Vernco Construction, Inc. v. David Nelson, Individually and D/B/A Collective Contracting, a Sole Proprietorship And E.E. Hood & Sons, Inc.

IN THE SUPREME COURT OF TEXAS
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NO . 13-0750
444444444444

VERNCO CONSTRUCTION, INC., PETITIONER,
v.

DAVID NELSON, INDIVIDUALLY AND D/B/A COLLECTIVE CONTRACTING, A SOLE
PROPRIETORSHIP; AND E.E. HOOD & SONS, INC., RESPONDENTS

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ON PETITION FOR REVIEW FROM THE
COURT OF APPEALS FOR THE EIGHTH DISTRICT OF TEXAS
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PER CURIAM

In this complex commercial dispute, Vernco Construction, Inc., obtained a multi-million

dollar breach-of-contract and tort judgment against E.E. Hood & Sons, Inc., and David Nelson,

individually and d/b/a Collective Contracting (collectively, the Respondents). The Respondents

appealed the judgment on various grounds, but the only issue before this Court is whether Vernco

lacked standing to maintain the lawsuit because it assigned the claims to its commercial lender either

before or after filing the lawsuit. The trial court found that Vernco had standing, but the court of

appeals reversed, vacated the judgment, and dismissed for want of jurisdiction. 406 S.W.3d 374,

380 (Tex. App.—El Paso 2013). The court of appeals based its analysis on the terms of a

forbearance agreement between Vernco and its lender but declined to consider an addendum to that

agreement, erroneously stating that the document is “not a part of the record on appeal” and “was

not before the trial court.” Id. at 380. Because the court of appeals failed to consider pertinent

evidence before the trial court, we reverse and remand the cause to that court for reconsideration.

The standing issue involves construction of the forbearance agreement Vernco executed with
its commercial lender and an addendum to that agreement. After filing the underlying lawsuit,

Vernco; its president, Jack Claflin, as Guarantor; and its lender, Jefferson State Bank, executed an

agreement in which the Bank promised to abstain from foreclosing on Vernco’s defaulted promissory

notes. Among other things, the forbearance agreement states that “pursuant to applicable law, [the

Bank] is the owner of all of [Vernco’s] receivables (and proceeds therefrom), including . . . the

receivables and claims (including commercial tort claims)” in the underlying litigation. When the

forbearance agreement was produced to the Respondents, they jointly filed a motion to dismiss for

lack of jurisdiction, alleging that Vernco had no standing to pursue the litigation because it had

assigned the claims to the Bank in the forbearance agreement. They requested and scheduled an

evidentiary hearing on the dismissal motion.

In response, Vernco asserted that the Respondents’ standing argument failed as a matter of

fact and law. Vernco alleged that, as a matter of fact, no foreclosure had occurred and the purpose

of the forbearance agreement was to establish precise terms under which Vernco could avoid

foreclosure of the lawsuit, as a corporate asset. Vernco also submitted an addendum to the

forbearance agreement. The addendum, executed in response to the motion to dismiss, explains:

[A]lthough there are other terms in the original Forbearance clearly indicating the parties’
intent for [the Bank] to forbear from acquiring legal ownership in the claims set forth in
the Lawsuit, to the extent there is any recital in the Forbearance Agreement that may be
read by third parties as indicating otherwise, the parties wish to clarify herein that they
never intended that [the Bank] ever acquired actual legal ownership of the claims in the
Lawsuit, and the parties agree that [the Bank] has never acquired legal ownership of the
claims in the Lawsuit and that [Vernco] remains the current owner of the claims being
prosecuted in the Lawsuit[.]

The addendum was authenticated by affidavits executed by signatories to both the forbearance

agreement and the addendum. Although disputing that the claims had been assigned, Vernco

alternatively alleged standing to maintain the lawsuit as the assignor in a representative capacity.

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 Pursuant to the Bexar County central docket system, the motion to dismiss was assigned to

a judge for disposition. After what was evidently a lengthy pretrial hearing, the judge expressly

found that Vernco had standing and that the trial court had subject-matter jurisdiction. There is no

reporter’s record of the hearing on the motion to dismiss.

Shortly thereafter, the case was assigned to a different judge for a jury trial on the merits,

which occurred over several weeks during the course of the following two-month period. On various

occasions before and during the trial, the Respondents again urged that Vernco lacked standing based

on the forbearance agreement. The trial judge repeatedly declined to reconsider the prior ruling. The

trial court further denied the Respondents’ requests to introduce the forbearance agreement at trial

or to question witnesses about it, having previously explained, “I’m not going to hear [your

jurisdictional issue]. [The pretrial judge has] already given you a full day on that and we’re not

going to hear that.” The Respondents therefore offered the forbearance agreement to show Claflin’s

bias and to establish that the Bank owned the claims in the lawsuit. See TEX . R. EVID . 103.

Claflin authenticated the forbearance agreement in the offer of proof and testified that the

agreement had been supplemented but was still in effect as supplemented. In response to the

Respondents’ offer, Vernco reiterated that the issue had already been resolved before trial and argued

that admitting the forbearance agreement would “reopen all kinds of things in terms of additional

evidence that we’d have to put on if [the agreement] was allowed to be tendered.” Although

Vernco’s counsel requested that the addendum be included under the rule of optional completeness,

neither side introduced the addendum as part of an offer of proof. The trial court overruled the

Respondents’ offer of proof.

After the trial court rendered judgment of more than $6 million in Vernco’s favor on

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favorable jury findings, the Respondents appealed, raising numerous complaints and challenging the

trial court’s denial of their motion to dismiss for lack of standing. The court of appeals, relying

solely on the four corners of the forbearance agreement, concluded that Vernco assigned all of its

interest in the claims to the Bank and therefore had no standing to maintain an action for damages

on those claims. 406 S.W.3d at 380. The court therefore vacated the trial-court judgment and

dismissed the case for want of jurisdiction. Id.

The court refused to consider the addendum as part of the standing analysis because it had

not been included in an offer of proof during the trial on the merits. Id. The court further intimated

that the addendum was not in the appellate record at all and had merely been appended to Vernco’s

appellate brief. Id. (declaring that the addendum “was not before the trial court and is not before this

Court” because “Vernco did not make an offer of proof of the [addendum] to the trial court and the

[addendum] was not admitted into evidence but is merely appended to Vernco’s brief”). The court

further rejected Vernco’s claim to possess standing in a representative capacity, noting the absence

of evidence that the Bank had authorized Vernco to pursue the claims against the Respondents on

its behalf. Id. The court never mentioned the hearing on the motion to dismiss or the existence of

the addendum as an exhibit to Vernco’s response to the motion to dismiss.

In declining to consider the addendum, the court of appeals appears to have overlooked the

addendum in the record and misunderstood when the substantive jurisdictional ruling occurred.

According to the court, “[t]he trial court ‘denied the bill,’ and thereafter, in its written order, denied

the motion to dismiss and found Vernco had standing and the trial court had subject[-]matter

jurisdiction.” 406 S.W.3d at 377. In fact, the trial court ruled on the motion to dismiss following

a pretrial hearing, and the ruling was not reconsidered. There was no substantive ruling on the merits

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of the standing issue after the pretrial judge’s November 9, 2010 order denying the Respondents’

motion to dismiss.

The standing inquiry “focuses on the question of who may bring an action.” Patterson v.

Planned Parenthood, 971 S.W.2d 439, 442 (Tex. 1998). Courts lack subject-matter jurisdiction to

adjudicate disputes initiated by parties lacking standing. The M.D. Anderson Cancer Center v.

Novak, 52 S.W.3d 704, 708 (Tex. 2001); Tex. Ass’n of Business v. Tex. Air Control Bd., 852 S.W.2d

440, 443-44 (Tex. 1993). Whether a court has subject-matter jurisdiction is a question of law. Tex.

Dep’t of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 226 (Tex. 2004).

“Because standing is a component of subject[-]matter jurisdiction, we consider [standing

issues] as we would a plea to the jurisdiction.” Brown v. Todd, 53 S.W.3d 297, 305 n.3 (Tex. 2001).

The trial court can rule on a jurisdictional plea by submission or after an evidentiary hearing: “[A]

court deciding a plea to the jurisdiction is not required to look solely to the pleadings but may

consider evidence and must do so when necessary to resolve the jurisdictional issues.” Bland Indep.

School Dist. v. Blue, 34 S.W.3d 547, 555 (Tex. 2000) (trial court determined jurisdictional issue after

an evidentiary hearing at which witnesses testified); see State v. Lueck, 290 S.W.3d 876, 884 (Tex.

2009) (jurisdictional challenge may be asserted in a motion for summary judgment). When a

jurisdictional issue is not intertwined with the merits of the claims, which is the case here, disputed

fact issues are resolved by the court, not the jury.1 E.g., Bland, 34 S.W.3d at 554-55; Univ. of Tex.

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The Respondents contend that the standing issue may also properly be characterized as a lack of capacity.
Because they generally challenged Vernco’s capacity as a party in a verified denial, they contend that Vernco was
required to offer proof of capacity at trial and obtain favorable jury findings, but failed to do so. See T EX . R. C IV . P. 93.
“Standing,” however, is distinct from “capacity.” See Nootsie, Ltd. v. Williamson Cnty Appraisal Dist., 925 S.W .3d 659,
661 (Tex. 1996) (“A plaintiff has standing when it is personally aggrieved, regardless of whether it is acting with legal
authority; a party has capacity when it has the legal authority to act, regardless of whether it has a justiciable interest in
the controversy.”). Because the Respondents did not allege lack of capacity as an error on appeal, the issue has been
waived. See Coastal Liquids Transp., L.P. v. Harris Cnty Appraisal Dist., 46 S.W .3d 880, 884 (Tex. 2001) (“[W ]hile
standing as an issue cannot be waived, capacity can be.”); see also Key Operating & Equip., Inc. v. Hegar, 435 S.W .3d

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v. Poindexter, 306 S.W.3d 798, 806-07 (Tex. App.—Austin 2009, no pet.); see Miranda, 133

S.W.3d at 226 (quoting Cameron v. Children’s Hosp. Med. Ctr., 131 F.3d 1167, 1170 (6th Cir.

1997), for the proposition that “whether a district court has subject[-]matter jurisdiction is a question

for the court, not a jury, to decide, even if the determination requires making factual findings, unless

the jurisdictional issue is inextricably bound to the merits of the case”). The jurisdictional

determination should be made as soon as practicable because a court should not proceed with a case

over which it has no jurisdiction; however, the court has discretion to defer the decision until the

case has been more fully developed. Miranda, 133 S.W.3d at 227.

The Respondents filed a pretrial motion to dismiss for want of jurisdiction, alleging the

absence of standing. The pleading and response were supported by evidence, which included both

the forbearance agreement and the addendum, among other items. The Respondents requested an

evidentiary hearing and gave notice that the hearing had been set. The order denying the motion

states that, as requested, “All Parties appeared by and through counsel, and the Court heard evidence

and argument.” After hearing the evidence and argument, the trial court expressly found that Vernco

had standing and concluded that the court had subject-matter jurisdiction.

The judge presiding over the trial-court proceedings had discretion to consider the

jurisdictional matter in a pretrial hearing rather than awaiting further development of the case. Id.

Furthermore, when the successor judge was assigned to preside over the jury trial, she had discretion

to reconsider the pretrial judge’s interlocutory ruling but was not required to do so. Cf. Velez v.

794, 797 (Tex. 2014) (“An issue raised in [the Supreme Court] must have been assigned as error in the court of appeals
if it originated in the trial court.”); Bunton v. Bentley, 153 S.W .3d 50, 53 (Tex. 2004) (observing that, “ordinarily, an
appellant waives any complaint about the trial court’s judgment that is not raised in the court of appeals”).

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DeLara, 905 S.W.2d 43, 45 (Tex. App.—San Antonio 1995, no writ) (under Bexar County’s central

docket system “the jurisdiction to reconsider an interlocutory ruling is vested in the court rather than

the individual judge, and since one district judge may hold court for another district judge,” the

successor judge has the right to reconsider a previously entered interlocutory order). After reviewing

the pertinent pleadings, the trial judge declined to reconsider the ruling.2 Accordingly, we must

review the evidence before the trial court at the motion-to-dismiss hearing in considering the trial

court’s determination that, as a legal and factual matter, Vernco has standing. Contrary to the court

of appeals’ suggestion otherwise, we are not limited to reviewing evidence provided in an offer of

proof at the trial on the merits.

This matter presents two issues concerning the contents of the appellate record. First, the

court of appeals erroneously concluded that the addendum was not before the trial court and not part

of the appellate record. Both the forbearance agreement and the addendum are included with the

pleadings germane to the motion to dismiss, which were before the pretrial judge when he

determined the standing issue. The court of appeals should have considered all the evidence

presented for the pretrial judge’s consideration.

The second issue is that there is no record of the plea to the jurisdiction hearing, which may

or may not have been evidentiary. “If all the evidence is filed with the clerk and only arguments by

counsel are presented in open court, the appeal should be decided on the clerk’s record alone.”

Michiana Easy Livin’ Country, Inc. v. Holten, 168 S.W.3d 777, 782 (Tex. 2005). A reporter’s record

2
The Respondents have not alleged that either judge abused their discretion. The circumstances would not
support such a claim in any event. The hearing on the motion to dismiss was held about a month before the trial on the
merits began, and nothing in the record suggests that further development of the evidence was essential. In fact, the
record reflects that the Respondents both requested and set the initial hearing date, and they persistently relied on the
forbearance agreement as the grounds for their jurisdictional challenge.

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is required, however, to preserve evidentiary complaints for appellate review when evidence is

introduced in open court. Id. at 782, 783. Absent a specific indication or assertion to the contrary,

we generally presume that pretrial hearings are nonevidentiary. Id. at 782-83. But, “[i]f the

proceeding’s nature, the trial court’s order, the party’s briefs, or other indications show that an

evidentiary hearing took place in open court, then a complaining party must present a record of that

hearing to establish harmful error.” Id.

The record here suggests that the pretrial hearing regarding Vernco’s standing was

evidentiary. In the motion to dismiss, the Respondents requested an evidentiary hearing and asserted

that lack of jurisdiction would be established by “the evidence submitted with [the] motion, and the

testimony that will be offered at the hearing.” Although the forbearance agreement and addendum

might be construed as a matter of law, Vernco’s response asserted both legal and factual matters in

opposition to the motion to dismiss, including whether a foreclosure occurred and whether Vernco

was authorized to act as the Bank’s representative. The pretrial judge’s order further states that he

“heard evidence and argument” at the dismissal hearing.3 Elsewhere in the record, there are

statements to the effect that the pretrial judge devoted the better a part of a day to the hearing, which

implies that the hearing encompassed more than counsel’s argument regarding evidence already on

file. On the other hand, the parties have not mentioned any void in the record or discussed how its

absence might impact the standing inquiry. Cf. Schafer v. Conner, 813 S.W.2d 154, 155 (Tex. 1991)

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The handwritten order states:

On this 9th day of November 2009 came on to be heard Motions to Dismiss from [the
Respondents] . . . . All Parties appeared by and through counsel, and the Court heard evidence and
argument; After hearing the evidence and argument, the Court finds that the Motions should be denied;

It is, therefore, Ordered That the Motions to Dismiss are Denied.
The Court Finds that the Court has jurisdiction to proceed and that Plaintiff has standing.

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(an appellant challenging sufficiency of the evidence to support the trial court’s judgment cannot

meet that burden without presenting a sufficient record on appeal because it is presumed that the

omitted portions of the record support the trial court’s judgment); Guthrie v. Nat’l Homes Corp., 394

S.W.2d 494, 495 (Tex. 1965) (absent a reporter’s record, the court must presume the evidence at trial

supported the jury’s finding). At this point, we could only speculate as to the nature of the hearing.

Clearly, however, the addendum is part of the clerk’s record before the trial court and

certainly must be considered if the matter was determined on the pleadings. If evidence was

introduced at the motion-to-dismiss hearing, no reporter’s record of that hearing has been included

with the appellate record.4 Because the court of appeals did not consider evidence in the relevant

portion of the appellate record, we reverse the court’s judgment and remand this case to that court

for further proceedings, including reconsideration of the standing issue. See TEX . R. APP . P. 59.1.

OPINION DELIVERED: April 24, 2015

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Our review of the trial court’s docket sheet suggests that the hearing transcript was not omitted from the
appellate record, but simply does not exist. For nonevidentiary hearings, however, a reporter’s record is superfluous.
Michiana Easy Livin’ Country, Inc. v. Holten, 168 S.W .3d 777, 782 (Tex. 2005).

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