The Texas exemplary damages statute (specifically, TCPRC § 41.008(b)) imposes the following cap: “Exemplary damages awarded against a defendant may not exceed an amount equal to the greater of: (1) (A) two times the amount of economic damges; plus (B) an amount equal to any noneconomic damages found by the jury, not to exceed $750,000 . . . ” It further defines “economic damages” as “compensatory damages intended to compensate a claimant for actual economic or pecuniary loss; the term does not include exemplary damages or noneconomic damages.”
The panel majority in Goodyear Tire & Rubber Co. v. Rogers concluded that “economic damages in this statute are existing in fact, real monetary losses like lost wages, the cost to obtain services that another previously provided for free or at a lower cost, or that the defendant’s misconduct compelled the claimant to seek out.” A dissent objected to the application of this standard to testimony about loss resulting from a relative’s death, noting: “These pecuniary losses are not subject to precise mathemetical calculation, but . . . ‘the inherent uncertianty in measuring these losses does not make them “non-economic in nature.”‘ Nor does this inherent uncertainty mean the loss is not an actual pecuniary loss. No. 05-15-00001-CV (Aug. 31, 2017).
A law firm and its landlord sued one another; the landlord sought unpaid rent, while the firm sought recovery of moving expenses after air conditioning problems with the building became intolerable. The firm won, and as a result defeated the rent claim, but its damages were set aside by the Fifth Court because the firm did not establish their reasonableness: “In sum, there is no evidence that the cost to procure the new office space (such as the deposit) or to equip it (such as the new telephone system) was reasonable. There is no evidence that the direct moving expenses were reasonable. There is no evidence that the miscellaneous expenses, such as the payments for meals, gasoline, and recycling fees, were reasonable. The only evidence about the expenses is the bare fact that they were paid.” 701 Katy Building, LP v. John Wheat Gibson, P.C., No. 05-16-00193-CV (Aug. 24, 2017) (mem. op.)
Twice in one week, the Fifth Court affirmed substantial awards of exemplary damages. I anticipate posts in the days ahead about the details of these cases, but for now, simply note these important holdings:
- Bombardier Aerospace Corp. v. SPEP Aircraft Holdings LLC, No. 05-16-00086-CV (June 22, 2017) (mem. op.), a case about the condition of an expensive private jet, affirmed “a verdict in appellees’ favor on both claims and awarded $2,694,160 in actual damages and $5,388,320 in exemplary damages,” and
- Wells Fargo Bank, N.A. v. Militello, No. 05-15-01252-CV (June 20, 2017) (mem. op.) affirmed (after a remittitur) an award of approximately $2.7 million and roughly $1 million in actual damages.
The Fifth Court reversed an award of lost profits in Radiant Financial, Inc. v. Bagby, which allegedly arose from improper customer solicitation about an insurance product, noting, inter alia: “Radiant admits the five policies [the expert] used in his estimate were not available at the time Radiant released the fifty-nine investors. Radiant argues that it had sufficient policies availale, but none of the investors chose to invest in those poliicies, even though Radiant presented those policies to its investors.” The Court concluded: “[T]o conclude the nineteen investors would have invested with Radiant instead of Paladin, we would be required to stack assumption upon assumption, which we will not do.” No. 05-16-00268-CV (April 18, 2017) (mem. op.)
Plaintiffs won a lawsuit against their landlord about the handling of their security deposit. The Fifth Court affirmed, reversing only as to prejudgment interest. While the parties’ lease said that “[a]ny person who is a prevailing party in any legal proceeding brought under or related to the transaction described in this lease is entitled to recover prejudgment interest,” the plaintiffs recovered based on section 92.109(a) of the Property Code, which allows recovery of statutory penalties in the event of a landlord’s bad faith retention of the security deposit. Because “[p]rejudgment interest does not apply to statutory penalties imposed for wrongdoing,” and the underlying statute did not provide for recovery of prejudgment interest, the interest award could not stand. Frazin v. Sauty, No. 05-15-00879-CV (Nov. 6, 2016) (mem. op.)
In Cooper v. Campbell, the Fifth Court reviewed the key principles that govern “equitable remedies such as disgorgement and forfeiture to remedy a breach of fiduciary duty” —
- “The central purpose of forfeiture as an equitable remedy is not to compensate the injured principal, but to protect relationships of trust by discouraging disloyalty.
- “Disgorgement is compensatory in the same sense as attorney fees, interest, and costs, but it is not damages. . . . In fact, a claimant need not prove actual damages to succeed on a claim for forfeiture because they address different wrongs. In addition to serving as a deterrent, forfeiture can serve as restitution to a principal who did not receive the benefit of the bargain due to his agent’s breach of fiduciary duty. . . .”
- “The amount of disgorgement is based on the circumstances and is within the trial court’s discretion.”
The Court then remanded for more fulsome consideration of factors identifed in ERI Consulting Engineers v. Swinnea, 318 S.W.3d 867 (Tex. 2010). No. 05-15-00340-CV (Aug. 24, 2016) (mem. op.) On the general subject of disgorgement, other useful references from the Fifth Court are its recent opinion in Premier Pools Management Corp. v. Premier Pools Inc., and McCullough v. Scarbrough, Medlin & Associates, 435 S.W.3d 871, 904 (Tex. App.-Dallas 2014, pet. denied).
In Premier Pools Management Corp. v. Premier Pools Inc., the Fifth Court found that a successful trademark plaintiff had established sufficient evidence of secondary meaning for the phrase “Premier Pools,” noting — in particular — the plaintiff’s proof about its advertising about and long use of the name, as well as the testimony of nine impartial witnesses about the issue of confusion. Similar evidence supported the findings for liability, damages, and disgorgement. The Court reversed the related declaratory judgment (and with it, the attorney’s fees award), finding that the “claim added nothing and provided access to no remedy that was not otherwise available . . . ” No. 05-14-01388-CV (Aug. 12, 2016) (mem. op.)
The Hales sued their homebuilder for fraud and violation of the DTPA, alleging serious problems with the foundation of their Rockwall home (right). They substantially succeeded at trial, and the Dallas Court of Appeals affirmed in large part in Bishop Abbey Homes, Ltd. v. Hale, No. 05-14-00137-CV (Dec. 16, 2015) (mem. op.) In particular, the Court affirmed as to limitations – a significant issue in this long-simmering dispute – noting that “each time the Hales raised a concern about the foundation, they were assured by one of appellants’ experts that the foundation was not the cause of the problems the Hales observed.” The court also affirmed as to sufficiency challenges to liability, several claims of improper closing argument, and a challenge to the the basis of the exemplary damages award based on constitutional and Kraus factors. The court requested a remittitur as to (a) mental anguish damages (for sufficiency reasons) above $208,856 per plaintiff; and (b) a portion of the additional/exemplary damages award, based on the applicable cap and the conclusion that the total award “exceeds the guidelines set forth in [Bennett v. Reynolds, 315 S.W.3d 867 (Tex. 2010)] and [Tony Gullo Motors I, LP v. Chapa, 212 S.W.3d 299 (Tex. 2006)] for the type of harm suffered by the Hales as a result of appellants’ conduct.”
Sylvester Davis sued TexPro Construction Group after the contractor failed to complete a backyard construction project. When TexPro failed to file an answer, Davis sought and obtained a partial default judgment on liability. TexPro then answered, but Davis moved forward with a hearing to establish damages. TexPro did not appear at the hearing, and the trial court awarded judgment for $117,230 in compensatory damages, treble damages under the DTPA and $350,000 in exemplary damages. After blowing through the deadlines for an ordinary appeal, TexPro hired new counsel and filed a restricted appeal. The Court of Appeals held that there was no error on the face of the record just because TexPro’s registered agent had been served at a location different from the address listed on the citation. The Court also held that there was no error in the trial court’s decision to move forward with the damages hearing, since the filing of TexPro’s answer did not negate the previously-signed default judgment on liability. However, Davis’ testimony on damages was the full amount of the money paid to TexPro, without accounting for the value of the work that TexPro had actually performed. Because his affidavit testimony was conclusory in alleging that the work done was valueless, the Court of Appeals reversed and remanded for a new trial on damages.
TexPro Constr. Group, LLC v. Davis, No. 05-14-00050-CV
Bruce Bernstein wrecked his Porsche, then sued his insurer for violations of the Insurance Code and DTPA. An appraiser valued the car at $4900, and Safeco had tendered a check for $5287.50. The trial court granted summary judgment for Safeco, and the Court of Appeals affirmed. Bernstein could not recover under the prompt payment provisions of the Insurance Code because Safeco had timely paid the appraisal award, nor could he recover for bad faith because he did not appeal the adverse judgment on his breach of contract claim. Bernstein also could not recover on his fraud claim because he could not identify any misrepresentation by Safeco that would have led him to believe the insurer would cover “the true value of the car,” which he apparently claimed to be “the investment he made to the Porsche beyond the basic value of the car.”
Bernstein v. Safeco Ins. Co. of Ill., No. 05-13-01533-CV