The Fifth Court revisited the borderline between “capacity” and “standing” in the context of a claim acquisition from bankruptcy in Obsidian Solutions, LLC v. KBIDC Investments, LLC, No. 05-19-00440-CV (July 30, 2021) (mem. op.).

Substantively, the Court reminded: “The issue of standing focuses on whether a party has a sufficient relationship with the lawsuit so as to have a ‘justiciable interest’ in its outcome; in contrast, the issue of capacity ‘is conceived of as a procedural issue dealing with the personal qualifications of a party to litigate.’ …  ‘When the issue involves capacity arising from a contractual right, “Texas law is clear, and this court has previously held numerous times, that a challenge to a party’s privity of contract is a challenge to capacity, not standing.”‘” (citations omitted, emphasis added).

Procedurally, the issue was tried by consent, even if the correct label was not applied.   “[A]t trial, the issue of whether KBIDC bought the assets out of bankruptcy and which assets were purchased arose during KBIDC’s direct examination of Kent. … The trial court listened to arguments from both sides on their interpretations of the APA before finding that the APA gave ‘authority to the Plaintiff for … the advancement of this suit.’ Given the parties’ arguments and the trial court’s ruling, we conclude that capacity was tried by consent in the trial court.” (emphasis added).

“'[A] plaintiff’s failure to have a valid [assumed name] certificate on file is not a jurisdictional issue but, rather, a capacity issue that is properly raised in a plea in abatement so that the cause may be suspended while the defect is corrected.’ By failing to file a verified plea in abatement prior to trial, appellees waived their complaint.” Pennington v. Cypress Aviation, No. 05-19-00345-CV (April 9, 2020) (mem. op.); cf. Malouf v. Sterquell PSF Settlement LC, No. 05-17-01343-CV (Nov. 7, 2019, pet. filed) (mem. op.) (finding no waiver when the plaintiffs’ “claimed status as a . . . partner was a primary focus of both sides’ arguments at trial”).

In Tour de Force, Ltd. v. Barr, the plaintiff, Tour de Force, was a Russian tour operator that entered into an agreement by email with Gordon Barr, CEO of Port Promotions. There wasn’t a separate written contract. When Tour de Force stopped receiving payments, it sued Barr individually. The trial court found after a bench trial that Tour de Force did not prove that a contract existed with Barr in his individual capacity. Tour de Force appealed, arguing that the trial court applied the wrong standard because agency is an affirmative defense. The Dallas Court of Appeals affirmed.

On the issue of whether it was the defendant’s burden to prove agency or the plaintiff’s burden to prove a contract with the defendant in his individual capacity, the Court noted that the defendant disclaimed any reliance on an agency defense during closing, meaning he had no burden to establish an affirmative defense. “Rather, the burden remained squarely with [Tour de Force] to prove a ‘meeting of the minds’ between it and Barr to enter into a contract.” The emails forming the contract included a signature line of Gordon Barr as CEO of Port Promotions, invoices were directed at Port Promotions, and payments were made from an account owned by Port Promotions. Thus, though the plaintiff testified that he believed he had contracted with Barr, there was no evidence of a “meeting of the minds” between Tour de Force and Barr in his individual capacity to enter into a contract.

Tour de Force, Ltd. v. Barr

In 2005, Dibon Solutions acquired 100% of RTS’s common stock. In 2006, the Texas Secretary of State ordered the forfeiture of RTS’s charter or certificate of authority for failure to comply with the tax code. In 2007, Martinair contracted with RTS for use of RTS’s profit optimization products and related services. Martinair later terminated its agreement with RTS, and RTS sued Martinair for breach of contract, identifying the plaintiff as RTS, “a corporation organized under the laws of the State of Texas.”

Martinair filed a motion for summary judgment against RTS, arguing RTS’s forfeiture of its corporate existence in 2006 deprived it of legal authority and capacity under Texas law to enter into the Agreement upon which it sued Martinair, which the trial court granted in part. The trial court also struck RTS’s amended petition, which had purported to substitute RTS’s parent corporation, Dibon, as the plaintiff. On appeal, Dibon argued the trial court erred in striking its amended petition. The Court of Appeals disagreed, and affirmed the trial court’s ruling. Rule 28 permits a partnership doing business under an assumed name to file suit in that name. However, Dibon failed to make a showing that it actually conducted business under the name RTS, thus its amended petition was improper.

Dibon Solutions, Inc. v. Martinair Holland N.V., No. 05-11-01586-CV

In a breach of contract case, a group of defendants appealed from the district court’s grant of summary judgment in favor of the plaintiff. The defendants argued that the plaintiff lacked standing to sue them because there was no evidence it had privity of contract with any of the defendants. The court of appeals rejected that argument, holding that the defendants were actually challenging the capacity of the plaintiff to sue or be sued. The plaintiff had standing to sue on the contract because it pleaded and proved it was “formerly known as” the party named in the agreement. As to the challenge to the plaintiff’s capacity, the court held that the defendants had been untimely in making that challenge, as the verified denial of capacity required by Rule 93 was only filed the morning of the summary judgment hearing — not 7 days before as required by Rule 63. The trial court’s summary judgment order indicated that it had not considered the amended pleading, stating that it had considered the “pleadings timely filed,” not all of the pleadings in the case. Nor was the issue of capacity tried by consent as part of the summary judgment proceeding, since the response to the summary judgment motion raised no issue of the plaintiff’s capacity to bring suit. Likewise, the court of appeals rejected the claim of one of the individual defendants that he could not be personally liable on the contract because he had signed it as CEO of the defendant corporation. Because the defendant had not timely filed a verified denial of his capacity to be sued individually, that issue was also waived. As a result, the trial court’s judgment was afffirmed.

John C. Flood of DC, Inc. v. SuperMedia, LLC, No. 05-12-00307-CV