Carey Ebert v. Michael Gustin ( 2019 )

Case: 18-10382 Document: 00514936875 Page: 1 Date Filed: 04/30/2019
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 18-10382
FILED
April 30, 2019
Lyle W. Cayce
In the Matter of: LATITUDE SOLUTIONS, INCORPORATED, Clerk
Debtor
CAREY D. EBERT,
Appellee
v.
JOHN PAUL DEJORIA; HOWARD MILLER APPEL; EARNEST A.
BARTLETT, III; MATTHEW J. COHEN,
Appellants
Appeals from the United States District Court
for the Northern District of Texas
Before BARKSDALE, SOUTHWICK, and HAYNES, Circuit Judges.
HAYNES, Circuit Judge:
This appeal involves two competing versions of the history and purpose
of Latitude Solutions, Inc. (“LSI”). Howard Appel, Earnest Bartlett, Matthew
Cohen, and John Paul DeJoria (“Appellants”) characterize LSI as a publicly
traded company which sought to commercialize technology that could
remediate contaminated water but was unsuccessful as a speculative venture.
On the other hand, LSI’s bankruptcy trustee, Carey Ebert, characterizes LSI
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as a fraud from its inception—used only as a mechanism for Appellants to
participate in and profit from a securities fraud scheme. Ebert sued several of
LSI’s corporate officers, directors, and investors for breaches of fiduciary duty.
By the end of trial, her case focused primarily on a contract LSI entered into
with Jabil Inc., one of LSI’s bankruptcy creditors. The jury found Appellants
liable and assessed millions of dollars in compensatory and exemplary
damages. Appellants present various arguments for why we should overturn
the jury verdict and reduce damages, including whether Ebert has Article III
standing and whether there was legally sufficient evidence for the jury to find
as it did. We AFFIRM in part, REVERSE and RENDER in part, VACATE in
part, and REMAND for further consideration consistent with this opinion. 1
I. Background
This appeal stems from a jury verdict and final judgment adjudicating
Matthew Cohen and John Paul DeJoria liable for breaches of fiduciary duty to
LSI and finding Howard Appel and Earnest Bartlett liable for aiding and
abetting those breaches. The final judgment awards Ebert compensatory
damages against (i) Appel, Bartlett, Cohen, and DeJoria for $6.9 million,
jointly and severally, for Cohen’s breach of fiduciary duty; (ii) Appel and
Bartlett for $2.5 million each for aiding and abetting Cohen’s breach of
fiduciary duty; (iii) DeJoria for $1.5 million for his breach of fiduciary duty;
and (iv) Appel for $5 million, Cohen for $2 million, and DeJoria for $1 million
in exemplary damages.
1 As explained more fully below, we reverse and render judgment in favor of Appel,
Bartlett, and DeJoria. As for Cohen, we vacate damages awarded under Damage Element
No. 1, affirm damages awarded under Damage Element No. 2, and remand to the district
court to consider the legal issues surrounding exemplary damages against Cohen in the first
instance.
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A. LSI
The parties disagree on the basic premise of LSI’s formation. Ebert
asserts LSI was a sham company set up to fail from the outset, and a vehicle
for Appellants to participate in a securities fraud scheme known as “pump-
and-dump,” while Appellants claim LSI was legitimately founded to develop
and commercialize technology capable of remediating contaminated water.
LSI was a publicly traded company that began operating in 2009 and developed
patented technology for treatment of wastewater in the oil and gas industry.
LSI was a speculative venture that eventually filed for bankruptcy in
November 2012. 2
B. Matthew Cohen
Cohen was one of the founding members of LSI and served as an officer
and director of LSI from March 2009 through June 2012. Cohen was the Chief
Financial Officer of LSI from June 2011 to June 2012.
C. Howard Appel
Appel was a business consultant to and raised capital for LSI. In 2004,
before LSI existed, Appel pled guilty to conspiracy to commit securities fraud
as well as conspiracy to commit money laundering and served twenty-one
months in prison. The parties vehemently disagree whether this is relevant to
LSI. The trustee uses Appel’s conviction as evidence of a pattern of nefarious
behavior, while Appellants argue Appel’s past is the only reason for the
trustee’s lawsuit, despite no evidence that Appel engaged in any criminal
conduct related to LSI. An LSI board member introduced Appel to the
2 Aside from the allegations regarding each Appellant’s conduct, which are discussed
below, LSI experienced internal control and accounting issues. For example, its financial
team used accounting software that was inadequate for a publicly traded company and
eventually self-reported to the Department of Justice on suspicions of fraud and stock
manipulation.
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company in 2010, which eventually led to Appel’s family and friends investing
in LSI beginning in February 2011. Appel was responsible for raising at least
$12 million in capital for LSI through outside investors. Appel did not
purchase or sell any shares of LSI stock.
D. Earnest Bartlett
Bartlett is a friend and business associate of Appel. Appel introduced
Bartlett to LSI. A company affiliated with Bartlett, FEQ Realty, invested in
LSI beginning in December 2010. In April 2011, FEQ Realty entered into a
consulting agreement with LSI. Appel provided his consulting services to LSI
as an outside consultant under FEQ Realty’s consulting agreement. Bartlett
never purchased or sold any LSI stock.
E. John Paul DeJoria
DeJoria is an entrepreneur and philanthropist with an interest in
developing clean-water solutions. He invested and lost over $11 million in LSI
beginning in March 2011. For most of 2012, DeJoria was LSI’s primary source
of funding. DeJoria served on LSI’s board of directors from October 2011 to
September 2012.
F. Jabil, Inc.
Jabil, Inc., is not a party to the case but plays a crucial role here. In May
2011, Jabil entered into an agreement with LSI to manufacture remediation
equipment. The parties dispute whether the deal was done for legitimate
purposes. Jabil is a creditor in LSI’s bankruptcy, with a claim for $9.55 million.
By the end of evidence at trial, the trustee conceded the only damages the
estate could recover were 1) the amount of the Jabil debt and 2) the amount of
any gains to the defendants that the trustee could specifically link to fiduciary
breaches.
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G. LSI’s Bankruptcy and the District Court Proceedings
Carey Ebert was appointed as LSI’s Chapter 7 bankruptcy trustee, and
the matter was eventually converted into a Chapter 11 proceeding. As the
Chapter 11 trustee, she attempted to find investors to invest in LSI and lease
equipment to keep LSI operating. Ebert, however, was unable to generate
enough revenue to allow the company to resume business. Ebert filed the
operative complaint in November 2015, raising various claims against over
twenty defendants. With respect to the Appellants, Ebert alleged that Appel
gained practical control of LSI and used it to perpetrate securities fraud and
engage in insider trading; that LSI was a fraud formed for an illegitimate
purpose; that Appel and Bartlett made substantial profit through
manipulative conduct; and that Cohen and DeJoria joined in the conspiracy to
profit from stock manipulation.
By the close of evidence at trial, the lawsuit had narrowed significantly—
numerous counts and more than a dozen defendants were dismissed. The
claims that went to the jury were one count each of a breach of fiduciary duty
owed to LSI against Cohen and DeJoria, and one count of aiding and abetting
Cohen’s breach of fiduciary duty against DeJoria, Appel, and Bartlett. As
noted above, based upon the evidence presented, the only damages remaining
at issue were 1) the amount of the Jabil debt and 2) the amount of any gains
to the defendants that the trustee could specifically link to fiduciary breaches.
Appellants moved for judgment as a matter of law under Federal Rule of
Civil Procedure 50(a) and the district court carried the motions. The district
court then held a charge conference, at which the parties agreed to the
following: Question 1 would determine whether Cohen and DeJoria breached
their fiduciary duties with a “yes” or “no” answer. Question 2 would determine
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whether Appel, Bartlett, and DeJoria aided and abetted 3 Cohen’s breach of
fiduciary duty. Question 3 limited the trustee’s damages to the following:
Damage Element No. 1: The reasonable cash market value of
liabilities incurred by LSI as a proximate cause of that defendant’s
breach of fiduciary duty, which liabilities are still owed and have
not yet been paid, if any.
Damage Element No. 2: The reasonable market value of any gains
to that defendant (including salaries, consulting fees, net proceeds
from stock issuances to directors and/or officers of LSI, and other
expenses) proximately caused by that defendant’s breach of
fiduciary duty.
Questions 4 and 5 would determine eligibility for and quantify exemplary
damages. The jury found Cohen and DeJoria each committed a breach of
fiduciary duty and Appel, Bartlett, and DeJoria aided and abetted Cohen’s
breach. The jury assessed damages as follows:
Defendant Damage Element No. 1 Damage Element No. 2
Appel $0 $2.5 million
Bartlett $0 $2.5 million
Cohen $6.5 million $400,000
DeJoria $1.5 million $0
The jury also assessed exemplary damages of $5 million against Appel, $2
million against Cohen, and $1 million against DeJoria. Following the jury
verdict, all four Appellants renewed their motions for judgment as a matter of
law. The district court denied their motions, granted Ebert’s motion for
3Because of our conclusions below, we do not reach the issues surrounding whether
“aiding and abetting” a breach of fiduciary duty was a proper jury submission in this case.
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judgment, and later denied motions for reconsideration. This timely appeal
followed.
II. Discussion
A. Ebert Lacks Article III Standing to Recover Jabil’s Damages
Appellants argue that Ebert lacks Article III standing to recover Jabil’s
damages under Damage Element No. 1 of the jury charge. Article III standing
requires a plaintiff to have “suffered an ‘injury in fact,’” show “a causal
connection” between the injury and the conduct at issue, and the injury must
be redressable by the court. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560
(1992). “[A] plaintiff must demonstrate standing for each claim [s]he seeks to
press” and have “standing separately for each form of relief sought.”
DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 352 (2006) (citation omitted).
Ebert’s liability theory with respect to Cohen and DeJoria’s breaches of
fiduciary duty focused on Jabil. 4 In her closing argument, she claimed “the
fraud, the improper conduct, was entering into the Jabil contract in May 2011
. . . that’s what caused the damages.” Ebert argued Jabil was misled because
they “weren’t given access to [LSI’s] books,” and were unaware of Appel’s
involvement or prior criminal history. As for damages, Ebert consistently
asserted that she was seeking the amount of the Jabil debt, stating that “we
know Jabil lost 9.5 million” and asked the jury to “forget about the other
hundred and something creditors . . . focus on Jabil.”
Under Damage Element No. 1, the jury was asked to assess “the
reasonable cash market value of liabilities incurred by LSI as a proximate
4 We note one additional point relevant only to DeJoria: DeJoria did not become a
director at LSI until October 2011, some five months after LSI entered into the Jabil contract.
Ebert provided no evidence that DeJoria should be liable for the damages incurred by action
that predated his time as an LSI director.
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cause of that defendant’s breach of fiduciary duty, which liabilities are still
owed and have not yet been paid, if any.” But the millions of dollars awarded
under Damage Element No. 1 represent Jabil’s injury, not LSI’s. Jabil
manufactured and delivered the contractually agreed upon equipment to LSI.
LSI benefitted from the equipment, and Ebert even leased and sold the
equipment in Chapter 11 proceedings. Moreover, LSI did not pay the invoices
on the equipment. Therefore, LSI benefitted and even had cash available for
other needs.
Although we have not squarely addressed Article III standing under the
circumstances presented in this case, Appellants note several persuasive
authorities holding there was no Article III standing in factually analogous
scenarios. In In re Waterford Wedgwood USA, Inc., 529 B.R. 599 (Bankr.
S.D.N.Y. 2015), the debtor “failed to contribute the full amount it owed” to a
retirement plan it sponsored. Id. at 601. The debtor hired an accounting firm
to audit the retirement plan, but the firm failed to notify the debtor about the
underfunding. Id. at 601. The bankruptcy trustee for the debtor sued the firm
for unpaid liabilities to the retirement plan. Waterford held that the
bankruptcy trustee lacked Article III standing because the debtor had not
suffered an injury. Id. at 604–05. The court reasoned that “the trustee alleges
damages to the debtors, to the extent of the unpaid obligations of the debtors
to the creditors . . . [but] the Debtor appears to have benefitted from not paying
the required Retirement Plan contributions by gaining the use of funds that
should have been in the Retirement Plan’s possession.” Id. at 605 (citing In re
Am. Tissue, Inc., 351 F. Supp. 2d 79, 93–94 (S.D.N.Y. 2004) (holding that a
debtor could not characterize its monetary gain as injury)). The Waterford
Court went on to state that the trustee could “allege a constitutional injury. . .
if the bankruptcy estate paid any of the shortfall.” Id. at 605. Waterford shares
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the factual circumstances of this case—a bankruptcy trustee sued and argued
a debt it owes constitutes an injury, despite having made no payments. In fact,
LSI gained even more than the debtor in Waterford because it benefitted from
not paying Jabil’s invoice and retained and then sold the manufacturing
equipment.
In Reneker v. Offill, 2009 WL 804134 (N.D. Tex. Mar. 26, 2009), a
receiver for various entities sued the entities’ attorneys for negligence,
violations of securities laws, and the consequent $36.5 million liability owed to
investors. Id. at *5. Citing In re American Tissue, the Reneker Court held the
receiver lacked Article III standing because “the only harm alleged is the
Receivership Estate’s inability to satisfy its liabilities.” Id. at *6. The court
held the receiver did not have Article III standing to sue for damages his clients
did not suffer, stating “[t]he Receivership Estate’s financial inability to satisfy
liabilities owed to investors as a result of securities-laws violations harm[ed]
the investors,” not the receiver. Id. Reneker is also analogous to LSI’s case;
the receiver and bankruptcy trustee are similarly situated, while Appellants
are similarly situated to the attorneys accused of negligence. Jabil and the
investors in Reneker are both creditors. In addition, the securities laws
violations are analogous to the Jabil contract as the event the receiver and
trustee argue caused damages. Based on the triggering events, Ebert and the
receiver attempted to recover damages owed because of fraudulent or negligent
conduct.
Ebert responds that LSI suffered harm by taking on millions of dollars
in debt. She analogizes to Norris v. Causey, 869 F.3d 360 (5th Cir. 2017), to
argue for standing. We held in Norris that “[t]he Norrises’ injury is clear: they
lost thousands of dollars.” Id. at 366. However, Norris is distinguishable; the
Norrises wrote checks for $48,000, $45,000, and $1,000, but the Causeys never
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moved forward with their end of the bargain. Id. at 364. Here, LSI did not pay
Jabil’s invoice but still retained Jabil’s end of the bargain, the manufacturing
equipment. Ebert also cites Norris for the proposition that “this litigation can
redress the loss through damages, as the judgment demonstrates.” Id. at 366.
But this argument refers to redressability, not LSI’s injury in fact, and is thus
inapposite. 5 Accordingly, all damages awarded under Damage Element No. 1
against any defendant must be reversed for lack of Article III standing (thus
leaving no actual damages against DeJoria). 6
B. A Reasonable Jury Could Find Cohen Liable for Breach of Fiduciary
Duty Owed to LSI
Cohen argues 7 that he is entitled to judgment as a matter of law because
there is not legally sufficient evidence to prove he breached his fiduciary duty
to LSI. “We review a district court’s ruling on a motion for judgment as a
matter of law de novo.” Nobach v. Woodland Vill. Nursing Ctr., Inc., 799 F.3d
374, 377 (5th Cir. 2015) (footnote and citation omitted). When reviewing a
district court’s denial of a post-verdict Rule 50(b) motion, we assess “whether
a reasonable jury would not have a legally sufficient evidentiary basis to find
for the party on that issue.” Id. (quoting FED. R. CIV. P. 50(a)(1)). Despite our
5 In its order denying Appellants’ post-verdict motions, the district court held there
was sufficient evidence to support a jury finding that Appellants’ breaches of fiduciary duty
caused the damages the jury awarded, citing Jabil’s proof of claim filed in bankruptcy court
and the trial testimony of Jabil representatives. But this rationale only addresses what
Jabil’s injury and damages were; it does not explain how LSI was injured.
6 We need not address and therefore do not hold that there could not possibly be an
Article III injury in fact stemming from Cohen and DeJoria’s breaches of fiduciary duty.
Instead, we hold there is no Article III injury stemming from the claims Ebert asserted and
Damage Element No. 1 of the jury instruction.
7Ebert argues Cohen has waived this argument but is mistaken; Cohen raised this
issue during Rule 50(a) arguments and in his Rule 50(b) motion, as the district court noted.
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holding in Section II.A, we address this issue because it concerns damages
awarded under Damage Element No. 2.
Texas law required Ebert to prove: 1) that a fiduciary relationship
existed; 2) that Cohen breached his fiduciary duty to LSI; and 3) that Cohen’s
breach resulted in injury to LSI or benefitted him. Navigant Consulting, Inc.
v. Wilkinson, 508 F.3d 277, 283 (5th Cir. 2007). The first element is not in
dispute. Cohen’s fiduciary duty required a duty of loyalty and duty of care to
LSI.
As noted above, Ebert’s case began by alleging an elaborate pump-and-
dump scheme of LSI’s stock and widescale fraud, but by the time the case was
submitted to the jury, Ebert’s argument was based entirely on the Jabil
contract:
the fraud, the improper conduct, was entering into the Jabil
contract in May 2011. That’s what inevitably caused this company
to collapse, that’s what caused the damages, and that was the
impetus of why or purpose of this fraudulent scheme was to enter
into that Jabil contract, make a big splash, make it seem like this
was a legitimate business when it had no hope for survival.
Ebert provided the following evidence to support her claim: Cohen took on
Appel as an advisor and spoke to him daily; Cohen sent Appel non-public
information, including lists of shareholders and stock sales on a weekly basis;
Cohen dealt personally with Jabil; prior to the Jabil contract, Cohen had not
told anyone at Jabil about Appel’s conviction for securities fraud manipulation;
LSI had no idea whether the machinery from the Jabil contract would work;
LSI had no business plan, or leads to monetize the equipment from the
contract, but Cohen and Appel drafted LSI press releases together to generate
good news and publicize it; and while still a director, Cohen sold his stock in
LSI for $400,000 because he “needed to have some money in the bank.”
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Cohen contends that his conduct is protected by the business judgment
rule. In Texas, the “rule . . . protects corporate officers and directors, who owe
fiduciary duties to [a] corporation[] from liability for acts that are within the
honest exercise of their business judgment and decision.” Sneed v. Webre, 465
S.W.3d 169, 173 (Tex. 2015) (citation omitted). Negligent, unwise, inexpedient,
or imprudent actions are protected so long as “the actions [are] ‘within the
exercise of their discretion and judgment in the development or prosecution of
the enterprise in which their interests are involved.’” Id. at 178 (quoting Cates
v. Sparkman, 11 S.W. 846, 849 (Tex. 1889)) (footnote omitted). The jury
charge, however, instructed the jury on both what is required to show a breach
of fiduciary duty, along with the parameters of the business judgment rule.
Given Cohen’s actions, a reasonable jury could weigh the evidence, consider
the business judgment rule, but conclude that Cohen breached his fiduciary
duty to LSI.
Cohen also argues that because the existence of an attempted pump-and-
dump securities fraud scheme would not be clear to a jury, Ebert was required
to offer expert testimony supporting her claim. However, the case he cites,
Fener v. Operating Engineers Construction Industry & Miscellaneous Pension
Fund (LOCAL 66), 579 F.3d 401, 409 (5th Cir. 2009), stands for a different
proposition: that proving a loss causation claim under § 10(b) of the Securities
Exchange Act of 1934 requires “the testimony of an expert—along with some
kind of analytical research or event study.” Id. No such claim exists here.
Even if we were to apply Cohen’s standard, Ebert did put on an expert who
testified extensively about red flags of a pump-and-dump scheme in the
securities industry and how LSI demonstrated a number of those traits. We
therefore reject this argument.
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The jury assessed damages of $400,000 against Cohen under Damage
Element No. 2. Cohen argues there is no evidentiary support for this monetary
amount. But Cohen himself testified that he made $557,109 in salary for his
time at LSI and sold about $400,000 of LSI stock because he “needed to have
some money in the bank.” None of Appellants’ lawyers objected during this
testimony. Damage Element No. 2 allowed for damages from “the reasonable
market value of any gains to that defendant (including salaries, consulting
fees, net proceeds from stock issuances to directors and/or officers of LSI . . . )
proximately caused by that defendant’s breach of fiduciary duty.”
Considering the jury found Cohen liable for a breach of fiduciary duty
based on an alleged pump-and-dump scheme and improperly propping up LSI
by entering the Jabil contract for nefarious purposes, there is legally sufficient
evidence for a reasonable jury to award $400,000 in damages.
C. Ebert Did Not Provide Legally Sufficient Evidence to Show Appel and
Bartlett Personally Received Gains from Stock Sales
Appel and Bartlett were not liable for damages under Damage Element
No. 1. On the other hand, the jury found Appel and Bartlett liable for $2.5
million each under Damage Element No. 2 for aiding and abetting Cohen’s
breach of fiduciary duty, which allowed the jury to award damages for the
“reasonable market value of any gains to that defendant (including salaries,
consulting fees, net proceeds from stock issuances to directors and/or officers
of LSI, and other expenses) proximately caused by that defendant’s breach of
fiduciary duty.”
Appel and Bartlett argue that Ebert presented no evidence they received
gains from stock sales in their individual capacity and that any evidence
instead relates to entities affiliated with them. Ebert cites the expert
testimony of Robert Manz as the “critical evidence” to support Appel and
Bartlett’s damages calculation. Manz testified that a “nominee company” is
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one that “stands in the place of a person or another company,” and is often used
to “hide the identity of a person or another entity.” Manz also testified that
Appel owned more than 5% of LSI’s outstanding stock through nominee
companies, that Bartlett owned another 1.5% of LSI through nominee
companies, that Appel, Bartlett, and their associates earned a total of $5.1
million of profit from LSI stock, and that FEQ Realty made $2.3 million in
profit from LSI stock. In its denial of Appellants’ post-verdict motions, the
district court cited Manz’s testimony to uphold the jury’s verdict.
Through Manz’s testimony, however, Ebert tacitly admits that she
provided evidence only for the nominee companies’ gains, not for Appel and
Bartlett in their individual capacity. Manz’s calculations were based primarily
on two documents: Schedule 7.B, which showed market sales of LSI stock, and
a list of nominee companies with how many shares of LSI each owned as of
September 9, 2011. Yet these documents only list companies and provide no
proof of or insight into Appel and Bartlett as individuals. Ebert originally
named a number of these entities as defendants in her lawsuit, including FEQ
Realty, LLC, DIT Equity Holdings, Capital Growth Realty, and Wiltomo
Redemption Foundation. But she eventually dismissed them with prejudice.
Perhaps most significantly, Manz testified that “I don’t know exactly what you
define as the Appel Group” and acknowledged that he had no insight on
whether or how a company was related to Appel. Instead, Ebert’s counsel
simply informed Manz “what constituted Appel-related companies” for the
document. Manz was also unable to answer questions about the various
entities in his documents and testified that he had not tracked down the
alleged gains to Appel and Bartlett individually.
Because Ebert did not provide evidence against Appel and Bartlett in
their individual capacities and the entities and companies in question were
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dismissed with prejudice, the only way Appel and Bartlett could be liable is
under an alter ego theory. Ebert, however, made no attempt to make such a
showing. On appeal, she argues that a jury could impose damages based on
Appel and Bartlett’s nominee companies because “a party cannot invoke the
corporate form ‘as a cloak for fraud or illegality or to work an injustice,’” citing
Matthews Construction Company, Inc. v. Rosen, 796 S.W.2d 692, 693 (Tex.
1990). However, even if we assumed the most generous reading of her
corporate form arguments under Texas law, cf. Texas Business Organizations
Code § 21.223, she provided no evidence to support piercing the corporate veil
or any alter ego theory. Thus, Ebert did not provide legally sufficient evidence
for a reasonable jury to find Appel and Bartlett liable in their individual
capacities. We therefore REVERSE the damages against Appel and Bartlett
under Damage Element No. 2, leaving no actual damages against them.
D. Exemplary Damages
No exemplary damages were awarded against Bartlett. In light of our
holding leaving no actual damages against Appel and DeJoria, the judgment
awarding exemplary damages against them must be vacated. TEX. CIV. PRAC.
& REM. CODE 41.004(a) (requiring more than nominal damages to be awarded
before exemplary damages can be awarded). Therefore, the only remaining
actual damages are the $400,000 awarded against Cohen under Damage
Element No. 2. In addition to the damages cap under Texas law (TEX. BUS. &
COMM. CODE § 41.008(b)), the jury was instructed to consider “the character of
the conduct involved” and “the nature of the wrong” before assessing
exemplary damages. 8 But because portions of the “conduct” and “wrong” are
8 Texas law requires that the trier of fact “consider the definition and purpose of
exemplary damages as provided by Section 41.001” in making an award of exemplary
damages. TEX. CIV. PRAC. & REM. CODE § 41.010. It further requires that the trier of fact
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no longer viable as a matter of law, the jury may have awarded a different
amount of exemplary damage against Cohen than the $2 million it awarded.
Neither party has briefed the effect of this potential outcome on the exemplary
damages awarded against Cohen. We conclude that this issue should be
addressed in the first instance by the district court following full briefing. We
therefore VACATE the exemplary damages award and REMAND to the
district court to consider the legal issues surrounding exemplary damages
against Cohen in the first instance.
III. Conclusion
In light of the foregoing decision, Appel, Bartlett, and DeJoria are
entitled to judgment rendered in their favor: (1) DeJoria, because of the lack of
proof of a recoverable injury, see Lindley v. McKnight, 349 S.W.3d 113, 124
(Tex. App.—Fort Worth 2011, no pet.) and the corresponding vacatur of
exemplary damages; (2) Appel, because there was no evidence of individual
liability and the corresponding vacatur of exemplary damages; and (3) Bartlett,
because there was no evidence of individual liability. Thus, we REVERSE and
RENDER judgment in favor of Appel, Bartlett, and DeJoria. As for Cohen, we
VACATE damages awarded under Damage Element No. 1, AFFIRM damages
awarded under Damage Element No. 2, and REMAND to the district court to
consider how our opinion impacts the award of exemplary damages.
consider evidence relating to, among other things, the “nature of the wrong” and the
“character of the conduct involved.” Id. at § 41.011.
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