Bagby Elevator Company, Inc. v. Derald Armstrong , 609 F.3d 768 ( 2010 )

Case: 09-10804 Document: 00511148285 Page: 1 Date Filed: 06/21/2010
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
June 21, 2010
No. 09-10804 Lyle W. Cayce
Clerk
BAGBY ELEVATOR COMPANY, INC.,
Plaintiff-Appellee Cross-Appellant
v.
SCHINDLER ELEVATOR CORP.,
Defendant-Appellant Cross-Appellee
Appeal from the United States District Court
for the Northern District of Texas
Before KING, WIENER, and DENNIS, Circuit Judges.
WIENER, Circuit Judge:
Appellant Schindler Elevator Corp. (“Schindler”) appeals from a jury
verdict awarding appellee Bagby Elevator Co., Inc. (“Bagby”) economic and
exemplary damages for tortious interference with contract. We affirm.
I. FACTS AND PROCEEDINGS
A. Background
As competitors in the Dallas area elevator-servicing market, both Bagby
and Schindler provide commercial clients with a variety of services, including
elevator maintenance, modernization, construction, installation, and repair. In
2003, Bagby hired Derald Armstrong as the company’s salesperson for that area.
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Armstrong quickly developed business contacts with the management at Younan
Properties (“Younan”), a California-based company which owns and mortgages
commercial office buildings in the Dallas area and across the country.
Through Armstrong’s efforts, Bagby soon obtained contracts to perform
various maintenance services for Younan. In early 2006, Younan contracted
with Bagby to provide full elevator maintenance services for a building that the
company was leasing to KPMG.
Prior to that agreement, Younan had depended primarily on Schindler to
service its commercial properties. In late 2006, however, Younan complained of
Schindler’s poor work quality and cancelled the parties’ existing servicing
agreements. In a letter to Schindler formalizing the cancellation, Younan
explained that Schindler’s work quality had deteriorated to such an extent that
Younan feared it was “exposing [its] tenants to undue risk and potential injury.”
Shortly after cancelling its contracts with Schindler, Younan asked Bagby
to furnish price quotations for several of the remaining properties. With
Armstrong acting as its point person, Bagby eventually proposed prices for, and
secured five-year service contracts on, eight of Younan’s properties in the Dallas
area. To fulfill those contracts, Bagby hired an additional technician and added
a new route to its servicing department.
Despite Armstrong’s success in securing the Younan properties, tensions
developed between him and Bagby after the company discovered that he had
been using his company credit card for personal expenses, including his personal
insurance and his family’s cell phone plan. Then, after discovering that
Armstrong had also charged more than $2,000 in personal fuel expenses to the
card, Bagby immediately terminated his employment.
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Prior to his termination, Armstrong had contacted Schindler’s Dallas office
several times about possible employment opportunities, although the parties had
never reached an agreement. Within days after his termination by Bagby,
however, Armstrong again contacted Schindler about employment opportunities.
This time, Schindler agreed to terms with Armstrong and offered him a position
with the company. Armstrong’s principal job with Schindler was to recover
previously cancelled contracts, such as the contracts for servicing the Younan
properties.
Shortly after starting work for Schindler, Armstrong set up a meeting
between Schindler and Younan to discuss the Bagby contracts. Prior to the
meeting, Armstrong provided Schindler with the terms of the Bagby service
contracts, enabling Schindler to undercut Bagby by offering lower rates. After
the meeting, Younan and Schindler signed new contracts for Schindler to replace
Bagby as its primary elevator-servicing company for the eight Younan
properties.
A few days after signing the contracts with Schindler, Younan informed
Bagby that it was cancelling all of their earlier contracts. In a letter confirming
the cancellation, Younan explained that it preferred to do business with a
national service provider, i.e., Schindler, and was thus cancelling its contracts
pursuant to a purported “30-day cancellation clause” in each agreement. In that
letter, Younan ordered Bagby to cease all maintenance work on Younan
properties immediately. Bagby protested the cancellations and demanded that
Younan abide by the terms of the contracts, which, according to Bagby, did not
contain the 30-day cancellation clause that Younan alleged.
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In response, Younan sent Bagby another letter, again explaining that it
had elected to exercise its right to cancel the agreements pursuant to the
purported 30-day cancellation clauses. Schindler, through Armstrong, had
informed Younan that all of its contracts with Bagby contained cancellation
clauses, even though they did not. Younan apparently never bothered to check
these contracts. For several months thereafter, Bagby continued to insist that
(1) Schindler cease work on the Younan buildings and stop interfering with
Bagby’s contracts, and (2) Younan abide by the terms of the still-valid contracts
with Bagby. Both Younan and Schindler refused.
In late 2007, Bagby sued Younan for breach of contract. Younan
immediately contacted Schindler and Armstrong for assistance in defending the
suit and requested evidence of the 30-day cancellation clauses. In response,
Armstrong produced a suspicious letter that he claimed to have written in
December 2006 when he was still a Bagby employee. In the letter, Armstrong
purports to give Younan a unilateral right to cancel any contracts with Bagby
by furnishing 30 days notice. There is good reason to believe that the letter is
not authentic, however, as none of the parties had any record of it before
Armstrong produced it in connection with this litigation, and its terms do not
appear in any of the parties’ documents.
B. Proceedings
In its lawsuit, Bagby sought to recover approximately $240,000 in lost
profits resulting from Schindler’s repeated interference with the Younan
contracts. Prior to trial, the district court granted summary judgment in favor
of Schindler on several of Bagby’s claims, including tortious interference with its
business prospects and tortious interference with its non-compete agreement
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with Armstrong. At trial, the district court declined to instruct the jury on
Schindler’s proposed “unclean hands” defense, as the court determined that,
under Texas law, the defense is limited solely to equitable actions and does not
apply in intentional tort suits for damages.
At the conclusion of trial, the jury found in favor of Bagby on its claim for
tortious interference with contract. Over Schindler’s objection, the district court
used the Texas Pattern Jury Instruction on exemplary damages to instruct the
jury that it could award such damages to Bagby if it found that Schindler acted
with either actual malice or gross negligence. Concluding that Bagby was
entitled to exemplary damages, the jury awarded Bagby a total of $210,222.95
in economic damages and $500,000 in exemplary damages.1
II. ANALYSIS 2
A. Jury instructions
Schindler first contends that the district court erred by instructing the
jury that it could award exemplary damages on a finding of either actual malice
or gross negligence. According to Schindler, Texas law requires a finding of
actual malice as a prerequisite to awarding exemplary damages in cases of
tortious interference with contract. In response, Bagby urges that the district
court did not err reversibly when it gave Texas’s pattern jury instruction on
exemplary damages. We review the propriety of jury charges and instructions
1
Pursuant to Tex. Civ. Prac. & Rem. Code § 41.008, the district court reduced this
amount to $420,445.90, or twice the amount of economic damages.
2
As this is a diversity case, we apply the substantive law of Texas. See Erie R.R. Co.
v. Tompkins, 304 U.S. 64 (1938).
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under the deferential abuse of discretion standard.3 As district courts “are given
wide latitude in formulating jury charges,” the challenging party “must show
that the instruction as a whole creates substantial doubt as to whether the jury
was properly guided.”4 Further, even an erroneous jury instruction will not rise
to the level of reversible error if, given the entire record, “[the] challenged
instruction could not have affected the outcome of the case.” 5
Here, the district court based the charge at issue on Texas Pattern Jury
Charges § 115.36B, which states that exemplary damages may generally be
awarded if the jury finds, by clear and convincing evidence, that the defendant
acted with malice, gross negligence, or fraud.6 The commentary on § 115.36B
states expressly that the charge is appropriate for use in cases involving tortious
interference with contract.7 That commentary further explains that, because of
a change in Texas substantive law regarding the standard for awarding
exemplary damages, the charge should only be used in cases filed “on or after
September 1, 2003.”8 In contrast, there is a separate jury charge provided for
use in cases filed before September 1, 2003, which does not allow for the
3
Carrizales v. State Farm Lloyds, 518 F.3d 343, 348 (5th Cir. 2008).
4
Id. (internal quotation marks and citation omitted).
5
Dahlen v. Gulf Crews, Inc., 281 F.3d 487, 494 (5th Cir. 2002).
6
TEX . PATTERN JURY CHARGES § 115.36B (2008 ed.).
7
See TEX . PATTERN JURY CHARGES § 115.36B, Comment (“When to use. [This charge]
is used as a predicate to ... the question for exemplary damages. It is based on an affirmative
finding to a liability question such as ... 106.1 (interference with existing contract).”
8
Id.
6
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consideration of gross negligence.9 Importantly, the charge selected by the
district court directly mirrors the current Texas statute on exemplary damages,
which states that, in general,
exemplary damages may be awarded only if the claimant proves by
clear and convincing evidence that the harm with respect to which
the claimant seeks recovery of exemplary damages results from: (1)
fraud; (2) malice; or (3) gross negligence.10
Schindler has not cited any case to us in which the courts of Texas or the federal
courts applying Texas law have made an exception to the general rule cited
above, and we have found none. And, we find it persuasive that Texas courts
have repeatedly approved the Texas Pattern Jury Charges as a correct
statement of the law.11 Accordingly, under our highly deferential standard of
review, we perceive no reversible error in the district court’s decision to use the
pattern jury instruction here.
B. Sufficiency of the evidence
Schindler also asserts that, notwithstanding the jury charge, there is
insufficient evidence to support an award of exemplary damages. Bagby
counters that the record contains ample evidence of both malice and gross
negligence to support the award. When evaluating the sufficiency of the
9
See TEX . PATTERN JURY CHARGES § 115.36A (2008 ed.).
10
TEX . CIV . PRAC . & REM . CODE § 41.003 (2008 ed.); see also Clements v. Withers, 437
S.W.2d 818, 822 (Tex. 1969) (explaining that a plaintiff seeking to recover exemplary damages
for tortious interference with contract must generally show actual malice but that “[t]he
existence of such malice may not be necessary in a case where the defendant’s acts are
accompanied by fraud or other aggravating circumstances” (emphasis added)).
11
See, e.g., Acord v. Gen. Motors Corp., 669 S.W.2d 111, 116 (Tex. 1984).
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evidence, we accord “great deference to the jury’s verdict.”12 Thus, we will “view
all of the evidence in the light most favorable to the verdict and reverse only if
the evidence points so strongly and overwhelmingly in favor of one party that the
court believes that reasonable jurors could not arrive at any contrary
conclusion.”13 “Where the jury could have reached a number of different
reasonable conclusions, all of which would have sufficient support based on the
evidence, the jury’s findings will be upheld.” 14
Viewing the evidence in the light most favorable to the verdict, we
conclude that there was sufficient evidence of both malice and gross negligence
to support an award of exemplary damages. As for malice, the jury could have
determined that (1) Schindler hired Armstrong for the express purpose of
interfering with Bagby’s contract with Younan; (2) Schindler entered into new
contracts with Younan knowing that Younan had five-year, non-cancelable
contracts with Bagby; (3) Schindler and its employee, Armstrong, deliberately
misled Younan to believe that it could cancel its Bagby contracts, even going so
far as to fabricate evidence in support of their claims; and (4) Schindler sought
to “recover” more properties from Bagby than it had initially lost. Likewise, the
evidence was sufficient to support a finding of gross negligence, as the jury could
have reasonably concluded that Schindler acted with conscious indifference to
Bagby’s rights despite being aware of an extreme risk that it was causing Bagby
significant harm by interfering with its valid contracts. Although this evidence
was not uncontroverted, we are satisfied that, when viewed in the light most
12
Baltazar v. Holmes, 162 F.3d 368, 373 (5th Cir. 1998).
13
Id.14
Dawson v. Wal-Mart Stores, Inc., 978 F.2d 205, 208 (5th Cir. 1992).
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favorable to the jury’s verdict, it is sufficient to support the award of exemplary
damages.
C. Causation
Schindler contends further that the district court erred in denying its
motion for judgment as a matter of law, in support of which it urged that there
is insufficient evidence of causation to support a finding of tortious interference
with contract. “A motion for judgment as a matter of law . . . in an action tried
by jury is a challenge to the legal sufficiency of the evidence supporting the jury’s
verdict.” 15
Under Texas law, a plaintiff seeking to establish causation for tortious
interference with a contract must show “that the evidence, and logical inferences
drawn from the evidence, support a reasonable probability that the defendant’s
acts or omissions were a substantial factor in bringing about the injury.” 16 Here,
there is ample evidence of causation to support the verdict. For example, the
jury heard that Schindler hired Armstrong immediately after his termination by
Bagby for the sole purpose of recovering contracts previously lost to Bagby, such
as those for the Younan properties. And, just a few days into his employment
at Schindler, Armstrong set up a meeting between Schindler and Younan to
discuss those contracts. The jury also heard that Younan based its acts, at least
in part, on Schindler’s misrepresentation that Younan was free to cancel its
contracts with Bagby. And, even when it became clear that Bagby’s contracts
with Younan did not contain any such clause, Schindler continued to interfere.
15
Allstate Ins. Co. v. Receivable Fin. Co., 501 F.3d 398, 405 (5th Cir. 2007).
16
Richardson-Eagle, Inc. v. William M. Mercer, Inc., 213 S.W.3d 469, 474 (Tex. App.
2006).
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We are satisfied that there is sufficient evidence of causation to support the
jury’s verdict.
D. Schindler’s “unclean hands” defense
Finally, Schindler insists that the district court erred by refusing to
instruct the jury on its proposed “unclean hands” defense. Schindler urges that
it should have been absolved of liability on a showing that Bagby had acted
improperly when it obtained the Younan contracts from Schindler in the first
place. Schindler’s argument is unavailing, however, as Texas courts have long
held that the affirmative defense of unclean hands is available only in equity.17
Under Texas law, “[t]he clean hands doctrine requires that one who seeks equity,
does equity.”18 As at least one Texas court has explained, the doctrine “should
not be applied unless the party asserting [it] has been seriously harmed and the
wrong complained of cannot be corrected without the application of the
doctrine.”19 Thus, the district court did not err by denying Schindler’s proposed
defense in the instant case.
III. CONCLUSION
For the foregoing reasons, the judgment of the district court is, in all
respects,
AFFIRMED.
17
See, e.g., Furr v. Hall, 553 S.W.2d 666, 672 (Tex. App. 1977) (“The ‘clean hands’
maxim is strictly an equitable doctrine not applicable outside equitable proceedings.”).
18
Dunnagan v. Watson, 204 S.W.3d 30, 41 (Tex. App. 2006).
19
Id.10