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Not a Trust Fund Act Beneficiary? No problem!


Not a Trust Fund Act Beneficiary?  No problem!

By Jasmine Singh, Associate Attorney

The Texas Construction Trust Fund Act (“TCTFA”) is a statute which protects the beneficiaries of the TCTFA and provides them with a cause of action for a Trustee’s misuse of construction payments made to a contractor, subcontractor, or any of their officers, directors, or agents according to a construction contract for improvement of specific real property in Texas (“Trust Funds”). Tex. Prop. Code. Ann. § 162.001-.033.

The TCTFA provides criminal penalties for Trustees who misapply Trust Funds. Tex. Prop. Code § 162.032. The TCTFA does not provide a private right of action to the beneficiaries of the TCTFA. However, despite the absence of such a right, a breach of a statutory duty generally gives rise to a private right of action on behalf of the injured party for whose benefit the statute was enacted. Lively v. Carpet Servs., Inc., 904 S.W.2d 868, 871 (Tex. App.—Houston [14th Dist.] 1995, writ denied). Therefore, a Trustee who breaches the TCTFA is subject to civil liability to the beneficiaries for whose protection the TCTFA was enacted. Dealers Elec. Supply Co. v. Scroggins Const. Co., Inc., 292 S.W.3d 650, 657 (Tex. 2009).

A Trustee, according to the TCTFA, is a contractor, subcontractor, owner, or any of their agents, officers, or directors who receive Trust Funds or who have control or direction of Trust Funds. Tex. Prop. Code § 162.002. The beneficiaries of the TCTFA include artisans, laborers, mechanics, contractors, subcontractors, or materialmen who labor or provide labor or materials for the construction or repair of an improvement on specific real property in Texas. Tex. Prop. Code § 162.003(a).

Additionally, a property owner may also be a beneficiary of the TCTFA but only in the context of a residential construction contract. Texas. Tex. Prop. Code § 162.003(b). A property owner who has contracted for construction or repair of an improvement in a non-residential context is not a beneficiary of the TCTFA. However, according to a decision from the 14th Court of Appeals of Texas, this does not necessarily mean that a commercial property owner cannot bring action for breach of the TCTFA against a Trustee who violates it.

In Young v. Bella Palma, LLC, the property owner, Bella Palma, sought to build a commercial property for which Young d/b/a Texcore Construction and Texcore Construction Specialty (“TCS”) was hired to perform site work. No. 14-17-00040-CV, 2022 WL 578442, at *1-*2 (Tex. App.—Houston [14th Dist.] Feb. 25, 2022, no pet. h.) (mem. op.) rule 53.7(f) motion granted Jan. 20, 2023. Bella Palma ultimately fired TCS from the project because of TCS’ conduct, which included submission of false invoices and failure to pay its vendors, and paid TCS’ final bill which included payment for all labor and materials provided by TCS and its vendors. Id. at *2.

However, following the payment of the final bill, TCS’ subcontractors placed liens on Bella Palma’s property alleging they were not paid for the labor and materials they provided to Bella Palma through TCS. Id. Bella Palma sued TCS and Young requesting, among other things, money damages arising from TCTFA. Id. The trial court granted summary judgment in Bella Palma’s favor and ordered that Young pay Bella Palma $10,000 for violating the TCTFA. Id. at *4. Young ultimately appealed the summary judgment[1] arguing that Bella Palma did not have standing to assert a claim for violation of the TCTFA because, as a commercial property owner, Bella Palma was not a beneficiary under the TCTFA. Id. at *8.

In its standing analysis, the 14th Court stated that a plaintiff must demonstrate an injury, that defendant’s conduct caused that injury, and that the injury can be redressed by requested relief for the plaintiff to have standing to bring the suit. Bella Palma, 2022 WL 578442, at *8. It further noted that the question of whether a plaintiff has the right to move forward with their suit pertains to the plaintiff’s right to relief, not to the subject matter jurisdiction of the court to afford such relief. Id. citing Dubai Petrol Co. v. Kazi, 12 S.W.3d 71, 76-77 (Tex. 2000). Therefore, the Court reasoned that a plaintiff does not lack standing “in its proper, jurisdictional sense” simply because the plaintiff cannot prevail on the merits of their claim. Id.

The Court then turned to the TCTFA and whether Bella Palma had standing to assert the TCTFA claim. It found that the TCTFA does not actually or expressly confer standing on any particular set or type of individuals. Bella Palma, 2022 WL 578442, at *10. The Court noted that the provisions cited to show that Bella Palma was not a beneficiary under the TCTFA pertained only to the merits of Bella Palma’s claim. Id. Because the provisions pertained only to merits of the claim, the provisions did not “strip a court of subject-matter jurisdiction to render a take-nothing judgment” if Bella Palma were to fail to meet the TCTFA’s statutory requirements. Id.

The Court further noted that Bella Palma established injury, causation, and redressability because it showed that it was damaged by Young’s misapplication of the Trust Funds and prayed for actual damages, statutory fees, and punitive damages for violations. Id. Therefore, the Court found that Bella Palma, though not a beneficiary under the TCTFA, had standing to assert a claim for violation of the TCTFA against Young.

Young has not filed an appeal from this decision in the Supreme Court yet; however, Young has moved for a Rule 53.7(f) motion which extends the time for filing a petition for review in the Texas Supreme Court. Therefore, Young may still appeal the 14th Court’s decision. It is unclear whether the Texas Supreme Court will grant Young’s petition. It is further unclear how the Texas Supreme Court would rule if it did grant the petition. But in the meantime, the 14th Court’s decision in Young v. Bella Palma stands and allows non-beneficiaries of the TCTFA to bring claims against Trustees who violate it.

[1] Following the trial court’s summary judgment, Young appealed to the 14th Court of Appeals of Texas. However, the 14th Court found the trial court’s judgment was not final and appealable, and remanded the case to the trial court. Bella Palma appealed the 14th Court’s decision to the Supreme Court of Texas, which reversed the 14th Court finding that the trial court’s judgment was a final, appealable judgment. The Supreme Court remanded the case to the 14th Court at which point Young appealed the trial court’s summary judgment in favor of Bella Palma.

Jasmine Singh

Contact: 713.255.3565

Jasmine is a litigation associate for West Mermis PLLC. She represents a variety of clients, such as homeowners, general contractors, subcontractors, and insurance companies, in multiple complex litigation matters.

Prior to joining West Mermis, Jasmine interned in the Southern District of Texas as well as in the Fourteenth Court of Appeals of Texas. She was also involved in both intra-scholastic and inter-scholastic competitions throughout law school which earned her multiple awards including placing as a semifinalist in the Blakely Butler Moot Court Competition, and a Quarterfinalist in the Hippard Open Mock Trial Competition.

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