2055 INCORPORATED AND SUZANNE COATES, Appellants v. JOSEPH McTAGUE, CINDY SPRIGG, AND BUSINESS INCENTIVES, INC., Appellees.

No. 05-08-01057-CVCourt of Appeals of Texas, Fifth District, Dallas.
Opinion Filed August 18, 2009.

On Appeal from the 101st Judicial District Court Dallas County, Texas, Trial Court Cause No. 08-02593-E.

Before Justices MOSELEY, O’NEILL, and MURPHY.

MEMORANDUM OPINION
Opinion By Justice MURPHY.

This shareholder derivative action is the second lawsuit and appeal stemming from Business Incentives, Inc.’s March 2004 purchase of certain assets and business operations of 2055 Incorporated. In their first two issues, 2055 and Suzanne Coates, suing on 2055’s behalf, challenge the trial court’s summary judgment in favor of Joseph McTague, Cindy Sprigg, and Business Incentives, Inc. (BII) (collectively “BII defendants”) on their affirmative defenses of release and collateral estoppel and on their counterclaim for attorneys’ fees. In their third issue, they challenge the trial court’s sua sponte sanctions against Suzanne and her counsel. We reverse the summary judgment, vacate the sanctions order, and remand for further proceedings consistent with this opinion.

BACKGROUND Sale of 2055 Assets
As part of their 2001 divorce proceedings, Suzanne and Robert Coates decided to sell 2055, a jointly-owned tax credit consulting firm then named Management Insights, Incorporated. Pursuant to a March 8, 2004 “Asset Purchase Agreement” (APA) among 2055 and the BII defendants, BII purchased certain assets and business operations of 2055 for the price of $1 million. BII was owned jointly by McTague and Sprigg. Allegedly without Suzanne’s knowledge, Robert negotiated two side agreements with McTague and Sprigg. One was a “Shareholders’ Agreement,” which restricted the sale of BII stock held by McTague and Sprigg and required them to sell eighty percent of their respective shares to “potential investors” . identified as Robert’s brother and his children . within two years of purchase. The other alleged side agreement was a “Personal Guaranty” in which Robert personally guaranteed BII’s obligation under a promissory note to pay the $1 million purchase price. These two documents were executed in February 2004, prior to execution of the APA and the note. Robert and Suzanne’s divorce was finalized in January 2005.

Lawsuit I
Two months after the divorce was finalized, Robert filed the first lawsuit against the BII defendants. Robert accused the BII defendants of fraud and breach of contract and sought specific performance of the shareholders’ agreement. Suzanne intervened in that case in April 2005, asserting claims (1) against the BII defendants for breach of the shareholders’ agreement, (2) against Robert for breach of the APA, and (3) for specific performance of the APA and the shareholders’ agreement against all defendants. Robert filed cross claims against Suzanne for breach of fiduciary duty and fraud and asserted a defense of unclean hands. Robert and Suzanne settled their claims with the BII defendants, executed a “Mutual Compromise, Release, and Settlement Agreement” (Settlement Agreement), and dismissed the BII defendants without prejudice.

After the BII defendants were dismissed, Suzanne amended her pleadings, adding 2055 as an intervenor and asserting individual and derivative claims[1] against Robert for fraud, statutory stock fraud, breach of fiduciary duties, and unjust enrichment. Suzanne and 2055 claimed the assets of 2055 were worth far more than $1 million and that Robert defrauded Suzanne and 2055 out of millions of dollars. All claims among Robert, Suzanne, and 2055 were tried to a jury in November 2007. The first question the jury was required to answer asked, “What was the fair market value on March 8, 2004 of the assets of [2055] that were included in the [2055] Asset Sale?” The jury was instructed not to answer the remaining questions related to the parties’ substantive claims unless the answer to the first question exceeded $1 million. The jury answered the first question “$1,000,000” and did not answer the remaining questions. The trial court rendered a final take-nothing judgment for all parties based on the jury’s verdict. Suzanne and 2055 appealed that judgment, which was affirmed. See Coates v. Coates, No. 05-08-00440-CV, 2009 WL 679592 (Tex. App.-Dallas Mar. 17, 2009, pet. denied) (mem. op.).

Lawsuit II
Suzanne filed this suit against the BII defendants as a derivative action on behalf of 2055 in March 2008, [2] asserting claims for fraud, breach of fiduciary duties, breach of the APA, specific performance of indemnification obligations under the APA, and conspiracy. The BII defendants counterclaimed for attorneys’ fees under article 5.14 of the business corporations act. See
Tex. Bus. Corp. Act Ann. art. 5.14(J)(1)(c) (Vernon 2003) (allowing discretionary award of expenses, including attorney’s fees, upon termination of a derivative proceeding). They also immediately moved for traditional summary Judgment on their affirmative defenses of collateral estoppel and release and on their counterclaim See Tex. R. Civ. P. 166a(c). The trial court granted the summary Judgment “in all regards with respect to all claims asserted” and then sua sponte issued a show cause order requiring Suzanne, her attorney in charge, and the law firm to appear before the visiting Judge to show cause why they should not be sanctioned for violating sections 10.001(1) and 10.001(2) of the civil practice and remedies code for filing the petition in this case. Following the hearing, the trial court issued its finding that the derivative claims asserted by Suzanne violated section 10.001(2) and sanctioned Suzanne, her attorney, and the attorney’s firm in the amount of $1000.[3] See Tex. Civ. Prac. Rem. code Ann. §§ 10.001(2), 10.004(a) (Vernon 2002). Suzanne and 2055 filed this appeal.

SUMMARY JUDGMENT
We review traditional summary judgments on affirmative defenses under well known standards. See Tex. R. Civ. P. 166a(b), (c) Rhone-Poulenc, Inc. v. Steel, 997 S.W.2d 217, 222-23 (Tex. 1999). The bII defendants had the burden to prove conclusively all elements of their affirmative defenses of collateral estoppel and release as a matter of law See Cathey v. booth, 900 S.W.2d 339, 341 (Tex. 1995) (per curiam) (a defendant conclusively establishing all elements of an affirmative defense is entitled to summary judgment). Our review of the summary judgment requires us to examine the entire record in the light most favorable to Suzanne and 2055 as the nonmovants, indulging every reasonable inference and resolving any doubts against summary judgment City of Keller v. Wilson, 168 S.W.3d 802, 824 (Tex. 2005). We review de novo the grant of the summary judgment Tex. Mun. Power Agency v. Pub. Util. Comm’n of Tex., 253 S.W.3d 184, 192 (Tex. 2007). In that review, we should consider all summary judgment grounds the trial court ruled on that have been preserved for appellate review and that are necessary for final disposition of the appeal. Cincinnati Life Ins. Co. v. Cates, 927 S.W.2d 623, 626 (Tex. 1996). See also
Tex. R. Civ. P. 166a(c) (“Issues not expressly presented to the trial court by written motion, answer or other response shall not be considered on appeal as grounds for reversal.”); City of Houston v. Clear Creek basin Auth., 589 S.W.2d 671, 677 (Tex. 1979) (summary judgment cannot be granted for a reason not presented to the trial court in writing).

Collateral Estoppel
The first issue on appeal embraces both affirmative defenses of collateral estoppel and contractual release. We first address whether summary judgment was proper on the basis of collateral estoppel. The doctrine of collateral estoppel prevents a party from relitigating an issue of fact or law that it previously litigated and lost. See Quinney Elec., Inc. v. Kondos Entm’t, Inc., 988 S.W.2d 212, 213 (Tex. 1999) (per curiam). Collateral estoppel applies when an issue was fully and fairly litigated in a previous action and was essential to the judgment in that action Id.

Here, the BII defendants had the burden to establish that (1) the facts or law sought to be litigated in the second suit were fully and fairly litigated in the first suit, (2) those issues were essential to the judgment in the first suit, and (3) Suzanne and 2055, as the parties against whom collateral estoppel is asserted, and Robert, as the other party to the first suit, were cast as adversaries. John G. and Marie Stella Kenedy Mem’l Found. v. Dewhurst, 90 S.W.3d 268, 288 (Tex. 2002) Indem. Ins. Co. v. City of Garland, 258 S.W.3d 262, 271
(Tex. App.-Dallas 2008, no pet.). An issue has been litigated for collateral estoppel purposes if it was properly raised, by the pleadings or otherwise, submitted for determination, and determined Van Dyke v. Boswell, O’Toole, Davis Pickering, 697 S.W.2d 381, 384 (Tex. 1985); Indemnity Ins. Co., 258 S.W.3d at 271.

The BII defendants assert the issue fully and fairly litigated in the first lawsuit is the alleged undervaluation of 2055’s assets. They argued in their summary judgment motion the issue of valuation was so essential to the judgment that it was the first question the jury was asked and was the one issue upon which all the remaining questions were conditioned. Claiming Suzanne and 2055 were unable to recover on any cause of action in the first lawsuit due to the jury’s determination of the value of 2055’s assets, the BII defendants urged in their motion that Suzanne and 2055 cannot recover on any of their liability theories against the BII defendants. We address these arguments by examining the allegations in both lawsuits, as well as the jury’s determination.

A comparison of the pleadings in both lawsuits tells us the heart of the dispute is 2055’s sale of assets, the terms of which are contained in the APA. The first lawsuit tried against Robert and the current action share virtually identical factual allegations. Those claims include the assertion that the fair market value of 2055’s assets far exceeded the $1 million purchase price and the sale to BII was a sham arranged by Robert to park 2055’s assets until the divorce proceedings were completed. The same allegations focus on claimed misrepresentations in the APA that BII would use its best efforts to collect 2055’s accounts receivable, which had been excluded from the sale to BII, and disburse the funds to Robert and Suzanne on a monthly basis. Suzanne and 2055 claim Robert and the BII defendants had a prearranged secret oral agreement that certain accounts would not be billed until after the sale, thus providing financing and working capital for BII. Both lawsuits contain allegations of the additional secret side agreements described above . Robert’s February 27, 2004 personal guaranty of the BII defendants’ financial obligations and the two-year stock buy-back requirement.

The first Lawsuit tried by Suzanne and 2055 against Robert sought actuaL, consequentiaL, and speciaL damages; punitive and exempLary damages; the benefits deriving from Robert’s aLLeged acts and omissions; and disgorgement of any monies, property, profits, or fees Robert obtained as a resuLt of his conduct. Suzanne and 2055 aLso sought an accounting and decLaratory reLief that the derivative proceeding was a direct action by Suzanne for her own benefit as aLLowed in articLe 5.14(L)(1)(a) of the business corporations act. In the aLternative, they sought judiciaL Liquidation of 2055, which cLaim was severed by the triaL court.

At the conclusion of the first trial, the jury answered only the first question on the fair market value of the assets sold.[4] The BII defendants argue simply thAt if 2055’s assets were not undervalued At $1 million, as determined by the jury in the prior suit, an essential element of the claims in this lawsuit is eliminated. The claims against the BII defendants in this second lawsuit admittedly relate to valuation of 2055’s assets included in the sale. The claims also relate to the BII defendants’ alleged inducements of 2055 to sign the APA; acts and omissions tied to the accounts receivable, including conduct claimed to occur after execution of the APA; and indemnification claims under the APA. The relief broadly requested includes a range of statutory, compensatory, and punitive damages, plus disgorgement.

The trial court record in this second suit is devoid of challenges to pleadings or adequacy of discovery disclosures, which could reveal more detail about factual and legal theories, related damages, and other remedies. While nearly identical factual claims exist in both lawsuits, the legal claims and remedies sought are not synonymous. The jury was instructed in the first action to conside only the asset sale and answered one discrete question: “What was the fair market value on March 8, 2004 of the assets of [2055] that were included in the [2055] Asset Sale?” (Emphasis added). The accounts receivable claimed to have been slow-billed were expressly excluded from the asset sale. We cannot conclude on this record the jury determined the value of the accounts receivable or any related liability issues.

In addition to not deciding accounts receivable issues, the jury also never determined whether 2055 was wrongfully induced to enter the APA or whether the BII defendants committed actionable post-APA conduct. Certainly the issue of disgorgement of monies, property, profits, or fees obtained as a result of the BII defendants’ alleged breach of fiduciary duties has not been determined. Nor did the jury determine issues related to 2055’s current claim for indemnification under the APA. The only parties to the APA are 2055 and the BII defendants. With Robert not being a party to the APA, the jury could not and did not determine fact or legal issues eliminating 2055’s contractual indemnification claims under the APA.

To support a finding 2055’s claims have been actually litigated and are barred by collateral estoppel as a matter of law, the BII defendants had the summary judgment burden to prove essential facts were submitted for determination, and determined, by the jury in the first suit that resolve all claims in this action. See Van Dyke, 697 S.W.2d at 384. Arguments relating to the effect, if any, of the jury’s single finding on discrete collateral estoppel issues were not made or ruled on by the trial court as part of the summary judgment proceeding and therefore are not before us. With respect to the issue before us . whether all claims have been resolved by the jury’s verdict . we conclude the BII defendants did not meet their burden and the trial court erred by granting final summary judgment on the basis of collateral estoppel.

Release
We next address the first issue to the extent the trial court granted summary judgment on the BII defendants’ affirmative defense of contractual release. A release is a complete bar to a later action based on matters covered in the release. Schomburg v. TRW Vehicle Safety Sys., Inc., 242 S.W.3d 911, 913 (Tex. App.-Dallas 2008, pet. denied) (citin Deer Creek Ltd. v. N. Am. Mortgage Co., 792 S.W.2d 198, 201 (Tex. App.-Dallas 1990, no writ)). Releases are only effective against named parties to the release or parties described with such particularity that their identity is not in doubt. Mem’l Med. Ctr. of E. Texas v. Keszler, 943 S.W.2d 433, 434 (Tex. 1997) (per curiam) (citing Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 420 (Tex. 1984)). Thus, the BII defendants had the summary judgment burden of showing 2055 was either specifically identified in the release or described with sufficient particularity that its identity is not in doubt. Id. See also Schomburg, 242 S.W.3d at 913, 914.

We determine the scope of a release in the same way we review other contracts. See Williams v. Glash, 789 S.W.2d 261, 264 (Tex. 1990). That is, we ascertain and give effect to the parties’ intentions as expressed in the document Frost Nat’l Bank v. LF Distributors, Ltd., 165 S.W.3d 310, 311-12 (Tex. 2005) (per curiam). We must consider the entire document and attempt to harmonize and give effect to all provisions by analyzing the provisions with reference to the whole agreement. Id.

In their summary judgment motion, the BII defendants assert three grounds for judgment on this affirmative defense: (1) justice requires the claims of 2055 be treated as Suzanne’s own claims, which were released in the Settlement Agreement, because of her requests in the first lawsuit . first, the declaratory judgment request to treat 2055’s claims as a direct action for her benefit; second, the request for court-supervised winding up of 2055’s affairs; (2) Suzanne is judicially estopped from asserting 2055’s claims because of two referenced requests in the first action; and (3) 2055 is readily identified in the release by virtue of language in paragraph 4.02 of the Settlement Agreement making the entire agreement binding on affiliates of Suzanne. On appeal, they add arguments that: the global release is sufficiently broad to cover 2055’s claims; 2055 is bound by the release because all shareholders of 2055 signed the Settlement Agreement; and the doctrine of quasi-estoppel precludes 2055 from taking inconsistent positions and achieving a double recovery after receiving settlement amounts in the first action. As stated, though, summary judgment cannot be granted for reasons not presented to the trial court in writing, and the grounds stated in the BII defendants’ summary judgment motion are the only grounds properly before us on appeal See Tex. R. Civ. P. 166a(c); Tex. R. App. P. 33.1(a); Clear Creek Basin Auth., 589 S.W.2d at 677.

We address first the BII defendants’ arguments that 2055 is covered by the release because 2055 is identifiable as an affiliate of Suzanne. The BII defendants rely on paragraphs 2.09 and 4.02 of the Settlement Agreement. Paragraph 2.09 is found on pages ten and eleven of the seventeen-page agreement, under article II entitled “Settlement Terms,” and provides:

Robert Coates and Suzanne Coates generally, fully, and finally release and forever discharge [the BII defendants] and all of their respective past, present and future officers, directors, employees, heirs, insurers, both primary and excess, sureties, parent and subsidiary companies, attorneys and any other person, firm, or corporation bound to defend or pay these judgments against them, (a) from any and all of Robert Coates and Suzanne Coates’ own claims, demands and causes of action (expressly including negligence and gross negligence), or suits in equity, of any kind whatsoever, at common law, statutory or otherwise, that they have, or might have, known or unknown, from the beginning of time through the date of this agreement; and (b) from any and all claims, damages, causes of action (expressly including negligence and gross negligence), or suits in equity, of any kind whatsoever, at common law, statutory or otherwise, that might arise hereafter, directly or indirectly attributable to the matters described in Paragraph 1.02 of this agreement, or the matters alleged in the Lawsuit or ordered in the Injunction, or in the Shareholders agreement; and (c) it being intended to release all claims of any kind which Robert Coates and Suzanne Coates might have against those hereby released, whether asserted in the above-captioned suit or not; but (d) excluding from this release any and all claims, demands, causes of action and/or suits in equity based upon any obligations of [the BII defendants] under the [aPa], under the Note (as defined in Paragraph 2.03(e)(1)) and/or under this agreement.

(Emphasis added). The parties agree this release language does not reference 2055 or any entity meant to include 2055. The BII defendants argue 2055’s claims are nonetheless released because 2055 is an affiliate of Suzanne. Paragraph 4.02, on which the BII defendants rely for this argument, is found on page thirteen of the Settlement Agreement, under article IV entitled “General Provisions,” and provides:

4.02 Entire Agreement and Successors in Interest. The obligations of [the BII defendants] (and/or their permitted assigns) under the March 8, 2004 [APA] shall remain in full force and effect. Likewise, the obligations of [the BII defendants] with respect to that promissory note dated March 8, 2004, attached as Exhibit A to the [APA] (the “Note”) shall remain in full force and effect. Otherwise, this Agreement contains the entire agreement and understanding among the Parties with respect to the specific matters agreed to herein. The Parties agree that this Agreement shall be binding upon and inure to the benefit of the Parties themselves and their respective heirs, executors, legal representatives, officers, directors, shareholders, employees, servants, agents, affiliates, subsidiaries, predecessors, successors and permitted assigns. . . .

(Emphasis added). The BII defendants emphasize the language that the “Agreement shall be binding upon and inure to the benefit of the Parties themselves and their respective . . . affiliates. . . .” The parties disagree regarding the status of 2055 as an affiliate. We do not reach that dispute, however, because of our resolution on the merits of the legal argument.

Assuming, without deciding, 2055 is an affiliate of Suzanne, we must analyze the whole Settlement Agreement to determine whether paragraph 4.02 sufficiently identifies an affiliate as a releasing party. The BII defendants rely on our opinion in Suntech Processing Sys., L.L.C. v. Sun Commc’n, Inc., 05-99-00213-CV, 2000 WL 1780236 (Tex. App.-Dallas, Dec. 5, 2000, pet. denied), to argue a named releasing party can bind its affiliates to the release. At issue in part in Suntech was a release executed by United Insurance Companies, Inc. (UICI), which co-formed Suntech Id. *8. The release provided in part thAt UICI “does for itself, for its affiliates, and for its successors and assigns, forever release, discharge and acquit Richard Schappel from any and all claims. . . .” Id. The release did not specifically mention Suntech, but we concluded Suntech was also bound by the release because the release applied to Suntech as an affiliate of UICI Id.

Unlike the Suntech release which specifically named “affiliates” in its release language, the release here names only Robert and Suzanne. The entire release language of the Settlement agreement is contained in paragraphs 2.09 through 2.11. Paragraph 2.09 is entitled “Release of Joseph McTague, Cynthia Sprigg and Business Incentives, Inc. by Robert Coates and Suzanne Coates.” Paragraph 2.09 states expressly, as quoted above, that “Robert Coates and Suzanne Coates generally, fully, and finally release and forever discharge [the BII defendants] . . . (a) from any and all of Robert Coates and Suzanne Coates’ own claims . . . from the beginning of time through the date of this agreement; and (b) from any and all claims . . . that might arise hereafter, directly or indirectly attributable to the matters described in Paragraph 1.02 of this agreement, or the matters alleged in the Lawsuit . . .; and (c) it being intended to release all claims of any kind which Robert Coates and Suzanne Coates might have. . . .” Paragraph 2.10 is entitled “Release of Robert Coates and Suzanne Coates by [the BII defendants].” Paragraph 2.11 is entitled “No Releases Between Suzanne Coates and Robert Coates.” Nowhere in the releasing paragraphs is 2055 mentioned, nor was 2055 or any affiliate a party to the first action at the time of the release.

The BII defendants argue the subparagraphs contained in the release language of paragraph 2.09 cannot be harmonized unless they are read broadly enough to include Robert’s and Suzanne’s claims on behalf of 2055. although that argument was not raised in the summary judgment motion, we are charged with giving effect to all provisions of a contract in our analysis. See Frost Nat’l Bank, 165 S.W.3d at 311-12. Reading each part of paragraph 2.09 to have meaning confirms no expressed intent to identify 2055 as a releasing party. Subparagraph (a) releases claims of Robert and Suzanne from the beginning of time through the date of the settlement, regardless of subject matter; subparagraph (b) releases any and all claims of any kind related to the specified subject matters arising after execution of the settlement agreement; and subparagraph (c) reinforces the intent to release all claims of any kind Robert and Suzanne might have. Giving effect to the parties’ intentions as expressed in the Settlement agreement, the language of the release states expressly it is the intention of the parties to release all claims of Robert and Suzanne. again, neither 2055 nor any affiliate is mentioned.

Reference to the parties’ “affiliates” does not occur until two pages and two articles after paragraph 2.09. As stated, it is found under the heading “General Provisions” and is included as part of a merger clause stating that the obligations of the BII defendants under the APA and the related promissory note remain in full force and effect and that, otherwise, the parties’ entire agreement is contained in the Settlement Agreement.

Giving the language in the release its plain grammatical meaning and considering the whole settlement document, we conclude any claims of 2055 were not released because 2055 is not described with any particularity. See, e.g., Keszler, 943 S.W.2d at 434 (releases are only effective against named parties to the release or parties described with such particularity that their identity is not in doubt). Although Robert and Suzanne both signed the Settlement Agreement, their signatures alone did not bind 2055. See First Trust Corp. v. Edwards, 172 S.W.3d 230, 239 (Tex. App.-Dallas 2005, pet. denied) (settlement agreed to by sole shareholder of an entity that had forfeited its corporate charter did not bind corporation). As emphasized i First Trust, the issue is the scope and meaning of the language of the release. Id. at 240. Here, the language of the release reveals no intent to release 2055’s claims directly or as an affiliate of Robert and Suzanne.

We turn next to the summary judgment ground that . based on Suzanne’s requests in the first suit to treat 2055’s claims as a direct action for her benefit and to supervise the winding up of 2055’s affairs . the doctrine of judicial estoppel bars the derivative claims in this suit. The BII defendants appear to have abandoned their judicial estoppel argument, a doctrine that requires as one of its elements a showing the inconsistent position taken by a party was successfully maintained. See OAIC Commercial Assets, L.L.C. v. Stonegate Village, L.P., 234 S.W.3d 726, 742 (Tex. App.-Dallas 2007, pet. denied). To the extent the BII defendants rely on Suzanne’s request in the first action that 2055’s claims be treated as a direct action, those claims are not part of the severed cause and the final judgment shows that request was not resolved in her favor. To the extent the BII defendants rely on Suzanne’s request to wind up the affairs of 2055, the record is silent as to the status of the severed case and whether or not that request has been resolved in her favor.

The finaL summary judgment ground the BII defendants assert is that under articLe 5.14(L) justice requires 2055’s cLaims be treated as Suzanne’s own cLaims, which have been reLeased. The BII defendants argue 2055’s cLaims are “in reaLity” Suzanne’s cLaims because she requested the articLe 5.14(L) derivative cLaims against Robert be treated as a direct action by Suzanne. ArticLe 5.14(L), which appLies to cLoseLy heLd corporations, provides that a derivative proceeding brought by a sharehoLder “may be treated by a court as a direct action brought by the sharehoLder for his own benefit” if “justice requires.” Tex. Bus. Corp. Act Ann. art. 5.14(L)(1)(a). Derivative proceedings are civiL suits brought by a sharehoLder in the right of the corporation See Tex. Bus. Corp. Act Ann. art. 5.14; Redmon v. Griffith, 202 S.W.3d 225, 234 (Tex. App.-TyLer 2006, pet. denied). It is weLL settLed, however, that the cause of action for injury to a corporation beLongs to the corporation. See Ross v. Bernhard, 396 U.S. 531, 538 (1970) (quoting Koster v. Lumbermens Mut. Cas. Co., 330 U.S. 518, 522 (1947)). Under articLe 5.14(L), the court may treat a derivative proceeding brought by a sharehoLder of a cLoseLy heLd corporation as a direct action brought by the sharehoLder for his own benefit. Tex. Bus. Corp. Act Ann. art. 5.14(L)(1)(a). ALthough the court may treat a derivative action as a direct action by a sharehoLder, the cLaims remain vested in the corporation. See Swank v. Cunningham, 258 S.W.3d 647, 665 (Tex. App.-EastLand 2008, pet. denied) (“A triaL court’s decision to treat an action as a direct action . . . so as to aLLow recovery to be paid directLy to a sharehoLder pLaintiff, as opposed to the corporation, does not mean that the action is no Longer a derivative proceeding.”). Thus, even if the triaL court impLicitLy ruLed as part of the summary judgment that under articLe 5.14(L)(1)(a) “justice requires” this action be treated as a direct action by Suzanne, the cLaims stiLL remain vested in 2055. The BII defendants cite no authority supporting their position that such treatment wouLd “in reaLity” make 2055’s cLaims those of Suzanne. Nor do they cite any authority supporting their position that, by Suzanne and 2055 taking an aLLegedLy inconsistent position in a prior Lawsuit, articLe 5.14 aLLows conversion of derivative cLaims to individuaL cLaims. Based on the contrary authority discussed above, we do not concLude 2055’s cLaims are in reaLity Suzanne’s cLaims under any appLication of articLe 5.14(L)(1)(a).

In support generally of their argument that 2055’s claims are in reality Suzanne’s claims, the BII defendants cite in their appellate brief the trial court’s finding in its sua sponte show cause order “that Suzanne Coates’ arguments, that she should be permitted to litigate derivatively on behalf of [2055] claims previously released by the holders of 100 percent of the stock of that corporation, not only fly in the face of common sense but are contrary to the settled law and public policy of this State favoring the settlement of disputes and the finality of settlements.” The BII defendants argue such “ruling” is correct, citing Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 60 (Tex. 2008) Transp. Ins. Co. v. Faircloth, 898 S.W.2d 269, 280 (Tex. 1995); and Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848, 855 (Tex. 1980) (Campbell, J., concurring). The trial court’s conclusion, however, is not one of the bases on which the BII defendants moved for summary judgment. As discussed, the only two summary judgment grounds urged to support that argument were judicial estoppel and the provisions of article 5.14(L)(1)(a), neither of which is supported on appeal. Nor is the trial court’s conclusion supported by the law. Not one of the cases cited involved derivative claims or releases by all stockholders of a corporation. Although settlements are highly favored for many reasons, including savings of time, money, energy, and the uncertainties of litigation, under Texas law a corporation is not bound by a release when it is not a party and did not authorize its shareholders to release the corporation’s claims. See, e.g., First Trust, 172 S.W.3d at 239.[5] Based on the record before us, we find the trial court erred in granting summary judgment on the affirmative defense of release. We sustain the first issue in its entirety.

Attorneys’ Fees
Having concluded the trial court erred in granting summary Judgment on the BII defendants’ affirmative defenses of collateral estoppel and release, we necessarily conclude the court erred in granting summary Judgment on the BII defendants’ counterclaim for attorneys’ fees. See Tex. Bus. Corp. Act Ann. art. 5.14(J)(1)(c) (authorizing fees upon the termination of a derivative proceeding not well grounded in fact, not warranted by existing law, or imposed for an improper purpose such as to harass). We sustain the second issue.

SANCTIONS
Our resolution of issues one and two in favor of Suzanne and 2055 is dispositive of the third issue and requires the sanctions order be vacated.[6]

CONCLUSION
We conclude the summary judgment was granted in error and sustain the first and second issues. Our resolution of issue one is dispositive of issue three regarding sanctions. We therefore reverse the summary judgment, vacate the sanctions order, and remand for further proceedings consistent with this opinion.

[1] Tex. Bus. Corp. Act Ann. art. 5.14 (Vernon 2003). Article 5.14 was recodified into the Texas Business Organizations Code effective January 1, 2006. See Act of May 13, 2003, 78th Leg., R.S. ch. 182, §§ 1, 17, secs. 21.551-.563, 2003 Tex. Gen. Laws 267, 448-51, 597 (current version at Tex. Bus. Org. Code ann. §§ 21.551-.563 (Vernon 2007)). Under chapter 402 of the Business Organizations Code, article 5.14 applies until December 31, 2009 to any entity formed prior to 2006, unless the entity elects to adopt the Code prior to that date. See
Tex. Bus. Org. Code Ann. §§ 402.001, 402.003, 402.005. Nothing in the record suggests 2055 elected to adopt the code. Accordingly, we cite to article 5.14.
[2] Suzanne and 2055 allege in their amended petition that Suzanne brings this lawsuit on behalf of 2055 as a derivative plaintiff and “[i]n addition, Suzanne owns 50% of the assets of [2055], including the causes of action against the [BII defendants], and brings this suit on behalf of [2055] in that capacity as well.” Although it is unclear what the language “in that capacity as well” means, and the trial court did not consider special exceptions or other means of clarifying Suzanne’s status, the parties agree on appeal that Suzanne does not bring this second lawsuit individually. Additionally, although the parties submitted letter briefs following submission of this case regarding whether Suzanne had a “right” to bring a derivative claim, that discrete issue was not addressed in the summary judgment motion, response, or reply and are not before us. See Tex. R. civ. P. 166a(c); Tex. R. App. P. 33.1(a).
[3] The trial court signed two orders. The first order, dated July 30, 2008, did not state the reason for the sanction, as required under section 10.005. See Tex. Civ. Prac. Rem. Code Ann. § 10.005. The second order, entitled “Additional Order” and signed at the request of Suzanne and 2055 for findings in compliance with section 10.005, is dated August 15, 2008 and does not expressly supplant the first order. We refer to the orders collectively as one.
[4] On appeal of the first lawsuit, Suzanne and 2055 argued charge error as a result of the conditioned substantive claims. On that issue, this Court determined alleged charge error had not been preserved in the trial court. See Coates, 2009 WL 679592, *2,3.
[5] As part of their argument, the BII defendants rely on the release language that Robert and Suzanne, the sole shareholders of 2055, released “all claims of any kind.” They argue the language is broad enough to cover 2055’s claims and cite in suppor Rapp v. Felsenthal, 628 S.W.2d 258, 260 (Tex. Civ. App.-Fort Worth 1982, writ ref’d n.r.e.) and Popperman v. Rest Haven Cemetery, Inc., 345 S.W.2d 715, 717 (Tex. 1961). Not only was this new argument not part of the summary judgment motion and therefore not properly before us on appeal, these cases do not support the BII defendants’ arguments. While cited for the proposition that the law is well settled that contracts signed by all shareholders bind the corporation, the cases concerned the authority and intent of the shareholders to make contracts on behalf of the corporation. As discussed in conjunction with the scope of the release, the language of the release does not indicate an intent to release any claims of 2055.
[6] As a result of our resolution of these issues, counsel’s motion for leave to join in the appeal is moot.