –Austin 1947, no writ) ............................................................ 20, 22

Sonnier v. Sonnier, 331 S.W.3d 211 (Tex. App. – Beaumont 2011, no pet.)…….10

Waggoner v. Morrow, 932 S.W.2d 627
(Tex. App. – Houston [14th Dist.] 1996, no pet.) .................................................... 14

Westland Oil Development Corp. v. Gulf Oil Corp., 637 S.W.2d 903
(Tex. 1982) ............................................................................................................. 13

Whaley v. Cent. Church of Christ of Pearland, 227 S.W.3d 228
(Tex. App. – Houston [1st Dist.] 2007, no pet.) ...................................................... 12

RULES

Tex. R. App. P. 9.4 ................................................................................................. 28

Tex. R. App. P. 38.1(g) ............................................................................................. 1

Tex. R. Civ. P. 297 ................................................................................................. 10




                                                            vi
                         STATEMENT OF THE CASE

      This appeal concerns whether the trial court correctly held Grayco liable to

Coinmach for breaching a 10-year laundry room lease with Coinmach covering the

laundry rooms at an apartment complex that Grayco bought from the original

lessor during the fifth year of the lease term. Following a bench trial, the trial

court rendered judgment awarding Coinmach damages and attorney’s fees against

Grayco. (C.R. 484). The trial court made no findings of fact or conclusions of law.

                             ISSUES PRESENTED

                                    Issue No. 1

      Does legally and factually sufficient evidence support the trial court’s
      finding that Grayco was not a bona fide purchase of the leased
      premises and was therefore bound by the lease with Coinmach? (In
      response to Appellant’s Issue 1)

                                    Issue No. 2

      Does legally and factually sufficient evidence support the trial court’s
      finding that Grayco materially breached its obligations under the lease
      with Coinmach? (In response to Appellant’s Issue 2).

                                    Issue No. 3

      Does legally and factually sufficient evidence support the trial court’s
      finding that Coinmach suffered damages resulting from Grayco’s
      breach of the lease with Coinmach? (In response to Appellant’s Issue
      3).


                                        vii
                                    Issue No. 4

      Does legally and factually sufficient evidence support the trial court’s
      damages award to Coinmach? (In response to Appellant’s Issue 4).

                STATEMENT REGARDING ORAL ARGUMENT

      Coinmach does not believe that oral argument is necessary. The material

facts and legal issues are clear and sufficiently presented. If, however, the Court

decides to hear oral argument, then Coinmach requests the opportunity to

participate.




                                        viii
                            STATEMENT OF FACTS

I. Preliminary statement.

      Grayco’s statement of facts is inconsistent with the standards of review

applicable to this appeal, incomplete, and violates Tex. R. App. P. 38.1(g).1 As

such, Grayco’s factual statement is unreliable and should be disregarded. The

following factual statement complies with Tex. R. App. P. 38.1(g) and is consistent

with the applicable standards of review.

II. The 1992 lease between De Narde and McNair.

      On March 11, 1992, De Narde Construction Company (“De Narde”), as

lessor, entered into a lease agreement (“the 1992 lease”) with McNair’s Coin

Laundry Company (“McNair”), as lessee, in which McNair leased “all present and

future laundry room areas” at what was then known as “the Windjammer

Apartments,” a multi-family apartment complex located at 1201 Town Creek in

Austin, Texas. (D. Ex. 1 [GP 000096]).

      As rent, McNair agreed to pay De Narde fifty percent (50%) “of the gross

receipts” that McNair collected from the coin-operated washers and dryers that

1
   For example, Grayco repeatedly asserts that it was unaware of the 2002 lease with
Coinmach covering the leased premises that Grayco purchased. (Brief of Appellant at 1,
3, 6). Such argumentative assertions have no place in a statement of facts. As shown
herein, they are incorrect as well.
                                           1
McNair installed on the premises. Id.

       The 1992 lease was for a term of ten years and provided that it would

automatically renew for an additional ten-year period, unless notice of cancellation

was given 90 days before the lease expired. (D. Ex. 2 [GP 000097]). The lease

also provided that it “shall automatically transfer to and be binding upon, any

individual, firm or corporation purchasing or acquiring title to the real property”

and would be “binding upon the transferees, heirs, and assignees of the parties.”

(D. Ex. 1 [GP 000097]).

III.   The 2002 lease between Bridge and Coinmach.

       Sometime before February 2002, Coinmach succeeded to McNair’s interest

as lessee under the 1992 lease, and Bridge Management Company (“Bridge”)

became the authorized agent for the owner of the leased premises. (RR 34; D. Ex.

2 [GP 000005]).

       On March 4, 2002, Bridge, “acting with full authority as the owner’s agent,”

and Coinmach entered into a new 10-year lease (the “2002 lease’) covering the

laundry room areas at the Windjammer Apartments, which were now known as the

“Regatta Apartments.” (RR 17, 34; D. Ex. 2 [GP 000004]).2 The 2002 lease


2
  The 2002 lease is dated January 30, 2002, but was signed by Bridge on February 20, 2002, and
by Coinmach on March 4, 2002. (D. Ex. 2 [GP 000005]).
                                               2
provided that it was “an extension, renewal, and modification of” the 1992 lease.

(D. Ex. 2, ¶ 14 [GP 000005]).

      One significant modification that the 2002 lease made to the 1992 lease

concerned the rent payable to the lessor. The 2002 lease provided that Coinmach

would “receive as minimum compensation $45.00 per machine, per month.” (D.

Ex. 2, ¶ 2 [GP 000004]). In other words, unlike the 1992 lease, Coinmach would

keep the first $45.00 of monthly gross receipts generated by each coin-operated

machine and would pay Bridge fifty percent (50%) of the monthly gross receipts

over $45.00 from each machine. (RR 19, 24, 25).

      The 2002 lease also provided that Coinmach would have “exclusive and

quiet use, possession and enjoyment” of the leased premises during the lease term,

which ended on March 4, 2012, and that the lessor would “clean and maintain the

premises” and all facilities required to properly operate the washing machines.

(RR 16-17; D. Ex. 2, ¶¶ 3, 6 [GP 000004]). The 2002 lease gave Coinmach the

right to terminate the lease on written notice to the lessor if “vandalism, theft, or

attempted theft at the premises” became “so excessive as to seriously affect

[Coinmach’s] ability to perform under the Lease.” (D. Ex. 2, ¶ 9 [GP 000005]).

The lessor had no right to terminate the lease before its expiration.


                                          3
IV.    The supplement to the 2002 lease.

       Contemporaneously with the execution of the 2002 lease, Bridge and

Coinmach also entered into a “Supplemental Agreement” covering “all coin

operated laundry space” at the Regatta Apartments. (D. Ex. 2 [GP 000006]).3

Pursuant to the terms of this Agreement, Coinmach paid Bridge $14,000.00 as a

“Lease Bonus/Decoration Allowance.” (RR 18; D. Ex. 3). However, the

Agreement provided that the lessor would refund the “unearned” prorated share of

the lease bonus/decoration allowance “if LESSEE, for any reason should be

required to remove its laundry equipment from these premises prior to the

expiration of the original term of the Lease.” (D. Ex. 2 [GP 000006]).

       Coinmach and Bridge agreed that the monthly value was “$116.67 for pro-

ration determination” purposes. (Id.). The Supplemental Agreement also provided

that the pro-ration determination “formula” related “only to calculating pro rata

return of the lease bonus/decoration allowance paid to LESSOR by LESSEE” and

that “[n]othing stated herein affects in any way LESSEE’S right to receive

compensation for lost income in the event of LESSOR’S breach of the lease


3
 Like the 2002 lease it supplements, the Supplemental Agreement is dated January 30, 2002, but
was signed by Bridge on February 20, 2002, and by Coinmach on March 4, 2002. (D. Ex. 2 [GP
000005]).

                                              4
agreement.” (Id.).

V.       The memorandum of the 2002 lease.

         On March 25, 2003, Coinmach filed a “Memorandum of Lease,” dated April

22, 2002 and executed on March 13, 2003, with the Travis County Clerk. (D. Ex.

4). The Memorandum advised that “BRIDGE MANAGEMENT CO.,” as

“LESSOR of the premises commonly known as REGATTA APTS, located at

1201 TOWN CREEK DR., AUSTIN, TX. 78741” and “COINMACH

CORPORATON, as Lessee did execute a written Lease Agreement” giving

Coinmach “the right to occupy the real estate on which all laundry rooms are or

will be situated on the land and premises named above under the terms and

conditions of said lease.” (Id.).4 The Memorandum also advised that “[c]opies of

said Lease (which is incorporated herein by reference) are on file at the respective

offices of Lessor and Lessee.” (Id.).5

         The Memorandum was duly recorded in the official public records of Travis

County. (Id.). The full text of the 2002 lease was not recorded. (RR 24). Coinmach

filed the Memorandum so that any new owner of the Regatta Apartments would

know of the existence of the 2002 lease. (RR 18-19).
4
    The capitalization and bolded language is in the original Memorandum of Lease.
5
    The Memorandum provided Coinmach’s office address in Austin, Texas.

                                                5
VI.    Grayco acquires the lease premises.

       On December 6, 2006, the owner of the Regatta Apartments entered into a

real estate contract with Grayco’s agent, Grayco Partners LLC (“Grayco

Partners”), to buy the Apartments for $6.9 million. (D. Ex. 5, ¶¶ 2.a, 3 [GP

000364]).6 The seller agreed to convey its interests in “all leases.” (D. Ex. 5, ¶

2.b.iii [GP 000364]). The seller also agreed to deliver “[c]opies of all current leases

pertaining to the Property, including any modifications, supplements, or

amendments to the leases.” (D. Ex. 5, ¶ 7.d.2 [GP 000367]). The real estate

contract obligated the seller to “not enter into any new leases or renew any leases

with terms of more than 6 months.” (D. Ex. 5, ¶ 7.e [GP 000368]).

       On April 17, 2007, while the real estate contract was still pending, a Grayco

representative, Savanna Sharpe-Bogardus, sent an email to Coinmach concerning

the laundry rooms at the Regatta Apartments. (D. Ex. 9). Among other things,

Bogardus informed Coinmach that “we” – the Grayco entities – were taking over

the Regatta Apartments (and another nearby apartment complex, the Shoreline)

and that “[w]e plan to keep as full as possible for 12 months, then empty them out
6
   John Britton signed the real estate contract on behalf of Grayco Partners. (D. Ex. 5 [GP
000376). Britton is an officer of Grayco as well as of Grayco Partners and various other Grayco
entities. (RR 80). Britton testified at trial that “we put the Regatta Apartments under contract in
late 2006.” (RR 81). Britton explained that Grayco Partners functions as “the operational
development company,” which obtains contracts to buy properties for Grayco, and then assigns
the contracts to Grayco before closing. (RR 82-83).
                                                    6
for demolition.” (Id.).

       On April 26, 2007, Grayco Partners assigned all of its right, title, and interest

in the real estate contract to Grayco. (D. Ex. 10 [000411]). Grayco assumed all of

Grayco Partners’ obligations under the real estate contract. (Id.).7

       On May 8, 2007, the real estate contract closed, and the seller conveyed the

Regatta Apartments to Grayco by general warranty deed.                       (D. Ex. 11 [GP

000423]). Excepted from the warranty and conveyance were the 1992 lease and

the 2002 lease “as evidenced by the Memorandum of Lease dated March 18, 2003,

recorded under Document No. 2003065071 of the Official Public Records of

Travis County, Texas.” (Id.). (D. Ex. 11 [GP 000426]). Grayco admitted finding

the Memorandum before closing and that the Memorandum referred to Coinmach.

(RR 82, 85).8

VII. Grayco demolishes the lease premises.

       Sometime after Grayco acquired the Regatta Apartments, Coinmach

complained to Grayco’s managing agent, Greystar, that Coinmach’s laundry

7
  Britton executed the assignment on behalf of both Grayco Partners and Grayco. (D. Ex. 10
[000412]).
8
  Grayco’s position at trial was that it assumed the Memorandum was simply a renewal of the
1992 lease and that the prior owner breached the real estate contract by failing to provide a copy
of the 2002 lease and Supplemental Agreement to Grayco before closing. (RR 84, 86).
However, Grayco has not sued the prior owner. (RR 97).

                                                7
machines at the Apartments had been “horribly vandalized” and about the

“horrible” state of the laundry rooms there. (RR 89, 90; D. Ex. 14). Coinmach had

only recently reworked all of the laundry machines. (Id.). Coinmach asked that

locking doors be installed on the laundry rooms. (Id.). Once that was completed,

Coinmach said it would put in better equipment and redecorate the rooms. (Id.).9

       However, Grayco never renovated the laundry rooms, and in November

2007, Greystar, writing on Grayco’s behalf, advised Coinmach that “effective

October 31, 2007, Regatta Apartments cancels its service with your company,” and

that the Apartments were closed and would be demolished. (Bogardus Dep. at 47;

D. Ex. 15). Greystar acknowledged that this action constituted an early termination

of the lease, and that “lost revenue” and a “termination fee” “may be assessed as a

result of this action.” (Id.). “[W]hen closing Regatta’s account,” Greystar asked

Coinmach to take into consideration that there had been “no residual laundry

income on the community since we became the managing agent for Regatta in May

’07” as a result of crime and vandalism.         (Id.). The demolition of the Regatta

Apartments together with the laundry rooms began shortly thereafter. (D. Ex. 16).

       Coinmach demanded that Grayco pay the pro-rated amount due on the lease

9
  Although Coinmach had the right to terminate the 2002 lease because of the vandalism, it
never did so, but asked Grayco to take steps to correct the problem. Under the lease, it was
Grayco’s obligation to maintain the laundry rooms.
                                               8
bonus/decoration allowance in accordance with the terms of the Supplemental

Agreement as well as pay it lost revenue caused by Grayco’s early termination of

the 2002 lease. (D. Ex. 17, 21, 24).10 In September 2008, Coinmach filed this suit

after Grayco refused to pay any amounts due under the 2002 lease. (CR 8).

VIII. The lawsuit and the final judgment.

       Coinmach sued Grayco for actual damages for breaching the 2002 lease and

the Supplemental Agreement. (CR 214, 410). Grayco’s principal defense was that

it was a bona fide purchaser of the Regatta Apartments for value with no actual or

constructive notice of the 2002 lease or the Supplemental Agreement. (CR 439).

       On August 20, 2014, the trial court held a one-day bench trial. (CR 484).

Coinmach produced oral and documentary evidence showing that Grayco failed to

clean, maintain, and protect the laundry rooms, and that because of Grayco’s early

termination of the 2002 lease and its demolition of the laundry rooms along with

the rest of the Regatta Apartments, Grayco had deprived Coinmach of the

exclusive use, possession, and enjoyment of the laundry rooms for the remaining

term of the lease. (RR 17, 33, 99; D. Ex. 14). Documentary evidence also showed

that Grayco had actual and constructive notice of the 2002 lease and the

10
  Coinmach did not seek to recover any damages from Grayco for the destruction of the laundry
machines when the Regatta Apartments were demolished. (RRs 20). Because of the poor
condition of the machines, Coinmach decided to leave them at the Apartments. (RR 19-20, 29).
                                              9
Supplemental Agreement when it acquired the Regatta Apartments. (P. Ex. 3; D.

Ex. 9, 11).

       After considering the evidence and the parties’ post-trial briefing, the trial

court, on November 6, 2014, rendered judgment for Coinmach and awarded

Coinmach the sum of $67,122.19 in actual damages, $19,675.31 in prejudgment

interest, and attorney’s fees. (CR 484). The trial court based its actual damages

award on the testimony of Coinmach’s damages expert, John Kemmerer, who

testified that Grayco was liable to Coinmach for $5,950.17, the prorated amount

due under the terms of the Supplemental Agreement, and for $61,172.02, the net

profits Coinmach lost under the 2002 lease because of Grayco’s breach and early

termination of the lease. (RR 42, 44, 45, 51; P. Ex. 7).11 The trial court made no

findings of fact and conclusions of law.12


11
    As the basis for calculating lost profits from the date of lease termination to the end of the
lease term, Kemmerer used a daily rate derived from revenue generated by the laundry machines
and the costs of operating those machines at the Regatta Apartments from December 2004
though early March 2006, which was a period of normal operation at the Apartments. (RR 57,
62, 64). Kemmerer stopped using revenue and cost data after March 2006 because the owner of
the Apartments was preparing to sell the property to Grayco, which indicated that it wanted to
terminate the 2002 lease and change the use of the property. (RR 43, 53, 54, 55, 58, 62, 69; P
Ex. 7 ¶ 5). Also, under the real estate contract entered into in December 2006 with Grayco’s
agent, Grayco Partners, the owner of the Apartments was required not to enter into any
residential leases (new or renewed) with terms of more than six months. (D. Ex. 5 [GP 000368).
12
   Grayco made a timely request for findings of fact and conclusions of law (CR 487), but when
the trial court failed to file any, Grayco did not file a notice of past due findings of fact and
conclusions of law as required by Tex. R. Civ. P. 297. “[T]he failure to file the required ‘past
                                                10
                         SUMMARY OF THE ARGUMENT

       The trial court’s judgment should be affirmed. Grayco bought the Regatta

Apartments with actual and constructive notice of the 2002 lease and the

Supplemental Agreement to that lease. Grayco admits that it saw the recorded

Memorandum of the 2002 lease before it closed on the property. The seller’s deed

to the Regatta Apartments listed the Memorandum of the 2002 lease separately

from the 1992 lease. Copies of the 2002 lease and Supplemental Agreement were

available to Grayco, but Grayco never asked to see them. Based on this evidence,

the trial court correctly found that Grayco failed to prove its affirmative defense of

bona fide purchaser for value without notice, and that Grayco was therefore bound

by the terms of the 2002 lease and Supplemental Agreement.

       Legally and factually sufficient evidence also support the trial court’s

findings that Grayco breached the 2002 lease and Supplemental Agreement.

Grayco violated the lease covenants to keep the laundry rooms clean and

maintained, and also violated the covenant of quiet use, possession, and enjoyment.

Grayco’s violation of those covenants, its unauthorized termination of the lease

before its expiration, its demolition of the lease premises, and its refusal to comply


due’ notice is treated as a waiver of the right to complain of the trial court’s failure to file
findings.” Sonnier v. Sonnier, 331 S.W.3d 211, 214 (Tex. App. – Beaumont 2011, no pet.).
                                              11
with the reimbursement provision of the Supplemental Agreement rendered

Grayco liable to Coinmach for the damages awarded by the trial court. Legally

and factually sufficient evidence supports those awards.

                              BRIEF OF ARGUMENT

                                 Standard of Review.

       As the trier of fact, the trial court was the sole judge of the credibility of the

witnesses and the weight given their testimony. In resolving factual disputes, the

trial court can accept or reject all or any part of a witness’s testimony and may

believe one witness and disbelieve others. Alonso v. Alvarez, 409 S.W.3d 754, 757

(Tex. App. – San Antonio 2013, pet. denied). This Court may not substitute its

opinion for that of the trial court, even if this Court may have reached a different

conclusion. Herbert v. Herbert, 754 S.W.2d 141, 144 (Tex. 1988); Rego Co. v.

Brannon, 682 S.W.2d 677, 680 (Tex. App. – Houston [1st Dist.] 1984, writ ref’d

n.r.e.).

       Also, when, as here, the trial court enters no findings of fact and conclusions

of law, the trial court’s judgment implies all necessary findings supported by the

pleadings and the evidence. Whaley v. Cent. Church of Christ of Pearland, 227

S.W.3d 228, 230-231 (Tex. App. – Houston [1st Dist.] 2007, no pet.). In reviewing

those findings, this Court must indulge every reasonable inference that supports
                                           12
them. City of Keller v. Wilson, 168 S.W.3d 802, 822 (Tex. 2005). Consequently,

the trial court’s judgment should be affirmed on any reasonable theory supported

by the evidence. Doss v. Blackstock, 466 S.W.2d 59, 61 (Tex. Civ. App. – Austin

1971, writ ref’d n.r.e.).

                                Arguments and Authorities.

                                    Issue No. 1 (Restated)

       Does legally and factually sufficient evidence support the trial court’s
       finding that Grayco was not a bona fide purchase of the leased
       premises and was therefore bound by the lease with Coinmach? (In
       response to Appellant’s Issue 1).13


                                        Issue No. 2 (Restated)

       Does legally and factually sufficient evidence support the trial court’s
       finding that Grayco materially breached its obligations under the lease
       with Coinmach? (In response to Appellant’s Issue 2).

                      Argument and Authorities Under Issues 1 and 2

I.     Grayco failed to prove that it was a bona fide purchaser without notice of
       the 2002 lease.

       Real property purchasers are bound by every recital, reference and
13
    Grayco pleaded bona fide purchaser status as an affirmative defense. (CR 438-439). See
Madison v. Gordon, 39 S.W.3d 604, 605 (Tex. 2002). Grayco had the burden of proving that
defense, but failed to carry it. For Grayco to prevail on appeal, it must show either that the
evidence conclusively established the bona fide purchaser defense as a matter of law, or that the
trial court’s implied findings against Grayco on the essential elements of the defense are contrary
to the overwhelming weight of the evidence, thus requiring a new trial. Grayco has not made
either showing.
                                                13
reservation contained or fairly disclosed by any instrument that forms an essential

link in the chain of title under which they claim. Westland Oil Development Corp.

v. Gulf Oil Corp., 637 S.W.2d 903, 908 (Tex. 1982). The rationale for this rule is

that “any description, recital of fact, or reference to other documents puts the

purchaser on inquiry, and he is bound to follow up his inquiry, step by step, from

one discovery to another and from one instrument to another, until the whole series

of title deeds is exhausted and a complete knowledge of all matters referred to and

affect the estate are obtained”. Id.

      In Waggoner v. Morrow, 932 S.W.2d 627 (Tex. App.—Houston [14th Dist.]

1996, no pet.), the appellate court reversed the trial court’s ruling that the

purchaser was a bona find purchaser for value. The facts showed that the deed in

question referred to a “Partition of Lots 6, 7 and 8,” but the partition itself was not

filed of record. The partition showed a road easement on the property. Although

the partition was not recorded in the deed records, the appellate court held that the

purchaser was on notice of the partition and all the information contained in it. Id.

at 632. This was because the recorded deed referenced the unrecorded partition and

put the purchaser on notice of all information in the partition.

      Here, legally and factually sufficient evidence overwhelmingly, if not

conclusively, shows that Grayco had actual and constructive notice of the 2002
                                          14
lease and the Supplemental Agreement between Coinmach and Bridge before

Grayco bought the Regatta Apartments.        Before the closing, Grayco admitted

seeing the Memorandum of the 2002 lease, which was duly recorded in the Travis

County public records. (Brief of Appellant at 18). Also, the general warranty deed

to Grayco specifically referenced the Memorandum of the 2002 lease as an

exception to the warranty and conveyance. In fact, the list of exceptions to the

deed included two separate leases — the 1992 “Lease Agreement dated March 11,

1992” between De Narde and McNair, and the “Memorandum of Lease dated

March 18, 2003” between Bridge and Coinmach. (D. Ex. 11 [GP 000426]). The

Memorandum stated that copies of the 2002 lease were on file at the respective

offices of Coinmach and Bridge and provided Coinmach’s Austin address. (D. Ex.

4). Yet, Grayco never asked for a copy before closing.

      So, regardless of what Grayco “believed” or “assumed,” it had notice of the

existence of “a lease” between Coinmach and Bridge before closing. The trial court

correctly found that Grayco’s “belief” was unreasonable, for when, as in this case,

a party knows of facts, which, if reasonably pursued, would disclose the existence

of an unrecorded encumbrance, that party is charged with notice of and bound by

the encumbrance. See cases cited at page 18 of the Brief of Appellant. The trial

court reasonably found Grayco’s failure to pursue the information disclosed in the
                                        15
Memorandum, including not asking Coinmach or Bridge for a copy of the 2002

lease, to be inexcusable.

       Grayco contends that the Memorandum did not identify the 2002 lease and

that the 2002 lease lay outside the chain of title. (Brief of Appellant at 19, 20).

None of this is true. The Memorandum, on its face, refers to a lease between

“BRIDGE MANAGEMENT CO.,” as “LESSOR of the premises commonly

known as REGATTA APTS, located at 1201 TOWN CREEK DR., AUSTIN,

TX. 78741” and “COINMACH CORPORATON, as Lessee . . .” This lease is

part of the chain of title to the Regatta Apartments.14                A review of the first

paragraph of the 1992 lease shows it to be a lease between “De Narde Construction

Co.” and “McNair Coin Laundry Co.” The Memorandum makes no mention of the

1992 lease or of De Narde or McNair. Grayco’s argument that the 1992 DeNarde-

McNair lease was the same lease as the 2002 Coinmach-Bridge lease is

unsupported by any credible evidence. The reference in the Memorandum of a

lease between Bridge and Coinmach indisputably put Grayco on notice of a lease

between those entities. Grayco’s failure to pursue this information does not relieve

it of constructive notice of the 2002 lease and the Supplemental Agreement to it.

14
    Recording a memorandum of lease instead of the lease itself is a common practice in the
leasing industry. Filing the memorandum in the deed records places the lease in the chain of title.

                                                16
       Throughout its brief, Grayco complains that the seller failed to disclose the

existence of the 2002 lease. (Brief of Appellant at 18, 19, 21).15 But what the

seller did or did not disclose to Grayco is irrelevant to this case. Grayco admits

knowing of the Memorandum but did absolutely nothing to follow up on the

information disclosed by it – even failing to ask the seller or Coinmach for a copy

of the 2002 lease.

II.    Grayco was on notice of the 2002 lease because of Coinmach’s possession
       of the laundry rooms.

       In Beutell v. United Coin Meter Co., 462 S.W.2d 334, 335 (Tex. Civ.

App.—Waco 1970, writ ref’d n.r.e.), the purchaser of an apartment complex

argued that it was not bound by an “unrecorded” laundry room lease executed by

the prior owner of the property. The appellate court disagreed, holding that the

purchaser was on notice of the lease and its terms because the laundry company’s

laundry equipment was in the laundry room before closing.

       Here, legally and factually sufficient evidence establishes that Coinmach’s

laundry machines were in the laundry rooms of the Regatta Apartments when

Grayco closed on its purchase of the Apartments. Grayco’s managing agent,


15
    The trial court was entitled to conclude that the credibility of Grayco’s assertion about the
seller’s failure to disclose the 2002 lease was undermined by Grayco’s failure to sue the seller for
the alleged non-disclosure. (RR 97).
                                                 17
Greystar, had already contacted Coinmach before closing. See D. Ex. 9

(acknowledging that “Coinmach has the contract on the laundry rooms”). Grayco

produced no evidence that the laundry machines in the laundry rooms belonged to

McNair, the lessee under the 1992 lease. Thus, Grayco knew before closing that

Coinmach’s laundry machines were in the laundry rooms at the Apartments, which

under Beutell, placed Grayco on notice of the terms of the 2002 lease and the

Supplemental Agreement to that lease.

      Grayco argues that it did not know of the 2002 lease until after this dispute

arose in late 2007 and early 2008. (Brief of Appellant at 19). But the evidence

shows otherwise. That Grayco knew of the 2002 lease and the Supplemental

Agreement before closing and was contemplating an early termination of the lease

is shown by Defendant’s Exhibit 9 and by the testimony of Grayco’s managing

agent at the Regatta Apartments, Savanna Sharpe-Bogardus of Greystar.

      Defendant’s Exhibit 9 is an email dated April 17, 2007 – which is several

weeks before closing – sent by Bogardus and produced by Grayco to Coinmach as

Bates No. GP 000076. Bogardus testified that she knew that Coinmach had the

“laundry service contract with the prior ownership of Regatta . . . and when the

property sold, the contract went to Grayco.”      (Bogardus Dep. at 15, 16-17).

Handwritten notes on the produced email reference when the 2002 lease was due to
                                        18
expire, “lost revenue,” and the lease bonus/decoration allowance of $14,000.00.16

The 1992 lease expired in 2002 and did not provide for a lease bonus/decoration

allowance, a formula for calculating a refund of the allowance, or mention “lost”

income or revenue in the event of a breach by the lessor.                        However, the

Supplemental Agreement to the 2002 lease references “lost income” in the event

the lessor breached the 2002 lease and provides the formula for refunding a

prorated share of the bonus/decoration allowance.

III.   Legally and factually sufficient evidence shows that Grayco breached the
       2002 lease by wrongfully terminating it before to its expiration.

       Grayco contends that even if it is not a bona fide purchaser, the trial court’s

judgment still must be reversed because, Grayco argues, the 2002 lease contained

no express provisions prohibiting it from closing the Regatta Apartments before

the lease expired in 2012, requiring it to maintain a certain number of occupants, or

requiring it to use its best efforts to ensure that tenants used the laundry rooms.

(Brief of Appellant at 25). Grayco also asserts that “Coinmach failed to identify a

single term, clause, condition or obligation in the 2002 Lease that Grayco

breached.” (Id.). Grayco’s arguments are meritless.
16
  Grayco claimed at trial that the email’s author did not write the handwritten notes on the email.
But Grayco produced no evidence showing when or who wrote the notes. Because Grayco had
custody of the email and produced it to Coinmach with the handwritten notes on it, the trial court
was entitled to conclude that the notes were made contemporaneously with the sending of the
email before the closing.
                                                19
       The 2002 lease was for a ten-year term, ending March 4, 2012. The lease

provided that Coinmach would “receive as minimum compensation $45.00 per

machine, per month” and that Coinmach and the lessor would equally divide the

monthly gross receipts if the minimum compensation figure had been achieved. (D.

Ex. 2, ¶ 2 [GP 000004]).

       The lease also provided that Coinmach would have “exclusive and quiet use,

possession and enjoyment” of the leased premises during the lease term, and that

the lessor would “clean and maintain the premises” and all facilities required to

properly operate the washing machines. (RR 16-17; D. Ex. 2, ¶¶ 3, 6 [GP

000004]). The lessor retained no right to terminate the lease before the expiration

of the ten-year term. Nor did the 2002 lease contain any provisions exempting the

lessor from liability if its actions caused or resulted in the early termination of the

lease.17

       Grayco’s unauthorized early termination of the 2002 lease and its decision to

demolish the Regatta Apartments before the lease term expired constituted

breaches of the lease and a constructive eviction of Coinmach from the leased

premises. Silberstein v. Laibovitz, 200 S.W.2d 647, 649 (Tex. Civ. App. –Austin

17
  Only Coinmach had the right to terminate the lease prior to its expiration. (D. Ex. 2, ¶ 9 [GP
000005]). However, Coinmach never exercised that right.

                                              20
1947, no writ) (“If the landlord’s conduct be such as to materially and permanently

interfere with the beneficial use of the premises and the [tenant] leaves as the result

thereof, then there is a constructive eviction.”).18

       Grayco’s actions interfered with and permanently deprived Coinmach of the

“quiet use, possession and enjoyment of the premises leased herein during the

Lease term,” and destroyed Coinmach’s ability to generate income from laundry

operations on those premises. Grayco’s demolition of the Apartments together

with its failure to keep the laundry room premises clean and maintained in proper

condition constituted actionable breaches of the lease. See Birkenfeld v. Metro

General Management, Inc., 2008 WL 696174 *5 (Tex. App. – Amarillo 2008, no

pet.) (“[T]he law expressly grants the lessee a right to enjoy that which he leased

without impermissible interference from the lessor.”); Kerrville HRH, Inc. v. City

of Kerrville, 803 S.W.2d 377, 386 (Tex. App. – San Antonio 1990, writ denied)

(“A tenant may recover profits lost as a proximate result of an action wrong that


18
  The elements of a breach of the covenant of quiet enjoyment are the same as the elements of a
constructive eviction. Daftary v. Prestonwood Market Square, 404 S.W.3d 807, 816 (Tex. App.
– Dallas 2013, pet. denied). Those elements are (1) the landlord’s intention that the tenant no
longer enjoy the leased premises; (2) a material act by the landlord that substantially interferes
with the intended use and enjoyment of the premises; (3) the act permanently deprives the tenant
of the use and enjoyment of the premises; and (4) the tenant abandons the premises within a
reasonable time after the commission of the act. Coleman v. Rotana, Inc., 778 S.W.2d 867, 872
(Tex. App. – Dallas 1989, writ denied). As shown above, Coinmach produced legally and
factually sufficient evidence proving all those elements.
                                                 21
interferes with its business.”); Silberstein v. Laibovitz, 200 S.W.2d at 650 (“It is

settled law that a tenant wrongfully evicted, or his possession wrongfully interfered

with, may recover lost profits as damages.”).

      Also, a duty to cooperate is implied in every contract in which cooperation is

necessary for performance of the contract and the accomplishment of its purpose.

This implied duty requires that a contracting party not hinder, prevent, or interfere

with the other contracting party’s ability to perform its duties under the contract.

See Case Corp. v. Hi-Class Business Sys. of Am., Inc., 184 S.W.3d 760, 770 (Tex.

App. – Dallas 2005, no pet.). Here, Grayco’s breaches of the lease covenants

hindered, interfered with, and ultimately made it impossible for Coinmach to

generate laundry income on the leased premises, both for itself and for Grayco.

      Under these circumstances, the trial court properly held Grayco liable for

breaching both the express and implied terms of the 2002 lease.

                               Issue No. 3 (Restated)

      Does legally and factually sufficient evidence support the trial court’s
      finding that Coinmach suffered damages resulting from Grayco’s
      breach of the lease with Coinmach? (In response to Appellant’s Issue
      3).

                               Issue No. 4 (Restated)

      Does legally and factually sufficient evidence support the trial court’s
      damages award to Coinmach? (In response to Appellant’s Issue 4).
                                         22
                      Argument and Authorities Under Issues 3 and 4

       Grayco attacks the trial court’s actual damages award on various grounds,

none of which is meritorious. Legally and factually sufficient evidence supports

the award.

       First, Grayco argues that the 2002 lease did not guarantee any revenue or

profits and therefore Coinmach is not entitled to recover any damages. (Brief of

Appellant at 28). The absence of such a provision, however, does not mean that

Coinmach failed to incur compensable damages as the proximate result of

Grayco’s breach of the 2002 lease. The collection and cost data in evidence shows

that Coinmach’s laundry machines produced substantial income and profits before

Grayco contracted to buy the Regatta Apartments and began winding down leasing

operations and failing to clean and maintain the laundry rooms. Grayco admits this

fact. (Brief of Appellant at 28, 30, n. 5; D. Ex. 25). Grayco’s actions in not

keeping the laundry rooms clean and maintained and in not renewing leases at the

Apartments caused the laundry income to decline.19                     Grayco’s decision to


19
     Grayco asserts that the Regatta Apartments were “beyond saving” because of “vagrancy,
vandalism, crime, and significant deferred maintenance issues.” (Brief of Appellant at 7). The
evidence contradicts this assertion. Grayco’s agent, Grayco Partners, entered into the real estate
contract to buy the Regatta Apartments on December 6, 2006, for $6.9 million dollars. (D. Ex. 5,
¶ 3 [GP 000364]). The contract provided for a 45-day feasibility period in which Grayco Partners
could “complete any and all inspections, studies, or assessments of the Property (including all
improvements and fixtures) desired by Buyer.” (D. Ex. 5, ¶ 7 [GP 000366]). The contract also
                                               23
terminate the lease and demolish the Apartments made the generation of any

further income from the laundry rooms impossible. The absence of a “guaranteed”

revenue or income stream did not give Grayco the right to breach its covenants and

make the generation of income impossible.

       Second, Grayco contends that the trial court’s lost profits award is too

speculative because, Grayco asserts, the court had no “reasonable basis to assume

that there would have been tenants at Regatta, or that any tenants there would be

willing and able to use the laundry machines through the expiration of the 2002

Lease.” (Brief of Appellant at 31). That is untrue.

       Collection and cost data on which Coinmach’s damages expert relied

showed that the laundry room equipment at the Regatta Apartments generated

“substantial” income and profits when the lessor was honoring the lease covenants

allowed Grayco Partners to view the interiors of the apartment units and gave it access to all the
leases affecting and pertaining to the Apartments. (Id.) The parties later extended the feasibility
period to February 19, 2007, and expanded the buyer’s right of inspection so that “Purchaser and
its consultants may access the interior of the buildings on the Property for further inspection and
for obtaining samples of the interior building materials.” (D. Ex. 7). After the feasibility period
expired, Grayco Partners assigned the contract to Grayco, and Grayco bought the Apartments.
(D. Ex. 10, 11). Nothing in the evidence suggests that Grayco paid less than the $6.9 million
price for the Apartments. Also, at about the same time, Grayco bought the Shoreline Apartments
“directly across the street” from the Regatta Apartments. (RR 92). Grayco “had a lot of success
at Shoreline maintaining occupancy. . .” and kept that apartment complex operating for three
years after Grayco demolished the Regatta Apartments. (RR 92, 93). This evidence refutes
Grayco’s assertion that the Regatta Apartments were located in a crime-ridden area and “beyond
saving.” The trial court was entitled to conclude that Grayco simply did not want to spend the
money necessary to maintain the Regatta Apartments in a proper condition and to reduce the
vagrancy, vandalism, and crime occurring there.
                                                 24
and operating the Apartments in a normal fashion. However, things began to

change when Grayco entered the picture. Grayco’s agent, Grayco Partners,

required the seller to stop entering into any new apartment leases or renewing any

such leases for terms of more than six months. The trial court therefore had a

reasonable basis to assume that the laundry rooms would have continued to

generate substantial income and profits if Grayco had not breached the lease.

      Third, Grayco argues Kemmerer’s lost profits calculation is unreliable and

unsustainable because, Grayco says, he “incorrectly determined that Coinmach’s

damages began to accrue in March 2006,” before Grayco terminated the lease

effective October 31, 2007. (Brief of Appellant at 32, 34, 36). Grayco is mistaken.

      Kemmerer prepared a lost profit calculations for the period March 14, 2006

through October 25, 2007. (P. Ex. 7, ¶ 11). However, the trial court did not include

that calculation in its final judgment, and Coinmach has not appealed that decision.

The trial court accepted the lost profits calculation that Kemmerer prepared for the

period beginning with the date of lease termination, October 31, 2007, and ending

with the expiration of the lease term, March 4, 2012.

      Grayco attacks as “arbitrary” Kemmerer’s daily collection rate of $99.81,

which he used to calculate the lost net profits the trial court awarded. (Brief of

Appellant at 38). This rate was derived from daily collections generated by the
                                         25
laundry machines at the Regatta Apartments during the period from December 22,

2004, through March 1, 2007. (P. Ex. 7). Kemmerer’s rate is not arbitrary. It is

based on reliable collection and cost data generated over a period of normal

laundry room operations at the Regatta Apartments. (RR 57, 62, 64). Kemmerer

did not use collection and cost data generated after March 1, 2006, because the

owner of the Apartments was preparing to sell the property to Grayco’s agent,

Grayco Partners, which indicated that Grayco wanted to terminate the 2002 lease

and change the use of the property. (RR 43, 53, 54, 55, 58, 62, 69; P Ex. 7 ¶ 5).

Furthermore, under the real estate contract entered into in December 2006 with

Grayco Partners, the owner was required not to enter into any residential leases

(new or renewed) for terms of more than six months. (D. Ex. 5 [GP 000368).

      Based on these facts, the trial court was entitled to accept Kemmerer’s daily

collection rate of $99.81 as sound basis for estimating the net profits lost to

Coinmach. “It is not necessary that profits be susceptible to exact calculation; it is

sufficient that there is evidence from which they can be determined with a

reasonable degree of certainty.” Kerrville HRH, Inc., 803 S.W.2d at 386. The lost

net profits award meets this test.

      Grayco also contends that the trial court incorrectly accepted Kemmerer’s

calculation of the reimbursement due under the Supplemental Agreement for the
                                         26
lease bonus/decoration allowance. (Brief of Appellant at 37). Grayco does not

challenge the correctness of the calculation, but argues that it cannot be held liable

because it was never a party to the Supplemental Agreement. However, as shown

above, Grayco became bound by the terms of the Supplemental Agreement,

including its reimbursement terms, when it acquired the Regatta Apartments with

notice of the 2002 lease.

                            CONCLUSION AND PRAYER

      For the foregoing reasons, Coinmach prays that this Court affirm the trial

court’s judgment in all respects. Coinmach also prays that it be awarded such other

and further relief, at law or in equity, to which it may be entitled.

                                        Respectfully submitted,
LAW OFFICES OF
R. KEMP KASLING, P.C.                   CARDWELL, HART & BENNETT, LLP
R. Kemp Kasling                         J. Bruce Bennett
State Bar No. 11104800                  State Bar No. 02145500
301 Congress Ave., Suite 300            807 Brazos, Suite 1001
Austin, Texas 78701                     Austin, Texas 78701
Telephone: (512) 472-6800               Telephone: (512) 322-0011
Facsimile: (512) 472-6823               Facsimile: (512) 322-0808
kkasling@khdalaw.com                    jbb.chblaw@sbcglobal.net

By:   /s/ R. Kemp Kasling
      R. Kemp Kasling

                            ATTORNEYS FOR APPELLEE


                                           27
            CERTIFICATE OF COMPLIANCE WITH RULE 9.4

      Pursuant to Tex. R. App. P. 9.4(i)(3), the undersigned certifies this brief
complies with the type-volume limitations of Tex. R. App. P. 9.4(i)(2)(B). The
brief was prepared using Microsoft Word 2011, and according to the program’s
word count, the brief contains 5,238 words, exclusive of the exempted portions in
Tex. R. App. P. 9.4(i)(1).

                                     /s/ J. Bruce Bennett
                                     J. Bruce Bennett




                                       28
                          CERTIFICATE OF SERVICE

      I hereby certify that a true and correct copy of the foregoing document has
been sent on this 27th day of May 2015, by electronic means to the following
counsel of record:

Frederick T. Johnson
Cody W. Stafford
Akilah F. Craig
DOBROWSKI, LARKIN & JOHNSON, LLP
4601 Washington Ave., Suite 300
Houston, Texas 77007

Attorneys for Appellant

                                      /s/ J. Bruce Bennett
                                      J. Bruce Bennett




                                        29
