For further analysis of ARGO and the related shareholder oppression cases recently issued by the Dallas Court of Appeals, please see our “hot topic” section on shareholder oppression.
Another installment in the court’s recent spate of shareholder oppression opinions finds the court reversing a judgment in favor of the minority shareholder. Martin and Shagrithaya started a software company named ARGO in 1980 with $1000. Martin and Shagrithaya retained 53% and 47% interests in ARGO respectively and were the sole board members, but Martin had the right to appoint a tiebreaker. There was no express agreement as to employment or compensation, which was determined on a year to year basis. For 25 years, they received equal compensation. By 2008, ARGO was valued at $152 million.
In the early 2000s, tensions arose as Martin became unhappy with what he saw as Shagrithaya’s refusal to take on executive responsibilities. In 2006, Martin unilaterally cut Shagrithaya’s annual compensation from $1 million to $300,000. Soon after, Martin and ARGO’s management began to isolate Shagrithaya. Around this time, the IRS performed an audit of ARGO and found assess it over $7 million in retained earnings tax. ARGO contested this assessment and won. Shagrithaya was not informed of the assessment or contest.
After an independent appraisal of ARGO, Martin offered Shagrithaya $66 million for his shares, representing their values less a 35% minority holder discount. Shagrithaya refused, arguing that there should be no discount because ARGO is not a third-party. Shagrithaya demanded an audit of ARGO and proposed an alternative plan to restore his previous salary, explore a sale of ARGO, and issue an $85 million dividend. ARGO allowed the audit, which uncovered that Martin had misappropriated ARGO funds to his personal use. Martin reimbursed ARGO the amount appropriated plus some amount more. In a final board meeting in December 2008, Martin appointed ARGO president Engebos as the third board member. They voted in favor of Martin’s plans regarding compensation, executive positions, and a$25 million dividend.
After losing the vote on all three issues, Shagrithaya resigned and filed a suit for shareholder oppression and other torts. At trial, Shagrithaya advanced the theory that Martin schemed to withhold compensation and dividends to ARGO so that ARGO could purchase Shagrithaya’s shares at a minority discount and force Shagrithaya out of the company. The jury found in Shagrithaya’s favor, and the trial court entered a judgment awarding Shagrithaya back compensation and ordering ARGO to issue an $85 million dividend.
On appeal, Martin and ARGO challenged the legal and factual sufficiency of the evidence supporting the jury’s finding of suppression. The court reviewed eleven of Martin and AGRO’s actions that the jury found to be oppressive to determine whether they (1) substantially defeated Shagrithaya’s objectively reasonable expectations central to his decision to join the venture or (2) constituted “burdensome, harsh, or wrongful conduct; a lack of probity and fair dealing in the company’s affairs to the prejudice of [Shagrithaya]; or a visible departure from the standards of fair dealing and a violation of fair play.”
ACTS 1 and 7: Martin reduced Shagrithaya’s annual compensation by 70 percent and forced him to report to ARGO’s president, Engebos, without the approval of the Board of Directors or shareholders. The court held that it was not reasonable for Shagrithaya to expect to maintain a level of compensation equal to Martin’s indefinitely without an employment contract. Additionally, the absence of board approval was later corrected at the December 2008 board meeting and the board retroactively cured the discrepancy in Shagrithaya’s actual past compensation. Though Shagrithaya voted against the reduction, the court noted that the inability to control board decisions is inherent in the position of a minority shareholder, citing Patton v. Nicholas. Finally, it did not prejudice Shagrithaya’s rights as a board member because these issues were purely employment matters.
ACT 2: ARGO maintained Martin’s compensation at $1 million without board approval. Shagrithaya argued that this constituted a de facto dividend to Martin, but the court found no evidence of such. And again, the boards retroactively approved and cured this action.
ACTS 3-4: Martin schemed to buy out Shagrithaya retaining earnings and refusing to pay dividends. The court held that these actions alone did not constitute oppression. The dividend were equally suppressed for Martin, and some dividends were issued and shared accordingly with Shagrithaya. Further, there was no evidence that these actions reduced Shagrithaya’s share value. The court noted that Shagrithaya had no specific expectation of dividends, and shareholders have not general expectation of dividends.
ACTS 5 and 11: Martin did not disclose the IRS assessment or ARGO’s engagement of a law firm to challenge it. The court held that because the assessment was reversed, there was no harm to Shagrithaya’s interests, and the legal representation benefited ARGO by securing the reversal.
ACT 6: Martin offered Shagrithaya $66 million for his shares at a minority discount and forced him to accept by withholding dividends. The court held that because Shagrithaya was never forced to relinquish ownership – his intent to sell was voluntary – the fair market value of his minority shares, including the discount, was the proper valuation. Using the shares’ enterprise value in the sale would only be required if ARGO or Martin were forced to purchase them. Further, the mere purchase offer, without other financial pressure, was not oppressive.
ACTS 8-10: Martin’s misappropriation of ARGO assets for his personal use. Martin’s repayment remedied any harm to Shagrithaya prior to trial.
The jury also found for Shagrithaya on his claims for fraud, breach of implied agreement, and breach of fiduciary duty. The fraud claim related to Martin’s failure to disclose his buyout scheme. The court held that his failure to disclose did not harm Shagrithaya because Shagrithaya could not force a dividend and possible sale of shares at that time were to speculative. Shagrithaya’s alleged Martin breached an implied agreement to continue their practice of equal compensation. The court held that this practice was not sufficient to establish an agreement, and in any case the terms of any agreement were too indefinite. Finally, Martin’s retaining of earnings, misuse of funds, and sale of ARGO’s assets did not cause Shagrithaya harm even if it breached his fiduciary duties.
ARGO Data Resource Corporation and Max Martin v. Balkrishna Shagrithaya, 05-10-00690-CV
Amid a flurry of post-summer break opinions today, the Texas Supreme Court issued one decision in a case from the Dallas Court of Appeals. In U-Haul International, Inc. v. Waldrip, the court of appeals had reversed and rendered an $11.7 million award of exemplary damages, but left intact $21 million in compensatory damages. The case arose out of an accident in which a truck with a damaged transmission and an inoperable parking brake rolled over the plaintiff as he was exiting the vehicle. In its decision today, the Supreme Court reversed the trial court’s judgment even further, rendering judgment for the defendants on the plaintiff’s claims for gross negligence and remanding the negligence claims for a new trial. The key error cited by the Supreme Court was the trial court’s admission of evidence concerning U-Haul’s safety practices in Canada, little of which had to do with faulty parking brakes or transmissions. The Supreme Court held that the erroneous admission of that evidence probably caused the rendition of an improper judgment because, among other reasons, plaintiff’s counsel had advocated for its inclusion over the defendants’ objections. Thus, the case was remanded to the trial court for a new trial on negligence. Justice Lehrmann dissented.
U-Haul International, Inc. v. Waldrip, No. 10-0781
In 2005, Parkwood Creek Owner’s Association sued Aharon Chen for Chen’s failure to complete the repair work Parkwood had hired him to complete, as well as for Chen’s failure to repair the defective work that he did complete. This suit settled in March 2008, with the parties entering into a Rule 11 Agreement whereby Chen agreed to make specified monthly payments to Parkwood and to remedy some of his previous shoddy work. Several months later, Parkwood moved to enforced the Rule 11 Agreement, claiming that Chen had failed both to deliver the stipulated materials and to deliver them at the specified time. After an bench trial, the court found for Parkwood and entered judgment against Chen for $30,000 (the agreed-to liquidated damages amount) and for $7,500 in attorney’s fees.
On appeal, Chen argued, among other things, that he substantially performed the contract and that Parkwood itself committed a prior material breach by not giving Chen a list of materials. The Court of Appeals rejected Chen’s arguments, holding that the evidence was sufficient to establish a breach of the Rule 11 Agreement. The Court found that Chen did not, in fact, provide the right materials, and that he refused to show up to inspections. It further found that Chen had met with Parkwood representatives and determined the precise materials needed for repair. The Court thus sustained the trial court’s decision and upheld the liquidated damages provision.
Aharon Chen v. Parkwood Creek Owner’s Association, Inc., No. 05-10-015511
Minority shareholder oppression continues to be a hot topic with the Dallas Court of Appeals, which is helping to fill out an otherwise sparse body of Texas case law. This time, the court has reversed and rendered a take-nothing judgment in an appeal of a $66 million judgment for shareholder oppression and breach of implied contract. We will have the details in a subsequent post, but you can read the decision for yourself in the link below.
ARGO Data Resource Corp. v. Shagrithaya, No. 05-10-00690-CV
The loan agreement for the Regal Parc apartments in Irving was generally non-recourse to the borrower, but it also included a carve-out that made the loan fully recourse if the borrower breached its obligation to remain a single-purpose entity. After the lender foreclosed on the property, it sued the borrowers for an $11.6 million deficiency, alleging they had violated the agreement by commingling funds with their related entities and committing waste by failing to maintain the property. The trial court accepted the borrowers’ explanations of why they had not commingled Regal Parc funds with those of other entities, meaning that the loan remained non-recourse. But the trial court also entered judgment against the owners for approximately $1 million due to waste and improper retention of post-default rents. The court of appeals affirmed, holding that the trial court’s finding was adequately supported by the testimony of the borrowers’ witnesses. The court of appeals also rejected the lender’s claim that the borrowers should have been responsible for an additional million dollars worth of waste that occurred before they assumed the loan, because the loan agreement only made the borrowers responsible for waste that occurred “henceforth” — i.e., from the date they assumed the loan. Finally, the court found sufficient evidence to support the award of damages for waste and retained rents.
Wells Fargo Bank, N.A. v. HB Regal Parc, LLC, No. 05-10-01428-CV
The owners of a tract of land in Collin County formed a limited partnership with an investor and his company to develop the property, then sold the land to the LP. As part of the sale, the LP issued a $9 million promissory note to the seller, plus another $1.5 million promissory note to a mortgage company, secured by a deed of trust on the property. Subsequent loans by the mortgage company to the LP upped the debt by another $6.5 million, also secured by deeds of trust and with priority over the note issued to the sellers. Since it all ended up in litigation, you will not be surprised to learn that the development collapsed. The sellers sued the limited partnership, their fellow investor, and the mortgage company for fraud, breach of fiduciary duty, and related claims. The mortgage company initiated foreclosure proceedings, which were stayed by the grant of a temporary injunction. Before long, everybody filed motions for summary judgment, and the trial court granted them all.
The court of appeals affirmed. With respect to the seller’s fraud claims, there was no evidence of misrepresentation in the original loan documents because those documents were not in the record on appeal. Nor was there any evidence the seller relied on any misrepresentations in the subsequent loan agreements because, citing health concerns, she had not presented herself for deposition and she had not included any affidavit in response to the mortgage company’s no-evidence motion. The court rejected the seller’s argument that the mere fact of having signed the agreement established that the seller had relied on the alleged misrepresentations.
Hall v. Douglas, No. 05-10-01102-CV
R.J. Suarez Enterprises owned a sandwich shop, which was operated out of a leased location owned by PNYX. After notifying PNYX that it would not renew the lease, Suarez vacated the premises, but claimed that it was entitled to take the walk-in cooler, walk-in freezer, sandwich unit, beverage cooler, and ice machine. PNYX disagreed. Suarez sued for conversion, and won. The trial court, however, awarded no damages because Suarez failed to present evidence of the property’s fair market value.
The Court of Appeals sustained the decision, finding that “even when there is evidence supporting a finding of conversion, there must be evidence of fair market value of the converted property to support a damages award.” Suarez, it held, did not present any evidence of the property’s fair market value, and instead only offered as damages evidence of the property’s replacement cost. This was insufficient, as replacement value and fair market value are not interchangeable.
R.J. Suarez Enterprises, Inc. v. PNYX LP, et al., No. 05-11-00934
James Owen did not have a winning case. In fact, the lawsuit he filed on behalf of Rhonda Krisle against Rusty Wallis Volkswagen asserted the precise claim (under the Texas Finance Code) that the Court of Appeals had rejected several years earlier. What’s more, Owen knew about this earlier case because he had been counsel for the losing appellant. Despite this, Owen still brought suit. After motion practice, which ended in a non-suit of all claims by Krisle, Rusty Wallis moved for sanctions. Not surprisingly, the trial court sanctioned Owen to the tune of $20,000.
Owen appealed. The Court of Appeals, however, was equally unimpressed was Owen’s reasons why he should not be sanctioned, which included the claim that the decisions by the Court of Appeals do not have binding precedential value unless they are explicitly approved by the Texas Supreme Court. Among other things, the Court found that, based on the explicit precedent rejecting Krisle’s claim, as well as Owen’s clear awareness of this precedent, the trial court did not abuse its discretion in sanctioning Owen. After rejecting the rest of Owen’s arguments against sanctions, the Court then concluded that Owen’s appeal was “objectively frivolous” and cited him for an additional $7,500.
The court affirmed a take-nothing summary judgment on fraud and promissory estoppel claims arising out of the purchase of land. Mavex purchased property, which was subject to subject to a easement, for the construction of a condominium complex. The parties to the easement amended it to allow for the condominium and the use of an adjacent parking deck subject to approval of the construction plans. Metzler, one of the easement holders, later refused to approve the condominium plans due to a dispute over the correct allocation of parking spaces for the exclusive use of the condominium tower as Mavex’s plans specified. Mavex sued Metzler and its predecessors-in-interest. Mavex alleged that before and after they entered into the purchase agreement for the property, the defendants assured Mavex that the plans were acceptable and that they relied on this approval of the condominium plans. The trial court granted summary judgment against Mavex.
On appeal, the court held that Mavex presented no evidence to support their promissory estoppel and fraud claims because Mavex’s affidavit evidence merely provided conclusory allegations that the appellees made assurances Mavex relied on, but did not identify with any specificity when the statements were made nor what actions appellants took in reliance on them. The court further held that, at any rate, the alleged statements were insufficient to support Mavex’s claims, and affirmed the summary judgment.
Mavex Management Corporation v. Hines Dallas Hotel Limited Partnership, et al, 05-09-01281-CV
In this certificate of merit case, the court affirmed the trial court’s denial of the defendant-architect’s motion to dismiss. After walking into a very clean glass wall in the lobby of a condominium complex, Zion sued the owners of the building and added claims against the architect, MSM, for negligently designing the wall. He included with his petition a certificate of merit, which was an affidavit authored by architect James R. Drebelbis, as required by § 150.002 of the Texas Civil Practice and Remedies Code. MSM filed a motion to dismiss, arguing the affidavit did not meet the requirements of § 150.002. The trial court denied MSM’s motion to dismiss.
On appeal, the court first held that a certificate of merit need not demonstrate the affiant’s practice in the same sub-specialty as the defendant. Drebelbis’s affidavit, which stated he was knowledgeable in the area of architecture, was therefore sufficient. Next, the court held that the certificate of merit need not state the applicable standard of care to satisfy the statute’s requirement that it allege a negligent action, error, or omission. Finally, the court held that the affidavit included a sufficient factual basis for Zion’s claims, as opposed to merely conclusory opinions, to meet the requirements of § 150.002. Thus, the affidavit was sufficient and the court affirmed the trial court’s order.
Morrison Seifert Murphy, Inc. v. Buck Zion, 05-11-00621-CV
The members of a limited partnership entered into a partnership agreement providing that they would each relinquish their partnership interest if they departed involuntarily. The agreement also provided that while no payment was required, the remaining partners could still decide to make a payment to the involuntarily departing partner. In late 2008, two of the three partners decided to terminate Arvid Leick. The remaining partners initially offered to pay him in excess of $300,000, but Leick insisted on almost twice that amount. The partnership and the remaining partners then filed suit seeking a declaratory judgment that Leick had been involuntarily terminated and that they therefore did not owe him anything at all. Leick counterclaimed. The jury found that Leick’s termination had been involuntary, but that he still should have been paid what the remaining partners had originally offered. The trial court reduced the award to $125,000, but still entered judgment in favor of Leick.
On appeal, the partnership claimed that the trial court had erred by improperly instructing the jury that the remaining partners had an obligation to treat the involuntarily terminated partner fairly and reasonably. The court of appeals reversed and entered a take-nothing judgment against Leick, holding that this instruction was contrary to the plain language of the partnership agreement, which left it up to the remaining partners whether an involuntarily departure would lead to any payment at all. Although the Texas Revised Partnership Act does require partners to be fair and reasonable to one another, that could not serve as the basis for the jury instruction because Leick was no longer a partner after the day he was terminated. The court of appeals likewise sustained the trial court’s directed verdict against Leick on his claim for breach of fiduciary duty, since that claim also focused on the other partners’ treatment of him after he was terminated, and there was no fiduciary duty for the parties to remain partners with one another. Finally, the court vacated the trial court’s award of attorney fees to Leick, but noted that he still might still be able to recover fees on remand under the Declaratory Judgments Act, even though he was no longer the prevailing party.
LG Insurance Management Services, LP v. Leick, No. 05-10-01646-CV
Willie Addison hurt his back at work and, after complaining about it, was fired. He sued his employer alleging retaliatory discharge under the Texas Workers’ Compensation Act. Addison’s employer, however, was not a subscriber to the states’ worker’s compensation program.
Undeterred, Addison charged that his employer should nevertheless be held liable for retaliatory discharge because the employee handbook indicates the company maintains a workers compensation plan (though it is not governed by the Act). The court rejected Addison’s claim, finding that “only subscribing employers can be subject to section 451.001 claims.”
Appellants leased property in Heath, Texas. Under the lease, they were granted the option to buy, which they claim they exercised (even though no closing ever occurred and no title ever passed). Appellees, the landlords, sought to evict the Appellants for violations of the local HOA rules and for failure to pay rent.
The issue the Court of Appeals decided was a narrow one: whether, because Appellants exercised the option to purchase the property, there was no longer a landlord-tenant relationship between the parties so that a forcible entry and detainer suit was improper. The Court found that, even if Appellants exercised the option, they do not have title–equitable or otherwise–and thus rejected Appellants’ argument that a forcible detainer action was improper.
Memorandum opinions don’t usually run as long as 12 pages, but that’s how much space it took to sort out a dispute between a property owner and the contractor he hired to do some paving work on the property. The contractor seemingly abandoned the unfinished project — which was supposed to have taken 7-10 days — after two months, and left behind his rented bulldozer. The property owner eventually terminated the parties’ contract, but refused to hand over the bulldozer. The bulldozer subsequently disappeared from the property, with the landowner claiming it had been stolen (a claim the trial court deemed “not credible”).
The trial court found the property owner liable for conversion of the bulldozer, and the court of appeals affirmed. The court held that the trial testimony adequately supported the findings that (1) the lessor was the proper owner of the vehicle, (2) the landowner had exercised dominion and control over it, (3) the property owner had not acted in good faith in refusing to return the bulldozer, and (4) the alleged superseding cause of the bulldozer’s mysterious disappearance was irrelevant because the alleged theft occurred after the landowner had refused to return it to the rightful owner. The court of appeals also held that even though the trial court erred by allowing two undisclosed witnesses to testify at trial, that error was harmless because their testimony was cumulative of what other witnesses had also testified. Finally, the court reversed the trial court’s refusal to grant judgment in favor of the property owner on his breach of contract claim, holding that the evidence supported the breach of contract claim as a matter of law. Accordingly, the court of appeals remanded the case to the trial court for a determination of the landowner’s damages and the possible recovery of attorney fees.
Miller v. Carter., No. 05-11-00193-CV
A pro se defendant has managed to reverse a summary judgment granted against him by the trial court. In a very short memorandum opinion, the court of appeals held that the plaintiff’s traditional motion summary judgment failed to identify the specific grounds for the motion, including the causes of action and their elements. The court therefore remanded the case for further proceedings.
Eoff v. Ahern Rentals, Inc., No. 05-11-00621-CV
This landlord-tenant dispute involved Tenet Health Systems and Live Oak, a group of doctors, as tenants. Live Oak entered into a lease with Tenet for a five year period, expiring on June 30, 2006. Live Oak claimed that, before the lease expired, Tenent successfully encouraged them to relocate to a new space in Frisco, Texas, with the promise that Tenet would find someone to take over the lease. However, sometime after Live Oak abandoned the original lease and stopped making payments, Tenet demanded unpaid rent for that lease.
The Court of Appeals first found that the doctors who signed the lease were personally liable for unpaid rent under the lease agreement, because “[t]he objective intent of the parties, as expressed in the unambiguous language of the lease, was that those persons comprising Live Oak . . . would be jointly and severally responsible for Live Oak’s obligations under the lease.”
On a separate issue, Live Oak also argued that they had raised sufficient facts for their defenses of mitigation and estoppel to survive summary judgment because they had submitted an affidavit asserting that (1) Tenet had a willing tenant to take over the lease, but purposefully waited until the term expired before letting this new tenant take over and (2) Tenet had made promises to induce them to move to Frisco. The Court of Appeals rejected this argument, holding that conclusory statements in an affidavit not based on personal knowledge cannot present sufficient evidence to survive summary judgment.
In dissent, Justice Lang-Miers disputed the holding that the doctors should be individually liable under the lease because the lease’s terms were ambiguous and the landlord could not show that its interpretation of the contract should control.
Live Oak v. Tenent Healthsystem Hospitals Dallas, Inc., No 05-11-00342 (majority)
Live Oak v. Tenent Healthsystem Hospitals Dallas, Inc., No. 05-11-00342 (dissent)
The court reversed the dismissal of a claim against an engineering consultant in an opinion dealing with the “certificate of merit” requirement in section 150.002 of the Texas Civil Practice and Remedies Code. Though there was no written contract between JJW and Strand, JJW originally asserted claims against Strand for breach of contract and negligence arising from a cracked foundation Strand designed. JJW later dropped its negligence claims and asserted only the contract action against Strand in its third amended petition, claiming that it entered an oral or implied contract with Strand to perform a “pre-pour” inspection of the foundation. JJW alleged that Strand breached this contract by failing to measure the depth of the concrete slab. Strand moved to dismiss the action because JJW failed to file a certificate of merit with its petition. JJW responded that the applicable 2005 version of section 150.002 does not apply to a claim for breach of contract. The trial court dismissed the claim.
On appeal, the court first held that it would consider the live pleadings at the time of the trial court’s ruling on the motion to dismiss to determine whether and how section 150.002 applied to the plaintiff’s claims. Examining the third amended petition, the court agreed with the majority of the Texas courts of appeals and held that the 2005 version of section 150.002 requires a certificate for negligence claims only and not for non-negligence claims. In doing so, the court rejected the approach recently taken by an en banc panel of the Austin court of appeals. The court noted, however, that it still must determine whether JJW’s contract claim was truly based on Strand’s alleged contractual obligations to JJW or was merely a negligence claim recast as breach of contract.
To determine the nature of the claim, the court looked to the source of the duty owed and the nature of the remedy sought. The court held that because JJW alleged that Strand had an express or implied contractual obligation to measure the depth of the slab – independent from its duty to exercise a professional degree of care, skill, and competence in performing the pre-pour inspection – the duty arose from the contract. The court also held that the remedy – consequential damages for the diminution in value of the residence and the loss of use and other damages due to necessary repairs – was based in contract because those damages are “consequences of the alleged failure to perform a pre-pour inspection.” Thus, the court concluded that the nature of the claim was, indeed, contractual.
JJW Development, LLC v. Ramer Concrete, Inc. and Strand Systems Engineering, Inc., 05-10-01359-CV
Inwood on the Park Apartments brought a forcible detainer action to get tenant, Stephanie Morris, to vacate her apartment. According to Inwood, Morris breached her lease by permitting a guest to create “disturbances” in the apartment parking lot, which included disturbances involving public indecency. After the suit was filed, Morris vacated the apartment, and Inwood filed a notice of nonsuit as to “possession” but reserved its claim for attorney’s fees.
Morris moved to dismiss the claim for attorney’s fees, arguing that Inwood’s nonsuit of its claim for forcible detainer mooted any claim for attorney’s fees. Rejecting Morris’ argument, the Court of Appeals held that a “dispute over attorney’s fees is a live controversy and may prevent an appeal from being moot.”
In a memorandum opinion, the court of appeals has affirmed summary judgment in favor of PNC Bank on four personal guarantys of a promissory note. Each of the guaranty agreements contained provisions waiving the defense of offset against a deficiency claim, preventing the guarantors from asserting that the bank had sold the foreclosed property for less than fair market value. The court of appeals rejected the guarantors’ argument that parties could not waive the statutory offset rights contained in Chapter 51 of the Texas Property Code, citing the court’s own recent opinions in Interstate 35/Chisam Road, L.P. v. Moayedi and King v. Park Cities Bank. The court also rejected the guarantors’ contention that the language of their own guaranty agreements was not specific enough to waive their right to offset the deficiency.
Toor v. PNC Bank, N.A., No. 05-11-00012-CV
This lawsuit arose from the sale of a 42,000 acre West Texas ranch. In 2007, JP Morgan, the trustee holding the ranch, entered into a contract with AKB Hendrick Limited Partnership, granting AKB ten months to raise money to purchase the ranch during which JP Morgan would not market, solicit or accept any “back up” offers to purchase the ranch. AKB would deposit $250,000 in escrow, from which fees would be deducted as time passed. Despite this contract, Hamilton, a member of AKB, subsequently approached Kenneth Musgrave about purchasing the ranch. Musgrave and Hamilton entered into an agreement whereby AKB permitted Musgrave to seek to purchase the ranch if AKB were paid $1M upon Musgrave’s successful purchase.
AKB then informed JP Morgan that it was terminating their agreement. Negotiations continued between Musgrave and JP Morgan. The parties agreed to a sale in April 2008, but in August 2008, before closing, Musgrave terminated the agreement. AKB sued Musgrave (and various Musgrave entites) for fraud, breach of contract, and several other counts. The trial court granted summary judgment in favor of Musgrave, and AKB appealed.
On the fraud count, the Court of Appeals found that AKB was not justified in relying on certain representations made by Musgrave because, when the representations were made, the two were involved in a commercial transaction and “the representation took place in an adversarial context.” The Court also dismissed fraud claims stemming from Musgrave’s statement that “he could help out with certain fees if those became an issue.” According to the Court, promises of future performance are only actionable misstatements if the promise was made with no intention to perform, and AKB did not present evidence establishing such intent. The also Court found that Musgrave did not breach its contract with AKB because Musgrave never successfully purchased the Ranch.
Being on the wrong end of a $125 million arbitration award might cause anyone to investigate whether any of the arbitrators had any evident partiality in favor of the other side. Unfortunately for the sellers of an electric power plant in Cleburne, the proper time for that investigation was when the arbitrator made his allegedly inadequate disclosures, not after the panel had already announced its award.
The buyer of the power plant, Ponderosa Pine Energy, invoked arbitration in order to resolve a dispute over the sellers’ alleged breaches of representations and warranties in the purchase agreement. As the pick for its party-appointed (but neutral) arbitrator, Ponderosa selected a Washington , D.C. attorney named Samuel Stern. Stern subsequently disclosed that he had been appointed as an arbitrator on several other occasions by Ponderosa’s law firm, Nixon Peabody. Stern also disclosed that he sat on the advisory board of a company that had pitched its legal outsourcing services to Nixon Peabody. But Stern only listed those contacts as being with the law firm of Nixon Peabody — he did not disclose that they were all with the two attorneys who were representing Ponderosa in the arbitration. The sellers subsequently demanded to know whether Stern had ties to any of the financial institutions that owned Ponderosa, but failed to follow up on any of the items Stern had actually disclosed.
The arbitration panel — chaired by former Dallas Court of Appeals and Texas Supreme Court Justice James Baker — eventually split 2-1 in favor of Ponderosa’s demand for $125 million. Ponderosa filed suit to confirm the award, while the sellers moved to have it set aside. After post-arbitration discovery, the trial court ruled that Stern showed “evident partiality” by failing to disclose (1) the identities of the Nixon Peabody attorneys he had dealt with, (2) the full extent of his role with the legal outsourcing firm, and (3) that the claimant in one of the arbitration cases on which he had been selected by Nixon Peabody was owned by Ponderosa’s original owner. The court of appeals reversed, holding that the sellers had waived those challenges. While Stern’s disclosures had not identified all of the facts that the sellers might have wanted to know about those matters, there was enough information to put them on notice that the relationships and dealings existed. By electing not to investigate the details and to wait until after the arbitration award had already been issued, the sellers waived their ability to challenge Stern’s impartiality at all. As a result, the court of appeals reinstated Ponderosa’s arbitration award.
Ponderosa Pine Energy, LLC v. Tenaska Energy, Inc., No. 05-10-00516-CV
Delcom Group, LP thought that it was the winning bidder for a project to install “Digital Classroom integration solutions with technology components including installation and service at multiple school facilities” in the Dallas Independent School District. But when DISD dumped Delcom and went with the second-place bidder instead, Delcom sued both the school district and the competing bidder. The trial court granted a temporary restraining order to prevent DISD and the competitor from using Delcom’s trade secrets, but ultimately denied a temporary injunction and granted the school district’s plea to the jurisdiction. On interlocutory appeal from that ruling, the court of appeals affirmed. Despite a chain of documents that Delcom pointed to as forming the contract, the court held that the contractor could not sue DISD for breach because the parties had never settled on the essential terms of a contract. Among other problems, Delcom had actually submitted two different bids, one for $79 million and the other for $62 million — and DISD had never stated which bid it intended to accept. Because the parties had not agreed on the essential terms of a contract, there could be no waiver of governmental immunity under section 271.152 of the Local Government Code. The court likewise rejected Delcom’s takings claim, because there could be no taking when Delcom had given its alleged trade secrets to the school district voluntarily. Finally, the panel affirmed the trial court’s denial of the temporary injunction, holding that Delcom had not established any imminent and irreparable injury through use of its trade secrets, nor had it shown it could not be compensated with money damages if any actual misappropriation were to occur.
Delcom Group, LP v. Dallas Independent School District, No. 05-11-01259-CV
In a memorandum opinion, the court affirmed the trial court’s judgment in a forcible detainer action. Felix Hornsby executed a promissory note secured by a deed of trust covering the property at issue. After he defaulted on the note, U.S. Bank bought the property at foreclosure sale and conveyed it to the Secretary of Veteran Affairs. The SVA brought this forcible detainer action against Hornsby, and the trial court rendered judgment in favor of the SVA. On appeal, Hornsby argued that the SVA had to show it was entitled to enforce the terms of the deed of trust in order to establish a landlord-tenant relationship between them, but failed to do so. The court held that SVA presented sufficient evidence to show its superior right to possession of the property and that Hornsby’s challenge to the chain of title could not be properly adjudicated in a forcible detainer action.
Hornsby v. Secretary of Veterans Affairs, No. 05-11-01075-CV
In a memorandum opinion, the court has reaffirmed the venerable rule that an appellant must challenge all grounds asserted in a motion for summary judgment if the trial court has not specified on which grounds the motion was granted. In this instance, the bank moved for summary judgment, attacking the elements of the plaintiffs’ causes of action and seeking to prove its affirmative defenses. The plaintiffs disputed the estoppel, ratification, and waiver defenses, but failed to address the separate defense of quasi-estoppel. On appeal, they likewise failed to challenge the quasi-estoppel defense. As a result of that failure, the court of appeals automatically sustained the trial court’s grant of summary judgment, without any need to reach the merits of the quasi-estoppel defense.
Walker v. Town North Bank, N.A., No. 05-10-01174-CV
The court of appeals has reversed summary judgment for the defendant in a bill of review case. After 23 years of marriage, the appellant had filed for divorce from her husband. Their divorce papers purported to waive the parties’ right to investigate assets and financial information. But the wife later found out that her husband had substantially more assets than she had been led to believe, which in turn led her to seek a bill of review to overturn the couple’s property division, claiming extrinsic fraud in the judgmenmt. The trial court granted summary judgment in favor of the husband. The court of appeals disagreed, holding that whether the husband’s alleged misrepresentations of his financial position and attempts to intimidate his wife into foregoing further investigation presented a fact question for the jury on whether the settlement was procured by extrinsic fraud. The court also rejected the husband’s estoppel defense, as there was a fact question whether the wife’s prior testimony that the settlement was fair and equitable was based on mistake, fraud, or duress. Having reversed the summary judgment, the court of appeals remanded the case to the trial court for further proceedings.
In re Stroud, No. 05-00982-CV
In this legal malpractice action, Jean Pierre – a Dallas commercial real estate investor – brought suit against the lawyer who represented him in a failed real estate transaction. Pierre claimed that the lawyer had failed to advise him of the consequences of his counterparty’s changes to the earnest money provision in the real estate contract at issue. As a result of the revised earnest money provision, Pierre lost $400,000 because the contract did not permit him to retain the earnest money when the purchaser pulled out of the transaction at the last minute.
Though the jury found in Pierre’s favor, the Court of Appeals overturned the trial court’s judgment because it found that Pierre failed to offer legally sufficient evidence of proximate causation. In so doing, the Court of Appeals rejected Pierre’s contention that all that he needed to prove to establish causation was that he would not have signed the contract if he had understood the earnest money provision. The Court, in rejecting Pierre’s claim, concluded that Pierre was required to prove that the counterparty would have agreed to the alternative earnest money provision (that would have refunded the money to Pierre), and that Pierre could not establish such a conclusion.
In 2009, a class of shareholders challenged the stock-for-stock merger between Centex Corp. and Pulte Homes, charging that the board breached its fiduciary duties by failing to obtain an adequate price for the shareholders. As often happens, the parties quickly settled, and Centex and Pulte agreed to disclose additional information about the merger in the proxy statements. While the settlement provided class counsel with a hefty cash payment of attorneys’ fees, the shareholder’s reward was simply more information.
Rocker raised several objections to the settlement, but his most salient objections were (1) that the settlement’s release was too broad because it waived all known and unknown claims without granting the shareholders an opportunity to opt-out; and (2) that class counsel could not recover their attorneys’ fee in cash, when the class received only injunctive relief. The Court credited both of Rocker’s arguments. Regarding the first, the Court held that “[i]f appellees require a ‘limitless release,’ then due process requires that class members be afforded the option to be excluded from the class.” Regarding the second, it found that “if there is no cash recovery for the class, fees could not be awarded in cash, regardless of the value of the benefit to the class.” The Court then remanded the case to the trial court for further proceedings.
Rocker v. Centex Corp, No. 05-10-00903
In a memorandum opinion, the court affirmed a trial court’s judgment in a declaratory action regarding the validity of a warranty deed. Knight brought the underlying action to declare the deed, which evidenced the transfer of his ownership in property to Minter, a forgery. The trial court concluded that Knight had indeed signed the deed transferring ownership of the Property to Minter. On appeal, Knight argued that the trial court erred by denying his motion for new trial based on “newly discovered evidence,” including evidence that the notary who witnessed Minter’s warranty deed had been indicted for fraud and entered a plea agreement, as well as the affidavit of a mortgage loan underwriter stating the transaction required a sales contract. The court rejected Knight’s argument because he failed to establish that he lacked actual knowledge of the notary’s criminal history and exercised appropriate diligence before trial in relation to the expert testimony he obtained after trial.
Knight v. Minter, No. 05-11-00829-CV
A pro se litigant has managed to obtain mandamus relief from the court of appeals. The litigation started after Mr. Florance filed a $129 lien against the property of the Colin County Clerk. The trial court invalidated the lien, and the court of appeals rejected both Florance’s appeal and a subsequent bill of review. But the trial court had also declared Florance to be a vexatious litigant, a ruling that came well after the court lost its plenary power. The court of appeals footnoted that problem in one of its previous opinions, and Florance took the opportunity to challenge the vexatious litigant finding by filing for a writ of mandamus. Although the court of appeals initially denied any relief, the panel changed its mind after Florance filed a motion for en banc rehearing. The panel held that the vexatious litigant order was not an exercise of the trial court’s continuing power to enforce its prior judgment, and that it was otherwise void because it was signed after the expiration of plenary power. Because mandamus is the appropriate mechanism to require a trial court to vacate a void order, the court of appeals conditionally granted the writ.
In re Florance, No. 05-12-00713-CV (mandamus)
In re a Purported Lien or Claim Against Collin County Clerk Brenda Taylor, 219 S.W.3d 620 (Tex. App.-Dallas 2007, pet. denied) (first appeal)
Florance v. State, 352 S.W.3d 867 (Tex. App.-Dallas 2011, pet. denied) (appeal from bill of review)
Florance v. State, No. 05-08-00984-CR (memorandum opinion affirming conviction and 6-month sentence for failure to release fraudulent lien)
Florance v. Buchmeyer, 500 F.Supp.2d 618 (N.D. Tex. 2007) (dismissing lawsuit against state judge, federal judge, district attorney and assistant district attorneys, district attorney’s investigator, county clerk, unknown clerks, city prosecutor, assistant attorney general, Collin County, the State of Texas, and the federal government)
One day, Appellee Dale Allen came home to see construction workers installing “HardiPlank” siding on his neighbor’s house. This neighbor, Appellant Michael Jamison, had chosen to use HardiPlank on the exterior of his house because it is virtually indistinguishable from wood, and yet remains fire resistant, rot resistant, and insect resistant. HardiPlank does not shrink, it does not swell, and it does not absorb moisture. It turns out, however, that the one thing HardiPlank is not resistant to is the subdivision’s restrictive covenant, which required that the “exterior walls” of the homes be covered in approved materials only. And HardiPlank was not an approved material.
Allen, thus, brought suit to ensure that Jamison complied with the neighborhood’s exterior standards. The only problem: Allen himself had wrapped HIS house’s gables in HardiPlank. Jaimson pointed out Allen’s hypocrisy, arguing, under the doctrine of quasi estoppel, that Allen cannot enforce a covenant with which he failed to comply. The trial court rejected Jamison’s argument, finding that a “gable” is not the same and an “exterior wall,” and ruled in Allen’s favor. The court of appeals, however, plunged the depths of Webster’s Third New International Dictionary and determined that a “gable” does, in fact, qualify as an exterior wall. Having so determined, the Court then held that Allen was estopped from suing to require that Jamison comply with the very covenant he refused to abide by.
Jamison v. Allen, No. 05-11-00603-CV
In a defamation case, the court of appeals has affirmed summary judgment in favor of the defendants. The case was brought by a group of Dallas police officers who claimed they had been defamed by a former cop, D Magazine, and the magazine’s writer following the publication of a story alleging the issuance of fraudulent misdemeanor citations. In the process of overruling the plaintiffs’ complaint that the trial court had abused its discretion by failing to grant a further continuance of the summary judgment hearing, the court of appeals endorsed the San Antonio court’s formulation of “a qualified First Amendment privilege against compelled disclosure of confidential information possessed by a journalist.” The court also rejected the plaintiff’s objections to the writer’s affidavit, holding that his testimony of relying on anonymous sources was sufficient to establish a good faith basis for publishing the allegedly defamatory claims, which the plaintiffs had failed to rebut. Finally, the court of appeals held that the defendants had submitted adequate evidence to prove their lack of actual malice against the plaintiffs, and that the plaintiff had failed to raise a fact issue to contradict that evidence.
Nelson v. Pagan, No. 05-09-01380-CV
In this memorandum opinion, the court reaffirmed some basic litigation procedures. The plaintiff was fired by his law firm employer and sued alleging 37 separate claims. The trial court granted summary judgment, and Cruz appealed the first time. The court of appeals affirmed on every claim but two and remanded. The trial court severed those claims and Cruz appealed a second time. On appeal, the court first determined that on remand, the trial court only had jurisdiction to consider issues regarding the two claims included in the scope of the remand as stated in the court of appeals’ mandate. Thus, Cruz’s issues related to claims outside the trial court’s jurisdiction were rejected. Because of the court’s limited jurisdiction, issues that Cruz failed to preserve prior to the first appeal were not reopened by the mandate and the trial court did not err by limiting discovery to the remaining matters over which it had jurisdiction. Finally, the trial court did not err by severing Cruz’s remaining claims and requiring him to replead under Texas Rules of Civil Procedure 41 and 68.
Cruz v. Schell, Beene & Vaughn, L.L.P., et al., 05-01-00565-CV
The court of appeals has issued an opinion affirming an insurer’s obligation to cover the costs of defense. In an underlying lawsuit, two homeowners sued their builder for negligent construction of the home. The builder had been insured by several companies over the years, including Great American and Audobon. Great American initially agreed with the other insurers that it would cover one-third of the defense costs, but it pulled out of that deal when it was revealed that the damage to the house had occurred before its policy went into effect. Audobon then sued Great American. The trial court granted summary judgment in favor of Audobon, and the court of appeals affirmed.
On appeal, Great American argued that it had no duty to defend the underlying case because discovery had established that the homwoners’ claim did not arise during its policy period. The court of appeals rejected that argument because the duty to defend is invoked by the plaintiff’s pleading, not the underlying facts. In this case, the homeowners’ petition alleged only that the injury had occurred at some unspecified date in the past, which could have included the period when Great American’s policy was in effect. Thus, under the “eight corners” of the pleading and the insurance policy, Great American was obligated to cover the costs of defending the claim.
Great American Lloyd’s Ins. Co. v. Audobon Ins. Co., No. 05-11-00021-CV
The court affirmed summary judgment in favor of the defendant on a breach of fiduciary duty claim. Balestri was a lawyer who left his practice to become CFO of an internet company. Balestri’s friend Kiger later contacted Balestri to ask about certain industry contacts that Kiger believed could help him to implement a new business idea. Kiger’s business never materialized. Balestri subsequently invested in a business in the same industry, and Kiger sued for breach of fiduciary duty. Kiger alleged that Balestri acted as his attorney and then revealed his confidential and trade secret information to the new business. The trial court granted both traditional and no evidence summary judgment against Kiger. The court of appeals affirmed, holding that despite Kiger’s contention that an implied attorney-client relationship existed between him and Balestri, no evidence of such a relationship existed in the record. Additionally, even if Kiger believed that such a relationship formed, one party’s subjective beliefs are not evidence of an implied attorney-client relationship.
Kiger v. Balestri, 05-10-01308-CV
This action involved a deficiency claim by a Bank against several loan Guarantors. The loans at issue were undertaken to finance improvements on properties owned by a partnership in Collin County. After the partnership defaulted, the Bank exercised its right to sell the properties at non-judicial foreclosure sales, and then brought this action action against the Guarantors. Because the Guarantors had agreed in the original Guaranty Agreement to waive any defense of offset to the bank’s deficiciency claim, the trial court granted the Bank’s motion for summary judgment and awared the Bank the outstanding amounts due on each of the promissory notes. On appeal, the Guarantors argued that the right of offset provided for in section 51.003(c) of the property code cannot be contractually waived and, alternatively, that if such waiver were available they did not, in fact, waive the right of offset because the waiver provision did not contain the phrase “right of offset.” Relying on the reasoning in Moayedi, the Court of Appeals rejected both of the Guarantors’ arguments, finding that nothing in the property code prevents a guarantor from waiving his right to an offset in a guaranty agreement. Additionally, the Court found that the waiver language need not include the precise terms “right of offset” to constitute an effective waiver. Thus, the court upheld the trial court’s summary judgment decision.
King, et al. v. Park Cities Bank, No. 05-11-00593-CV
The court reversed a summary judgment in favor of a guarantor on his Property Code Chapter 51 offset defense against a creditor. Moayedi guaranteed a loan made by I-35 to Villages. I-35 sued Moayedi based upon his guaranty to recover the balance remaining on Villages’s promissory note after a Property Code section 51.003 foreclosure sale. Moayedi contended that he was entitled to offset the deficiency by the difference between the fair market value and the sale price pursuant to section 51.003(c). I-35 replied that Moayedi waived “any defense” in the guaranty, including the right of offset. After considering competing summary judgment motions, the trial court granted Moayedi’s and held that the right of offset pursuant to section 51.003(c) could not be waived by the general terms in the guaranty agreement.
The court of appeals reversed. First, it engaged in a thorough analysis of waiver and section 51.003(c)’s offset provision. It held that a section 51.003(c) offset is indeed a “defense” as the term was used in the guaranty. Next, the court analyzed the contract language and held that “any defense” included the section 51.003(c) offset defense. The court then looked at the guaranty as a whole, finding four other provisions supporting such a broad waiver. Finally, the court rejected the argument that a waiver of section 51.003(c) rights violates public policy, citing Texas’s strong policy in favor of freedom of contract and other courts that have held that Chapter 51 rights of offset may be contractually waived. Thus, the court reversed and rendered judgment in favor of I-35.
Interstate 35/Chisam Road, L.P. and Malachi Development Corporation v. Moayedi, No. 05-11-00209-CV
In a memorandum opinion the court reversed as insufficient a summary judgment award to a neighborhood association against a delinquent property owner. Gashaye’s property is subject to a covenant to pay assessments to Candlewood, which Gashaye failed to do. Candlewood sought foreclosure of the lien securing Gashaye’s obligation and attorney’s fees, presenting evidence proving $1545 in unpaid assessments and late fees and $2500 in attorney’s fees. The trial court awarded Candlewood $50. The court reversed, holding that the award of $50 under these circumstances was so contrary to the overwhelming weight of the evidence that it was clearly wrong and unjust. The court noted that attorney’s fees are recoverable on a breach of a homeowner’s association covenant, but remanded for the determination of a proper damages and attorney’s fees award.
Candlewood Creek Neighborhood Association, Inc.v. Gashaye, No. 05-11-00380-CV
In Farmers Insurance Exchange v. Greene, Appellee-Greene maintained a homeowner’s insurance policy with Famers Insurance Exchange (“FIE”). Among other things, the Policy contained a vacancy provision which suspended coverage for any damage to the dwelling that occurred 60 days after the dwelling becomes vacant. As luck would have it, Greene moved out of the covered residence 4 months before a fire destroyed it. Greene notified FIE of the damage, but FIE denied her claim based on the vacancy provision. She sued and the trial court granted summary judgment in Greene’s favor, finding that her violaiton of the vacancy clause did not contribute to the loss, and thus did not prevent her from recovering under the Policy.
The Court of Appeals reversed, holding that the vacancy clause was clear and unambiguous in that it suspends coverage sixty days after the residence becomes vacant. It also noted that “the vacancy clause functions as an exclusion; it excepts a specific condition (vacancy) from coverage.” Further, the Court found that Section 862.054 of the Insurance Code—which provides that an insured’s breach of a provision or condition in a policy does not constitute a defense to a suit for loss unless the violation contributed to the destruction of the property—was inapplicable. The vacancy of the home increased the risk of insuring it, and the Court felt that, under such circumstances, “we are loathe to engraft by judicial fiat additional terms requiring FIE to assume liability for a risk the Policy specifically excluded.
In Green v. McKay, the Court of Appeals addressed the causation requirement in a legal malpractice action. Appellants were charged by the City of Dallas with certain code violations on a property they had sold to a debtor, who had executed a deed of trust in their favor, but who was later forced to file in Chapter 13 bankruptcy. In response to the suit, appellants sought legal advice from appellee, McKay, who told appellants that they did not have to do anything and that “it would go away.” The City ultimately obtained a default judgment of $562,275 against appellants, who then turned around and sued McKay for legal malpractice. The Court of Appeals upheld the trial court’s decision, finding that the appellants had not presented any evidence of “causation.” According to the Court, in a legal malpractice action, “[c]ausation requires that a plantiff prove a meritorious defense to the underlying case.” Based on principles of bankruptcy law—which established that under the vendor’s lien held by appellants, they held legal title to the property in question—the Court found the appellants would not have been able to establish a meritorious defense in the code violations lawsuit even if McKay had filed an answer. Accordingly, the Court concluded that the appellants could not establish the causation element of their malpractice claim and upheld the trial court’s dismissal.
A Kaufman County couple has failed in their effort to reverse a summary judgment granted in favor of their homeowners association. The association had filed its MSJ on December 17, then faxed a notice on December 20 stating that a hearing had been set for January 6. Because that only provided 17 days notice instead of the required 24 days (including an extra three days due to service by fax), the homeowners objected. The association then reset the hearing for January 13, and the trial court permitted the couple to file their response on January 12, thereby giving the homeowners 24 days from the original date of notice to file their response. The court of appeals held that was adequate notice, particularly because the the homeowners had requested an (unspecified) continuance of the January 6 hearing date. Since the trial court had granted a total of 24 days for the homeowners to respond, the court of appeals held there was no merit to their complaint of inadequate notice of the summary judgment hearing. The court of appeals also rejected the homeowners’ breach of contract claim, holding that there was no evidence the property’s deed restrictions required the association to maintain a dam located partially on the plaintiffs’ property.
McGowan v. Meadowwood Park Ranch Estates Homeowners Association, No. 05-11-00695-CV
by Chris Patton
Citibank sued a credit card account holder for breach of contract and account stated to collect the balance due on a cardholder’s credit card account. In the trial court, Citibank moved for summary judgment, which the trial court granted in its favor. On appeal, the defendant challenged the trial court’s decision on a number of grounds. However, because the defendant, who was proceeding pro se, repeatedly cited to exhibits and other evidence that were not in the record, the court refused to address the issues related to breach of contract raised by the defendant. The court also refused to address the issues related to account stated claim. Because Citibank moved for summary judgment on the alternative grounds of breach of contract and account stated, and because the trial court did not specify the grounds on which summary judgment was granted, the court found that it need not resolve the issues related to the suit on account claim. Because “even if we resolved it in [Defendant’s] favor our decision would not change the outcome of this appeal.”
Burruss v. Citibank, No. 05-10-01376-CV
The court reversed and rendered judgment in a breach of contract action related to a letter of intent (“LOI”) to acquire the stock of a corporation. Corilant and FFSS executed an LOI for Corilant’s acquisition of FFSS’s stock. The LOI provided for future “Definitive Agreements” memorializing the precise terms and conditions of the sale. FFSS scuttled the deal before executing the Definitive Agreements. Corilant sued for breach of the LOI and a jury awarded it $1.8 million.
On appeal, the court held that the LOI was not an enforceable contract because the essential terms of two of its provisions were uncertain. First, the LOI provided for structured earn-out payments to Corilant but failed to sufficiently characterize the payments. The evidence showed the parties’ lack of mutual understanding with respect to this provision. Second, the LOI provided that FFSS’s Chairman would continue to be involved in management of the company but failed to specify the terms of his employment. This provision also specifically contemplated a future management agreement, which was actually drafted but never executed. Finally, the court rejected Corilant’s argument that enforceability of uncertain terms is a factual determination. In doing so it distinguished an earlier case in which parties disputed whether an LOI was intended to be the final expression of a contract, which neither Corilant nor FFSS argued.
Fiduciary Financial Services of The Southwest v. Corilant Financial, No. 05-10-00471-CV
The court issued a significant ruling related to the remedy for shareholder oppression, holding that the equitable relief of a “fair value” buy-out was not precluded by a provision in an Agreement mandating a “book value” buy-out. Joubran, the sole shareholder of a cardiac perfusion company, hired Hughes, sold him 10% of the corporation’s outstanding shares, and entered into an Agreement requiring Joubran to purchase Hughes’s stock at book value upon the severance of his employment. Years later a dispute arose, Hughes was terminated, and Hughes sued Joubran for shareholder oppression. The trial court held that that Joubran engaged in shareholder oppression and awarded Hughes what the jury found to be the fair value of his shares in the company.
On appeal, Joubran argued that the trial court should have calculated the value of the shares based on their book value as required in the Agreement because a party to a contract generally cannot recover equitable relief inconsistent with that contract. But the court held that the trial court had the equitable power to order a buy-out at fair value because the book value of Hughes’s shares was reduced by Joubran’s oppressive conduct and, additionally, Hughes was not suing for breach of contract. This holding squares with the court’s recent decision in Ritchie v. Rupe that the “enterprise value” method for determining stock’s fair value, i.e. determining the pro rata value of each share without any discount based on the stock’s minority status or marketability, is appropriate in shareholder oppression suits when the oppressive conduct of the majority forces a minority shareholder to relinquish his ownership position. 339 S.W.3d 275, 289 (Tex. App.—Dallas 2011, pet. filed)
As a secondary issue, the court addressed whether a shareholder that exercises dominating control over a corporation owes a formal fiduciary duty to the minority shareholders. In its verdict, the jury found that no informal fiduciary duty existed between the shareholders, but nonetheless found that Joubran breached a fiduciary duty to Hughes and awarded Hughes almost $2 million in actual and exemplary damages. The trial court declined to render judgment in favor of Hughes, who argued on appeal that the trial court should have disregarded the first jury finding because, under the circumstances, Joubran owed Hughes a formal fiduciary duty. The court disagreed, citing numerous Texas cases to the contrary and noting that the Texas Supreme Court expressly declined to recognize such a duty in Willis v. Donnelly, 199 S.W.3d 262, 276 (Tex. 2006).
Cardiac Perfusion Services, Inc. v. Hughes, No. 05-10-00286-CV
The court reversed a no-summary judgment against the employees of a lawn service company. The employees alleged that the lawn service issued them worthless paychecks for two months. The employer filed a no-evidence motion for summary judgment that neither referred to the facts alleged nor specified in what way the evidence failed to support the claims. The employees responded, attaching affidavit evidence and wage statements. The employers objected to the evidence as hearsay, but the court ruled that objection was waived because they failed to obtain a ruling from the trial court on their objection. The court also held that the affidavits and wage statements were sufficient evidence to defeat summary judgment because they indicated at least an implied employment contract that the employer breached, damaging the employees.
Gaspar, et al., v. Lawnpro Inc., No. 05-11-00861-CV
The court has issued some interesting comments in connection with the denial of a motion for rehearing in a condemnation case. In the jury charge conference, Dallas County objected to the property owner’s proposed definition of “Cost to Cure,” but the specific basis of the objection was unclear. The trial judge eventually summarized the objection as being that the instruction amounted to a comment on the weight of the evidence, and the County agreed. The trial judge fixed that problem by modifying the instruction to award cost to cure damages, “if any.” On appeal, the County attempted to argue that the definition was actually “an incorrect statement of Texas law,” but the court of appeals rejected that claim:
A party objecting to the jury charge must “point out distinctly the objectionable matter and the grounds of the objection.” Tex. R. Civ. P. 274. When the complaining party’s objection is, “in the opinion of the appellate court, obscured or concealed by voluminous unfounded objections, minute differentiations or numerous unnecessary requests, such objection or request shall be untenable.” Id.
Reviewing the reporter’s record of the charge conference, we cannot determine the County’s exact complaint to the trial court concerning “cost to cure” except that it constituted a comment on the weight of the evidence. The trial court addressed that complaint by modifying the statement of the definition.
The court also rejected the County’s argument that the property owner’s expert had offered conclusory opinion testimony, since the County had failed to raise an issue as to the legal sufficiency of the testimony. In its appellate briefing, the County had challenged the trial court’s admission of the expert testimony as being an abuse of discretion, but did not attack the legal sufficiency of the testimony. For that reason, the court declined to evaluate whether the testimony was conclusory, and therefore denied the County’s motion for rehearing.
Dallas County, Texas v. Crestview Corners Car Wash, No. 05-09-00623-CV
In a consolidated appeal, the court affirmed a district court’s summary judgment and a county court at law’s forcible retainer judgment related to the foreclosure sale of the property. The court held that Texas Property Code Section 51.002(b)(2), which requires notice of a foreclosure sale to be filed “in the office of the county clerk of each county in which the property is located,” does not require notice to be recorded in the permanent deed records. The court also rejected the argument in the forcible retainer lawsuit that the mortgage servicer had no authority to sell the property because the only issue in a forcible retainer action is the right to actual possession – not the merits of the title.
Montgomery v. Aurora Loan Services, LLC, No. 09-11836
In a short opinion, the court has granted mandamus to a manufacturer of medical devices after the trial court had ordered the manufacturer to produce three emails from its privilege log. The opinion does not go into much detail about the documents, but quickly concludes that they were privileged because they consisted of communications among employees and the company’s in-house counsel made for the purpose of facilitating the rendition of legal services to the company. Accordingly, the court concluded that it was an abuse of discretion to compel their production.
In re Blackstone Medical, Inc., d/b/a Orthofix Spinal Implants, No. 05-12-00763
In a simple breach of guarantee case, the court of appeals issued a memorandum opinion affirming a summary judgment in favor of a creditor against a debtor on the debtor’s personal guaranty of an open account for his business. The debtor raised several issues, contending that (1) the court erred by failing to grant his motion for continuance of the summary judgment hearing; (2) the summary judgment affidavit evidence was conclusory; (3) the motion failed to identify evidence in the record to support summary judgment; (4) the motion for summary judgment did not specifically seek attorney’s fees; and (5) both the guaranty and underlying contract were unenforceable and lacked consideration. The court overruled each issue, holding that the motion for summary judgment was sufficiently specific to support the award, that it was supported by adequate evidence proving the creditor’s claims, and that the court’s refusal to continue the hearing was not an abuse of discretion.
Long v. Motheral Printing Company, No. 05-10-01128-CV
The court today issued an opinion in a products liability indemnification case arising out of a helicopter crash in North Carolina. The company that operated the helicopter sued the manufacturer of a defective gearbox after the operator settled with the estate of the deceased pilot for $2.5 million. The gearbox maker had agreed to indemnify the operator for all losses, claims, and expenses arising out of any defective work. The jury found that the negligence of both parties had been a proximate cause of the accident, but the trial court set aside that finding with respect to the gearbox manufacturer and rendered a take-nothing judgment on the operator’s indemnification claim. The court of appeals affirmed, holding that there was sufficient evidence that the operator’s negligence caused the helicopter to crash. The court then accepted the manufacturer’s argument that the express negligence doctrine barred the operator’s indemnity claim because the indemnity agreement failed to state that it would require the manufacturer to indemnify against the operator’s own negligence. Even though the manufacturer’s own negligence had been found to be a proximate cause of the crash, the operator could not recover against the manufacturer because the parties did not contract for proportionate indemnity.
American Eurocopter Corp. v. CJ Systems Aviation Group, No. 05-10-00342-CV
The court of appeals has issued a memorandum opinion reinstating an arbitration award. The case turned on the application of a “dollar-for-dollar credit” provided for in the parties’ written agreement. The arbitration panel concluded that the credit only applied to certain cases brought by the defendant’s law firm, resulting in an award of $551,000 in damages on the defendant’s counterclaim. After the plaintiff/counter-defendant filed suit to challenge the arbitration award, the trial court apparently accepted a different interpretation of the contract and lowered the amount of the award. The court of appeals reversed and reinstated the arbitration award, holding that there was no “evident material miscalculation of figures” and that the award was supported by the parties’ evidence.
Petroff v. Shrager, Spivey & Sachs, No. 05-10-00159.
In a construction contract case, the court has reversed summary judgment in favor of an electrician subcontractor against a retail property leaseholder. The subcontractor alleged that he had performed 80% of the work at the property when the general contractor’s check bounced, and the subcontractor sued the property leaseholder for the difference. The district court granted summary judgment in favor of the subcontractor. The court of appeals reversed and remanded, holding that (1) a fact issue existed as to the proper amount of retainage the leaseholder was to retain and (2) the court erroneously awarded the subcontractor certain amounts under the Texas “Fund Trapping” statute that the leasehold had paid to replacement contractors.
Jewelry Manufacturer’s Exchange, Inc. v. Tafoya, No. 05-11-00065-CV
The court also issued a memorandum opinion in another governmental immunity case. In this instance, the court of appeals affirmed the trial court’s denial of a plea to the jurisdiction, concluding that the plaintiff had properly alleged a waiver of sovereign immunity based on the government body’s use or condition of tangible personal property – namely, the 4×8-foot, improperly secured whiteboard that had fallen on the plaintiff’s head.
Dallas Metrocare Services v. Juarez, No. 05-11-01144-CV
In a governmental immunity case, the court has sustained a plea to the jurisdiction asserted by the City of Dallas in response to a slip-and-fall case. The plaintiff alleged she had fallen while trying to open a locked door that had a puddle of fallen rainwater in front of it. The City filed an interlocutory appeal after the trial court denied its plea to the jurisdiction. The court of appeals reversed and rendered judgment dismissing the plaintiff’s claims, concluding that (1) the plaintiff had failed to raise a fact issue showing the City had knowledge of the allegedly dangerous condition, and (2) a plaintiff injured by a premises defect on governmental property can only assert a premises defect claim under the Texas Tort Claims Act, not a claim for general negligence. Without an express waiver of governmental immunity under the TTCA, the court dismissed the case for lack of subject matter jurisdiction.
City of Dallas v. Prado, No. 05-11-01598-CV
