$285 million judgment affirmed in business dispute

At trial, Claymore Holdings won its fraud claim against Credit Suisse, establishing the loss of a $250 million investment as a result of a flawed appraisal. The Fifth Court affirmed, focusing on two bedrock principles of modern businesss litigation.

  1. “Specific provisions concerning an issue are controlling over general provisions.” Legally and factually, Claymore showed that Credit Suisse’s disclaimers of reliance did not foreclose liability for the specific issues about the appraisal raised by Claymore.
  2.  “[T]he trial court was not limited to the jury’s award of damages on Claymore’s fraudulent inducement claim in determining appropriate equitable relief on the claims for which the parties waived their right to jury trial.” On the facts of this case, “[h]aving obtained favorable findings from the jury on the fraud claim and from the trial court on the contract claim, Claymore could elect rescission as its remedy.”

Credit Suisse AG v. Claymore Holdings LLC, No. 05-15-01463-CV (Feb. 20, 2018) (mem. op.)

How much is a car wash worth?

Pappas testified about his 50% interest in a car wash business, using an undisputed sale price for the business, undisputed evidence about the face amount of a relevant note, and corrobrating his calculation with a recent property appraisal that was admitted without objection. This foundation was sufficient to satisfy “the presumption that an owner is familiar with his property and its value,” which requires that “the owner must provide the factual basis on which his opinion rests, although this burden is not particularly onerous in light of the resources available today.”  Wash Technologies v. Pappas, No. 05-16-00633-CV (Feb. 6, 2018) (applying Natural Gas Pipeline Co. v. Justiss, 397 S.W.3d 150, 157 (Tex. 2012)).

Application of economic loss rule

The economic loss rule, and the related debate about the proper handling of “con-tort” claims, can raise difficult and close questions. Hames v. JP Morgan Chase, however, presents a relatively clean example. Hames alleged mishandling of her bank account, and argued that her negligence claim could proceed independently of her breach-of-contract claim, as the bank’s duties arose from Article 4 of the UCC.The Court disagreed, finding that “[t]he duties that Chase allegedly breached were dependent on its contact with Hames,” and noting authority that “[t]he relationship of a bank to a general depositor is conrractual, that of debtor-creditor arising from the depository contract.”  Additionallly, “the account funds that Hames seeks to recover relate to the subject matter of the contract . . . ” No. 05-16-00472-CV (Jan. 22, 2018) (mem. op.)

When proving lost profits, don’t be gross.

While from the Fifth Circuit rather than the Dallas Court of Appeals, a recent case notes a fundamental principle in business litigation under Texas law. In it, that Court affirmed a JNOV motion on damages, under Texas law, when the plaintiff proved gross profits rather than net profits. “Its expert witness testified that he used ThermoTek’s gross profit margin—gross sales, less the cost of those goods sold, divided by gross sales—to calculate lost profits. He then stated that he reached his lost-profit totals for the VascuTherm units and wraps by (1) multiplying the average sales ThermoTek made to Wilford each month by the unit sales price and relevant time period, and (2) deducting the cost of the goods sold. But that is the very definition of gross profits. See Black’s Law Dictionary, supra (defining gross profits as “[t]otal sales revenue less the cost of the goods sold, no adjustment being made for additional expenses and taxes”). Motion Medical Technologies v. Thermotek, No. 16-11381 (Nov. 14, 2017).

 

“Reasonable and necessary” is necessary.

In Nu-Build & Assocs. v. Sooners Group, LP, the Fifth Court drove home a recent holding about damages for cost of completion: “We agree because (i) a party seeking completion cost damages in tort and contract cases must prove that those costs are reasonable; and (ii) proof of amounts charged and paid, alone, is no evidence the payment was reasonable. Because Sooners adduced no evidence that the $3.6 million it paid to complete project was reasonable, we sustain Nu-Build’s fourth issue and [reverse and render].Mustang Pipeline Co., Inc. v. Driver Pipeline Co., Inc., 134 S.W.3d 195, 200–01 (Tex. 2004) (per curiam); 701 Katy Bldg., L.P. v. John Wheat Gibson, P.C., No. 05-16-00193-CV, 2017 WL 3634335, at *9 (Tex. App.—Dallas Aug. 24, 2017, no pet. h.) (mem. op.).

What damages count for the exemplary damages cap?

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).

 

No air conditioning, but no recovery.

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.)

One week, two awards of punitive damages upheld –

punitive-damagesTwice 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.

 

Lost profits award reversed

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.)

An interest-ing case . . .

interesting-memePlaintiffs 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.)