I I I. 5th Court of Appeals FILED: 01/26/ :00. Lisa Matz, Clerk

I I I 5th Court of Appeals FILED: 01/26/2012 14:00 Lisa Matz, Clerk

1,., i ~~ NO. 05-11-01439-CV 1111 IN THE COURT OF APPEALS FOR THE FIFTH COURT OF APPEALS DISTRICT OF TEXAS AT DALLAS LAFAYETTE ESCADRILLE, INC. v. CITY CREDIT UNION, Appellant, Appellee From the 160th Judicial District Court of Dallas County, Texas The Honorable Jim Jordan, Presiding Trial Court No. 10-03243-L LAFAYETTE ESCADRILLE, INC.'S APPELLANT'S BRIEF William J. Dunleavy State Bar No. 00787 404 Law Offices of William J. Dunleavy, P.C. 8140 Walnut Hill Lane One Glen Lakes, Suite 950 Dallas, Texas 75231 Telephone No. 972/247-9200 Facsimile No. 972/247-9201 Attorney for Appellant Lafayette Escadrille, Inc. ORAL ARGUMENT REQUESTED January 20, 2012

i..! l!tl STATEMENT REGARDING ORAL ARGUMENT Appellant Lafayette Escadrille, Inc. requests oral argument and submits that such argument would aid the Court's consideration of this appeal because some of the issues have not been addressed by this Court before. As a result, Appellant believes the Court's decisional process would benefit from the opportunity to hear from counsel directly. IDENTITY OF PARTIES AND COUNSEL Appellant: Counsel for Appellant: Lafayette Escadrille, Inc. William J. Dunleavy State Bar No. 00787404 Law Offices of William J. Dunleavy, PC 8140 Walnut Hill Lane One Glen Lakes, Suite 950 Dallas, Texas 75231 Telephone No. 972/247-9200 Facsimile No. 972/247-9201 Appellee: City Credit Union dlol Counsel for Appellee: Randy Roberts State Bar No. 17016400 Blalack & Williams, P.C. 5550 LBJ Freeway, Suite 400 Dallas, Texas 75240 Telephone No. 214/630-1916 Facsimile No. 214/630-1112 Lafayette Escadrille, Inc.'s Appellant's Brief 11

i,; I'"'' TABLE OF CONTENTS 1->~1 Statement Regarding Oral Argument... ii Identity of Parties and Counsel... ii Table of Contents....................................................... 111 ''1\' Index of Authorities..................................................... v1 Statement of the Case... 1 Issues Presented......................................................... 1 Issue No.1: The Trial Court erred by granting CCU's Second Motion for Summary Judgment if its ruling was that Lafayette's claim was barred because it was a compulsory counterclaim in a prior lawsuit between the parties.... 1 Issue No.2: The Trial Court erred by granting CCU's Second Motion for Summary Judgment if its ruling was that Lafayette's claim was barred by res judicata due to the prior lawsuit................................. 1 Issue No.3: The Trial Court erred by granting CCU's Second Motion for Summary Judgment if its ruling was that Lafayette's claim was barred by collateral estoppel due to the prior lawsuit......................... 1 Issue No.4: The Trial Court erred by granting CCU's Second Motion for Summary Judgment if its ruling was that Lafayette's claim was barred due to an alleged breach of contract...................................... 1 Issue No. 5: The Trial Court erred by granting CCU' s Second Motion for Summary Judgment if its ruling was that Lafayette's claim was barred if CCU properly terminated the contract.................................. 1 Statement of Facts... 2 Summary of the Argument... 6 Argument... 8 Standard of review... 8 Lafayette Escadrille, Inc.'s Appellant's Brief iii

I'' 1,,,, Compulsory Counter-Claim.......................................... 8 illi Claim Was Not Mature at Time of Answer... 10 Claim Did Not Arise From Same Transaction or Occurrence... 12 Res Judicata..................................................... 15 Res Judicata Substantially Similar to Compulsory Counterclaim Rule........ 15 Merger and Bar................................................... 16 Collateral Estoppel................................................ 17 Lafayette's Claim Not Barred by Sales Tax Overcharges... 20 CCU Did Not Properly Terminate Contract.... 22 Conclusion... 26 Prayer... 27 Certificate offiling and Service... 28,...... Lafayette Escadrille, Inc.'s Appellant's Brief iv

I ~ I ;if INDEX OF AUTHORITIES Cases: Page Nos. Barr v. Resolution Trust Corp., 837 S.W.2d 627 (Tex.1992)... 9, 13, 14, 15, 16, 18 Casso v. Brand, 776 S.W.2d 551 (Tex.1989)... 14 I''* Chilton Ins. Co. v. Pate & Pate Enters., Inc., 930 S.W.2d 877 (Tex.App.-San Antonio 1996, writ denied)... 23, 24 Cowman v. Allen Monuments, Inc., 500 S.W.2d 223 (Tex.App.-Texarkana 1973, no writ)... 21 Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691 (Tex. 1994)... 21 Houston Belt & Terminal Ry. Co. v. J Weingarten, Inc., 421 S.W.2d 431 (Tex.Civ.App.-Houston [1st Dist.] 1967, writ refd n.r.e.)... 23 Huckabee v. Time Warner Entertainment. Co., 19 S.W.3d 413 (Tex. 2000)... 8 Hudson v. Wakefield, 645 S.W.2d 427 (Tex. 1983)... 22 Ingersoll-Rand Co. v. Valero Energy Corp., 997 S.W.2d 203 (Tex. 1999)... 9 Jeanes v. Henderson, 688 S.W.2d 100 (Tex.1985)... 16 Johnson & Johnson Med., Inc. v. Sanchez, 891 S.W.2d 640 (Tex. 1996)... 8 Kaiser v. Northwest Shopping Center, Inc., 587 S.W.2d 454 (Tex.App.-Dallas 1979, writ refd n.r.e.)... 21, 23, 25 KPMG Peat Marwickv. Harrison Cnty. Hous. Fin. Corp., 988 S.W.2d 746 (Tex. 1999)... 8., Mun. Admin. Servs., Inc. v. City of Beaumont, 969 S.W.2d 31 (Tex.App.-Texarkana 1998, no pet.)... 11, 12, 17 '* Nixon v. Mr. Property Management Co., 690 S.W.2d 546 (Tex. 1985)... 8 dl Park Place Hasp. v. Estate of Milo, 909 S.W.2d 508 (Tex. 1995)... 24, 26 Taco Boy, Inc. v. Redelco Co., 515 S.W.2d 319 (Tex.Civ.App.-Corpus Christi 1974, no writ)... 22 Lafayette Escadrille, Inc.'s Appellant's Brief v

;.t: l;,i Cases: Page Nos. i Valence Operating Co. v. Dorsett, 164 S.W.3d 656 (Tex. 2005)... 8 Wendlandt v. Sommers Drug Stores Co., 551 S.W.2d 488 (Tex.Civ.App.-Austin 1977, no writ)... 11 Western Invs. v. Urena, 162 S.W.3d 547 (Tex. 2005)... 24 W. Irrigation Co. v. Reeves County Land Co., 233 S.W.2d 599 (Tex.Civ.App.-El Paso 1950, no writ)... 23 Rules and Treatises: Page Nos. TEX. R. CIV. P. 97... 9, 12, 16, 17 Restatement (Second) of Judgments (1982)... 13, 15,.,.,. Lafayette Escadrille, Inc.'s Appellant's Brief vi

I"'' lm I"' STATEMENT OF THE CASE Nature of the Case: Course of Proceedings: Disposition: Breach of contract claim Trial Court granted summary judgment. The Trial Court granted the Defendant's Second Motion for Summary Judgment dismissing the Plaintiffs contract claim. ISSUES PRESENTED 1. The Trial Court erred by granting CCU' s Second Motion for Summary Judgment if ~ its ruling was that Lafayette's claim was barred because it was a compulsory counterclaim ~ in a prior lawsuit between the parties. 2. The Trial Court erred by granting CCU's Second Motion for Summary Judgment if its ruling was that Lafayette's claim was barred by res judicata due to the prior lawsuit. 3. The Trial Court erred by granting CCU's Second Motion for Summary Judgment if 111 its ruling was that Lafayette's claim was barred by collateral estoppel due to the prior lawsuit. 4. The Trial Court erred by granting CCU's Second Motion for Summary Judgment if its ruling was that Lafayette's claim was barred due to an alleged breach of contract. 5. The Trial Court erred by granting CCU's Second Motion for Summary Judgment if "" its ruling was that Lafayette's claim was barred ifccu properly terminated the contract. Lafayette Escadrille, Inc.'s Appellant's Brief Page- 1

lo<~l I" I STATEMENT OF FACTS.. 1. From December 1, 2003 to September 24, 2007, Lafayette Escadrille, Inc. ("Lafayette") performed security guard services and other services under a written contract with City Credit Union ("CCU"). (CR P63-73) 1 2. CCU terminated the parties' contract and filed a lawsuit ("the First Lawsuit") on September 24, 2007 against Lafayette. (CR P149-151; CR P51-52; and CR P56-62) 3. This appeal arises from the second lawsuit between these parties, which was filed by Lafayette on March 19, 2010. (CR PS-11) 4. In the First Lawsuit, CCU made claims of alleged overcharges of sales tax by Lafayette, for alleged currency losses, for alleged overcharges on "additional trips" and for attorney's fees. (CR P56-62) 5. The sales tax overcharges complained of in the First Lawsuit occurred between January 2004 and October 2005. (CR P58; and CR P122-143) 6. Before its unilateral termination of the parties' contract, CCU raised the issue of sales tax overcharges in a letter from Randy Roberts on June 13, 2007, which claimed overcharges of$27,587.91. (CR P144-147) 7. For the sixty month contractterm, Decem her 1, 2003 ton ovember 3 0, 2008, Lafayette expected contract revenue to exceed $1,372,482.60 ($22,874.71 x 60). (CR P198, ~56) 8. Sales tax overcharges of $27,5 87.91, after reduction for an unpaid invoice (Invoice 174) of$3,653.44, represented less than 2% of the total contract value. (CR P198, ~57) dll 1 The record in this appeal consists of a one volume Clerk's Record, which will be cited by volume and page number, i.e., "(CR P2).",, Lafayette Escadrille, Inc.'s Appellant's Brief Page- 2

,l<l'ill ~~,.. 1.1 9. In his June 13, 2007 letter, Roberts also requested a meeting to negotiate other,,.. outstanding issues between CCU and Lafayette, including the cancellation of the daily check pick up with a contract value of at least $42,500.00. (CR P147; and CR P197, ~40) 10. After Roberts' June 13, 2007letter, Lafayette continued to perform under the contract even. (CR P197, ~47) 11. CCU continued to request and require performance from Lafayette under the contract for more than three months after Roberts' June 13, 2007 letter. (CR P198, ~48) 12. The unilateral termination of the contract by CCU on September 24, 2007 occurred nearly two years after the sales tax overcharges. (CR P102, ~10; and CR P149-151) 13. The contract requires each party to the agreement must "provide written notice of default, and allow the defaulting party 30 days to cure the default." (CR P64, ~6) 14. Lafayette filed its answer to the First Lawsuit on October 22, 2007, which was 28 days after the First Lawsuit was filed. (CR P74-77; and CR P270, ~5) 15. Lafayette did not send written notice of default and allow CCU thirty days to cure the default before filing its Original Answer on October 22, 2007. (CR P270, ~6) 16. On September 18, 2008, Lafayette filed a motion for leave in the First Lawsuit to assert a counter-claim for damages due to CCU's termination and breach of the parties' contract. (CR P86-89) d 17. No hearing was set on the motion for leave until June 17, 2009. (CR P270, ~9) 18. On May 22,2009, Lafayette requested ajurytrial in thefirstlawsuit. (CRP275-278) 19. Lafayette paid a jury fee on May 22,2009 by mail. (CRP275-278; and CRP270, ~7) Lafayette Escadrille, Inc.'s Appellant's Brief Page- 3

1111 20. On May 28, 2009, Lafayette's Request for Jury Fee and payment was received by the District Clerk within ten days of mailing. (CR P275-278; and CR P270, ~8) 21. On June 11, 2009, the court in the First Lawsuit heard and granted partial summary judgment as to sales tax overcharges. (CR P223) 22. The partial summary judgment was entered on June 15, 2009. (CR P223) 23. No adjudication of the merits ofccu's claims occurred in the First Lawsuit, except the sales tax overcharges. (CR P223) 24. No adjudication of the merits of Lafayette's counter-claim occurred in the First Lawsuit. (CR P223) 25. No issues were decided in the First Lawsuit other than the sales tax issue. (CR P223) 26. On June 17, 2009, Lafayette's motion for leave to assert a counter-claim was heard and denied. (CR P326-354; and CR P270, ~9). 27. At the June 17, 2009 hearing in the First Lawsuit on Lafayette's motion for leave to assert counter-claim, the court said leave was denied because the case was within seven days oftrial. (CR P346, L18-24; and CR P270, ~10) 28. The court also advised on June 17, 2009 that the motion for leave could be reconsidered if the case was not reached for trial on June 22, 2009. (CR P346, L25 to P347, L3; and CR P270, ~11) 29. The week of June 22, 2009 was a non-jury week in Dallas County. (CR P270, ~13) 30. The First Lawsuit could not have been reached for jury trial on June 22, 2009 because no jurors were summoned that week by the District Clerk. (CR P270, ~14) Lafayette Escadrille, Inc.'s Appellant's Brief Page- 4

1.. '.. 31. CCU non-suited all other claims in the First Lawsuit on June 19, 2009. (CR P225-226) l<tfl 32. CCU's non-suit of all remaining claims in the First Lawsuit on June 19, 2009 prevented the reconsideration oflafayette's motion for leave to amend when the case could '<I not be reached for jury trial on June 22, 2009. (CR P227-228; and CR P350, L9-17) 33. The lawsuit from which this appeal arises was filed on March 19, 2010. (CR PS-11) 34. CCU filed its first motion for summary judgment on June 21, 2010 alleging that Lafayette's claim was a compulsory counterclaim in the First Lawsuit; that Lafayette's claim was barred by res judicata due to the judgment in the First Lawsuit; and that Lafayette's claim was barred by the doctrine of collateral estoppel due to the Judgment in the First Lawsuit. (CR P23-24) 35. The court heard CCU' s first motion for summary judgment on September 3, 20 10 and denied the motion on September 11, 2010. (CR P360) 36. CCU filed a second motion for summary judgment on May 12, 2011 re-alleging the same three bases for summary judgment as in its first motion: that Lafayette's claim was a compulsory counterclaim in the First Lawsuit; that Lafayette's claim was barred by res judicata due to the judgment in the First Lawsuit; and that Lafayette's claim was barred by the doctrine of collateral estoppel due to the Judgment in the First Lawsuit. (CR P23-24) 37. CCU also asserted two new bases for summary judgment in its second motion: that Lafayette's claim was barred by a breach of contract- the sales tax overcharges; and that CCU properly terminated the contract. (CR P367) Lafayette Escadrille, Inc.'s Appellant's Brief Page- 5

"',.. SUMMARY OF THE ARGUMENT Lafayette shows the Trial Court erred when it granted City Credit Union's Second J:d Motion for Summary Judgment because CCU failed to establish it was entitled to judgment as a matter of law on the issues of res judicata and claim preclusion. CCU also failed to establish Lafayette's breach of contract claim in the Second Lawsuit was a compulsory counterclaim in the First Lawsuit. The Trial Court initially ruled correctly when it denied CCU's first motion for summary judgment. But the Trial Court erred by granting CCU's Second Motion for Summary Judgment. And the Trial Court's ruling was error whether its ruling was based on the new bases for summary judgment raised by CCU in the second motion: 1) that Lafayette's claim was barred by a breach of contract; and 2) that CCU properly terminated the contract, or if the ruling was based on any of the arguments that were first raised in CCU' s first motion for summary judgment. When CCU filed the First Lawsuit against Lafayette, CCU asserted four claims: first, CCU made a claim based on alleged overcharges of sales tax by Lafayette; second, CCU made a claim of alleged currency losses; third, CCU made a claim for alleged overcharges on "additional trips"; and finally, CCU made a claim for attorney's fees. The Trial Court.. granted partial summary judgment in the First Lawsuit for CCU, but only as to CCU's claim for overcharges of sales tax. While Lafayette had filed a motion for leave to assert a counterclaim for breach of contract in the First Lawsuit, the motion was heard and denied by written order on June 17, 2009. The Trial Court said leave was denied because the case was less than seven days from trial. But the Trial Court also said the motion for leave could be reconsidered if the case was not reached for trial on June 22, 2009. Lafayette Escadrille, Inc.'s Appellant's Brief Page- 6

I"' Lafayette had timely requested a jury trial and paid the jury fee more than thirty days 1, 111 before the trial date in the First Lawsuit. Because the week of June 22, 2009 was a non-jury i ~t '.. week in Dallas County, the case would not and could not have been reached for jury trial. Apparently recognizing this, CCU chose to non-suit all its remaining claims in the First Lawsuit on June 19, 2009. This rendered the partial summary judgment, when taken with the order granting the non-suit, a final judgment that disposed of all claims. CCU apparently sought to avoid any reconsideration oflafayette's motion for leave to file the counter-claim. With the non-suit, there was no adjudication of the merits of CCU' s claims other than the sales tax claim and there was no adjudication of any contract claim. Lafayette's claim for breach of contract was not a compulsory counter-claim in the First Lawsuit because it was not mature at the time Lafayette filed its Answer in the First Lawsuit. Next, as no issues were decided on the merits in the First Lawsuit, other than the sales tax issue, Lafayette's breach of contract claim is not barred in the Second Lawsuit by res judicata. Similarly, collateral estoppel does not bar the Second Lawsuit because there was no determination of the merits of the contract claim. The new issues raised by CCU's Second Motion for Summary Judgment were incorrectly decided because genuine issues of material fact exist as to whether the sales tax charges were a material breach of contract; whether CCU continued to demand and accept Lafayette's performance after the sales tax overcharges; and finally, whether the contract was properly terminated. Because the Trial Court granted summary judgment despite these genuine issues of material fact, summary... judgment in this case was improper and should be reversed. Lafayette Escadrille, Inc.'s Appellant's Brief Page- 7

1 1.,_, '"' Standard of Review ARGUMENT The review of a summary judgment is a de novo review. 2 This Court "must determine I whether the undisputed evidence in a traditional motion for summary judgment establishes as a matter of law that there is no genuine issue of material fact as to one or more of the essential elements of the plaintiffs cause of action." 3 All evidence favorable to the nonmovant must be taken as true and all reasonable inferences must be drawn in favor of the non-movant. 4 In this case of a defendant moving for summary judgment on affirmative defenses, the defendant must prove each element of the defense as a matter oflaw, leaving no issues of material fact. 5 Finally, in deciding a motion for summary judgment, courts may not weigh the evidence. 6 Compulsory Counter-Claim The Trial Court erred by granting CCU' s Second Motion for Summary Judgment if its ruling was that Lafayette's claim was barred because it was a compulsory counterclaim in a prior lawsuit between the parties. As the Trial Court did not explain its basis for granting summary judgment on all of Lafayette's claims, Lafayette understands it must, as Appellant, defeat all possible bases for the ruling. To that end, Lafayette shows there were genuine issues of material fact that 2 Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). 1999). 3 KPMG Peat Marwick v. Harrison Cnty. Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 4 Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-549 (Tex. 1985). 5 Johnson & Johnson Med., Inc. v. Sanchez, 891 S.W.2d 640, 644 (Tex. 1996). 6 Huckabee v. Time Warner Entertainment. Co., 19 S.W.3d 413, 422 (Tex. 2000). Lafayette Escadrille, Inc.'s Appellant's Brief Page- 8

I " should have precluded judgment on the compulsory counter-claim issue. To decide whether 1'* 1 Lafayette's breach of contract claim was a compulsory counter-claim, it was appropriate for the Trial Court to look to the rule for counter-claims. TEX. R. CIV. P. 97(a) states that a party : "" defending a claim must bring as a counterclaim any claim that "arises out of the transaction or occurrence that is the subject matter of the opposing party's claim..."? In Ingersoll-Rand Co. v. Valero Energy Corp., which was cited by CCU in the Trial Court, the Texas Supreme Court explained the analysis applicable for compulsory counterclaims. 8 The Ingersoll-Rand Co. opinion said "a counterclaim is compulsory only if: (1) it is within the jurisdiction of the court; (2) it is not at the time of filing the answer the subject of a pending action; (3) the claim is mature and owned by the defendant at the time of filing the answer; (4) it arose out of the same transaction or occurrence that is the subject matter of the opposing party's claim; (5) it is against an opposing party in the same capacity; and ( 6) it does not require the presence of third parties over whom the court cannot acquire jurisdiction. 9 On the other hand, "a claim which either matured or was acquired by the pleader after filing his pleading may be presented as a counterclaim by amended pleading". 10 Based on the plain language of the Ingersoll-Rand Co. decision, Lafayette showed 7 Barr v. Resolution Trust Corp., 837 S.W.2d 627, 630 (Tex.1992) 8 997 S.W.2d 203, 207 (Tex. 1999). 9Id. 10 TEX. R. CIV. P. 97(d) Lafayette Escadrille, Inc.'s Appellant's Brief Page- 9

I"' summary judgment was not proper as CCU failed to conclusively establish each element of 1011 its affirmative defense.'' Next, Lafayette showed its breach of contract claim was not l'id "mature and owned by the defendant at the time of filing the answer" in the First Lawsuit. 12 Lafayette also showed the breach of contract counter-claim did not arise out of the same.. transaction or occurrence that was the subject matter of CCU's claim of sales tax overcharges. 13 Because CCU failed to conclusively establish Lafayette's claim was "mature and owned" at the time Lafayette filed its Original Answer and because CCU failed to conclusively establish Lafayette's counter-claim arose from the same transaction as the sales tax charges, the Trial Court properly denied CCU's first motion for summary judgment. 14 Between the denial of the first summary judgment motion and the Trial Court's erroneous grant ofccu's Second Motion for Summary Judgement, no additional facts were established by CCU to warrant a change from the Trial Court's original rulings on the issues i"'' raised in CCU's first motion for summary judgment. But if the Trial Court granted the second motion based on CCU' s compulsory counter-claim argument, Lafayette shows below why that ruling was erroneous....,... Claim Was Not Mature at Time of Answer It was undisputed below that the contract required each party to the agreement to "provide written notice of default, and allow the defaulting party 30 days to cure the 11 CR P245-266. 12 CR P253-254. 13 CR P254-260. 14 CR P360. Lafayette Escadrille, Inc.'s Appellant's Brief Page- 10

I" l'f;t' default." 15 It was also undisputed that CCU filed the First Lawsuit on September 24, 2007, i,lll which was the same day CCU notified Lafayette that CCU was terminating the contract. 16 At the time Lafayette filed its Original Answer on October 22, 2007, only twenty eight days had passed after CCU terminated the contract and filed the First Lawsuit. 17 But when Lafayette filed its Answer in the First Lawsuit, Lafayette had not sent written notice of default and Lafayette had not allowed CCU the thirty days to cure the default before filing ~ its Original Answer on October 22, 2007. 18 In accordance with the express terms of the contract, written notice and opportunity to cure was required before Lafayette's breach of contract claim was "mature". 19 A condition precedent is an act that must occur before there is a breach of contractual duty.zo As recognized in Wendlandt v. Sommers Drug Stores Co., the notice of default provision in the parties' contract here was a condition precedent to Lafayette's recovery for breach of contract based on CCU's unilateral termination of the contract. 21 Notice requirements in Texas default clauses must be strictly followed. 22 Because Lafayette had not,,.,. 15 CR P64, ~6. 16 CR P56-62; and CR P149-151. 17 CR P212, ~5; and CR P74-77. 18 CR P212, ~6. 19 CR P64, ~6... "' 20 Mun. Admin. Servs., Inc. v. City of Beaumont, 969 S.W.2d 31, 40 (Tex.App.-Texarkana 1998, no pet.). 21 551 S.W.2d 488,490-91 (Tex.Civ.App.-Austin 1977, no writ). 22Taco Boy, Inc. v. Redelco Co., 515 S.W.2d 319,322 (Tex.Civ.App.-Corpus Christi 1974, no writ). Lafayette Escadrille, Inc.'s Appellant's Brief Page- 11

provided written notice to CCU and had not allowed CCU an opportunity to cure the default I''" when Lafayette filed its Original Answer in the First Lawsuit, the condition precedent was not satisfied on October 22, 2009 and Lafayette owned no actionable breach of a contract, claim on that date. 23 As such, Lafayette's breach of contract claim based on the contract termination was not mature when Lafayette filed its Original Answer on October 22, 2009. After October 22, 2009, and after Lafayette satisfied the conditions precedent of ~ notice and opportunity to cure, the breach of contract claim became a permissive counterclaim that Rule 97(d) allows "may be presented as a counterclaim by amended pleading". 24 Thus, Lafayette showed the Trial Court not only that its breach of contract counter-claim was not mature on October 22, 2009, but also that the claim could not have been mature on that "" date. As a result, Lafayette submits the Trial Court should have denied CCU's Second Motion for Summary Judgment for all the same reasons the Trial Court granted the first summary judgment motion. Lafayette's claim against CCU was merely a permissive counterclaim, but it was not a mature claim when Lafayette filed its Answer in the First Lawsuit. Claim Did Not Arise From the Same Transaction or Occurrence It was undisputed that CCU obtained a partial summary judgment as to sales tax overcharges that occurred from January 2004 to October 2005. 25 But the termination of the.. contract that gave rise to the Second Lawsuit did not occur until September 24, 2007, which 23 Mun. Admin. Servs., Inc., 969 S.W.2d at 40. 24 TEX. R. CIV. P. 97(d) 25 CR P58, 14.4. Lafayette Escadrille, Inc.'s Appellant's Brief Page- 12

I" I'""' was almost four years after the earliest overcharge and two years after the last overcharge. 26 CCU did not conclusively establish its unilateral termination of the contract arose from the same transaction or occurrence - the sales tax overcharges - because the facts of these I"' separate claims were not "related in time, space, origin, or motivation". A "transaction" is not equivalent to a sequence of events, but the determination is to be made pragmatically, "giving weight to such considerations as whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a trial unit conforms to the parties' expectations or business understanding or usage.'m CCU never asserted in the First Lawsuit it was entitled to terminate the contract; CCU sought no declaration that the contract was terminated; and CCU did not ask in the First Lawsuit for relief from its obligations under the contract. 28 Instead, CCU merely sought recovery of damages based on the alleged actions oflafayette or its employees? 9 Then, after obtaining relief as to the sales tax overcharges, CCU abandoned its remaining claims by its non-suit. 30 Lafayette showed the Trial Court the only transactions or occurrences relevant to the res judicata inquiry were the sales tax overcharges in 2004 and 2005. Transactions or,.., occurrences related to CCU' s abandoned claims were not and should not have been considered by the Trial Court when it denied the first motion for summary judgment. Those 26 CR P58; and CR P122-143. 27 Barr, 837 S.W.2d at 630 (quoting Section 24(2) of the Restatement (Second) of Judgments (1982)) (emphasis added). 28 CR P56-62. 29Id. 3 CR P225-226. Lafayette Escadrille, Inc.'s Appellant's Brief Page- 13

!"'' 1'... 1,., sales tax charges were too remote in time from CCU's unilateral termination of the parties' contract- two to four years before the termination. Thus, the only reasonable inference to be drawn, was that these widely separate occurrences were not "related in time". The treatment of these widely separated occurrences as a trial unit did not conform to the parties' expectations or business understanding or usage." 31 The parties' agreement and expectations were that claims would not and could not be asserted until after a nondefaulting party gave "written notice of default" and allowed "the defaulting party 30 days to cure the default. " 32 The parties' expectations as to when a breach of contract claim could arise and be pursued was stated expressly in the agreement. 33 Because Lafayette's contract claim could not be asserted until satisfaction of the conditions precedent of notice and opportunity to cure, the Trial Court erred if it concluded that treating these separate claims as a trial unit would conform to the parties' expectations. More importantly, the Trial Court erred by deciding the parties' expectations were different from what was stated in the contract because a determination of fact issues is not proper on summary judgment. 34 Clearly, the evidence established the result of contract termination did not match the parties' expectations if resolution of the sales tax overcharge claim deprived Lafayette of its right to prosecute a breach of contract claim when notice and/or opportunity to cure were not accomplished or proved. Given these issues of fact, 31 Barr, 837 S.W.2d at 630. 32 CR P64, ~6. 33Id. 34 Casso v. Brand, 776 S.W.2d 551,558 (Tex.1989). Lafayette Escadrille, Inc.'s Appellant's Brief Page- 14

1 Lafayette shows the Trial Court erred in granting summary judgment if it found CCU conclusively established the claims arose from the same transaction or occurrence. Accordingly, Lafayette requests that this Court reverse the summary judgment. Res Judicata ~~ The Trial Court erred by granting CCU's Second Motion for Summary Judgment if its ruling was that Lafayette's claim was barred by res judicata due to the prior lawsuit. It does not appear the Trial Court granted CCU's Second Motion for Summary Judgment based upon the res judicata argument. This is because the Trial Court had previously denied the same argument when it was first raised in CCU' s first motion for summary judgment. 35 But in the event the ruling was based upon res judicata, Lafayette shows below that such a ruling was error. Res Judicata Substantially Similar to Compulsory Counterclaim Rule In Barr, the Texas Supreme Court adopted the transactional approach to the res judicata doctrine from the Restatement (Second) of Judgments (1982). 36 This transactional approach to res judicata bars litigation of issues "arising out of the same subject matter of a previous suit and which through the exercise of diligence, could have been litigated in a prior suit.'m The Barr opinion says the definition of res judicata "is substantially similar to the rule of compulsory counterclaims embodied in the rules of civil procedure." 38 Thus, the 35 CRP360. 36 837 S.W.2d at 631. 37Jd. 38 /d. at 630... Lafayette Escadrille, Inc.'s Appellant's Brief Page- 15

I analysis applicable to CCU's compulsory counterclaim defense also applies to CCU's arguments on res judicata. In fact, CCU stated in its first Motion for Summary Judgment,'Of' that "the judicial statement of res judicata is essentially the same as the rule of compulsory counterclaims set forth in Rule 97, Tex. R. Civ. P." 39 Because CCU failed to conclusively establish that Lafayette's breach of contract claim was mature and because CCU failed to establish that Lafayette's claim arose out of the same subject matter of the First Lawsuit, the Trial Court erred if it granted CCU's Second Motion for Summary Judgment on the affirmative defense of res judicata when it previously denied the first motion, which raised the same affirmative defense. Nothing changed from the time the Trial Court's denied the first motion on September 11, 2010 to the grant of summary judgment on July 12, 2011. Merger and Bar The Barr decision also noted "res judicata may be further categorized into merger and bar, because the doctrine has different applications depending on which party is successful in the prior suit. If the party asserting a claim prevails, the cause of action is merged into the "' judgment, and the cause of action as such ceases to exist. If the party defending a claim prevails in the prior suit, the judgment acts as a bar to matters which could have been litigated in the original suit." 40 Lafayette never asserted a cause of action for breach of contract in the First Lawsuit, 39 CRP44. 40 837 S.W.2d at 628 (citing Jeanes v. Henderson, 688 S.W.2d 100, 103 (Tex.1985)) (internal citations omitted). Lafayette Escadrille, Inc.'s Appellant's Brief Page- 16

,.. for as CCU noted in its second motion for summary judgment, Lafayette was denied leave 1,.. to file the counter-claim on its contract claim. 41 And Lafayette never satisfied the requirements of the conditions precedent to assert a breach of contract claim because there was no notice of default and no opportunity to cure. 42 Thus, there was no mature claim for breach of contract on the date Lafayette filed its Original Answer in the First Lawsuit. 43 The.. only claim Lafayette ever possessed at any time during the prosecution of the First Lawsuit was a permissive claim under Rule 97( d). Finally, as Lafayette was not a prevailing party on any claim relating to CCU's termination of the contract, because that claim was not asserted by Lafayette or CCU, there was no merger of the termination claim into the judgment. Similarly, and despite CCU's arguments below, CCU did not prevail on any contract termination claim as the party defending in the First Lawsuit. This was because no contract termination claim was asserted by Lafayette in the First Lawsuit, because it was not a mature claim and also because leave to amend to assert the claim was denied. Accordingly, it is clear the final judgment in the First Lawsuit was not a bar to Lafayette's breach of contract claim in the Second Lawsuit. Collateral Estoppel The Trial Court erred by granting CCU's Second Motion for Summary Judgment if its ruling was that Lafayette's claim was barred by collateral estoppel due to the prior lawsuit. As with the argument on res judicata, it also seems the Trial Court's ruling on CCU' s 41 CR P30; and CR P224. 42 CR P270, -o6... 43 Mun. Admin. Servs., Inc., 969 S.W.2d at 40. Lafayette Escadrille, Inc.'s Appellant's Brief Page- 17

1. I I I i.~l Second Motion for Summary Judgment was not based on collateral estoppel because the Trial Court rejected this argument in denying CCU's first motion for summary judgment. 44 If summary judgment was based on collateral estoppel, Lafayette shows the ruling was error. Again relying on the Barr decision, Lafayette shows the Supreme Court said in that opinion '"' ld "issue preclusion, or collateral estoppel, prevents relitigation of particular issues already resolved in a prior suit. 45 CCU raised collateral estoppel as a defense to Lafayette's claim, but Lafayette shows the Second Lawsuit does not involve the relitigation of any issues that,.,. were resolved in the First Lawsuit. This is because, with CCU's non-suit, few issues were fully litigated in the First Lawsuit; and no issues essential to the judgment in the First Lawsuit are the subject of the Second Lawsuit... The only issue established by the partial summary judgment in the First Lawsuit was that Lafayette made sales tax overcharges of $29,727.39 from January 2004 to October 2005. 46 CCU argued below that the court in the First Lawsuit ruled Lafayette's sales tax overcharges amounted to a breach of contract. 47 Lafayette challenges this interpretation of the decision. But it cannot reasonably be concluded that there was any ruling in the First Lawsuit that the sales tax overcharges were a material breach of the contract, nor that "City Credit Union had properly terminated the contract" as Defendant claims. 48 This is because these issues were never raised by CCU in its Original Petition, nor in CCU's Motion for 44 CRP360. 45 Barr v. Resolution Trust Corp., 837 S.W.2d 627, 630 (Tex.1992) 46 CR P223. 47 CR P48... 48 CRP223. Lafayette Escadrille, Inc.'s Appellant's Brief Page- 18

I"' I ol ll" I, I I Partial Summary Judgment, in the First Lawsuit. 49 CCU never pleaded, never argued and never even claimed in the First Lawsuit that it was entitled to terminate the contract. 50 Instead, CCU simply stated in its Original Petition '"' I I under the heading "Factual Background" that "Plaintiff has terminated the Contract with Defendant. " 51 CCU sought no declaration that the contract was terminated and CCU did not ask in the First Lawsuit for relief from any of its obligations under the contract. 52 There is simply no basis for CCU's claim now that these determinations were "essential to the Judgment in the First Lawsuit". The reasonable inference the Trial Court was required to draw, from the Order Granting Partial Summary Judgment only on sales tax overcharges, which overcharges were not conclusively established as a material breach, and from the fact that CCU abandoned all of its other claims, is the court in the First Lawsuit did not address or reach the termination of contract issue. There is no language to be found, not in CCU's Original Petition in the First Lawsuit, nor in CCU's Motion for Partial Summary Judgment, nor in the Order Granting Plaintiffs Motion for Partial Summary Judgment, to suggest the issue of contract termination was decided in the First Lawsuit. 5 3 Accordingly, Lafayette respectfully shows that if the Trial Court decided CCU' s Second Motion for Summary Judgment on the basis of CCU' s defense of collateral estoppel, such ruling was error and should be reversed.. 49 CR P56-62; and CR P94-105. sold. 51 CR P59, 'Jl4.9. 52 CR P56-62. 53 CRP56-62; CRP94-105; and CRP223. Lafayette Escadrille, Inc.'s Appellant's Brief Page- 19

1, Lafayette's Claim Not Barred by Sales Tax Overchar2es I I~~~ The Trial Court erred by granting CCU' s Second Motion for Summary Judgment if its ruling was that Lafayette's claim was barred due to an alleged breach of contract. Months after the Trial Court denied CCU's first motion for summary judgment, CCU again moved for summary judgment raising two new issues. In the Second Motion for Summary Judgment, CCU raised the new issues of sales tax overcharges and termination of the contract, both of which CCU argued would amount to a bar to Lafayette's recovery. 54 Lafayette shows, contrary to CCU' s arguments, any sales tax overcharges, even those made the basis for a partial summary judgment in the First Lawsuit, were not a bar to Lafayette's contract claim in the Second Lawsuit. This is because sales tax overcharges in 2004 and 2005- if they were a breach of contract- did not amount to a material breach of the contract. '" The amount of overcharges, $29,727.39 from January 2004 to October 2005, represented about 2% of the contract's value of$1,372,482.60. 55 Because there was no material breach, CCU continued to demand performance from Lafayette and Lafayette continued to perform from late in 2005 through the date of contract termination on September 24, 2007. Thus it... is clear, CCU elected to continue to demand performance of the contract from Lafayette and the First Lawsuit was CCU's suit for a partial breach of the contract. It is undisputed CCU claimed the sales tax overcharges were a matter of default in Randy Roberts' letter of June 13, 2007. 56 But after alleging a default and demanding that 54 CRP367. 55 CR P223; and CR Pl98, ~56-57. 56 CR Pl97, ~39. Lafayette Escadrille, Inc.'s Appellant's Brief Page- 20

I' I,.,, I I~~ Lafayette cure the alleged default, CCU continued to demand and receive Lafayette's performance under the contract. 5 7 By CCU's demands that Lafayette continue to perform i after the alleged breach, CCU made its election not to rescind or terminate the contract; CCU I elected not to sue for a total breach; and the partial summary judgment in the first lawsuit '"' I i related only to a partial breach. Having made its election in July 2007, CCU was not permitted to change its election months later. Lafayette responded to CCU's Second Motion for Summary Judgment by showing that if a breach of contract is material, a plaintiff may (1) rescind the contract; (2) cease performance and sue for a total breach of contract; or (3) continue performance and sue for a partial breach. 5 8 A plaintiff may suspend performance of its obligations under a contract only if the defendant's breach was material, that is, if the defendant deprived the plaintiff of the benefit that could have been reasonably anticipated from full performance. 5 9 A lnah of contract is material when the defendant fails to substantially perform a material obligation or duty under the contract. 60 Because there was no dispute over CCU's continued demand of and receipt ofthe benefits of Lafayette's performance even after the June 13, 2007 letter alleging a default and after the thirty (30) day cure period expired, the summary judgment evidence conclusively showed the sales tax overcharges were merely a partial breach of,. 57 CR P197, ~47; and CR P209, ~4 to CR P210, ~5. 58 Kaiser v. Northwest Shopping Center, Inc., 587 S.W.2d 454,457 (Tex.App.-Dallas 1979, writ refd n.r.e.). 59 Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691, 693 (Tex. 1994). 6 Cowmanv.AllenMonuments, Inc., 500 S.W.2d223,226-227 (Tex.App.-Texarkana 1973, no writ). Lafayette Escadrille, Inc.'s Appellant's Brief Page- 21

contract. And the partial breach did not constitute any excuse or defense to CCU' s duty to '" perform its obligations under the contract. More significantly, Lafayette presented to the Trial Court evidence that the sales tax overcharges of $29,727.39, which represented 2% of the contract's total value of $1,3 72,482.60, did not constitute a material breach of the contract. 61 If the Trial Court based its grant of summary judgment on a finding of a material breach of contract in the sales tax overcharges, Lafayette shows the ruling was error because the question of whether a breach is material is a question of fact for the jury to decide. 62 Because the Trial Court improperly substituted its judgment for the judgment of a jury on a question of fact, the granting of CCU's Second Motion for Summary Judgment was erroneous and should be reversed. dill CCU Did Not Properly Terminate Contract,., The Trial Court erred by granting CCU's Second Motion for Summary Judgment if its ruling was that Lafayette's claim was barred ifccu properly terminated the contract. As noted above, by its Second Motion for Summary Judgment, CCU first argued that Lafayette was not entitled to pursue its claim for breach of contract in the Second Lawsuit because CCU claimed it had properly terminated the contract. 63 CCU argued its termination of the contract was a bar to Lafayette's recovery in the Second Lawsuit. 64 It is undisputed CCU unilaterally terminated the parties' contract on September 24, 2007. 65 But Lafayette 61 CR P223; and CR P198, ~56-57. 62 Hudson v. Wakefield, 645 S.W.2d 427, 430 (Tex. 1983). 63 CRP367. 64 Id. 65 CR P196, ~28. Lafayette Escadrille, Inc.'s Appellant's Brief Page- 22

I' shows the contract termination two to four years after the sales tax overcharges, that followed I~ two to four years of performance and even three months of performance after CCU' s notice 1.~1 of default, was not a proper termination. 66 In the Trial Court, Lafayette presented evidence and argument to demonstrate the only reasonable inference to be drawn was that CCU considered the sales tax overcharges to be. I a partial breach of the contract. The partial breach was not sufficient excuse for CCU's failure to perform its obligations under the rule stated by this Court in Kaiser that allowed an election by CCU. 67 But once CCU made its election, Texas law is clear "if after a party breaches a contract, the other party continues to insist on performance on the part ofthe party in default, the previous breach constitutes no excuse for nonperformance on the part of the party not in default and the contract continues in force for the benefit of both parties." 68 When a party materially breaches a contract, the non-breaching party is forced to elect between two courses of action, either continuing performance or ceasing performance. 69 Treating a contract as continuing after a breach deprives the non-breaching party of any excuse for terminating its own performance. 70 In this case, CCU elected to continue to demand and receive from Lafayette all of the 66 CR P144-147; and CR P197, ~47. 67 Kaiser, 587 S.W.2d at 457. 68 Houston Belt & Terminal Ry. Co. v. J Weingarten, Inc., 421 S.W.2d 431, 435 (Tex.Civ.App.-Houston [1st Dist.] 1967, writ refd n.r.e.). 69 Chilton Ins. Co. v. Pate & Pate Enters., Inc., 930 S.W.2d 877, 887-88 (Tex.App.-San Antonio 1996, writ denied) (on reh'g) (citing W Irrigation Co. v. Reeves County Land Co., 233 S.W.2d 599, 602 (Tex.Civ.App.-El Paso 1950, no writ)). 7 Chilton Ins. Co., 930 S.W.2d at 888. Lafayette Escadrille, Inc.'s Appellant's Brief Page- 23

i I"' benefits of the parties' contract- ATM services, protective services, and courier services - I,,;, for more than three months after the notice of default. 71 And CCU did not dispute that it I received performance from Lafayette after the notice of default. Thus, the only reasonable inference to be drawn from the summary judgment evidence was that CCU and Lafayette 1~1 both continued performance and CCU' s lawsuit was a suit for a partial breach. An equally reasonable inference is that Lafayette was entitled to expect and demand performance from CCU, even after the default letter, when CCU demanded such performance from Lafayette. The Trial Court was required to accept the undisputed facts presented by Lafayette as true. 72 The Trial Court was also required to indulge every reasonable inference in Lafayette's favor. 73 Given these requirements of Texas summary judgment practice, the only reasonable conclusion was that sales tax overcharges, if they were a breach of contract at all, amounted to only a partial breach of contract. This is the only reasonable conclusion to draw when considering an error of2% or less of the total contract value. But Lafayette also shows the Trial Court should not even have considered the question of whether any alleged breach was a material breach because that inquiry was a fact issue that should be decided by a jury. The undisputed evidence shows CCU received substantially all of the benefits it was reasonably entitled under the contract. 74 As such, CCU was unable to conclusively establish, <Jii and CCU did not establish, as a matter of law that its non-performance of the contract was 71 CR P194-195, ~4-5; and CR P198, ~48. 72 ParkPlace Hosp. v. Estate of Milo, 909 S.W.2d 508,510 (Tex. 1995); and Western Invs. v. Urena, 162 S.W.3d 547, 550 (Tex. 2005). 73!d. 74 CR P197, ~47; and CR P208, ~3 to P210, ~5. Lafayette Escadrille, Inc.'s Appellant's Brief Page- 24

I'" excused. Additionally, CCU failed to establish as a matter of law that its claim for sales tax 1'.. ' 1., overcharges was related in time, space, origin, or motivation with its unilateral termination of the contract that gave rise to Lafayette's breach of contract claim. CCU's claim in the Second Lawsuit that sales tax overcharges were a material breach that allowed contract termination is not supported by competent summary judgment evidence. Nor is the argument supported by Texas law. If the sales tax overcharges were a material breach, as noted above, CCU could have elected to either: ( 1) rescind the contract; or (2) cease performance and sue for a total breach of contract. 75 The evidence presented in the Trial Court shows CCU did not terminate or rescind the contract on July 14, 2007. 76 Instead, CCU commenced negotiations with.. Lafayette on the various issues raised by the parties' respective notices of default. 77 The parties attempted to meet to resolve their differences, including one proposed meeting on July 5, 2007 that was cancelled by CCU. 78 Later meetings, including one on August 2, 2007 were also cancelled by CCU or by its lawyer. 79 While these efforts at negotiations continued, Lafayette performed under the contract for more than ninety (90) days until CCU unilaterally terminated the parties' contract on September 24, 2007. 80 CCU did not elect on July 14, 2007 to cease performance and sue for a total breach 75 Kaiser, 587 S.W.2d at 457. 76 CR P194-195,,-(4-5; and CR P198,,-(48. 77 CR P 197,,-(41. 78 Id. at,-(42. 79 Id. at,-(43. 8 CR P196,,-(28; and CR P107. Lafayette Escadrille, Inc.'s Appellant's Brief Page- 25

,.. 1... i,. I " of contract. The undisputed evidence shows CCU continued, from June 13, 2007 until i. ' September 24, 2007, to demand and receive from Lafayette the very benefits reasonably I I 1""1!ll;$t I., anticipated-atm services, protective services, and courier services-upon full performance of the contract. 81 The Trial Court was required to accept these undisputed facts as true, while indulging every reasonable inference in Lafayette's favor. 82 Thus, the reasonable inference for the Trial Court to draw was that if sales tax overcharges were a breach of contract, they did not amount to a material breach. As noted above, an error amounting to 2% or less of the value of the contract was not material. Additionally, as CCU received substantially all of the benefits reasonably expected under the contract and continued to demand full performance for three months after sending a notice of default, CCU was not entitled to unilaterally terminate the parties' contract based upon an alleged, material breach. For these reasons, Lafayette shows CCU failed to establish as a matter of law that its unilateral termination of the contract was proper. Accordingly, it is also clear the Trial Court erred in granting CCU's Second Motion for Summary Judgment, if the basis of that ruling was the allegedly proper termination of the contract. CONCLUSION Lafayette respectfully submits the Trial Court erred in granting City Credit Union's Second Motion for Summary Judgment because CCU failed to establish that it was entitled to summary judgment as a matter oflaw on any of the issues raised by the motion. The Trial Court correctly denied CCU's first motion for summary judgment on the defensive issues of 81 CR P194,,4 to CR P195,,5. 82 Park Place Hosp., 909 S.W.2d at 510. Lafayette Escadrille, Inc.'s Appellant's Brief Page- 26